<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998.
REGISTRATION NO. 333-51451
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SUNBELT AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
GEORGIA 5511 58-2378292
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Classification Code Number) Identification No.)
Organization)
</TABLE>
5901 PEACHTREE-DUNWOODY RD., SUITE 250-B
ATLANTA, GEORGIA 30328
(678) 443-8100
(Address and Telephone Number of Principal Executive Offices)
STEPHEN C. WHICKER, ESQ.
GENERAL COUNSEL
5901 PEACHTREE-DUNWOODY RD., SUITE 250B
ATLANTA, GEORGIA 30328
(678) 443-8100
(Name, Address and Telephone Number of Agent for Service)
---------------------
COPIES TO:
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<S> <C>
DAVID S. COOPER, ESQ.
ROBERT B. MURPHY, ESQ.
THOMAS L. HANLEY, ESQ. JAMES L. SMITH, III, ESQ.
SCHNADER HARRISON SEGAL & LEWIS LLP TROUTMAN SANDERS LLP
SUITE 2800 / 303 PEACHTREE ST., N.E. 600 PEACHTREE STREET, N.E. / SUITE 5200
ATLANTA, GEORGIA 30308 ATLANTA, GEORGIA 30308-2216
(404) 215-8100 (404) 885-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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==================================================================================================================
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE FEE(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.... 6,325,000 $11.00 $69,575,000 $20,525
==================================================================================================================
</TABLE>
(1) Includes 825,000 shares reserved for over-allotment options granted to the
Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[SUBJECT TO COMPLETION, DATED ,1998.]
PROSPECTUS
5,500,000 SHARES
(SUNBELT AUTOMOTIVE GROUP LOGO)
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
------------------------
All of the shares of common stock offered hereby are being sold by Sunbelt
Automotive Group, Inc. ("Sunbelt" or the "Company"). Prior to this offering (the
"Offering"), there has been no public market for the common stock of the
Company. It is currently estimated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price of the common stock.
Application will be made to have the shares of common stock approved for
quotation on the Nasdaq National Market under the symbol "SBLT."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=============================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and conditions as
the common stock offered hereby solely to cover over-allotments, if any. If
the option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of common stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions, including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about , 1998 at the offices of Raymond
James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
The date of this Prospectus is , 1998.
<PAGE> 3
[DESCRIPTION OF GRAPHICS -- INSIDE FRONT COVER: MAP OF SOUTHEASTERN UNITED
STATES SHOWING COMPANY'S LOCATIONS AND PHOTOS OF COMPANY'S DEALERSHIPS]
[DESCRIPTION OF GRAPHICS -- INSIDE BACK COVER: COMPANY LOGO]
------------------------
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by its independent public accountants
and will make available copies of its quarterly reports for the first three
quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
This Prospectus includes statistical data regarding the automotive
retailing industry. Unless otherwise indicated herein, such data is taken or
derived from information published by the Industry Analysis Division of the
National Automobile Dealers Association ("NADA") in its Industry Analysis and
Outlook, Automotive Executive Magazine and NADA Data 1997 publications. Sunbelt
Automotive Group and Collision Centers USA are service marks of the Company.
This Prospectus includes other trademarks and service marks of Sunbelt and of
companies other than Sunbelt, which trademarks are the property of their
respective holders.
No automobile manufacturer has been involved, directly or indirectly, in
the preparation of this Prospectus or in the Offering being made hereby. No
automobile manufacturer has made any statements or representations in connection
with this Offering or provided any information or materials that were used in
connection with this Offering, and no automobile manufacturer has any
responsibility for the accuracy or completeness of this Prospectus.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including risk factors and
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus
assumes that (i) the Underwriters' over-allotment option has not been exercised,
and (ii) the Merger (as such term is defined herein; see "The Merger") and the
Acquisitions (as such term is defined herein; see "The Acquisitions") have
occurred. References in this Prospectus to "common stock" are to the common
stock of the Company, unless otherwise indicated or unless the context otherwise
requires. References in this Prospectus to "Sunbelt" or the "Company" (i) are to
Sunbelt Automotive Group, Inc. and, unless the context indicates otherwise, its
consolidated subsidiaries and their respective predecessors, (ii) give effect to
the Merger, and (iii) assume that the Company has consummated the Acquisitions.
See "The Merger" and "The Acquisitions." The Acquisitions will be consummated on
or before the closing of the Offering. Investors should carefully consider the
information set forth in "Risk Factors."
THE COMPANY
Sunbelt is one of the leading retailers of new and used vehicles in the
southeastern United States. The Company operates a total of 27 dealership
franchises in Georgia, North Carolina and Tennessee, as well as four collision
repair centers in metropolitan Atlanta, Georgia. Sunbelt sells 20 domestic and
foreign brands of automobiles, which consist of Buick, Cadillac, Chevrolet,
Chrysler, Dodge, Ford, GMC, Honda, Hummer, Isuzu, Jeep, Kia, Mazda, Mercury,
Mitsubishi, Nissan, Oldsmobile, Plymouth, Pontiac and Toyota. The Company
believes that in 1997, based on pro forma retail new vehicle unit sales, it
would have been one of the 15 largest franchised automotive dealer groups out of
a total of more than 15,000 franchised automotive dealer groups in the United
States. The Company intends to further diversify its product and service
offerings by adding more brands of vehicles, and by offering related finance and
insurance, replacement parts, collision repair, and other products and services
that are complementary to its core automotive retailing operations. The
Company's strategy is: (i) to become the leading operator of automotive
dealerships in small and medium-sized markets in the southeastern United States
through acquisitions of additional dealerships in these markets, and (ii) to
expand its collision centers and other complementary business operations.
The Company's executive management team has extensive experience in the
automotive retailing industry and the operation of automotive dealerships in the
southeastern United States. On average, the Company's executive officers have
over 15 years of direct industry experience. Between 1992 and 1997, the
Company's dealerships won many awards from various manufacturers measuring
quality and customer satisfaction. These awards include: the Five Star Award
from Chrysler, which is given to the top 25% of Chrysler dealers in the nation;
the NACE (North American Customer Excellence) Award, Ford Motor Company's
highest overall award for customer service; the Top 100 Club, which is awarded
to Ford's top 100 retailers or 2% of Ford dealers in the nation based on retail
volume and consumer satisfaction; the Cadillac Master Dealer award, a status
achieved by 1% of Cadillac dealers nationwide; the Oldsmobile Elite Award, which
is given by Oldsmobile Motor Division to the top 10% of Oldsmobile dealers in
the nation; and the President's Circle Award for performance, which is given by
Nissan Motor Corporation to the top 10% of Nissan dealers in the nation.
THE AUTOMOTIVE RETAILING INDUSTRY
The automotive retailing industry, with aggregate revenues of approximately
$491.1 billion in 1996 for franchised dealers alone, is the largest retail
market in the United States. Aggregate revenues for the southeastern United
States, which is the Company's primary area of operations and is comprised of
the states of Alabama, Florida, Georgia, North Carolina, South Carolina and
Tennessee, amounted to approximately $89.8 billion through franchised dealers in
1996 and accounted for approximately 18% of total franchised dealer revenues in
the United States. Since 1990, the industry has experienced growth in total
revenues, total gross profits and income before taxes. From 1990 to 1996, for
franchised dealers alone, total revenues increased 53.5% from $320.0 billion in
1990 to $491.1 billion in 1996, total gross profits increased 33.3% from
3
<PAGE> 5
$46.9 billion in 1990 to $62.5 billion in 1996, and income before taxes
increased 131.3% from $3.2 billion in 1990 to $7.4 billion in 1996. The industry
has been experiencing a consolidation trend which has seen the number of
franchised dealerships in the United States decline from approximately 36,000 in
1960 to 22,750 in 1996. Despite this consolidation, fragmentation is still a
defining characteristic of the industry, with the largest 100 franchised
dealership groups generating less than 10% of 1996 total franchised dealer
revenue and controlling less than 5% of all franchised automotive dealerships.
The Company expects several economic and industry factors to lead to further
consolidation of the automotive retailing industry, including the increasing
capital requirements necessary to operate an automotive dealership, the
management succession planning concerns of many current dealers and the desire
of manufacturers to strengthen their dealer networks through consolidation.
BUSINESS STRATEGY
Sunbelt intends to establish itself as the leading operator of automotive
dealerships in small and medium-sized markets in the southeastern United States
through acquisitions of additional dealerships in these markets. The Company
believes that its diverse portfolio of brands and dealerships in several of
these markets and its experienced management team give it a competitive
advantage in achieving this goal.
OPERATING STRATEGY
The Company pursues an operating strategy based on the following key
elements:
- Offer a Diverse Range of Automotive Products and Services. The
Company offers a diverse range of automotive products and services,
including a wide selection of new and used vehicles, vehicle financing
and insurance programs, replacement parts, maintenance and repair
programs. The Company believes that its brand and product diversity
enables the Company to satisfy a variety of customers, reduces
dependence on any one manufacturer and reduces exposure to supply
problems and product cycles. The Company believes that its variety of
complementary products and services will allow the Company to generate
incremental revenue that will result in higher profitability and less
cyclicality for the Company than if it was solely dependent on
automobile sales.
- Institute Divisional Organization by Manufacturer. The Company has
instituted a corporate organizational form which the Company believes
differentiates it from most other automotive retailing companies. The
Company's corporate structure organizes its dealerships and dealership
groups by manufacturer, so that all dealerships which carry a
particular manufacturer's brands are grouped together in a single
division. Each division, in turn, is headed by a member of corporate
management who has extensive working experience with the applicable
manufacturer. The Company believes that organizing its dealerships by
manufacturer and having each division headed by a senior manager who
is experienced with that particular manufacturer -- and has
established and maintained long-standing business relationships with
the regional and corporate managers of that manufacturer -- will yield
numerous benefits to the Company. For example, the Company believes
that its relationships with each manufacturer will be enhanced;
management training within each division will be more efficient and
consistent; and managers within each division will benefit from a
shared experience base. The Company believes that these benefits will
provide a competitive advantage to the Company.
- Decentralize Marketing Strategies; Achieve High Levels of Customer
Satisfaction; Utilize Incentive-Based Compensation Programs. The
Company believes that many customers purchase automotive vehicles
based on an established long-term business relationship with a
particular dealership. Therefore the Company intends to empower its
experienced local management -- who have a better in-depth knowledge
of local customer needs and preferences -- to establish marketing,
advertising and other policies that foster these long-term
relationships and provide superior customer service. The Company's
strategy emphasizes the retention of local management, which the
Company believes will help make it an attractive acquiror of other
dealerships.
4
<PAGE> 6
The Company also intends to create incentives for entrepreneurial
management teams at the dealer level through the use of stock options
and other programs in order to align local management's interests with
those of the Company's shareholders. In order to keep local management
focused on customer satisfaction, the Company also intends to include
certain customer satisfaction index ("CSI") results as a component of
its incentive compensation program. The Company believes that this is
important because some manufacturers offer specific performance
incentives, on a per vehicle basis, if certain CSI levels (which vary
by manufacturer) are achieved by a dealer.
- Centralize Administrative Functions. The Company believes that the
consolidation of certain dealership functions and requirements will
result in significant cost savings. The Company intends to consolidate
the floorplan financing of all of its dealerships, which the Company
anticipates will result in a reduced interest rate on such financing.
The Company is also negotiating a consolidated revolving credit
facility that it anticipates will result in a reduced interest rate on
such facility. Furthermore, the Company expects that significant cost
savings will be achieved through the consolidation of administrative
functions such as risk management, employee benefits and employee
training.
GROWTH STRATEGY
The Company plans to continue to grow its business using a strategy
comprised of the following principal elements:
- Acquire Dealerships. The Company's goal is to become the leading
operator of automotive dealerships in small and medium-sized markets
in the southeastern United States through acquisitions of additional
dealerships in these markets. The Company plans to pursue acquisitions
in markets where it does not currently own dealerships, as well as in
areas which are contiguous to its existing dealership markets. The
Company intends to focus on acquiring both dealer groups with multiple
franchises in a given market area and dealers with a single franchise
which possess significant market shares. Generally, the Company will
seek to retain the acquired dealerships' operational and financial
management, and thereby benefit from their market knowledge, name
recognition and local reputation.
- Expand Complementary Products and Services. The Company expects to
generate additional revenue and achieve higher profitability through
the sale of products and services which complement its dealership
operations. Examples of such opportunities include the following:
Collision Repair Centers. The Company owns four collision
repair facilities operated under the name Collision Centers
USA, which serve the Jonesboro, Duluth, Stockbridge and
Marietta, Georgia markets. The Company expects to expand this
business by increasing volumes at these four centers,
developing new centers and acquiring other existing centers.
The Company's collision repair business provides higher margins
than its core retailing operations and is generally not
significantly affected by economic cycles or consumer spending
habits.
Finance and Insurance. The Company offers its customers a wide
range of financing and leasing alternatives for the purchase of
vehicles, as well as credit life, accident and health and
disability insurance and extended service contracts. The
Company has recently entered into an agreement with a leading
insurance carrier to share in certain revenues generated by the
sale of extended warranty contracts. In addition, in January
1998, the Company acquired South Financial Corporation ("South
Financial"), which has been primarily engaged in the sub-prime
automotive lending business for the past eight years. The
Company expects its dealer network to provide additional loan
business opportunities to South Financial.
5
<PAGE> 7
THE ACQUISITIONS
Since November 1997, the Company has consummated or signed definitive
agreements to acquire six dealerships or dealership groups, three collision
repair centers and one sub-prime automotive lending business for aggregate
consideration of approximately $67 million. These acquisitions consist of the
Collision Centers USA Acquisition (consummated December 18, 1997), the South
Financial Acquisition (consummated January 6, 1998), the Grindstaff Acquisition,
the Bill Holt Acquisition, the Robertson Acquisition, the Wade Ford Acquisition,
the Jay Automotive Group Acquisition, and the Day's Chevrolet Acquisition (each,
as hereinafter defined, and collectively the "Acquisitions"). The automotive
dealerships and related businesses comprising the Company had pro forma combined
total revenues of approximately $682 million for the year ended June 30, 1997
and $507 million for the nine months ended March 31, 1998. See "The
Acquisitions."
PRINCIPAL OFFICE
The Company's principal executive office is located at 5901
Peachtree-Dunwoody Road, Suite 250-B, Atlanta, Georgia 30328, and its telephone
number at that location is (678) 443-8100.
THE OFFERING
Common stock offered by the Company..... 5,500,000 shares
Common stock to be outstanding after the
Offering................................ 10,933,614 shares(1)
Use of proceeds......................... The net proceeds of the Offering
will be used to fund the
Acquisitions, including repaying
certain indebtedness incurred by
the Company in connection therewith
and to provide working capital for
the Company. See "The Acquisitions"
and "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.................................. SBLT
- ---------------
(1) Excludes 2,250,000 shares of common stock reserved for future issuance to
Company employees under the Company's Incentive Stock Plan (as defined
herein) (including up to 1,597,000 shares of common stock reserved for
issuance upon exercise of options granted on or before the consummation of
the Offering pursuant to the Incentive Stock Plan). See
"Management -- Incentive Stock Plan." Also excludes 50,000 shares of common
stock reserved for issuance upon exercise of warrants granted to a
consulting firm for services rendered in connection with this Offering. See
"Description of Capital Stock -- Warrants."
RISK FACTORS
See "Risk Factors" beginning on page 9 for certain information that should
be considered by prospective investors.
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The Company will acquire Boomershine Automotive Group, Inc. ("Boomershine
Automotive") via the Merger contemporaneously with the Offering. For financial
statement purposes, Boomershine Automotive has been identified as the accounting
acquiror. The following summary financial data presents (i) summary historical
consolidated financial data of Boomershine Automotive as of the dates and for
the periods indicated and (ii) summary pro forma financial data as of the dates
and for the periods indicated giving effect to the events described in the "Pro
Forma Combined and Condensed Financial Data" included elsewhere herein as though
they had occurred on the dates indicated therein. The following Summary
Historical and Pro Forma Financial Data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements of Boomershine Automotive and
the related notes and "Pro Forma Combined and Condensed Financial Data" included
elsewhere in this Prospectus. The Summary Historical and Pro Forma Combined
Financial Data below are not necessarily indicative of the results of operations
or financial position that would have resulted had the Merger, the Acquisitions
and the Offering occurred during the periods presented or that may be expected
for a full year or any other interim period.
<TABLE>
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YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
---------------------------------------------------------------- -------------------------------
HISTORICAL HISTORICAL
---------------------------------------------------- PRO FORMA ------------------- PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
-------- -------- -------- -------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Vehicle sales:
New...................... $ 73,912 $110,674 $156,955 $166,199 $152,625 $420,019 $113,239 $113,340 $315,697
Used..................... 35,747 46,207 57,047 64,652 61,811 177,925 47,318 39,517 127,126
Parts and service.......... 15,085 17,679 19,223 23,764 24,637 66,602 17,689 19,108 50,159
Finance, commissions and
other revenues, net...... 1,418 2,795 3,856 4,219 5,339 17,437 4,355 5,399 13,528
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues....... 126,162 177,355 237,081 258,834 244,412 681,983 182,601 177,364 506,510
Cost of sales................ 112,402 159,284 214,820 232,934 219,719 605,044 164,026 157,113 448,892
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit(2).............. 13,760 18,071 22,261 25,900 24,693 76,939 18,575 20,251 57,618
Selling, general and
administrative expenses.... 12,751 16,685 19,927 24,170 22,262 62,809 16,698 16,544 47,971
Depreciation and
amortization............... 428 410 406 600 890 2,550 659 764 1,946
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations....... 581 976 1,928 1,130 1,541 11,580 1,218 2,943 7,701
Interest expense, net........ 587 598 1,436 1,774 2,230 3,126 1,408 1,544 1,496
Interest income.............. 144 119 218 181 120 516 184 247 699
Other income (expense),
net........................ 98 (110) 60 13 44 (240) (80) (68) 100
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes...................... 236 387 770 (450) (525) 8,730 (86) 1,578 7,004
Income tax (expense)
benefit.................... (89) (205) (292) 133 167 (3,730) 26 (377) (2,975)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)(2)......... $ 147 $ 182 $ 478 $ (317) $ (358) $ 5,000 $ (60) $ 1,201 $ 4,029
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share(3)...... $ 0.44 $ 0.35
======== ========
Weighted average shares
outstanding(3)............. 11,364 11,364
======== ========
OTHER OPERATING DATA:
Gross margin (FIFO)(2)....... 11.0% 10.5% 9.6% 10.5% 10.3% 11.3% 10.5% 11.4% 11.4%
Operating margin (FIFO)(2)... 0.6% 0.8% 0.9% 0.9% 0.8% 1.8% 0.9% 1.7% 1.5%
Pre-tax margin (FIFO)(2)..... 0.3% 0.5% 0.5% (0.3)% (0.0)% 1.4% 0.2% 0.9% 1.3%
New vehicles sold............ 4,583 6,677 9,187 9,206 7,834 20,499 5,803 5,485 14,583
Used vehicles sold........... 4,770 6,378 6,753 7,453 6,908 19,355 5,291 4,552 12,776
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
----------------------------
AS OF PRO FORMA
JUNE 30, 1997 HISTORICAL AS ADJUSTED(1)
------------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $ (77) $(5,289) $ 22,903
Inventories................................................. 33,591 41,684 117,480
Total assets................................................ 49,710 82,900 209,224
Total debt, including current portion....................... 40,618 70,925 123,014
Total shareholders' equity(2)............................... 4,199 5,400 70,905
</TABLE>
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(1) Adjusted to give pro forma effect to (i) the Merger, (ii) Boomershine
Automotive's conversion from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting (in each case, as defined below), and
(iii) the Acquisitions. Also gives effect to the sale of the shares of
common stock
7
<PAGE> 9
offered hereby and the application of the net proceeds therefrom. To conform
with Boomershine Automotives' fiscal year end of June 30, the unaudited pro
forma statements of operations include financial data for each Acquisition
for the same periods presented for Boomershine Automotive. See "Pro Forma
Combined and Condensed Financial Data" and "Use of Proceeds."
(2) Boomershine Automotive currently utilizes the LIFO (Last In-First Out)
method of accounting for inventory ("LIFO Method"). See Note 1 to
Boomershine Automotive's Consolidated Financial Statements. Commencing July
1, 1998, the Company intends to file an election with the IRS to convert to
the specific identification method of accounting for vehicles and the FIFO
(First In-First Out) method of accounting for parts (herein collectively
referred to as the "FIFO Method") which is the industry standard for
publicly-traded automotive retailers and report its earnings for tax
purposes and in its financial statements on the FIFO Method (the "FIFO
Conversion"). If Boomershine Automotive had previously utilized the FIFO
Method, gross profit for the five years ended June 30, 1997 would have been
$12.9 million, $16.5 million, $22.7 million, $27.1 million, $25.1 million,
respectively, and $19.1 million and $20.3 million for the nine months ended
March 31, 1997 and 1998, respectively. Net income (loss) for the five years
ended June 30, 1997 would have been approximately $247,000, $467,000,
$734,600, $502,200, $(85,400), respectively and $275,000 and $1,267,000 for
the nine months ended March 31, 1997 and 1998, respectively. Shareholders'
equity would have been $8.3 million and $9.1 million, respectively at June
30, 1997 and March 31, 1998.
(3) Historical net income per share is not presented, as the historical capital
structure of Boomershine Automotive prior to the Merger, the FIFO
Conversion, the Acquisitions and the Offering is not comparable with the
capital structure that will exist subsequent to these events. The weighted
average shares outstanding was calculated taking into account these events
as if they had occurred at the beginning of each period. See "Pro Forma
Combined and Condensed Financial Data."
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RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risk factors set forth
below, prior to making an investment in the common stock offered hereby.
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
Each of the Company's dealerships operates pursuant to a dealer sales and
service agreement, or a similar named agreement, between the applicable
automobile manufacturer (or authorized distributor thereof) and the subsidiary
of the Company that operates the automotive dealership ("Franchise Agreement").
The Company is dependent to a significant extent on its relationship with such
manufacturers and the terms and conditions of these Franchise Agreements.
After giving effect to the Merger and the Acquisitions, vehicles
manufactured or distributed by Ford Motor Company ("Ford"), General Motors
Corporation ("GM"), and Nissan Motor Co., Ltd. ("Nissan") accounted for 48.0%,
23.3%, and 10.5% respectively, of the Company's pro forma sales of new vehicles
for the year ended June 30, 1997, and accounted for 50.6%, 24.7% and 6.7%,
respectively, of the Company's pro forma sales of new vehicles for the nine
months ended March 31, 1998. No other manufacturer accounted for more than 10%
of the new vehicle sales of the Company during such period. See "Business -- New
Vehicle Sales," and "Business -- Relationships with Manufacturers." Accordingly,
a significant decline in the sale of Ford, GM, or Nissan new cars could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Manufacturers exercise a great degree of control over the operations of the
Company's dealerships. Each of the Franchise Agreements generally provides for
termination or non-renewal for a variety of causes, including any unapproved
change in ownership or management and other material breaches of the Franchise
Agreements. The Company is currently seeking the approval of all manufacturers
of the Company's franchised dealers to the Acquisitions, the Merger and this
Offering. However, as of the date hereof, the Company has not obtained the
approval of any such manufacturers, and there can be no assurance that the
Company will be able to obtain such approval prior to the closing date of this
Offering.
The Company has no reason to believe that it will not be able to renew all
of its Franchise Agreements upon expiration, but there can be no assurance that
any of such agreements will be renewed or that the terms and conditions of such
renewals will be favorable to the Company. If a manufacturer terminates or
declines to renew one or more of the Company's significant Franchise Agreements,
or if the terms and conditions of the renewal of the Company's significant
Franchise Agreements are less favorable than the Company's current agreements,
such actions or events could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Relationships with Manufacturers."
The Company also depends on the manufacturers to provide it with a
desirable mix of the most popular new vehicles that produce the highest profit
margins and which may be the most difficult to obtain from the manufacturers. If
the Company is unable to obtain a sufficient allocation of the most popular
vehicles, such event could have a material adverse effect on the Company's
business, financial condition and results of operations. In some instances, in
order to obtain additional allocations of these vehicles, the Company purchases
a larger number of less desirable models than it would otherwise purchase which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's dealerships depend on the
manufacturers for certain sales incentives and other programs that are intended
to promote dealership sales or support dealership profitability. Manufacturers
have historically made many changes to their incentive programs during each
year. A reduction or discontinuation of, or other material change in, a
manufacturer's incentive programs may have a material adverse effect on the
Company's business, financial condition and results of operations.
The success of each of the Company's dealerships depends to a great extent
on the financial condition, marketing, vehicle design, production capabilities
and management of the manufacturers which the Company represents. Events such as
strikes and other labor actions by unions, or negative publicity concerning a
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particular manufacturer or vehicle model, could have a material adverse effect
on the Company's business, financial condition and results of operations.
Similarly, the delivery of vehicles from manufacturers later than scheduled,
which may occur particularly during periods when new products are being
introduced, can lead to reduced sales. Although the Company has attempted to
lessen its dependence on any one manufacturer by establishing dealer
relationships with a number of different domestic and foreign automobile
manufacturers, adverse conditions affecting Ford, GM or Nissan, in particular,
could have a material adverse affect on the Company's business, financial
condition and results of operations. See "Business -- New Vehicle Sales" and
"Business -- Relationships with Manufacturers."
MANUFACTURERS' RESTRICTIONS ON THE MERGER, THE ACQUISITIONS AND FUTURE
ACQUISITIONS
The Company is required to obtain the consent of the applicable
manufacturer prior to any transfer or change in ownership of the dealership
franchises. Consequently, the Merger, the Acquisitions, the Offering and all
future acquisitions will require approval by the applicable manufacturers. There
can be no assurance that manufacturers will grant such approvals. Obtaining the
consent of the manufacturers for acquisitions of dealerships could also take a
significant amount of time. Obtaining the approvals of the manufacturers for the
Merger, the Acquisitions and the Offering is an ongoing process and will
continue through the date of the Offering. The Company is currently seeking the
approval of all manufacturers of the Company's franchised dealers to the
Acquisitions, the Merger and this Offering. However, as of the date hereof, the
Company has not obtained the approval of any such manufacturers, and no
manufacturer will give its final approval prior to the consummation date of this
Offering. If the Company fails to obtain any manufacturer's approval, the
Company may be required to discontinue its Franchise Agreement with such
manufacturer and sell the franchise back to the manufacturer or to some other
third party. To date, Saturn Corporation ("Saturn") has not approved any public
ownership of its dealership franchises. For this reason, the financial results
of the Company's Saturn dealership in Columbus, Georgia have not been included
in this Prospectus. The Company will use its best efforts to obtain Saturn
approval; however, if Saturn does not approve the Company's ownership of the
Saturn dealership in Columbus, Georgia, the Company will sell the Saturn
dealership.
The Company's growth strategy is predicated in part on the ability of the
Company to acquire additional automotive dealerships. If the Company experiences
delays in obtaining, or fails to obtain, approvals of the manufacturers for
acquisitions of dealerships, the Company's growth strategy could be materially
adversely affected. In determining whether to approve the Merger and the
Acquisitions and any future mergers or acquisitions, the manufacturers may
consider many factors, including the moral character, business experience,
financial condition and ownership structure of the Company and its management,
along with the consumer satisfaction experiences of the Company's customers.
Moreover, under an applicable Franchise Agreement or under state law, a
manufacturer may have a right of first refusal to acquire a dealership in the
event the Company seeks to acquire a dealership franchise.
Several automotive manufacturers presently limit the number of such
manufacturers' dealerships that may be owned by a single public company or the
number that may be owned in a particular geographic area. For example, Ford's
current national policy limits a public company to the lesser of (i) 15 Ford and
15 Lincoln Mercury dealerships or (ii) that number of Ford and Lincoln Mercury
dealerships accounting for 2% of the preceding year's retail sales of those
brands in the United States. It also limits a public company to owning only one
Ford dealership in any market area, as defined by Ford, having three or fewer
Ford dealerships in it and no more than 25% of the Ford dealerships in a market
area having four or more Ford dealerships. In recent discussions with Ford, the
Company has been informed that Ford, Lincoln and Mercury will prohibit the
Company from making additional acquisitions of Ford, Lincoln or Mercury
dealerships for 12 months after the close of the Offering. GM's current national
policy on public companies limits the number of GM dealerships that a public
company may acquire during a two-year period to five additional GM dealership
locations, which number may be increased on a case-by-case basis. In addition,
GM limits the maximum number of GM dealerships that a public company may acquire
to 50% of the GM dealerships, by franchise line, in a GM-defined geographic
market area having multiple GM dealers. GM may also limit further acquisitions
of GM franchises by a single public company until all existing GM franchises of
that public company meet certain GM criteria for sales, market penetration, CSI
and other GM standards. Chrysler may
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ask the Company to limit its acquisitions, or to defer any further acquisitions,
of Chrysler or Chrysler division dealerships until it has established a proven
performance record with the Chrysler dealerships it owns or is acquiring in the
Acquisitions. Moreover, Chrysler has recently announced its general policy of
limiting ownership by public companies to 10 Chrysler dealerships in the United
States, six Chrysler dealerships in the same sales zone, as determined by
Chrysler, and two dealerships in the same market (but no more than one like
vehicle line brand in the same market). It is the Company's understanding that
Toyota currently limits the number of dealerships which may be owned by any one
group to seven Toyota and three Lexus dealerships nationally and restricts the
number of dealerships that may be owned to (i) the greater of one dealership, or
20% of the Toyota dealer count in a "Metro" market (as defined by Toyota), (ii)
the lesser of five dealerships or 5% of the Toyota dealerships in any Toyota
region (currently 12 geographic regions), and (iii) two Lexus dealerships in any
one of the four Lexus geographic areas. In addition, the Company understands
that Toyota has required that at least nine months elapse between acquisitions.
Similarly, it is the current policy of American Honda Co., Inc. ("Honda") to
restrict any company from holding more than seven Honda or more than three Acura
franchises nationally and to restrict the number of franchises to (i) one Honda
dealership in a "Metro" market (a metropolitan market represented by two or more
Honda dealers) with two to 10 Honda dealership points, (ii) two Honda
dealerships in a Metro market with 11 to 20 Honda dealership points, (iii) three
Honda dealerships in a Metro market with 21 or more Honda dealership points,
(iv) no more than 4% of the Honda dealerships in any one of the 10 Honda
geographic zones, (v) one Acura dealership in a Metro market (a metropolitan
market with two or more Acura dealership points), and (vi) two Acura dealerships
in any one of the six Acura geographic zones. Toyota and Honda also prohibit
ownership of contiguous dealerships and the coupling of a franchise with any
other brand without their consent.
Other automobile manufacturers, including Nissan, which accounted for 10.5%
of the Company's pro forma sales of new vehicles for the year ended June 30,
1997, are still developing their policies regarding public ownership of
dealerships. The Company believes that these policies will continue to change as
more dealership groups sell their stock to the public, and as the established,
publicly-owned dealership groups acquire more franchises. To the extent that new
or amended manufacturer policies restrict the number of dealerships which may be
owned by a dealership group, or the transferability of the Company's common
stock, such policies could have a material adverse effect on the Company.
As a condition to granting their consent to the Acquisitions, the Merger
and this Offering, a number of manufacturers may also impose certain other
restrictions on the Company. In addition to the restrictions described under
"-- Stock Ownership/Issuance Limits; Limitation on Ability to Issue Additional
Equity," these restrictions principally consist of restrictions on (i) certain
material changes in the Company or extraordinary corporate transactions such as
a merger, sale of a material amount of assets or change in the Board of
Directors or management of the Company which could have a material adverse
effect on the manufacturer's image or reputation or could be materially
incompatible with the manufacturer's interests; (ii) the removal of a dealership
general manager without the consent of the manufacturer; and (iii) the use of
dealership facilities to sell or service new vehicles of other manufacturers. If
the Company is unable to comply with these restrictions, the Company generally
must (i) sell the assets of the dealerships to the manufacturer or to a third
party acceptable to the manufacturer, or (ii) terminate the dealership
agreements with the manufacturer. Manufacturers may impose other and more
stringent restrictions in connection with future acquisitions.
The Company owns, after giving effect to the Merger and the Acquisitions,
four Ford dealerships, two dealerships each of Pontiac-Buick-GMC, Chevrolet,
Isuzu, Mazda, Mitsubishi and Mercury, and one dealership each of Cadillac,
Chrysler-Dodge-Plymouth-Jeep, Honda, Hummer, Kia, Nissan, Oldsmobile and Toyota.
Based on the manufacturers' restrictions known to the Company as of the date of
this Offering, the Company believes that it has significant opportunities to
acquire additional dealerships without exceeding the manufacturers' policies and
restrictions on acquisitions outlined above.
RISKS ASSOCIATED WITH ACQUISITIONS
The automotive retailing industry is considered a mature industry in which
minimal growth is expected in unit sales of new vehicles. Accordingly, the
Company's future growth will depend in large part on its ability to
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acquire additional dealerships, profitably expand its complementary businesses,
manage its expansion, control costs in its operations and consolidate
acquisitions, including the Acquisitions, into existing operations. For each
acquisition, the Company will have to review the acquired entity's operations,
management infrastructure and systems and financial controls, and make
appropriate adjustments or complete reorganizations as appropriate. Unforeseen
capital and operating expenses, or other difficulties, complications and delays
frequently encountered in connection with the expansion and integration of
acquired operations could inhibit the Company's growth. The full benefits of a
significant acquisition, including the Acquisitions, will require the
integration of operational, administrative, finance, sales and marketing
organizations, as well as the implementation of appropriate operational,
financial and management systems and controls. There can be no assurance that
the management group will be able to effectively and profitably integrate in a
timely manner each of the businesses included in the Acquisitions or any future
acquisitions, or to manage the combined entity without substantial costs, delays
or other operational or financial problems. The inability of the Company to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, any acquisition, including
the Acquisitions, and the integration of such acquisitions will require
substantial attention from the Company's senior management team. The diversion
of management attention required by the acquisition and integration of multiple
companies, including the Acquisitions, as well as other difficulties that may be
encountered in the transition and integration process, could have an adverse
effect on the revenue and operating results of the Company. There can be no
assurance that the Company will identify suitable acquisition candidates, that
acquisitions will be consummated on acceptable terms or that the Company will be
able to successfully integrate the operations of any acquisitions.
Acquisitions may also result in significant goodwill and other intangible
assets that are amortized in future years and reduce future stated earnings.
With respect to the Acquisitions and any future acquisitions, if future facts
and circumstances suggest that some or all of the goodwill has been impaired, a
write-off of the applicable goodwill and corresponding charge to earnings would
be recognized in the quarter in which the impairment is identified. See "The
Acquisitions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Growth Strategy."
In addition, the Company's future growth as a result of its acquisition of
automobile dealerships will depend on its ability to obtain the requisite
manufacturer approvals. There can be no assurance that it will be able to obtain
such consents in the future. See "-- Manufacturers' Restrictions on the Merger,
the Acquisitions and Future Acquisitions" and "Business -- Relationships with
Manufacturers."
In certain cases, the Company may be required to file applications and
obtain clearances under applicable federal antitrust laws before consummation of
an acquisition. These regulatory requirements may restrict or delay the
Company's acquisitions, and may increase the cost of completing such
transactions.
STOCK OWNERSHIP/ISSUANCE LIMITS; LIMITATION ON ABILITY TO ISSUE ADDITIONAL
EQUITY
Standard automobile Franchise Agreements limit transfers of any ownership
interests of a dealership and its parent, and therefore often do not by their
terms accommodate public trading of the common stock of a dealership or its
parent. Even if all of the manufacturers of which Company subsidiaries are
franchisees agree to permit the Offering and trading in the common stock, a
number of manufacturers may continue to impose restrictions upon the
transferability of the common stock. For example, Ford may cause the Company to
sell or resign from one or more of its Ford franchises if any person or entity
acquires 50% or more of the Company's voting securities without Ford's approval.
Likewise, GM and Toyota may force the sale of their respective franchises if 20%
or more of the Company's voting securities are so acquired by any one person or
entity without their approval. Honda may force the sale of the Company's Honda
franchise if any person or entity acquires 5% or more of the common stock (10%
if such entity is an institutional investor), and Honda deems such person or
entity to be unsatisfactory. See "Business -- Relationships with Manufacturers."
Any transfer of shares of the common stock, including a transfer by any of
the shareholders of the target companies of the Acquisitions who received the
common stock pursuant to the Acquisitions and shareholders of Boomershine
Automotive who received the Company's common stock pursuant to the Merger, will
be outside the control of the Company. If one or more of such transfers cause a
change in control of the
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Company, the manufacturers may have the right to terminate or not renew one or
more of the Franchise Agreements. Moreover, these issuance limitations are
likely to impede the Company's ability to raise capital through additional
equity offerings or to issue common stock as consideration for, and therefore,
to consummate, future acquisitions. Such restrictions also may prevent or deter
prospective acquirors from gaining control of the Company and, therefore, may
adversely impact the Company's equity value.
COMPETITION
The automotive retailing industry is highly competitive with respect to
price, service, location and selection. The Company's competition includes
franchised automotive dealerships selling the same or similar makes of new and
used vehicles offered by the Company in the same markets as the Company and
sometimes at lower prices than those of the Company. These dealer competitors
may be larger and have greater financial and marketing resources than the
Company. Additional competitors include other franchised dealers, private market
buyers and sellers of used vehicles, used vehicle dealers (including regional
and national rental car companies which sell their used rental cars), service
center chains and independent service and repair shops. The used car market
faces increasing competition from non-traditional outlets such as the Internet
and used car "superstores," which use sales techniques such as one-price
shopping. Several groups have begun to establish nationwide networks of used
vehicle superstores, and car superstores operate in several of the Company's
existing markets. "No negotiation" sales methods are also being tried for new
cars by at least one of these superstores and by Saturn and other dealerships.
Some of the Company's competitors may have greater financial, marketing and
personnel resources than the Company. In addition, certain manufacturers, such
as Ford, have publicly announced that they may directly enter the retail market
in the future, and certain other manufacturers, such as GM, have publicly
announced that they may consolidate many of their dealerships in a given market
area into a single large dealership to serve that particular market. Such
actions by the manufacturers could have a material adverse effect on the
Company. The increased popularity of vehicle leasing also has resulted, as these
leases expire, in a large increase in the number of late model vehicles
available in the market, which puts added pressure on new vehicle prices. As the
Company seeks to acquire dealerships in new markets, it may face increasingly
significant competition (including from other large dealer groups and dealer
groups that have publicly-traded equity) as it strives to gain market share
through acquisitions or otherwise.
The Company's Franchise Agreements do not give the Company the exclusive
right to sell a manufacturer's product within a given geographic area. The
Company could be materially adversely affected if any of its manufacturers award
franchises to others in the same markets where the Company is operating. A
similar adverse effect could occur if existing competing franchised dealers
increase their market share in the Company's markets. The Company's gross
margins may decline over time if it expands into markets where it does not have
a leading position. These and other competitive pressures could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Competition."
REGIONAL CONCENTRATION
Local economic, competitive and other conditions may affect the performance
of automotive dealerships. As such, the Company's results of operations may be
substantially dependent upon general economic conditions, and consumer spending
habits and preferences in the southeastern United States, as well as various
factors specific to that area, such as tax rates and state and local regulation.
Additionally, since the Company's growth strategy contemplates acquisitions in
small- and medium-sized markets, any adverse business developments experienced
by businesses which have a disproportionately large presence in, and influence
on, such small- and medium-sized markets could have a material adverse effect on
the Company's business, financial condition and results of operations.
ACQUISITION FINANCING; FUTURE CAPITAL REQUIREMENTS; POSSIBLE DILUTION THROUGH
ISSUANCE OF STOCK
The Company currently intends to finance future acquisitions in part by
issuing shares of its common stock as full or partial consideration for acquired
dealerships. The extent to which the Company will be able or willing to issue
common stock for acquisitions will depend on the market value of the common
stock from
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time to time, the willingness of potential acquisition candidates to accept
common stock as part of the consideration for the sale of their businesses, and
the ability of the Company to obtain any necessary manufacturers' consents. It
is possible that the Company will issue, in the aggregate, a significant number
of additional shares of common stock in connection with such acquisitions in the
future, and the number of shares of common stock could be as much as, or more
than, the number of outstanding shares of common stock following the Offering.
Using stock to consummate acquisitions may result in significant dilution of
shareholders' percentage interest in the Company. To the extent the Company is
unable or unwilling to issue common stock as consideration for future
acquisitions, the Company may be required to use available cash or other sources
of debt or equity financings to finance future acquisitions. The Company is
negotiating a credit facility with various lenders and anticipates that such a
credit facility will provide the Company with a line of credit of up to $50
million which may be used for future acquisitions. However, there can be no
assurance that other sources of debt or equity financing, including this credit
facility, would be available to the Company on acceptable terms, or at all, or
that the Company's available cash or other sources of financing will be
sufficient to finance such acquisitions. If the Company is unable or unwilling
to issue shares of common stock as consideration for future acquisitions, or is
unable to obtain additional financing in a timely manner on satisfactory terms,
it may be required to postpone or reduce its acquisition plans, which may have a
material adverse effect on the Company's business, financial condition and
results of operation.
FLOORPLAN FINANCING
The Company depends to a significant extent on its ability to finance the
purchase of inventory, which in the automotive retailing industry involves
significant sums of money in the form of floorplan financing. The Company
intends to replace the existing floorplan financing of its dealerships with
floorplan financing from a single source. As such, the Company is negotiating an
arrangement letter for a bank credit floorplan facility with various lenders.
The floorplan facility is anticipated to provide the Company with a secured
revolving line of credit up to $120 million which may be used for floorplan
financing. No assurance can be given that the Company's working capital, the
floorplan facility, and other resources will be sufficient to fund the Company's
floorplan financing needs, or that the Company will be able to obtain adequate
additional capital from other sources. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Company's Credit and
Financing Arrangements" and "Business -- Growth Strategy." The Company
anticipates that such a consolidation of its floorplan financing, and the
Company's size and market presence, will provide it with an opportunity to
negotiate more favorable terms for its floorplan financing. However, there can
be no assurance that the Company will be able to obtain more favorable floorplan
financing, or that such financing will be implemented in a timely manner. Even
if such more favorable floorplan financing is obtained, there can be no
assurance that such will not be adversely modified, or that other sources of
floorplan financing will be available to the Company in the future.
Additionally, substantially all the assets of the Company's dealerships are
pledged to secure floorplan indebtedness, which may impede the Company's ability
to borrow from other sources, and the Company must obtain new floorplan
financing or obtain consents to assume existing financing in connection with its
acquisition of dealerships. See "-- Dependence on Automobile Manufacturers."
SUB-PRIME AUTOMOBILE FINANCE SUBSIDIARY
The sub-prime consumer automobile finance market is comprised of customers
who are deemed to be relatively high credit risks due to various factors,
including, among other things, the manner in which they have handled previous
credit, the absence or limited extent of their prior credit history and/or their
limited financial resources. Consequently, the loans made by South Financial
have a higher probability of delinquency and default and have greater servicing
costs than loans made to consumers who pose lesser credit risks. South
Financial's profitability depends in part upon its ability to properly evaluate
the creditworthiness of sub-prime consumers and efficiently service its loans.
There can be no assurance that satisfactory credit performance of a sub-prime
consumer will be maintained or that the rate of future defaults and/or losses
will be consistent with prior experience or at levels that will allow South
Financial to maintain profitability. The ability of most borrowers to remit
payments in accordance with the terms of the loans is dependent on their
continued employment. An economic downturn resulting in increased unemployment
could cause a significant rise in
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delinquencies and defaults, which could materially adversely affect South
Financial's business, financial condition and results of operations. Moreover,
increases in the delinquency and/or loss rates in South Financial's loan
portfolio could adversely affect South Financial's ability to obtain or maintain
its financing resources.
South Financial requires substantial borrowings to fund the purchase of
retail installment contracts from automobile dealerships. Consequently, South
Financial's profitability is affected by the difference, or "spread," between
the rate of interest paid on the funds it borrows and the rate of interest
charged on the installment contracts it purchases, which rate in most states is
limited by law. In addition, because the interest rate at which South Financial
borrows is variable and the interest rate at which South Financial purchases the
retail installment contracts is fixed, South Financial assumes the risk of
interest rate increases prior to the time contracts either mature or are sold.
There can be no assurance that South Financial will be able to extend its
present revolving credit facility or enter into new credit facilities on
reasonable terms in the future or that interest rate increases will not
adversely affect its ability to maintain profitability with respect to the
retail installment contracts it holds.
South Financial is subject to regulation under various federal, state and
local laws and in some jurisdictions is required to be licensed by the state
banking and insurance authorities. States in which South Financial operates
limit the interest rate, fees and other charges that may be imposed by, or
prescribe certain other terms of, the contracts that South Financial purchases
and restrict its right to repossess and sell collateral. An adverse change in
those laws or regulations could have a material adverse effect on South
Financial's business, financial condition and results of operations by, among
other things, limiting the states in which South Financial may operate or the
interest rate that may be charged on retail installment contracts or restricting
South Financial's ability to realize the value of the collateral securing the
contracts.
COLLISION REPAIR CENTERS
The Company anticipates that much of the growth of its collision repair
business will be achieved through the development of new locations for its
collision repair business; however, the Company to date has not established any
start-up locations of the type anticipated, and there can be no assurance that
the Company will successfully establish any such locations in the near term or
at all. The Company expects that start-up locations may initially have a
negative impact on its results of operations and margins due to several factors,
including: (i) start-up collision repair centers typically require a significant
investment of capital to acquire the necessary equipment and materials and to
establish each start-up location; and (ii) it will generally take some time
following commencement of operations at a start-up location before profitability
can be achieved. There can be no assurance that any start-up location will
become profitable within the first several years of operations, if at all.
The collision repair industry is highly fragmented and is comprised
primarily of independent operators of collision repair centers, against which
the Company expects to compete and among which the Company anticipates
identifying acquisition candidates. The Company also expects its competitors in
the collision repair industry to include franchised operators of collision
repair centers and other companies which operate multiple company-owned
collision repair centers. Some of these competitors may be significantly larger
and have greater financial resources than the Company.
OPERATING CONDITION OF ACQUIRED BUSINESSES
Although the Company has conducted what it believes to be a prudent level
of investigation regarding the operating condition of the assets to be purchased
in the Acquisitions in light of the circumstances of each transaction, certain
unavoidable levels of risk remain regarding the actual operating condition of
these assets. The same risk regarding the actual operating condition of
businesses to be acquired will also apply to future acquisitions by the Company.
In addition, in connection with the Acquisitions, the Company has executed
certain acquisition agreements which contain limited or qualified
representations and warranties by the target companies and/or the selling
shareholders, monetary and duration limitations on any indemnifications made by
the target companies and/or selling shareholders, or, in some instances, no
indemnifications at all.
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Moreover, some of the former owners of the businesses acquired pursuant to the
Acquisitions have or will become executive officers and/or members of the Board
of Directors of the Company. See "Management -- Executive Officers and
Directors; Key Personnel." Consequently, the Company may have little or no
recourse against the prior owners of the companies acquired in the Acquisitions
in the event of breach of a representation, warranty or covenant in such
acquisition agreements. Any material misrepresentations, omissions or breaches
of covenants could have a material adverse effect on the Company's business,
financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team and service and sales personnel.
Additionally, the Franchise Agreements require the prior approval of the
applicable manufacturer before any change is made in franchise general managers.
Consequently, the loss of the services of one or more of these key employees
could have a material adverse effect on the Company. Although the Company has
employment agreements with some of its key employees, the Company will not have
employment agreements in place for all of its key personnel. The Company does
not currently maintain any key-man life insurance on any member of its
management team. In addition, as the Company expands it may need to hire
additional managers and will likely be dependent on the senior management of any
businesses acquired. The market for qualified employees in the industry and in
the regions in which the Company operates, particularly for general managers and
sales and service personnel, is highly competitive and may subject the Company
to increased labor costs in periods of low unemployment. The loss of the
services of key employees or the inability to attract additional qualified
managers could have a material adverse effect on the Company. In addition, the
lack of qualified management or employees of potential acquisition candidates
may limit the Company's ability to consummate future acquisitions. See
"Business -- Growth Strategy," "Business -- Competition" and "Management."
FAILURE TO MEET MANUFACTURER CSI SCORES
Many manufacturers attempt to measure customer satisfaction with dealership
sales, warranty and repair service through a customer satisfaction index which
varies by manufacturer. These manufacturers may use a dealership's CSI scores as
a factor in evaluating applications for additional dealership acquisitions and
other matters such as vehicle inventory allocations. The components of CSI have
been modified from time to time in the past, and there is no assurance that such
components will not be further modified or replaced by different systems in the
future. To date, the Company has not been adversely affected by these standards.
There can be no assurance that the Company will be able to comply with such
standards in the future. Failure of the Company's dealerships to comply with the
standards imposed by manufacturers at any given time may have a material adverse
effect on the growth and operating strategies of the Company.
HOLDING COMPANY STRUCTURE; RELIANCE ON DIVIDENDS AND OTHER PAYMENTS FROM
OPERATING SUBSIDIARIES
The Company is a holding company, the principal assets of which are the
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating operating revenue, the Company depends on
dividends and other payments, including payments of management fees and pursuant
to tax sharing arrangements, from its subsidiaries to fund its obligations and
meet its cash needs.
YEAR 2000 COMPLIANCE
The Company has taken steps to evaluate the extent of its potential year
2000 problems. Some older, or "legacy" computer programs still in use today use
two-digit fields to represent the year in computer records. Such programs may
not properly recognize date-sensitive information when the year changes to 2000
and the systems' two-digit year code changes to "00." Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. The Company uses financial reporting software that is standard
to the automotive retailing industry and the Company is not certain of the total
exposure it may have as a result of the year 2000 problem. The Company's
software vendors have indicated to the Company that their software is year 2000
compliant. Accordingly, the Company currently does not expect that it will incur
significant operating expenses or be required to invest heavily in computer
system improvements to be year
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2000 compliant. However, there can be no assurance that such software will
operate properly once the year 2000 arrives, and significant uncertainty exists
concerning the potential costs and effects associated with any year 2000
compliance. Any year 2000 compliance problem of either the Company or its
outside vendors, third-party payors or customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
CYCLICALITY
Sales of automotive vehicles, particularly new vehicles, historically have
been subject to substantial cyclical variation. The Company believes that the
industry is affected by many factors, including general economic conditions,
consumer confidence, the level of personal discretionary spending, prevailing
interest rates and credit availability. There can be no assurance that the
industry will not experience sustained periods of decline in vehicle sales,
particularly new vehicle sales, in the future. Any such decline could have a
material adverse effect on the Company's growth strategy and financial
condition.
IMPORTED PRODUCT RESTRICTIONS AND FOREIGN TRADE RISKS
Certain motor vehicles sold by the Company, as well as certain major
components of vehicles retailed by the Company, are of foreign origin.
Accordingly, the Company is subject to the import and export restrictions of
various jurisdictions and is dependent to some extent upon general economic
conditions in and political relations with a number of foreign countries,
particularly Japan. Additionally, fluctuations in currency exchange rates may
adversely affect the Company's sales of vehicles produced by foreign
manufacturers. Imports into the United States may also be adversely affected by
increased transportation costs and tariffs, quotas or duties.
ADVERSE EFFECT OF GOVERNMENTAL REGULATION; ENVIRONMENTAL REGULATION COMPLIANCE
COSTS
The Company is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements and consumer protection laws.
See "-- Sub-Prime Automobile Finance Subsidiary" for a discussion of some of the
laws and regulations which impact the operations of South Financial. The
violation of these laws and regulations can result in civil and criminal
penalties being levied against the Company or in a cease and desist order
against Company operations that are not in compliance. Future acquisitions by
the Company may also be subject to regulation, including antitrust reviews. The
Company believes that it complies in all material respects with all laws and
regulations applicable to its business, but future regulations may be more
stringent and require the Company to incur significant additional costs to
achieve compliance.
The Company's facilities and operations are also subject to federal, state
and local laws and regulations relating to environmental protection and human
health and safety, including those governing wastewater discharges, air
emissions, the operation and removal of underground storage tanks, the use,
storage, treatment, transportation and disposal of solid and hazardous materials
and the remediation of contamination associated with such disposal. Certain of
these laws and regulations may impose joint and several liability on certain
statutory classes of persons for the costs of investigation or remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present or former owner or operator of a
contaminated property and companies that generated, disposed of or arranged for
the disposal of hazardous substances found at the property. Past and present
business operations of the Company subject to such laws and regulations include
the use, storage, handling and contracting for recycling or disposal of
hazardous or toxic substances or wastes, including environmentally sensitive
materials such as motor oil, waste motor oil and filters, transmission fluid,
antifreeze, Freon, waste paint and lacquer thinner, batteries, solvents,
lubricants, degreasing agents, gasoline and diesel fuels. The Company is subject
to other laws and regulations as a result of the past or present existence of
underground storage tanks at many of the Company's properties. The Company, like
many of its competitors, has incurred, and will continue to incur, capital and
operating expenditures and other costs in complying with such laws and
regulations.
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Certain laws and regulations, including those governing air emissions and
underground storage tanks, have been amended so as to require compliance with
new or more stringent standards as of future dates. The Company cannot predict
what other environmental legislation or regulations will be enacted in the
future, how existing or future laws or regulations will be administered or
interpreted or what environmental conditions may be found to exist in the
future. Compliance with new or more stringent laws or regulations, stricter
interpretation of existing laws or the future discovery of environmental
conditions may require additional expenditures by the Company, some of which may
be material. See "Business -- Governmental Regulations and Environmental
Matters."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation ("Articles")
and Bylaws may make it more difficult for shareholders of the Company to effect
certain corporate actions. For example, the Company's Articles and Bylaws
provide that special meetings of the shareholders may only be called by the
Chairman or Chief Executive Officer of the Company, or by a majority vote of the
Board of Directors, and the Company's Bylaws provide that shareholders seeking
to bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at annual or special meetings of
shareholders, must provide timely notice thereof in writing. Additionally, the
Company's Bylaws incorporate the fair-price protections promulgated by Sections
14-2-1110 through 14-2-1113 and 14-2-1131 through 14-2-1133 of the Georgia
Business Corporation Code, which provide certain protections to minority
shareholders by imposing certain requirements on business combinations of the
Company with any interested shareholders of the Company beneficially holding
more than 10% of the Company's voting shares. See "Description of Capital
Stock -- Georgia Law, Certain Articles and Bylaw Provisions and Certain
Franchise Agreement Provisions." The agreements, corporate documents and laws
described above, as well as provisions of the Franchise Agreements described in
"-- Dependence on Automobile Manufacturers" and "-- Stock Ownership/Issuance
Limits; Limitation on Ability to Issue Additional Equity" above (permitting
manufacturers to terminate such agreements upon a change of control) and
provisions of the Company's lending arrangements described in "-- Stock
Ownership/Issuance Limits; Limitation on Ability to Issue Additional Equity"
above (creating an event of default thereunder upon a change in control), may
have the effect of delaying or preventing a change in control of the Company or
preventing shareholders from realizing a premium on the sale of their shares of
common stock upon an acquisition of the Company.
The Articles authorize the Board of Directors of the Company to issue,
without shareholder approval, up to 50 million shares of "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. The issuance of such preferred stock
could adversely affect the voting power or other rights of the holders of the
common stock. Under certain circumstances, the Company could also issue such
preferred stock as a method of discouraging, delaying or preventing a change in
control of the Company. The issuance of preferred stock could also prevent
shareholders from realizing a premium upon the sale of their shares of common
stock upon an acquisition of the Company. Although the Company has no present
intention to issue any shares of its preferred stock, there can be no assurance
that the Company will not do so in the future. See "Description of Capital
Stock -- Preferred Stock." Additionally, the Company's Articles and Bylaws
provide that the Board of Directors is divided into three classes serving
staggered terms. These and other provisions may impair the shareholders' ability
to influence or control the Company or to effect a change in control of the
Company, and may prevent shareholders from realizing a premium on the sale of
their shares of common stock upon an acquisition of the Company. See
"Description of Capital Stock."
POTENTIAL CONFLICTS OF INTEREST
The Company has in the past and will likely in the future enter into
transactions with entities controlled by affiliates of the Company. The Company
believes that most of these arrangements are favorable to the Company and were
entered into on terms that, taken as a whole, reflect arm's-length negotiations.
However, the consideration paid by the Company to the Boomershine Automotive
shareholders in connection with the Merger may have exceeded the fair market
value of those shares. At the time of the Merger, Mr. Walter M.
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Boomershine, Jr. was a director, officer and shareholder of both Sunbelt and
Boomershine Automotive and Mr. Charles K. Yancey was a director and officer of
both Sunbelt and Boomershine Automotive. Since no independent appraisals
evaluating the Merger were obtained, there can be no assurance that the Merger
is on terms that could have been obtained from unaffiliated third parties.
Certain of these existing arrangements will continue after the Offering.
Potential conflicts of interest could also arise in the future between the
Company and these affiliated parties in connection with the enforcement,
amendment or termination of these arrangements. The Company anticipates
renegotiating its leases with all related parties at lease expiration at fair
market rentals, which may be higher than current rents. See "Certain
Transactions."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the common
stock. The initial public offering price of the common stock will be determined
by negotiations among the Company and representatives of the Underwriters. See
"Underwriting" for a discussion of factors considered in determining the initial
public offering price. There can be no assurance that the market price of the
common stock prevailing at any time after this Offering will equal or exceed the
initial public offering price or that an active trading market will be developed
after the Offering or, if developed, that it will be sustained. Quarterly and
annual operating results of the Company, variations between such results and the
results expected by investors and analysts, changes in local or general economic
conditions or developments affecting the automotive retailing industry, the
Company or its competitors, as well as other factors common to initial public
offerings, could cause the market price of the common stock to fluctuate
substantially. In addition, the stock market has, from time to time, experienced
extreme price and volume fluctuations, which could adversely affect the market
price for the common stock without regard to the financial performance of the
Company.
DILUTION
Purchasers of common stock in the Offering will experience immediate and
substantial dilution in the amount of $8.54 per share in net tangible book value
per share from the initial offering price. See "Dilution."
DIVIDENDS
The Company has no present intention to declare or pay cash dividends after
the Offering. The Company intends to retain any earnings that it may realize in
the future to finance its acquisitions and operations. The payment of any future
dividends will be subject to the discretion of the Board of Directors of the
Company and will depend upon the Company's results of operations, financial
position and capital requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal restrictions on the payment of
dividends, and other factors the Board of Directors deems relevant. The
Company's franchise dealer agreements with vehicle manufacturers generally
require the Company, or its subsidiary operating a particular dealership, to
maintain adequate levels of capitalization, which also could restrict the
Company's ability to pay dividends. See "Dividend Policy."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of substantial amounts of common stock into the public market
subsequent to the Offering could have a material adverse effect on the market
price of the common stock. Upon consummation of the Merger, the Acquisitions and
the Offering, the Company will have 10,933,614 shares of common stock
outstanding (11,758,614 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 5,500,000 shares offered hereby will be
freely tradable without restriction or further registration under the Securities
Act, except for shares held by persons deemed to be "affiliates" of the Company
or acting as "underwriters," as those terms are defined in the Securities Act.
Of the remaining shares of common stock outstanding, the 4,251,139 shares to be
issued to the Boomershine Automotive shareholders upon consummation of the
Merger, 249,202 shares issued to executive officers of the Company and 6,000
shares issued to the founders of the Company, will be "restricted securities"
within the meaning of Rule 144 under the Securities Act and will be eligible for
resale subject to volume, manner of sale, holding period and other limitations
of Rule 144. The 927,273 shares of common stock to be issued upon consummation
of the Acquisitions will
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likewise be subject to Rule 144, but the holders of some of the shares have been
granted piggyback registration rights under the terms of the applicable
Acquisition agreements.
The Company has also made certain commitments to issue additional shares of
common stock. The Company may be required to issue shares to the former
shareholders of Wade Ford and Day's Chevrolet under price protection provisions
set forth in the applicable Acquisition agreements. See "Description of Capital
Stock -- Registration Rights and Stock Price Protection." Upon issuance, all of
said shares will be subject to Rule 144. The Company has also reserved 1,592,000
shares of common stock for issuance under stock options granted under the
Incentive Stock Plan prior to or contemporaneously with the completion of the
Offering, 653,000 shares of common stock for issuance under stock options which
may be granted under the Incentive Stock Plan subsequent to this Offering and
50,000 shares of common stock for issuance upon exercise of warrants granted to
a consulting firm for services rendered in connection with this Offering. In
addition, the Company has reserved 5,000 shares of common stock for issuance
under stock options granted in connection with the Collision Centers USA
acquisition. See "Management -- Incentive Stock Plan," "Shares Eligible for
Future Sale" and "Description of Capital Stock -- Warrants." The Company intends
to file a registration statement on Form S-8 with the Securities and Exchange
Commission (the "Commission") following completion of the Offering to register
the shares of common stock issuable under the Incentive Stock Plan.
No prediction can be made as to the effect that resale of shares of common
stock, or the availability of shares of common stock for resale, will have on
the market price of the common stock prevailing from time to time. The resale of
substantial amounts of common stock, or the perception that such resales may
occur, could materially and adversely affect prevailing market prices for the
common stock and the ability of the Company to raise equity capital in the
future. The Company has agreed, subject to certain exceptions, not to issue, and
all executive officers of the Company and all current holders of common stock
have agreed not to resell, any shares of common stock or other equity securities
of the Company for 180 days after the date of this Prospectus without the prior
written consent of the representatives of the Underwriters. See "Management --
Incentive Stock Plan," "Shares Eligible for Future Sale" and "Underwriting."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements relating to,
among other things, future results of operations, growth plans, sales, capital
requirements and general industry and business conditions applicable to the
Company. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties
which include, but are not limited to, those set forth above. Actual results
could differ materially from those implied by these forward-looking statements.
Important factors to consider in evaluating such forward-looking statements
include, but are not limited to, changes in external competitive market factors,
changes in the Company's business strategy or an inability to execute its
strategy due to unanticipated changes in the Company's industry or the economy
in general and various competitive factors that may prevent the Company from
competing successfully in existing or new markets.
THE MERGER
Sunbelt Automotive Group, Inc. was incorporated under the Georgia Business
Corporation Code ("GBCC") on December 17, 1997. Contemporaneously with the
closing date of the Offering, Boomershine Automotive will merge into the Company
via a tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue
Code and the GBCC (the "Merger"). Upon consummation of the Merger: (i)
Boomershine Automotive will be merged with and into the Company; and (ii) the
Boomershine Automotive shareholders will receive 4,251,139 shares of
unregistered common stock of the Company in exchange for the issued and
outstanding capital stock of Boomershine Automotive.
Boomershine Automotive was formed in 1992 as a holding company to own and
operate the various Boomershine Automotive dealerships throughout the
metropolitan Atlanta area. Prior to the Merger, Boomershine Automotive owned and
operated nine franchised automobile dealerships in the metropolitan Atlanta
area, including Pontiac, Buick, GMC and Hummer franchises located in Smyrna,
Georgia; Nissan,
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Ford and Isuzu dealerships in the Gwinnett Mall area of Duluth, Georgia; a Honda
dealership in Cartersville, Georgia; and a Mitsubishi dealership in Kennesaw,
Georgia (North Atlanta). Boomershine Automotive also owned a collision repair
center which served the Gwinnett County area and the Boomershine Ford and Isuzu
dealerships and which is now one of the four collision repair centers of the
Company's Collision Centers USA subsidiary.
THE ACQUISITIONS
Since November 1997, the Company or Boomershine Automotive, as the
Company's predecessor in interest, has consummated or signed definitive
agreements to purchase six additional dealerships or dealership groups, three
collision repair centers and one automotive sub-prime finance company for an
aggregate purchase price of approximately $67 million. These Acquisitions
consist of the Collision Centers USA Acquisition (consummated December 18,
1997), the South Financial Acquisition (consummated January 6, 1998), the
Grindstaff Acquisition, the Bill Holt Acquisition, the Robertson Acquisition,
the Wade Ford Acquisition, the Jay Automotive Group Acquisition, and the Day's
Chevrolet Acquisition (the "Acquisitions"). The closing of the Offering is
contingent upon the Company consummating the Grindstaff, Bill Holt, Robertson,
Wade Ford, Jay Automotive and Day's Chevrolet Acquisitions, and the Company
intends to use the proceeds from the Offering to pay a portion of the cash
purchase prices of these remaining Acquisitions. See "Use of Proceeds."
The Jay Automotive Group Acquisition. On January 5, 1998, the Company
entered into a definitive agreement to acquire from James G. Stelzenmuller, III,
all of the outstanding stock of Jay Automotive Group, Inc., which owns and
operates Toyota, Mazda, Pontiac, Buick, GMC and Mitsubishi dealerships in
Columbus, Georgia. The Jay Automotive Group Acquisition is expected to be
consummated simultaneously with the closing of this Offering. The Company will
pay approximately $16.0 million in consideration for the Jay Automotive Group
Acquisition. At the closing, the Company will pay approximately $12.0 million in
cash and approximately $4.0 million in the form of a ninety-day promissory note
(the "Jay Note") with an interest rate equal to eight percent per annum. Jay
Automotive Group, Inc. will continue to lease the real properties on which its
facilities are located from the respective landlords of each property. See
"Business -- Facilities."
The Wade Ford Acquisition. On November 21, 1997, the Company entered into
a definitive agreement to acquire from Alan K. Arnold, Gary R. Billings and
certain other shareholders all of the outstanding common stock of Wade Ford,
Inc. and Wade Ford Buford, Inc. (the "Wade Ford Dealerships"), located in Smyrna
and Buford, Georgia, respectively. The Wade Ford Acquisition is expected to be
consummated simultaneously with the closing of this Offering. The Company will
pay approximately $15.5 million in consideration for the Wade Ford Acquisition.
At the closing, the Company will pay to the selling shareholders approximately
$11.5 million in cash and approximately $3.5 million in the form of unregistered
common stock of the Company. In addition, approximately $367,000 of cash and
approximately $133,000 of common stock will be held in escrow until the
expiration of certain indemnification provisions made by the selling
shareholders of the Wade Ford Dealerships. The Company will also provide certain
piggyback registration rights to the selling shareholders of the Wade Ford
Dealerships, along with certain stock price protection pursuant to which the
Company will compensate the shareholders for any deficiencies in the price of
the stock consideration on the first anniversary of the Offering. See
"Description of Capital Stock -- Registration Rights and Stock Price
Protection." In connection with the Wade Ford Acquisition, Mr. Arnold and Mr.
Billings will each execute non-competition and confidentiality agreements. Mr.
Arnold, who has over 20 years of experience in the automotive retailing
industry, will continue to serve as the Executive Manager of Wade Ford pursuant
to an employment agreement and will join the Company as a director and as the
Vice President in charge of the Ford Division. Mr. Billings, who has over 35
years of experience in the automotive retailing industry, will continue to serve
as the Executive Manager of Wade Ford Buford. The Wade Ford Dealerships will
continue to lease the real properties on which their facilities are located from
the respective landlords of each property. See "Business -- Facilities" and
"Certain Transactions -- Certain Dealership Leases."
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Day's Chevrolet Acquisition. On March 3, 1998, the Company entered into a
definitive agreement to acquire from Calvin Diemer and Alvin Diemer all of the
outstanding common stock of Day's Chevrolet, Inc., located in Acworth, Georgia.
The Day's Chevrolet Acquisition is expected to be consummated simultaneously
with the closing of this Offering. The Company will pay approximately $10.8
million in consideration for the Day's Chevrolet Acquisition. At the closing,
the Company will pay to the selling shareholders approximately $5.6 million in
cash and approximately $5.2 million in the form of unregistered common stock of
the Company. The Company will also provide certain stock price protection to the
selling shareholders of Day's Chevrolet pursuant to which the Company will
compensate the selling shareholders for any deficiencies in the price of the
stock consideration on the second anniversary of the Offering. See "Description
of Capital Stock -- Registration Rights and Stock Price Protection." In
connection with the Day's Chevrolet Acquisition, Mr. Calvin Diemer, who has over
20 years of experience in the automotive retailing industry, will execute a
non-competition and confidentiality agreement and will continue to serve as the
Executive Manager of Day's Chevrolet pursuant to an employment agreement. Day's
Chevrolet will continue to lease the real property on which its facilities are
located from the landlord of said property. See "Business -- Facilities."
The Grindstaff Acquisition. On December 27, 1997, the Company entered into
a definitive agreement to acquire from Steve E. Grindstaff, Wes Hambrick and
trusts for the benefit of Amie Pearson and Renee Mullins all of the outstanding
common stock of Grindstaff, Inc., a Tennessee corporation, which operates
Chevrolet, Chrysler, Plymouth, Dodge, Jeep and Kia dealerships in Elizabethton,
Tennessee. The Grindstaff Acquisition is expected to be consummated
simultaneously with the closing of this Offering. The Company will pay
approximately $9.1 million in consideration for the Grindstaff Acquisition,
which amount is subject to adjustment if the consolidated net worth of
Grindstaff, Inc. at the time of closing is less than or greater than $1.5
million. The Company expects to receive $1.2 million in repayment of a note
receivable from the selling shareholders at the closing. At the closing, the
Company will pay to the selling shareholders approximately $8.6 million in cash
and approximately $500,000 will be held in escrow until the expiration of
certain indemnification provisions made by the selling shareholders of the
Grindstaff dealerships. In connection with the Grindstaff Acquisition, Mr.
Grindstaff will execute a non-competition and confidentiality agreement. Mr. Wes
Hambrick, who has over 15 years of experience in the automotive retailing
industry, will continue to serve as the Executive Manager of Grindstaff, Inc.
pursuant to an employment agreement. Grindstaff, Inc. will continue to lease the
real property on which its facilities are located from the landlord of said
property. See "Business -- Facilities."
The Robertson Acquisition. On March 1, 1998, the Company entered into a
definitive agreement to acquire from E. Moss Robertson, Jr. all of the
outstanding common stock of Robertson Oldsmobile-Cadillac, Inc. ("ROC"), which
operates Oldsmobile, Cadillac, Isuzu and Mazda dealerships in Gainesville,
Georgia. The Robertson Acquisition is expected to be consummated simultaneously
with the closing of this Offering. The Company will pay approximately $4.7
million in consideration for the Robertson Acquisition plus the closing-date
FIFO net worth of ROC (estimated to be $3.4 million), as defined by the
definitive agreement. At the closing, the Company will pay to Mr. Robertson
approximately $360,000 in the form of unregistered common stock of the Company,
and the balance of the purchase price will be paid by the Company to Mr.
Robertson in cash. Mr. Robertson is the son-in-law of Mr. Walter M. Boomershine,
Jr. (the Senior Vice President and Chairman of the Company) and the spouse of a
shareholder of Boomershine Automotive, which is the target entity of the Merger.
See "The Merger." The Company will also provide certain piggyback registration
rights to the selling shareholder with respect to the unregistered common stock.
See "Description of Capital Stock -- Registration Rights and Stock Price
Protection." In connection with the Robertson Acquisition, Mr. Robertson, who
has over 20 years of experience in the automotive retailing industry, will
execute a non-competition and confidentiality agreement and will continue to
serve as the Executive Manager of ROC pursuant to an employment agreement. ROC
will continue to lease the real property on which its facilities are located
from the landlord of said property, and the Company will guaranty said lease.
See "Business -- Facilities" and "Certain Transactions -- Certain Dealership
Leases."
The Bill Holt Acquisition. On December 11, 1997, the Company entered into
a definitive agreement to acquire substantially all of the operating assets, and
assume certain liabilities, of Hones, Inc. d/b/a Bill Holt Ford Mercury, a North
Carolina corporation which operates Ford and Mercury dealerships in Franklin,
North
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Carolina. The Bill Holt Acquisition is expected to be consummated simultaneously
with the closing of this Offering. The Company will pay for the Bill Holt
Acquisition consideration in an amount equal to approximately $750,000 in cash
and will assume the outstanding balance of the floorplan liability for new
vehicles of Hones, Inc. actually acquired by the Company, as determined in
accordance with the terms of the definitive agreement. The Company has paid Bill
Holt $100,000 in earnest money, which will be credited against the purchase
price at the time of the closing. In connection with the Bill Holt Acquisition,
Mr. Bill Holt, who was the sole shareholder of Hones, Inc. prior to this
Offering, will execute a non-competition and confidentiality agreement. The
Company anticipates that an unrelated third party will acquire the real property
on which its facilities are located, and the Company will continue to lease said
real property from such landlord. See "Business -- Facilities."
The South Financial Acquisition. On January 6, 1998, the Company acquired
from Thomas F. Murphy, Jr. all of the outstanding capital stock of South
Financial Corporation, a Florida corporation that owns and operates five
standalone sub-prime automotive finance offices located in Florida, Tennessee
and North Carolina. The purchase price of South Financial Corporation was
approximately $4.65 million, which was paid in cash at the time of closing. In
connection with the South Financial Acquisition, Mr. Murphy executed a
non-competition and confidentiality agreement. Upon the consummation of this
transaction, R. Glynn Wimberly became chief executive officer of South Financial
Corporation pursuant to an employment agreement between Mr. Wimberly and South
Financial Corporation. Mr. Wimberly has 24 years of experience in the consumer
finance industry and has served as the president and general manager of an
automotive sub-prime finance company for the past five years. The Company
anticipates that future sites for South Financial Corporation's outlets will be
located in or near existing and future Company-owned dealerships. The South
Financial Acquisition further implements the Company's growth strategy by adding
a higher-margin complementary business to its core automotive retailing
operations.
The Collision Centers USA Acquisition. On December 18, 1997, the Company
acquired from James L. Peters all of the outstanding capital stock of Southlake
Collision Center, Inc., Southlake Collision Henry County, Inc. and Southlake
Collision Cobb Parkway, Inc. (collectively, the "Collision Centers"), which own
and operate stand-alone automobile collision repair centers located in Clayton
County, Henry County and Cobb County, Georgia, respectively. The purchase price
for the Collision Centers, in the aggregate, was approximately $1.7 million,
one-half of which was paid in cash, and the balance of which was paid in the
form of promissory notes (each, the "Collision Note," and collectively, the
"Collision Notes") with an interest rate equal to eighteen percent (18%) per
annum. One of the Collision Notes has been paid and satisfied and the other will
mature on June 30, 1998, at which time the Company intends to satisfy the
remaining Collision Note with funds from its working capital. In connection with
the Collision Center Acquisition, Mr. Peters executed a non-competition and
confidentiality agreement, and Mr. Peters and Collision Centers USA entered into
an employment agreement pursuant to which Mr. Peters became Vice President of
Collision Centers USA. In addition, Mr. Peters has received options to purchase
5,000 shares of common stock of the Company. See "Management -- Incentive Stock
Plan." Collision Centers USA will continue to lease the real properties on which
its facilities are located from the respective landlords of each property. See
"Business -- Facilities." All collision centers owned by the Company are
operated by the Company's subsidiary, Collision Centers USA, Inc. under the name
"Collision Centers USA." The acquisition of these three companies, along with
the Company's acquisition of an additional collision repair center by virtue of
the Merger, further implements the Company's growth strategy by adding a
higher-margin complementary business with geographic proximity to the Company's
existing automobile dealerships. Additionally, the acquisition of the Collision
Centers will enhance the Company's cross-selling capabilities by ensuring a
continued demand for, and increased sales of, parts and supplies from nearby
Company-owned dealerships.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 5,500,000 shares of common
stock offered hereby are estimated to be approximately $53 million
(approximately $62 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $11 per share
and after deducting the underwriting discount and estimated expenses of the
Offering. The net proceeds will be used to pay a portion
23
<PAGE> 25
of the purchase price for the Acquisitions in the aggregate amount of
approximately $47 million, and the balance of the proceeds, if any, will be used
as working capital and to reduce the balance outstanding on the Company's
floorplan facility. The Company regularly reviews opportunities to further its
business strategy through acquisitions of automotive dealerships and other
businesses that it believes are complementary to the Company's current and
planned operations. The Company, however, has no present commitments, agreements
or understandings with respect to any acquisitions other than the Acquisitions.
DIVIDEND POLICY
The Company intends to retain all of its earnings to finance the growth and
development of its business, including future acquisitions, and does not
anticipate paying any cash dividends on its common stock for the foreseeable
future. Any future change in the Company's dividend policy will be made at the
discretion of the Board of Directors of the Company and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Capital Stock."
24
<PAGE> 26
CAPITALIZATION
The following table sets forth, as of March 31, 1998, the capitalization of
the Company (i) on an actual basis, including the Merger as if it occurred on
March 31, 1998, (ii) on a pro forma basis, as adjusted to reflect the FIFO
Conversion and the Acquisitions, and (iii) on a pro forma as adjusted basis to
reflect the Offering and the application of net proceeds thereof to be received
by the Company. See "The Acquisitions" and "Use of Proceeds." This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Pro Forma Combined and Condensed
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------------
PRO FORMA AS
ACTUAL(1)(2) PRO FORMA(3) ADJUSTED(4)
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Floorplan notes payable................................ $49,918 $115,543 $ 96,428
Notes payable and other................................ 18,726 23,590 23,590
Current maturities of long-term debt................... 1,921 2,159 2,159
------- -------- --------
Total short-term debt.................................... 70,565 141,292 122,177
Long-term debt, less current maturities.................. 360 837 837
Shareholders' equity:
Common stock, $0.001 par value,
450,000,000 shares authorized, 4,506,341 shares
issued and outstanding actual, 5,433,614 shares
issued and outstanding pro forma and 10,933,614
shares issued and outstanding pro forma as
adjusted(5)......................................... 5 6 11
Preferred stock, $0.001 par value,
50,000,000 shares authorized, no shares issued or
outstanding......................................... -- -- --
Additional paid-in capital............................. 5,966 15,122 68,382
Note receivable........................................ (1,994) (1,994) (1,994)
Retained earnings...................................... 815 4,506 4,506
------- -------- --------
Total shareholders' equity..................... 4,792 17,640 70,905
------- -------- --------
Total capitalization........................... $75,717 $159,769 $193,919
======= ======== ========
</TABLE>
- ---------------
(1) Boomershine Automotive currently utilizes the LIFO Method of accounting for
financial statement and tax reporting (see Note 1 to Boomershine
Automotive's Consolidated Financial Statements). Commencing July 1, 1998,
the Company intends to file an election with the IRS to convert to the FIFO
Method and change its method of accounting to the FIFO Method for financial
statement and tax reporting, which is the industry standard among
publicly-traded automotive retailing companies. Had Boomershine Automotive
used the FIFO Method at March 31, 1998, total shareholders' equity on an
actual basis would have been $3.7 million higher.
(2) Adjusted to give effect to 249,202 shares of common stock issued to certain
executive officers prior to the effective date of the Offering and 4,251,139
shares of common stock issued in connection with the Merger. Consideration
for the common stock issued to executive officers was in the form of notes
payable to the Company. Also includes the Collision Centers USA Acquisition
and South Financial Acquisition which were acquired by Boomershine
Automotive prior to March 31, 1998.
(3) Adjusted to give effect to the items in (2) above, the FIFO Conversion and
the Acquisitions. See "Pro Forma Combined and Condensed Financial Data."
(4) Adjusted to give effect to the items in (3) above and the Offering. See "Pro
Forma Combined and Condensed Financial Data."
(5) Does not reflect the possible exercise of options to purchase 2,250,000
shares of common stock reserved for issuance under the Company's Incentive
Stock Plan, including options to purchase 1,597,000 shares of common stock.
See "Management -- Incentive Stock Plan." Also does not reflect the possible
exercise of 50,000 shares of common stock reserved for issuance under
warrants granted to a consulting firm for services rendered in connection
with this Offering.
25
<PAGE> 27
DILUTION
The pro forma net tangible book value of the Company (after giving effect
to the Merger, the FIFO Conversion, the Collision Centers USA Acquisition, and
the South Financial Acquisition) as of March 31, 1998 was $0.36 per share of
common stock. Pro forma net tangible book value per share is determined by
dividing the pro forma tangible net worth of the Company (pro forma total assets
less goodwill less pro forma total liabilities) by the total number of
outstanding shares of common stock. After giving effect to the Acquisitions and
the sale of the 5,500,000 shares of common stock offered hereby and the receipt
of an assumed $53 million of net proceeds from the Offering (based on an assumed
Offering price of $11.00 per share and net of the underwriting discounts and
estimated offering expenses), pro forma net tangible book value of the Company
at March 31, 1998 would have been $26.8 million, or $2.46 per share. This
represents an immediate increase in pro forma net tangible book value of $2.10
per share to existing shareholders and an immediate dilution of $8.54 per share
to the new investors purchasing shares of common stock in the Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $11.00
Pro forma net tangible book value per share before
giving effect to the Acquisitions and the Offering.... 0.36
Increase in pro forma tangible book value per share
attributable to the Acquisitions and the Offering..... 2.10
----
Pro forma as adjusted net tangible book value per share
after the Offering........................................ 2.46
------
Dilution per share to new investors......................... $ 8.54
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1998,
the number of shares of common stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid to the
Company by existing shareholders and new investors purchasing shares from the
Company in the Offering (before deducting underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
TOTAL AVERAGE
SHARES PURCHASED CONSIDERATION PRICE
---------------------- --------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............ 4,251,139 38.9% $ 3,979,704 5.2% $ 0.94
Inside shareholders(2).............. 255,202 2.3 1,996,616 2.6 7.82
Acquisition shareholders(3)......... 927,273 8.5 10,200,000 13.3 11.00
New investors(4).................... 5,500,000 50.3 60,500,000 78.9 11.00
---------- ----- ----------- -----
10,933,614 100.0% $76,676,320 100.0% $ 7.01
========== ===== =========== =====
</TABLE>
- ---------------
(1) Includes shares issued in connection with the Merger. Does not reflect the
possible exercise of options to purchase 2,250,000 shares of common stock
reserved for issuance under the Company's Incentive Stock Plan, including
options to purchase 1,280,000 shares of common stock that were granted
subsequent to December 31, 1997 and options to purchase 317,000 shares of
common stock that will be granted immediately before the completion of the
Offering with an exercise price equal to the initial public offering price.
See "Management -- Incentive Stock Plan" and "The Merger." Also excludes
50,000 shares of common stock reserved for issuance upon exercise of
warrants granted to a consulting firm for services rendered in connection
with this Offering. See "Description of Capital Stock -- Warrants."
(2) Includes 6,000 shares of common stock issued to the founders of the Company
and 249,202 shares of common stock issued to executive officers of the
Company.
(3) Includes shares issued in connection with the Acquisitions. See "The
Acquisitions."
(4) Assumes that the Underwriters' over-allotment option is not exercised. Sales
pursuant to the full exercise by the Underwriters of the over-allotment
option will cause the total number of shares purchased by new investors,
total consideration paid by new investors and percent of total consideration
paid by new investors to increase to 6,325,000, $69,575,000 and 81.1%,
respectively.
26
<PAGE> 28
SELECTED FINANCIAL DATA
The Company will acquire six automotive dealerships or dealership groups
simultaneously with the consummation of the Offering. See "The Acquisitions."
For financial statement presentation purposes, Boomershine Automotive has been
identified as the accounting acquiror. The following selected historical
consolidated financial data of Boomershine Automotive as of June 30, 1996 and
1997 and for each of the three years in the period ended June 30, 1997, have
been derived from the audited financial statements of Boomershine Automotive
included elsewhere in this Prospectus. The following selected historical
financial data for Boomershine Automotive as of June 30, 1993, 1994 and 1995 and
for each of the two years in the period ended June 30, 1994 and as of March 31,
1998 and for the nine months ended March 31, 1997 and March 31, 1998, have been
derived from the unaudited financial statements of Boomershine Automotive, which
have been prepared on the same basis as the audited financial statements and, in
the opinion of Boomershine Automotive, reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of such data.
The results of operations for interim periods are not necessarily indicative of
results that may be expected for a full year or any other interim periods. The
pro forma data for the year ended June 30, 1997, as of March 31, 1998 and the
nine months ended March 31, 1998 give effect to the Merger, the FIFO Conversion,
the Acquisitions and the Offering. See "Pro Forma Combined and Condensed
Financial Data." The following selected financial data should be read in
conjunction with the Consolidated Financial Statements of Boomershine
Automotive, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------------------- -------------------------------
HISTORICAL HISTORICAL
---------------------------------------------------- PRO FORMA ------------------- PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
-------- -------- -------- -------- -------- --------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Vehicle sales:
New..................... $ 73,912 $110,674 $156,955 $166,199 $152,625 $420,019 $113,239 $113,340 $315,697
Used.................... 35,747 46,207 57,047 64,652 61,811 177,925 47,318 39,517 127,126
Parts and service......... 15,085 17,679 19,223 23,764 24,637 66,602 17,689 19,108 50,159
Finance, commission and
other revenues, net..... 1,418 2,795 3,856 4,219 5,339 17,437 4,355 5,399 13,528
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues...... 126,162 177,355 237,081 258,834 244,412 681,983 182,601 177,364 506,510
Cost of sales............... 112,402 159,284 214,820 232,934 219,719 605,044 164,026 157,113 448,892
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit(2)............. 13,760 18,071 22,261 25,900 24,693 76,939 18,575 20,251 57,618
Selling, general and
administrative expenses... 12,751 16,685 19,927 24,170 22,262 62,809 16,698 16,544 47,971
Depreciation and
amortization.............. 428 410 406 600 890 2,550 659 764 1,946
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations...... 581 976 1,928 1,130 1,541 11,580 1,218 2,943 7,701
Interest expense, net....... 587 598 1,436 1,774 2,230 3,126 1,408 1,544 1,496
Interest income............. 144 119 218 181 120 516 184 247 699
Other income (expense),
net....................... 98 (110) 60 13 44 (240) (80) (68) 100
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... 236 387 770 (450) (525) 8,730 (86) 1,578 7,004
Income tax (expense)
benefit................... (89) (205) (292) 133 167 (3,730) 26 (377) (2,975)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)(2)........ $ 147 $ 182 $ 478 $ (317) $ (358) $ 5,000 $ (60) $ 1,201 $ 4,029
======== ======== ======== ======== ======== ======== ======== ======== ========
Net income per share(3)..... $ 0.44 $ 0.35
======== ========
Weighted average shares
outstanding(3)............ 11,364 11,364
======== ========
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31, 1998
----------------------------------------------- -------------------------
1993 1994 1995 1996 1997 HISTORICAL PRO FORMA(1)
------- ------- ------- ------- ------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................... $ 2,374 $ 2,524 $ 1,474 $ 26 $ (77) $(5,289) $ 22,903
Inventories....................................... 18,852 21,566 42,009 44,669 33,591 41,684 117,480
Total assets...................................... 27,322 31,998 60,865 64,086 49,710 82,900 209,224
Total debt, including current portion............. 20,204 24,152 50,106 53,520 40,618 70,925 123,014
Total shareholders' equity(2)..................... 4,121 4,303 4,782 4,557 4,199 5,400 70,905
</TABLE>
- ---------------
(1) Adjusted to give pro forma effect to (i) the Merger, (ii) Boomershine
Automotive's conversion from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting, and (iii) the Acquisitions. See "Pro
Forma Combined and Condensed Financial Data." Also gives effect to the sale
of the shares offered hereby and the application of the net proceeds
therefrom. See "Use of Proceeds."
(2) Boomershine Automotive currently utilizes the LIFO Method of inventory
accounting. See Note 1 to Boomershine Automotive's Consolidated Financial
Statements. Commencing July 1, 1998, the Company intends to file an election
with the IRS to convert to the FIFO Method and change its method of
accounting to the FIFO Method for financial statement and tax reporting
which is the industry standard for publicly traded automotive retailers. If
Boomershine Automotive had previously utilized the FIFO Method, gross profit
for the five years ended June 30, 1997 would have been $12.9 million, $16.5
million, $22.7 million, $27.1 million, $25.1 million, respectively, and
$19.1 million and $20.3 million for the nine month periods ended March 31,
1997 and 1998, respectively. Net income (loss) for the five years ended June
30, 1997 would have been approximately $247,000, $467,000, $734,600,
$502,200, $(85,400), respectively and $275,000 and $1,267,000 for the nine
months ended March 31, 1997 and 1998, respectively. Shareholders' equity
would have been $8.3 million and $9.1 million, respectively at June 30, 1997
and March 31, 1998.
(3) Historical net income per share is not presented, as the historical capital
structure of Boomershine Automotive prior to the Merger, the FIFO
Conversion, the Acquisitions and the Offering is not comparable with the
capital structure that will exist subsequent to these events. The weighted
average shares outstanding was calculated taking into account these events
as if they had occurred at the beginning of each period. See "Pro Forma
Combined and Condensed Financial Data."
28
<PAGE> 30
PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA
The following unaudited pro forma combined and condensed statements of
operations for the year ended June 30, 1997 and for the nine months ended March
31, 1998 reflect the historical accounts of the Company and Boomershine
Automotive for those periods, adjusted to give pro forma effect to the Merger,
the FIFO Conversion (to be effective July 1, 1998), the Acquisitions and the
Offering, as if these events had occurred at July 1, 1996. The following
unaudited pro forma consolidated balance sheet as of March 31, 1998 reflects the
historical accounts of the Company and Boomershine Automotive as of that date
adjusted to give pro forma effect to the Merger, the FIFO Conversion (to be
effective July 1, 1998), the Acquisitions and the Offering as if these events
had occurred on March 31, 1998. The Acquisitions will be consummated on or
before the closing of the Offering and are conditions precedent to the closing
of the Offering. The pro forma combined and condensed financial data and
accompanying notes should be read in conjunction with the financial statements
and related footnotes of Sunbelt Automotive Group, Inc.; Boomershine Automotive
Group, Inc.; Jay Automotive Group, Inc.; Grindstaff, Inc.; Wade Ford, Inc. and
Wade Ford Buford, Inc.; Robertson Oldsmobile-Cadillac, Inc.; Day's Chevrolet,
Inc.; and South Financial Corporation, all of which are included elsewhere in
the Prospectus. The Company believes that the assumptions used in the following
statements provide a reasonable basis on which to present the pro forma
financial data. The pro forma combined financial data are provided for
informational purposes only and should not be construed to be indicative of the
Company's financial condition or results of operations had the transactions and
events described above been consummated on the dates assumed, and are not
intended to project the Company's financial condition on any future date or its
results of operation for any future period.
PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
THE MERGER THE ACQUISITIONS(10)
------------------------- --------------------------------------------------------------
WADE FORD,
SUNBELT BOOMERSHINE JAY INC. AND ROBERTSON
AUTOMOTIVE AUTOMOTIVE AUTOMOTIVE WADE FORD OLDSMOBILE-
GROUP, INC. GROUP, INC. GROUP, INC. GRINDSTAFF, INC. BUFORD, INC. CADILLAC, INC.
----------- ----------- ----------- ---------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales:
New................................. $-- $152,625 $56,365 $33,525 $118,324 $11,157
Used................................ -- 61,811 28,425 19,500 25,634 6,914
Parts and service..................... -- 24,637 11,667 3,681 8,988 2,581
Finance, commission and other revenues, net.. -- 5,339 2,092 1,544 1,238 195
--- -------- ------- ------- -------- -------
Total revenues.................. -- 244,412 98,549 58,250 154,184 20,847
Cost of sales.......................... -- 219,719 86,959 51,118 141,842 17,969
--- -------- ------- ------- -------- -------
Gross profit........................... -- 24,693 11,590 7,132 12,342 2,878
Selling, general and administrative
expenses.............................. -- 22,262 9,289 6,329 10,433 2,034
Depreciation and amortization.......... -- 890 245 86 154 59
--- -------- ------- ------- -------- -------
Income from operations................. -- 1,541 2,056 717 1,755 785
Interest expense, net.................. -- 2,230 434 516 260 61
Interest income........................ -- 120 97 103 23 171
Other income (expense), net............ -- 44 -- (532) 242 (2)
--- -------- ------- ------- -------- -------
Income (loss) before income taxes...... -- (525) 1,719 (228) 1,760 893
Income tax (expense) benefit........... -- 167 (653) 14 -- --
--- -------- ------- ------- -------- -------
Net income (loss)...................... $-- $ (358) $ 1,066 $ (214) $ 1,760 $ 893
=== ======== ======= ======= ======== =======
Net income per share(9)................
Weighted average shares
outstanding(9)........................
<CAPTION>
THE ACQUISITIONS(10)
------------------------------------
DAY'S SOUTH
CHEVROLET, FINANCIAL PRO FORMA
INC. CORPORATION OTHER(11) ADJUSTMENTS PRO FORMA
---------- ----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales:
New................................. $27,415 $ -- $20,608 $ -- $420,019
Used................................ 23,308 -- 12,333 -- 177,925
Parts and service..................... 10,034 -- 5,014 -- 66,602
Finance, commission and other revenues 920 5,437 672 -- 17,437
------- ------ ------- ------- --------
Total revenues.................. 61,677 5,437 38,627 681,983
Cost of sales.......................... 55,286 -- 33,922 (1,771)(1)(2) 605,044
------- ------ ------- ------- --------
Gross profit........................... 6,391 5,437 4,705 1,771 76,939
Selling, general and administrative
expenses.............................. 4,947 3,407 4,080 28(3) 62,809
Depreciation and amortization.......... 140 63 139 774(4)(5) 2,550
------- ------ ------- ------- --------
Income from operations................. 1,304 1,967 486 969 11,580
Interest expense, net.................. 133 1,521 306 (2,335)(6)(7) 3,126
Interest income........................ 2 -- -- -- 516
Other income (expense), net............ 8 -- -- -- (240)
------- ------ ------- ------- --------
Income (loss) before income taxes...... 1,181 446 180 3,304 8,730
Income tax (expense) benefit........... -- (376) -- (2,882)(8) (3,730)
------- ------ ------- ------- --------
Net income (loss)...................... $ 1,181 $ 70 $ 180 $ 422 $ 5,000
======= ====== ======= ======= ========
Net income per share(9)................ $ 0.44
========
Weighted average shares
outstanding(9)........................ 11,364
========
</TABLE>
29
<PAGE> 31
PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
THE MERGER THE ACQUISITIONS(10)
----------------------------- --------------------------------------------------------------
WADE FORD,
SUNBELT BOOMERSHINE JAY INC. AND ROBERTSON
AUTOMOTIVE AUTOMOTIVE AUTOMOTIVE WADE FORD OLDSMOBILE-
GROUP, INC. GROUP, INC.(12) GROUP, INC. GRINDSTAFF, INC. BUFORD, INC. CADILLAC, INC.
----------- --------------- ----------- ---------------- ------------ --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales:
New........................... $ -- $113,340 $39,947 $24,024 $92,848 $ 9,508
Used.......................... -- 39,517 23,456 12,187 18,939 6,549
Parts and service............... -- 19,108 8,956 3,050 7,143 2,140
Finance, commission and other
revenues, net................. -- 5,399 1,704 1,190 1,416 323
----- -------- ------- ------- ------- -------
Total revenues............ -- 177,364 74,063 40,451 120,346 18,520
Cost of sales.................... -- 157,113 65,243 34,824 111,127 16,210
----- -------- ------- ------- ------- -------
Gross profit..................... -- 20,251 8,820 5,627 9,219 2,310
Selling, general and
administrative expenses......... 611 16,582 7,067 5,307 7,487 1,417
Depreciation and amortization.... -- 726 158 184 103 43
----- -------- ------- ------- ------- -------
Income (loss) from operations.... (611) 2,943 1,595 136 1,629 850
Interest expense, net............ -- 1,544 174 300 131 56
Interest income.................. -- 247 78 3 246 123
Other income (expense), net...... -- (68) 1 102 34 (9)
----- -------- ------- ------- ------- -------
Income (loss) before income
taxes........................... (611) 1,578 1,500 (59) 1,778 908
Income tax (expense) benefit..... -- (377) (570) 3 -- --
----- -------- ------- ------- ------- -------
Net income (loss)................ $(611) $ 1,201 $ 930 $ (56) $ 1,778 $ 908
===== ======== ======= ======= ======= =======
Net income per share(9)..........
Weighted average shares
outstanding(9)..................
<CAPTION>
THE ACQUISITIONS(10)
----------------------
DAY'S
CHEVROLET, PRO FORMA
INC. OTHER(13) ADJUSTMENTS PRO FORMA
---------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales:
New........................... $21,914 $14,116 $ -- $315,697
Used.......................... 15,076 11,402 -- 127,126
Parts and service............... 6,880 2,882 -- 50,159
Finance, commission and other
revenues, net................. 704 2,792 -- 13,528
------- ------- ------- --------
Total revenues............ 44,574 31,192 -- 506,510
Cost of sales.................... 39,831 25,567 (1,023)(1)(2) 448,892
------- ------- ------- --------
Gross profit..................... 4,743 5,625 1,023 57,618
Selling, general and
administrative expenses......... 3,804 5,579 117(6)(3) 47,971
Depreciation and amortization.... 103 117 512(4)(5) 1,946
------- ------- ------- --------
Income (loss) from operations.... 836 (71) 394 7,701
Interest expense, net............ 58 987 (1,754)(6)(7) 1,496
Interest income.................. 2 -- -- 699
Other income (expense), net...... 14 26 -- 100
------- ------- ------- --------
Income (loss) before income
taxes........................... 794 (1,032) 2,148 7,004
Income tax (expense) benefit..... -- 279 (2,310)(8) (2,975)
------- ------- ------- --------
Net income (loss)................ $ 794 $ (753) $ (162) $ 4,029
======= ======= ======= ========
Net income per share(9).......... $ 0.35
========
Weighted average shares
outstanding(9).................. 11,364
========
</TABLE>
30
<PAGE> 32
- ---------------
(1) Reflects the conversion of Boomershine Automotive from the LIFO Method of
inventory accounting to the FIFO Method. Under the FIFO Method, cost of
sales would have been lower by $400,000 and $87,000 for the year ended June
30, 1997, and the nine months ended March 31, 1998, respectively. The
Company intends to convert to the FIFO Method effective July 1, 1998
conditioned and effective upon the closing of the Offering.
(2) Reflects the conversion of Jay Automotive, Grindstaff, Wade Ford,
Robertson, Day's Chevrolet and Bill Holt from the LIFO Method of inventory
accounting to the FIFO Method. Under the FIFO Method, cost of sales would
have been lower by $1,371,000, and $936,000 for the year ended June 30,
1997, and the nine months ended March 31, 1998, respectively. The Company
intends to convert all acquisitions to the FIFO Method conditioned and
effective upon the closing of the Offering.
(3) Reflects the Company's estimate of the net deductions from selling, general
and administrative expenses which would have occurred if the Acquisitions
and the Offering had been effected as of the beginning of each period and
consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
(i) Elimination of salaries to owners and other officers
whose positions and salaries will be eliminated in
conjunction with the Offering......................... $(919) $(498)
(ii) Increase in salaries of existing and new officers who
have entered into employment agreements with the
Company, effective prior to or upon consummation of
the Offering.......................................... 673 556
(iii) Additional costs related to the real estate, on which
certain of the dealerships are located................ 373 206
(iv) Elimination of certain expenses of the previous owners
of certain dealerships, and expenses of certain
dealerships, not relating to the entity being
acquired, which were reflected in the historical
financial statements.................................. (99) (147)
----- -----
$ 28 $ 117
===== =====
</TABLE>
(4) Reflects amortization as if Jay Automotive, Grindstaff, Wade Ford,
Robertson, Day's Chevrolet, Bill Holt, Collision Centers and South
Financial had been acquired as of July 1, 1996. The pro forma amortization
for the year ended June 30, 1997, and the nine months ended March 31, 1998
reflects additional amortization of approximately $999,000 and $706,000,
respectively, associated with intangible assets resulting from the
Acquisitions. Such costs are being amortized over a 40-year period.
(5) Reflects the reduction of depreciation related to the elimination of
certain assets that will not be acquired in connection with the
Acquisitions. The pro forma depreciation expense for the year ended June
30, 1997, and the nine months ended March 31, 1998 reflects a reduction
$225,000 and $194,000, respectively.
(6) The net reduction in interest expense was calculated based on the
elimination of debt that will not be acquired in connection with the
Acquisitions. The pro forma interest expense for the year ended June 30,
1997, and the nine months ended March 31, 1998 reflects a reduction
$121,000 and $94,000, respectively.
(7) Reflects the reduction in interest expense associated with: (i) the paydown
of $19 million of floorplan notes payable and (ii) the reduction of
interest rate on the floorplan notes of several of the Acquisitions from
their contractual rates to the contractual rate of Boomershine Automotive,
which will become effective in conjunction with the Offering.
(8) Certain of the Acquisitions are S-Corporations and accordingly not subject
to federal and certain state income taxes during the periods indicated.
This adjustment reflects the federal and state income taxes as if all
entities were C-Corporations based on a 43% effective rate assumed during
the period. The assumed effective tax rate reflects, as additional pro
forma permanent differences, non-taxable goodwill amortization.
(9) Pro forma net income per share is based upon the assumption that 11,363,635
shares of common stock are outstanding for each period. This amount
represents the 5,500,000 shares to be issued in the Offering, the 4,506,341
shares of common stock owned by the Company's shareholders immediately
following the Merger, the 927,273 shares of common stock to be issued in
connection with the Acquisitions and 430,022 shares of common stock
equivalents for options granted or to be granted as of March 31, 1998.
31
<PAGE> 33
(10) The historical accounts and related footnotes of the Acquisitions included
elsewhere in the Prospectus were prepared based on a fiscal year end of
December 31. To conform with Boomershine Automotives' fiscal year end of
June 30, the unaudited pro forma statements of operations include financial
data for each acquisition for the same periods presented for Boomershine
Automotive.
(11) Includes the results of Bill Holt Ford-Mercury and Collision Centers USA
for the year ended June 30, 1997. Includes revenues of $3.4 million and net
loss before tax of $25,200 related to Collision Centers USA.
(12) Reflects the Collision Centers USA Acquisition on December 18, 1997 and the
South Financial Acquisition on January 6, 1998 from the date of acquisition
by Boomershine Automotive. Includes revenues of $2.4 million and net income
before tax of $62,000 related to Collision Centers USA and South Financial
from the date of acquisition to March 31, 1998.
(13) Includes the results of Bill Holt for the nine months ended March 31, 1998,
Collision Centers USA for the period from July 1, 1997 to acquisition by
Boomershine Automotive on December 18, 1997, and South Financial for the
period from July 1, 1997 to acquisition by Boomershine Automotive on
January 6, 1998. Includes revenues of $3.9 million and net loss before tax
of $1.0 million related to Collision Centers USA and South Financial.
32
<PAGE> 34
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
THE MERGER
---------------------------------------------
PRO FORMA
ADJUSTMENTS THE ACQUISITIONS
FOR ---------------------------------------------
THE MERGER WADE FORD
SUNBELT BOOMERSHINE AND THE JAY INC. AND
AUTOMOTIVE AUTOMOTIVE FIFO AUTOMOTIVE WADE FORD
GROUP, INC. GROUP, INC.(5) CONVERSION GROUP, INC. GRINDSTAFF, INC. BUFORD, INC.
----------- -------------- -------------- ----------- ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents....... $ 3 $ 4,717 $ -- $ 4,073 $ 722 $ 6,001
Accounts receivable, net........ 7,883 (611)(6) 1,701 972 4,434
Finance receivables, net........ 13,495
Notes receivable shareholder.... 515
Inventories..................... 41,684 6,049(3) 17,317 8,331 17,472
Deferred income taxes........... 1,459 (590)(3) 12
Prepaid expenses and other
current assets................ 2,256 73 38 326
----- ------- ------- ------- ------- -------
Total Current Assets...... 3 71,494 4,848 23,164 10,075 28,748
Property and equipment, net....... 4,413 809 1,146 514
Other Assets:
Intangible assets, net.......... 6,537 313
Notes receivable shareholder.... 754
Deferred income taxes........... 17 (17)(3)
Other assets.................... 439 66 84 95
----- ------- ------- ------- ------- -------
Total Assets.............. $ 3 $82,900 $ 4,831 $24,352 $12,059 $29,357
===== ======= ======= ======= ======= =======
Current Liabilities:
Floor plan notes payable........ $ -- $49,918 $ -- $13,707 $ 9,543 $24,121
Senior debt..................... 11,471
Current maturities of long-term
debt.......................... 1,921 60 178
Dealer finance reserves......... 307
Notes payable -- other.......... 7,255 864
Deferred income taxes........... 959
Accrued liabilities............. 2,593 1,120 582 1,270
Accounts payable................ 611 2,359 (611)(6) 1,206 471 220
----- ------- ------- ------- ------- -------
Total Current
Liabilities............. 611 76,783 (611) 16,093 10,774 26,475
Long-term debt, less current
maturities...................... 360 119 308 50
Deferred income taxes............. 1,752(3)
Other liabilities................. 357
Shareholders' Equity:
Common stock.................... 3,974 (3,969)(6) 100 179
Additional paid-in capital...... 3 5,963(6) 948 100
Owner's equity.................. 8,140
Note receivable................. (1,994)(6)
Retained earnings............... (611) 1,426 3,690(3) (71) 2,553
----- ------- ------- ------- ------- -------
Total Shareholders'
Equity.................. (608) 5,400 3,690 8,140 977 2,832
----- ------- ------- ------- ------- -------
Total Liabilities and
Shareholders' Equity.... $ 3 $82,900 $ 4,831 $24,352 $12,059 $29,357
===== ======= ======= ======= ======= =======
<CAPTION>
THE ACQUISITIONS
------------------------------------
PRO FORMA PRO FORMA
ROBERTSON DAY'S ADJUSTMENTS ADJUSTMENTS
OLDSMOBILE- CHEVROLET, FOR THE FOR THE
CADILLAC, INC. INC. OTHER ACQUISITIONS OFFERING PRO FORMA
-------------- ---------- ------ ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents....... $2,100 $ 1,448 $ 683 $(46,496)(1) $ 34,150(4) $ 7,401
Accounts receivable, net........ 377 836 964 (964)(1) 15,592
Finance receivables, net........ 13,495
Notes receivable shareholder.... (515)(1)
Inventories..................... 2,997 7,787 6,455 9,388(2) 117,480
Deferred income taxes........... (881)(2)(3)
Prepaid expenses and other
current assets................ 45 5 122 (122)(1) 2,743
------ ------- ------ -------- -------- --------
Total Current Assets...... 5,519 10,076 8,224 (39,590) 34,150 156,711
Property and equipment, net....... 46 272 1,331 (1,121)(1) 7,410
Other Assets:
Intangible assets, net.......... 106 37,101(1)(2) 44,057
Notes receivable shareholder.... (754)(1)
Deferred income taxes...........
Other assets.................... 322 40 1,046
------ ------- ------ -------- -------- --------
Total Assets.............. $5,671 $10,670 $9,595 $ (4,364) $ 34,150 $209,224
====== ======= ====== ======== ======== ========
Current Liabilities:
Floor plan notes payable........ $2,613 $ 8,975 $6,666 $ -- $(19,115)(4) $ 96,428
Senior debt..................... 11,471
Current maturities of long-term
debt.......................... 2,159
Dealer finance reserves......... 307
Notes payable -- other.......... 4,000(1) 12,119
Deferred income taxes........... (358)(2)(3) 601
Accrued liabilities............. 104 265 244 (244)(1) 5,934
Accounts payable................ 303 230 40 (40)(1) 4,789
------ ------- ------ -------- -------- --------
Total Current
Liabilities............. 3,020 9,470 6,950 3,358 (19,115) 133,808
Long-term debt, less current
maturities...................... 2,135 (2,135)(1) 837
Deferred income taxes............. 1,565(2)(3) 3,317
Other liabilities................. 357
Shareholders' Equity:
Common stock.................... 5 110 320 (713)(1) 5(4) 11
Additional paid-in capital...... 145 32 7,931(1) 53,260(4) 68,382
Owner's equity.................. (8,140)(1)
Note receivable................. (1,994)
Retained earnings............... 2,501 1,058 190 (6,230)(1)(2)(3) 4,506
------ ------- ------ -------- -------- --------
Total Shareholders'
Equity.................. 2,651 1,200 510 (7,152) 53,265 70,905
------ ------- ------ -------- -------- --------
Total Liabilities and
Shareholders' Equity.... $5,671 $10,670 $9,595 $ (4,364) $ 34,150 $209,224
====== ======= ====== ======== ======== ========
</TABLE>
33
<PAGE> 35
--------------------
(1) Reflects the preliminary allocation of the aggregate purchase price of the
Acquisitions based on the estimated fair value of the net assets acquired.
Because the carrying amount of the net assets acquired, which primarily
consist of accounts receivable, inventory, property, plant and equipment and
floorplan indebtedness, approximates their fair value, management believes
the application of purchase price accounting will not result in an
adjustment to the carrying amount of those net assets. Under the acquisition
agreements, the negotiated purchase prices for the Acquisitions will be
adjusted to the extent that the fair value of the tangible net assets as of
the closing is different than an agreed upon amount. The holders of
restricted stock issued in payment of the Acquisitions have agreed not to
offer, sell or otherwise dispose of any of those shares for a period of one
year after the Offering. The fair value of these shares reflects this
restriction. The amount of goodwill and the corresponding amortization
actually recorded may ultimately be different from the amounts estimated
here, depending upon the actual fair value of tangible net assets acquired
at closing of the Acquisitions. The estimated purchase price allocation
consists of the following (in thousands):
<TABLE>
<CAPTION>
JAY WADE FORD, INC. ROBERTSON
AUTOMOTIVE GRINDSTAFF, AND WADE OLDSMOBILE- DAY'S
GROUP, INC. INC. FORD BUFORD, INC. CADILLAC, INC. CHEVROLET OTHER TOTAL
----------- ----------- ----------------- -------------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Estimated total consideration:
Cash.......................... $12,000 $ 9,128 $11,904 $ 7,711 $ 5,589 $ 750 $ 47,082
Promissory note issued........ 4,000 -- -- -- -- -- 4,000
Restricted stock issued....... -- -- 3,600 360 5,198 -- 9,158
------- ------- ------- ------- ------- ----- --------
Total................... 16,000 9,128 15,504 8,071 10,787 750 60,240
Less tangible net assets
acquired...................... (8,850) (2,142) (6,433) (2,918) (2,321) (475) (23,139)
------- ------- ------- ------- ------- ----- --------
Excess of purchase price over
fair value of tangible net
assets acquired............... $ 7,150 $ 6,986 $ 9,071 $ 5,153 $ 8,466 $ 275 $ 37,101
======= ======= ======= ======= ======= ===== ========
</TABLE>
Also, reflects the elimination of certain assets and liabilities of the Bill
Holt Acquisition that will not be acquired by the Company.
The difference between the purchase price and the fair market value of the
net assets acquired will be allocated to goodwill and amortized over 40
years.
(2) Reflects the conversion from the LIFO Method of accounting to the FIFO
Method of inventory accounting at acquired entities including: Day's
Chevrolet, Inc., Grindstaff, Inc., Hones, Inc., the Jay dealerships, the
Robertson dealerships, and the Wade dealerships and the Boomershine
dealerships in the amounts of $1,838,000, $1,909,000, $438,000, $1,163,000,
$438,000, $3,601,000 and $6,049,000, respectively. The Company intends to
convert to the FIFO Method effective July 1, 1998 conditioned and effective
upon the closing of the Offering. See "Management's Discussion and Analysis
of the Financial Condition and Results of Operations -- Overview."
(3) In connection with the Merger, the Acquisitions and the Offering, the
Company will convert from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting. The accompanying pro forma combined and
condensed balance sheet includes $4,469,000 representing an additional tax
liability, which will result from this conversion. The tax liability will be
paid over a four year period.
(4) Reflects the Offering and the application of net proceeds thereof to be
received by the Company. See "Use of Proceeds."
(5) Reflects the Collision Centers USA Acquisition on December 18, 1997. The
purchase price for the Collision Centers was approximately $1.7 million,
one-half of which was paid in cash, and the balance of which was paid in the
form of promissory notes. The Collision Centers have been consolidated with
Boomershine Automotive as of the date of the acquisition. The excess of
purchase price over fair value of tangible net assets acquired of
approximately $1.9 million was allocated to goodwill to be amortized over 40
years.
Also reflects the South Financial Acquisition on January 6, 1998. The
purchase price for South Financial Corporation was approximately $4.65
million, which was paid in cash at the time of closing. To fund the cash
consideration the Company borrowed the sum of $4.5 million from an
affiliated company. See "Certain Transactions -- Certain Business
Relationships." South Financial Corporation has been consolidated with
Boomershine Automotive as of the date of the acquisition. The excess
purchase price over fair
34
<PAGE> 36
value of tangible net assets acquired of approximately $4.0 million was
allocated to goodwill to be amortized over 40 years.
(6) Reflects the Merger and the issuance of 249,202 shares of common stock to
executive officers of the Company subsequent to March 31, 1998.
Consideration for the common stock issuance was in the form of promissory
notes to the Company. The notes bear interest at a rate of 8% per annum and
are due and payable in five years. See "Certain Transactions -- Promissory
Notes."
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with (i) the financial statements of
certain of the entities acquired in the Acquisitions and involved in the Merger,
and the related notes thereto, (ii) the "Pro Forma Combined and Condensed
Financial Data" and the related notes thereto, and (iii) "Selected Financial
Data," all included elsewhere in this Prospectus. Certain statements contained
herein are not based on historical facts, but are forward-looking statements
that are based upon numerous assumptions about future conditions that could
prove not to be accurate. Such forward-looking statements include, without
limitation, the statements regarding the trends in the industry set forth in the
Prospectus Summary and under this caption regarding the Company's anticipated
future financial results and position. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in this Prospectus, including but not
limited to the matters described in "Risk Factors."
OVERVIEW
Sunbelt is one of the leading retailers of new and used vehicles in the
southeastern United States. The Company operates a total of 27 dealership
franchises in Georgia, North Carolina and Tennessee. The Company also operates
four collision repair centers in metropolitan Atlanta, Georgia, and a sub-prime
automotive finance company with operations in Florida, North Carolina and
Tennessee. Sunbelt sells 20 domestic and foreign brands of automobiles, which
consist of Buick, Cadillac, Chevrolet, Chrysler, Dodge, Ford, GMC, Honda,
Hummer, Isuzu, Jeep, Kia, Mazda, Mercury, Mitsubishi, Nissan, Oldsmobile,
Plymouth, Pontiac and Toyota. The Company intends to further diversify its
product and service offerings by including more brands of vehicles and by
offering related finance and insurance, replacement parts, collision repair, and
other products and services that are complementary to its core automotive
retailing operations. In several of its markets, the Company has significant
market share for the manufacturer type sold. Pro forma for the Merger and the
Acquisitions, the Company had total revenues of approximately $682 million and
retail unit sales of 20,499 new and 9,913 used vehicles for the year ended June
30, 1997, and revenues of $507 million and retail unit sales of 14,583 new and
7,134 used vehicles for the nine months ended March 31, 1998. The Company
believes that in 1997, based on pro forma retail new vehicle unit sales, it
would have been one of the 15 largest automotive dealer groups out of a total of
more than 15,000 automotive dealer groups in the United States. The Company's
strategy is: (i) to become the leading operator of automotive dealerships in
small- and medium-sized markets in the southeastern United States through
acquisitions of additional dealerships in these markets; and (ii) to expand its
collision centers and other complementary business operations.
The Company has diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicles
sales, parts sales, service sales, collision repair services, finance fees,
insurance commissions, extended service contract sales, and documentary fees.
Sales revenues include sales to retail customers, other dealers and wholesalers.
Other dealership revenue includes revenue from the sale of financing, insurance
and extended service contracts, net of a provision for anticipated chargebacks
and documentary fees charged to customers.
The Company's leasing expenses, salary expense, employee benefits costs and
advertising expenses comprise the majority of its selling, general and
administrative expenses. The Company's interest expense primarily results from
the Company's floorplan financing of its new and used vehicle inventory.
The Company has historically accounted for all of its dealership
acquisitions using the purchase method of accounting and, as a result, does not
include in its financial statements the results of operations of these
dealerships prior to the date they were acquired by the Company. The financial
statements of the Company discussed below reflect the combined and consolidated
results of operations, financial position and cash flows of the Company's
dealerships. As a result of the effects of the Merger, the Acquisitions and the
Offering, the historical financial information described herein is not
necessarily indicative of the results of operations,
36
<PAGE> 38
financial position and cash flows of the Company in the future or the results of
operations, financial position and cash flows which would have resulted had the
Merger and the Acquisitions and the Offering occurred at the beginning of the
periods presented in the historical financial statements.
Contemporaneously with the effective date hereof, the Company will effect
the Merger pursuant to which (i) Boomershine Automotive will be merged with and
into the Company and (ii) the Boomershine Automotive shareholders will receive
unregistered common stock of the Company in exchange for the capital stock in
Boomershine Automotive. From November 1997 through March 1998, the Company
consummated or signed definitive agreements to purchase six additional
dealerships or dealership groups, three collision repair businesses, and a
sub-prime automotive finance company for an aggregate consideration of
approximately $67 million. See "The Acquisitions." In connection with the
Acquisitions, the Company will book approximately $43 million of goodwill which
will be amortized over 40 years.
COMPANY'S CREDIT AND FINANCING ARRANGEMENTS
The Company is negotiating a $120 million floorplan financing line of
credit and a $50 million acquisition and general corporate and working capital
line of credit for operations subsequent to the closing of this Offering
(collectively the "Credit Facility"). As of March 31, 1998, the Company, before
giving effect to the Offering, had approximately $116 million of floorplan debt
outstanding. Currently, the Combined Companies' (as defined below) floorplan
financing is provided by six different sources. The Company anticipates that all
of the floorplan debt will be refinanced at more favorable terms by the Credit
Facility, but there can be no assurance that the Company will be able to obtain
such more favorable financing. See "Risk Factors -- Floorplan Financing." South
Financial has a revolving credit agreement with General Electric Capital
Corporation with a maximum borrowing capacity of $15 million with advances
permitted under formulas based on percentages of eligible collateral. Management
of the Company does not currently anticipate replacing this facility after this
Offering.
The Company believes its cash resources, including the Credit Facility and
the net proceeds of this Offering, will be adequate to fund its anticipated
operations and growth for the foreseeable future.
PRO FORMA COMPANY'S DATA
The unaudited pro forma combined financial data of the Company for 1995,
1996 and 1997 and the nine months ended March 31, 1997 and March 31, 1998, do
not purport to present any or all of the combined companies involved in the
Acquisitions and the Merger (the "Combined Companies") in accordance with
generally accepted accounting principles, but represent a summation of certain
data of the individual Combined Companies on a historical basis. The financial
statements of Hones, Inc. d/b/a Bill Holt Ford-Mercury and Collision Centers USA
have not been separately included within this Prospectus because said entities
do not qualify as significant subsidiaries under the Commission's Staff
Accounting Bulletin (SAB) No. 80 and, accordingly, are not required to be
presented. The data presented in this section may not be comparable to and may
not be indicative of the Company's post-combination results of operations
because (i) the Combined Companies were not under common control of management
and had different tax structures (S-Corporations and C-Corporations) during the
periods presented, and (ii) the Company will use the purchase method to
establish a new basis of accounting to record the Acquisitions.
The selected historical financial information presented in the tables below
is derived from the respective audited financial statements of the individual
Combined Companies included elsewhere herein. The following discussion should be
read in conjunction with the financial statements of all of the Combined
Companies and the notes thereto appearing elsewhere in the Prospectus.
For financial statement presentation purposes, as required by the rules and
regulations of the Commission, Boomershine Automotive has been identified as the
accounting acquiror.
37
<PAGE> 39
The following table sets forth unaudited pro forma revenues and cost of
sales for the Combined Companies for the periods indicated. Revenue items are
shown as a percent of total revenues while cost of sales items are shown as a
percent of the corresponding revenue item.
Operations Data
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------------------------------------ -----------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- ---------------- ----------------
AMT. PCT. AMT. PCT. AMT. PCT. AMT. PCT. AMT. PCT.
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
New vehicle sales........... $357,221 63.2% $403,877 62.2% $420,019 61.6% $306,737 61.1% $315,697 62.3%
Used vehicle sales.......... 142,801 25.3 166,976 25.7 177,925 26.1 132,098 26.3 127,126 25.1
Parts and service........... 53,625 9.5 61,682 9.5 66,602 9.8 48,884 9.7 50,159 9.9
Finance, commission and
other revenues, net....... 11,254 2.0 16,713 2.6 17,437 2.5 14,293 2.9 13,528 2.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total revenues........ 564,901 100.0% 649,248 100.0% 681,983 100.0% 502,012 100.0% 506,510 100.0%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
COST OF SALES:
New vehicle sales........... 338,458 94.7% 383,997 95.1% 399,003 95.0% 291,114 94.9% 300,039 95.0%
Used vehicle sales.......... 132,305 92.6 154,638 92.6 164,736 92.6 123,162 93.2 118,475 93.2
Parts and service........... 32,315 60.3 34,896 56.6 41,305 62.0 29,671 60.7 30,378 60.6
Finance, commission and
other revenues, net....... -- -- -- -- -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total cost of sales... 503,078 89.1% 573,531 88.3% 605,044 88.7% 443,947 88.4% 448,892 88.6%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
GROSS PROFIT.................. $ 61,823 10.9% $ 75,717 11.7% $ 76,939 11.3% $ 58,065 11.6% $ 57,618 11.4%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The following tables set forth certain unaudited pro forma information with
regard to the Combined Companies' vehicle and parts and services sales for the
periods indicated.
New Vehicle Data
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
-------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales................... 19,493 21,694 20,499 14,851 14,583
Retail sales........................ $357,221 $403,877 $420,019 $306,737 $315,697
Gross profit........................ $ 18,763 $ 19,880 $ 21,017 $ 15,623 $ 15,658
Gross margin........................ 5.3% 4.9% 5.0% 5.1% 5.0%
Average gross profit per retail unit
sold.............................. $ 963 $ 916 $ 1,025 $ 1,052 $ 1,074
</TABLE>
Used Vehicle Data
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
-------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales..................... 9,073 10,205 9,913 7,392 7,134
Retail sales.......................... $100,563 $122,464 $120,534 $89,217 $92,148
Gross profit.......................... $ 8,858 $ 11,281 $ 11,635 $ 8,246 $ 8,061
Gross margin.......................... 8.8% 9.2% 9.7% 9.2% 8.7%
Average gross profit per retail unit
sold................................ $ 976 $ 1,105 $ 1,174 $ 1,115 $ 1,130
Wholesale unit sales.................. 8,033 8,665 9,442 7,117 5,642
Wholesale sales....................... $ 42,238 $ 44,512 $ 57,391 $42,881 $34,978
Gross profit.......................... $ 1,638 $ 1,057 $ 1,554 $ 690 $ 590
Gross margin.......................... 3.9% 2.4% 2.7% 1.6% 1.7%
</TABLE>
38
<PAGE> 40
Parts and Service Data
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales.................................... $53,625 $61,682 $66,602 $48,884 $50,159
Gross profit............................. $21,310 $26,786 $25,297 $19,213 $19,781
Gross margin............................. 39.7% 43.4% 38.0% 39.3% 39.4%
</TABLE>
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Revenues. Total revenues increased by $4.5 million, or 0.9%, from $502.0
million for the nine months ended March 31, 1997 to $506.5 million for the nine
months ended March 31, 1998. New vehicle sales increased $9.0 million, or 2.9%
from $306.7 million for the nine months ended March 31, 1997 to $315.7 million
for the nine months ended March 31, 1998. This increase was primarily due to
increased sales at Wade Ford, principally at the Buford location, and Day's
Chevrolet. These increases were offset in part by decreased new vehicle sales at
Jay Automotive Group, principally at the Pontiac dealership, and the Bill Holt
Ford-Mercury dealerships. Used vehicle sales decreased $5.0 million, or 3.8%,
from $132.1 million for the nine months ended March 31, 1997 to $127.1 million
for the nine months ended March 31, 1998. This decrease was due primarily to
reduced wholesale used vehicle sales at Boomershine Automotive and at the
Grindstaff dealerships. These decreases were partially offset by increases in
used vehicle sales at the Jay Automotive Group and Bill Holt Ford-Mercury
dealerships. Parts and service sales increased $1.3 million, or 2.6%, from $48.9
million for the nine months ended March 31, 1997 to $50.2 million for the nine
months ended March 31, 1998. This increase was due primarily to increased sales
at Collision Centers USA offset in part by lower parts and service sales at
Day's Chevrolet. Other dealership revenues decreased $765,000, or 5.4%, from
$14.3 million for the nine months ended March 31, 1997 to $13.5 million for the
nine months ended March 31, 1998. This decrease was due to lower finance and
commissions income at South Financial offset partially by higher commissions and
documentation fees at Wade Ford.
Gross Profit. Gross profit decreased by $447,000, or 0.8%, from $58.1
million for the nine months ended March 31, 1997 to $57.6 million for the nine
months ended March 31, 1998. This decrease was primarily due to lower gross
margins realized on new vehicle sales, particularly due to increased competition
affecting the Robertson Oldsmobile-Cadillac dealership, and on sales at
Collision Centers USA. These decreases were partially offset by higher margins
realized at the Grindstaff dealerships due to a higher proportion of trucks
among new vehicle sales.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenues. Total revenues increased by $32.7 million, or 5.0%, from $649.2
million for the year ended June 30, 1996 to $682.0 million for the year ended
June 30, 1997. New vehicle sales increased $16.1 million, or 4.0% from $403.9
million for the year ended June 30, 1996 to $420.0 million for the year ended
June 30, 1997. This increase was primarily attributable to higher sales of Ford
products at the Wade Ford and Bill Holt Ford-Mercury dealerships coupled with
the addition of the Buick dealership by the Jay Automotive Group in December
1996. These improvements were partially offset by lower sales at the Boomershine
Nissan and Pontiac locations and the Robertson Oldsmobile-Cadillac dealership.
Used vehicle revenues increased $10.9 million, or 6.6%, from $167.0 million for
the year ended June 30, 1996 to $177.9 million for the year ended June 30, 1997.
This increase resulted from higher wholesale sales at Day's Chevrolet and higher
retail sales at the various Jay Automotive Group locations. These increases were
offset by reductions in retail used vehicle sales at the Boomershine Pontiac and
Nissan dealerships. Parts and service sales increased $4.9 million, or 8.0%,
from $61.7 million for the year ended June 30, 1996 to $66.6 million for the
year ended June 30, 1997. This increase resulted from the growing customer base
at Boomershine Automotive Group and Jay Automotive Group. Other dealership
revenues increased $724,000, or 4.3%, from $16.7 million for the year ended June
30, 1996 to $17.4 million for the year ended June 30, 1997. This increase was
due primarily to
39
<PAGE> 41
higher finance and insurance income at the Boomershine Automotive dealerships
coupled with the higher revenues of South Financial.
Gross Profit. Gross profit increased by $1.2 million, or 1.6%, from $75.7
million for the year ended June 30, 1996 to $76.9 million for the year ended
June 30, 1997. This increase was attributable to higher new and used vehicle
sales levels at the Jay Automotive Group dealerships coupled with higher revenue
from the South Financial business. These factors were offset by lower gross
profit contributions by the Boomershine Automotive dealerships resulting from
lower new vehicle sales and a higher proportion of wholesale units among used
vehicle sales.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues. Total revenues increased by $84.3 million, or 14.9%, from $564.9
million for the year ended June 30, 1995 to $649.2 million for the year ended
June 30, 1996. New vehicle sales increased $46.7 million, or 13.1% from $357.2
million for the year ended June 30, 1995 to $403.9 million for the year ended
June 30, 1996. This increase was primarily attributable to dealership additions
and higher sales at Bill Holt Ford-Mercury and both Wade Ford locations. The
dealership additions included the Buick, Honda and Mitsubishi dealerships by
Boomershine Automotive and the Mazda dealership by Jay Automotive Group. Used
vehicle revenues increased $24.2 million, or 16.9%, from $142.8 million for the
year ended June 30, 1995 to $167.0 million for the year ended June 30, 1996.
This increase resulted from dealership additions and the expansion of the used
vehicle facility at Robertson Oldsmobile-Cadillac. Parts and service sales
increased $8.1 million, or 15.0%, from $53.6 million for the year ended June 30,
1995 to $61.7 million for the year ended June 30, 1996. This increase resulted
from the dealership additions coupled with expanded customer base and parts
sales at Day's Chevrolet. Other dealership revenues increased $5.5 million, or
48.5%, from $11.2 million for the year ended June 30, 1995 to $16.7 million for
the year ended June 30, 1996. This increase was due primarily to the dealership
additions at Boomershine Automotive coupled with higher finance revenue from
South Financial.
Gross Profit. Gross profit increased by $13.9 million, or 22.5%, from
$61.8 million for the year ended June 30, 1995 to $75.7 million for the year
ended June 30, 1996. This increase was attributable to dealership additions at
the Boomershine Automotive and Jay Automotive along with higher revenue from
South Financial.
INDIVIDUAL MERGER AND ACQUISITION COMPANIES
BOOMERSHINE AUTOMOTIVE GROUP, INC.
Results of Operations
Prior to the Offering, Boomershine Automotive Group, Inc. was one of the
largest automotive dealership groups in Georgia and consisted of nine automotive
dealerships serving the greater Atlanta metropolitan market. The dealerships
included Pontiac, Buick, GMC, Hummer, Nissan, Ford, Isuzu, Honda and Mitsubishi.
Executive management of this group includes Mr. Walter M. Boomershine, Jr., who
has over 40 years of experience in the automotive retailing industry, and Mr.
Charles K. Yancey who joined the company in 1974. Six of the group's nine
dealerships have been added under this executive leadership since 1992.
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<PAGE> 42
The following table sets forth selected financial data and such data as a
percentage of total revenues for the Boomershine Automotive dealerships for the
periods indicated on a consolidated basis:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
-------------------------------------------------------- ------------------------------------
1995 1996 1997 1997 1998
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT PCT. AMOUNT PCT. AMOUNT PCT. AMOUNT PCT. AMOUNT PCT.
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales..... $156,955 66.2% $166,199 64.2% $152,625 62.4% $113,239 62.0% $113,340 63.9%
Used vehicle sales.... 57,047 24.1 64,652 25.0 61,811 25.3 47,318 25.9 39,517 22.3
Parts and service
sales............... 19,223 8.1 23,764 9.2 24,637 10.1 17,689 9.7 19,108 10.8
Other revenues, net... 3,856 1.6 4,219 1.6 5,339 2.2 4,355 2.4 5,399 3.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total
revenues...... 237,081 100.0 258,834 100.0 244,412 100.0 182,601 100.0 177,364 100.0
Cost of sales........... 214,820 90.6 232,934 90.0 219,719 89.9 164,026 89.8 157,113 88.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit............ 22,261 9.4 25,900 10.0 24,693 10.1 18,575 10.2 20,251 11.4
Selling, general and
administrative
expenses.............. 20,333 8.6 24,770 9.6 23,152 9.5 17,357 9.5 17,308 9.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from
operations............ 1,928 0.8 1,130 0.4 1,541 0.6 1,218 0.7 2,943 1.6
Other income and
expense:
Interest expense,
net................. 1,218 0.5 1,593 0.6 2,110 0.9 1,224 0.7 1,297 0.7
Other income
(expense)........... 60 0.0 13 0.0 44 0.0 (80) (0.0) (68) (0.0)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before in-
come taxes............ 770 0.3 (450) (0.2) (525) (0.2) (86) (0.0) 1,578 0.9
Income tax (expense)
benefit............... (292) (0.1) 133 0.1 167 0.1 26 0.0 (377) (0.2)
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income (loss)....... $ 478 0.2% $ (317) (0.1)% $ (358) (0.1)% $ (60) (0.0)% $ 1,201 0.7%
======== ======== ======== ======== ========
</TABLE>
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Revenues. Total revenues decreased $5.2 million, or 2.9%, from $182.6
million for the nine months ended March 31, 1997 to $177.4 million for the nine
months ended March 31, 1998. New vehicle sales increased $101,000, or 0.1%, from
$113.2 million for the nine months ended March 31, 1997 to $113.3 million for
the nine months ended March 31, 1998. This increase was primarily due to higher
sales of trucks and fleet units at Boomershine Ford, resulting in a 30.1%
increase in sales volume, and increased sales of utility vehicles at Boomershine
Mitsubishi. These increases were partially offset by a 31.9% decrease in the
sales of new vehicles at Boomershine Nissan. Used vehicle sales decreased $7.8
million, or 16.5%, from $47.3 million for the nine months ended March 31, 1997
to $39.5 million for the nine months ended March 31, 1998. This decrease was due
primarily to reduced wholesale activity at Boomershine Ford and Boomershine
Nissan, due to fewer trade-ins available for sale. These decreases were offset
in part by a sales increase at Boomershine Mitsubishi due to additional
investments in space and personnel. Parts and service sales increased $1.4
million, or 8.0%, from $17.7 million for the nine months ended March 31, 1997 to
$19.1 million for the nine months ended March 31, 1998. This increase was due
primarily to the acquisition of Collision Centers USA in December 1997 offset
partially by reduced sales of parts and service at Boomershine Nissan. The sales
of parts and service at Collision Centers USA for the three months ended March
31, 1998 amounted to $1.7 million. Other dealership revenues increased $1.0
million, or 24.0%, from $4.4 million for the nine months ended March 31, 1997 to
$5.4 million for the nine months ended March 31, 1998. This increase was due to
the South Financial Acquisition in January 1998 offset by lower finance and
insurance commissions at Boomershine Nissan.
Gross Profit. Gross profit increased $1.7 million, or 9.0%, from $18.6
million for the nine months ended March 31, 1997 to $20.3 million for the nine
months ended March 31, 1998. Of this amount, $1.8 million was attributable to
the Collision Centers USA and South Financial acquisitions. Increased new
vehicle sales at Boomershine Ford and Mitsubishi also attributed to the
increased gross profits. These increases were partially offset by the effects of
lower new and used vehicle sales at Boomershine Nissan.
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<PAGE> 43
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $49,000, or 0.3%, from $17.4 million for the
nine months ended March 31, 1997 to $17.3 million for the nine months ended
March 31, 1998. This decrease was primarily due to reductions at Boomershine
Pontiac and Boomershine Nissan for personnel realignments and lower marketing
expense and sales commissions. These decreases were partially offset by the
Collision Centers USA and South Financial acquisitions, together amounting to
$1.4 million in the three months ended March 31, 1998, and higher sales
commissions at Boomershine Ford.
Interest Expense, net. Interest expense, net increased $73,000 or 6.0%,
from $1.2 million for the nine months ended March 31, 1997 to $1.3 million for
the nine months ended March 31, 1998. This increase was attributable to the
Collision Centers USA and South Financial acquisitions, together amounting to
$364,000 in the three months ended March 31, 1998, offset in part by lower
interest charges at Boomershine Pontiac and greater manufacturer support at
Boomershine Ford.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenues. Total revenues decreased by $14.4 million, or 5.6%, from $258.8
million for the year ended June 30, 1996 to $244.4 million for the year ended
June 30, 1997. New vehicle sales revenues decreased $13.6 million, or 8.2% from
$166.2 million for the year ended June 30, 1996 to $152.6 million for the year
ended June 30, 1997. This decrease was primarily attributable to reduced unit
sales of fleet vehicles at both the Boomershine Pontiac and Ford dealerships and
a 14% reduction in retail unit sales at the Boomershine Nissan dealership. Used
vehicle revenues decreased $2.8 million, or 4.4%, from $64.7 million for the
year ended June 30, 1996 to $61.8 million for the year ended June 30, 1997. This
decrease resulted from reduced used vehicle trade-in availability at the
Boomershine Nissan and Pontiac dealerships and reduced wholesale activity at the
Boomershine Ford dealership. These were partially offset by the increase in used
vehicle sales at the Boomershine Mitsubishi dealership that was owned for a
partial year in the year ended June 30, 1996. Parts and service sales increased
$873,000, or 3.7%, from $23.8 million for the year ended June 30, 1996 to $24.6
million for the year ended June 30, 1997. This increase resulted from higher
revenues from service and bodywork at the Boomershine Pontiac, Mitsubishi and
Ford locations and the overall economic strength of the markets served. Other
Boomershine Automotive dealership revenues increased $1.1 million, or 26.5%,
from $4.2 million for the year ended June 30, 1996 to $5.3 million for the year
ended June 30, 1997. This increase was due primarily to increased finance and
insurance income and a generally competitive lending environment.
Gross Profit. Gross profit decreased by $1.2 million, or 4.7%, from $25.9
million for the year ended June 30, 1996 to $24.7 million for the year ended
June 30, 1997. This decrease was attributable to lower overall revenue levels
and profit contribution at the Boomershine Nissan location and was offset in
part by higher average new and used margins at the Boomershine Ford dealership.
The margins were also increased by the effect of having the Boomershine
Mitsubishi dealership for an entire year in the year ended June 30, 1997.
Overall, the percentage gross margin improved from 10.0% for the year ended June
30, 1996 to 10.1% for the year ended June 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.6 million, or 6.5%, from $24.8 for the year
ended June 30, 1996 to $23.2 million for the year ended June 30, 1997. This
decrease was primarily due to expense rationalization and lower incentive
compensation charges at the Boomershine Nissan dealership. These were partially
offset by increases in personnel costs at the Boomershine Pontiac, Ford and
Mitsubishi dealerships.
Interest Expense, net. Interest expense, net increased $517,000, or 32.5%,
from $1.6 million for the year ended June 30, 1996 to $2.1 million for the year
ended June 30, 1997. This increase was attributable primarily to slower
inventory turns at Boomershine Pontiac and Nissan locations.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues. Total revenues increased by $21.8 million, or 9.2%, from $237.1
million for the year ended June 30, 1995 to $258.8 million for the year ended
June 30, 1996. New vehicle sales revenues increased $9.2 million, or 5.9% from
$157.0 million for the year ended June 30, 1995 to $166.2 million for the year
ended
42
<PAGE> 44
June 30, 1996. This increase was primarily attributable to Boomershine
Automotive's addition of the Honda and Mitsubishi dealerships in the Cobb
County, Georgia market area and higher average per unit sales at the Boomershine
Ford and Nissan dealerships. Used vehicle revenues increased $7.6 million, or
13.3%, from $57.0 million for the year ended June 30, 1995 to $64.6 million for
the year ended June 30, 1996. This increase resulted from the addition of the
Boomershine Honda and Mitsubishi dealerships and higher wholesale revenues at
the Boomershine Ford dealership. These factors were partially offset by lower
used vehicle sales at the Boomershine Pontiac/GMC location. Parts and service
sales increased $4.5 million, or 23.6%, from $19.2 million for the year ended
June 30, 1995 to $23.7 million for the year ended June 30, 1996. This increase
resulted from the Boomershine Honda and Mitsubishi dealership additions and
higher service revenues at the Boomershine Pontiac dealership. Other Boomershine
Automotive dealership revenues increased $363,000, or 9.4%, from $3.9 million
for the year ended June 30, 1995 to $4.2 million for the year ended June 30,
1996. This increase was due primarily to the Boomershine Buick and Mitsubishi
dealership additions and increased unit sales.
Gross Profit. Gross profit increased by $3.6 million, or 16.3%, from $22.3
million for the year ended June 30, 1995 to $25.9 million for the year ended
June 30, 1996. This increase was attributable to the addition of the Boomershine
Buick and Mitsubishi dealerships and the impact of higher revenues and average
sales per unit, particularly at the Boomershine Ford dealership.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million, or 21.8%, from $20.3 million for
the year ended June 30, 1995 to $24.7 million for the year ended June 30, 1996.
This increase was primarily due to the addition of the Boomershine Honda and
Mitsubishi dealerships as well as added personnel charges for the Boomershine
Ford and Pontiac locations.
Interest Expense, net. Interest expense, net increased $375,000 from $1.2
million for the year ended June 30, 1995 to $1.6 million for the year ended June
30, 1996. This increase was attributable to increased inventory levels at the
Boomershine Ford location and slow-moving conversion van inventory at the
Boomershine Pontiac dealership.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. Boomershine Automotive's principal sources of
liquidity are cash on hand, cash from operations and floorplan financing.
The following table sets forth historical selected information from
Boomershine Automotive's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ----- ------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................... $ 4,197 $ 3,513 $ 429 $1,085 $ 2,061
Net cash provided by (used in) investing
activities.................................... (2,740) (4,238) (612) (828) (6,058)
Net cash provided by (used in) financing
activities.................................... 799 9 (259) (168) 4,158
------- ------- ----- ------ -------
Net increase (decrease) in cash and cash
equivalents................................... $ 2,256 $ (716) $(442) $ 89 $ 161
======= ======= ===== ====== =======
</TABLE>
Cash Flows
Total cash and cash equivalents at March 31, 1998 were $4.7 million.
For the three years ended June 30, 1997, Boomershine Automotive generated
$1.7 million in cash flow from net income (loss) plus depreciation and
amortization. If the FIFO Method had been used during the three years ended June
30, 1997, such measure would have been greater by $1.2 million. Net cash flow
from operating activities is significantly impacted by changes in inventory
levels reflecting strategic and marketing decisions. Inventory levels increased
by $19.5 million and $577,000 for the fiscal years ended June 30, 1995
43
<PAGE> 45
and 1996, respectively. During the year ended June 30, 1997, the aggregate
inventory level decreased by $11.1 million.
Changes in the outstanding balance under the floorplan arrangements also
serve to influence the net cash flow from operations. During the years ended
June 30, 1995 and 1996 the notes payable balance owed to floorplan lenders
increased $25.2 million and $2.8 million, respectively. For the year ended June
30, 1997, such notes payable balances decreased as a result of a repayment of
$12.6 million.
For the nine months ended March 31, 1998, the Boomershine Automotive
dealerships generated net cash flow of $2.0 million from net income plus
depreciation and amortization compared to $599,000 in the nine months ended
March 31, 1997. This resulted from the improvement in net earnings.
The change in net cash used in investing activities for the three years
ended June 30, 1997 amounted to $7.6 million. This was primarily attributable to
capital expenditures for the acquisition of the Boomershine Honda, Mitsubishi
and Buick dealerships, expansion of the rental car program, renovation of
showroom facilities and construction of a collision repair center.
The change in net cash used in investing activities for the nine months
ended March 31, 1998 resulted from the payment of the cash component of the
Collision Centers USA Acquisition and routine capital expenditures.
The change in net cash related to financing activities was primarily
attributable to borrowings and repayments under long-term debt. For the years
ended June 30, 1995 and 1996, the increase in these notes payable amounted to
$799,000 and $9,000, respectively. For the year ended June 30, 1997, the amount
owed under these notes decreased by $259,000.
The change in net cash related to financing activities for the nine months
ended March 31, 1998 resulted from a loan from a related party amounting to $4.5
million to facilitate the South Financial Acquisition in January 1998.
Floorplan Financing
Boomershine Automotive currently obtains floorplan financing for its
dealerships' vehicle inventories primarily through Ford Motor Credit and
NationsBank Credit. As of March 31, 1998, the Boomershine Automotive dealerships
had approximately $49.9 million of outstanding floorplan financing. The debt
bears interest at LIBOR plus 200 to 225 basis points. Interest expense on
floorplan notes payable, before manufacturers' interest assistance, totaled
approximately $3.6 million, $4.5 million and $3.8 million for the years ended
June 30, 1995, 1996 and 1997, respectively. Manufacturers' interest assistance,
which is recorded as a reduction to interest expense, amounted to $2.7 million,
$2.9 million and $2.0 million for the years ended June 30, 1995, 1996 and 1997,
respectively.
Leases
The Boomershine Automotive dealerships lease their primary operating
facilities under operating leases, including leases with related parties, which
expire at various dates through 2017. Certain of the leases contain automatic
renewal provisions that require the lessee to affirmatively state its intention
to vacate. Management believes that the terms and provisions of the related
party leases approximate those available from third parties.
JAY AUTOMOTIVE GROUP
Results of Operations
Prior to the Offering, Jay Automotive Group, Inc. consisted of six retail
automotive dealerships and from used car facilities serving the Columbus,
Georgia market. The dealerships included Toyota, Mazda, Pontiac, Buick, GMC and
Mitsubishi. Mr. James G. Stelzenmuller, III, who has over 15 years of experience
in the automotive retailing industry and has managed this business since 1983,
owned Jay Automotive immediately prior to the Offering.
44
<PAGE> 46
Certain related businesses (e.g. leasing and insurance subsidiaries) that
were subsidiaries of Jay Automotive were also divested prior to the Offering.
Accordingly, the financial results of those related businesses are not included
in the accompanying financial statements and are excluded from the discussion
below.
The following table sets forth selected financial data and such data as a
percentage of total revenues for the combined Jay Automotive Group dealerships
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales........ $46,763 58.8% $56,329 59.0% $ 54,899 54.6% $13,748 54.6% $12,756 52.1%
Used vehicle sales....... 21,990 27.7 26,358 27.6 31,562 31.4 7,462 29.6 7,899 32.2
Parts and service
sales.................. 9,009 11.3 10,636 11.2 11,869 11.8 3,218 12.8 3,207 13.1
Other revenues, net...... 1,721 2.2 2,066 2.2 2,184 2.2 752 3.0 645 2.6
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Total revenues..... 79,483 100.0 95,389 100.0 100,514 100.0 25,180 100.0 24,507 100.0
Cost of sales.............. 70,135 88.2 84,106 88.2 88,543 88.1 21,891 86.9 21,412 87.4
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Gross profit............... 9,348 11.8 11,283 11.8 11,971 11.9 3,289 13.1 3,095 12.6
Selling, general and
administrative
expenses................. 7,134 9.0 8,952 9.4 9,588 9.5 2,411 9.6 2,537 10.4
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Income from operations..... 2,214 2.8 2,331 2.4 2,383 2.4 878 3.5 558 2.2
Other income and expense:
Interest expense, net.... 360 0.5 301 0.3 261 0.3 79 0.3 8 0.0
Other income (expense)... -- -- -- -- -- -- -- -- -- --
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Income before income
taxes.................... 1,854 2.3 2,030 2.1 2,122 2.1 799 3.2 550 2.2
Income tax expense......... (703) (0.9) (775) (0.8) (806) (0.8) (304) (1.2) (209) (0.9)
------- ----- ------- ----- -------- ----- ------- ----- ------- -----
Net income................. $1,151 1.4% $1,255 1.3% $ 1,316 1.3% $ 495 2.0% $ 341 1.3%
======= ======= ======== ======= =======
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Total revenues decreased $673,000, or 2.7%, from $25.2 million
for the three months ended March 31, 1997 to $24.5 million for the three months
ended March 31, 1998. New vehicle sales decreased $1.0 million, or 7.2%, from
$13.7 million for the three months ended March 31, 1997 to $12.7 million for the
three months ended March 31, 1998. This decrease was primarily due to lower
Mitsubishi and Pontiac sales, which was offset partially by higher GMC truck
sales. Used vehicle sales increased $437,000, or 5.9%, from $7.5 million for the
three months ended March 31, 1997 to $7.9 million for the three months ended
March 31, 1998. This increase was due primarily to higher retail used vehicle
sales at the newly opened used vehicle facility offset in part by reduced
wholesale activity. Parts and service sales decreased $11,000, or 0.3%, from
$3.2 million for the three months ended March 31, 1997 to $3.2 million for the
three months ended March 31, 1998. This decrease was due primarily to reduced
selling days available at the Pontiac and Buick dealerships. Other dealership
revenues decreased $107,000, or 14.2%, from $752,000 for the three months ended
March 31, 1997 to $645,000 for the three months ended March 31, 1998. This
decrease was due to lower finance and insurance commissions. Decrease of
revenues was partially attributable to the disruption of the business caused by
the relocation of certain dealerships to a newly-opened auto mall location.
Gross Profit. Gross profit decreased $194,000, or 5.9%, from $3.3 million
for the three months ended March 31, 1997 to $3.1 million for the three months
ended March 31, 1998. This decrease was primarily due to reduced operating days
resulting from the relocation described above and reductions in the gross margin
percentage achieved at the Toyota and Pontiac locations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $126,000, or 5.2%, from $2.4 million for the
three months ended March 31, 1997 to $2.5 million for the three months ended
March 31, 1998. This increase was primarily due to higher compensation charges
and expenses associated with opening the new sales location offset in part by
higher marketing co-op reimbursements.
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<PAGE> 47
Interest Expense, net. Interest expense, net decreased $71,000, or 89.9%,
from $79,000 for the three months ended March 31, 1997 to $8,000 for the three
months ended March 31, 1998. This decrease was primarily attributable to
increased manufacturer support.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased by $5.1 million, or 5.4%, from $95.4
million for the year ended December 31, 1996 to $100.5 million for the year
ended December 31, 1997. New vehicle sales decreased $1.4 million, or 2.5% from
$56.3 million for the year ended December 31, 1996 to $54.9 million for the year
ended December 31, 1997. This decrease was primarily attributable to reductions
in the availability of Toyota vehicles from the distributor and a decline in
demand for Pontiac vehicles. These factors were partially offset by the impact
of the addition of the Buick dealership to Jay Automotive in December 1996. Used
vehicle sales increased $5.2 million, or 19.7%, from $26.4 million for the year
ended December 31, 1996 to $31.6 million for the year ended December 31, 1997.
This increase resulted from the implementation of a market segmentation strategy
and more management focus in this area. Parts and service sales increased $1.2
million, or 11.6%, from $10.6 million for the year ended December 31, 1996 to
$11.8 million for the year ended December 31, 1997. This increase resulted from
the addition of the Buick dealership. Other dealership revenues increased
$118,000, or 5.7%, from $2.1 million for the year ended December 31, 1996 to
$2.2 million for the year ended December 31, 1997. This minor increase was due
primarily to higher finance and documentation income.
Gross Profit. Gross profit increased by $688,000, or 6.1%, from $11.3
million for the year ended December 31, 1996 to $12.0 million for the year ended
December 31, 1997. This increase was attributable to higher overall unit sales
and the addition of the Buick dealership to Jay Automotive in December 1996 and
its related service and parts income.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $636,000, or 7.1%, from $8.9 million for the
year ended December 31, 1996 to $9.6 million for the year ended December 31,
1997. This increase was primarily due to the addition of personnel to the Jay
Automotive Toyota body shop operations and the Jay Automotive Buick dealership.
These additions were partially offset by a reduction in sales incentive
compensation related to the reduction in new unit sales.
Interest Expense, net. Interest expense, net decreased $40,000, or 13.3%,
from $301,000 for the year ended December 31, 1996 to $261,000 for the year
ended December 31, 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased by $15.9 million, or 20.0%, from $79.5
million for the year ended December 31, 1995 to $95.4 million for the year ended
December 31, 1996. New vehicle sales increased $9.6 million, or 20.5% from $46.7
million for the year ended December 31, 1995 to $56.3 million for the year ended
December 31, 1996. This increase was primarily attributable to the addition of
the Mazda dealership to Jay Automotive in November 1995. Used vehicle sales
increased $4.4 million, or 19.9%, from $22.0 million for the year ended December
31, 1995 to $26.4 million for the year ended December 31, 1996. This increase
resulted from the addition of the Mazda dealership to Jay Automotive and the
dealership's favorable location for used car sales. This increase was partially
offset by reductions in used vehicle sales from the Jay Automotive Toyota and
Pontiac dealership locations. Parts and service sales increased $1.6 million, or
18.1%, from $9.0 million for the year ended December 31, 1995 to $10.6 million
for the year ended December 31, 1996. This increase resulted from the Mazda
dealership addition. Other dealership revenues increased $345,000, or 20.0%,
from $1.7 million for the year ended December 31, 1995 to $2.1 million for the
year ended December 31, 1996. This minor increase was due primarily to
documentation and insurance commission income.
Gross Profit. Gross profit increased by $1.9 million, or 20.7%, from $9.3
million for the year ended December 31, 1995 to $11.3 million for the year ended
December 31, 1996. This increase was attributable to overall increased unit
sales led by the addition of the Mazda dealership to Jay Automotive in November
1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 25.5%, from $7.1 million for
the year ended December 31, 1995 to $8.9 million for the year
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<PAGE> 48
ended December 31, 1996. This increase was primarily due to the increase in
personnel that resulted from the addition of the Mazda dealership and increased
employee benefit costs and increased support staff compensation at the Toyota
dealership.
Interest Expense, net. Interest expense, net decreased $59,000, or 16.4%,
from $360,000 for the year ended December 31, 1995 to $301,000 for the year
ended December 31, 1996. This decrease was attributable to additional
manufacturer support under floorplan financing arrangements.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. Jay Automotive Group's principal sources of
liquidity are cash on hand, cash from operations and floorplan financing.
The following table sets forth historical selected information from the
combined Jay Automotive Group dealership's statements of cash flows for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ---------------
1995 1996 1997 1997 1998
------- ---- ------ ------ -----
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.............................. $ 1,895 $669 $1,424 $1,124 $ 443
Net cash provided by (used in) investing
activities.............................. (1,819) (90) (74) (214) 21
Net cash provided by (used in) financing
activities.............................. 73 37 2 (123) (150)
------- ---- ------ ------ -----
Net increase (decrease) in cash and cash
equivalents............................. $ 149 $616 $1,352 $ 787 $ 314
======= ==== ====== ====== =====
</TABLE>
Cash Flows
Total cash and cash equivalents at March 31, 1998 were $4.1 million.
For the three years ended December 31, 1997, the Jay Automotive Group
dealerships generated $4.4 million in cash flow from net income plus
depreciation and amortization. Net cash flow from operating activities ranged
during this period from a high of $1.9 million in 1995 to a low of $669,000 in
1996. The primary factors influencing these results are net income, change in
investment in inventories and the net borrowing or net repayment on the
floorplan arrangements.
The change in net cash provided by operations for the three months ended
March 31, 1998 compared to the quarter ended March 31, 1997 resulted from
increases in inventories and accounts receivable offset partially by an increase
in floorplan borrowings.
The change in net cash used in investing activities for the three years
ended December 31, 1997 was primarily attributable to capital expenditures, the
purchase of the Mazda dealership in 1995 and the purchase of the Buick franchise
in 1996.
The change in net cash related to financing activities was primarily
attributable to reductions in amounts owed to unconsolidated subsidiaries which
were partially offset by repayments on long-term debt.
Floorplan Financing
Jay Automotive Group currently obtains floorplan financing for its vehicle
inventory primarily through General Motors Acceptance Corporation ("GMAC"),
World Omni Finance and a commercial bank. As of March 31, 1998, Jay Automotive
Group had approximately $13.7 million of outstanding floorplan financing. The
debt bears interest at various rates which generally fluctuate with the prime
rate or LIBOR and which
47
<PAGE> 49
ranged from 7.2% to 10.25% at December 31, 1997. The floorplan lenders generally
provide for rebate reductions in interest expense based on volume and other
factors as well as manufacturers' assistance based on an agreed-upon amounts
which vary by model. Interest expense on floorplan notes payable, before
manufacturers' interest assistance, totaled approximately $1.0 million, $1.4
million and $864,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. Manufacturers' interest assistance, which is recorded as a
reduction to interest expense, amounted to approximately $608,000, $1.1 million
and $530,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Leases
The real estate and buildings housing the Jay Automotive Pontiac, GMC,
Buick, Mitsubishi and Mazda dealerships and a major used car facility are leased
from a company owned and controlled by James G. Stelzenmuller, the former sole
shareholder of Jay Automotive Group, Inc. This facility is pledged as collateral
to an Industrial Revenue Bond used to finance its construction. Certain other
facilities used in the business operations of Jay Automotive are leased on a
month to month basis and the lease understandings are not in writing. Management
believes these leases and informal arrangements contain terms and rates that are
comparable to those which are available on the open market.
WADE FORD, INC. AND WADE FORD BUFORD, INC. -- COMBINED
Results of Operations
Wade Ford, Inc. and Wade Ford Buford, Inc. operate Ford dealerships located
in Smyrna and Buford, Georgia, respectively both suburban locations which are
part of the greater metropolitan Atlanta market. Prior to the Offering, both
dealerships were owned by Mr. Alan K. Arnold and several other minority
shareholders. Mr. Arnold has over 20 years of automotive retailing experience in
the greater Atlanta area. The Smyrna-based dealership was originally founded in
the early 1950's and the Buford-based dealership was added in 1990.
The following table sets forth selected financial data and such data as a
percentage of total revenues for the combined Wade Ford dealerships for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------ ---------------------------------------
1995 1996 1997 1997 1998
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales...... $ 83,408 71.6% $105,581 73.5% $129,833 78.5% $ 33,048 79.3% $ 30,607 76.6%
Used vehicle sales..... 22,812 19.6 28,236 19.7 24,482 14.8 6,006 14.4 6,562 16.4
Parts and service
sales................ 9,297 8.0 8,426 5.9 9,603 5.8 2,326 5.6 2,481 6.2
Other revenues, net.... 1,023 0.8 1,351 0.9 1,424 0.9 316 0.7 327 0.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total revenues... 116,540 100.0 143,594 100.0 165,342 100.0 41,696 100.0 39,977 100.0
Cost of sales............ 106,587 91.5 131,462 91.6 152,680 92.3 38,512 92.4 37,057 92.7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit............. 9,953 8.5 12,132 8.4 12,662 7.7 3,184 7.6 2,920 7.3
Selling, general and
administrative
expenses............... 9,504 8.1 11,261 7.8 10,467 6.3 2,637 6.3 2,581 6.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income from operations... 449 0.4 871 0.6 2,195 1.4 547 1.3 339 0.8
Other income and expense:
Interest expense,
(income) net........... 120 0.1 209 0.2 (5) (0.0) 22 0.1 (34) (0.1)
Other income (expense),
net.................. 230 0.2 252 0.2 95 0.0 12 0.0 7 0.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Income before income
taxes.................. 559 0.5 914 0.6 2,295 1.4 537 1.2 380 0.9
Income tax expense....... -- -- -- -- -- -- -- -- -- --
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net income............... $ 559 0.5% $ 914 0.6% $ 2,295 1.4% $ 537 1.2% $ 380 0.9%
======== ======== ======== ======== ========
</TABLE>
48
<PAGE> 50
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Total revenues decreased $1.7 million, or 4.1%, from $41.7
million for the three months ended March 31, 1997 to $40.0 million for the three
months ended March 31, 1998. New vehicle sales decreased $2.4 million, or 7.4%,
from $33.0 million for the three months ended March 31, 1997 to $30.6 million
for the three months ended March 31, 1998. This decrease was primarily due to
lower sales of fleet units at the Smyrna location offset in part by increased
truck sales at the Buford location. Used vehicle sales increased $556,000, or
9.3%, from $6.0 million for the three months ended March 31, 1997 to $6.6
million for the three months ended March 31, 1998. This increase was due
primarily to higher sales of remarketed Ford vehicles at the Buford location and
a strategy of dealing in later models. Parts and service sales increased
$155,000, or 6.7%, from $2.3 million for the three months ended March 31, 1997
to $2.5 million for the three months ended March 31, 1998. This increase was due
primarily to population growth and a larger customer base in the Buford
dealership area. Other dealership revenues increased $11,000, or 3.5%, from
$316,000 for the three months ended March 31, 1997 to $327,000 for the three
months ended March 31, 1998. This increase was due to higher warranty sales
offset in part by lower finance and insurance commissions.
Gross Profit. Gross profit decreased $264,000, or 8.3%, from $3.2 million
for the three months ended March 31, 1997 to $2.9 million for the three months
ended March 31, 1998. This decrease was primarily due to lower fleet sales
activity and lower margins on used vehicle sales offset in part by higher sales
of parts and services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $56,000, or 2.1%, from $2.6 million for the
three months ended March 31, 1997 to $2.6 million for the three months ended
March 31, 1998. This decrease was primarily due to reduced sales commissions and
lower workers compensation insurance premiums offset in part by higher
compensation for support personnel at the Buford location.
Interest Expense, net. Interest expense, net decreased $56,000, from
$22,000 for the three months ended March 31, 1997 to $(34,000) for the three
months ended March 31, 1998. This decrease was attributable to lower inventory
levels.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased by $21.7 million, or 15.1%, from $143.6
million for the year ended December 31, 1996 to $165.3 million for the year
ended December 31, 1997. New vehicle sales increased $24.3 million, or 23.0%
from $105.6 million for the year ended December 31, 1996 to $129.8 million for
the year ended December 31, 1997. This increase was primarily attributable to
strong regional growth near the Wade Ford Buford location and increased emphasis
on fleet sales at the Wade Ford Smyrna location. Used vehicle sales decreased
$3.8 million, or 13.3%, from $28.2 million for the year ended December 31, 1996
to $24.5 million for the year ended December 31, 1997. This decrease resulted
from increased competition near the Wade Ford Smyrna location. Parts and service
sales increased $1.2 million, or 14.0%, from $8.4 million for the year ended
December 31, 1996 to $9.6 million for the year ended December 31, 1997. This
increase resulted from the higher retail demand at the Wade Ford Buford location
resulting in higher new vehicle unit sales. Other dealership revenues increased
$73,000, or 5.4%, from $1.4 million for the year ended December 31, 1996 to $1.4
million for the year ended December 31, 1997. This increase was due primarily to
higher documentation fee income.
Gross Profit. Gross profit increased by $530,000, or 4.4%, from $12.1
million for the year ended December 31, 1996 to $12.6 million for the year ended
December 31, 1997. This increase was attributable to higher overall revenues at
both Wade Ford locations. The gross profit as a percent of sales decreased from
8.4% in 1996 compared to 7.7% in 1997 due to the generally lower returns on
fleet sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $794,000, or 7.1%, from $11.3 million for the
year ended December 31, 1996 to $10.5 million for the year ended December 31,
1997. This decrease was primarily due to lower charges for advertising, rents,
bad debts and professional fees.
49
<PAGE> 51
Interest Expense, net. Interest expense, net decreased $214,000, or
102.4%, from $209,000 (expense) for the year ended December 31, 1996 to $5,000
(income) for the year ended December 31, 1997. This decrease was attributable
primarily to greater manufacturer credits which were partially offset by higher
charges incurred for larger average inventory levels.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased by $27.1 million, or 23.2%, from $116.5
million for the year ended December 31, 1995 to $143.6 million for the year
ended December 31, 1996. New vehicle sales increased $22.2 million, or 26.6%
from $83.4 million for the year ended December 31, 1995 to $105.6 million for
the year ended December 31, 1996. This increase was primarily attributable to
expanded fleet sales and overall economic growth in the Buford area. Used
vehicle sales increased $5.4 million, or 23.8%, from $22.8 million for the year
ended December 31, 1995 to $28.2 million for the year ended December 31, 1996.
This increase resulted from the strategic decision by the Wade Ford Buford
management team to carry larger used car inventories. Parts and service sales
decreased $871,000, or 9.4%, from $9.3 million for the year ended December 31,
1995 to $8.4 million for the year ended December 31, 1996. This decrease
resulted from lower parts and service sales at the Smyrna-based dealership.
Other dealership revenues increased $328,000 or 32.1%, from $1.0 million for the
year ended December 31, 1995 to $1.4 million for the year ended December 31,
1996. This increase was due primarily to higher documentation fee income.
Gross Profit. Gross profit increased by $2.2 million, or 21.9%, from $9.9
million for the year ended December 31, 1995 to $12.1 million for the year ended
December 31, 1996. This increase was attributable to higher overall revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 18.5%, from $9.5 million for
the year ended December 31, 1995 to $11.3 million for the year ended December
31, 1996. This increase was primarily due to higher variable incentive pay
stemming from increased retail sales and higher charges for rents, bad debts and
professional fees.
Interest Expense, net. Interest expense, net increased $89,000, or 74.2%,
from $120,000 for the year ended December 31, 1995 to $209,000 for the year
ended December 31, 1996. This increase was attributable to the increased
inventory of vehicles, principally used, at the Wade Ford Buford location.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. The Wade Ford dealerships' principal sources of
liquidity are cash on hand, cash from operations and floorplan financing.
The following table sets forth historical selected information from the
Wade Ford dealerships' statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $(2,232) $ 2,447 $ 2,472 $ 1,398 $ 1,474
Net cash provided by (used in) investing
activities............................. 2,583 294 (185) (2) (4)
Net cash provided by (used in) financing
activities............................. (46) (60) (2,260) (1,297) (130)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ $ 305 $ 2,681 $ 27 $ 99 $ 1,340
======= ======= ======= ======= =======
</TABLE>
50
<PAGE> 52
Cash Flows
Total cash and cash equivalents at March 31, 1998 were $6.0 million.
For the three years ended December 31, 1997, the dealership generated $4.3
million in cash flow from net income plus depreciation and amortization. Net
cash flow from operating activities increased from a use of funds of $2.2
million to a source of funds of $2.5 million during the three year period. The
increase is due primarily to positive net earnings and increased floorplan
balances offset by the effect of additions to inventory needed to support
expanding sales -- principally in new vehicles at both the Wade Ford Buford and
Wade Ford Smyrna locations.
Net cash provided by operations increased from $1.4 million in the three
months ended March 31, 1997 to $1.5 million in the three months ended March 31,
1998. This was attributable to reductions in inventory balances offset in part
by lower floorplan borrowings.
The change in net cash used in investing activities for the three years
ended December 31, 1997 was primarily attributable to capital expenditures for
renovations to the Wade Ford Smyrna showroom and service facility as well as
purchases of servicing equipment for both Wade Ford dealership sites. In
addition, the dealership's rental car fleet was sold resulting in proceeds
amounting to $3.9 million in 1995 and 1996.
The change in net cash related to financing activities was primarily
attributable to increases in and repayments of long-term debt. In addition,
distributions to former shareholders (consistent with S-Corporation ownership)
aggregated $2.2 million for the three years ended December 31, 1997.
Floorplan Financing
The Wade Ford dealerships currently obtain floorplan financing for their
vehicle inventory primarily through Ford Motor Credit Corporation. As of March
31, 1998, these dealerships had approximately $24.1 million of outstanding
floorplan financing. The debt bears interest at the prime rate plus 100 basis
points. This interest can be reduced if the dealerships meet certain goals for
overall sales volume and retail contracts with Ford Motor Credit. Ford Motor
Company provides interest assistance to the dealerships including a specified
allowance for a vehicle's in-transit period and an amount that varies by vehicle
model.
Interest expense on floorplan notes payable, before manufacturers' interest
assistance, totaled approximately $1.1 million, $2.4 million and $2.7 million
for the years ended December 31, 1995, 1996 and 1997, respectively.
Manufacturers' interest assistance, which is recorded as a reduction to interest
expense, amounted to $749,000, $2.1 million and $2.5 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
Leases
The Wade Ford dealerships lease certain office equipment and the facilities
comprising their retail and service locations, including leases with related
parties, under long-term operating leases and on a month to month basis.
Management believes the lease terms approximate those that would be available
from third parties. Certain of the leases permit the lessee to cancel the lease
by giving notice for periods ranging from 60 to 180 days.
DAY'S CHEVROLET, INC.
Results of Operations
Day's Chevrolet consists of a Chevrolet dealerships in Acworth, Georgia, a
city located in the suburbs of Atlanta. The dealership has served Acworth and
northeast Georgia since 1959. Mr. Calvin Diemer and Mr. Alvin Diemer, who owned
Day's Chevrolet prior to the Offering, have worked in the automotive retailing
industry for over 20 years and succeeded to the ownership of Day's Chevrolet in
a series of transactions ending in 1993. Mr. Calvin Diemer will continue to
serve as the Executive Manager of Day's Chevrolet following the Offering.
51
<PAGE> 53
The following table sets forth selected financial data and such data as a
percentage of total revenues for the Day's Chevrolet dealership for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------- -------------------------------------
1996 1997 1997 1998
----------------- ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales......... $27,924 46.9% $ 28,806 47.4% $ 6,458 43.5% $ 6,559 45.4%
Used vehicle sales........ 21,073 35.4 21,781 35.8 5,965 40.2 5,297 36.6
Parts and service sales... 9,525 16.0 9,340 15.4 2,218 14.9 2,348 16.2
Other revenues, net....... 998 1.7 856 1.4 209 1.4 255 1.8
------- ----- -------- ----- ------- ----- ------- -----
Total revenues.... 59,520 100.0 60,783 100.0 14,850 100.0 14,459 100.0
Cost of sales............... 52,746 88.6 54,545 89.7 13,342 89.8 12,853 88.9
------- ----- -------- ----- ------- ----- ------- -----
Gross profit................ 6,774 11.4 6,238 10.3 1,508 10.2 1,606 11.1
Selling, general and
administrative expenses... 5,076 8.5 5,178 8.5 1,235 8.3 1,258 8.7
------- ----- -------- ----- ------- ----- ------- -----
Income from operations...... 1,698 2.9 1,060 1.8 273 1.9 348 2.4
Other income and expense:
Interest expense, net..... 123 0.2 100 0.2 36 0.2 19 0.1
Other income (expense),
net.................... 7 0.0 6 0.0 1 0.0 7 0.0
------- ----- -------- ----- ------- ----- ------- -----
Income before income
taxes..................... 1,582 2.7 966 1.6 238 1.7 336 2.3
Income tax expense.......... -- -- -- -- -- -- -- --
------- ----- -------- ----- ------- ----- ------- -----
Net income.................. $ 1,582 2.7% $ 966 1.6% $ 238 1.7% $ 336 2.3%
======= ======== ======= =======
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Total revenues decreased $391,000, or 2.6%, from $14.8 million
for the three months ended March 31, 1997 to $14.4 million for the three months
ended March 31, 1998. New vehicle sales increased $101,000, or 1.6%, from $6.5
million for the three months ended March 31, 1997 to $6.6 million for the three
months ended March 31, 1998. This increase was primarily due to increased unit
sales of new trucks offset partially by lower unit sales of cars. New truck
sales increased due to higher product availability during the three months ended
March 31, 1998. Used vehicle sales decreased $668,000, or 11.2%, from $6.0
million for the three months ended March 31, 1997 to $5.3 million for the three
months ended March 31, 1998. This decrease was due primarily to decreased
wholesale unit sales stemming from increased competition in this segment. Parts
and service sales increased $130,000, or 5.9%, from $2.2 million for the three
months ended March 31, 1997 to $2.3 million for the three months ended March 31,
1998. This increase was due primarily to increased parts sales to rental car
companies and increased service revenues. Other dealership revenues increased
$46,000, or 22.0%, from $209,000 for the three months ended March 31, 1997 to
$255,000 for the three months ended March 31, 1998. This increase was due
primarily to higher warranty sales.
Gross Profit. Gross profit increased $98,000 or 6.5%, from $1.5 million
for the three months ended March 31, 1997 to $1.6 million for the three months
ended March 31, 1998. This increase was primarily due to higher new truck sales,
a higher proportion of revenues from parts and service sales and increased
incentive rebates from the manufacturer.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $23,000, or 1.9%, from $1.2 million for the
three months ended March 31, 1997 to $1.3 million for the three months ended
March 31, 1998. This increase was primarily due to higher occupancy charges
offset partially by reduced compensation for sales supervision.
52
<PAGE> 54
Interest Expense, net. Interest expense, net decreased $17,000, or 47.2%,
from $36,000 for the three months ended March 31, 1997 to $19,000 for the three
months ended March 31, 1998. This decrease was attributable to higher
manufacturer credits.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased by $1.3 million, or 2.1%, from $59.5
million for the year ended December 31, 1996 to $60.8 million for the year ended
December 31, 1997. New vehicle sales increased $882,000, or 3.2% from $27.9
million for the year ended December 31, 1996 to $28.8 million for the year ended
December 31, 1997. This increase was primarily attributable to increased sales
of truck, sport utility and sports car vehicles. Used vehicle sales increased
$708,000, or 3.4%, from $21.1 million for the year ended December 31, 1996 to
$21.8 million for the year ended December 31, 1997. This increase resulted from
an increase in personnel and a continuing emphasis on the wholesale component of
used car sales. Parts and service sales decreased $185,000, or 1.9%, from $9.5
million for the year ended December 31, 1996 to $9.3 million for the year ended
December 31, 1997. This minor decrease resulted from a decrease in parts sales.
Other dealership revenues decreased $142,000, or 14.2%, from $1.0 million for
the year ended December 31, 1996 to $856,000 for the year ended December 31,
1997. This decrease was due primarily to a reduction in finance and insurance
related income.
Gross Profit. Gross profit decreased by $536,000, or 7.9%, from $6.8
million for the year ended December 31, 1996 to $6.2 million for the year ended
December 31, 1997. This decrease was attributable to increases in costs greater
than the dealership's ability to raise its new car prices and a small decrease
in the margin realized in the parts and service area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $102,000, or 2.0%, from $5.1 million for the
year ended December 31, 1996 to $5.2 million for the year ended December 31,
1997. This increase was primarily due to increased compensation charges for
incentive pay and expanded participation by employees in the dealership's 401(k)
plan.
Interest Expense, net. Interest expense, net decreased $23,000, or 18.7%,
from $123,000 for the year ended December 31, 1996 to $100,000 for the year
ended December 31, 1997. This decrease was attributable to faster inventory
turnover.
Liquidity and Capital Resources
The Day's Chevrolet dealership's principal sources of liquidity are cash on
hand, cash from operations and floorplan financing.
The following table sets forth historical selected information from the Day
dealership's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------- ------------
1996 1997 1997 1998
------- ------- ----- ----
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities... $ 1,493 $ 2,216 $(680) $212
Net cash provided by (used in) investing activities... (144) (21) 8 (52)
Net cash provided by (used in) financing activities... (1,241) (1,825) 337 --
------- ------- ----- ----
Net increase (decrease) in cash and cash
equivalents......................................... $ 108 $ 370 $(335) $160
======= ======= ===== ====
</TABLE>
Cash Flows
Total cash and cash equivalents at March 31, 1998 amounted to $1.4 million.
For the two years ended December 31, 1997, the Day's Chevrolet dealership
generated $3.0 million in cash flow from net income plus depreciation and
amortization. Net cash flow from operating activities
53
<PAGE> 55
increased from $1.5 million in 1996 to $2.2 million in 1997 due principally to
the increase in the outstanding balance under the floorplan arrangement offset
by a smaller increase in inventory balances.
Net cash flow from operating activities increased from ($680,000) for the
three months ended March 31, 1997 to $212,000 for the quarter ended March 31,
1998 due primarily to higher earnings and fluctuations in inventory balances and
floorplan borrowings.
The change in net cash used in investing activities for the two years ended
December 31, 1997 amounted to an aggregate of $165,000 and was primarily
attributable to capital expenditures for a sales and administration facility and
certain items of service equipment.
The change in net cash used in financing activities increased from $1.2
million in 1996 to $1.8 million in 1997 due to an increase in dividend
distributions to former shareholders.
Floorplan Financing
The Day's Chevrolet dealership currently obtains floorplan financing for
its vehicle inventory primarily through GMAC. As of March 31, 1998, the
dealership had approximately $9.0 million of outstanding floorplan financing.
The debt bears interest at prime plus 100 basis points and can be reduced
through a rebate program based on retail financing activity. In addition, the
floorplan interest charge is reduced by a manufacturer's support program based
on the cost and model of each vehicle purchased from the franchiser. Interest
expense on floorplan notes payable, before manufacturer's interest assistance,
totaled approximately $640,000 and $643,000 for the years ended December 31,
1996 and 1997, respectively. Manufacturer's interest assistance, which is
recorded as a reduction to interest expense, amounted to $551,000 and $587,000
for the years ended December 31, 1996 and 1997, respectively.
Leases
In September 1997, the dealership declared a dividend of its land and
buildings to its shareholders and executed a lease of such land and buildings
from partnerships owned by Messrs. Diemer and Diemer. The lease is for an
initial term expiring in February 2008. The lease terms provide for cancellation
of the lease by either the lessee or lessor upon 60 days notice.
GRINDSTAFF, INC.
Results of Operations
Grindstaff, Inc. consists of Chrysler-Dodge-Plymouth-Jeep, Chevrolet and
Kia dealerships located in Elizabethton, Tennessee serving the northeast portion
of that state, including the Tri-Cities area, which consists of Bristol, Johnson
City, and Kingsport, Tennessee. Prior to the Offering, Grindstaff, Inc. was
majority-owned and managed by Mr. Steve Grindstaff and Mr. Wes Hambrick since
1987 and the business and its predecessors have served the east Tennessee market
area since the late 1950's. Mr. Hambrick has over 15 years of experience in the
automotive retailing industry and will continue to serve as the Executive
Manager of Grindstaff, Inc. following the Offering.
54
<PAGE> 56
The following table sets forth selected financial data and such data as a
percentage of total revenues for the Grindstaff, Inc. dealerships for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- -------------------------------------
1995 1996 1997 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales........ $29,499 57.7% $31,714 57.3% $34,098 59.2% $7,083 54.0% $7,684 60.2%
Used vehicle sales....... 16,974 33.2 18,671 33.7 18,277 31.7 4,668 35.6 3,663 28.7
Parts and service
sales.................. 2,868 5.6 3,388 6.2 3,898 6.8 903 6.9 1,045 8.2
Other revenues, net...... 1,778 3.5 1,552 2.8 1,357 2.3 468 3.5 370 2.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total revenues..... 51,119 100.0 55,325 100.0 57,630 100.0 13,122 100.0 12,762 100.0
Cost of sales.............. 44,859 87.8 49,008 88.6 50,055 86.9 11,265 85.8 10,885 85.3
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............... 6,260 12.2 6,317 11.4 7,575 13.1 1,857 14.2 1,877 14.7
Selling, general and
administrative
expenses................. 5,391 10.5 5,864 10.6 6,972 12.1 1,592 12.1 1,652 12.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations..... 869 1.7 453 0.8 603 1.0 265 2.1 224 1.8
Other income and expense:
Interest expense, net.... 168 0.3 421 0.6 432 0.6 137 1.0 119 0.9
Other income (expense)... (18) (0.0) (509) (0.9) 55 (0.0) (8) (0.1) (8) (0.1)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before income
taxes.................... 683 1.4 (477) (0.8) 226 0.4 120 1.0 97 0.8
Income tax (expense)
benefit.................. (40) (0.1) 32 0.1 (13) (0.0) (12) (0.1) (5) (0.0)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net income (loss).......... $ 643 1.3% $ (445) (0.8)% $ 213 0.4% $ 108 0.9% $ 92 0.8%
======= ======= ======= ======= =======
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Total revenues decreased $360,000, or 2.7%, from $13.1 million
for the three months ended March 31, 1997 to $12.8 million for the three months
ended March 31, 1998. New vehicle sales increased $601,000, or 8.5%, from $7.1
million for the three months ended March 31, 1997 to $7.7 million for the three
months ended March 31, 1998. This increase was primarily due to higher sales of
Dodge products (principally trucks) stemming from increased availability from
the manufacturer. Used vehicle sales decreased $1.0 million, or 21.5%, from $4.7
million for the three months ended March 31, 1997 to $3.7 million for the three
months ended March 31, 1998. This decrease was due primarily to the closing of
the Johnson City location in November 1997. Parts and service sales increased
$142,000, or 15.7%, from $903,000 for the three months ended March 31, 1997 to
$1.0 million for the three months ended March 31, 1998. This increase was due
primarily to higher service revenues stemming from additional advertising and an
emphasis on cross-selling opportunities. Other dealership revenues decreased
$98,000, or 20.9%, from $468,000 for the three months ended March 31, 1997 to
$370,000 for the three months ended March 31, 1998. This decrease was due to
reduced income from finance and insurance commissions.
Gross Profit. Gross profit increased $20,000, or 1.1%, from $1.9 million
for the three months ended March 31, 1997 to $1.9 million for the three months
ended March 31, 1998. This increase was primarily due to lower finance and
insurance commission income and lower margins on used wholesale activity offset
in part by higher revenues from Dodge truck sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $60,000, or 3.8%, from $1.6 million for the
three months ended March 31, 1997 to $1.7 million for the three months ended
March 31, 1998. This increase was primarily due to higher charges for occupancy
expense, higher sales commission expense and higher advertising expense.
Interest Expense, net. Interest expense, net decreased $18,000, or 13.1%,
from $137,000 for the three months ended March 31, 1997 to $119,000 for the
three months ended March 31, 1998. This decrease was primarily attributable to
higher inventory turns.
55
<PAGE> 57
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased by $2.3 million, or 4.2%, from $55.3
million for the year ended December 31, 1996 to $57.6 million for the year ended
December 31, 1997. New vehicle sales increased $2.4 million, or 7.5% from $31.7
million for the year ended December 31, 1996 to $34.1 million for the year ended
December 31, 1997. This increase was primarily attributable to higher sales at
the Grindstaff Chevrolet dealership and the impact of having the Kia dealership
for an entire year, and was offset partially by reduced sales of Plymouth and
Chrysler products. Used vehicle sales decreased $394,000, or 2.1%, from $18.7
million for the year ended December 31, 1996 to $18.3 million for the year ended
December 31, 1997. This decrease resulted from lower wholesale sales of used
automobiles. Parts and service sales increased $510,000, or 15.1%, from $3.4
million for the year ended December 31, 1996 to $3.9 million for the year ended
December 31, 1997. This increase continued a long-range trend and resulted from
increased wholesale sales to local body shops and mechanics as well as strong
customer acceptance of the dealership's service capabilities. Other Grindstaff
dealership revenues decreased $195,000, or 12.6%, from $1.6 million for the year
ended December 31, 1996 to $1.4 million for the year ended December 31, 1997.
This decrease resulted from lower finance and insurance income.
Gross Profit. Gross profit increased by $1.3 million, or 19.9%, from $6.3
million for the year ended December 31, 1996 to $7.6 million for the year ended
December 31, 1997. This increase was attributable to higher parts and service
sales, which generally has a higher margin and less reliance on wholesale sales
of used cars.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.1 million, or 18.9%, from $5.9 million for
the year ended December 31, 1996 to $7.0 million for the year ended December 31,
1997. This increase was primarily due to renovations to the used car facility
and increased incentive compensation based on gross profit performance.
Interest Expense, net. Interest expense, net increased $11,000, or 2.6%,
from $421,000 for the year ended December 31, 1996 to $432,000 for the year
ended December 31, 1997. This increase was attributable to lower average
inventory balances and reduced interest income from investments.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased by $4.2 million, or 8.2%, from $51.1
million for the year ended December 31, 1995 to $55.3 million for the year ended
December 31, 1996. New vehicle sales increased $2.2 million, or 7.5% from $29.5
million for the year ended December 31, 1995 to $31.7 million for the year ended
December 31, 1996. This increase was primarily attributable to increased sales
of Chevrolet truck and sport utility van products and the addition of the Kia
dealership to Grindstaff, Inc. in October 1996. This increase was partially
offset by a reduction in unit sales of Chrysler and Plymouth products. Used
vehicle sales increased $1.7 million, or 10.0%, from $16.9 million for the year
ended December 31, 1995 to $18.7 million for the year ended December 31, 1996.
This increase resulted from the opening of a used car facility in Johnson City
and added wholesale sales. Parts and service sales increased $520,000, or 18.1%,
from $2.9 million for the year ended December 31, 1995 to $3.4 million for the
year ended December 31, 1996. This increase resulted from an expanded base of
customers and aggressive marketing by Grindstaff, Inc. in this area. Other
Grindstaff, Inc. dealership revenues decreased $226,000, or 12.7%, from $1.8
million for the year ended December 31, 1995 to $1.6 million for the year ended
December 31, 1996. This decrease was due primarily to reduced finance and
insurance commission revenue.
Gross Profit. Gross profit increased by $57,000, or 0.9%, from $6.3
million for the year ended December 31, 1995 to $6.3 million for the year ended
December 31, 1996. Gross profit as a percent of sales decreased from 12.2% in
1995 to 11.4% in 1996. This was attributable to increased wholesale sales of
used vehicles, reduction in finance and insurance revenues and soft demand for
Chrysler new vehicle sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $473,000, or 8.8%, from $5.4 million for the
year ended December 31, 1995 to $5.9 million for the year ended
56
<PAGE> 58
December 31, 1996. This increase was primarily due to higher facility rent
charges and increased personnel costs associated with personnel additions.
Interest Expense, net. Interest expense, net increased $253,000, or 150%,
from $168,000 for the year ended December 31, 1995 to $421,000 for the year
ended December 31, 1996. This increase was attributable to lower inventory
turnover and the addition of the Kia dealership, which did not offer a
manufacturers' support program.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. Grindstaff Inc.'s principal sources of liquidity
are cash on hand, cash from operations and floorplan financing.
The following table sets forth historical selected information from the
Grindstaff dealerships' statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------
1995 1996 1997 1997 1998
------- ----- ------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................... $ 2,021 $(142) $ (944) $ (966) $ 389
Net cash provided by (used in) investing
activities............................... (390) (116) (158) (36) 44
Net cash provided by (used in) financing
activities............................... (124) (297) (38) 113 (4)
------- ----- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents.............................. $ 1,507 $(555) $(1,140) $ (889) $ 429
======= ===== ======= ======= =======
</TABLE>
Cash Flows
Total cash and cash equivalents at March 31, 1998 amounted to $722,000.
For the three years ended December 31, 1997, the Grindstaff dealerships
generated $1.1 million in cash flow from net income plus depreciation and
amortization. Net cash flow from operating activities declined from $2.0 million
in 1995 to $(944,000) in 1997. This decline is due primarily to the reduction in
net income during that period and smaller balances outstanding under the
floorplan, offset partially by reduced inventory levels.
The change in net cash used in investing activities for the three years
ended December 31, 1997 was primarily attributable to capital additions to the
management information system and certain items of service equipment.
The change in net cash related to financing activities was primarily
attributable to principal payments on long-term debt obligations and
transactions in the dealership's capital stock.
Floorplan Financing
Grindstaff Inc. currently obtains floorplan financing for its dealerships'
vehicle inventories primarily through GMAC and Chrysler Financial Corporation.
As of March 31, 1998, the dealership had approximately $9.5 million of
outstanding floorplan financing. The debt bears interest at rates ranging from
9.0% to 9.5% that are subject to reduction if the dealership meets certain
incentive benchmarks for retail financing contracts. In addition, the
dealerships receive manufacturers' interest support which varies by vehicle
model.
Interest expense on floorplan notes payable, before manufacturers' interest
assistance, totaled approximately $892,000, $1.0 million and $937,000 for the
years ended December 31, 1995, 1996 and 1997, respectively. Manufacturers'
interest assistance, which is recorded as a reduction to interest expense,
57
<PAGE> 59
amounted to $592,000, $483,000 and $486,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
Leases
The dealership leases its primary operating facilities under operating
leases which require the dealership to pay for maintenance, ad valorem taxes and
insurance. The leases do not contain cancellation or renewal options. Management
believes the rates and terms of all such leases are comparable to those that
would be available on an arm's-length basis. Certain items of equipment used in
the operations of Grindstaff, Inc.'s dealerships are leased under a master
operating lease arrangement and contain renewal and fair value purchase options.
ROBERTSON OLDSMOBILE-CADILLAC, INC.
Results of Operations
Robertson Oldsmobile-Cadillac, Inc. consists of four automotive dealerships
located in Gainesville, Georgia, a suburban city north of Atlanta. The
dealerships include Cadillac, Oldsmobile, Isuzu and Mazda, and the dealership
and its predecessors have served the Gainesville and north Georgia markets
continuously for more than five decades. Prior to the Offering, Mr. Moss
Robertson, who has over 20 years of experience in the automotive retailing
industry, had owned and managed this dealership group since 1982. Mr. Robertson
will remain as the Executive Manager of ROC subsequent to the Offering.
The following table sets forth selected financial data and such data as a
percentage of total revenues for ROC dealership for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------- --------------------------------------
1996 1997 1997 1998
----------------- ----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales.................... $11,339 52.8% $12,145 51.8% $2,288 47.7% $2,583 45.9%
Used vehicle sales................... 7,443 34.6 8,114 34.6 1,774 37.0 2,328 41.3
Parts and service sales.............. 2,500 11.6 2,778 11.9 655 13.6 652 11.6
Other revenues, net.................. 216 1.0 387 1.7 84 1.7 68 1.2
------- ----- ------- ----- ------- ----- ------- -----
Total revenues................. 21,498 100.0 23,424 100.0 4,801 100.0 5,631 100.0
Cost of sales.......................... 18,447 85.8 20,449 87.3 4,144 86.3 4,871 86.6
------- ----- ------- ----- ------- ----- ------- -----
Gross profit........................... 3,051 14.2 2,975 12.7 657 13.7 760 13.4
Selling, general and administrative
expenses............................. 2,196 10.2 1,957 8.4 472 9.9 500 8.9
------- ----- ------- ----- ------- ----- ------- -----
Income from operations................. 855 4.0 1,018 4.3 185 3.8 260 4.5
Other income and expense:
Interest income, net................. 107 0.5 108 0.5 25 0.5 13 0.2
Other income (expense), net.......... 3 0.0 (4) (0.0) (3) (0.0) (6) (0.0)
------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes............. 965 4.5 1,122 4.8 207 4.3 267 4.7
Income tax expense..................... -- -- -- -- -- -- -- --
------- ----- ------- ----- ------- ----- ------- -----
Net income............................. $ 965 4.5% $1,122 4.8% $ 207 4.3% $ 267 4.7%
======= ======= ======= =======
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues. Total revenues increased $830,000, or 17.3%, from $4.8 million
for the three months ended March 31, 1997 to $5.6 million for the three months
ended March 31, 1998. New vehicle sales increased $295,000, or 12.9%, from $2.3
million for the three months ended March 31, 1997 to $2.6 million for the three
months ended March 31, 1998. This increase was primarily due to higher sales of
Oldsmobile products (unit increase of 43%) and higher average per unit sales for
Cadillac products. Used vehicle sales increased $554,000, or 31.2%, from $1.8
million for the three months ended March 31, 1997 to $2.3 million for the three
months ended March 31, 1998. This increase was due primarily to increased
promotions of used vehicles and increased use of selected remarketed vehicles.
Parts and service sales decreased $3,000, or 0.5%, from $655,000
58
<PAGE> 60
for the three months ended March 31, 1997 to $652,000 for the three months ended
March 31, 1998. This decrease was due primarily to lower warranty and parts
sales for both Mazda and Isuzu resulting from increased competition. Other
dealership revenues decreased $16,000, or 19.0%, from $84,000 for the three
months ended March 31, 1997 to $68,000 for the three months ended March 31,
1998. This decrease was due to lower finance and insurance commissions stemming
from a higher proportion of leases among new vehicle sales.
Gross Profit. Gross profit increased $103,000, or 15.7%, from $657,000 for
the three months ended March 31, 1997 to $760,000 for the three months ended
March 31, 1998. This increase was primarily due to increased sales levels in
both new and used vehicles. The percentage gross margin decreased from 13.7% for
the three months ended March 31, 1997 to 13.4% for the three months ended March
31, 1998 due primarily to increased competition among new car dealers in the
market area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $28,000, or 5.9%, from $472,000 for the three
months ended March 31, 1997 to $500,000 for the three months ended March 31,
1998. This increase was primarily due to higher sales commissions and higher
marketing expenses.
Interest Expense, net. Interest expense, net decreased $12,000, or 48.0%,
from $25,000 for the three months ended March 31, 1997 to $13,000 for the three
months ended March 31, 1998. This decrease was attributable to higher inventory
turns.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues increased by $1.9 million, or 9.0%, from $21.5
million for the year ended December 31, 1996 to $23.4 million for the year ended
December 31, 1997. New vehicle sales increased $806,000, or 7.1% from $11.3
million for the year ended December 31, 1996 to $12.1 million for the year ended
December 31, 1997. This increase was primarily attributable to higher sales of
Cadillac products, whose unit sales increased by over 35%. This increase was
partially offset by lower sales of Mazda and Isuzu products. Used vehicle sales
increased $671,000, or 9.0%, from $7.4 million for the year ended December 31,
1996 to $8.1 million for the year ended December 31, 1997. This increase
resulted from additional investments in space and personnel. Parts and service
sales increased $278,000, or 11.1%, from $2.5 million for the year ended
December 31, 1996 to $2.8 million for the year ended December 31, 1997. This
increase resulted from the overall increase in unit sales coupled with a
marketing emphasis on Cadillac service in the north Georgia area. Other
dealership revenues increased $171,000, or 79.2%, from $216,000 for the year
ended December 31, 1996 to $387,000 for the year ended December 31, 1997. This
increase was due primarily to higher finance and insurance related income.
Gross Profit. Gross profit decreased by $76,000, or 2.5%, from $3.1
million for the year ended December 31, 1996 to $3.0 million for the year ended
December 31, 1997. This minor decrease was attributable to the changing mix
among new retail sales and a strategic decision to expand the array of used
vehicles held for sale.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $239,000, or 10.9%, from $2.2 million for the
year ended December 31, 1996 to $2.0 million for the year ended December 31,
1997. This decrease was primarily due to a realignment of incentive pay plans
and the availability of a more attractive co-op advertising program with General
Motors.
Interest Income, net. Interest income, net increased $1,000, or 0.9%, from
$107,000 for the year ended December 31, 1996 to $108,000 for the year ended
December 31, 1997. This increase was attributable to higher returns on invested
cash and cash equivalents.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. ROC's principal sources of liquidity are cash on
hand, cash from operations and floorplan financing.
59
<PAGE> 61
The following table sets forth historical selected information from ROC's
statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- -------------
1996 1997 1997 1998
------ ------- ----- -----
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating activities... $1,232 $ 1,060 $ 37 $ 206
Net cash provided by (used in) investing activities... (48) (30) (4) (4)
Net cash provided by (used in) financing activities... (430) (1,416) (305) (270)
------ ------- ----- -----
Net increase (decrease) in cash and cash
equivalents......................................... $ 754 $ (386) $(272) $ (68)
====== ======= ===== =====
</TABLE>
Cash Flows
Total cash and cash equivalents at March 31, 1998 were $2.1 million.
For the two years ended December 31, 1997, the ROC dealerships generated
$2.2 million in cash flow from net income plus depreciation and amortization.
Net cash flow from operating activities decreased from 1996 to 1997 by $173,000.
This decrease is due primarily to higher inventory levels offset in part by
higher earnings and higher borrowings under the floorplan arrangement.
Net cash flow from operating activities for the three months ended March
31, 1998 exceeded that of three months ended March 31, 1997 by $169,000 due to
higher earnings and higher floorplan borrowings.
The change in net cash used in investing activities for the two years ended
December 31, 1997 was primarily attributable to capital expenditures for service
equipment, expanded used vehicle facilities and renovations to the principal
showroom facility.
The change in net cash related to financing activities was primarily
attributable to fluctuations in the amounts paid out as dividends consistent
with S-Corporation ownership.
Floorplan Financing
The ROC dealership currently obtains floorplan financing for vehicle
inventory primarily through GMAC. As of March 31, 1998, ROC had approximately
$2.6 million of outstanding floorplan financing. The debt bears interest at a
rate calculated using a formula based on the prime rate (ranging from 8.25% to
8.5% at December 31, 1997) and is subject to a rebate based on annual amounts of
principal outstanding. Interest expense on floorplan notes payable, before
manufacturer interest assistance, totaled approximately $199,000 and $261,000
for the years ended December 31, 1996 and 1997, respectively. Manufacturers'
interest assistance, which is recorded as a reduction to interest expense,
amounted to $155,000 and $194,000 for the years ended December 31, 1996 and
1997, respectively.
Leases
The ROC dealership leases its land and real estate facilities under a
long-term operating lease from Mr. Robertson at rates and terms which were
negotiated at arm's-length and management believes approximate those that would
result from negotiations with an unrelated third party. The lease expires in
March 2005, contains renewal options and is non-cancelable.
SOUTH FINANCIAL CORPORATION
Results of Operations
South Financial is engaged in the purchase and servicing of installment
contract receivables from selected automotive dealers in three southeastern
states. The receivables are collateralized by security interests in the financed
automobiles and are due from individuals who are generally considered sub-prime
credit risks. South Financial's loan portfolio contains loans which were made
both with recourse to the originating dealership
60
<PAGE> 62
(30%) and without recourse (70%) and have terms not exceeding 48 months. The
business was founded in 1989 and was sold to the Company in January 1998. Mr.
Glynn Wimberly, who has 24 years of relevant experience in this industry, serves
as the chief executive officer of South Financial.
Revenues are realized for interest income, fees, loan discount income and
credit life insurance commissions. Operating funds are obtained under a
revolving credit agreement with a commercial lender.
The following table sets forth selected financial data and such data as a
percentage of total revenues for South Financial for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales......................................... $ -- --% $ -- --% $ -- --%
Used vehicle sales........................................ -- -- -- -- -- --
Parts and service sales................................... -- -- -- -- -- --
Other revenues, net....................................... 3,187 100.0 5,723 100.0 4,743 100.0
------ ----- ------ ----- ------- -----
Total revenues...................................... 3,187 100.0 5,723 100.0 4,743 100.0
Cost of sales............................................... -- -- -- -- -- --
------ ----- ------ ----- ------- -----
Gross profit................................................ 3,187 100.0 5,723 100.0 4,743 100.0
Selling, general and administrative expenses................ 1,780 55.9 3,566 62.3 3,704 78.1
------ ----- ------ ----- ------- -----
Income from operations...................................... 1,407 44.1 2,157 37.7 1,039 21.9
Other income and expense:
Interest expense.......................................... 978 30.7 1,416 24.7 1,420 29.9
Other income (expense).................................... -- -- -- -- -- --
------ ----- ------ ----- ------- -----
Income (loss) before income taxes........................... 429 13.5 741 12.9 (381) (8.0)
Income tax (expense) benefit................................ (150) (4.7) (307) (5.4) 139 2.9
------ ----- ------ ----- ------- -----
Net income (loss)........................................... $ 279 8.8% $ 434 7.6% $ (242) (5.1)%
====== ====== =======
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total revenues decreased by $1.0 million, or 17.1%, from $5.7
million for the year ended December 31, 1996 to $4.7 million for the year ended
December 31, 1997. This decrease was primarily attributable to the introduction
of a dealer program in February 1997 involving smaller advance rates and the
elimination of recourse obligation by the dealers. This program resulted in a
22% decline in the outstanding loan balance and a smaller average loan balance
(from $5,606 at December 31, 1996 to $5,230 at December 31, 1997) and an
approximate 4% drop in the number of contracts being serviced (from 4,100 at
December 31, 1996 to 3,940 at December 31, 1997).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $138,000, or 3.9%, from $3.6 million for the
year ended December 31, 1996 to $3.7 million for the year ended December 31,
1997. This increase was primarily due to a provision for credit losses in 1997
stemming from the elimination of recourse liability from dealers from whom the
contracts were purchased offset in part by savings generated by office and
personnel realignments.
Interest Expense. Interest expense increased by a nominal amount, or 0.3%,
from $1.4 million for the year ended December 31, 1996 to $1.4 million for the
year ended December 31, 1997. This minor increase reflects the consistent level
of borrowing outstanding under the revolving credit agreement.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased by $2.5 million, or 79.6%, from $3.2
million for the year ended December 31, 1995 to $5.7 million for the year ended
December 31, 1996. This increase was primarily attributable to the expansion of
the business into new markets (North Carolina and Tennessee) made possible by
obtaining the revolving credit facility in June 1994, and the increase in
borrowings available under the facility in August 1995.
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<PAGE> 63
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 100.3%, from $1.8 million or
the year ended December 31, 1995 to $3.6 million for the year ended December 31,
1996. This increase was primarily due to added field offices, establishing a
centralized underwriting function and additional rent charges associated with an
expanded data and accounting system.
Interest Expense. Interest expense increased $438,000, or 44.8%, from $1.0
million for the year ended December 31, 1995 to $1.4 million for the year ended
December 31, 1996. This increase was attributable to an increase in the
principal amount outstanding under the revolving credit agreement from $8.2
million at December 31, 1995 to $11.6 million at December 31, 1996.
Liquidity and Capital Resources
The Company considers liquidity to be its ability to meet its long- and
short-term cash requirements. South Financial's principal sources of liquidity
are cash on hand, cash from operations and a revolving credit facility with
General Electric Credit Corporation. The revolving credit facility has a maximum
borrowing capacity of $15 million with advances permitted under formulas based
on percentages of eligible collateral.
The following table sets forth historical selected information from South
Financial's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities....... $ 1,909 $ 1,155 $(1,785)
Net cash provided by (used in) investing activities....... (7,819) (4,858) 2,353
Net cash provided by (used in) financing activities....... 5,955 3,643 (508)
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... $ 45 $ (60) $ 60
======= ======= =======
</TABLE>
Cash Flows
Total cash and cash equivalents at December 31, 1997 amounted to $64,000.
Unused availability at that date under the revolving credit facility amounted to
$780,000.
For the three years ended December 31, 1997, the South Financial generated
$1.9 million in cash flow from net income plus depreciation and provision for
credit losses. Net cash flow from operating activities declined during this
three-year period from $1.9 million in 1995 to ($1.8 million) in 1997. The
decline is due primarily to the decrease in net earnings and the reduction in
the amount owed to dealers for contractual obligations. The amount owed dealers
for contractual obligations decreased due to the introduction of dealer programs
that do not have a recourse obligation.
The change in net cash used in investing activities for the three years
ended December 31, 1997 aggregated $10.3 million and ranged from a use of cash
of $7.8 million in 1995 to a source of cash amounting to $2.4 million in 1997.
The primary factors affecting this area are disbursements to vehicle dealerships
for originating contracts and principal payments received from borrowers. The
1997 dealer programs have resulted in a smaller average disbursement per loan
generated. Disbursements for capital expenditures have been minor.
The change in net cash related to financing activities was primarily
attributable to activity under the revolving credit facility. The aggregate
amount advanced under the facility for the three years ended December 31, 1997
amounted to $8.6 million and ranged from a net borrowing of $5.3 million in 1995
to a net repayment of $185,000 in 1997.
Credit Losses
South Financial maintains a reserve for potential credit losses ($2.0
million at December 31, 1997, or 20.7% of the outstanding principal balance as
of that date) based on pertinent factors including past experience, underlying
collateral, recourse provisions and economic conditions. South Financial staff
members
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<PAGE> 64
and agents follow up on delinquent accounts with appropriate actions including
correspondence and repossession of the applicable collateral. South Financial
charges potential credit losses back to the originating used auto dealership if
the contracts were purchased on a recourse basis and sells repossessed
collateral at auction. Proceeds from the sale of collateral are credited to the
loss reserve.
Leases
South Financial leases its operating facilities and equipment under various
operating leases, including leases with related parties. Certain of the leases
may be renewed at the option of the lessee. All of South Financial's leases were
negotiated at arm's-length, and the Company's management believes that the terms
and conditions of all of South Financial's leases are comparable to those that
result from negotiations with unrelated third parties.
CYCLICALITY
The Company's operations, like the automotive retailing industry in
general, can be affected by a number of factors relating to general economic
conditions, including consumer business cycles, consumer confidence, economic
conditions, availability of consumer credit and interest rates. Although the
above factors, among others, can impact the Company's business, the Company
believes the impact of cyclicality on its operations will be mitigated as the
Company continues to expand its product offerings, its geographic diversity and
the number of its vehicle brands.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation in 1995, 1996 and 1997 and
the first three months of 1998, inflation did not have a significant effect on
the Company's results of operations for those periods.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This Statement
specifies the computation, presentation and disclosure requirements for earnings
per share. The Company believes that the adoption of such Statement would not
result in earnings per share materially different from pro forma earnings per
share presented in the accompanying statements of income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending June 30, 1998,
and the Company does not intend to adopt this statement prior to said effective
date.
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<PAGE> 65
BUSINESS
OVERVIEW
Sunbelt is one of the leading retailers of new and used vehicles in the
southeastern United States. The Company operates a total of 27 dealership
franchises in Georgia, North Carolina and Tennessee and four collision repair
centers in metropolitan Atlanta, Georgia. Sunbelt sells 20 domestic and foreign
brands of automobiles, which consist of Buick, Cadillac, Chevrolet, Chrysler,
Dodge, Ford, GMC, Honda, Hummer, Isuzu, Jeep, Kia, Mazda, Mercury, Mitsubishi,
Nissan, Oldsmobile, Plymouth, Pontiac and Toyota. The Company believes that in
1997, based on pro forma retail new vehicle unit sales, it would have been one
of the 15 largest franchised automotive dealer groups out of a total of more
than 15,000 franchised automotive dealer groups in the United States. The
Company intends to further diversify its product and service offerings by
including more brands of vehicles and by offering related finance and insurance,
replacement parts, collision repair, and other products and services that are
complementary to its core automotive retailing operations. The Company's
strategy is: (i) to become the leading operator of automotive dealerships in
small and medium-sized markets in the southeastern United States through
acquisitions of additional dealerships in these markets; and (ii) to expand its
collision center and other complementary business operations.
The Company's executive management team has extensive experience in the
automotive retailing industry and the operation of automotive dealerships in the
southeastern United States. On average, the Company's executive officers have
over 15 years of direct industry experience. Between 1992 and 1997, the
Company's dealerships have won many awards from various manufacturers measuring
quality and customer satisfaction. These awards include: the Five Star Award
from Chrysler, which is given to the top 25% of Chrysler dealers in the nation;
the NACE (North American Customer Excellence) Award, Ford Motor Company's
highest overall award for customer service; the Top 100 Club, which is awarded
to Ford's top 100 retailers or 2% of Ford dealers in the nation based on retail
volume and consumer satisfaction; the Cadillac Master Dealer award, a status
achieved by 1% of Cadillac dealers nationwide; the Oldsmobile Elite Award, which
is given by Oldsmobile Motor Division to the top 10% of Oldsmobile dealers in
the nation; and the President's Circle Award for performance, which is given by
Nissan Motor Corporation to the top 10% of Nissan dealers in the nation.
INDUSTRY OVERVIEW
The automotive retailing industry, with aggregate revenues of approximately
$491.1 billion in 1996 for franchised dealers alone, is the largest retail
market in the United States. Aggregate revenues for the southeastern United
States, which is the Company's primary area of operations and is comprised of
the states of Alabama, Florida, Georgia, North Carolina, South Carolina and
Tennessee equalled approximately $89.8 billion through franchised dealers in
1996 and accounted for approximately 18% of total franchised dealer revenues in
the United States. Nationally, between 1990 and 1996, the industry has
experienced growth in total revenues, total gross profits and income before
taxes. From 1990 to 1996, for franchised dealers alone, total revenues increased
53.5% from $320.0 billion in 1990 to $491.1 billion in 1996, total gross profits
increased 33.3% from $46.9 billion in 1990 to $62.5 billion in 1996, and income
before taxes increased 131.3% from $3.2 billion in 1990 to $7.4 billion in 1996.
The industry has been experiencing a consolidation trend which has seen the
number of franchised dealerships in the United States decline from approximately
36,000 in 1960 to 22,750 in 1996. Despite the trend toward consolidation in the
industry, fragmentation is still a defining characteristic of the industry, with
the largest 100 franchised dealership groups generating less than 10% of 1996
total franchised dealership revenue and controlling less than 5% of all
franchised automotive dealerships in 1996. The Company expects several economic
and industry factors to lead to further consolidation of the automotive
retailing industry, including the increasing capital requirements necessary to
operate an automotive dealership, the management succession planning concerns of
many current dealers and the desire of manufacturers to strengthen their dealer
networks through consolidation.
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<PAGE> 66
BUSINESS STRATEGY
Sunbelt intends to establish itself as the leading operator of automotive
dealerships in small and medium-sized markets in the southeastern United States
through acquisitions of additional dealerships in these markets. The Company
believes that its diverse portfolio of brands and dealerships in several of
these markets and its experienced management teams give it a competitive
advantage in achieving this goal.
Operating Strategy
The Company's operating strategy is based on the following key elements:
- Offer a Diverse Range of Automotive Products and Services. The Company
offers a diverse range of automotive products and services, including a
wide selection of new and used vehicles, vehicle financing and insurance
programs, replacement parts, and maintenance and repair programs. The
Company believes that its brand and product diversity enables the Company
to satisfy a variety of customers, reduces dependence on any one
manufacturer and reduces exposure to supply problems and product cycles.
The Company believes that its variety of complementary products and
services will allow the Company to generate incremental revenue that will
result in higher profitability and less cyclicality for the Company than
if it was solely dependent on automobile sales.
- Institute Divisional Organization by Manufacturer. The Company has
instituted a corporate organizational form which the Company believes
differentiates it from most other automotive retailing companies. The
Company's corporate structure organizes its dealerships and dealership
groups by manufacturer, so that all dealerships which carry a particular
manufacturer's brands are grouped together in a single division. Each
division, in turn, is headed by a member of corporate management who has
extensive working experience with the applicable manufacturer. The
Company believes that organizing its dealerships by manufacturer and
having each division headed by a senior manager who is experienced with
that particular manufacturer -- and has established and maintained
long-standing business relationships with the regional and corporate
managers of that manufacturer -- will yield numerous benefits to the
Company. For example, the Company's relationships with each manufacturer
will be enhanced; management training within each division will be more
efficient and consistent; and managers within each division will benefit
from a shared experience base. The Company believes that these benefits
will provide a competitive advantage to the Company.
- Decentralize Marketing Strategies; Achieve High Levels of Customer
Satisfaction; Utilize Incentive-Based Compensation Programs. The Company
believes that many customers purchase automotive vehicles based on an
established long-term business relationship with a particular dealership.
Therefore, the Company intends to empower its experienced local
management -- who have a better in-depth knowledge of local customer
needs and preferences -- to establish marketing, advertising and other
policies that foster these long-term relationships and result in superior
customer service. The Company's strategy emphasizes the retention of the
local management of acquired dealerships, which the Company believes will
help make it an attractive acquiror of other dealerships. The Company
also intends to create incentives for entrepreneurial management teams at
the dealer level through the use of stock options and other programs in
order to align local management's interests with those of the Company's
shareholders. In order to keep local management focused on customer
satisfaction, the Company also intends to include certain CSI results as
a component of its incentive compensation program. The Company believes
that this is important because some manufacturers offer specific
performance incentives, on a per vehicle basis, if certain CSI levels
(which vary by manufacturer) are achieved by a dealer.
- Centralize Administrative Functions. The Company believes that
consolidation of certain dealership functions and requirements will
result in significant cost savings. The Company intends to consolidate
the floorplan financing of all of its dealerships, which the Company
anticipates will result in a reduced interest rate on such financing. The
Company is also negotiating a consolidated revolving credit facility that
it anticipates will result in a reduced interest rate on such facility.
Furthermore, the Company
65
<PAGE> 67
expects that significant cost savings will be achieved through the
consolidation of administrative functions such as risk management,
employee benefits and employee training.
Growth Strategy
The Company plans to continue to grow its business using a strategy
comprised of the following principal elements:
- Acquire Dealerships. The Company's goal is to become the leading
operator of automotive dealerships in small and medium-sized markets in
the southeastern United States through acquisitions of additional
dealerships in these markets. The Company plans to pursue acquisitions in
markets where it does not currently own dealerships, as well as in areas
which are contiguous to its existing dealership markets. The Company
intends to focus on acquiring both dealer groups with multiple franchises
in a given market area and dealers with a single franchise which possess
significant market shares. Generally, the Company will seek to retain the
acquired dealerships' operational and financial management, and thereby
benefit from their market knowledge, name recognition and local
reputation.
- Expand Complementary Products and Services. The Company intends to
pursue opportunities that it expects will result in additional revenue
and higher profitability through the sale of products and services which
complement its dealership operations. Examples of such opportunities
include the following:
Collision Repair Centers. The Company owns four collision repair
facilities operated under the name Collision Centers USA, which serve
the Jonesboro, Duluth, Stockbridge and Marietta, Georgia markets. The
Company expects to expand this business by increasing volumes at
these four centers, developing new centers and acquiring new existing
centers. The Company's collision repair business provides higher
margins than its core automotive retailing operations and is
generally not significantly affected by economic cycles or consumer
spending habits.
Finance and Insurance. The Company offers its customers a wide range
of financing and leasing alternatives for the purchase of vehicles,
as well as credit life, accident and health and disability insurance
and extended service contracts. The Company has entered into an
agreement with a leading insurance carrier to share in certain
revenues generated by the sale of extended warranty contracts. In
addition, in January 1998, the Company acquired South Financial,
which has been primarily engaged in the sub-prime automotive lending
business for the past eight years. The Company expects its dealer
network to provide additional loan business opportunities to South
Financial.
DEALERSHIP OPERATIONS
The Company has established a management structure that promotes and
rewards entrepreneurial spirit, individual pride and responsibility and the
achievement of team goals. Each dealership's general manager is ultimately
responsible for the operation, personnel and financial performance of the
dealership. The general manager ("Executive Manager") is typically complemented
with a management team consisting of a new vehicle sales manager, used vehicle
sales manager, service and parts manager and finance manager. Each dealership is
operated as a distinct profit center in which the Executive Manager is given a
high degree of operating autonomy. A controller who is dedicated to each
dealership provides financial oversight and control. The Company believes that
the Executive Manager and the other members of the dealership management team,
who in many cases are long-time members of their local communities, are best
able to judge how to conduct day-to-day operations based on the team's
experience in and familiarity with its local market.
The Vice Presidents of each manufacturer Division of the Company (the
"Division VP"), who report to the Company's Chief Operating Officer, support and
oversee the Executive Managers. All Executive Managers will report to the
Company's Division VP on a regular basis and prepare a comprehensive monthly
financial and operating statement of their dealership. In addition, the Division
VPs will meet on a monthly
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<PAGE> 68
basis with their Executive Managers to address changing customer preferences and
operational concerns and to share best practices.
NEW VEHICLE SALES
The Company sells 20 domestic and foreign brands of economy, family, sports
and luxury cars and light trucks and sport utility vehicles. The Company intends
to pursue an acquisition strategy that will continue to enhance its brand
diversity. The following table sets forth for the year ended June 30, 1997 and
the nine months ended March 31, 1998, certain pro forma combined information
relating to the brands of new vehicles sold by the Company:
<TABLE>
<CAPTION>
NEW VEHICLE SALES BY MANUFACTURER
- ---------------------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
--------------------- ---------------------
MANUFACTURER SALES % OF SALES SALES % OF SALES
- ------------ -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Ford(1)....................................... $201,508 48.0% $159,741 50.6%
General Motors(2)............................. 97,973 23.3 77,834 24.7
Nissan........................................ 44,261 10.5 21,043 6.7
Toyota........................................ 17,473 4.2 12,384 3.9
Mitsubishi.................................... 11,013 2.6 8,386 2.6
Mazda......................................... 10,469 2.5 7,628 2.4
Isuzu......................................... 9,434 2.2 7,362 2.3
Chrysler/Dodge/Plymouth....................... 8,717 2.1 6,246 2.0
Kia........................................... 7,040 1.7 5,045 1.6
Honda......................................... 6,105 1.5 4,728 1.5
Jeep/Eagle.................................... 3,353 0.8 2,402 0.8
Hummer........................................ 2,673 0.6 2,898 0.9
-------- ----- -------- -----
$420,019 100.0% $315,697 100.0%
======== ===== ======== =====
</TABLE>
- ---------------
(1) Ford includes both the Ford division and the Mercury division.
(2) General Motors includes the divisions of Buick, Cadillac, Chevrolet, GMC,
Oldsmobile and Pontiac.
The Company's new vehicle sales include traditional new vehicle retail
sales and retail lease transactions which are arranged by the Company. New
vehicle leases generally have short terms, which bring the consumers back to the
market sooner than if the vehicles were purchased. In addition, leases can
provide the Company with a steady source of late-model, off-lease vehicles for
its used vehicle inventory. Generally, leased vehicles remain under factory
warranty for the term of the lease, which allows the Company to provide repair
service to the lessee throughout the lease term.
The Company seeks to provide customer-oriented service designed to
establish lasting relationships that will result in repeat and referral
business. For example, the Company's dealerships strive to: (i) employ more
efficient selling approaches; (ii) utilize computer technology that decreases
the time necessary to purchase a vehicle; (iii) engage in extensive follow-up
after a sale in order to develop long-term relationships with customers; and
(iv) train their sales staffs to be able to meet the needs of the customers. The
Company continually evaluates ways to improve the buying experience for its
customers and believes that its ability to share best practices among its
dealerships gives it an advantage over smaller dealership group.
The Company acquires substantially all its new vehicle inventory from
manufacturers. Manufacturers allocate a limited inventory among their dealers
based on sales volume and input from dealers. The Company finances its inventory
purchases through revolving credit arrangements known in the industry as
floorplan facilities.
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<PAGE> 69
The following table presents combined pro forma information with respect to
the Company's new vehicle sales for the years ended June 30, 1995, 1996 and
1997, and the nine months ended March 31, 1997 and 1998, respectively.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
New Vehicle Data -------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales................... 19,493 21,694 20,499 14,851 14,583
Retail sales........................ $357,221 $403,877 $420,019 $306,737 $315,697
Gross profit........................ $ 18,763 $ 19,880 $ 21,017 $ 15,623 $ 15,658
Gross margin........................ 5.3% 4.9% 5.0% 5.1% 5.0%
Average gross profit per retail unit
sold.............................. $ 963 $ 916 $ 1,025 $ 1,052 $ 1,074
</TABLE>
USED VEHICLE SALES
The Company sells used vehicles at each of its dealerships. Consumer demand
for used vehicles has increased as prices of new vehicles have risen and as more
high quality used vehicles have become available. Furthermore, used vehicles
typically generate higher gross margins than new vehicles because of their
limited comparability and the somewhat subjective nature of their valuation. The
Company intends to continue growing its used vehicle sales operations by
maintaining a high quality inventory, providing competitive prices and extended
service contracts for its used vehicles and continuing to promote used vehicle
sales.
Profits from sales of used vehicles are dependent primarily on the ability
of the Company's dealerships to obtain a high quality supply of used vehicles
and effectively manage that inventory. The Company's new vehicle operations
provide the Company's used vehicle operations with a large supply of high
quality trade-ins and off-lease vehicles, which are the best sources of high
quality used vehicles. The Company supplements its used vehicle inventory with
used vehicles purchased at auctions.
The Company generally maintains a 60- to 90-day supply of used vehicles and
disposes of used vehicles that the Company does not retail to customers by
selling them at auctions or offering them to wholesalers. Trade-ins may be
transferred among dealerships to provide balanced inventories of used vehicles
at each of the Company's dealerships. The Company believes that acquisitions of
additional dealerships will expand its internal market for transfers of used
vehicles among its dealerships and increase the ability of each of the Company's
dealerships to offer the same brand of used vehicles as it sells new and to
maintain a balanced inventory of used vehicles. The Company intends to develop
integrated computer inventory systems that will allow it to coordinate vehicle
transfers among its dealerships.
The Company believes that dealership strengths in offering used vehicles
include: (i) access to trade-ins on new vehicle purchases, which are typically
lower mileage and higher quality relative to trade-ins on used car purchases,
(ii) access to late-model, low mileage off-lease vehicles, and (iii) the
availability of manufacturer certification and extended manufacturer warranties
for the Company's higher quality used vehicles. This supply of high quality
trade-ins and off-lease vehicles reduces the Company's dependence on auction
vehicles, which are typically a higher cost source of used vehicles.
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<PAGE> 70
The following table represents pro forma information with respect to the
Company's used vehicle sales for the years ended June 30, 1995, 1996 and 1997,
and the nine months ended March 31, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
Used Vehicle Data -------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales..................... 9,073 10,205 9,913 7,392 7,134
Retail sales.......................... $100,563 $122,464 $120,534 $89,217 $92,148
Gross profit.......................... $ 8,858 $ 11,281 $ 11,635 $ 8,246 $ 8,061
Gross margin.......................... 8.8% 9.2% 9.7% 9.2% 8.7%
Average gross profit per retail unit
sold................................ $ 976 $ 1,105 $ 1,174 $ 1,115 $ 1,130
Wholesale unit sales.................. 8,033 8,665 9,442 7,117 5,642
Wholesale sales....................... $ 42,238 $ 44,512 $ 57,391 $42,881 $34,978
Gross profit.......................... $ 1,638 $ 1,057 $ 1,554 $ 690 $ 590
Gross margin.......................... 3.9% 2.4% 2.7% 1.6% 1.7%
</TABLE>
PARTS AND SERVICE SALES
The Company provides parts and service at each of its dealerships primarily
for the vehicle makes sold by its dealerships. The Company provides maintenance
and repair services at each of its dealerships and collision repair centers. The
Company performs both warranty and customer-paid service work.
Historically, the automotive repair industry has been highly fragmented.
However, the Company believes that the increased use of advanced technology in
vehicles has made it more difficult for independent repair shops to retain the
expertise to perform major or technical repairs. Additionally, manufacturers
permit warranty work to be performed only at dealerships. Hence, unlike
independent service stations, or independent and superstore used car dealerships
with service operations, the Company's dealerships are qualified to perform work
covered by manufacturer warranties. Given the increasing technological
complexity of motor vehicles and the trend toward extended manufacturer and
dealer warranty periods for new vehicles, the Company believes that an
increasing percentage of repair work will be performed at dealerships.
The Company seeks to retain each purchaser of a vehicle as a customer of
the Company's service and parts departments. The Company's dealerships have
systems in place that track their customers' maintenance records and notify
owners of vehicles purchased at the dealerships when their vehicles are due for
periodic services. The Company regards its service and repair activities as an
integral part of its overall approach to customer service, providing an
opportunity to foster ongoing relationships with the Company's customers and
deepen customer loyalty.
The dealerships' parts departments support their respective sales and
service divisions. Each of the Company's dealerships sells factory-approved
parts for vehicle makes and models sold by that dealership. These parts are
either used in repairs made by the dealerships or sold at retail to its
customers or at wholesale to independent repair shops and/or other franchised
dealerships. Currently, each of the Company's dealerships employs its own parts
manager and independently controls its parts inventory and sales.
The following table sets forth information regarding the Company's parts
and service sales for the years ended June 30, 1995, 1996 and 1997, and the nine
months ended March 31, 1997 and 1998, respectively:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
Parts and Service Data ----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales.................................... $53,625 $61,682 $66,602 $48,884 $50,159
Gross profit............................. $21,310 $26,786 $25,297 $19,213 $19,781
Gross margin............................. 39.7% 43.4% 38.0% 39.3% 39.4%
</TABLE>
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<PAGE> 71
COLLISION REPAIR
The Company operates four standalone collision repair centers under the
service mark "Collision Centers USA." The Company began operating the first of
these centers in September 1996 and acquired three additional centers in
November 1997 as part of the Collision Centers USA Acquisition. The Company
believes that the primary source of Collision Centers USA's customers will be
the automobile insurance companies which award "preferred status" to Collision
Centers USA. As of March 31, 1998, 10 insurance companies had awarded such
"preferred status" to Collision Centers USA. The Company believes that these
insurance companies -- by virtue of the customers they refer to Collision
Centers USA -- will be the primary source of the Company's collision repair
center business, and that its ongoing relationship with these insurance
companies will help ensure a continuous and increasing source of customers for
Collision Centers USA. The Company believes that its collision repair business
will provide favorable margins and will not be significantly affected by
business cycles or consumer preferences. The Company also believes that its
development and operation of collision repair centers will provide incremental
parts business to its dealerships.
FINANCE AND INSURANCE
The Company will offer its customers a wide range of financing and leasing
alternatives for the purchase of vehicles. In addition, as part of each sale,
the Company offers customers credit life, accident and health and disability
insurance to cover the financing cost of their vehicles, as well as warranty or
extended service contracts. The Company's pro forma revenue from financing,
insurance and extended warranty transactions was $17.4 million for the year
ended June 30, 1997 and $13.5 million for the nine months ended March 31, 1998.
The Company believes that its customers' ability to obtain financing at its
dealerships significantly enhances the Company's ability to sell new and used
vehicles. The Company provides a variety of financing and leasing alternatives
in order to meet the specific needs of each potential customer. The Company
believes its ability to obtain customer-tailored financing on a "same day" basis
provides it with an advantage over many of its competitors, particularly smaller
competitors which do not generate sufficient volume to attract the diversity of
financing sources that are available to the Company. Each dealership will then
be able to provide a customer with a broader array of lease payment alternatives
and, consequently, appeal to a term buyer who is trying to purchase a vehicle of
choice at or below a specific monthly payment.
In January 1998, the Company acquired a sub-prime automotive finance
company, South Financial, a Florida corporation with offices in Florida,
Tennessee and North Carolina. The Company expects that its dealership network
will provide South Financial with a steady source of loan business opportunities
and that South Financial will provide each of the Company's dealerships an
ongoing sub-prime financing source.
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<PAGE> 72
The following tables set forth information regarding South Financial's
operations:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------- AS OF MARCH 31,
1996 1997 1998
--------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Principal balance of outstanding loans............. $17,141 $14,883 $15,821
Number of outstanding loans........................ 4,100 3,940 3,854
Average portfolio yield............................ 29.9% 28.1% 27.9%
Periods of delinquency:
31 to 60 days.................................... 5.5% 5.6% 3.7%
61 days or more.................................. 4.3% 3.1% 2.0%
------- ------- -------
Total delinquencies as a percentage of the current
principal balance of outstanding loans(1)........ 9.8% 8.7% 5.7%
======= ======= =======
</TABLE>
- ---------------
(1) The portfolio balance in 1996 was on a full recourse basis. Starting in
March 1997 all loans were purchased on a non-recourse basis.
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------- ----------------
1996 1997 1997 1998
-------- -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Number of loans purchased................................. 3,982 4,122 636 761
Principal balance of loans purchased...................... $19,910 $22,671 $3,218 $5,212
Average principal balance of loans purchased.............. $ 5.0 $ 5.5 $ 5.1 $ 5.5
</TABLE>
In addition to its financing activities, the Company offers extended
service contracts in connection with the sale of new and used vehicles. Extended
service contracts on new vehicles supplement the warranties offered by the
vehicle manufacturers, and on used vehicles, such contracts supplement any
remaining manufacturer warranty or serve as the primary service contract on the
vehicle. The Company has recently entered into an agreement with a leading
insurance carrier to share in certain revenues generated by the sale of extended
warranty contracts. The Company also offers its customers credit life, health
and accident insurance when they finance an automobile purchase, and receives a
commission on each policy sold.
SALES AND MARKETING
The Company's marketing and advertising activities vary among its
dealerships and among its markets. The Company advertises primarily through
newspapers, radio, television and direct mail and regularly conducts special
promotions designed to focus vehicle buyers on its product offerings. The
Company intends to continue tailoring its marketing efforts to the relevant
marketplace in order to reach the Company's targeted customer base. The Company
also employs computer technology to aid salespeople in identifying potential new
customers. Under arrangements with each of the manufacturers, the Company
receives a subsidy for a portion of its advertising expenses incurred in
connection with a manufacturer's vehicles. Because of the Company's leading
market presence in certain markets, the Company believes it has been able to
realize cost savings on its advertising expenses due to volume discounts and
other concessions from media, and the Company expects such cost savings to
continue in the future.
RELATIONSHIPS WITH MANUFACTURERS
Each of the Company's dealerships operates under a separate Franchise
Agreement which governs the relationship between the dealership and the
manufacturer. In general, each Franchise Agreement specifies the location of the
dealership for the sale of vehicles and for the performance of certain approved
services in a specified market area. The designation of such areas generally
does not guarantee exclusivity within a specified territory. In addition, most
manufacturers allocate vehicles on a "turn and earn" basis which rewards high
volume. A Franchise Agreement typically requires the dealer to meet specified
standards regarding show-
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<PAGE> 73
rooms, the facilities and equipment for servicing vehicles, inventories, minimum
net working capital, personnel training, and other aspects of the business. The
Franchise Agreement with each dealership also gives each manufacturer the right
to approve the dealership's general manager and any material change in
management or ownership of the dealership. Each manufacturer may terminate a
Franchise Agreement under certain circumstances, such as a change in control of
the dealership without manufacturer approval, the impairment of the reputation
or financial condition of the dealership, the death, removal or withdrawal of
the dealership's general manager, the conviction of the dealership or the
dealership's owner or general manager of certain crimes, a failure to adequately
operate the dealership or maintain wholesale financing arrangements, insolvency
or bankruptcy of the dealership or a material breach of other provisions of the
Franchise Agreement. In connection with the Offering, the Company is amending
its Franchise Agreements which would have prohibited the Company from selling
its common stock to the public. See "Description of Capital Stock -- Georgia
Law, Certain Articles and Bylaw Provisions and Certain Franchise Agreement
Provisions."
Most automobile manufacturers are still developing their policies regarding
public ownership of dealerships. The Company believes that these policies will
continue to change as more dealership groups sell their stock to the public, and
as the established, publicly-owned dealership groups acquire more franchises. To
the extent that new or amended manufacturer policies restrict the number of
dealerships which may be owned by a dealership group, or the transferability of
the Company's common stock, such policies could have a material adverse effect
on the Company. See "Risk Factors -- Dependence on Automobile Manufacturers,"
"Risk Factors -- Manufacturers' Restrictions on the Merger, the Acquisitions and
Future Acquisitions," "Risk Factors -- Stock Ownership/Issuance Limits;
Limitation on Ability to Issue Additional Equity" and "Risk
Factors -- Anti-Takeover Provisions."
Ford's present public company policy requires public companies to deliver
to Ford all Commission filings made by the public company or third-parties with
respect to the public company, including Schedules 13D and 13G. If any such
filing shows that (a) any person or entity would acquire 50% or more of the
public company's voting securities, (b) any person or entity that owns or
controls 50% or more of the Company's voting securities (or other securities
convertible into such voting securities) intends or may intend to acquire
additional voting securities of the public company, (c) an extraordinary
corporate transaction, such as a merger or liquidation, involving the public
company or any of its subsidiaries is anticipated, (d) a material asset sale
involving the public company or any of its subsidiaries is anticipated, (e) a
change in the public company's Board of Directors or management is planned or
has occurred, or (f) any other material change in the public company's business
or corporate structure is planned or has occurred, then the public company must
give Ford notice of such event. If Ford reasonably determines that such an event
would have a material adverse effect on its reputation in the marketplace or is
otherwise not in its interest, Ford's policy may require the public company to
sell or resign from one or more of its Ford franchises. Should the public
company or any of its Ford franchisee subsidiaries enter into an agreement to
transfer the assets of a Ford franchisee subsidiary to a third party, the right
of first refusal described in the Ford Franchise Agreement may apply.
The following sets forth some additional provisions of Ford's present
announced public company policy: (a) each dealership must be owned by a separate
company that meets Ford's capitalization guidelines; (b) the day-to-day
management control is to be delegated to the General Manager of each dealership,
whose appointment is subject to Ford's prior written approval; (c) certain
compensation plans must be implemented at each dealership; (d) each dealership
must meet reasonable performance criteria; (e) should a dealership fail to
maintain for a twelve month period substantially the same level of CSI as the
CSI reported for that dealership as of the date of its acquisition, the parent
company shall not apply for another Ford authorized dealership until such time
as the CSI level is restored to Ford's reasonable satisfaction; (f) the parent
company may not acquire more than two Ford and two Lincoln Mercury dealerships
within any single twelve month period; (g) unless otherwise agreed by Ford, the
parent company shall not apply for a Ford authorized dealership if, once owning
such dealership, the parent company would own or control the lesser of (i) 15
Ford and 15 Lincoln Mercury Dealerships or (ii) that number of Ford authorized
dealerships with total retail sales in the preceding calendar year of more than
2% of the total Ford and Lincoln Mercury branded vehicles sold at retail in the
United States; (h) in no event, however, shall the parent company apply for a
Ford authorized dealership in any market area that would result in the parent
company owning or controlling more than one
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<PAGE> 74
Ford authorized dealership in those market areas having three or less such
dealerships or with the parent company owning or controlling more than 25% of
the Ford authorized dealerships in market areas have four or more such
dealerships; (i) the preceding limitations shall apply separately to Ford and
Lincoln Mercury dealerships; (j) should the preceding limits be reached, Ford
will consider extending the limitations; and (k) each dealership shall operate
as an exclusive fully-dedicated Ford and/or Mercury and/or Lincoln dealership.
In addition to these general policies, Ford has specifically indicated to
the Company that as a condition to Ford's approval of the Offering, the Merger
and the Acquisitions, Ford will require the Company to relocate its existing
Duluth, Georgia Ford dealership and potentially construct a new Ford dealership
facility at the new Duluth location. Ford has also indicated that said Duluth
dealership will operate pursuant to a "Term Agreement" for a period of no less
than 24 months. Such a "Term Agreement" allows Ford to terminate the Company's
Duluth Ford Franchise Agreement at the end of said 24-month term if the
Company's Duluth Ford dealership does not meet certain sales quotas, market
penetration and CSI performance goals.
Under the general terms of GM's public company agreement, the public
company must deliver to GM copies of all Schedules 13D and 13G, and all
amendments thereto and terminations thereof, received by the public company,
within five days of receipt of such Schedules. If the public company is aware of
any ownership of its stock that should have been reported to it on Schedule 13D
but that is not reported in a timely manner, it will promptly give GM written
notice of such ownership, with any relevant information about the owner that the
public company possesses.
The general terms of GM's public company agreement further provide that if
the public company, through its Board of Directors or through shareholder
action, proposes or if any person, entity or group sends the public company a
Schedule 13D, or any amendments thereto, disclosing (a) an agreement to acquire
or the acquisition of aggregate ownership of more than 20% of the voting stock
of the public company and (b) the public company, through its Board of Directors
or through shareholder action, proposes or if any plans or proposals which
relate to or would result in the following: (i) the acquisition by any person of
more than 20% of the voting stock of the public company other than for the
purposes of ordinary passive investment; (ii) an extraordinary corporate
transaction, such as a material merger, reorganization or liquidation, involving
the public company or a sale or transfer of a material amount of assets of the
public company and its subsidiaries; (iii) any change which, together with any
changes made to the Board of Directors within the preceding year, would result
in a change in control of the then current Board of the public company; or (iv)
in the case of an entity that produces motor vehicles or controls or is
controlled by or is under common control with an entity that either produces
motor vehicles or is a motor vehicle franchisor, the acquisition by any person,
entity or group of more than 20% of the voting stock of the public company and
any proposal by any such person, entity or group, through the public company
Board of Directors or shareholders action, to change the Board of Directors of
the public company, then, if such actions in GM's business judgment could have a
material or adverse effect on its image or reputation in the GM dealerships
operated by the public company or be materially incompatible with GM's interests
(and upon notice of GM's reasons for such judgment), the public company may be
required to take one of the remedial actions set forth in the next paragraph
within a specified time period of receiving such Schedule 13D or such amendment.
If the public company is obligated under GM's public company policy to take
remedial action, it may be required to transfer the dealership to GM or its
designee. Alternatively, GM or its designee may acquire the assets, properties
or business associated with any GM dealership operated by the public company at
fair market value as determined in accordance with GM's Dealership Agreement
with the public company, or provide evidence to GM that such person, entity or
group no longer has such threshold level of ownership interest in the public
company.
Should the public company or its GM franchisee subsidiary enter into an
agreement to transfer the assets of the GM franchisee subsidiary to a third
party, the right of first refusal described in the GM Dealer Agreement may apply
to any such transfer.
The following sets forth some additional provisions of GM's proposed policy
on public company ownership: (a) under the agreement each GM dealership will be
owned by a separate public company that
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meets GM net working capital standards; (b) each public company will comply with
GM's brand strategy and will participate in the dealer marketing groups for its
GM lines and non-GM automotive operations will not be jointly advertised with GM
operations; (c) each public company will have complete dealership operations
(sales, service, parts, used car), and will comply with the channel strategy
including divisional alignment, locations and image requirements; (d) the
dealerships will be exclusive so that no GM sales, service or parts operations
will be combined with non-GM representation and each dealer company will
relocate any non-GM lines within one year of acquiring the dealership; (e) if a
public company acquires a dealership which is not on channel, it will bring it
into compliance within 12 months, or GM may require that off-channel GM
representation be discontinued in exchange for compensation based upon an agreed
upon formula; (f) GM generally limits the number of acqusitions a single public
company may consummate, and each acquisition must be submitted to GM for prior
approval; (g) there will be an Executive Manager for each GM dealership who
meets the GM requirements for a dealer operator, except the 15% ownership
requirement, and any change in the Executive Manager must be approved by GM; (h)
the public company will comply with GM's multiple dealer investor/multiple
dealer operator policies and will not acquire more than 50% of the GM
dealerships for any division (Chevrolet, Pontiac-GMC, Oldsmobile, Buick,
Cadillac) within a multiple dealer area, and in the event a multiple dealer area
has one dealer in an area that has multiple dealers for other divisions, the
public company may acquire that one dealership as long as the total does not
exceed 50% of the GM dealerships; (i) semi-annually, GM, the public company and
each dealer company will review the dealer company's performance for sales
performance, CSI and branding, and if for two consecutive evaluation periods the
dealer company is not meeting its requirements, GM can request a change in
management within six months; (j) GM has a right of first refusal if the assets
of a dealer company are to be transferred to a third party; (k) if a dealer
agreement is terminated, if dealership operations are discontinued, if the
public company discontinues GM representation in a multiple dealer area, or if
dealership assets are transferred to GM under the remedial provisions, then GM
has the right to purchase the dealership facilities or assume the leases for the
facilities, and GM will also receive the right of quiet possession for the
facilities for 10 years if this right is exercised within 10 years of the Dealer
Agreement; and (l) the public company must agree to use the GM dispute
resolution process as the exclusive source of resolution of any dispute
regarding the Dealer Agreement, the Public Ownership Agreement or acquisition of
additional GM dealerships.
Toyota's general public ownership policy provides that Toyota has the right
to approve any ownership or voting rights of the Company of 20% or greater by
any individual or entity. In addition, no single entity shall hold an ownership
interest, directly or through an affiliate, in more than: (a) the greater of one
dealership or 20% of the Toyota dealer count in a "Metro" market; (b) the lesser
of five dealerships or 5% of the Toyota dealerships in any "Toyota Region;" and
(c) seven Toyota dealerships nationally. Additional provisions of Toyota's
general public ownership policy provide: an entity may not acquire any
additional Toyota dealership within nine months of its prior acquisition of a
Toyota dealership; the public company shall not own contiguous dealerships with
common boundaries; the public company shall create a separate legal entity for
each Toyota dealership which it owns; and the public company shall provide
Toyota with copies of all information and materials filed with the Commission.
Toyota, however, has deviated from this general policy with respect to certain
public companies and there can be no assurance that these policies will be the
same policies with which the Company will have to agree.
It is the current policy of Honda to restrict any company from holding more
than seven Honda or more than three Acura franchises nationally and to restrict
the number of franchises to: (a) one Honda dealership in a "Metro" market (a
metropolitan market represented by two or more Honda dealers) with two to 10
Honda dealership points; (b) two Honda dealerships in a Metro market with 11 to
20 Honda dealership points; (c) three Honda dealerships in a Metro market with
21 or more Honda dealership points; (d) no more than 4% of the Honda dealerships
in any one of the 10 Honda geographic zones; (e) one Acura dealership in a Metro
market (a metropolitan market with two or more Acura dealership points); and (f)
two Acura dealerships in any one of the six Acura geographic zones.
While Chrysler evaluates each acquisition or appointment on an individual
basis, it has published policy regarding multiple dealer ownership which
provides that no person or entity may hold an ownership interest in more than 10
Chrysler Motors dealerships in the United States, six dealerships in the same
Sales Zone, and
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two dealerships in the same market, but in no event two like vehicle line makes
in the same market. Any exception to this policy requires Chrysler approval.
Chrysler has not finalized its agreement with the Company as of this date.
To date, Saturn has not approved any public ownership of its dealership
franchises. For this reason, the financial results of the Company's Saturn
dealership in Columbus, Georgia have not been included in this Prospectus. The
Company will use its best efforts to obtain Saturn approval; however, if Saturn
does not approve the Company's ownership of the Saturn dealership in Columbus,
Georgia, the Company will sell the Saturn dealership.
Certain state statutes, including Georgia, limit manufacturers' control
over dealerships. Georgia law provides that no manufacturer may arbitrarily
reject a proposed change of control or sale of an automobile dealership, and any
manufacturer challenging such a transfer of a dealership must provide written
reasons for its rejection to the dealer. Manufacturers bear the burden of proof
to show that any disapproval of a proposed transfer of a dealership is not
arbitrary. If a manufacturer terminates a franchise agreement due to a proposed
transfer of the dealership or for any other reason not considered to constitute
good cause under Georgia law, such termination will be ineffective. As an
alternative to rejecting or accepting a proposed transfer of a dealership or
terminating the franchise agreement, Georgia law provides that a manufacturer
may offer to purchase the dealership on the same terms and conditions offered to
the prospective transferee.
Under Tennessee law, a manufacturer may not modify, terminate or refuse to
renew a franchise agreement with a dealer except for good cause, as defined in
the governing Tennessee statutes. Further, a manufacturer may be denied a
Tennessee license, or have an existing license revoked or suspended if the
manufacturer modifies, terminates, or suspends a franchise agreement due to an
event not constituting good cause. Good cause includes material shortcomings in
the character, financial condition or business experience of the dealer. A
manufacturer's Tennessee license may also be revoked if the manufacturer
prevents or attempts to prevent the sale or transfer of the dealership by
unreasonably withholding consent to the transfer.
Under North Carolina law, notwithstanding the terms of any franchise
agreement between the manufacturer and the dealer, the manufacturer may not
prevent or refuse to approve: (i) the sale or transfer of the ownership of the
dealer by the sale of the business, stock transfer, or otherwise; (ii) the
transfer, sale or assignment of a dealer franchise; (iii) a change in the
executive management or principal operator of the dealership; or (iv) the
relocation of the dealership to another site within the dealer's relevant market
area, unless the manufacturer can show that the proposed transfer, sale,
assignment, relocation or change is unreasonable. In addition, under North
Carolina law, dealerships may challenge manufacturer's attempts to establish new
dealerships in or to relocate dealerships into the dealer's relevant market
area, and state regulators can prevent the proposed establishment or relocation
upon a finding that there is good cause for not permitting such addition or
relocation. North Carolina law limits the ability of a manufacturer to
terminate, cancel or fail to renew a franchise unless there is good cause for
such termination, cancellation or renewal and the manufacturer acted in good
faith.
COMPETITION
The automotive retailing industry in which the Company operates is highly
competitive. The industry is fragmented and characterized by a large number of
independent operators, many of whom are individuals, families and small groups.
In the sale of new vehicles, the Company principally competes with other new
automotive dealers in the same general vicinity of the Company's dealership
locations. Such competing dealerships may offer the same or different models and
makes of vehicles that the Company sells. In the sale of used vehicles, the
Company principally competes with other used automobile dealers and with new
automobile dealers that operate used automobile lots in the same general
vicinity of the Company's dealership locations. In each of its markets, the
Company competes with numerous other new automobile dealers selling other brands
and a large number of other used automobile stores. In addition, certain
regional and national car rental companies operate retail used car lots to
dispose of their used rental cars. See "Risk Factors -- Competition."
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The Company also may face increased competition from certain used
automobile "superstores," such as CarMax, AutoNation USA and Driver's Mart
Worldwide Inc. Such used automobile superstores have emerged recently in various
areas of the United States and are beginning to expand nationally. Such
"superstores" have recently opened in certain markets in which the Company
competes. In addition, the Company competes with independent leasing companies,
and, to a lesser extent, with an increasing number of automobile dealers that
sell vehicles through nontraditional methods, such as through direct mail, the
Internet or warehouse clubs.
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted by manufacturers, the ability of
dealerships to offer a wide selection of the most popular vehicles, the location
of dealerships and the quality of customer service. In the Company's "main
street" markets, competition tends to be interbrand rather than intrabrand. This
has the effect of eliminating brand saturation within a given market. Other
competitive factors include customer preference for particular brands of
automobiles, pricing (including manufacturer rebates and other special offers)
and warranties. The Company believes that its dealerships are competitive in all
of these areas. However, as it enters other markets, the Company may face
competitors that are more established or have access to greater financial
resources. The Company, however, does not have any cost advantage in purchasing
new vehicles from manufacturers and typically relies on advertising and
merchandising, sales expertise, service reputation and location of its
dealerships to sell new vehicles.
The Company competes against other franchised dealers to perform warranty
repairs and against other automobile dealers, franchised and independent service
center chains and independent garages for customer-paid repair and routine
maintenance business. The Company competes with other automobile dealers,
service stores and auto parts retailers in its parts operations. The Company
believes that the principal competitive factors in parts and service sales are
price, the use of factory-approved replacement parts, the familiarity with a
manufacturer's brands and models and the quality of customer service. A number
of regional or national chains offer selected parts and services at prices that
may be lower than the Company's prices.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
A number of regulations affect the Company's business of marketing,
selling, financing and servicing automobiles. The Company also is subject to
laws and regulations relating to business corporations generally. Under North
Carolina, Tennessee, and Georgia law, as well as the laws of other states into
which the Company may expand, the Company must obtain a license in order to
establish, operate or relocate a dealership or operate an automotive repair
service. Under Florida law, the Company must also obtain applicable insurance
and financing-related licenses in order to operate its sub-prime finance
business. These laws also regulate the Company's conduct of business, including
its advertising and sales practices. Other states may have similar requirements.
The Company's operations are also subject to laws governing consumer
protection. Automobile dealers and manufacturers are subject to so-called "Lemon
Laws" that require a manufacturer or the dealer to replace a new vehicle or
accept it for a full refund within one year after initial purchase if the
vehicle does not conform to the manufacturer's express warranties and the dealer
or manufacturer, after a reasonable number of attempts, is unable to correct or
repair the defect. Federal laws require certain written disclosures to be
provided on new vehicles, including mileage and pricing information.
The Company's financing activities with its customers are subject to
federal truth-in-lending, consumer leasing and equal credit opportunity
regulations as well as state and local motor vehicle finance laws, installment
finance laws, usury laws and other installment sales laws. Some states regulate
finance fees that may be paid as a result of vehicle sales. State and federal
environmental regulations, including regulations governing air and water quality
and the storage and disposal of gasoline, oil and other materials, also apply to
the Company.
The Company believes that it complies in all material respects with the
laws affecting its business. Possible penalties for violation of any of these
laws include revocation of the Company's licenses and fines. In addition, many
laws may give customers a private cause of action.
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As with automotive dealerships generally, and service, parts and body shop
operations in particular, the Company's business involves the use, storage,
handling and contracting for recycling or disposal of hazardous or toxic
substances or wastes, including environmentally sensitive materials such as
motor oil, waste motor oil and filters, transmission fluid, antifreeze, Freon,
waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing
agents, gasoline and diesel fuels. The Company's business also involves the past
and current operation and/or removal of aboveground and underground storage
tanks containing such substances or wastes. Accordingly, the Company is subject
to regulation by federal, state and local authorities establishing health and
environmental quality standards, and liability related thereto, and providing
penalties for violations of those standards. The Company is also subject to
laws, ordinances and regulations governing remediation of contamination at
facilities it operates or to which it sends hazardous or toxic substances or
wastes for treatment, recycling or disposal. The Company believes that it does
not have any material environmental liabilities and that compliance with
environmental laws and regulations will not, individually or in the aggregate,
have a material adverse effect on the Company's results of operations or
financial condition. Furthermore, environmental laws and regulations are complex
and subject to frequent change. There can be no assurance that compliance with
amended, new or more stringent laws or regulations, stricter interpretations of
existing laws or the future discovery of environmental conditions will not
require additional expenditures by the Company, or that such expenditures will
not be material. See "Risk Factors -- Adverse Effect of Governmental Regulation;
Environmental Regulation Compliance Costs."
FACILITIES
The Company's principal executive offices are located at 5901
Peachtree-Dunwoody Rd., Suite 250-B, Atlanta, Georgia 30328, and its telephone
number is (678) 443-8100. These executive offices are located on the premises
owned by Laing Properties, Inc. The following table identifies, for each of the
properties to be utilized by the Company's operations, the location, use and
expiration date of the Company's lease for such property:
<TABLE>
<CAPTION>
LEASE/ EXPIRATION
BUSINESS UNIT OWN LOCATION USE DATE
- ------------- ------ -------- --- ----------
<S> <C> <C> <C> <C>
Robertson Oldsmobile-Cadillac, Lease 2355 Browns Bridge Road New and used vehicle 2005
Inc......................... Gainesville, GA sales; service; F&I
Grindstaff, Inc............... Lease 2224 West Elk Avenue New vehicle sales; 2001
Elizabethton, TN service; F&I
Hones, Inc. d/b/a/ Bill Holt Lease 4910 Sylva Highway New and used vehicle 2016
Ford/Mercury................ Franklin, NC sales; service; F&I
Day's Chevrolet, Inc.......... Lease 4461 S. Main St. New and used vehicle 2008
Acworth, GA sales; service; F&I
Wade Ford, Inc................ Lease 3860 South Cobb Drive New and used vehicle 2008
Smyrna, GA sale; service; F&I
Lease 3860 South Cobb Drive Fleet sales; vehicle 2005
Smyrna, GA storage
Wade Ford Buford, Inc......... Lease 4525 Highway 20 New and used vehicle Month-to-Month
Buford, GA sales; service; F&I
South Financial Corporation... Lease 3500 Blanding Blvd. Consumer Lending 2003
Jacksonville, FL Administration
Jay Automotive Group, Inc..... Lease 1661 Whittlesey Road New and used vehicle 2017
Columbus, GA sales; service; F&I
Lease Veterans Parkway New and used vehicle Month-to-Month
Columbus, GA sales; service; F&I
Lease Victory Drive Used vehicle sales; Month-to-Month
Columbus, GA F&I
Lease 1801 Box Road Used vehicle sales; 1999
Columbus, GA F&I
Boomershine Automotive Group, Lease 2150 Cobb Parkway New and used vehicle 1999
Inc......................... Smyrna, GA sales; service; F&I
Lease 3280 Commerce Ave. New and used vehicle Month-to-Month
Duluth, GA sales; service; F&I
Lease 3230 Satellite Blvd. New and used vehicle 2017
Duluth, GA sales; service; F&I
Lease 595 East Main St. New and used vehicle 2006
Cartersville, GA sales; service; F&I
</TABLE>
77
<PAGE> 79
<TABLE>
<CAPTION>
LEASE/ EXPIRATION
BUSINESS UNIT OWN LOCATION USE DATE
- ------------- ------ -------- --- ----------
<S> <C> <C> <C> <C>
Lease 964 Barrett Parkway New and used vehicle 2000
Kennesaw, GA sales; service; F&I
Lease 2970 Old Norcross Rd. Collision Center 2016
Duluth, GA
Collision Centers USA......... Lease 5548 Old Dixie Highway Collision Center 2009
Forest Park, GA
Lease 1715 Cobb Parkway Collision Center Month-to-Month
Marietta, GA
Lease 1110 Highway 155 South Collision Center 2012
McDonough, GA
Lease 205 Corporate Center Dr. Collision Center 2002
Stockbridge, GA Administration
Sunbelt Automotive Group,
Inc......................... Lease 5901 Peachtree-Dunwoody Rd. Corporate 1999
Atlanta, GA Administration
</TABLE>
All of the properties utilized by the Company's operations are leased as
set forth in the foregoing table. The Company believes that its facilities are
adequate for its current needs. In connection with its acquisition strategy, the
Company intends to lease the real estate associated with a particular business
unit whenever practicable. Under the terms of its franchise agreements, the
Company must maintain an appropriate appearance and design of its facilities and
is restricted in its ability to relocate its dealerships. See "-- Relationships
with Manufacturers."
EMPLOYEES
As of March 31, 1998, pro forma for the Merger and the Acquisitions, the
Company employed 1,148 people, of whom approximately 177 were employed in
managerial positions, 347 were employed in non-managerial sales positions, 386
were employed in non-managerial parts and service positions and 238 were
employed in administrative support positions.
The following table sets forth information regarding the number of
employees employed by Sunbelt and its subsidiaries, pro forma for the Merger and
the Acquisition, as of March 31, 1998:
<TABLE>
<CAPTION>
PERCENT
BUSINESS UNIT EMPLOYEES OF SUNBELT
- ------------- --------- ----------
<S> <C> <C>
Boomershine Automotive Group, Inc........................... 478 41.6%
Day's Chevrolet, Inc........................................ 89 7.8
Grindstaff, Inc............................................. 135 11.8
Hones, Inc.................................................. 36 3.1
Jay Automotive Group, Inc................................... 178 15.5
Robertson Oldsmobile-Cadillac, Inc.......................... 35 3.0
Sunbelt Automotive Group, Inc. (Corporate).................. 11 1.0
Wade Ford, Inc. and Wade Ford Buford, Inc................... 186 16.2
----- ------
1,148 100.0%
===== ======
</TABLE>
The Company believes that many dealerships in the automotive retailing
industry have had difficulty in attracting and retaining qualified personnel for
a number of reasons, including the historical inability of dealerships to
provide employees with a liquid equity interest in the profitability of the
dealerships. The Company intends, upon completion of the Offering, to provide
certain executive officers, managers and other employees with stock options and
all employees with a stock purchase plan and believes those types of equity
incentives will be attractive to existing and prospective employees of the
Company. See "Management -- Incentive Stock Plan" and "Risk
Factors -- Dependence on Key Personnel and Limited Management and Personnel
Resources."
The Company believes that its relationship with its employees is good. None
of the Company's employees is represented by a labor union. Because of its
dependence on the manufacturers, however, the Company may be affected by labor
strikes, work slowdowns and walkouts at the manufacturers' manufacturing
facilities. See "Risk Factors -- Dependence on Automobile Manufacturers."
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<PAGE> 80
LEGAL PROCEEDINGS AND INSURANCE
From time to time, the Company is named in claims involving the
manufacture, servicing and/or repair of automobiles, contractual disputes and
other matters arising in the ordinary course of the Company's business.
Currently, no legal proceedings are pending against or involve the Company that,
in the opinion of management, could reasonably be expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company. Because of their vehicle inventory and nature of business,
automotive dealerships generally require significant levels of insurance
covering a broad variety of risks. The Company's insurance includes an umbrella
policy as well as insurance on its buildings, comprehensive coverage for its
vehicle inventory, general liability insurance, employee dishonesty coverage and
errors and omissions insurance in connection with its vehicle sales and
financing activities.
79
<PAGE> 81
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS; KEY PERSONNEL
The executive officers and Directors of the Company and certain key
employees of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ---- --- ----------------------------
<S> <C> <C>
Walter M. Boomershine, Jr.*.... 69 Chairman of the Board and Senior Vice President
Robert W. Gundeck*............. 55 Chief Executive Officer and Director
Charles K. Yancey*............. 59 President, Chief Operating Officer and Director
Stephen C. Whicker*............ 49 Executive Vice President of Corporate Development; General
Counsel, Secretary and Director
Ricky L. Brown*................ 45 Chief Financial Officer, Vice President of Finance and
Treasurer
Alan K. Arnold................. 42 Vice President of Ford Division and Director
George D. Busbee............... 70 Director
Lee M. Sessions, Jr. .......... 51 Director
Jack R. Altherr................ 72 Director
R. Glynn Wimberly.............. 47 Chief Executive Officer, South Financial Corporation
</TABLE>
- ---------------
* Executive Officer
WALTER M. BOOMERSHINE, JR. has been Chairman of the Board and President of
the Company since December 1997, and will continue to serve as Chairman of the
Board and Senior Vice President following the Offering. Prior to the Merger, Mr.
Boomershine was the Chairman of the Board, President and the controlling
shareholder of Boomershine Automotive. Mr. Boomershine became associated with
Boomershine Automotive in 1953 and has served in various capacities as an
employee and officer since that date. Mr. Boomershine received a Bachelor of
Science degree in industrial management from the Georgia Institute of Technology
in 1951 and received a certificate for completing the program for Management
Development at Harvard University's Graduate School of Business Administration
in 1973. Mr. Boomershine's initial term as a director of the Company will expire
at the annual meeting of the shareholders of the Company to be held in 2000.
ROBERT W. GUNDECK has been the Chief Executive Officer of the Company since
April 1998 and will continue to serve in that capacity following the Offering.
Upon the consummation of the Offering, Mr. Gundeck will also become a director
of the Company. During the five year period preceding the Offering, Mr. Gundeck
was employed by American Business Products, Inc., a publicly traded corporation,
as Chief Executive Officer and President from 1995 to 1998, Chief Operating
Officer and President from 1992 to 1995 and Vice President of Corporate
Development from 1988 to 1992. Mr. Gundeck received a Bachelor of Science degree
from Rollins College in 1965 and a Masters of Business Administration degree in
Marketing and Finance from American University in 1968. Mr. Gundeck's initial
term as a director of the Company will expire at the annual meeting of the
shareholders of the Company to be held in 2000.
CHARLES K. YANCEY served as interim Chief Executive Officer and director of
the Company from December 1997 through March 1998, and will serve as the
President, Chief Operating Officer and director of the Company following the
Offering. During the five year period preceding the Merger, Mr. Yancey served as
Chief Executive Officer, Secretary and a director of Boomershine Automotive. Mr.
Yancey received a Masters in Business Administration degree in Finance and
Accounting and a Bachelor of Arts degree in Accounting from Georgia State
University in 1970 and 1968, respectively. Mr. Yancey also has been licensed as
a certified public accountant by the State of Georgia. Mr. Yancey's initial term
as a director of the Company will expire at the annual meeting of the
shareholders of the Company to be held in 2001.
STEPHEN C. WHICKER has been Executive Vice President of Corporate
Development, General Counsel, Secretary and director of the Company since
December 1997. During the five-year period prior to
80
<PAGE> 82
the Offering, Mr. Whicker was a principal of The Whicker Law Firm, a private law
practice in Atlanta, Georgia. Mr. Whicker received a Bachelor of Science degree
in Business Administration from the University of North Carolina in 1971 and a
Juris Doctor degree from Samford University in 1974. Mr. Whicker's initial term
as a director of the Company will expire at the annual meeting of the
shareholders of the Company to be held in 2001.
RICKY L. BROWN has been Chief Financial Officer, Vice President of Finance
and Treasurer of the Company since December 1997. Prior to the Merger, Mr. Brown
served as Controller and Chief Financial Officer of Boomershine Automotive from
1996 to 1998, as Chief Financial Officer of Peachtree Nissan, Inc. (f/k/a
Hickman Nissan, Inc.) from 1990 to 1996 and as Chief Financial Officer and
part-owner of Peachtree Acceptance Corporation from 1990 to 1996. Mr. Brown
received an Associate of Applied Science degree from Gadsden State College in
1973, and a Bachelor of Science degree in Accounting from Jacksonville State
University in 1975. Mr. Brown also has been licensed as a certified public
accountant by the State of Alabama.
ALAN K. ARNOLD, who is a key employee of the Company, will serve as Vice
President of Ford Division, President of Wade Ford, Inc., Wade Ford Buford,
Inc., Boomershine Ford, Inc. and Franklin Ford/Mercury, Inc., and director of
the Company upon the consummation of the Offering. During the five year period
preceding the Offering, Mr. Arnold was the President and controlling shareholder
of Wade Ford, Inc. and Wade Ford Buford, Inc. Mr. Arnold's initial term as a
director of the Company will expire at the annual meeting of the shareholders of
the Company to be held in 1999.
GEORGE D. BUSBEE will serve as a director of the Company upon the
consummation of the Offering. Mr. Busbee has been of counsel to the law firm of
King & Spalding since January 1993 and was a partner of King & Spalding from
January 1983 to December 1993. Mr. Busbee was Governor of the State of Georgia
from 1975 until 1983. He is currently a director of Union Camp Corporation and
Weeks Corporation and served as a director of Delta Air Lines, Inc. from January
1983 to November 1997. Mr. Busbee received a Bachelor of Arts degree in Business
and a Juris Doctor degree from the University of Georgia in 1949 and 1952,
respectively. Mr. Busbee's initial term as a director of the Company will expire
at the annual meeting of the shareholders of the Company to be held in 2000.
LEE M. SESSIONS, JR. will serve as a director of the Company upon the
consummation of the Offering. Mr. Sessions was the Principal Operating Officer
of Bank South Corporation from August 1991 to March 1996. Currently, Mr.
Sessions is working as a private investor and consultant to various business and
non-profit organizations. Mr. Sessions received a Bachelor of Arts degree in
English/History from Vanderbilt University in 1968 and received a certificate
for completing the program for Management Development at Harvard University's
Graduate School of Business Administration in 1980. Mr. Session's initial term
as a director of the Company will expire at the annual meeting of the
shareholders of the Company to be held in 1999.
JACK R. ALTHERR will serve as a director of the Company upon the
consummation of the Offering. Mr. Altherr served QMS, Inc. (formerly Quality
Micro Systems, Inc.) in various graduating capacities from April 1984 to October
1995, including Chief Operating Officer/Chief Financial Officer, Executive Vice
President of Sales and Marketing and director. Mr. Altherr received a Bachelor
of Science degree in Accounting from Indiana University in 1951. Mr. Altherr
also has been licensed as a certified public accountant by the State of Indiana.
Mr. Altherr's initial term as a director of the Company will expire at the
annual meeting of the shareholders of the Company to be held in 2001.
R. GLYNN WIMBERLY, who is a key employee of the Company, became the Chief
Executive Officer of South Financial Corporation upon the consummation of the
South Financial Acquisition in January of 1998. From August 1992 until January
1998, Mr. Wimberly served as the President and Chief Operating Officer of U.S.
Auto Credit Corp., a sub-prime automotive finance company, from 1992 to 1997.
Mr. Wimberly has been employed in various positions in the consumer finance
industry for 24 years at such companies as General Motors Acceptance
Corporation, where he worked in various capacities, including Credit Manager for
Hollywood, Florida operations and World Omni Financial Corporation, where he
worked in various capacities, including Manager of Branch Operations. Mr.
Wimberly received a Bachelor of Arts degree in Business Administration from
Valdosta State College in 1973.
81
<PAGE> 83
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for a term of three years,
with one class being elected each year. The executive officers are elected
annually by, and serve at the discretion of, the Company's Board of Directors.
Classification of the Board of Directors increases the time required to change
the composition of a majority of directors and may tend to discourage a takeover
bid for the Company. See "Description of Capital Stock -- Georgia Law, Certain
Articles and Bylaw Provisions and Certain Franchise Payment Provisions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since the Company's organization in 1997, all matters concerning executive
officer compensation have been addressed by the entire Board of Directors,
including directors who serve as executive officers of the Company. Upon
consummation of the Offering, Mr. Busbee, Mr. Sessions and Mr. Altherr will
serve on the Company's Compensation Committee.
COMMITTEES OF THE BOARD
The Board of Directors will establish a Finance Committee, a Compensation
Committee and an Audit Committee consisting of independent directors as soon as
practicable after the completion of the Offering. The Finance Committee will
oversee the Company's budgetary process and the Company's relations with its
lenders. The Compensation Committee, all of whose members will be independent
directors, will review and approve compensation for the executive officers, and
administer, and determine awards under, the Incentive Stock Plan and any other
incentive compensation plans for employees of the Company. See "Management --
Incentive Stock Plan." The Audit Committee, the majority of whose members will
consist of independent directors, will recommend the selection of auditors for
the Company and will review the results of the audit and other reports and
services provided by the Company's independent auditors. The Company has not
previously had any of these committees.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company will
receive options to purchase 5,000 shares of common stock upon initially joining
the Board of Directors, will be compensated for their services at a rate of
$12,000 per annum plus $1,000 per meeting attended and will be eligible to
participate in the Company's Incentive Stock Plan. The Company will also
reimburse all directors for their expenses incurred in connection with their
activities as directors of the Company. Directors who are also employees of the
Company receive no additional compensation for serving on the Board of
Directors.
82
<PAGE> 84
EXECUTIVE COMPENSATION
The Company was incorporated on December 17, 1997 and did not conduct any
operations prior to that time. Neither the Chief Executive Officer, nor any
other executive officer of the Company, received any compensation in 1997 from
the Company.
Set forth below is information for the years ended June 30, 1997, 1996 and
1995 with respect to the executive officers of Boomershine Automotive, as the
predecessor of the Company.
SUMMARY ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS
- ---------------------------- ---- -------- --------
<S> <C> <C> <C>
Walter M. Boomershine, Jr.,................................. 1997 $ 49,200 $ --
Chairman and Senior Vice 1996 49,200 680,400
President 1995 49,200 766,931
Charles K. Yancey,.......................................... 1997 $102,033 $ --
President, Chief Operating 1996 102,033 403,297
Officer and Director 1995 102,033 398,466
Ricky L. Brown,............................................. 1997 $ 62,000 $ --
Chief Financial Officer and Controller 1996 -- --
1995 -- --
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered or will enter into employment agreements with
Messrs. Walter M. Boomershine, Jr., Robert W. Gundeck, Charles K. Yancey,
Stephen C. Whicker and Ricky L. Brown (the "Employment Agreements"), each of
which will be effective upon the effective date of this Offering. The Employment
Agreements provide for an annual base salary, potential fiscal year end bonuses
and certain other benefits. Each Employment Agreement generally provides for a
level annual increase of the base salary throughout the term of the agreement
and provides that any annual bonuses will be based upon certain
performance-related objectives of the Company that will be ultimately
established by the Compensation Committee. Certain terms of the Employment
Agreements are summarized in the table below:
<TABLE>
<CAPTION>
FIRST YEAR
TERM BASE STOCK
EMPLOYEE POSITION/TITLE (YEARS) COMPENSATION OPTIONS(1)
- -------- -------------- ------- ------------ ----------
<S> <C> <C> <C> <C>
Walter M. Boomershine, Chairman and Senior Vice President 3 $200,000 25,000
Jr........................
Robert W. Gundeck........... Chief Executive Officer 5 300,000 350,000
Charles K. Yancey........... Chief Operating Officer and President 5 250,000 540,000
Stephen C. Whicker.......... Executive V.P. of Corporate Development, 5 200,000 540,000
General Counsel and Secretary
Ricky L. Brown.............. Chief Financial Officer, Vice President 5 135,000 120,000
of Finance and Treasurer
</TABLE>
- ---------------
(1) As of the effective date of this Offering, pursuant to employee's
participation in the Company's Incentive Stock Plan. See
"Management -- Incentive Stock Plan."
Each of the Employment Agreements of Messrs. Gundeck, Whicker and Brown are
for a term of generally five years and may be renewed for terms of one to three
years thereafter. Mr. Boomershine's Employment Agreement provides that he will
serve as Senior Vice President for a term ending December 31, 2000 and as a
consultant to the Company for a term of 10 years thereafter. Mr. Boomershine's
base salary during the consultation period will be $200,000 for the first two
years and $100,000 each year thereafter. Mr. Yancey's Employment Agreement
provides that he will serve as Chief Operating Officer and President of the
Company for a term of five years and as a consultant to the Company for a term
of generally five years. Mr. Yancey's base salary during said consultation
period will be $50,000 per year.
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<PAGE> 85
All of the Employment Agreements provide that the Company may terminate the
executive officer with or without cause. The Employment Agreements provide that
if the Company terminates an executive officer without cause or forces the
executive officer to resign for what is considered a "Good Reason" pursuant to
the applicable Employment Agreement, the Company must continue to pay the
executive officer's base salary and his annual average bonus for a period of no
less than the remaining term of the applicable Employment Agreement.
Each of the Employment Agreements contains similar confidentiality and
non-competition provisions. These provisions provide that during the term of the
Employment Agreement, during a period of three years after the termination
thereof with respect to confidentiality provisions and during a period of one
year after the termination thereof with respect to non-competition provisions,
the executive officer shall not (i) use or disclose any confidential information
of the Company, (ii) become employed by or obtain any ownership interest in any
competitor of the Company that is located within a territory that is specified
in the applicable Employment Agreement, or (iii) interfere with the Company's
relationships with any of its customers, vendors or employees. Said geographic
restrictions generally apply to territories that are within a 100-mile radius of
the city of Atlanta, Georgia or within a 100-mile radius of any automobile or
truck dealership or ancillary business in which the Company has a controlling
interest.
In addition, each Employment Agreement provides that if there is a "Change
of Control," the executive will receive the following benefits: (1) base salary
for a period of time generally no less than the term of the applicable
Employment Agreement plus consulting compensation for a certain period to the
extent the executive officer's Employment Agreement provides for any
consultation periods; (2) a pro-rata portion of the bonus applicable to the
fiscal year in which the termination occurs plus a bonus payment for the
three-year period thereafter; (3) participation in all employee retirement plans
maintained by the Company as of the date of termination for the three-year
period following the termination, or, if no such plans exist, the Company will
pay to the executive officer the then present value of the excess of (i) the
benefit the executive would have been paid under such plan had the executive
continued to be covered for said three-year period (less required contribution
amount) with assumed earnings of eight percent over (ii) the benefit actually
payable under said plan; and (4) medical, dental and hospitalization insurance
coverage for the executive and the executive's dependents until the date on
which the executive is employed by, and becomes eligible for medical, dental and
hospitalization coverage through the plan of, another employer.
Each Employment Agreement provides that a "Change in Control" shall be
deemed to have occurred if (A) prior to the Offering, the shareholders of the
Company or its affiliates sell or otherwise transfer to persons or entities who
are not affiliates of the Company 75% or more of the voting stock of the Company
or its affiliates; (B) any person becomes a beneficial owner or 50% or more of
the voting stock of the Company or its Affiliates prior to the Offering or 40%
or more of the voting stock of the Company or its Affiliates after the Offering;
(C) the majority of the Board of Directors of the Company consists of
individuals other than directors who are incumbent as of the date of the
applicable Employment Agreement or that directors that become directors by a
majority vote of the directors who are incumbent as of said date; (D) all or
substantially all of the assets or business of the Company or its affiliates is
disposed of pursuant to a merger, consolidation or other transaction other than
to an affiliate of the Company (unless the Company's shareholders, immediately
prior to such merger, consolidation or other transaction, beneficially own 50%
or more of the voting stock or other ownership interest of any entity or
entities that succeed to the business of the Company; (E) the consummation of a
merger, consolidation or other business combination of the Company with any
other person or affiliate thereof, other than a merger, consolidation or
business combination which would result in the outstanding common stock of the
Company immediately prior thereto continuing to represent at least 50% of the
outstanding common stock of the Company or such surviving entity or parent or
affiliate thereof immediately after such merger, consolidation or business
combination, or the consummation of a plan of complete liquidation of the
Company; or (F) the occurrence of any other event or circumstance which the
Board of Directors of the Company determines, by resolution, affects the control
of the Company and therefore constitutes a "Change of Control."
84
<PAGE> 86
INCENTIVE STOCK PLAN
The Board of Directors of the Company adopted the Company's 1997 & 1998
Incentive Stock Plan (the "Incentive Stock Plan") on December 18, 1997, and said
Incentive Stock Plan was approved by the shareholders of the Company on January
8, 1998, in order to attract and retain key personnel. The following discussion
of the material features of the Incentive Stock Plan is qualified by reference
to the text of such Plan filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
Under the Incentive Stock Plan, options to purchase up to an aggregate of
2,250,000 shares of common stock of the Company may be granted to directors,
officers, consultants and employees of the Company and/or any of its
subsidiaries and other individuals providing services to the Company. Members of
the Board of Directors who serve on the Compensation Committee must qualify as
"non-employee directors," as that term is defined in Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended. In addition, the Company
may issue incentive stock options ("ISOs") to officers and directors who are
employees of the Company.
The Compensation Committee of the Board of Directors of the Company, which
is comprised of independent directors, will administer the Incentive Stock Plan
and will determine, among other things, the persons who are to receive options,
the number of shares to be subject to each option and the vesting schedule of
options. Options granted under the Incentive Stock Plan that are not ISOs must
be granted no later than January 1, 2008 and must be exercised within 10 years
of the grant, but in no event later than December 31, 2017. ISOs must be granted
no later than ten years after the adoption of the Incentive Stock Plan and must
be exercised no later than ten years after the particular ISO is granted.
Options generally may not be transferred other than by will or the laws of
descent and distribution and, during the lifetime of an optionee, options may be
exercised only by the optionee. The exercise price of options that are not ISOs
will be determined at the discretion of the Compensation Committee. The exercise
price of the ISOs may not be less than the market value of the common stock on
the date of grant of the option. In the case of ISOs granted to any holder who
on the date of grant of the ISOs holds more than ten percent of the total
combined voting power of all classes of stock of the Company and its
subsidiaries, the exercise price may not be less than 110% of the market value
per share of the common stock on the date of grant. Unless designated as
"incentive stock options" intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), options granted under the
Incentive Stock Plan are intended to be "nonstatutory stock options" ("NSOs").
The exercise price may be paid in cash, in shares of common stock owned by the
optionee, in other property deemed acceptable by the Compensation Committee, or
in any combination of cash, shares or other such acceptable property.
The Incentive Stock Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the shares of the
Company, adjustments will automatically be made in the number and kind of shares
available for issuance and in the number and kind of shares covered by
outstanding options. It further provides that, in connection with any merger or
consolidation or other business combination in which the Company is not the
surviving corporation, the Compensation Committee shall pay, in cash, the excess
of the fair market value of all options over the exercise price of such options
on the date of such business combination or, alternatively, shall grant
substitute options on such terms and conditions which substantially preserve the
value, rights and benefits of options being substituted.
85
<PAGE> 87
The Board of Directors of the Company has granted or will grant
contemporaneously with the closing of this Offering options to purchase an
aggregate of 1,592,000 shares of common stock under the Incentive Stock Plan to
executive officers, other employees and directors of the Company. All of these
options will vest and become exercisable from time to time over the ten-year
period following the date each option is granted in accordance with the terms of
the individual option grants. The following table sets forth the date on which
such grants were made, the names of the recipients, the number of shares
underlying the grants, the type of options granted and the price at which such
grants may be exercised:
<TABLE>
<CAPTION>
SHARES
NAME OF RECIPIENT UNDERLYING GRANT TYPE DATE OF GRANT(1) EXERCISE PRICE(2)
- ----------------- ---------------- ---- ---------------- -----------------
<S> <C> <C> <C> <C>
Walter M. Boomershine, Jr.*.............. 25,000 ISO IPO Date IPO Price
Robert W. Gundeck*....................... 300,000 ISO 4/22/98 $ 8.00
50,000 ISO IPO Date IPO Price
Charles K. Yancey*....................... 200,000 ISO 1/8/98 $ 6.27
240,000 ISO 4/22/98 $ 8.00
100,000 ISO IPO Date IPO Price
Stephen C. Whicker*...................... 200,000 ISO 1/8/98 $ 6.27
240,000 ISO 4/22/98 $ 8.00
100,000 ISO IPO Date IPO Price
Ricky L. Brown*.......................... 25,000 ISO 1/8/98 $ 6.27
70,000 ISO 4/22/98 $ 8.00
25,000 ISO IPO Date IPO Price
George D. Busbee**....................... 5,000 NSO IPO Date IPO Price
Lee M. Sessions, Jr.**................... 5,000 NSO IPO Date IPO Price
Jack R. Altherr**........................ 5,000 NSO IPO Date IPO Price
Michael F. O'Neill....................... 2,000 ISO IPO Date IPO Price
----------------
Total.......................... 1,592,000
</TABLE>
- ---------------
* Executive officer of the Company.
** Director of the Company.
(1) "IPO Date" means the completion date of this Offering.
(2) "IPO Price" means the price of the common stock listed on the cover page of
this Prospectus.
In addition to such grants, the Company has granted to James E. L. Peters,
Jr., in connection with the Collision Centers USA Acquisition, NSOs to purchase
5,000 shares of common stock, each of which are exercisable at $8.00 per share
and vest six months following the completion of this Offering.
The issuance and exercise of ISOs have no federal income tax consequences
to the Company. While the issuance and exercise of ISOs generally have no
ordinary income tax consequences to the holder, upon the exercise of an ISO, the
holder will treat the excess of the fair market value on the date of exercise
over the exercise price as an item of tax adjustment for alternative minimum tax
purposes. If the holder of common stock acquired upon the exercise of an ISO
disposes of such stock before the later of (i) two years following the grant of
the ISO and (ii) one year following the exercise of the ISO (a "Disqualifying
Disposition"), the holder will recognize ordinary income for federal income tax
purposes in an amount equal to the lesser of (i) the excess of the common
stock's fair market value on the date of exercise over the option exercise
price, and (ii) the excess of the amount realized on disposition of the common
stock over the option exercise price. Any additional gain upon the disposition
will be taxed as capital gains. The disposition of common stock acquired from
the exercise of an ISO other than in a Disqualifying Disposition will ordinarily
result in capital gains or loss to the holder for federal income tax purposes
equal to the difference between the amount realized on disposition of the common
stock and the option exercise price. Any capital gain will be subject to reduced
rates of tax if such shares were held more than twelve months, and will be
subject to further reduced rates if such shares were held more than eighteen
months. The Company will be entitled to a compensation expense
86
<PAGE> 88
deduction for the Company's taxable year in which the disposition occurs equal
to the amount of ordinary income recognized by the holder.
The issuance of NSOs has no federal income tax consequences to the Company
or the holder. Upon the exercise of an NSO, the Company generally will be
allowed a federal income tax deduction equal to the amount by which the fair
market value of the underlying shares on the date of exercise exceeds the
exercise price. NSO holders will recognize ordinary income for federal income
tax purposes at the time of option exercise in the same amount. In the event of
a sale of shares acquired by exercise of a NSO, any appreciation or depreciation
after the exercise date generally will be taxed as capital gain or loss;
provided that any gain will be subject to reduced rates of tax if such shares
were held for more than twelve months and will be subject to further reduced
rates if such shares were held for more than eighteen months. The disposition of
shares acquired by exercise of a NSO will result in capital gains or losses to
the holder.
The Company intends to register the shares underlying the Incentive Stock
Plan as soon as practicable on Form S-8. If such registration is not required,
such shares may be issued upon option exercise in reliance upon the private
offering exemption codified in Section 4(2) of the Securities Act and/or Rule
701 promulgated thereunder.
LIMITATIONS OF DIRECTORS LIABILITY
The Articles of the Company include a provision that effectively eliminates
the liability of directors to the Company or to the Company's shareholders for
monetary damages for breach of the fiduciary duties of a director, except for
any appropriation, in violation of the director's duties, of any business
opportunity of the Company, acts or omissions which involve intentional
misconduct or a knowing violation of law, certain actions with respect to
unlawful distributions and any transaction from which the director derived an
improper personal benefit. This provision does not prevent shareholders from
seeking nonmonetary remedies covering any such action, nor does it affect
liabilities under the federal securities laws. The Articles of Incorporation
further provide that the Company shall indemnify each of its directors and
officers against any liability (including counsel fees) which is allowed to be
paid or reimbursed by the Company under the laws of the State of Georgia and
which is actually and reasonably incurred in connection with any proceeding in
which such director or officer may be involved by reason of his or her having
been a director or officer of the Company. Georgia Law currently authorizes a
corporation to indemnify its directors and officers against the obligation to
pay a judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan), or reasonable expenses (including
counsels' fees) reasonably incurred by them in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative and whether formal or informal, if
such officers or directors conducted themselves in good faith and they
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable
cause to believe their conduct was unlawful. Indemnification is permitted in
more limited circumstances with respect to derivative actions. The Company
believes that these provisions of the Articles of Incorporation and the Bylaws
are necessary to attract and retain qualified persons to serve as directors and
officers. In addition, the Company anticipates carrying directors and officers
liability insurance as soon as practicable following the closing of the
Offering.
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<PAGE> 89
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 30, 1998, after giving
effect to the Merger and the Acquisitions, by (i) each shareholder who is known
by the Company to own beneficially more than 5% of the outstanding common stock,
(ii) each director of the Company, (iii) each of the executive officers of the
Company, and (iv) all directors and executive officers of the Company as a
group, and as adjusted to reflect the sale by the Company of the shares of
common stock in this Offering. Holders of Common Stock are entitled to one vote
per share on all matters submitted to a vote of the shareholders of the Company.
See "Description of Capital Stock."
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
AMOUNT AND COMMON STOCK OWNED
NATURE OF ----------------------
BENEFICIAL BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)(3) OFFERING OFFERING
- --------------------------- --------------- -------- --------
<S> <C> <C> <C>
Walter M. Boomershine, Jr.(4).......................... 639,671 11.8% 5.9%
Charles K. Yancey...................................... 113,081 2.1 1.0
Robert M. Gundeck...................................... 63,640 1.2 *
Stephen C. Whicker..................................... 66,465 1.2 *
Ricky L. Brown......................................... 10,016 * *
Alan K. Arnold......................................... 309,091 5.7 2.8
George D. Busbee(5).................................... 5,000 * *
Lee M. Sessions, Jr.(5)................................ 5,000 * *
Jack R. Altherr(5)..................................... 5,000 * *
Walter M. Boomershine, III(4)(6)....................... 779,376 14.3 7.1
Renee B. Jochum(4)(7).................................. 708,523 13.0 6.5
Jacquelyn B. Thompson(4)(8)............................ 708,523 13.0 6.5
Patrice B. Mitchell(4)(9).............................. 708,523 13.0 6.5
Lindsey B. Robertson(4)(10)............................ 744,887 13.7 6.8
All directors and executive officers as a group (9
persons)............................................. 1,216,964 22.3% 11.1%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the total outstanding
shares of the Company.
(1) Unless otherwise noted, the address of all persons listed is c/o Sunbelt
Automotive Group, Inc., 5901 Peachtree-Dunwoody Rd., Suite 250B, Atlanta,
GA 30328.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission. Shares of common stock subject to options, warrants or other
rights to purchase which are currently exercisable or are exercisable
within 60 days after the completion of the Offering are deemed outstanding
for computing the percentage ownership of the persons holding such options,
warrants or rights, but are not deemed outstanding for computing the
percentage ownership of any other person. Unless otherwise indicated, each
person possesses sole voting and investment power with respect to the
shares identified as beneficially owned.
(3) The numbers with respect to Alan K. Arnold and Lindsey B. Robertson (with
respect to the shares to be issued to E. Moss Robertson, Jr.) assume that
the Offering price is $11 per share.
(4) Walter M. Boomershine, III, Renee B. Jochum, Jacquelyn B. Thompson, Patrice
B. Mitchell and Lindsey B. Robertson are all adult children of Walter M.
Boomershine, Jr. Each of said persons disclaims beneficial ownership
pursuant to the rules under the Exchange Act of the common stock attributed
to the others.
(5) Consists of 5,000 shares of common stock issuable upon the exercise of
options granted to each of Mr. Busbee, Mr. Sessions and Mr. Altherr as a
non-employee Director, pursuant to the Company's Incentive Stock Plan. See
"Director Compensation."
(6) Includes 141,705 shares to be issued to The WMB, III Family Trust, for
which Mr. Boomershine, III serves as the sole Trustee.
(7) Includes 599,883 shares to be issued to The RBJ Family Trust, for which Ms.
Jochum serves as the sole Trustee. The address of Ms. Jochum is 6 Starlight
Ct., Potomac, MD 20854.
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<PAGE> 90
(8) Includes 599,883 shares to be issued to The JBT Family Trust, for which Ms.
Thompson serves as the sole Trustee. The address of Ms. Thompson is 219
Bates Rd., Cartersville, GA 30120.
(9) Includes 599,883 shares to be issued to The PBM Family Trust, for which Ms.
Mitchell serves as the sole Trustee. The address of Ms. Mitchell is 2074
Shillingwood Dr., Kennesaw, GA 30144.
(10) Includes 599,883 shares to be issued to The LBR Family Trust, for which Ms.
Robertson serves as the sole Trustee, and 36,364 pro forma shares to be
issued to E. Moss Robertson, Jr., who is Ms. Robertson's husband, upon
consummation of the ROC Acquisition. Ms. Robertson disclaims beneficial
ownership under the rules of the Exchange Act of the shares owned by Mr.
Robertson. The address of Ms. Robertson is c/o Robertson
Oldsmobile-Cadillac, Inc., 2355 Browns Bridge Rd., Gainesville, GA 30504.
CERTAIN TRANSACTIONS
CERTAIN DEALERSHIP LEASES
Certain of the properties leased by the Company's dealership subsidiaries
are owned by officers, directors or holders of 5% or more of the common stock of
the Company or their affiliates (the "Related Party Leases"). The Company
believes that the terms and conditions of each of these leases is comparable to
those that would result from arm's-length negotiations with unrelated third
parties. Each of the Related Party Leases and the rent payable thereunder are
described below. For a more complete description of the location, use and
expiration date of each lease, see "Business -- Facilities."
During 1995, 1996 and 1997, and continuing after the Offering, the entities
listed below have leased and will continue to lease the real properties on which
their dealerships or operations are located from limited partnerships (WINCO I,
L.P., WINCO II, L.P. and WINCO III, L.P.) controlled by Walter M. Boomershine,
Jr., who is the Chairman of the Board and Senior Vice President of the Company,
and owned by Walter M. Boomershine, Jr. and his family:
<TABLE>
<CAPTION>
ANNUAL
FRANCHISE/SUBSIDIARY RENTAL PAYMENT
- -------------------- --------------
<S> <C>
Boomershine Ford and Boomershine Isuzu...................... $480,000
Collision Centers USA (Duluth center)....................... 240,000
Boomershine Pontiac-Buick-GMC, Inc.......................... 281,388
Boomershine Hummer.......................................... 130,800
Boomershine Nissan.......................................... 210,000
Boomershine Mitsubishi...................................... 180,000
</TABLE>
Each of these leases requires the respective lessees to pay the taxes,
insurance and maintenance expenses related to the applicable leased property.
Wade Ford, Inc. leases one of the two parcels of real property on which its
dealership is located (the "Wade Lease"), and Wade Ford Buford, Inc. leases the
parcel on which its dealership is located (the "Wade Buford Lease"), from Mr.
Alan K. Arnold, who is a director of the Company. The other parcel on which Wade
Ford, Inc.'s dealership is located is owned by an unaffiliated third party. The
Wade Lease annual rental payments during Wade Ford, Inc.'s last fiscal year were
$420,000, and the Wade Buford Lease annual rental payments during Wade Ford
Buford, Inc.'s last fiscal year were $240,000. Both leases require the
respective subsidiaries to pay the taxes, insurance and maintenance expenses
related to the leased property.
Robertson Oldsmobile-Cadillac, Inc. leases the real property on which its
dealerships are located from Mr. E. Moss Robertson, Jr., who is the son-in-law
of Mr. Walter M. Boomershine, Jr., the Chairman of the Board and Senior Vice
President of the Company. Prior to the Offering, the annual rental payments
under the lease were $180,000 for 1997 and $149,600 for 1996. As part of the
Acquisition, Mr. Robertson and the Company have agreed to replace the existing
lease with a new lease agreement, pursuant to which the annual rental payment of
said lease will be $204,000 for the first and second lease years, $216,000 for
the third through fifth lease years, and $240,000 beginning with the sixth lease
year and thereafter until the end of the
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<PAGE> 91
initial term of the lease. The lease also requires Robertson
Oldsmobile-Cadillac, Inc. to pay the taxes, insurance and maintenance expenses
related to the leased property.
CERTAIN BUSINESS RELATIONSHIPS
In connection with the South Financial Acquisition, the Company borrowed
the sum of $4.5 million from WINCO I, L.P., a limited partnership controlled by
Walter M. Boomershine, Jr. and owned by Walter M. Boomershine, Jr. and his
family. This loan was made pursuant to a promissory note which matures on July
7, 1998 and carries an interest rate equal to the prime rate of interest
announced by NationsBank, N.A. from time to time. The Company has the option to
refinance the loan for an additional term of five years subsequent to said
maturity date, at an interest rate to 8% per annum, using a 20-year
amortization.
For additional information concerning related party transactions of the
Company, see the notes to the Combined and Consolidated Financial Statements of
the Company. For the businesses being acquired in the Acquisitions, see "The
Acquisitions" and the notes to the historical financial statements for each
respective acquired business in this Prospectus, and for the business being
acquired in the Merger, see "The Merger."
PROMISSORY NOTES
On April 22, 1998, the Company's Board of Directors granted to Messrs.
Gundeck, Yancey, Whicker and Brown, each of whom is an executive officer of the
Company, the right to purchase shares of common stock of the Company at a price
of $8.00 per share. Messrs. Gundeck, Yancey, Whicker and Brown elected to
purchase 63,640, 111,081, 64,465 and 10,016 shares of common stock of the
Company, respectively (collectively, the "Executive Shares"), and each executed
a five-year promissory note in favor of the Company (collectively, the
"Executive Notes") in the principal amounts of $509,120, $888,648, $515,720 and
$80,128, respectively. The Executive Notes, which bear interest at a rate of 8%
per annum, require annual payments of interest and a single payment of the
entire principal balance at the end of the five-year term.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of (i) 450,000,000 shares
of common stock, $0.001 par value, and (ii) 50,000,000 shares of preferred
stock, $0.001 par value. Upon completion of this Offering, the Company will have
10,933,614 outstanding shares of common stock (assuming the Underwriters' over-
allotment option is not exercised) and no outstanding shares of preferred stock.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and Georgia law.
Reference is made to such exhibit and Georgia law for a detailed description of
the provisions thereof summarized below.
COMMON STOCK
As of May 14, 1998, there were 255,202 shares of common stock outstanding
held of record by four shareholders, and options to purchase an aggregate of
1,280,000 shares of common stock were outstanding, none of which was exercisable
as of May 14, 1998. After giving effect to the sale of 5,500,000 shares of
common stock by the Company in this Offering, there will be 10,933,614 shares
outstanding (11,758,614 if the Underwriter's over-allotment option is exercised
in full). Holders of common stock have one vote per share on all matters
submitted to a vote of the shareholders of the Company, including with respect
to the election of directors.
Subject to the prior rights of holders of preferred stock, if any, holders
of the common stock are entitled to receive ratably such dividends, if any, as
are declared by the Company's Board of Directors out of funds legally available
for that purpose. However, as discussed under "Dividend Policy," the Company
currently does not intend to pay any cash dividends. Shareholders of the Company
have no preemptive or other rights to
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<PAGE> 92
subscribe for additional shares. In the event of the liquidation, dissolution or
winding up of the Company, holders of common stock are entitled to share ratably
in all assets available for distribution to holders of common stock after
payment in full of creditors and any rights of preferred shareholders. No shares
of any class of common stock are subject to a redemption or a sinking fund. All
outstanding shares of common stock are, and all shares offered by this
Prospectus will be, when sold, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles authorize the Board of Directors to issue up to
50,000,000 shares of preferred stock in one or more series and to establish such
designations and relative voting, dividend, liquidation, conversion, redemption,
liquidation and other rights, preferences and limitations as the Board of
Directors may determine without any further approval of the shareholders of the
Company. The issuance of preferred stock by the Board of Directors, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes could, among other things, adversely affect the voting
power of the holders of common stock and, under certain circumstances, make it
more difficult for a person or group to gain control of the Company. See "Risk
Factors -- Anti-Takeover Provisions." The issuance of any series of preferred
stock, and the relative designations, rights, preferences and limitations of
such series, if and when established, will depend upon, among other things, the
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of preferred stock. At the date of this Prospectus, no shares of
preferred stock are outstanding and there are no plans, agreements or
understandings for the issuance of any shares of preferred stock.
WARRANTS
On March 13, 1998, the Company granted warrants to purchase 50,000 shares
of common stock to Tatum CFO Partners, L.P. in consideration for certain
financial and accounting consulting services rendered in connection with this
Offering. These warrants vest equally on a quarterly basis at 8,333 shares per
quarter, and have an exercise price of $8.00 per share. As of the date of this
Prospectus, 16,666 shares of common stock underlying these warrants are
immediately exercisable and the remaining warrants will vest ratably on a
quarterly basis over the next year. These warrants will expire, if not
exercised, 10 years after the date on which they are granted.
REGISTRATION RIGHTS AND STOCK PRICE PROTECTION
As part of the Acquisitions, the Company entered into a registration rights
agreement with the selling shareholders of Wade Ford, Inc. and Wade Ford Buford,
Inc. (collectively, "Wade Ford") and the sole shareholder of Robertson
Oldsmobile-Cadillac, Inc. (each, a "Registration Rights Agreement" and
collectively, the "Registration Rights Agreements"). Subject to certain
limitations, the Registration Rights Agreements provide said shareholders with
certain piggyback registration rights that permit them to have their shares of
unregistered common stock, as selling security holders, included in any
registration statement pertaining to the registration of the Company's common
stock for issuance by the Company or for resale by other selling security
holders, with the exception of initial public offerings of the common stock,
registrations relating solely to employee benefits plans and registrations
relating solely to a transaction pursuant to Rule 145 under the Securities Act.
These registration rights will be limited or restricted to the extent an
underwriter of an offering, if an underwritten offering, or the Company's Board
of Directors, if not an underwritten offering, determines that the amount of the
common stock to be registered pursuant to any Registration Rights Agreement
would not permit the sale of the registered common stock in the quantity and at
the price originally sought by the Company or the original selling security
holders, as the case may be. Additionally, the Company has contractually agreed
to provide certain price protection to the unregistered common stock of the
Company (the "Price Protection Stock") that will be provided by the Company to
the selling shareholders of Wade Ford and Day's Chevrolet. With respect to the
Price Protection Stock, in the event the price of the Price Protection Stock on
the first anniversary (in the case of the Wade Ford Price Protection Stock) or
the second anniversary (in the case of the Day's Chevrolet, Inc. Price
Protection Stock) after the consummation of the Offering is less than the price
of said stock on the date of the Offering, the Company will compensate the
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<PAGE> 93
applicable shareholders for such deficiency in cash or by issuing additional
shares of unregistered (in the case of Wade Ford Price Protection Stock) or
registered (in the case of the Day's Chevrolet, Inc. Price Protection Stock)
common stock.
GEORGIA LAW, CERTAIN ARTICLES AND BYLAW PROVISIONS AND CERTAIN FRANCHISE
AGREEMENT PROVISIONS
Certain provisions of Georgia Law and of the Company's Articles and Bylaws,
summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a shareholder might consider to be in
such shareholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by shareholders
unless the takeover or change of control is approved by the Company's Board of
Directors. Such provisions may also make the removal of directors and management
more difficult.
Georgia Anti-takeover Law. The GBCC restricts certain business
combinations with "interested shareholders" (as defined below) (the "Business
Combination Statute"), and contains fair price requirements applicable to
certain mergers with certain interested shareholders (the "Fair Price Statute").
In accordance with the provisions of these statutes, the Company must elect in
its Bylaws to be covered by the restrictions imposed by these statutes. The
Company has elected to be covered by such restrictions in its Bylaws, and this
bylaw provision may only be repealed upon a vote of at least two-thirds of
continuing directors and a majority of the voting shares of the Company.
Furthermore, shareholders may amend or repeal the Company's Bylaws or adopt new
Bylaws (even though these Bylaws may also be amended or repealed by the Board of
Directors).
The Business Combination Statute regulates business combinations such as
mergers, consolidations, share exchanges and asset purchases where the acquired
business has at least 100 shareholders residing in Georgia and has its principal
office in Georgia, as the Company does, and where the acquiror became an
interested shareholder of the corporation, unless either: (i) the transaction
resulting in such acquiror becoming an interested shareholder or the business
combination received the approval of the corporation's board of directors prior
to the date on which the acquiror became an interested shareholder; or (ii) the
acquiror became the owner of at least 90% of the outstanding voting shares of
the corporation (excluding any shares held by certain other persons) in the same
transaction in which the acquiror became an interested shareholder. For purposes
of the Business Combination Statute and the Fair Price Statute, an "interested
shareholder" generally is any person who directly or indirectly, alone or in
concert with others, beneficially owns or controls 10% or more of the voting
power of the outstanding voting shares of the corporation. The Business
Combination Statute prohibits business combinations with an unapproved
interested shareholder for a period of five years after the date on which such
person became an interested shareholder.
The Fair Price Statute prohibits certain business combinations between a
Georgia business corporation and an interested shareholder. The Fair Price
Statute would permit the business combination to be effected if: (i) certain
"fair price" criteria are satisfied; (ii) the business combination is
unanimously approved by the continuing directors; (iii) the business combination
is recommended by at least two-thirds of the continuing directors and approved
by a majority of the votes entitled to be cast by holders of voting shares,
other than voting shares beneficially owned by the interested shareholder; or
(iv) the interested shareholder has been such for at least three years and has
not increased his ownership position in such three-year period by more than one
percent in any 12-month period. The Fair Price Statute is designed to inhibit
unfriendly acquisitions that do not satisfy the specified "fair price"
requirements.
Classified Board of Directors. The Company's Articles and Bylaws provide
for the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year, and it will take at least two meetings of
the Company's shareholders in order to change the majority of the directors.
Classification of the Board of Directors increases the time required to change
the composition of a majority of directors and may tend to discourage a takeover
bid for the Company. Moreover, in order to remove a Director without cause, the
Articles of Incorporation require the vote of at least eighty percent of the
eligible shares; removal for cause requires the vote of a majority of eligible
shares. Director's positions that become vacant as a result of a
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<PAGE> 94
removal by the shareholders may be filled by the shareholders, or, if authorized
by the shareholders, by a majority vote of the Board of Directors. Director's
positions that become vacant due to the death, resignation or retirement of a
Director may be filled by a majority vote of the remaining Directors. This
above-referenced provision may preclude or hinder shareholders of the Company
from removing incumbent directors without cause, simultaneously gaining control
of the Board of Directors by filing the vacancies with their own nominees. See
"Management -- Executive Officers and Directors; Key Personnel."
Special Meetings of Shareholders. The Company's Articles and Bylaws
provide that special meetings of shareholders may be called only by the Chairman
or Chief Executive Officer of the Company, or by a majority vote of the Board of
Directors of the Company. These provisions may make it more difficult for
shareholders to take action opposed by the Board of Directors.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Bylaws provide that shareholders seeking to bring
business before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or a special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Company at least sixty (60) days prior to the date of such annual or
special meeting. The Bylaws also specify certain requirements for a
shareholder's notice to be in proper written form. These provisions may preclude
some shareholders from bringing matters before the shareholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting.
Restrictions under Franchise Agreements. The manufacturers' agreements
relating to public companies impose various restrictions on the transfer of the
common stock. A number of manufacturers prohibit transactions which affect
changes in management control of the Company. For instance, Ford may cause the
Company to sell or resign from its Ford franchises if any person or entity
acquires 15% or more of the Company's voting securities. Likewise, GM, Toyota
and Nissan may force the sale of their respective franchises if 20% or more of
the Company's voting securities are so acquired. Chrysler also generally
approves of the public sale of only 50% of the common stock of a public company
and requires prior approval of any future sales that would result in a change in
voting or managerial control of such a public company. All or some of the
restrictions may apply to the Company once the Company reaches an agreement with
each respective manufacturer. Such restrictions may prevent or deter prospective
acquirors from obtaining control of the Company. See "Risk Factors -- Stock
Ownership/Issuance Limits; Limitation on Ability to Issue Additional Equity" and
"Business -- Relationships with Manufacturers."
LISTING
The Company will apply for quotation of the common stock on the Nasdaq
National Market under the symbol "SBLT."
TRANSFER AGENT AND REGISTRAR
The Company has appointed as the transfer agent and
registrar for the common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
10,933,614 shares of common stock (assuming no exercise of the Underwriters'
over-allotment option). All of such shares will be freely transferable and may
be resold without further registration under the Securities Act; except for any
shares held by an "affiliate" of the Company (as that term is defined in Rule
144), any shares received by any shareholders in connection with any of the
Acquisitions or the Merger and any shares issued to officers of the Company
pursuant to certain employment contracts, which shares will be subject to the
resale limitations of Rule 144. In general, under Rule 144 as currently in
effect, a person (or persons whose shares are aggregated) who has beneficially
owned "restricted securities" for at least one year may, under certain
circumstances, resell within any three-month period, such number of shares as
does not exceed the greater of one percent of the then-outstanding shares of
common stock or the average weekly trading volume of common stock during the
four calendar weeks prior to such resale. Rule 144 also permits, under certain
circumstances, the resale of shares without any quantity limitation by a person
who has satisfied a two-year holding period and who is not, and has not been for
the preceding three months, an affiliate of the Company. In addition, holding
periods of successive non-affiliate owners are aggregated for purposes of
determining compliance with these one- and two-year holding period requirements.
Sales under Rule 144 are also subject to certain provisions relating to the
manner of sale, notice of sale, and availability of current public information
about the Company. The Company has reserved for issuance 1,597,000 shares of
common stock, which underlie options granted under the Company's Incentive Stock
Plan, and 50,000 shares of common stock, which underlie warrants issued to a
consulting firm, and the Company intends to file a registration statement on
Form S-8 with the Commission following completion of this Offering to register
the shares of the common stock issuable under the Incentive Stock Plan and the
consultant warrants.
The availability of shares for sale or actual sales under Rule 144 and the
Form S-8 registration statement and the perception that such shares may be sold
may have a material adverse effect on the market price of the common stock.
Sales under Rule 144 and the Form S-8 registration statement also could impair
the Company's ability to market additional equity securities. Additionally, the
Company has entered into the Registration Rights Agreement with the shareholders
of Wade Ford, Inc., Wade Ford Buford, Inc. and Robertson Oldsmobile-Cadillac,
Inc., which provides piggyback registration rights with respect to all of the
shares of common stock that the selling shareholders in said acquisition will
receive. For further information regarding the Registration Rights Agreement,
see "Description of Capital Stock -- Registration Rights and Stock Price
Protection."
The Company, its executive officers and directors and holders of more that
two percent (2%) of the common stock have agreed, subject to certain exceptions,
not, directly or indirectly, to: (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option to purchase, right or warrant to purchase, or otherwise
transfer or dispose of any common stock or securities convertible into or
exchangeable or exercisable for common stock or file a registration statement
under the Securities Act with respect to the foregoing; or (ii) enter into any
swap or other agreement or transaction that transfers, in whole or part,
directly or indirectly, the economic consequences of ownership of the common
stock, whether any such swap or transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise, for 180
days from the date of this Prospectus without the prior written consent of the
Underwriter; provided that the Company may sell shares of common stock to a
third party as consideration for the Company's acquisition from such third party
of an automobile dealership, so long as such third party executes a lock up
agreement on substantially the same terms described above for a period expiring
180 days after the date of this Prospectus.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representative
Raymond James & Associates, Inc. (the "Representative"), have severally agreed
to purchase from the Company the following respective number of shares of common
stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Raymond James & Associates, Inc.............................
-------
Total.............................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of common stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are purchased.
The Underwriters, through the Representative, propose to offer the shares
of common stock directly to the public at the public offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at a
price that represents a concession not in excess of $ per share under
the public offering price. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company has granted the Underwriters an option exercisable not later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 825,000 additional shares of common stock, at the public offering price, less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof as the number of shares of common stock to be purchased by
them shown in the above table bears to the total shown, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise their option only to cover over-allotments made in
connection with the sale of the shares of common stock offered hereby. If
purchased, the Underwriters will sell such additional shares on the same terms
as those on which the shares are being offered.
The Company has agreed to indemnify the Underwriters against, or to
contribute to, losses arising out of certain liabilities in connection with this
Offering, including liabilities under the Securities Act.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to shares of common stock to be
sold and offered hereby by the Company to certain employees and customers of the
Company and other persons. The number of shares of common stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the pricing of the Offering will be offered by the
Underwriters to the general public on the same terms as the other shares
95
<PAGE> 97
offered hereby. Certain individuals purchasing reserved shares may be required
to agree not to sell, offer or otherwise dispose of any shares of common stock
for a period of 180 days after the date of this Prospectus.
The Company, its executive officers and directors, and holders of more than
two percent (2%) of the common stock prior to the consummation of the Offering,
have agreed not to sell, offer to sell, contract to sell, pledge or otherwise
dispose of or transfer any shares of common stock, or any securities convertible
into or exchangeable or exercisable for, or any rights to purchase or acquire,
common stock for a period of 180 days following the date of this Prospectus
without the prior written consent of Raymond James & Associates, Inc., other
than, in the case of the Company, the issuance of options to purchase common
stock or shares of common stock issuable upon the exercise thereof, issuance of
common stock in connection with the Wade Acquisition, the Day's Chevrolet
Acquisition, the Jay Acquisition or the Robertson Acquisition and other
issuances of capital stock of the Company in connection with other acquisitions,
provided such shares of common stock issued upon the exercise of options and
such shares of capital stock issued in connection with any such other
acquisitions shall not be transferable prior to the end of the aforesaid 180-day
period. Raymond James & Associates, Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to such
lock-up agreements.
Prior to this Offering, there has been no public market for the common
stock of the Company. The initial public offering price the common stock will be
determined by negotiation between the Company and the Representative. Among the
factors to be considered in such negotiations are prevailing market conditions,
the value of publicly traded companies believed to be comparable to the Company,
the results of operations of the Company in recent periods, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representative, acting on behalf of the Underwriters, may over-allot
the shares offered hereby and, during the course of this Offering, may engage in
stabilizing and syndicate short covering and may impose a penalty bid on members
of the Offering syndicate. Over-allotment involves sales of shares in excess of
the total number being offered, thereby creating a syndicate short position.
Stabilizing involves a bid by the syndicate to purchase shares in the open
market at a specified price, which may not exceed the public offering price and
may be decreased but not increased. Syndicate short covering involves open
market purchases of shares to cover all or a portion of the syndicate short
position created by over-allotments. A penalty bid permits the Representative to
reclaim selling concessions from a syndicate member when shares sold by that
member in the Offering are purchased by the Representative in the open market to
cover a syndicate short position or pursuant to a stabilizing bid. All of these
activities may cause the market price of the common stock to be higher than
otherwise might be the case in the absence of these activities. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The foregoing includes a summary of certain principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act and filed by the Company with the Commission with respect to the
shares of common stock offered hereby, of which this Prospectus is a part.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for the Company by Schnader Harrison Segal & Lewis LLP, Atlanta, Georgia.
Troutman Sanders LLP, Atlanta, Georgia, has served as counsel to the
Underwriters in connection with this Offering.
EXPERTS
The financial statements of Sunbelt Automotive Group, Inc. at March 31,
1998 and for the period from December 17, 1997 (inception) to March 31, 1998,
the consolidated financial statements of Boomershine Automotive Group, Inc. and
Subsidiaries at June 30, 1996 and 1997 and the three years in the period ended
June 30, 1997, the financial statements of Jay Automotive Group, Inc. at
December 31, 1996 and 1997 and
96
<PAGE> 98
the three years in the period ended December 31, 1997, the financial statements
of Grindstaff, Inc. at December 31, 1996 and 1997 and the three years in the
period ended December 31, 1997, the financial statements of Day's Chevrolet,
Inc. at December 31, 1996 and 1997 and the years then ended, and the financial
statements of Robertson Oldsmobile-Cadillac, Inc. at December 31, 1996 and 1997
and the years then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. The combined financial statements of Wade Ford, Inc.
and Wade Ford Buford, Inc., at December 31, 1996 and 1997 and the three years in
the period ended December 31, 1997 appearing in this Prospectus and Registration
Statement have been audited by Pyke & Pierce, Certified Public Accountants, LLP,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing. The financial statements of South Financial
Corporation at December 31, 1996 and 1997 and the three years in the period
ended December 31, 1997 appearing in this Prospectus and Registration Statement
have been audited by Davis Monk & Company, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of common stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the shares of common stock offered
hereby, reference is made to the Registration Statement, including the exhibits
and schedules filed as part thereof. Statements contained in this Prospectus as
to the contents of any contract or any other documents are not necessarily
complete, and, in each such instance, reference is made to the copy of the
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference thereto. The
Registration Statement, together with its exhibits and schedules, may be
inspected at the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, NY 10048, and
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
IL 60661. Copies of all or any part of such materials may be obtained from any
such office upon payment of the fees prescribed by the Commission. The
Commission also maintains a Website (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
The Company is not currently subject to the periodic reporting and
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result of the Offering, the Company will be required
to file reports and other information with the Commission pursuant to the
requirements of the Exchange Act. Such reports and other information may be
obtained from the Commission's Public Reference Section and copied at the public
reference facilities and regional offices referred to above.
97
<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUNBELT AUTOMOTIVE GROUP, INC.
Report of Independent Auditors.............................. F-3
Financial Statements:
Balance Sheet............................................. F-4
Statement of Operations................................... F-5
Statement of Shareholders' Equity......................... F-6
Statement of Cash Flows................................... F-7
Notes to Financial Statements............................. F-8
BOOMERSHINE AUTOMOTIVE GROUP, INC.
Report of Independent Auditors.............................. F-12
Consolidated Financial Statements:
Consolidated Balance Sheets............................... F-13
Consolidated Statements of Operations and Changes in
Retained Earnings...................................... F-14
Consolidated Statements of Cash Flows..................... F-15
Notes to Consolidated Financial Statements................ F-16
JAY AUTOMOTIVE GROUP, INC.
Report of Independent Auditors.............................. F-24
Financial Statements:
Balance Sheets............................................ F-25
Statements of Income...................................... F-26
Statements of Cash Flows.................................. F-27
Notes to Financial Statements............................. F-28
GRINDSTAFF, INC.
Report of Independent Auditors.............................. F-35
Financial Statements:
Balance Sheets............................................ F-36
Statements of Operations.................................. F-37
Statements of Stockholders' Equity........................ F-38
Statements of Cash Flows.................................. F-39
Notes to Financial Statements............................. F-40
WADE FORD, INC. AND WADE FORD BUFORD, INC.
Independent Auditor's Report................................ F-46
Combined Financial Statements:
Combined Balance Sheets................................... F-47
Combined Statements of Income and Retained Earnings....... F-48
Combined Statements of Cash Flows......................... F-49
Notes to Combined Financial Statements.................... F-50
ROBERTSON OLDSMOBILE-CADILLAC, INC.
Report of Independent Auditors.............................. F-56
Financial Statements:
Balance Sheets............................................ F-57
Statements of Income and Changes in Retained Earnings..... F-58
Statements of Cash Flows.................................. F-59
Notes to Financial Statements............................. F-60
</TABLE>
F-1
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DAY'S CHEVROLET, INC.
Report of Independent Auditors.............................. F-66
Financial Statements:
Balance Sheets............................................ F-67
Statements of Income and Changes in Retained Earnings..... F-68
Statements of Cash Flows.................................. F-69
Notes to Financial Statements............................. F-70
SOUTH FINANCIAL CORPORATION
Independent Auditors' Report................................ F-75
Financial Statements:
Balance Sheets............................................ F-76
Statements of Operations and Retained Earnings............ F-77
Statements of Cash Flows.................................. F-78
Notes to Financial Statements............................. F-79
</TABLE>
F-2
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sunbelt Automotive Group, Inc.
We have audited the accompanying balance sheet of Sunbelt Automotive Group,
Inc. as of March 31, 1998, and the related statements of operations,
shareholders' equity (deficit) and cash flows for the period from December 17,
1997 (date of inception) through March 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunbelt Automotive Group,
Inc. at March 31, 1998, and the results of its operations and its cash flows for
the period from December 17, 1997 (date of inception) through March 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
May 11, 1998
F-3
<PAGE> 102
SUNBELT AUTOMOTIVE GROUP, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $ 3,000
---------
$ 3,000
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable -- affiliates.............................. $ 611,236
---------
Total current liabilities......................... 611,236
Shareholders' equity (deficit):
Common stock, $0.001 par value, 450,000,000 shares
authorized, 6,000 shares issued and outstanding........... 6
Preferred stock, $0.001 par value, 50,000,000 shares
authorized, none issued and outstanding................... --
Additional paid in capital.................................. 2,994
Accumulated deficit......................................... (611,236)
---------
Total shareholders' equity (deficit).............. (608,236)
---------
$ 3,000
=========
</TABLE>
See accompanying notes.
F-4
<PAGE> 103
SUNBELT AUTOMOTIVE GROUP, INC.
STATEMENT OF OPERATIONS
PERIOD FROM DECEMBER 17, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
<TABLE>
<S> <C>
Revenues:
Vehicle sales............................................. $ --
Parts and service......................................... --
Finance, commission and other revenues, net............... --
---------
Cost of sales:
Vehicle sales............................................. --
Parts and service......................................... --
---------
Gross profit................................................ --
Selling, general and administrative......................... 611,236
---------
Loss from operations........................................ (611,236)
Interest expense............................................ --
Interest income............................................. --
Other income, net........................................... --
---------
Loss before income taxes.................................... (611,236)
Income taxes................................................ --
---------
Net loss.................................................... $(611,236)
=========
</TABLE>
See accompanying notes.
F-5
<PAGE> 104
SUNBELT AUTOMOTIVE GROUP, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM DECEMBER 17, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PREFERRED STOCK SHAREHOLDERS'
--------------- --------------- ADDITIONAL PAID ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT IN CAPITAL DEFICIT (DEFICIT)
------ ------ ------ ------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 17, 1997 (date of
inception).............. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock................... 6,000 6 -- -- 2,994 -- 3,000
Net loss.................. -- -- -- -- -- (611,236) (611,236)
----- ------ ------ ------ ------ --------- ---------
March 31, 1998............ 6,000 $ 6 -- $ -- $2,994 $(611,236) $(608,236)
===== ====== ====== ====== ====== ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 105
SUNBELT AUTOMOTIVE GROUP, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM DECEMBER 17, 1997 (DATE OF INCEPTION) THROUGH MARCH 31, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(611,236)
Change in accounts payable -- affiliates.................... 611,236
---------
Net cash provided by operating activities................... --
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 3,000
---------
Net cash provided by financing activities................... 3,000
---------
Increase in cash............................................ 3,000
Cash at beginning of the period............................. --
---------
Cash at end of the period................................... $ 3,000
=========
</TABLE>
See accompanying notes.
F-7
<PAGE> 106
SUNBELT AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Sunbelt Automotive Group, Inc. (a Georgia corporation) ("SAG" or the
"Company"), was founded on December 17, 1997 to become a leading operator and
consolidator in the automotive retailing industry. The Company intends to
acquire twenty-one automobile dealerships and related businesses which are
currently owned by eight dealership and other business groups located in
Georgia, North Carolina and Tennessee (the "Founding Groups") (the
"Acquisitions"), complete an initial public offering (the "Offering") of its
common stock and, subsequent to the Offering, continue to acquire, through
merger or purchase, similar companies to geographically expand its operations.
The Company has not conducted any operations, and all activities to date
relate to the Acquisitions. There is no assurance that the Acquisitions
discussed below will be completed and that SAG will be able to generate future
operating revenues. Funding for the Company, to date, has been provided
primarily by Boomershine Automotive Group, Inc. ("BAG"), a member of the
Founding Groups. SAG is dependent upon the Offering to fund the amounts due to
BAG and future operations. In the event that the Offering is not completed, SAG
will pursue alternative sources of funding in order to meet its current
obligations.
Major Suppliers and Franchise Agreements
The Founding Groups purchase substantially all of their new vehicles and
parts inventory from various automobile manufacturers/distributors at the
prevailing prices charged by the manufacturers/distributors to all franchise
dealers. SAG's sales volume subsequent to the Acquisitions could be adversely
impacted by the manufacturers' inability to supply the dealerships with an
adequate supply of popular models or as a result of an unfavorable allocation of
vehicles by the manufacturers.
The dealer franchise agreements contain provisions, which may limit changes
in dealership management and ownership, place certain restrictions on the
dealerships (such as minimum net worth requirements) and which also provide for
termination of the franchise agreement by the manufacturers in certain
instances. Subsequent to the Acquisitions, SAG's ability to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers and the acquisition of the Company's stock
by third parties may be limited by the terms of the franchise agreement.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109. Under this
method, deferred income taxes are recorded based upon differences between the
financial reporting and tax basis of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the underlying
assets are received or liabilities are settled.
F-8
<PAGE> 107
SUNBELT AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPOSED ACQUISITIONS BY SAG
SAG has signed definitive agreements to acquire seven dealership groups and
related businesses consisting of twenty-one automobile dealerships and related
businesses. The Founding Groups are as follows:
Boomershine Group.......... Consisting of -- Boomershine Pontiac-GMC-Buick,
Inc., Boomershine Automobile Company, Boomershine
Ford, Inc., Boomershine Isuzu, Inc., Boomershine
Services, Inc., Boomershine North Cobb, Inc., d/b/a
Boomershine Mitsubishi and Commerce Credit
Corporation, Thompson Automotive Group, Inc., d/b/a
Boomershine Honda, Boomershine Collision Centers,
Inc., South Financial Corporation
Day Group.................. Consisting of -- Day's Chevrolet, Inc.
Grindstaff Group........... Consisting of -- Grindstaff Chevrolet, Chrysler,
Plymouth, Dodge
Holt Group................. Consisting of -- Hones, Inc. d/b/a Bill Holt Ford
Mercury
Jay Group.................. Consisting of -- Jay Pontiac-Buick-GMC, Inc., Jay
Automotive Group II, Inc. d/b/a Jay Toyota, Jay
Automotive Group V, Inc. d/b/a Jay Mazda
Roberston Group............ Consisting of -- Robertson Oldsmobile-Cadillac,
Inc. d/b/a Moss Robertson Mazda and Moss Robertson
Isuzu
Wade Group................. Consisting of -- Wade Ford, Inc. and Wade Ford
Buford, Inc.
The aggregate consideration that will be paid by SAG to acquire the
Founding Group is approximately $57 million in cash or promissory notes and
5,178,412 shares of SAG common stock (based on an assumed initial public
offering price of $11 per share, the midpoint of the estimated initial public
offering price range).
The following sets forth the consideration to be paid to each of the
Founding Groups:
<TABLE>
<CAPTION>
PROMISSORY
SHARES NOTES CASH
------ ---------- ----
<S> <C> <C> <C>
Boomershine Group.................................. 4,251,139 $ 932,000 $ 5,425,000
Day Group.......................................... 527,273 -- 5,589,000
Grindstaff Group................................... -- -- 9,128,000
Holt Group......................................... -- -- 750,000
Jay Group.......................................... -- 4,000,000 12,000,000
Roberston Group.................................... 36,364 -- 7,711,000
Wade Group......................................... 363,636 -- 11,904,000
--------- ---------- -----------
5,178,412 $4,932,000 $52,507,000
========= ========== ===========
</TABLE>
The Boomershine Group acquisition will be accounted for as the equivalent
of a pooling of interest as the Company and the Boomershine Group have common
ownership. The remaining acquisitions will be accounted for as purchases with
excess of purchase price over fair value of assets acquired of approximately $43
million.
3. GOVERNMENTAL REGULATION
Substantially all of the Founding Group's facilities are subject to
federal, state and local provisions regulating the discharge of materials into
the environment. Compliance with these provisions has not had, nor does the
Company expect such compliance to have any material effect upon the capital
expenditures, net income, financial condition or competitive position of the
Company. Management believes that its current
F-9
<PAGE> 108
SUNBELT AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
practices and procedures of the control and disposition of such wastes comply
with applicable federal and state requirements.
4. STOCK-BASED COMPENSATION PLANS
Stock Option Plan
Effective January 2, 1998, the Company adopted the Sunbelt Automotive
Group, Inc. 1997 & 1998 Incentive Stock Plan (the "Plan"). The Plan provides for
a committee (the "Committee") of non-employee members of the Board of Directors
to grant incentive stock options to any director, officer, employee or
consultant of the Company or any of its subsidiaries. The exercise price of the
options granted under the Plan shall be established by the Committee on or prior
to the date of issuance of the options. Options granted under the Plan vest in
accordance with vesting schedules established by the Committee at the time of
the grant. The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
On January 8, 1998, the Committee granted 425,000 options to certain of the
Company's officers. These options vest over three years and expire after ten
years. At such time, the Committee granted the forgoing options with a $6.27 per
share exercise price, based on a third-party valuation performed on the market
value of the Company's Common Stock on the date of grant. At March 31, 1998, no
options were exercisable and 1,825,000 options were available for future grant
under the Plan.
Pro forma information regarding net earnings is required by FASB Statement
No. 123 "Accounting for Stock-Based Compensation," ("SFAS 123"). SFAS 123 also
requires that the information be determined as if the Company has accounted for
its employee stock options granted under the fair value method of SFAS 123. The
fair value for these options was estimated at the date of grant using a minimum
value option pricing model with the following assumptions: risk-free interest
rate of 6.0%; no anticipated dividends; and a weighted-average expected life of
the option of three years. The weighted average grant date fair value of options
granted during the period using the minimum value option pricing model was
$1.03.
For purposes of SFAS 123 pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma net loss would have been $647,716 for the period from
December 17, 1997 (inception) through March 31, 1998.
Warrants
On March 13, 1998, the Company granted warrants to purchase 50,000 shares
of common stock to an outside consultant in consideration for certain financial
and accounting consulting services rendered in connection with the Offering.
These warrants vest over eighteen months and become exercisable upon the
completion of the Offering at an exercise price of $8.00 per share. The warrants
expire, if not exercised within a specified period from the date of grant. The
fair value of the grant using the minimum value method of option pricing was
$31,500 and will be recorded as a cost of the Offering.
F-10
<PAGE> 109
SUNBELT AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The following table sets forth the components of the Company's deferred tax
assets as of March 31, 1998 along with a reconciliation of income tax for the
period ended March 31, 1998. The Company has recorded a valuation allowance
against its deferred tax assets as in management's opinion, it is more likely
than not that such amounts may not be realized in future periods.
<TABLE>
<S> <C>
Benefit at the statutory rate............................... $(207,820)
Increase (decrease) resulting from:
State income tax, net of benefit for federal.............. (24,205)
Valuation allowance....................................... 232,025
---------
$ --
=========
Net operating loss carryforward............................. $ 232,025
Valuation allowance......................................... (232,025)
---------
Net deferred tax assets................................... $ --
=========
</TABLE>
6. RELATED PARTY TRANSACTIONS
In conjunction with the formation of the Company, the acquisitions
described in Note 2 and the Offering, Boomershine Group has paid certain
operating expenses on behalf of the Company. The balance at March 31, 1998 of
$611,236 is payable on demand and does not bear interest.
7. SUBSEQUENT EVENTS
In April 1998, the Committee granted 855,000 options to certain of the
Company's officers. At such time, the Committee granted the forgoing options
with an $8.00 per share exercise price, based on a third-party valuation
performed on the market value of the Company's Common Stock on the date of
grant. Additionally, in April 1998, the Committee granted 315,000 options to
certain of the Company's officers and management. The option grant is
conditioned upon the effectiveness of the Offering. The exercise price will be
the initial public offering price for the Company's Common Stock.
Common Stock Issuance
In April 1998, the Board of Directors of the Company approved the issuance
of 249,202 shares of Common Stock to certain of the Company's officers. The
shares were issued at $8.00 per share, the fair value at the date of issuance.
The consideration for the Common Stock issuance were notes payable to the
Company by the officers. The notes payable are due in five years and bear
interest of 8% per year. The notes will be reflected as a reduction of
shareholder's equity until repaid in full.
F-11
<PAGE> 110
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Boomershine Automotive Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Boomershine
Automotive Group, Inc. and Subsidiaries as of June 30, 1996 and 1997, and the
related consolidated statements of operations and changes in retained earnings
and cash flows for each of the three years in the period ended June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Boomershine
Automotive Group, Inc. and Subsidiaries at June 30, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 30, 1998
F-12
<PAGE> 111
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 4,998,408 $ 4,556,291 $ 4,717,153
Accounts receivable, net.............................. 7,701,302 5,267,834 7,882,840
Finance receivables, net.............................. -- -- 13,495,149
Inventories........................................... 44,668,695 33,591,145 41,683,648
Prepaid expenses and other current assets............. 341,774 259,289 2,256,415
Refundable income taxes............................... 270,920 454,459 --
Deferred income taxes................................. 766,591 512,945 1,459,134
----------- ----------- -----------
Total current assets.......................... 58,747,690 44,641,963 71,494,339
Property and equipment, net............................. 4,187,891 3,962,564 4,412,546
Deferred income taxes................................... 101,461 54,303 16,887
Intangible assets, net.................................. 784,643 718,738 6,537,311
Other assets............................................ 264,376 332,171 438,946
----------- ----------- -----------
$64,086,061 $49,709,739 $82,900,029
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable.............................. $49,439,711 $36,798,078 $49,917,664
Senior debt........................................... -- -- 11,470,680
Notes payable -- affiliates........................... 3,457,215 3,299,926 7,254,948
Accrued liabilities................................... 4,406,168 2,905,053 2,593,850
Accounts payable...................................... 1,320,431 1,677,447 2,359,021
Current maturities of long-term debt.................. 98,333 38,333 1,921,073
Deferred income taxes................................. -- -- 959,374
Dealer finance reserves............................... -- -- 306,420
----------- ----------- -----------
Total current liabilities..................... 58,721,858 44,718,837 76,783,030
Long-term debt, less current maturities................. 523,889 482,362 360,050
Other liabilities....................................... 283,803 309,719 356,850
Stockholders' equity:
Class A voting common stock, no par value, 500,000
shares authorized, 3,600 shares issued and
outstanding........................................ 198,686 198,686 198,686
Class B non-voting common stock, no par value, 500,000
shares authorized, 68,400 shares issued and
outstanding........................................ 3,775,018 3,775,018 3,775,018
Retained earnings..................................... 582,807 225,117 1,426,395
----------- ----------- -----------
Total stockholders' equity.................... 4,556,511 4,198,821 5,400,099
----------- ----------- -----------
$64,086,061 $49,709,739 $82,900,029
=========== =========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 112
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales...................... $214,001,989 $230,851,161 $214,435,923 $160,556,742 $152,856,735
Parts and service.................. 19,223,080 23,763,491 24,636,720 17,688,698 19,108,036
Finance, commission and other
revenues, net.................... 3,855,623 4,219,077 5,339,652 4,355,392 5,398,910
------------ ------------ ------------ ------------ ------------
237,080,692 258,833,729 244,412,295 182,600,832 177,363,681
Cost of sales:
Vehicle sales...................... 204,004,105 221,379,852 204,701,393 153,857,533 145,887,786
Parts and service.................. 10,816,132 11,553,747 15,018,056 10,168,079 11,225,178
------------ ------------ ------------ ------------ ------------
214,820,237 232,933,599 219,719,449 164,025,612 157,112,964
------------ ------------ ------------ ------------ ------------
Gross profit......................... 22,260,455 25,900,130 24,692,846 18,575,220 20,250,717
Selling, general and
administrative..................... 20,332,772 24,769,911 23,151,867 17,356,773 17,307,749
------------ ------------ ------------ ------------ ------------
Income from operations............... 1,927,683 1,130,219 1,540,979 1,218,447 2,942,968
Interest expense..................... 1,436,394 1,774,285 2,230,144 1,408,795 1,543,663
Interest income...................... 218,607 181,318 119,706 184,142 247,428
Other income (expense), net.......... 60,606 12,585 44,303 (80,156) (68,215)
------------ ------------ ------------ ------------ ------------
Income (loss) before taxes........... 770,502 (450,163) (525,156) (86,362) 1,578,518
Income tax (expense) benefit......... (292,221) 133,545 167,466 25,761 (377,240)
------------ ------------ ------------ ------------ ------------
Net income (loss)........... 478,281 (316,618) (357,690) (60,601) 1,201,278
Retained earnings at beginning of
period............................. 421,144 899,425 582,807 582,807 225,117
------------ ------------ ------------ ------------ ------------
Retained earnings at end of period... $ 899,425 $ 582,807 $ 225,117 $ 522,206 $ 1,426,395
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-14
<PAGE> 113
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
------------ ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 478,281 $ (316,618) $ (357,690) $ (60,601) $ 1,201,278
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 382,828 556,034 823,575 608,758 644,809
Amortization of intangible assets..... 22,788 44,223 65,905 50,679 119,275
Deferred income taxes................. (386,533) (82,510) 300,804 225,606 (215,885)
Loss on sale of property and
equipment........................... 187 2,747 14,268 -- --
Changes in assets and liabilities:
Accounts receivable, net............ (4,747,808) 2,140,834 2,433,468 2,295,454 (2,173,947)
Finance receivables................. -- -- -- -- (648,377)
Inventories......................... (19,461,780) (576,845) 11,077,550 8,696,117 (8,018,762)
Prepaid expenses and other assets... 123,684 2,520 82,485 56,623 (1,969,474)
Floor plan notes payable............ 25,160,314 2,823,261 (12,641,633) (8,096,269) 13,119,586
Accounts payable and accrued
liabilities....................... 2,257,945 (283,535) (1,144,099) (2,315,385) 28,230
Dealer finance reserves............. -- -- -- -- (420,258)
Income taxes........................ 253,691 (270,920) (183,539) (251,367) 454,459
Other assets and liabilities........ 113,541 (525,822) (41,879) (124,800) (59,644)
------------ ----------- ------------ ----------- -----------
Net cash provided by operating
activities................... 4,197,138 3,513,369 429,215 1,084,815 2,061,290
INVESTING ACTIVITIES
Purchases of property and equipment..... (1,715,385) (2,450,747) (808,516) (1,208,023) (697,070)
Cost of acquisitions, net of cash
acquired.............................. (1,281,376) (2,107,458) -- -- (5,360,924)
Proceeds on disposal of property and
equipment............................. 256,413 319,913 196,000 380,494 --
------------ ----------- ------------ ----------- -----------
Net cash used in investing
activities................... (2,740,348) (4,238,292) (612,516) (827,529) (6,057,994)
FINANCING ACTIVITIES
Principal payments on notes payable --
affiliates, net....................... 259,064 691,953 (157,289) (76,269) 3,963,814
Borrowings of long-term debt............ 600,000 -- -- -- 219,308
Principal payments on long-term debt.... (60,000) (682,778) (101,527) (92,492) (25,556)
------------ ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities......... 799,064 9,175 (258,816) (168,761) 4,157,566
------------ ----------- ------------ ----------- -----------
Change in cash and cash equivalents..... 2,255,854 (715,748) (442,117) 88,525 160,862
Cash and cash equivalents at beginning
of the period......................... 3,458,302 5,714,156 4,998,408 4,998,408 4,556,291
------------ ----------- ------------ ----------- -----------
Cash and cash equivalents at end of the
period................................ $ 5,714,156 $ 4,998,408 $ 4,556,291 $ 5,086,933 $ 4,717,153
============ =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 114
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Boomershine Automotive Group, Inc. and Subsidiaries (the Company) is
principally engaged in the business of selling and servicing new and used
vehicles. The Company operates eight dealerships in Metropolitan Atlanta
consisting of Ford, Pontiac-GMC, Nissan, Buick, Honda, Mitsubishi, Isuzu, and
Hummer.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Boomershine
Automotive Group, Inc., (the Company), and its wholly-owned subsidiaries:
Boomershine Pontiac-GMC Truck, Inc., Boomershine Automobile Company (a Georgia
Corporation), Boomershine Ford, Inc., Boomershine Isuzu, Inc., Boomershine
Services, Inc., Boomershine North Cobb, Inc., d/b/a Boomershine Mitsubishi and
Commerce Credit Corporation, and its 86% owned subsidiary, Thompson Automotive
Group, Inc., d/b/a Boomershine Honda. The minority stockholders' interest in the
net assets of the 86% owned subsidiary is included in the consolidated balance
sheet, and the minority stockholders' interest in the subsidiary's net loss has
been considered in computing the consolidated net loss. All significant
intercompany accounts and transactions have been eliminated in consolidation.
DEALERSHIP ACQUISITIONS
During 1995, the Company acquired a Honda dealership in Cartersville,
Georgia that included new vehicle inventories, parts and accessories and certain
other assets for $1,281,376. During 1996, the Company acquired a Buick
dealership in Atlanta, Georgia that included vehicle inventories and certain
other assets for $2,107,458 and the issuance of a note payable of $575,000 due
in 1999. The acquisitions have been accounted for using the purchase method of
accounting. The accompanying consolidated financial statements include the
results of the acquired dealerships' operations from the dates of acquisition.
Pro forma information is not provided because the impact of the acquisitions
does not have a material effect on the Company's results of operations, cash
flows or financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, contracts in transit
pertaining to the sale of vehicles, and all highly liquid investments with an
original maturity of three months or less at the date of purchase.
INVENTORIES
All inventory is stated at the lower of cost or market. Cost of new and
used vehicles is determined using the last in, first-out (LIFO) method.
F-16
<PAGE> 115
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed. The Company generates ancillary revenues from its vehicle sales
operation. Such revenues include finance fees, insurance fees, and warranty
contract commissions.
Finance fees represent revenue earned by the Company for notes placed with
financial institutions in connection with customer vehicle financing. Finance
fees are recognized in income upon acceptance of the credit by the financial
institution. Insurance income represents commissions earned on credit life,
accident and disability insurance sold in connection with a vehicle on behalf of
third-party insurance companies. Insurance and warranty commissions are
recognized in income upon customer acceptance of the contract terms as evidenced
by contract execution. Net revenues related to finance fees and insurance and
warranty commissions are included in other revenues.
The Company is charged back a portion of fees and commissions earned on
finance or insurance contracts if the customer terminates a contract prior to
its scheduled maturity. The estimated allowance for these chargebacks is based
upon the Company's historical experience for prepayments or defaults on the
finance and insurance contracts.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided predominately on the straight-line method over the
estimated useful lives of the assets. The ranges of estimated useful lives are
as follows:
<TABLE>
<S> <C>
Buildings.................................................. 15 - 20 years
Furniture and fixtures..................................... 5 - 7 years
Leasehold improvements..................................... 5 - 18 years
Machinery and shop equipment............................... 5 - 12 years
Rental cars and company vehicles........................... 3 years
</TABLE>
INTANGIBLES
Intangibles consist principally of goodwill, which represents the excess of
cost over assigned fair market value of dealerships acquired and franchise
rights and are being amortized on a straight-line basis over their estimated
useful lives, not exceeding 40 years. Accumulated amortization was $317,712 and
$383,617 at June 30, 1996 and 1997, respectively. The carrying amount of
intangibles and other long lived assets are reviewed if facts and circumstances
suggest that it may be impaired. If this review indicates that these assets will
not be recoverable, as determined based on the estimated undiscounted cash flows
of the entity acquired over the remaining amortization period, the carrying
amount of the asset is reduced by the estimated shortfall of the discounted cash
flows.
MAJOR SUPPLIER
The Company purchases substantially all of its new vehicles and parts
inventory from automobile manufacturers/distributors at the prevailing prices
charged by the manufacturers/distributors to all franchise dealers. The Company
enters into agreements ("Dealer Agreements") with each manufacturer. The Dealer
Agreements generally limit the location of the dealership and include
manufacturer approval rights over
F-17
<PAGE> 116
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
changes in dealership management and ownership. A manufacturer is also entitled
to terminate the Dealer Agreement if the dealership is in material breach of its
terms.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contracts in transit and
accounts receivable. Also, at times, cash deposits in banks exceed the Federal
Deposit Insurance Corporation insurance limit. Contracts in transit are for
funds received shortly after balance sheet date from contracts financed with
financial institutions. Trade receivables principally result from extending
short-term credit to a large number of customers and other automotive dealers
located in the North Georgia area. Finance companies receivables are commissions
on credit contracts of customers. Receivables also result from transactions with
automotive manufacturers. Although the Company is directly affected by the
economic conditions in the automotive industry, financial institutions, banks,
its customers and the general economy of the Atlanta and North Georgia area,
management does not believe significant credit risk exists.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was approximately $1,900,000, $2,700,000 and $2,538,000 for the years
ended June 30, 1995, 1996 and 1997, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of significant classes of
financial instruments on the consolidated balance sheet, including cash and
contracts in transit, notes payable and long-term debt to be reasonable
estimates of fair value. Fair value of the Company's debt was estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of arrangements.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
for the nine months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Customers................................................... $4,929,130 $3,435,110
Factory..................................................... 2,079,487 1,756,567
Finance companies........................................... 696,471 233,532
Employees................................................... 122,553 19,404
Other....................................................... 6,882 53,862
---------- ----------
7,834,523 5,498,475
Less allowance for doubtful accounts........................ 133,221 230,641
---------- ----------
$7,701,302 $5,267,834
========== ==========
</TABLE>
F-18
<PAGE> 117
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
New vehicles................................................ $41,240,836 $32,942,563
Used vehicles............................................... 7,204,193 4,994,574
Parts, accessories and other................................ 1,786,259 1,616,334
----------- -----------
50,231,288 39,553,471
Less LIFO reserve........................................... 5,562,593 5,962,326
----------- -----------
$44,668,695 $33,591,145
=========== ===========
</TABLE>
The Company uses the LIFO method of inventory valuation for new and used
vehicles. During the year ended June 30, 1997, the Company reduced certain
inventory quantities, which were valued at lower LIFO costs prevailing in prior
years. The effects of these reductions were to increase net income by
approximately $263,000.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows as of June 30, 1996 and
1997:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Buildings................................................... $ 904,954 $1,005,885
Leasehold improvements...................................... 1,116,411 1,169,026
Machinery and shop equipment................................ 2,257,615 2,620,613
Furniture and fixtures...................................... 1,302,609 1,481,849
Rental cars and company vehicles............................ 1,383,665 1,010,845
---------- ----------
6,965,254 7,288,218
Less accumulated depreciation and amortization.............. 2,777,363 3,325,654
---------- ----------
$4,187,891 $3,962,564
========== ==========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE AND NOTES PAYABLE -- AFFILIATES
A summary of notes payable as of June 30, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Floor plan notes payable.................................... $49,439,711 $36,798,078
Notes payable -- stockholders; bearing interest at prime
rate; due on demand; unsecured............................ 2,242,825 2,161,103
Notes payable -- employees; bearing interest at prime rate;
due on demand; unsecured.................................. 630,336 458,384
Notes payable -- related party; bearing interest at prime
rate; due on demand; unsecured............................ 584,054 680,439
----------- -----------
3,457,215 3,299,926
----------- -----------
$52,896,926 $40,098,004
=========== ===========
</TABLE>
F-19
<PAGE> 118
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FLOOR PLAN NOTES PAYABLE AND NOTES PAYABLE -- AFFILIATES (CONTINUED)
Floor plan notes payable consists of notes with financial institutions. The
floor plan notes are secured by certain new and used vehicles. The floor plan
arrangements permit the Company to borrow up to approximately $49,500,000 and
$43,250,000 in 1996 and 1997, respectively, restricted by new and used vehicle
levels. The notes are generally due within ten days of the vehicle being sold or
after the vehicle has been in inventory for one year for new vehicles and after
three months for used vehicles. The notes bear interest based on contractual
rates, which ranged from approximately 7.5% to 8.3% and 7.1% to 8.0% at June 30,
1996 and 1997, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Salaries, wages, bonus and vacation......................... $1,188,070 $ 608,286
Finance reserve............................................. 434,627 538,800
Accrued taxes............................................... 586,035 397,284
Accrued interest............................................ 572,103 284,107
Other accrued liabilities................................... 1,625,333 1,076,576
---------- ----------
$4,406,168 $2,905,053
========== ==========
</TABLE>
7. LONG-TERM DEBT
A summary of long-term debt as of June 30, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Note payable; bearing interest at LIBOR plus 2%, payable
monthly, balance due February 1999, unsecured............. $557,222 $520,695
Other....................................................... 65,000 --
-------- --------
622,222 520,695
Less current maturities of long-term debt................... 98,333 38,333
-------- --------
$523,889 $482,362
======== ========
</TABLE>
During 1995, 1996 and 1997, total cash paid for interest on notes payable
and long-term debt was approximately $1,770,000, $1,400,000 and $2,230,000
respectively.
8. INCOME TAXES
The Company files consolidated Federal and State income tax returns with
its subsidiaries. The current income tax provision represents the amount of
income taxes paid or payable for the year. The deferred income
F-20
<PAGE> 119
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES (CONTINUED)
tax provision represents the change in deferred tax liabilities and assets.
Significant components of the provisions for income taxes are as follows for the
year ended June 30, 1995, 1996 and 1997, respectively:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1995 1996 1997
--------- -------- ---------
<S> <C> <C> <C>
Current income tax (expense) benefit:
Federal............................................ $(571,469) $ 42,262 $ 394,254
State.............................................. (107,285) 8,773 74,016
Deferred income tax benefit (expense)................ 386,533 82,510 (300,804)
--------- -------- ---------
Total provision for income tax (expense)
benefit.................................. $(292,221) $133,545 $ 167,466
========= ======== =========
</TABLE>
The Company utilized net operating loss carrybacks for Federal and State
income tax purposes of approximately $1,234,000 during the year ended June 30,
1997. The Company received refunds of income taxes of approximately $443,000 in
1997.
A reconciliation of the expected income tax benefit (expense) at the
statutory federal rate to the Company's actual income tax provision for the year
ended June 30, 1995, 1996 and 1997, respectively follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Federal statutory (expense) benefit................... $(261,971) $153,055 $178,553
State (expense) benefit, net of federal (expense)
benefit............................................. (30,820) 18,006 21,006
Other................................................. 570 (37,516) (32,093)
--------- -------- --------
$(292,221) $133,545 $167,466
========= ======== ========
</TABLE>
Deferred income taxes are recognized for tax consequences of temporary
differences between the financial and tax bases of existing assets and
liabilities by applying enacted statutory tax rates to such differences.
Significant components of the Company's deferred tax liabilities and assets as
of June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
---------- --------
<S> <C> <C>
Deferred tax assets:
Deferred compensation..................................... $ 69,675 $ 82,918
Intangibles............................................... 75,499 70,431
Accrued liabilities....................................... 620,379 211,185
Bad debt reserve.......................................... 50,624 87,643
Finance reserves.......................................... 155,345 204,744
Inventories............................................... 41,236 87,197
Other..................................................... 31,996 36,639
---------- --------
Total deferred tax assets......................... 1,044,754 780,757
Deferred tax liabilities:
Property and equipment.................................... 43,713 99,048
Other..................................................... 132,989 114,461
---------- --------
Total deferred tax liabilities.................... 176,702 213,509
---------- --------
Total net deferred tax assets..................... $ 868,052 $567,248
========== ========
</TABLE>
F-21
<PAGE> 120
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES (CONTINUED)
Deferred tax assets are recognized for the tax benefit of deducting timing
differences. Valuation allowances are recognized on these assets if it is
believed that some or all of the deferred tax assets will not be realized.
Management believes the majority of deferred tax assets will be realized because
of the available taxable income in carryback years and anticipated future
taxable income resulting from operations; therefore, no valuation allowance was
considered necessary.
9. MINORITY STOCKHOLDERS' INTEREST IN CONSOLIDATED SUBSIDIARY
A related party to the Company's principal owner owns 100,000 shares (14%)
non-voting common stock of the Company's subsidiary, Thompson Automotive Group,
Inc., d/b/a Boomershine Honda. The capital stock of the subsidiary has no par
value. The book value of this stock was $95,447 and $91,514 and at June 30, 1996
and 1997, respectively. The minority stockholder's interest in the subsidiary's
net income (loss) was not significant in the years ended June 30, 1995, 1996 and
1997.
10. CONTINGENCIES
At June 30, 1997, there were certain lawsuits and claims pending against
the Company. In the opinion of management, the ultimate liabilities, if any,
resulting from such lawsuits and claims, will not materially affect the
financial position of the Company.
11. COMMITMENTS AND TRANSACTIONS WITH RELATED PARTIES
The Company is obligated to related parties under certain non-cancelable
leases. These leases, which cover the lease of certain buildings, land and
equipment provide for the following payments:
<TABLE>
<S> <C>
1998........................................................ $ 1,642,188
1999........................................................ 1,642,188
2000........................................................ 1,642,188
2001........................................................ 1,664,188
2002........................................................ 1,694,188
Later years................................................. 15,897,302
-----------
Total minimum payments............................ $24,182,242
===========
</TABLE>
Total rent expense for the years ended June 30, 1995, 1996 and 1997 was
$1,188,538, $1,288,465 and $1,588,045, respectively. Rent expense includes
$1,095,000, $1,288,465 and $1,578,245 for leases with related parties for the
years ended June 30, 1995, 1996 and 1997, respectively.
12. GOVERNMENTAL REGULATION
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have any material effect upon the capital expenditures, net
income, financial condition or competitive position of the Company. Management
believes that its current practices and procedures of the control and
disposition of such wastes comply with applicable federal and state
requirements.
F-22
<PAGE> 121
BOOMERSHINE AUTOMOTIVE GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE BENEFIT PLAN
The Company has an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full time employees.
The Company matches the employees' contributions of up to four percent of
compensation at the rate of $0.50 per $1.00 on the first 2% of compensation
contributed and $0.25 per $1.00 on the next 2% of compensation contributed. The
Company's contributions generally vest over 5 years. The amount charged against
income for the Company's contributions to the plan for the years ended June 30,
1995, 1996 and 1997 was $102,752, $132,612 and $144,737, respectively.
14. SUBSEQUENT EVENTS
In December 1997, the Company purchased an automobile repair business that
consisted of three repair centers in the Metropolitan Atlanta area. The
acquisition included the purchase of certain assets and assumption of
liabilities, the payment of $775,000 and the issuance of notes payable of
$931,000 due in 1998. The acquisition was accounted for as a purchase.
In December 1997, the Company entered into a lease agreement related to
certain equipment. The lease, which was accounted for as a capital lease,
resulted in the recording of a note payable of approximately $535,000, of which
approximately $123,000 is due in 1998.
In January 1998, the Company purchased South Financial Corporation, a
finance company with operations in Florida, North Carolina and Tennessee. The
primary business of South Financial Corporation is to purchase from retail
automobile dealers sales contracts of substandard credit arising from the sale
of used automobiles. The acquisition included the purchase of certain assets and
assumption of liabilities and the payment of $4,650,000. The acquisition will be
accounted for as a purchase.
In January 1998, the Board of Directors approved the Company to exchange
shares of its common stock with Sunbelt Automotive Group, Inc. ("Sunbelt
Automotive"), a related company, in connection with the filing of a registration
statement with the Securities and Exchange Commission. Prior to completion of
the offering by Sunbelt Automotive, the Company and other affiliated companies
will consummate a restructuring, which will result in each of the Company's
dealerships and operating divisions becoming direct or indirect wholly-owned
subsidiaries of Sunbelt Automotive.
F-23
<PAGE> 122
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Jay Automotive Group, Inc.
We have audited the accompanying balance sheets of Jay Automotive Group,
Inc. (as defined in Note 1, Basis of Presentation) as of December 31, 1996 and
1997, and the related statements of income and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the management of Jay Automotive Group, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jay Automotive Group, Inc.
at December 31, 1996 and 1997, and results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 23, 1998
F-24
<PAGE> 123
JAY AUTOMOTIVE GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 2,406,058 $ 3,758,389 $ 4,072,647
Accounts receivable................................... 1,049,224 1,053,218 1,318,431
Notes receivable...................................... 227,359 297,968 382,447
Inventories -- Notes 5 and 7.......................... 15,290,708 12,022,640 17,317,178
Other current assets.................................. 138,060 381,181 73,353
----------- ----------- -----------
Total current assets.......................... 19,111,409 17,513,396 23,164,056
Property and equipment, net -- Note 6................... 1,013,309 889,254 808,561
Intangible assets, net -- Note 3........................ 338,333 318,333 313,333
Other assets............................................ 81,437 16,554 65,873
----------- ----------- -----------
$20,544,488 $18,737,537 $24,351,823
=========== =========== ===========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Floor plan notes payable -- Note 7.................... $12,375,365 $ 9,019,181 $13,707,401
Accrued liabilities................................... 453,029 693,976 1,119,483
Accounts payable...................................... 905,766 896,598 1,205,917
Current maturities of long-term debt.................. 60,000 60,000 60,000
----------- ----------- -----------
Total current liabilities..................... 13,794,160 10,669,755 16,092,801
Long-term debt, less current maturities -- Note 7....... 185,900 131,076 118,585
Commitments and contingencies -- Notes 3, 7, 10 and 11
Total owner's equity -- Notes 4 and 9......... 6,564,428 7,936,706 8,140,437
----------- ----------- -----------
$20,544,488 $18,737,537 $24,351,823
=========== =========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 124
JAY AUTOMOTIVE GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales................ $68,752,615 $82,686,950 $ 86,461,125 $21,209,882 $20,655,917
Parts and service............ 9,008,736 10,635,601 11,869,480 3,218,434 3,206,583
Finance, commission and other
revenues, net............. 1,720,997 2,066,160 2,183,817 752,360 644,713
----------- ----------- ------------ ----------- -----------
79,482,348 95,388,711 100,514,422 25,180,676 24,507,213
Cost of sales:
Vehicle sales................ 64,383,162 77,264,532 80,887,066 19,954,073 19,419,134
Parts and service............ 5,751,659 6,841,136 7,656,492 1,936,977 1,992,921
----------- ----------- ------------ ----------- -----------
70,134,821 84,105,668 88,543,558 21,891,050 21,412,055
----------- ----------- ------------ ----------- -----------
Gross profit................... 9,347,527 11,283,043 11,970,864 3,289,626 3,095,158
Selling, general and
administrative............... 7,134,069 8,952,606 9,588,307 2,411,293 2,537,573
----------- ----------- ------------ ----------- -----------
Income from operations......... 2,213,458 2,330,437 2,382,557 878,333 557,585
Interest expense............. 447,932 397,007 361,555 102,282 32,433
Interest income.............. 88,687 96,291 101,104 23,078 25,319
----------- ----------- ------------ ----------- -----------
Income before income taxes..... 1,854,213 2,029,721 2,122,106 799,129 550,471
Income taxes................... 702,792 774,742 806,000 303,700 209,000
----------- ----------- ------------ ----------- -----------
Net income........... $ 1,151,421 $ 1,254,979 $ 1,316,106 $ 495,429 $ 341,471
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 125
JAY AUTOMOTIVE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 1,151,421 $ 1,254,979 $ 1,316,106 $ 495,429 $ 341,471
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 164,968 251,965 218,554 60,373 64,941
Changes in current assets and
liabilities:
Accounts receivable......... (209,094) (109,842) (3,994) 252,394 (265,213)
Notes receivable............ (1,812) (61,263) (70,609) (9,554) (84,479)
Inventories................. (2,227,883) (1,891,222) 3,268,068 288,558 (5,294,538)
Floor plan notes payable,
net....................... 2,887,279 1,231,619 (3,356,184) (423,525) 4,688,220
Accounts payable............ 170,963 104,845 (9,168) (59,564) 309,319
Accrued liabilities......... 8,905 (133,019) 240,947 436,416 425,506
Other....................... (48,944) 21,158 (179,461) 84,028 258,509
----------- ----------- ----------- ---------- -----------
Net cash provided by
operating
activities........... 1,895,803 669,220 1,424,259 1,124,555 443,736
INVESTING ACTIVITIES
Purchases of property and
equipment...................... (322,999) (78,902) (163,179) (213,929) (35,828)
Purchase of business............. (1,496,372) (275,187) -- -- --
Proceeds from sale of assets..... -- 263,703 89,903 -- 56,580
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by investing
activities........... (1,819,371) (90,386) (73,276) (213,929) 20,752
FINANCING ACTIVITIES
Payments on long term debt....... (3,978) (50,122) (54,824) (13,249) (12,491)
Payments and changes in due
to/from subsidiaries not being
acquired by SAG, net........... 76,565 87,324 56,172 (110,145) (137,739)
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities........... 72,587 37,202 1,348 (123,394) (150,230)
----------- ----------- ----------- ---------- -----------
Increase in cash and cash
equivalents.................... 149,019 616,036 1,352,331 787,232 314,258
Cash and cash equivalents at
beginning of the year.......... 1,641,003 1,790,022 2,406,058 2,406,058 3,758,389
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end
of the year.................... $ 1,790,022 $ 2,406,058 $ 3,758,389 $3,193,290 $ 4,072,647
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 126
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. BASIS OF PRESENTATION
Pursuant to a stock purchase agreement dated January 5, 1998, (the
"Purchase Agreement") Sunbelt Automotive Group, Inc. ("SAG") has agreed to
purchase all of the issued and outstanding shares of the common stock of Jay
Automotive Group, Inc. ("JAG") subject to certain terms and closing conditions
as set forth in the Purchase Agreement. JAG has various wholly-owned
subsidiaries through which it operates the Toyota, Saturn, Mazda, Pontiac,
Buick, GMC, Suzuki, and Mitsubishi automobile dealerships located in Columbus,
Georgia.
JAG also owns and operates, through other of its wholly-owned subsidiaries,
other businesses which are not being acquired by SAG. Under the terms of the
Purchase Agreement, such businesses will be liquidated or spun off prior to the
closing date. The closing date is anticipated to occur prior to June 30, 1998.
Jay Leasing, Inc. ("Jay Leasing"), a subsidiary not being acquired by SAG, owns
or leases certain land, buildings and equipment used by Jay Automotive (see Note
11).
The accompanying financial statements are intended to present the
operations of Jay Automotive Group, Inc. which are to be acquired by SAG
pursuant to the Purchase Agreement and do not include the other operations of
JAG which will be sold, liquidated or spun off. The accompanying financial
statements include the accounts of JAG and certain of its wholly-owned
subsidiaries: Jay Pontiac-Buick-GMC, Inc., Jay Automotive Group II, Inc. d/b/a
Jay Toyota and Jay Automotive Group V, Inc. d/b/a Jay Mazda, collectively ("Jay
Automotive" or the "Company").
The accompanying financial statements are derived from the historical books
and records of Jay Automotive and do not give effect to any purchase accounting
adjustments that SAG may record as a result of its acquisition.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, contracts in transit
pertaining to the sale of vehicles, and all highly liquid investments with an
original maturity of three months or less at the date of purchase.
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed. The Company generates ancillary revenues from its vehicle sales
operations. Such revenues include finance fees, insurance fees and service
contract commissions. Finance fees represent revenue earned by the Company for
notes placed with financial institutions in connection with customer vehicle
financing. Finance fees are generally recognized in income upon acceptance of
the credit by the financial institution. Insurance income represents commissions
earned on credit life, accident and disability insurance sold in connection with
a vehicle on behalf of third-party insurance companies. Insurance and service
contract commissions are recognized at contract execution.
A portion of fees and commissions for finance, insurance or certain service
contracts can be charged back to the Company if the customer terminates a
contract prior to its scheduled maturity. An estimated allowance
F-28
<PAGE> 127
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for these chargebacks is recorded based upon the Company's historical experience
for prepayments or defaults on the finance and insurance contracts.
INVENTORIES
All inventory is valued at the lower of cost, as determined under the LIFO
method, or market. Cost of new and used vehicles is determined using the
last-in, first-out "LIFO" method. Cost of parts, accessories and other are
determined primarily by using factory list price using the first-in, first-out
"FIFO" method except for those parts and accessories related to the Toyota
dealership which are costed on the LIFO method. Cost of sales during the year
ended December 31, 1997 decreased approximately $89,000 due to a decrement in
the LIFO layer.
OTHER CURRENT ASSETS
Included in other current assets are notes receivable from JAG's
stockholder of $76,644 and $313,000 at December 31, 1996 and 1997, respectively.
The outstanding balance at December 31, 1997 was repaid in January 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense is provided on accelerated methods over the estimated
useful lives of the assets. The ranges of estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 3 - 5 years
Leasehold improvements...................................... 5 - 19 years
Machinery and shop equipment................................ 5 years
</TABLE>
INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. The accompanying financial statements exclude the income tax
expense and/or benefit associated with income or losses of the JAG operations
that will be sold, liquidated or spun off (see Note 1).
The Company accounts for income taxes in accordance with FASB Statement No.
109, Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rate
and laws that will be in effect when the differences are expected to reverse.
The temporary differences are primarily the result of valuation reserves and
warranty reserves. Temporary differences are not material.
INTANGIBLE ASSETS
Intangibles consist of goodwill that represents the excess of cost over
assigned fair market value of dealerships acquired and are being amortized on a
straightline basis over 15 years. Accumulated amortization was approximately
$2,000 and $22,000 at December 31, 1996 and 1997, respectively. The carrying
amount of intangibles and other long lived assets are reviewed if facts and
circumstances suggest that it may be impaired. If this review indicates that the
carrying value of these assets will not be recoverable, as determined based on
the estimated undiscounted cash flows of the entity acquired over the remaining
amortization period, the carrying amount of the asset is reduced by the
estimated shortfall of cash flows.
F-29
<PAGE> 128
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contracts in transit and
accounts receivable. Also, at times, cash deposits in banks exceed the Federal
Deposit Insurance Corporation insurance limit. Contracts in transit are for
funds received shortly after the balance sheet date from contracts financed with
financial institutions. Significant trade receivables result from the extension
of credit for short-term periods to customers located within the Columbus,
Georgia area. Accounts receivable for motor vehicles, parts and services are
mostly from customers and other automotive dealers in Georgia. Finance companies
receivables are commissions on credit contracts of customers. Receivables also
result from transactions with automotive manufacturers.
Although the Company is directly affected by the economic effects in the
automotive industry, financial institutions, banks, its customers and the
general economy of the Columbus, Georgia and the surrounding geographical area,
management does not believe significant credit risk exists.
MAJOR SUPPLIERS
The Company purchases substantially all of its new vehicles and parts
inventory from automobile manufacturers/distributors at the prevailing prices
charged by the manufacturers/distributors to all franchise dealers. The Company
enters into agreements ("Dealer Agreements") with each manufacturer. The Dealer
Agreements, among other things, generally limit the location of the dealership
and include manufacturer approval rights over changes in dealership management
and ownership. A manufacturer is also entitled to terminate the Dealer Agreement
if the dealership is in material breach of the Dealer Agreement terms.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was approximately $654,000, $705,000 and $789,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. Substantially all advertising is
contracted through an affiliate of the stockholder.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of significant classes of
financial instruments on the accompanying balance sheets, including cash and
contracts in transit, notes payable and long-term debt to be reasonable
estimates of fair value due either to the length of maturity or the existence of
variable interest rates that approximate prevailing market rates.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
the three months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
3. BUSINESS COMBINATIONS
On November 20, 1995, Jay Mazda purchased substantially all the assets and
assumed certain liabilities of Charles Levy Mazda for approximately $1.5 million
in cash and notes payable of $300,000. The excess of the purchase price over the
net tangible assets acquired was not material.
On December 16, 1996, Jay Pontiac-Buick-GMC, Inc. acquired the Buick Sales
and Service Agreement. At the date of acquisition, the Company purchased
vehicles and other items for a cash payment of
F-30
<PAGE> 129
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. BUSINESS COMBINATIONS (CONTINUED)
approximately $275,000 and the assumption of approximately $1,824,000 of floor
plan liabilities. The excess of the purchase price over the net tangible assets
acquired was approximately $300,000. As part of the terms of an exclusive use
agreement, JAG could be required to pay $225,000 to General Motors if there is a
breach of certain covenants as set forth in the agreement.
4. JAG CAPITALIZATION
JAG has 500,000 shares of $10 par value common stock authorized of which
21,955 shares were issued and outstanding at both December 31, 1996 and 1997.
The JAG capitalization also includes additional paid-in-capital of $573,348 at
both December 31, 1996 and 1997. See Note 9 for a discussion of JAG corporate
allocations and changes in owner's equity.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
New vehicles................................................ $10,730,881 $ 8,433,366
Used vehicles............................................... 4,299,635 3,512,675
Parts, accessories and other................................ 1,321,698 1,240,092
----------- -----------
16,352,214 13,186,133
Less LIFO reserve........................................... (1,061,506) (1,163,493)
----------- -----------
$15,290,708 $12,022,640
=========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
Leasehold improvements...................................... $ 171,881 $ 171,881
Machinery and shop equipment................................ 914,969 996,511
Furniture and fixtures...................................... 326,424 364,407
Rental cars and company vehicles............................ 579,796 509,752
---------- -----------
1,993,070 2,042,551
Less accumulated depreciation............................... (979,761) (1,153,297)
---------- -----------
$1,013,309 $ 889,254
========== ===========
</TABLE>
7. FLOOR PLANS AND LONG-TERM DEBT
A summary of floor plans and long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- ----------
<S> <C> <C>
World Omni Financial Corporation floor plan; availability of
$4.7 million; secured by vehicle inventories; due upon
sale of vehicles; interest payable monthly at prime, plus
.25% reduced by various factory incentives................ $ 2,100,396 $ 819,309
</TABLE>
F-31
<PAGE> 130
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- ----------
<S> <C> <C>
7. FLOOR PLANS AND LONG-TERM DEBT (CONTINUED)
GMAC floor plan; availability of $9 million at December 31,
1997 subsequently raised to $13 million during March 1998;
secured by vehicle inventories; due upon sale of vehicles;
interest payable monthly at 1% above prime, reduced by
various GMAC and factory incentives....................... 8,405,449 6,766,165
First Union floor plan; availability of $3,850,000; secured
by vehicle inventories; due upon sale of vehicles;
interest payable monthly at 2% over LIBOR, reduced by
various factory incentives................................ 1,869,520 1,433,707
----------- ----------
$12,375,365 $9,019,181
=========== ==========
Note payable; bearing interest at 9% due in monthly
installments of principal and interest of $6,228 through
November 2000............................................. $ 245,900 $ 191,076
Less current installments of long-term debt................. (60,000) (60,000)
----------- ----------
$ 185,900 $ 131,076
=========== ==========
</TABLE>
During 1995, 1996 and 1997, total cash paid for interest on floor plans and
long-term debt was $444,000, $382,000 and $368,000, respectively.
8. INCOME TAXES
The Company files consolidated federal and state income tax returns with
its subsidiaries. The current income tax provision represents the amount of
income taxes paid or payable, by Jay Automotive for each year. The deferred
income tax provision is not material. Significant components of the provisions
for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Federal.............................................. $598,000 $659,000 $685,000
State................................................ 104,792 115,742 121,000
-------- -------- --------
Total provision for income taxes............. $702,792 $774,742 $806,000
======== ======== ========
</TABLE>
A reconciliation of the expected income tax expense at the statutory
federal rate to Jay Automotive's actual income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory benefit.............................. $630,000 $690,000 $721,000
State benefit, net of federal benefit.................. 70,000 77,000 80,000
Other.................................................. 2,792 7,742 5,000
-------- -------- --------
$702,792 $774,742 $806,000
======== ======== ========
</TABLE>
Jay Automotive made income tax payments of approximately $830,000,
$1,019,000 and $555,000 during the years ended December 31, 1995, 1996 and 1997,
respectively.
F-32
<PAGE> 131
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. JAG CORPORATE ALLOCATIONS AND OWNERS' EQUITY
The corporate employees and operations of JAG provide management and
related services to the various JAG subsidiaries. An allocation of corporate
costs has not been made to the operations of the subsidiaries not included in
the accompanying financial statements because such amounts would not be
material.
JAG provides centralized cash management for all subsidiaries. There are no
terms of settlement nor interest charges on intercompany accounts. All
intercompany balances due to/from the subsidiaries not being acquired by SAG are
included as a part of owner's equity.
JAG allocates certain employee benefits to the various operations,
including those operations not being acquired by SAG, based on directly
identifiable incurred costs.
JAG did not pay any dividends to its stockholder during the three year
period ended December 31, 1997. An analysis of the net transactions in the
owner's equity accounts for each of the three years in the period ended December
31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance of the beginning of year................... $3,994,109 $5,222,095 $6,564,428
Payments to JAG and change in due to/from
subsidiaries not being acquired by SAG, net... 76,565 87,354 56,172
Net earnings..................................... 1,151,421 1,254,979 1,316,106
---------- ---------- ----------
Balance at the end of year......................... $5,222,095 $6,564,428 $7,936,706
========== ========== ==========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various legal proceedings
which are normal to its business. In the opinion of management, the ultimate
liabilities, if any, resulting from such lawsuits and claims, will not have a
material adverse effect on the financial position of the Company.
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
income, financial condition or competitive position of the Company. Management
believes that its current practices and procedures for the control and
disposition of material and wastes comply with applicable federal and state
requirements.
11. LEASES
The Company is obligated under certain written or verbal leases for certain
buildings, land and equipment. The leases generally provide for the payment of
fixed monthly rentals and the payment of property taxes, insurance and repairs.
These operating leases provide for the following payments:
<TABLE>
<S> <C>
1998........................................................ $250,645
1999........................................................ 181,188
2000........................................................ 25,820
--------
$457,653
========
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $441,000, $543,000 and $526,000, respectively. Rent expense
includes approximately $157,000, $277,000 and $279,000 for verbal leases with
Jay Leasing for the years ended December 31, 1995, 1996 and 1997, respectively.
F-33
<PAGE> 132
JAY AUTOMOTIVE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. LEASES (CONTINUED)
By March 1998, all of the Company's operations except for the Toyota
dealership, the Mazda dealership and three used car stores, relocated to a new
auto mall. The Toyota dealership and Mazda dealership will relocate to the auto
mall by June 1998. The cost of the acquisition, construction and equipping of
the auto mall was financed through the issuance of industrial revenue bonds (the
"Revenue Bonds") by the Development Authority of Columbus, Georgia (the
"Development Authority") in the aggregate principal amount of $10 million. The
Revenue Bonds bear interest at a variable rate (as defined in the Bond
Indenture), but may be converted to a term rate at the election of the lessee,
subject to certain terms and restrictions described in the Bond Indenture.
Interest on the Revenue Bonds may be payable quarterly, semiannually or on the
day following a variable rate or term rate period depending on the rate chosen
by the lessee. JAG, Jay Leasing and JAG's shareholder have guaranteed the
Revenue Bonds.
The auto mall is leased by the Development Authority to Jay Leasing
pursuant to a lease agreement dated as of July 1, 1997 and expiring on July 1,
2017. Rental payments due under the lease agreement mirror the debt service
requirements set forth in the Bond Indenture. After having met certain terms and
conditions (as described in the lease agreement), Jay Leasing has the right to
purchase the auto mall from the Authority for $10. Aggregate annual principal
payments due on the Revenue Bonds are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 255,000
1999........................................................ 280,000
2000........................................................ 305,000
2001........................................................ 325,000
2002........................................................ 355,000
Thereafter.................................................. 8,480,000
-----------
$10,000,000
===========
</TABLE>
A formal lease for the auto mall between Jay Leasing and the other JAG
affiliates, including the Saturn dealership, has not yet been finalized.
Management anticipates that rental expense to be paid to Jay Leasing for the
auto mall, including the Saturn dealership, will approximate $1.1 million
annually for twenty years.
12. EMPLOYEE BENEFIT PLAN
The Company has an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all eligible, full time
employees. The Company may elect to make contributions to match a portion of the
employees' contributions. The Company's contributions vest ratably over five
years. The amounts charged against income in the accompanying financial
statements for the Company's contributions to the plan for the years ended
December 31, 1995, 1996 and 1997 was approximately $22,000, $60,000 and $43,000,
respectively.
F-34
<PAGE> 133
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Grindstaff, Inc.
We have audited the accompanying balance sheets of Grindstaff, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grindstaff, Inc. at December
31, 1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 13, 1998
F-35
<PAGE> 134
GRINDSTAFF, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,433,537 $ 293,036 $ 721,736
Accounts receivable, net.............................. 789,155 748,928 971,608
Inventories........................................... 8,024,643 7,849,280 8,331,248
Prepaid expenses and other current assets............. 16,537 38,664 38,406
Deferred income taxes................................. 19,458 6,734 11,651
----------- ----------- -----------
Total current assets.......................... 10,283,330 8,936,642 10,074,649
Machinery and equipment, net............................ 1,065,223 1,225,749 1,145,897
Receivable from stockholders............................ 429,319 1,259,202 754,056
Other assets............................................ 161,359 107,432 84,092
----------- ----------- -----------
$11,939,231 $11,529,025 $12,058,694
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable.............................. $ 8,995,573 $ 8,953,198 $ 9,542,524
Accrued liabilities and other......................... 554,904 663,092 582,271
Accounts payable...................................... 727,534 537,607 470,564
Accounts payable -- related party..................... 720,000 -- --
Current maturities of long-term debt and capital
lease.............................................. 145,962 163,880 177,835
----------- ----------- -----------
Total current liabilities..................... 11,143,973 10,317,777 10,773,194
Long-term debt and capital lease, less current
portion............................................... 272,806 325,768 308,174
Stockholders' equity:
Common stock, $1,000 par value, 100 shares authorized,
100 shares issued and outstanding.................. 100,000 100,000 100,000
Treasury stock, 10 shares in 1996..................... (150,000) -- --
Additional paid-in capital............................ 948,212 948,212 948,212
Accumulated deficit................................... (375,760) (162,732) (70,886)
----------- ----------- -----------
Total stockholders' equity.................... 522,452 885,480 977,326
----------- ----------- -----------
$11,939,231 $11,529,025 $12,058,694
=========== =========== ===========
</TABLE>
See accompanying notes.
F-36
<PAGE> 135
GRINDSTAFF, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales................. $46,472,309 $50,384,680 $52,375,232 $11,751,278 $11,347,411
Parts and service............. 2,868,328 3,387,955 3,897,284 903,312 1,044,766
Finance, commission and other
revenues, net.............. 1,778,275 1,552,020 1,357,153 467,763 369,787
----------- ----------- ----------- ----------- -----------
51,118,912 55,324,655 57,629,669 13,122,353 12,761,964
Cost of sales:
Vehicle sales................. 43,156,061 46,969,662 47,657,291 10,719,036 10,242,242
Parts and service............. 1,703,042 2,038,175 2,397,025 546,504 643,201
----------- ----------- ----------- ----------- -----------
44,859,103 49,007,837 50,054,316 11,265,540 10,885,443
----------- ----------- ----------- ----------- -----------
Gross profit.................... 6,259,809 6,316,818 7,575,353 1,856,813 1,876,521
Selling, general and
administrative expenses....... 5,390,428 5,864,166 6,972,127 1,591,783 1,652,125
----------- ----------- ----------- ----------- -----------
Income from operations.......... 869,381 452,652 603,226 265,030 224,396
Interest expense................ 306,138 588,510 458,534 137,175 119,028
Interest income................. 137,828 167,456 26,516 -- --
Other income (expense), net..... (18,403) (509,191) 54,544 (8,290) (8,048)
----------- ----------- ----------- ----------- -----------
Income (loss) before income tax
benefit....................... 682,668 (477,593) 225,752 119,565 97,320
Income tax (expense) benefit.... (39,844) 32,347 (12,724) (12,010) (5,474)
----------- ----------- ----------- ----------- -----------
Net income (loss)..... $ 642,824 $ (445,246) $ 213,028 $ 107,555 $ 91,846
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE> 136
GRINDSTAFF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON TREASURY PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY
-------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.............. $100,000 $ -- $948,212 $(573,338) $ 474,874
Net income............................ -- -- -- 642,824 642,824
-------- --------- -------- --------- ---------
Balance at December 31, 1995............ 100,000 -- 948,212 69,486 1,117,698
Repurchase of 10 shares of common
stock.............................. -- (150,000) -- -- (150,000)
Net loss.............................. -- -- -- (445,246) (445,246)
-------- --------- -------- --------- ---------
Balance at December 31, 1996............ 100,000 (150,000) 948,212 (375,760) 522,452
Issuance of 10 shares of common
stock.............................. -- 150,000 -- -- 150,000
Net income............................ -- -- -- 213,028 213,028
-------- --------- -------- --------- ---------
Balance at December 31, 1997............ $100,000 $ -- $948,212 $(162,732) $ 885,480
Net income (unaudited)................ -- -- -- 91,846 91,846
-------- --------- -------- --------- ---------
Balance at March 31, 1998 (unaudited)... $100,000 $ -- $948,212 $ (70,886) $ 977,326
======== ========= ======== ========= =========
</TABLE>
See accompanying notes.
F-38
<PAGE> 137
GRINDSTAFF, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................ $ 642,824 $ (445,246) $ 213,028 $ 107,555 $ 91,846
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation................... 197,428 197,214 228,018 15,367 28,948
Amortization................... 32,654 34,906 33,101 6,560 7,397
Loss (gain) on sale of
machinery and equipment..... 2,236 (5,974) (3,902) -- --
Changes in operating assets and
liabilities:
Accounts receivable, net.... (286,121) 132,181 40,227 (141,756) (222,680)
Inventories................. (4,360,138) 2,159,881 175,363 343,585 (481,968)
Prepaid expenses and other
current assets............ 24,169 (6,002) (22,127) (48,247) 258
Deferred income taxes....... -- (19,458) 12,724 12,010 (4,917)
Receivable from
stockholders.............. -- (140,356) (829,883) (690,623) 505,146
Other assets................ 37,239 (65,229) 53,927 65,559 23,340
Floor plan notes payable.... 5,390,849 (2,783,027) (42,375) (279,548) 589,326
Accounts payable and accrued
liabilities............... 340,123 798,815 (801,739) (356,406) (147,864)
----------- ----------- ----------- --------- -----------
Net cash provided by
(used in) operating
activities........... 2,021,263 (142,295) (943,638) (965,944) 388,832
INVESTING ACTIVITIES
Proceeds on sale of investment... 46,759 -- -- -- --
Purchases of machinery and
equipment...................... (473,252) (144,993) (312,679) (74,077) (15,423)
Proceeds on disposal of machinery
and equipment.................. 36,792 29,297 154,650 37,512 58,930
----------- ----------- ----------- --------- -----------
Net cash used in
investing
activities........... (389,701) (115,696) (158,029) (36,565) 43,507
FINANCING ACTIVITIES
(Purchase) sale of treasury
stock.......................... -- (150,000) 150,000 150,000 --
Principal payments on long-term
debt........................... (124,529) (147,314) (188,834) (37,319) (3,639)
----------- ----------- ----------- --------- -----------
Net cash used in financing
activities..................... (124,529) (297,314) (38,834) 112,681 (3,639)
----------- ----------- ----------- --------- -----------
Change in cash and cash
equivalents.................... 1,507,033 (555,305) (1,140,501) (889,828) 428,700
Cash and cash equivalents at
beginning of the year.......... 481,809 1,988,842 1,433,537 1,433,537 293,036
----------- ----------- ----------- --------- -----------
Cash and cash equivalents at end
of the year.................... $ 1,988,842 $ 1,433,537 $ 293,036 $ 543,709 $ 721,736
=========== =========== =========== ========= ===========
SUPPLEMENTAL CASH FLOW
INFORMATION
Assets acquired under capital
leases......................... $ -- $ 48,961 $ 259,714 $ -- $ --
=========== =========== =========== ========= ===========
Cash paid for interest........... $ 267,698 $ 611,176 $ 465,353 $ 148,619 $ 127,755
=========== =========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-39
<PAGE> 138
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Grindstaff, Inc. (the Company) is principally engaged in the business of
selling and servicing new and used vehicles. The Company operates three
dealerships in Northeast Tennessee: Grindstaff Chevrolet, Grindstaff Kia, and
Grindstaff Chrysler/Plymouth/Dodge/Jeep/Eagle.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks,
contracts in transit pertaining to the sale of vehicles, and all highly liquid
investments with an original maturity of three months or less at the date of
purchase. The Company's cash equivalents include $1,814,646 at December 31, 1996
and $66,624 at December 31, 1997, which it invested with GMAC as collateral
security for the Company's floor plan notes payable under its security agreement
with GMAC. In consideration, the Company receives a reduction in the interest
charged under the security agreement. So long as the Company is not in default
under its security agreement, it may, upon written request, require GMAC to
return all or a portion of the invested balance to it on the next business day
following receipt by GMAC of the request. The Company's management believes that
there is little, if any, credit risk because its investment may not exceed 75%
of the Company's floor plan notes payable to GMAC.
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed.
Finance fees represent revenue earned by the Company for notes placed with
financial institutions in connection with customer vehicle financing. Finance
fees are recognized in income upon acceptance of the credit by the financial
institution. Insurance income represents commissions earned on credit life,
accident and disability insurance sold in connection with a vehicle on behalf of
third-party insurance companies. Insurance and warranty commissions are
recognized in income upon customer acceptance of the contract terms as evidenced
by contract execution. Net revenues related to finance fees and insurance and
warranty commissions are included in other revenues.
The Company is charged back a portion of fees and commissions earned on
finance or insurance contracts if the customer terminates a contract prior to
its scheduled maturity. The estimated allowance for these chargebacks is based
upon the Company's historical experience for prepayments or defaults on the
finance and insurance contracts.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on historical bad debt
experience and management's periodic evaluation of individual accounts.
F-40
<PAGE> 139
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
All inventory is stated at the lower of cost or market. Cost of new and
used vehicles is determined using the last in, first-out (LIFO) method.
MACHINERY AND EQUIPMENT
Machinery and equipment is stated at cost less accumulated depreciation.
Depreciation is provided predominately on the straight-line method over the
estimated useful lives of the assets. The ranges of estimated useful lives are
as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 5 - 10 years
Leasehold improvements...................................... 5 - 40 years
Machinery and shop equipment................................ 5 - 20 years
Rental cars and company vehicles............................ 7 years
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contracts in transit and
accounts receivable. Also, at times, cash deposits in banks exceed the Federal
Deposit Insurance Corporation insurance limit. Contracts in transit are for
funds received shortly after the balance sheet date from contracts financed with
financial institutions. Trade receivables principally result from extending
short-term credit to a large number of customers and other automotive dealers
located in Northeast Tennessee. Finance companies receivables are commissions on
credit contracts of customers. Receivables also result from transactions with
automotive manufacturers. Although the Company is directly affected by the
economic conditions in the automotive industry, financial institutions, banks,
its customers and the general economy of Northeast Tennessee, management does
not believe significant credit risk exists.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the stockholders
are liable for individual income taxes on their respective share of the
Company's taxable income.
The Company accounts for state income taxes under the liability method.
Under the liability method, deferred income taxes are recorded to reflect the
net effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for state income tax
purposes.
MAJOR SUPPLIER
The Company purchases substantially all of its new vehicles and parts
inventory from automobile manufacturers/distributors at the prevailing prices
charged by the manufacturers/distributors to all franchise dealers. The Company
enters into agreements ("Dealer Agreements") with each manufacturer. The Dealer
Agreements generally limit the location of the dealership and include
manufacturer approval rights over changes in dealership management and
ownership. A manufacturer is also entitled to terminate the Dealer Agreement if
the dealership is in material breach of its terms.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was $727,523, $912,853 and $1,139,148 for the years ended December 31,
1995, 1996 and 1997, respectively.
F-41
<PAGE> 140
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company considers the carrying amounts of significant classes of
financial instruments on the balance sheet, including cash and contracts in
transit, notes payable and long-term debt to be reasonable estimates of fair
value. Fair value of the Company's debt was estimated using discounted cash flow
analysis, based on the Company's current incremental borrowing rates for similar
types of arrangements.
STOCK DIVIDEND
On March 3, 1997, the Company effected a 1-for-2 common stock dividend. The
share amounts in the financial statements have been retroactively adjusted for
the stock dividend.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
the three months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Customers................................................... $314,785 $183,938
Factory..................................................... 376,643 473,186
Finance companies........................................... 56,403 46,638
Employees................................................... 44,389 52,967
-------- --------
792,220 756,729
Less allowance for doubtful accounts........................ (3,065) (7,801)
-------- --------
$789,155 $748,928
======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
New vehicles................................................ $7,263,231 $7,494,649
Used vehicles............................................... 2,343,152 1,876,461
Parts, accessories and other................................ 275,064 387,370
---------- ----------
9,881,447 9,758,480
Less LIFO reserve........................................... 1,856,804 1,909,200
---------- ----------
$8,024,643 $7,849,280
========== ==========
</TABLE>
F-42
<PAGE> 141
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. MACHINERY AND EQUIPMENT
A summary of machinery and equipment is as follows as of December 31, 1996
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Leasehold improvements...................................... $ 866,414 $ 870,320
Machinery and shop equipment................................ 524,368 579,699
Furniture and fixtures...................................... 587,496 759,976
Rental cars and company vehicles............................ 317,674 345,411
---------- ----------
2,295,952 2,555,406
Less accumulated depreciation............................... 1,230,729 1,329,657
---------- ----------
$1,065,223 $1,225,749
========== ==========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable consists of notes with financial institutions. The
floor plan notes are secured by certain new and used vehicles. The floor plan
arrangements permit the Company to borrow up to $9,000,000 in 1996 and
$9,505,000 in 1997, restricted by new and used vehicles levels. The notes are
generally due within ten days of the vehicle being sold or after the vehicle has
been in inventory for one year for new vehicles and after three months for used
vehicles. The notes bear interest based on contractual rates, which ranged from
9.00% to 9.75% at December 31, 1997.
6. ACCRUED LIABILITIES AND OTHER
Accrued liabilities and other consist of the following at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Salaries, wages, bonus and vacation......................... $109,393 $258,666
Finance reserve............................................. 40,000 40,000
Accrued taxes............................................... 256,971 208,320
Accrued interest............................................ 66,371 79,563
Other accrued liabilities................................... 82,169 76,543
-------- --------
$554,904 $663,092
======== ========
</TABLE>
7. LONG-TERM DEBT
At December 31, 1996 and 1997 the Company had a note outstanding in the
amount of $285,633 and $187,328, respectively. The note payable to General
Motors Acceptance Corporation is collateralized by all fixed assets, parts and
accessories, and a personal guarantee of a stockholder of the Company. The note
is dated May 25, 1994 with a term of five years payable in monthly installments
of principal and interest. Interest is calculated at prime plus one percent,
9.5% and 10.0% at December 31, 1996 and 1997, respectively. At December 31, 1996
and 1997, $100,000 of the note is classified as current and the remainder is due
during 1999.
F-43
<PAGE> 142
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The current income tax provision represents the amount of state income
taxes paid or payable for the year. The deferred income tax provision represents
the change in deferred tax liabilities and assets. Significant components of the
provisions for income taxes are as follows for the years ended December 31,
1995, 1996 and 1997, respectively:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Current state income tax expense (benefit)............... $ 9,126 $(12,889) $ --
Deferred state income tax expense (benefit).............. 30,718 (19,458) 12,724
------- -------- -------
Total provision for income tax expense
(benefit).................................... $39,844 $(32,347) $12,724
======= ======== =======
</TABLE>
The Company recorded deferred tax assets of $19,458 and $6,734 at December
31, 1996 and 1997, respectively, relating to unutilized net operating loss
carryforwards, which expire through 2011.
The pro forma provision for federal and state income taxes for the years
ended December 31, 1995, 1996 and 1997 would be $255,876, $(184,637) and
$80,503, respectively. The pro forma provision reflects amounts recorded related
to the state tax provision and that would have been recorded had the Company's
income been taxed for federal purposes as if it were a C Corporation.
9. COMMITMENTS AND TRANSACTIONS WITH RELATED PARTIES
The Company is obligated to related parties under certain non-cancelable
leases. These leases, which cover the lease of certain buildings, land and
equipment provide for the following payments:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
1998................................................ $ 63,880 $ 630,000 $ 693,880
1999................................................ 65,741 630,000 695,741
2000................................................ 69,713 630,000 699,713
2001................................................ 74,008 390,000 464,008
2002................................................ 28,978 -- 28,978
-------- ---------- ----------
Total minimum payments.................... $302,320 $2,280,000 $2,582,320
======== ========== ==========
</TABLE>
Interest relating to capital leases is generally prepaid in the first year
of the lease. Total rent expense, all of which was paid to related parties, for
the years ended December 31, 1995, 1996 and 1997 was $541,000, $632,200 and
$687,000, respectively.
The Company is obligated under a non-cancelable operating lease on
buildings and automobile lots, which expires on June 30, 2001. A stockholder of
the Company is the leasor of the property.
During 1996, the Company made a $600,000 payment to terminate a property
lease with a stockholder of the Company. This termination payment was recorded
as other expense during 1996.
For all years presented, the Company paid certain personal expenses of a
stockholder and reflected these payments as a receivable from stockholder. This
receivable is due upon demand, non-interest bearing and unsecured.
10. GOVERNMENTAL REGULATION
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the
F-44
<PAGE> 143
GRINDSTAFF, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. GOVERNMENTAL REGULATION (CONTINUED)
Company expect such compliance to have any material effect upon the capital
expenditures, net income, financial condition or competitive position of the
Company. Management believes that its current practices and procedures for the
control and disposition of such wastes comply with applicable federal and state
requirements.
11. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the stockholders of the Company signed an
agreement to sell the stock of the Company. The agreement is subject to several
conditions, including the manufacturers' approval of change in dealership
management and ownership.
F-45
<PAGE> 144
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Wade Ford, Inc.
3860 South Cobb Drive
Smyrna, GA 30080
We have audited the accompanying combined balance sheets of Wade Ford, Inc.
(an S corporation) and affiliate as of December 31, 1997, 1996 and 1995, and the
related combined statements of income, retained earnings, and cash flows for the
years then ended. These combined financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
The combined financial statements include the financial statements of Wade
Ford, Inc. (an S corporation) and Wade Ford Buford, Inc. (an S corporation),
which are related through common ownership and management.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Wade Ford, Inc. and
affiliate as of December 31, 1997, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Respectfully submitted,
/s/ PYKE & PIERCE, CPA'S
Certified Public Accountants
Atlanta, Georgia
February 9, 1998
F-46
<PAGE> 145
WADE FORD, INC. AND WADE FORD BUFORD, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1997 1996 1995 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 4,661,059 $ 4,634,350 $ 1,953,192 $ 6,001,381
Accounts Receivable -- Trade (Net of Allowance for Doubtful
Accounts of $25,000 in 1997, $25,000 in 1996 and $91,519
in 1995).................................................. 4,088,793 3,656,387 3,518,142 4,420,784
Accounts Receivable -- Employees............................ 24,811 20,969 22,076 13,100
Inventories:
New Vehicles.............................................. 22,582,440 18,198,332 14,651,525 15,274,050
Used Vehicles............................................. 2,725,909 1,971,999 1,433,234 1,554,930
Parts, Accessories and Other.............................. 642,771 670,869 630,097 642,654
Prepaid Expenses............................................ 13,164 19,837 10,381 326,755
Note Receivable -- Stockholders............................. 502,531 484,045 431,592 514,516
----------- ----------- ----------- -----------
Total Current Assets................................ 35,241,478 29,656,788 22,650,239 28,748,170
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Buildings and Improvements.................................. 32,375 32,375 32,375 38,667
Parts and Service Equipment................................. 809,275 712,462 606,532 814,541
Rental Vehicles............................................. -- -- 704,243 --
Office Equipment............................................ 680,640 644,698 551,229 692,008
Leasehold Improvements...................................... 387,591 339,959 244,963 388,328
----------- ----------- ----------- -----------
1,909,881 1,729,494 2,139,342 1,933,544
Accumulated Depreciation.................................... (1,379,236) (1,249,139) (1,228,343) (1,419,406)
----------- ----------- ----------- -----------
Total Property and Equipment........................ 530,645 480,355 910,999 514,138
----------- ----------- ----------- -----------
INTANGIBLES AND OTHER ASSETS:
Deposits.................................................... 2,727 2,727 4,727 2,727
Cash Surrender Value of Life Insurance (Net of Policy
Loans).................................................... 68,426 68,790 68,371 68,527
Goodwill and Organization Expense (Net of Accumulated
Amortization of $65,266 in 1997, $63,154 in 1996 and
$57,154 in 1995).......................................... 24,688 27,160 32,800 24,070
----------- ----------- ----------- -----------
Total Intangibles and Other Assets.................. 95,841 98,677 105,898 95,324
----------- ----------- ----------- -----------
Total Assets........................................ $35,867,964 $30,235,820 $23,667,136 $29,357,632
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor Plan Notes............................................ $30,714,435 $25,523,346 $19,428,485 $24,121,302
Notes Payable -- Rental Vehicles............................ -- -- 588,831 --
Notes Payable -- Officers and Stockholders.................. 980,000 1,300,000 658,004 855,000
Notes Payable -- Other...................................... 12,610 21,877 24,646 9,458
Accounts Payable............................................ 426,478 310,453 303,029 219,481
Accrued Payroll Taxes and Sales Taxes....................... 111,685 101,370 115,089 363,960
Accrued Wages............................................... 264,715 142,441 94,841 267,437
Accrued Interest............................................ 281,859 207,772 193,472 221,937
Accrued Taxes, Other than Income Tax........................ 105,361 50,743 55,927 22,907
Other Accrued Expenses...................................... 466,971 444,300 285,337 394,085
----------- ----------- ----------- -----------
Total Current Liabilities........................... 33,364,114 28,102,302 21,747,661 26,475,567
LONG-TERM LIABILITIES:
Notes Payable -- Officers and Stockholders.................. -- -- 690,000 --
Notes Payable -- Other...................................... 52,814 61,027 69,327 50,544
----------- ----------- ----------- -----------
Total Long-Term Liabilities......................... 52,814 61,027 759,327 50,544
----------- ----------- ----------- -----------
Total Liabilities................................... 33,416,928 28,163,329 22,506,988 26,526,111
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock................................................ 178,788 178,788 178,788 178,788
Additional Paid-In Capital.................................. 99,500 99,500 99,500 99,500
Retained Earnings........................................... 2,172,748 1,794,203 881,860 2,553,233
----------- ----------- ----------- -----------
Total Stockholders' Equity.......................... 2,451,036 2,072,491 1,160,148 2,831,521
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity.......... $35,867,964 $30,235,820 $23,667,136 $29,357,632
=========== =========== =========== ===========
</TABLE>
See accompanying notes and Independent Auditor's Report.
F-47
<PAGE> 146
WADE FORD, INC. AND WADE FORD BUFORD, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ -------------------------
1997 1996 1995 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales........................ $165,341,767 $143,593,721 $116,539,754 $41,696,309 $39,976,624
Cost of sales................ 152,680,182 131,462,052 106,586,885 38,512,208 37,056,971
------------ ------------ ------------ ----------- -----------
Gross profit................. 12,661,585 12,131,669 9,952,869 3,184,101 2,919,653
Selling, general and
administrative expense..... 10,467,214 11,261,008 9,503,822 2,636,869 2,580,529
------------ ------------ ------------ ----------- -----------
Income from operations....... 2,194,371 870,661 449,047 547,232 339,124
Floor plan interest.......... 157,354 290,813 155,948 64,211 93,692
Interest income.............. 162,322 81,802 35,970 42,385 127,816
Other income................. 95,405 252,046 229,703 11,984 7,237
------------ ------------ ------------ ----------- -----------
Net income......... 2,294,744 913,696 558,772 537,390 380,485
Retained
earnings -- Beginning...... 1,794,203 881,860 562,443 1,794,203 2,172,748
Less: Current Year
Distributions........... (1,916,199) (1,353) (239,355) -- --
------------ ------------ ------------ ----------- -----------
Retained earnings --Ending... $ 2,172,748 $ 1,794,203 $ 881,860 $ 2,331,593 $ 2,553,233
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes and Independent Auditor's Report.
F-48
<PAGE> 147
WADE FORD, INC. AND WADE FORD BUFORD, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1996 1995 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................ $ 2,294,744 $ 913,696 $ 558,772 $ 537,390 $ 380,485
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization........... 143,419 141,847 229,400 17,591 21,150
Loss on Sale of Property and
Equipment............................. 465 39,578 -- --
Change in LIFO Reserve.................. 72,080 328,080 744,610 -- --
Cash Value of Officer's Life
Insurance............................. 364 (419) 865 -- (101)
(Increase) Decrease In:
Accounts Receivable................... (424,263) (161,123) (381,180) (452,647) (320,280)
Inventories........................... (5,182,000) (4,454,424) (3,418,097) 4,869,825 8,479,486
Prepaid Expenses...................... 6,673 (9,456) (10,381) (120,920) (313,591)
Notes Receivable...................... (30,471) (28,468) (290,257) 11,985 (11,985)
Deposits.............................. -- 2,000 (2,000) -- --
Increase (Decrease) In:
Floor Plan Notes...................... 5,191,089 5,506,030 189,576 (3,471,541) (6,593,133)
Accounts Payable and Accrued
Expenses............................ 399,990 209,384 107,535 6,596 (167,262)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES........... 2,472,090 2,447,147 (2,231,579) 1,398,279 1,474,769
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment........ (185,232) (294,395) (766,946) (20,715) (6,207)
Proceeds From Sale of Property and
Equipment............................... -- 588,831 3,349,764 19,110 2,182
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES........... (185,232) 294,436 2,582,818 (1,605) (4,025)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from Stockholder.................... 530,000 -- -- -- --
Repayment of Loans from Stockholders...... (1,050,000) -- (50,000) (1,314,302) (128,152)
Proceeds from Long-Term Borrowings........ 705,000 336,524 1,036,080 16,638 --
Repayment on Long-Term Borrowings......... (528,950) (395,596) (792,583) -- (2,270)
Distribution to Owners.................... (1,916,199) (1,353) (239,355) -- --
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES........... (2,260,149) (60,425) (45,858) (1,297,664) (130,422)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH........................... 26,709 2,681,158 305,381 99,010 1,340,322
CASH AT BEGINNING OF YEAR................. 4,634,350 1,953,192 1,647,811 4,634,350 4,661,059
----------- ----------- ----------- ----------- -----------
CASH AT END OF YEAR....................... $ 4,661,059 $ 4,634,350 $ 1,953,192 $ 4,733,360 $ 6,001,381
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID............................. $ 2,580,002 $ 2,326,346 $ 2,016,521 $ 597,674 $ 761,101
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes and Independent Auditor's Report.
F-49
<PAGE> 148
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Wade Ford, Inc., located in Smyrna, Georgia, (Smyrna) is an authorized Ford
dealership. Wade Ford Buford, Inc., (Buford) located in Buford, Georgia, is an
authorized Ford-Mercury dealership. The dealerships provide retail and fleet
sales of new and used vehicles, parts and service. The Companies' principal
market areas are the Metropolitan Atlanta area and Northeast Georgia. A major
component of the Buford business is dealer financing of used car sales, also
known as "Tote-Note" sales. Dealer finance receivables are secured by
automobiles sold. Most contracts have payment terms in the 12 to 24 month range.
Because the loans are made principally in the Northeast Georgia and Metropolitan
Atlanta area, the ultimate ability to collect amounts due may be affected by
local economic fluctuations.
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED AND ORGANIZATIONAL
EXPENSES
The excess of cost over the net assets of businesses acquired at original
purchase in 1982 (Smyrna) is being amortized on a straight-line basis over a
25-year period. Organizational expenses of Buford are being amortized on the
straight-line method over a five year period. The Organizational expenses
(Buford) became fully amortized in 1996. Amortization expense charged to
operations for 1997, 1996 and 1995 was $2,470, $2,470 and $5,638, respectively.
INVENTORIES
All inventories are valued at the lower of cost or market. The cost of new
and used vehicles and parts is determined using the last-in, first-out method
(LIFO). If the first-in, first-out (FIFO) method had been used to determine the
cost of new and used vehicles and parts, the inventories would have been
increased by approximately $3,601,316 at December 31, 1997, $3,407,171 at
December 31, 1996 and $2,807,787 at December 31, 1995. Also, the Companies would
have reported net income of approximately $1,590,323 for 1997, $1,885,162 for
1996 and $1,727,511 for 1995.
INCOME TAXES
The Companies have elected to be treated as S Corporations for Federal and
State income tax purposes. Under this election, items of profit and loss are
passed through to the shareholders. Accordingly, the financial statements do not
reflect any provision for income tax expense.
The pro forma provision for income taxes for the years ended December 31,
1997, 1996 and 1995 would be $863,941, $336,872 and $191,771, respectively. The
pro forma provision reflects amounts that would have been recorded had the
Companies' income been taxed for federal and state purposes as if they were C
Corporations.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred, and renewals and betterments are capitalized.
Gains or losses on disposals are credited or charged to operations. Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets acquired prior to January 1, 1981 and straight-line and accelerated
methods, for assets acquired subsequent to December 31, 1980. Depreciation and
amortization expense for 1997, 1996 and 1995 was $143,419, $141,847 and $229,400
respectively.
F-50
<PAGE> 149
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, contracts in transit
pertaining to the sale of vehicles, all highly liquid investments with an
original maturity of three months or less at the date of purchase, and the Cash
Management Account (See Note 9).
PRINCIPLES OF COMBINATION
The accompanying combined financial statements present the combination of
the financial statements of Wade Ford, Inc. and the financial statements of Wade
Ford Buford, Inc., both of which are under common control.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
the three months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
2. CASH SURRENDER VALUE
The Smyrna dealership is the beneficiary of insurance policies on the life
of a former stockholder and previous owner of Wade Ford, Inc. At December 31,
1997, 1996 and 1995, notes payable to the insurance companies in the amounts of
$42,940, respectively, were collateralized by the cash value of the policies
which is $68,426 for 1997, $68,790 for 1996 and $68,371 for 1995.
3. FLOOR PLAN NOTES -- FORD MOTOR CREDIT CORPORATION
The Companies' floor plan notes payable to Ford Motor Credit Co. are floor
plan loans bearing interest at 1% over the floating prime commercial lending
rate. Principal payments are made as each unit of the new and used vehicle
inventory is sold. Interest is payable monthly. The notes are collateralized by
the new and used vehicle inventory.
Notes payable to Ford Motor Credit Co. -- Rental vehicles are floor plan
loans bearing interest at 2 3/4% over the commercial paper rate based on the
date the vehicle is put into rental service. Principal payments are made monthly
at a rate of 1.75% of the capitalized cost of the rental truck and 2 1/4% for
rental car. When a vehicle is taken out of rental service, any remaining
principal balance is then due.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Note payable to irrevocable trust of a former
stockholder. Interest is 1% above floating prime and
payable monthly. Note is unsecured.................. $ -- $ -- $580,000
</TABLE>
F-51
<PAGE> 150
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
4. LONG-TERM DEBT (CONTINUED)
Note Payable to estate of a former stockholder.
Interest is 1% above floating prime and payable
monthly. Principal due November 15, 1997................ $ -- $ 110,000 $110,000
Notes Payable for cash value of life insurance.
Interest is payable at 5 percent........................ 42,940 42,940 42,940
Installment notes payable, payable in variable monthly
installments of principal plus interest, interest
from 7.5% to 9%, due between 1994 and 1998, secured
by Rotunda equipment.................................... 22,484 39,965 42,437
-------- --------- --------
65,424 192,905 775,377
Less Current Maturities................................... (12,610) (131,878) (16,050)
-------- --------- --------
TOTAL LONG-TERM DEBT............................ $ 52,814 $ 61,027 $759,327
======== ========= ========
</TABLE>
As of December 31, 1997, long-term debt matures approximately as follows:
<TABLE>
<S> <C>
1998........................................................ $12,610
1999........................................................ 47,730
2000........................................................ 3,813
2001........................................................ 1,271
2002........................................................ --
-------
$65,424
=======
</TABLE>
5. LEASE COMMITMENTS
The Companies rent their facilities under operating leases. Smyrna rents a
portion of its facility from an officer/shareholder. Buford leases its
facilities from an officer/shareholder. While the agreements provide for minimum
lease payments, the leases also provide that the Company pay the taxes,
insurance, and maintenance expenses related to the leased property. Buford's
lease as of December 31, 1997, is being continued on a month-to-month basis.
Smyrna's lease is noncancellable through the end of its term.
The following is a schedule by years of future minimum lease payments
required under the Companies' operating leases:
<TABLE>
<S> <C>
1998........................................................ $ 420,000
1999........................................................ 423,000
2000........................................................ 432,000
2001........................................................ 435,000
2002........................................................ 444,000
2003 and thereafter......................................... 2,166,000
</TABLE>
Total rent expense for 1997, 1996 and 1995 was $659,471, $658,543 and
$651,828, respectively.
F-52
<PAGE> 151
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE COMMITMENTS (CONTINUED)
The Companies also lease their computer system and have other equipment
leases. These leases are treated as operating leases. Future minimum lease
payments required under the above written lease agreements are:
<TABLE>
<S> <C>
1998........................................................ $84,775
1999........................................................ 83,777
2000........................................................ 83,777
2001........................................................ 15,795
2002........................................................ --
</TABLE>
6. ARRANGEMENTS FOR RENTAL TO OTHERS
The Smyrna location rents cars and trucks to others under agreements with
varying terms, primarily daily, weekly or monthly, with renewal options. The
agreements are cancelable by either party. The Company holds title to the cars
and finances the arrangements by blanket-type rent payments consisting of
principal, interest and insurance. Interest is payable at 3/4 percent over
floating prime at date of rental. Ford Motor Company is the lien holder on the
vehicles. The dealership discontinued this program during 1996 and had no
vehicles at December 31, 1997 or 1996.
The following is an analysis of the book value of the rental cars at
December 31, 1995:
<TABLE>
<S> <C>
Cost........................................................ $704,243
Less Accumulated Depreciation............................... 115,412
--------
$588,831
========
</TABLE>
7. PROFIT SHARING PLAN
The Companies have profit-sharing plans that cover any employee with 12
months of service. Enrollment, when eligible, is January 1 or July 1 of each
year. Contributions to the plans are based on a formula and are contingent upon
the attainment of certain level of earnings as defined in the agreements. During
1997, 1996 and 1995, contributions to the plans charged to operations were
$55,841, $51,662 and $39,958, respectively.
8. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Accounts Receivable Stockholders............................ $ 38,015 $ 50,000 $ 26,015
Notes Receivable from Stockholders $85,000 demand note with
interest at 8.5%; $50,000 demand note with interest at 7%;
$204,741 demand note with interest at 8%; $22,749 demand
note with interest at 8%; (includes accrued interest of
$98,670, $68,849 and $39,396 in 1997, 1996, and 1995,
respectively)............................................. 464,516 434,045 405,577
-------- -------- --------
$502,531 $484,045 $431,592
======== ======== ========
</TABLE>
The Companies borrow from stockholders and their related entities varying
amounts at 1% above floating prime. These notes are generally unsecured and
payable on demand or in periods of two years or less.
Interest paid on the aforementioned notes payable during 1997, 1996 and
1995 was $50,129, $122,590 and $63,188, respectively.
F-53
<PAGE> 152
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Companies to
concentrations of credit risk consist principally of customer accounts
receivables. Concentrations of credit risk with respect to customer receivables
are limited due to the large number of customers comprising the Companies'
customer base and their dispersion across the Metropolitan Atlanta area and
Northeast Georgia. As of December 31, 1997, 1996 and 1995, the companies had no
significant concentrations of credit risk arising from these customer accounts
receivable.
The Companies maintain their cash balances with two financial institutions
located in Atlanta, Georgia. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000 per dealership at each financial
institution location. At December 31, 1997, 1996 and 1995, the Companies'
uninsured cash balances totaled $747,899, $1,055,457 and $961,156, respectively.
The Companies have on deposit with Ford Motor Credit -- $2,480,000 in Cash
Management Accounts (CMA), as of December 31, 1997. These monies are used to
reduce Ford Motor Credit's balance of the Companies' floor plan notes. These
monies are uninsured.
Balance of CMA at December 31, 1996 -- $2,950,000.
Balance of CMA at December 31, 1995 -- $1,730,000.
10. INTERNAL REVENUE SERVICE EXAMINATION
In 1995, the Internal Revenue Service began an examination of the
Companies' tax returns for the year ended December 31, 1993. In their report,
dated August 30, 1995, the Internal Revenue Service terminated the Companies'
use of the Last-In, First-Out (LIFO) inventory method. This LIFO termination has
been rescinded by the Service and the Companies have agreed to come under the
provisions of Revenue Procedure 97-44. Under this procedure the Companies can
continue to use LIFO but the stockholders were required to pay a penalty to the
Internal Revenue Service.
11. POTENTIAL SALE
Subsequent to December 31, 1997, the stockholders of the Companies signed
an agreement to sell the stock of the Companies. The agreement is subject to
several conditions, including the manufacturers' approval of change in the
dealerships' management and ownership.
12. MAJOR SUPPLIER
The Companies purchase substantially all of its new vehicles and parts
inventory from Ford Motor Co. at the prevailing prices charged by Ford to all
franchise dealers. The Companies enter into agreements ("Dealer Agreements")
with Ford. The Dealer Agreements generally limit the location of the dealership
and include Ford's approval rights over changes in dealership management and
ownership. Ford is also entitled to terminate the Dealer Agreements if the
dealerships are in material breach of their terms.
13. ADVERTISING
The Companies expense the cost of advertising as incurred. Advertising
expense was $595,629, $832,622 and $695,695 for the years ended December 31,
1997, 1996 and 1995, respectively.
14. GOVERNMENTAL REGULATION
Substantially all of the Companies facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the
F-54
<PAGE> 153
WADE FORD, INC. AND WADE FORD BUFORD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
14. GOVERNMENTAL REGULATION (CONTINUED)
Companies expect such compliance to have any material effect upon the capital
expenditures, net income, financial condition or competitive position of the
Companies. Management believes that its current practices and procedures of the
control and disposition of such wastes comply with applicable federal and state
requirements.
15. LAWSUIT
Wade Ford, Inc. is a defendant in a lawsuit filed by a customer for alleged
fraudulent misrepresentation. The suit asks for damages totaling $128,000.
Outside counsel from the Company has advised that at this stage in the
proceedings, they cannot offer an opinion as to the probable outcome. Outside
counsel did state that the Company's liability insurance policy does not provide
coverage for damages assessed for fraud.
16. COMMON STOCK
A summary of common stock follows:
<TABLE>
<CAPTION>
WADE
WADE FORD
FORD, INC. BUFORD COMBINED
---------- ------- --------
<S> <C> <C> <C>
Total Value.............................................. $ 1,000 177,788 $178,788
======= ======= ========
Stated value per share................................... $ 1.00 No par
value
Authorized shares........................................ 10,000 500,000
Shares issued and outstanding............................ 1,000 12,800
</TABLE>
F-55
<PAGE> 154
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Robertson Oldsmobile-Cadillac, Inc. d/b/a
Moss Robertson Mazda and
Moss Robertson Isuzu
We have audited the accompanying balance sheets of Robertson
Oldsmobile-Cadillac, Inc. d/b/a Moss Robertson Mazda and Moss Robertson Isuzu as
of December 31, 1996 and 1997, and the related statements of income and changes
in retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Robertson
Oldsmobile-Cadillac, Inc. d/b/a Moss Robertson Mazda and Moss Robertson Isuzu at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 26, 1998
F-56
<PAGE> 155
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $2,554,818 $2,168,413 $2,100,295
Accounts receivable...................................... 355,968 258,276 377,162
Inventories.............................................. 2,341,805 2,766,897 2,996,592
Prepaid expenses and other current assets................ 23,114 41,879 44,922
---------- ---------- ----------
Total current assets............................. 5,275,705 5,235,465 5,518,971
Machinery and equipment, net............................... 60,770 46,228 46,252
Intangible assets, net..................................... 117,592 108,122 105,755
---------- ---------- ----------
$5,454,067 $5,389,815 $5,670,978
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Floor plan notes payable................................. $1,921,823 $2,391,254 $2,612,872
Accounts payable......................................... 537,806 290,511 303,046
Accrued liabilities...................................... 45,402 54,072 104,842
Current maturities of long-term debt..................... 7,663 -- --
---------- ---------- ----------
Total current liabilities........................ 2,512,694 2,735,837 3,020,760
Stockholder's equity:
Common stock, $5 par value:
2,000 shares authorized, 1,000 shares issued and
outstanding......................................... 5,000 5,000 5,000
Additional paid in capital............................... 144,500 144,500 144,500
Retained earnings........................................ 2,791,873 2,504,478 2,500,718
---------- ---------- ----------
Total stockholder's equity....................... 2,941,373 2,653,978 2,650,218
---------- ---------- ----------
$5,454,067 $5,389,815 $5,670,978
========== ========== ==========
</TABLE>
See accompanying notes.
F-57
<PAGE> 156
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1996 1997 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales............................... $18,781,757 $20,258,720 $4,061,881 $4,910,948
Parts and service........................... 2,499,903 2,778,577 654,458 651,971
Finance, commission and other revenues,
net...................................... 216,387 387,204 84,195 67,993
----------- ----------- ---------- ----------
21,498,047 23,424,501 4,800,534 5,630,912
Cost of sales:
Vehicle Sales............................... 17,213,988 18,912,247 3,783,784 4,514,911
Parts and service........................... 1,233,144 1,537,189 360,277 356,020
----------- ----------- ---------- ----------
18,447,132 20,449,436 4,144,061 4,870,931
----------- ----------- ---------- ----------
Gross profit.................................. 3,050,915 2,975,065 656,473 759,981
Selling, general and administrative
expenses.................................... 2,195,664 1,956,762 471,564 500,157
----------- ----------- ---------- ----------
Income from operations........................ 855,251 1,018,303 184,909 259,824
Interest expense.............................. 45,365 66,811 15,240 22,345
Interest income............................... 152,541 174,892 40,052 34,890
Other (expense) income, net................... 2,987 (4,779) (2,484) (5,630)
----------- ----------- ---------- ----------
Net income.......................... 965,414 1,121,605 207,237 266,739
Dividends paid................................ (411,930) (1,409,000) (299,999) (270,499)
Retained earnings at beginning of year........ 2,238,389 2,791,873 2,791,873 2,504,478
----------- ----------- ---------- ----------
Retained earnings at end of year.............. $ 2,791,873 $ 2,504,478 $2,699,111 $2,500,718
=========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-58
<PAGE> 157
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 965,414 $1,121,605 $ 207,237 $ 266,739
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation............................... 50,862 45,027 6,359 3,881
Amortization............................... 9,470 9,470 2,368 2,367
Gain (loss) on sale of machinery and
equipment................................ 4,282 (771) -- --
Changes in assets and liabilities:
Accounts receivable...................... (83,622) 97,692 22,190 (118,886)
Prepaid expenses and other current
assets................................ (3,431) (18,765) (21,752) (3,043)
Inventories.............................. (190,283) (425,092) (479,293) (229,695)
Floor plan notes payable................. 307,442 469,431 507,895 221,618
Accounts payable......................... 206,763 (247,295) (267,762) 12,535
Accrued liabilities...................... (34,023) 8,670 59,757 50,770
---------- ---------- ---------- ----------
Net cash provided by operating
activities.......................... 1,232,874 1,059,972 36,999 206,286
INVESTING ACTIVITIES
Purchases of machinery and equipment............ (48,541) (30,813) (4,356) (3,905)
Proceeds on disposal of machinery and
equipment..................................... -- 1,099 -- --
---------- ---------- ---------- ----------
Net cash used in investing
activities.......................... (48,541) (29,714) (4,356) (3,905)
FINANCING ACTIVITIES
Principal payments on long-term debt............ (17,956) (7,663) (4,707) --
Dividends paid.................................. (411,930) (1,409,000) (299,999) (270,499)
Loans (to) from stockholder, net................ (337,661) -- -- --
Payments of stockholder loans, net.............. 337,661 -- -- --
---------- ---------- ---------- ----------
Net cash used in financing
activities.......................... (429,886) (1,416,663) (304,706) (270,499)
---------- ---------- ---------- ----------
Change in cash and cash equivalents............. 754,447 (386,405) (272,063) (68,118)
Cash and cash equivalents at beginning of the
year.......................................... 1,800,371 2,554,818 2,554,818 2,168,413
---------- ---------- ---------- ----------
Cash and cash equivalents at end of the year.... $2,554,818 $2,168,413 $2,282,755 $2,100,295
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-59
<PAGE> 158
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Robertson Oldsmobile-Cadillac, Inc. d/b/a Moss Robertson Mazda and Moss
Robertson Isuzu (the Company) is principally engaged in the business of selling
and servicing new and used vehicles. The Company operates 4 dealerships in
Gainesville, Georgia consisting of Oldsmobile, Cadillac, Mazda, and Isuzu.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, deposits in banks,
contracts in transit pertaining to the sale of vehicles, and all highly liquid
investments with an original maturity of three months or less at the date of
purchase. The Company's cash equivalents include $1,664,144 at December 31, 1996
and $1,764,144 at December 31, 1997, which it invested with GMAC as collateral
security for the Company's floor plan notes payable under its security agreement
with GMAC. In consideration, the Company receives a reduction in the interest
charged under the security agreement. So long as the Company is not in default
under its security agreement, it may, upon written request, require GMAC to
return all or a portion of the invested balance to it on the next business day
following receipt by GMAC of the request. The Company's management believes that
there is little, if any, credit risk because its investment may not exceed 75%
of the Company's floor plan notes payable to GMAC.
INVENTORIES
All inventory is stated at the lower of cost or market. Cost of new
vehicles and certain parts and accessories is determined using the last-in,
first-out (LIFO) method. Cost of used vehicles and other parts and accessories
is determined using the first-in, first-out (FIFO) method.
MACHINERY AND EQUIPMENT
Machinery and equipment is stated at cost less accumulated depreciation.
Depreciation is provided predominately using accelerated methods over the
estimated useful lives of the assets ranging from 3 to 7 years.
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed.
Finance fees represent revenue earned by the Company for notes placed with
financial institutions in connection with customer vehicle financing. Finance
fees are recognized in income upon acceptance of the credit by the financial
institution. Insurance income represents commissions earned on credit life,
accident and disability insurance sold in connection with a vehicle on behalf of
third-party insurance companies. Insurance commissions are recognized in income
upon customer acceptance of the insurance terms as evidenced by contract
execution. Net revenues related to finance fees and insurance commissions are
included in other
F-60
<PAGE> 159
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenues. The Company is charged back a portion of fees and commissions earned
on finance or insurance contracts if the customer terminates a contract prior to
its scheduled maturity.
INTANGIBLES
Intangibles consists of goodwill that represents the excess of cost over
assigned fair market value of a dealership acquired and is being amortized on a
straight-line basis over its estimated useful life, not exceeding 40 years.
Accumulated amortization was $24,464 and $33,934 at December 31, 1996 and 1997,
respectively. The carrying amount of the intangible is reviewed if facts and
circumstances suggest that it may be impaired. If this review indicates that the
asset will not be recoverable, as determined based on the estimated undiscounted
cash flows of the entity acquired over the remaining amortization period, the
carrying amount of the asset is reduced by the estimated shortfall of discounted
cash flows.
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal or state corporate income taxes. Instead, the stockholders are liable
for individual federal and state income taxes on their respective shares of the
Company's taxable income.
The pro forma provision for federal and state income taxes for the years
ended December 31, 1996 and 1997 would be $367,408 and $428,301, respectively.
The pro forma provision reflects amounts that would have been recorded had the
Company's income been taxed for state and federal purposes as if it were a C
Corporation.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contracts in transit and
accounts receivable. Also, at times, cash deposits in banks exceed the Federal
Deposit Insurance Corporation insurance limit. Contracts in transit are for
funds received shortly after balance sheet date from contracts financed with
financial institutions. Trade receivables principally result from extending
short-term credit to a large number of customers and other automotive dealers
located in the North Georgia area. Finance companies receivables are commissions
on credit contracts of customers. Receivables also result from transactions with
automotive manufacturers. Although the Company is directly affected by the
economic conditions in the automotive industry, financial institutions, banks,
its customers and the general economy of the Gainesville, Georgia area,
management does not believe significant credit risk exists.
MAJOR SUPPLIER
The Company purchases substantially all of its new vehicles and parts
inventory from automobile manufacturers/distributors at the prevailing prices
charged by the manufacturers/distributors to all franchise dealers. The Company
enters into agreements ("Dealer Agreements") with each manufacturer. The Dealer
Agreements generally limit the location of the dealership and include
manufacturer approval rights over changes in dealership management and
ownership. A manufacturer is also entitled to terminate the Dealer Agreement if
the dealership is in material breach of its terms.
F-61
<PAGE> 160
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was $122,509 and $82,276 for the years ended December 31, 1996 and 1997,
respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of significant classes of
financial instruments on the balance sheet, including cash and contracts in
transit, floor plan notes payable and long-term debt to be reasonable estimates
of fair value. Fair value of the Company's debt was estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of arrangements.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
the three months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Customers................................................... $ 77,610 $ 42,974
Vehicle receivables......................................... 119,152 35,766
Factory..................................................... 147,141 156,182
Finance companies........................................... 6,010 17,232
Employees and shareholder................................... 6,055 6,122
-------- --------
$355,968 $258,276
======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
New vehicles................................................ $1,944,514 $2,587,395
Used vehicles............................................... 676,534 494,600
Parts, accessories and other................................ 144,813 123,856
---------- ----------
2,765,861 3,205,851
Less LIFO reserve........................................... (424,056) (438,954)
---------- ----------
$2,341,805 $2,766,897
========== ==========
</TABLE>
F-62
<PAGE> 161
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. MACHINERY AND EQUIPMENT
A summary of machinery and equipment is as follows as of December 31, 1996
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Machinery and shop equipment................................ $261,726 $259,818
Furniture and fixtures...................................... 250,106 268,765
Parts and accessories equipment............................. 27,972 32,525
Company vehicle............................................. 14,048 14,048
-------- --------
553,852 575,156
Less accumulated depreciation............................... 493,082 528,928
-------- --------
$ 60,770 $ 46,228
======== ========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable consist of a note payable with a financial
institution. Floor plan notes payable are secured by certain new and used
vehicles. The floor plan arrangement permits the Company to borrow up to
$6,475,000, restricted by new and used vehicle levels. The notes are generally
due within ten days of the vehicle being sold or after the vehicle has been in
inventory for one year for new vehicles and after three months for used
vehicles.
The notes bear interest based on contractual rates which ranged from
approximately 8.5% to 8.25% at December 31, 1996 and 1997. During 1996 and 1997,
total cash paid for interest on floor plan notes payable and long-term debt was
$44,057 and $66,674, respectively. Interest expense related to floor plan notes
payable was reduced by manufacturer floor plan allowances and credits of
$155,437 and $193,925 for 1996 and 1997, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Accrued payroll............................................. $43,841 $51,131
Accrued taxes............................................... 1,250 2,502
Other accrued liabilities................................... 311 439
------- -------
$45,402 $54,072
======= =======
</TABLE>
7. LONG-TERM DEBT
A summary of long-term debt as of December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
<S> <C> <C>
Note payable; bearing interest at 7.5%, payable monthly,
balance paid in full June 1997............................ $7,663 $ --
Less current maturities of long-term debt................... 7,663 --
------ -------
$ -- $ --
====== =======
</TABLE>
F-63
<PAGE> 162
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND TRANSACTIONS WITH RELATED PARTIES
The Company is obligated to stockholder of the Company under certain
non-cancelable leases. The Company has an option to renew this lease for an
additional five year period with rent renegotiated at that time but in no event
for less than rent payable at March 31, 2005. These leases, which cover the
lease of certain buildings, land and equipment provide for the following
payments:
<TABLE>
<S> <C>
1998........................................................ $ 180,000
1999........................................................ 180,000
2000........................................................ 202,500
2001........................................................ 210,000
2002........................................................ 210,000
Thereafter.................................................. 472,500
----------
Total minimum payments...................................... $1,455,000
==========
</TABLE>
Total rent expense for leases with related parties for the years ended
December 31, 1996 and 1997 was $149,600 and $180,000, respectively.
The Company is a guarantor of a mortgage secured by the leased property
referred to above. At December 31, 1996 and 1997, the unpaid balance of the
mortgage amounted to $976,561 and $932,448, respectively. Until full payment and
performance of all obligations of the borrower under the loan, borrower and
guarantor must maintain certain financial ratios and covenants. Failure to do so
would result in a default under the terms of the mortgage loan agreement. It is
not practical to estimate the fair value of the above guarantee, however, the
Company does not expect to incur any significant losses as a result of this
guarantee.
During 1996, the stockholder of the Company borrowed $480,661 from the
Company and repaid it, including interest. In addition, the Company borrowed
$143,000 from the stockholder during 1996, which was also repaid including
interest.
9. GOVERNMENTAL REGULATION
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have any material effect upon the capital expenditures, net
income, financial condition or competitive position of the Company. Management
believes that its current practices and procedures for the control and
disposition of such wastes comply with applicable federal and state
requirements.
10. EMPLOYEE BENEFIT PLAN
The Company has an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full time employees
that have been employed by the Company for one year and work at least 1,000
hours annually. Generally, employees can defer from 2% to 15% of their
compensation and the Company can make matching contributions of a designated
percentage at the Company's discretion. The amount charged against income for
the Company's contributions to the plan for the years ended December 31, 1996
and 1997 was $16,105 and $15,248, respectively.
F-64
<PAGE> 163
ROBERTSON OLDSMOBILE-CADILLAC, INC. D/B/A
MOSS ROBERTSON MAZDA AND
MOSS ROBERTSON ISUZU
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the stockholder of the Company signed an
agreement to sell the stock of the Company. The agreement is subject to several
conditions, including the manufacturers' approval of change in dealership
management and ownership.
F-65
<PAGE> 164
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Day's Chevrolet, Inc.
We have audited the accompanying balance sheets of Day's Chevrolet, Inc. as
of December 31, 1996 and 1997, and the related statements of income and changes
in retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Day's Chevrolet, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1998
F-66
<PAGE> 165
DAY'S CHEVROLET, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 917,181 $ 1,287,204 $ 1,447,609
Accounts receivable................................... 707,353 849,913 835,636
Inventories........................................... 8,095,756 8,113,893 7,787,102
Prepaid expenses and other current assets............. 8,935 5,862 4,763
----------- ----------- -----------
Total current assets.......................... 9,729,225 10,256,872 10,075,110
Property and equipment, net............................. 2,224,636 249,898 271,784
Other assets............................................ 116,715 104,699 322,611
----------- ----------- -----------
$12,070,576 $10,611,469 $10,669,505
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable.............................. $ 7,864,591 $ 9,102,706 $ 8,975,041
Note payable.......................................... 273,295 -- --
Accrued liabilities................................... 199,455 310,644 265,068
Accounts payable...................................... 482,918 333,965 229,553
----------- ----------- -----------
Total current liabilities..................... 8,820,259 9,747,315 9,469,662
Stockholders' equity:
Class A voting common stock, $1 par value, 500,000
shares authorized, 110,000 shares issued and
outstanding........................................ 110,000 110,000 110,000
Additional paid-in capital............................ 32,344 32,344 32,344
Retained earnings..................................... 3,107,973 721,810 1,057,499
----------- ----------- -----------
Total stockholders' equity.................... 3,250,317 864,154 1,199,843
----------- ----------- -----------
$12,070,576 $10,611,469 $10,669,505
=========== =========== ===========
</TABLE>
See accompanying notes.
F-67
<PAGE> 166
DAY'S CHEVROLET, INC.
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales............................. $48,996,779 $50,587,196 $12,422,737 $11,856,249
Parts and service......................... 9,525,159 9,339,883 2,218,446 2,348,378
Finance, commission and other revenues,
net.................................... 997,917 855,957 208,783 254,756
----------- ----------- ----------- -----------
59,519,855 60,783,036 14,849,966 14,459,383
Cost of sales:..............................
Vehicle sales............................. 46,165,607 48,091,556 11,782,331 11,258,605
Parts and service......................... 6,580,364 6,453,453 1,559,829 1,594,034
----------- ----------- ----------- -----------
52,745,971 54,545,009 13,342,160 12,852,639
----------- ----------- ----------- -----------
Gross profit................................ 6,773,884 6,238,027 1,507,806 1,606,744
Selling, general and administrative
expenses.................................. 5,076,021 5,178,182 1,235,273 1,258,291
----------- ----------- ----------- -----------
Income from operations...................... 1,697,863 1,059,845 272,533 348,453
Interest expense............................ 124,764 101,739 35,621 19,952
Interest income............................. 1,888 2,311 578 610
Other income (expense), net................. 7,365 5,812 552 6,578
----------- ----------- ----------- -----------
Net income........................ 1,582,352 966,229 238,042 335,689
Distributions to stockholders............... (989,245) (3,352,392) -- --
Retained earnings at beginning of year...... 2,514,866 3,107,973 3,107,973 721,810
----------- ----------- ----------- -----------
Retained earnings at end of year............ $ 3,107,973 $ 721,810 $ 3,346,015 $ 1,057,499
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-68
<PAGE> 167
DAY'S CHEVROLET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 1,582,352 $ 966,229 $ 238,042 $ 335,689
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 242,590 194,795 31,812 30,039
Gain on disposal of property and
equipment.............................. (1,008) -- -- --
Changes in assets and liabilities:
Accounts receivable.................... (31,583) (142,560) (1,196) 14,277
Inventories............................ (752,170) (18,137) 2,304,166 326,791
Prepaid expenses and other current
assets............................... 854 3,073 (558,598) 1,099
Other assets........................... 10,171 12,016 (644,490) (217,912)
Floor plan notes payable............... 414,653 1,238,115 (2,022,604) (127,665)
Accounts payable and accrued
liabilities.......................... 27,158 (37,764) (27,119) (149,988)
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities............ 1,493,017 2,215,767 (679,987) 212,330
INVESTING ACTIVITIES
Purchases of property and equipment......... (332,027) (52,611) (8,630) (51,925)
Proceeds on disposal of property and
equipment................................. 188,290 31,483 16,868 --
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (143,737) (21,128) 8,238 (51,925)
FINANCING ACTIVITIES
Principal payments on note payable.......... (252,288) (273,295) 336,944 --
Dividends paid.............................. (989,245) (1,551,321) -- --
----------- ----------- ----------- -----------
Net cash used in financing
activities...................... (1,241,533) (1,824,616) 336,944 --
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................... 107,747 370,023 (334,805) 160,405
Cash and cash equivalents at beginning of
the year.................................. 809,434 917,181 917,181 1,287,204
----------- ----------- ----------- -----------
Cash and cash equivalents at end of the
year...................................... $ 917,181 $ 1,287,204 $ 582,376 $ 1,447,609
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-69
<PAGE> 168
DAY'S CHEVROLET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Day's Chevrolet, Inc. (the Company) is principally engaged in the business
of selling and servicing new and used vehicles. The Company operates a Chevrolet
dealership in Acworth, Georgia.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, contracts in transit
pertaining to the sale of vehicles, and all highly liquid investments with an
original maturity of three months or less at the date of purchase.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is based on historical bad debt
experience and management's periodic evaluation of individual accounts.
INVENTORIES
All inventory is stated at the lower of cost or market. Cost of new
vehicles and certain parts and accessories is determined using the last-in,
first-out (LIFO) method. Cost of used vehicles and other parts and accessories
is determined using the first-in, first-out (FIFO) method.
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed. The Company generates ancillary revenues from its vehicle sales
operation. Such revenues include finance fees, insurance fees, and warranty
contract commissions.
Finance fees represent revenue earned by the Company for notes placed with
financial institutions in connection with customer vehicle financing. Finance
fees are recognized in income upon acceptance of the credit by the financial
institution. Insurance income represents commissions earned on credit life,
accident and disability insurance sold in connection with a vehicle on behalf of
third-party insurance companies. Insurance and warranty commissions are
recognized in income upon customer acceptance of the contract terms as evidenced
by contract execution. Net revenues related to finance fees and insurance and
warranty commissions are included in other revenues.
The Company is charged back a portion of fees and commissions earned on
finance or insurance contracts if the customer terminates a contract prior to
its scheduled maturity. The estimated allowance for these chargebacks is based
upon the Company's historical experience for prepayments or defaults on the
finance and insurance contracts.
F-70
<PAGE> 169
DAY'S CHEVROLET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided predominately on the straight-line method over the
estimated useful lives of the assets. The ranges of estimated useful lives are
as follows:
<TABLE>
<S> <C>
Buildings................................................... 15-20 years
Furniture and fixtures...................................... 5-7 years
Leasehold improvements...................................... 5-18 years
Machinery and shop equipment................................ 5-12 years
Rental cars................................................. 3 years
</TABLE>
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal or state corporate income taxes. Instead, the stockholders are liable
for individual federal and state income taxes on their respective shares of the
Company's taxable income.
The pro forma provision for federal and state income taxes for the years
ended December 31, 1996 and 1997 would be $608,227 and $640,359, respectively.
The pro forma provision reflects amounts that would have been recorded had the
Company's income been taxed for state and federal purposes as if it were a C
Corporation.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of contracts in transit and
accounts receivable. Also, at times, cash deposits in banks exceed the Federal
Deposit Insurance Corporation insurance limit. Contracts in transit are for
funds received shortly after the balance sheet date from contracts financed with
financial institutions. Trade receivables principally result from extending
short-term credit to a large number of customers and other automotive dealers
located in the metropolitan Atlanta, Georgia area. Finance companies receivables
are commissions on credit contracts of customers. Receivables also result from
transactions with automotive manufacturers. Although the Company is directly
affected by the economic conditions in the automotive industry, financial
institutions, banks, its customers and the general economy of the metropolitan
Atlanta, Georgia area, management does not believe significant credit risk
exists.
MAJOR SUPPLIER
The Company purchases substantially all of its new vehicles and parts
inventory from automobile manufacturers/distributors at the prevailing prices
charged by the manufacturers/distributors to all franchise dealers. The Company
entered into an agreement ("Dealer Agreement") with the manufacturer. The Dealer
Agreement generally limits the location of the dealership and includes
manufacturer approval rights over changes in dealership management and
ownership. The manufacturer is also entitled to terminate the Dealer Agreement
if the dealership is in material breach of its terms.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expense was $379,209 and $393,487 for the years ended December 31, 1996 and
1997, respectively.
F-71
<PAGE> 170
DAY'S CHEVROLET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of significant classes of
financial instruments on the balance sheet, including cash and contracts in
transit and note payable to be reasonable estimates of fair value. Fair value of
the Company's debt was estimated using discounted cash flow analysis, based on
the Company's current incremental borrowing rates for similar types of
arrangements.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements as of March 31, 1998 and
the three months ended March 31, 1997 and 1998 have been prepared on
substantially the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial information set forth therein.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Customers................................................... $494,572 $547,203
Factory..................................................... 173,143 234,851
Finance companies........................................... 38,348 65,407
Employees................................................... 1,290 2,452
-------- --------
$707,353 $849,913
======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
New vehicles................................................ $6,443,653 $7,297,211
Used vehicles............................................... 2,484,732 2,000,929
Parts, accessories and other................................ 645,131 608,065
---------- ----------
9,573,516 9,906,205
Less LIFO reserve........................................... 1,477,760 1,792,312
---------- ----------
$8,095,756 $8,113,893
========== ==========
</TABLE>
F-72
<PAGE> 171
DAY'S CHEVROLET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
During 1997, the Company made a distribution of land and buildings to the
stockholders. This is described further in Note 8. A summary of plant and
equipment is as follows as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Land........................................................ $ 496,906 $ --
Buildings................................................... 1,948,790 --
Machinery and shop equipment................................ 434,448 437,768
Furniture and fixtures...................................... 297,914 306,321
Rental cars and company vehicles............................ 410,944 414,515
---------- ----------
3,589,002 1,158,604
Less accumulated depreciation............................... 1,364,366 908,706
---------- ----------
$2,224,636 $ 249,898
========== ==========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable consist of a note payable with a financial
institution. Floor plan notes payable are secured by certain new and used
vehicles. The floor plan arrangement permits the Company to borrow up to
$11,000,000 for 1996 and 1997, restricted by new and used vehicle levels. The
notes are generally due within ten days of the vehicle being sold or after the
vehicle has been in inventory for one year for new vehicles and after three
months for used vehicles.
The notes bear interest based on contractual rates which were 9.25% and
9.5% at December 31, 1996 and 1997, respectively. During 1996 and 1997, total
cash paid for interest on floor plan notes payable and note payable was $124,764
and $101,739, respectively.
6. NOTE PAYABLE
The Company's note payable to GMAC, bearing interest at 9.25%, payable
monthly, was paid in full in December 1997.
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Salaries, wages, bonus and vacation......................... $ -- $ 150
Finance reserve............................................. 50,000 50,000
Other accrued liabilities................................... 149,455 260,494
-------- --------
$199,455 $310,644
======== ========
</TABLE>
8. COMMITMENTS AND TRANSACTIONS WITH RELATED PARTIES
The Company declared a dividend of its land and buildings which was
transferred to the stockholder, effective September 1, 1997. In addition, the
Company leased certain land and buildings from the stockholders, effective
September 1, 1997. The lease, which is cancelable by either the Company or the
F-73
<PAGE> 172
DAY'S CHEVROLET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
stockholders at any time prior to its expiration in February 1999, requires
monthly payments of $21,667. At December 31, 1997, the Company owed the
stockholders $86,667 for rent relating to this lease.
9. GOVERNMENTAL REGULATION
Substantially all of the Company's facilities are subject to federal, state
and local provisions regulating the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have any material effect upon the capital expenditures, net
income, financial condition or competitive position of the Company. Management
believes that its current practices and procedures of the control and
disposition of such wastes comply with applicable federal and state
requirements.
10. EMPLOYEE BENEFIT PLAN
The Company has an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full time employees.
The Company matches the employees' contributions of up to four percent of
compensation at the rate of $0.25 per $1.00. The Company's contributions
generally vest over 6 years. The amount charged against income for the Company's
contributions to the plan for the years ended December 31, 1996 and 1997 was
$3,646 and $4,749, respectively.
11. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the stockholders of the Company signed an
agreement to sell the stock of the Company. The agreement is subject to several
conditions, including the manufacturers' approval of change in dealership
management and ownership.
F-74
<PAGE> 173
INDEPENDENT AUDITORS' REPORT
To the Stockholder
South Financial Corporation
Gainesville, Florida
We have audited the accompanying balance sheets of South Financial
Corporation as of December 31, 1997 and 1996, and the related statements of
operations and retained earnings, and cash flows for the years ended December
31, 1997, 1996 and 1995. These financial statements are the responsibility of
South Financial Corporation's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of South Financial Corporation
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years ended December 31, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.
/s/ DAVIS, MONK & COMPANY
Gainesville, Florida
February 12, 1998
F-75
<PAGE> 174
SOUTH FINANCIAL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Finance receivables, net.................................... $12,846,772 $17,141,343
Cash........................................................ 64,076 4,184
Other receivables........................................... 38,131 45,089
Due from affiliated companies............................... -- 350,000
Repossessions in liquidation................................ 309,587 --
Property and equipment, net................................. 225,980 286,816
Deposits.................................................... 19,991 22,101
Prepaid expenses............................................ -- 10,022
----------- -----------
Total assets...................................... $13,504,537 $17,859,555
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Contractual obligations payable to dealers on finance
contracts.............................................. $ 726,678 $ 3,919,205
Senior debt............................................... 11,461,888 11,647,230
Subordinated debt......................................... 294,872 967,430
Accounts payable and accrued expenses..................... 93,769 16,771
Deferred tax liability, net............................... 266,486 405,746
----------- -----------
Total liabilities................................. 12,843,693 16,956,382
Stockholder's Equity:
Common stock, $.05 par value per share, 10,000 shares
authorized, 1 share issued and outstanding............. 1 1
Additional paid-in capital................................ 654 654
Retained earnings......................................... 660,189 902,518
----------- -----------
Total stockholder's equity........................ 660,844 903,173
----------- -----------
Total liabilities and stockholder's equity........ $13,504,537 $17,859,555
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 175
SOUTH FINANCIAL CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Interest, fees and loan discount income.................. $4,631,852 $5,447,343 $3,165,858
Insurance commissions.................................... 110,814 275,749 21,430
---------- ---------- ----------
Total revenues................................... 4,742,666 5,723,092 3,187,288
Expenses and losses:
Interest expense......................................... 1,420,125 1,416,083 978,003
Salaries and personnel costs............................. 2,063,241 2,091,580 1,192,368
Dealer incentives........................................ -- 8,830 13,397
Loss on asset disposals.................................. 20,151 -- --
Depreciation............................................. 67,004 58,042 28,702
Other operating expenses................................. 758,618 882,507 545,071
Provision for credit losses.............................. 795,116 525,281 --
---------- ---------- ----------
Total expenses and losses........................ 5,124,255 4,982,323 2,757,541
---------- ---------- ----------
Income (loss) before income taxes.......................... (381,589) 740,769 429,747
Income tax benefit (expense)............................... 139,260 (306,949) (150,548)
---------- ---------- ----------
Net income (loss)................................ (242,329) 433,820 279,199
Retained earnings, beginning of year, as previously
reported................................................. 902,518 468,698 103,738
Prior period adjustment.................................... -- -- 85,761
---------- ---------- ----------
Retained earnings, beginning of year, as restated.......... 902,518 468,698 189,499
---------- ---------- ----------
Retained earnings, end of year............................. $ 660,189 $ 902,518 $ 468,698
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 176
SOUTH FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ (242,329) $ 433,820 $ 279,199
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for credit losses........................ 795,116 525,281 --
Loss on asset disposal............................. 20,151 -- --
Depreciation....................................... 67,004 58,042 28,702
Deferred taxes..................................... (139,260) 204,159 (75,521)
Changes in:
Unearned income................................. (1,080,484) 1,112,404 --
Other receivables and assets.................... 19,090 (40,998) (308,923)
Due from affiliated companies................... -- 64,861 63,356
Contractual obligations payable to dealers...... (1,301,293) (1,221,267) 1,703,128
Due to affiliated companies..................... -- 39,535 --
Accounts payable and accrued expenses........... 76,998 (20,413) 13,031
Income taxes.................................... -- -- 205,751
------------ ------------ ------------
Net cash provided by (used in) operating
activities............................... (1,785,007) 1,155,424 1,908,723
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance contracts originated......................... (9,305,267) (12,231,702) (16,288,429)
Principal payments received on finance contracts..... 11,684,385 7,502,004 8,896,552
Advances to affiliated companies..................... -- -- (894,747)
Payments received from affiliated companies.......... -- -- 656,412
Acquisition of property and equipment................ (26,319) (128,778) (188,861)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................... 2,352,799 (4,858,476) (7,819,073)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments to investors................................ (139,853) (49,810) (118,651)
Advances from investors.............................. -- 37,926 768,482
Net borrowings from (payments to) lending
institutions....................................... (185,342) 3,484,006 5,288,223
Net advances from stockholder........................ -- 170,441 58,491
Net payments to stockholder.......................... (182,705) -- (41,331)
------------ ------------ ------------
Net cash provided by (used in) financing
activities............................... (507,900) 3,642,563 5,955,214
------------ ------------ ------------
Net increase (decrease) in cash............ 59,892 (60,489) 44,864
Cash, beginning of year.............................. 4,184 64,673 19,809
------------ ------------ ------------
Cash, end of year.................................... $ 64,076 $ 4,184 $ 64,673
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (none capitalized)........................ $ 1,420,125 $ 1,416,083 $ 992,341
============ ============ ============
Income taxes....................................... $ -- $ 40,510 $ 20,500
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 177
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
South Financial Corporation (SFC) is a finance company licensed by the
State of Florida as a sales finance company. It has one stockholder, Mr. Thomas
Murphy (the Stockholder). In January, 1998, the Stockholder sold 100% of his
interest in SFC to Boomershine, Inc. of Atlanta, Georgia.
The primary business conducted by SFC is to purchase from retail automobile
dealers (dealers) sales contracts of substandard credit arising from the sale of
used automobiles. At December 31, 1997, dealers are located in Florida (62%),
North Carolina (21%) and Tennessee (17%). Beginning in 1997, the receivables are
purchased without recourse. However, prior to 1997, some receivables were
purchased with recourse. Such contracts are obtained after advancing the dealer
25% to 75% of the principal amount financed on installment sales contracts. As
collateral for each receivable purchased, SFC obtains a security interest in the
vehicle. In the event of default, SFC has the right to take possession of the
vehicle. At that time, SFC has the right to resell the vehicle at a public or
private sale. Contract terms average approximately 35 months and do not exceed
48 months.
FINANCE RECEIVABLES
Finance receivables are carried at the sales contract's unpaid balance
including finance charges. Deferred loan costs are added to the receivable
balance. Deferred finance income, deferred commissions on credit life, deferred
origination fees and purchase discounts are deducted from the balance of finance
receivables. Any discounts on contracts acquired by SFC for less than the face
value are amortized to income over the period of the payments to be received
using the interest method.
When contracts are purchased, the allowance for loan losses is increased by
a portion of the purchase discount. The allowance is decreased by the amount of
chargeoffs, net of recoveries on repossessed collateral. Management records a
charge to income when the allowance is not considered sufficient to cover
estimated losses in the portfolio. Management's periodic estimates of the
adequacy of the allowance are based on past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral
and current economic conditions. It is reasonably possible that these estimates
could be revised due to changes in the related circumstances.
For approximately 30% of the portfolio at December 31, 1997, SFC has
agreements with the automobile dealers that contain terms to hold the dealer
responsible for all defaults on related installment contracts. When management
believes that collectibility of these loans is unlikely, losses are first
charged against any obligation payable to dealers.
CASH
Cash consists solely of bank deposits which are fully insured by the
Federal Deposit Insurance Corporation.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment is recorded at cost. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method.
REPOSSESSIONS IN LIQUIDATION
Repossessions in liquidation are carried at the vehicle's fair value minus
estimated costs to sell. They represent contracts that have been charged off and
where SFC is proceeding to repossess the vehicle. SFC
F-79
<PAGE> 178
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimates the carrying value of repossessions based on historical averages of
the number of vehicles that can be repossessed and the net amount that can be
recovered.
CONTRACTUAL OBLIGATIONS PAYABLE TO DEALERS
In addition to advancing to dealers from 25% to 75% of principal amounts
financed, prior to 1997, SFC entered into arrangements with dealers whereby
reserves are established to protect SFC from potential losses associated with
financing of sales finance contracts. As part of SFC's agreement with the
dealers, a portion of the proceeds of finance contracts is retained by SFC and
is available to SFC to offset any losses on specific accounts.
LOAN ORIGINATION FEES AND INSURANCE COMMISSIONS
Fees received and direct costs incurred for the origination of loans as
well as insurance commissions on credit life policies are deferred and amortized
to interest income over the contractual lives of the loans using the interest
method. Insurance commissions on warranty policies are deferred and amortized
over the life of the insurance policy (6 months). Unamortized fee and commission
income amounts are recognized in income at the time the loans are sold or paid
in full.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of deferred taxes related primarily to
differences between the basis of finance receivables for financial and income
tax reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses that are available to offset
future taxable income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires SFC to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could vary from the estimates that were used.
F-80
<PAGE> 179
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. FINANCE RECEIVABLES
The following schedule displays contractual annual maturities of retail
automobile contracts, including interest, and a reconciliation of total
contracts receivable to net finance receivables reported on the balance sheets.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Due Within:
One year.................................................. $10,660,721 $11,111,293
Two years................................................. 7,135,926 7,412,544
Three years............................................... 2,662,948 3,885,017
Four years................................................ 146,003 575,862
----------- -----------
Total............................................. 20,605,598 22,984,716
Unearned finance income................................... (4,769,768) (5,739,915)
Unearned insurance commissions............................ (80,632) (103,458)
Unearned discount income.................................. (959,529) --
Deferred loan origination costs........................... 87,511 --
----------- -----------
Amortized cost of contracts financed...................... 14,883,180 17,141,343
Allowance for doubtful accounts........................... (2,036,408) --
----------- -----------
Finance receivables, net.................................. $12,846,772 $17,141,343
=========== ===========
</TABLE>
Because a certain portion of contracts receivable will be repaid before or
extended after the contractual maturity dates or charged back to dealers, the
annual maturities stated are not to be regarded as a forecast of future cash
collections. At December 31, 1997, 1996 and 1995, accrued interest income of
$370,246, $321,616 and $112,844, respectively, was included in the finance
receivable balance. Approximately 3,940, 4,100 and 3,500 contracts were being
serviced by SFC at December 31, 1997, 1996 and 1995, respectively.
Contracts deemed uncollectible by management are first charged back to
balances owed by SFC to dealers, if any. Any excess of uncollectible amounts
over amounts due to dealers is charged to the provision for credit losses. The
amount of contracts written off in 1997, 1996 and 1995, net of recoveries, was
$7,285,753, $10,165,878 and $4,832,587, respectively. This amount approximated
16.8% and 21% of the gross value of contracts (principal and interest) owned and
originated in 1997 and 1996, respectively. SFC incurred credit losses of
$795,116 in 1997 and $525,281 in 1996 as a result of the above mentioned charge
backs.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS 1997 1996
---------------- --------- ---------
<S> <C> <C> <C>
Furniture and fixtures........................ 5-7 $ 137,569 $ 178,445
Leasehold improvements........................ 7 149,970 140,672
Computer equipment............................ 5 69,782 69,781
--------- ---------
357,321 388,898
Less: Accumulated depreciation................ (131,341) (102,082)
--------- ---------
Property and Equipment, net......... $ 225,980 $ 286,816
========= =========
</TABLE>
F-81
<PAGE> 180
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. SENIOR DEBT
Senior debt is comprised of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Secured revolving note payable to General Electric Capital
Corporation (G. E. Capital)............................... $11,461,888 $11,647,230
=========== ===========
</TABLE>
The G.E. Capital revolving credit note is secured by finance contracts
assigned to G.E. Capital as well as all other assets of SFC. All contract
collections are remitted directly to G.E. Capital and applied towards the
outstanding loan balance. Under the loan and security agreement, SFC may borrow
up to $15,000,000 by obtaining advances of 90% on SFC's net investment in all
eligible finance contracts. The loan, which is guaranteed by the stockholder,
matures September 18, 1998, with provision for automatic annual renewals unless
terminated by either party. The loan bears interest at the LIBOR rate plus 5.1%
and 5.6%, which resulted in a rate of 10.81% and 10.997% at December 31, 1997
and 1996, respectively.
Primarily due to reserve adjustments made at year end December 31, 1997,
SFC was unable to meet certain financial ratio covenants and was in violation of
its credit agreement with G.E. Capital. Provisions of the credit agreement state
that in event of default, G. E. Capital has the option to make all notes and
loans due and owing immediately and to seize control of all assets to liquidate
these obligations. In a letter dated February 25, 1998, G. E. Capital has waived
compliance with the following covenants effective for the period from December
31, 1997 through June 1, 1998:
Debt ratio not to exceed 4.3 to 1
Interest coverage of at least 1.5 to 1
Management plans to receive additional capital contributions from its parent
company and expects that interest coverage will be adequate due to improved
operations.
5. SUBORDINATED DEBT
The following obligations have no stated maturities. Payment of principal
is postponed and subordinated to all payment obligations of SFC under the G. E.
Capital loan.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable to Investors Equity Corporation................ $291,122 $353,514
Note payable to HW Investments.............................. -- 350,000
Due to stockholder.......................................... 3,750 186,455
Due to South Funding Corporation............................ -- 39,535
Note payable to Ed Tillman Auto Sales on Cassat, Inc........ -- 37,926
-------- --------
Total subordinated debt........................... $294,872 $967,430
======== ========
</TABLE>
The note payable to Investors Equity Corporation is unsecured and is owed
to an entity in which the Stockholder also owns a 50% interest. The note bears
interest at 18% (27.2%), payable monthly, as of December 31, 1997 (1996).
The note payable to HW Investments is unsecured and is used to
collateralize future borrowing through SFC for the benefit of South Financial
Floorplan, Corp., a related party. The note bears interest at 15% annually. This
note payable was repaid during 1997.
SFC leases Corporate office space from the Stockholder. Total rent expense
paid under these leases for 1997, 1996 and 1995 was $27,000, $31,500 and
$29,729, respectively. Other transactions, combined with those
F-82
<PAGE> 181
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SUBORDINATED DEBT (CONTINUED)
related to rent expense, result in $3,750 and $186,455 due to the Stockholder at
December 31, 1997 and 1996, respectively.
South Funding Corporation is owned by an officer of SFC. The above amount
due to South Funding Corporation was advanced to SFC on a short-term basis and
was repaid in 1997.
Ed Tillman Auto Sales on Cassat, Inc. (Tillman) and SFC entered into an
agreement whereby Tillman would sell SFC certain receivables with full recourse.
SFC is entitled, under the terms of the agreement, to 9.5% of the gross
principal balance of the installment payments collected. In addition, SFC may
advance Tillman up to $500,000 to the extent of any outstanding dealer reserves.
This note payable was repaid during 1997.
6. INCOME TAXES
The following reconciliation displays the relationship between income
(loss) before income taxes and operating tax income (loss).
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes................ $ (381,589) $ 740,769 $ 429,747
Permanent differences............................ 10,231 11,485 8,748
Temporary differences............................ (812,697) (1,430,443) (349,373)
----------- ----------- ---------
Operating tax income (loss)...................... $(1,184,055) $ (678,189) $ 89,122
=========== =========== =========
</TABLE>
The operating tax loss may be offset against future taxable income. If not
used, the carryforward will expire in the year 2012.
The temporary differences consist primarily of losses recognized on
individual finance contracts which are permitted as deductions from taxable
income. Other differences include the deferral amounts associated with
non-refundable loan origination fees and commissions received on credit life
policies over the life of the contract in accordance with generally accepted
accounting principles.
The net deferred tax liability is comprised of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax liability...................................... $ 959,374 $ 654,613
Deferred tax asset.......................................... (692,888) (248,867)
--------- ---------
Deferred tax liability, net....................... $ 266,486 $ 405,746
========= =========
</TABLE>
Measurement of the provision for income taxes is based on the statutory
rate of 34% for federal taxes and approximately 5.5% for state taxes.
F-83
<PAGE> 182
SOUTH FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. TRANSACTIONS WITH RELATED PARTIES
The following schedule displays transactions with related parties during
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
SOUTH
SOUTH FINANCIAL
SUPER STAFF, FINANCIAL FLOORPLAN,
EQUILEASE INC. SERVICES INC. TOTAL
--------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Due from related parties,
December 31, 1995........... $ -- $ -- $ -- $ 414,861 $ 414,861
Advances...................... 23,292 1,817,821 28,587 30,525 1,900,225
Payments and other reductions
in amounts due.............. (23,292) (1,817,821) (28,587) (95,386) (1,965,086)
-------- ----------- -------- --------- -----------
Due from related parties,
December 31, 1996........... -- -- -- 350,000 350,000
Obligations accrued........... -- (1,852,767) -- -- (1,852,767)
Cash payments (receipts)...... -- 1,762,999 -- (350,000) 1,412,999
-------- ----------- -------- --------- -----------
Due to related parties,
December 31, 1997........... $ -- $ (89,768) $ -- $ -- $ (89,768)
======== =========== ======== ========= ===========
</TABLE>
SFC leases certain computer equipment from Equilease, another company
wholly-owned by the Stockholder.
SFC leases all its employees, except for the Stockholder, from Super Staff,
Inc., another company wholly-owned by the Stockholder. The amount due to Super
Staff, Inc. is included in Accounts payable and accrued expenses.
Included in transactions with South Financial Services is $24,375 for rent
of SFC's branch office in Gainesville, Florida.
South Financial Floorplan, Inc. finances floorplans for automobile dealers.
8. OPERATING LEASES
Certain office space is rented under operating leases. Certain leases
include options for renewal. Total rent expense for 1997, 1996 and 1995, was
$143,450, $147,131 and $118,598, respectively. Future minimum lease payments
under operating leases with an initial or remaining noncancelable term in excess
of one year at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 97,428
1999........................................................ 78,373
2000........................................................ 67,013
2001........................................................ 55,434
2002........................................................ 55,434
--------
Total............................................. $353,682
========
</TABLE>
9. PRIOR PERIOD ADJUSTMENT
Retained earnings at the beginning of 1995 has been restated by $85,761.
SFC has corrected its method of computing interest income under the interest
(actuarial) method. The correction increased interest revenue for the years
prior to 1995 by $136,780, net of Federal and State taxes of $51,019.
F-84
<PAGE> 183
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, OR AN OFFER TO,
OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER, OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
The Merger............................ 20
The Acquisitions...................... 21
Use of Proceeds....................... 23
Dividend Policy....................... 24
Capitalization........................ 25
Dilution.............................. 26
Selected Financial Data............... 27
Pro Forma Combined and Condensed
Financial Data...................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 64
Management............................ 80
Principal Shareholders................ 88
Certain Transactions.................. 89
Description of Capital Stock.......... 90
Shares Eligible for Future Sale....... 94
Underwriting.......................... 95
Legal Matters......................... 96
Experts............................... 96
Additional Information................ 97
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
5,500,000 SHARES
SUNBELT
AUTOMOTIVE
GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES &
ASSOCIATES, INC.
, 1998
======================================================
<PAGE> 184
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate (except for the SEC, NASD and
Nasdaq fees) of the fees and expenses, all of which will be borne by the
Registrant, in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions.
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
SEC Registration Fee........................................ $20,525
NASD Filing Fee............................................. $ 7,457
Legal fees and expenses..................................... $ *
Nasdaq National Market Listing Fee.......................... $63,725
Accounting fees and expenses................................ $ *
Blue Sky fees and expenses.................................. $ *
Printing expenses........................................... $ *
Transfer Agent Fees......................................... $ *
Miscellaneous............................................... $ *
-------
Total............................................. $
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Articles of Incorporation of the Registrant provide that the Registrant
shall indemnify any person to the extent prescribed by the Georgia Business
Corporation Code (the "GBCC").
Section 14-2-851 of the GBCC authorizes, inter alia, a corporation to
indemnify any person ("Indemnitee") who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was an officer or director of such corporation or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
he acted in good faith and in a manner he reasonably believed to be in (in the
case of conduct in his official capacity) or not opposed to (in all other
instances) the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 14-2-851 further provides that a corporation may not
indemnify a director (1) in connection with a proceeding by or in the right of
the corporation, except for reasonable expenses incurred in connection with the
proceeding if it is determined that the director has met the relevant standard
of conduct under the GBCC; or (2) in connection with any proceeding with respect
to conduct for which he or she was adjudged liable on the basis that personal
benefit was improperly received by him or her, whether or not involving action
in his or her official capacity. In addition to the indemnifications set forth
above, Section 14-2-857 of the GBCC states that a corporation may also indemnify
and advance expenses to an officer, employee or agent of the corporation who is
a party to a proceeding because he or she is an officer, employee or agent of
the corporation to the extent as may be provided by the articles of
incorporation, the bylaws, a resolution of the board of directors, or contract
except for liability arising out of conduct that constitutes: (1) appropriation,
in violation of his or her duties, of any business opportunity of the
corporation; (2) acts or omissions which involve intentional misconduct or a
knowing violation of law; (3) liability for unlawful distribution; or (4)
receipt of an improper personal benefit. Where an officer or director is
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
II-1
<PAGE> 185
actually and reasonably incurred in connection therewith. Section 14-7-855 of
the GBCC provides that any indemnification shall be made by the corporation only
as authorized in each specific case upon a determination by the (i)
shareholders, (ii) Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding or by a
majority of the members of a committee of two or more disinterested directors
appointed by vote, or (iii) special legal counsel if a quorum of disinterested
directors so directs or, if there are fewer than two disinterested directors,
selected by the Board of Directors. Section 14-2-859 of the GBCC provides that
indemnification pursuant to its provision is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise.
Section 14-2-858 of the GBCC also empowers the Company to purchase and
maintain insurance on behalf of any person who is or was an officer, director,
employee or agent of the Company against liability asserted against or incurred
by him in any such capacity, whether or not the Company would have the power to
indemnify such officer or director against such liability under the provisions
of Part 5 of Article 8 of the GBCC. The Company intends to purchase and maintain
a directors' and officers' liability policy for such purposes.
In accordance with Section 14-2-202 of the GBCC, the Articles of
Incorporation of the Registrant set forth a provision which eliminates the
personal liability of directors to the Registrant or its shareholders for
monetary damages for any action taken, or any failure to take any action, as a
director, provided, however, that no provision eliminates or limits the
liability of a director; (1) for any appropriation, in violation of his duties,
of any business opportunity of the corporation; (2) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (3) for liability
in connection with unlawful distributions; or (4) for any transaction from which
the director received an improper personal benefit; provided that no such
provision shall eliminate or limit the liability of a director for any act or
omission occurring prior to the date when such provision becomes effective.
Reference is made to Section of the Underwriting Agreement (Exhibit
1. ) which provides for indemnification by the Underwriter of the Registrant,
its officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information, as of the closing date of this
Offering, regarding all sales of unregistered securities of the Registrant
during the past three years. All such shares were issued in reliance upon an
exemption or exemptions from registration under the Securities Act by reason of
Section 4(2) of the Securities Act or Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving a public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. In connection with each of these transactions, the securities
were sold to a limited number of persons, such persons were provided access to
all relevant information regarding the Registrant and/or represented to the
Registrant that they were "sophisticated" investors, and such persons
represented to the Registrant that the shares were purchased for investment
purposes only and with no view toward distribution.
- As of December 18, 1997, as part of the original organization of the
Company, the Registrant issued to each of Walter M. Boomershine, Jr.,
Charles K. Yancey and Stephen C. Whicker 2,000 shares each of common
stock of the Company in exchange for $1,000 in cash from each such
shareholder.
- In connection with the Merger, the Registrant will to issue up to an
aggregate of 4,251,139 shares of its common stock to the current
shareholders of Boomershine Automotive.
- In connection with the Collision Centers USA Acquisition, the Registrant
issued to James E. L. Peters stock options to purchase 5,000 shares of
the Registrant's common stock.
- The Registrant will issue the following shares of its common stock to the
following persons in connection with the Acquisitions: (i) 363,636 shares
to the shareholders of the Wade Ford Acquisition in exchange for all of
their interest in Wade Ford, Inc. and Wade Ford Buford, Inc., which sale
occurred as of November 21, 1997; (ii) 525,000 shares to the shareholders
of Day's Chevrolet in
II-2
<PAGE> 186
exchange for all of their interest in Day's Chevrolet, Inc., which sale
occurred as of March 3, 1998; and (iii) 36,364 shares to E. Moss
Robertson, Jr. in exchange for all of his interest in Robertson
Oldsmobile-Cadillac, Inc., which sale occurred as of March 1, 1998.
- On January 8, 1998, the Registrant issued to three of its officers,
pursuant to the Registrant's Incentive Stock Plan, options to purchase
425,000 shares of the Registrant's common stock in the aggregate.
- On March 13, 1998, the Registrant issued warrants to purchase 50,000
shares of the Registrant's common stock to a consulting firm that has
rendered financial and accounting services to the Registrant in
connection with this Offering.
- On April 22, 1998, the Registrant issued to four of its executive
officers, pursuant to the Registrant's Incentive Stock Plan, options to
purchase 850,000 shares of the Registrant's common stock in the
aggregate.
- On April 22, 1998, the Registrant issued to three of its officers,
pursuant to employment agreements with each of those officers, 249,202
shares of the Registrant's common stock in the aggregate. Such securities
are subject to a risk of forfeiture in the event such officers'
employment with the Company is terminated.
- On the effective date of this Offering, the Registrant will issue to six
of its executive officers and employees, pursuant to the Registrant's
Incentive Stock Plan, options to purchase 317,000 shares of the
Registrant's common stock in the aggregate.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
2.1* -- Stock Purchase Agreement among Boomershine Automotive Group,
Inc., Sunbelt Automotive Group, Inc., BAG Georgia III, Inc.,
Jay Automotive Group, Inc. and the shareholders of Jay
Automotive Group, Inc., dated January 5, 1998, as amended on
March 23, 1998, and as assigned on March 31, 1998.
2.2 -- Agreement and Plan of Merger and Reorganization among
Boomershine Automotive Group, Inc., BAG Georgia I, Inc., BAG
Georgia II, Inc., Wade Ford, Inc., Wade Ford Buford, Inc.
and the shareholders of Wade Ford, Inc. and Wade Ford
Buford, Inc., dated November 21, 1997, as amended on January
19, 1998, as further amended on March 31, 1998, and as
further amended on April 28, 1998.
2.3 -- Stock Purchase Agreement among Sunbelt Automotive Group,
Inc., Boomershine Automotive Group, Inc., Robertson
Oldsmobile-Cadillac, Inc. and the shareholders of Robertson
Oldsmobile-Cadillac, Inc., dated March 1, 1998.
2.4 -- Agreement and Plan of Merger and Reorganization among
Sunbelt Automotive Group, Inc., BAG Georgia IV, Inc., Day's
Chevrolet, Inc. and the shareholders of Day's Chevrolet,
Inc., dated March 3, 1998.
2.5* -- Stock Purchase Agreement among Sunbelt Automotive Group,
Inc., BAG Tennessee II, Inc., Grindstaff, Inc. and the
shareholders of Grindstaff, Inc., dated December 27, 1997,
as amended on February 24, 1998.
2.6* -- Asset Purchase Agreement among Boomershine Automotive Group,
Inc., BAG North Carolina I, Inc., Hones, Inc. and the
shareholders of Hones, Inc., dated December 11, 1997, as
assigned on January 8, 1998, as amended on January 31, 1998,
and as further amended on March 27, 1998.
2.7 -- Stock Purchase Agreement among BAG Florida II, Inc. and the
shareholder of South Financial Corporation, dated December
23, 1997.
</TABLE>
II-3
<PAGE> 187
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.8* -- Stock Purchase Agreement among Boomershine Collision
Centers, Inc. and the shareholder of Southlake Collision
Centers, Inc., Southlake Collision Henry County, Inc. and
Southlake Collision Cobb Parkway, Inc., dated November 6,
1997.
3.1** -- Articles of Incorporation of the Company.
3.2 -- Bylaws of the Company.
4.1* -- Specimen common stock certificate.
5.1* -- Opinion of Schnader Harrison Segal & Lewis LLP.
10.1* -- Form of Employment Agreement between the Company and Walter
M. Boomershine, Jr.
10.2* -- Form of Employment Agreement between the Company and Charles
K. Yancey.
10.3* -- Form of Employment Agreement between the Company and Robert
W. Gundeck.
10.4* -- Form of Employment Agreement between the Company and Stephen
C. Whicker.
10.5* -- Form of Employment Agreement between the Company and Ricky
L. Brown.
10.6* -- Form of Employment Agreement between the Company and Alan K.
Arnold.
10.8* -- Form of Employment Agreement between the Company and R.
Glynn Wimberly.
10.9* -- 1997 and 1998 Incentive Stock Plan of Company.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of Pyke & Pierce, CPA's.
23.3 -- Consent of Davis, Monk & Company.
23.4* -- Consent of Schnader Harrison Segal & Lewis LLP (included in
the opinion filed as Exhibit 5.1).
24.1** -- Powers of Attorney (included on the signature page to this
Registration Statement).
27.1* -- Financial Data Schedule (for SEC use only).
99.1** -- Consent of George D. Busbee.
99.2** -- Consent of Lee M. Sessions, Jr.
99.3** -- Consent of Jack R. Altherr.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriter to permit prompt delivery to each purchaser.
II-4
<PAGE> 188
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 14
hereof, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person thereof in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 15th day of May, 1998.
SUNBELT AUTOMOTIVE GROUP, INC.
a Georgia corporation
By: /s/ CHARLES K. YANCEY
------------------------------------
Charles K. Yancey,
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and Senior May 15, 1998
- ----------------------------------------------------- Vice President
Walter M. Boomershine, Jr.
* Chief Operating Officer, May 15, 1998
- ----------------------------------------------------- President and Director
Charles K. Yancey
* Chief Executive Officer and May 15, 1998
- ----------------------------------------------------- Director (Principal Executive
Robert W. Gundeck Officer)
* Chief Financial Officer, Vice May 15, 1998
- ----------------------------------------------------- President of Finance and
Ricky L. Brown Treasurer (Principal
Accounting and Financial
Officer)
/s/ STEPHEN C. WHICKER Executive Vice President of May 15, 1998
- ----------------------------------------------------- Corporate Development, General
Stephen C. Whicker Counsel, Secretary and
Director
*By: /s/ STEPHEN C. WHICKER
-----------------------------------------------
Stephen C. Whicker
Attorney-in-fact
</TABLE>
II-6
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
AMONG
BOOMERSHINE AUTOMOTIVE GROUP, INC.
B.A.G. GEORGIA I, INC.
B.A.G. GEORGIA II, INC.
AND
WADE FORD, INC.
WADE FORD BUFORD, INC.
AND
ALAN K. ARNOLD,
GARY R. BILLINGS,
MILDRED S. ARNOLD CUSTODIAN FOR KELLY R. ARNOLD
UNDER THE UNIFORM TRANSFER TO MINORS ACT OF GEORGIA,
MILDRED S. ARNOLD CUSTODIAN FOR BRETT D. ARNOLD
UNDER THE UNIFORM TRANSFER TO MINORS ACT OF GEORGIA,
MILDRED S. ARNOLD CUSTODIAN FOR KRISTIE A. ARNOLD
UNDER THE UNIFORM TRANSFER TO MINORS ACT OF GEORGIA, AND
MILDRED S. ARNOLD CUSTODIAN FOR ALAN CHAD ARNOLD
UNDER THE UNIFORM TRANSFER TO MINORS ACT OF GEORGIA
NOVEMBER 21, 1997
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TABLE OF CONTENTS
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Certain Definitions............................................................................. 2
ARTICLE 1 GENERAL TRANSACTION............................................................... 7
1.1 Description of Transaction........................................................ 7
1.2 Tax Consequences................................................................. 11
1.3 Further Action................................................................... 11
ARTICLE 2 MINIMUM REQUIREMENTS............................................................. 11
2.1 1997 Year End Minimum Net Worth Requirement...................................... 11
2.2 Determination of 1998 Profit/Loss................................................ 12
2.3 Minimum Cash Requirement......................................................... 14
2.4 Minimum Floor Plan Requirement................................................... 14
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
OF THE COMPANIES AND THE STOCKHOLDERS............................................ 14
3.1 Organization and Good Standing................................................... 14
3.2 Subsidiaries..................................................................... 15
3.3 Capitalization................................................................... 15
3.4 Authority, Approvals and Consents................................................ 15
3.5 Financial Statements............................................................. 16
3.6 Absence of Undisclosed Liabilities............................................... 16
3.7 Absence of Material Adverse Effect; Conduct of Business.......................... 17
3.8 Taxes............................................................................ 19
3.9 Legal Matters.................................................................... 21
3.10 Property......................................................................... 22
3.11 Environmental Matters............................................................ 24
3.12 Inventories...................................................................... 26
3.13 Notes and Accounts Receivable.................................................... 26
3.14 Insurance........................................................................ 26
3.15 Contracts........................................................................ 26
3.16 Labor Relations.................................................................. 28
3.17 Employee Benefit Plans........................................................... 29
3.18 Other Benefit and Compensation Plans or Arrangements............................. 31
3.19 Transactions with Insiders....................................................... 32
3.20 Propriety of Past Payments....................................................... 32
3.21 Interest in Competitors.......................................................... 32
3.22 Brokers.......................................................................... 32
3.23 Territorial Restrictions......................................................... 32
3.24 Intellectual Property............................................................ 32
3.25 Deposit Accounts; Powers of Attorney............................................. 33
3.26 Disclosure....................................................................... 34
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS............................... 34
4.1 Ownership of Shares; Title...................................................... 34
4.2 Authority........................................................................ 34
4.3 Broker's Fees.................................................................... 35
4.4 Investment....................................................................... 35
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BAG AND THE SUBS............................... 35
5.1 Organization and Good Standing................................................... 35
5.2 Authority; Approvals and Consents................................................ 36
5.3 Brokers.......................................................................... 36
5.4 Disclosure....................................................................... 36
ARTICLE 6 COVENANTS AND ADDITIONAL AGREEMENTS.............................................. 36
6.1 Access; Confidentiality......................................................... 36
6.2 Furnishing Information; Announcements........................................... 37
6.3 Certain Changes and Conduct of Business.......................................... 37
6.4 No Intercompany Payables or Receivables.......................................... 40
6.5 Negotiations..................................................................... 40
6.6 Consents; Cooperation........................................................... 40
6.7 Additional Agreements............................................................ 41
6.8 Interim Financial Statements..................................................... 41
6.9 Notification of Certain Matters.................................................. 41
6.10 Assurance by the Stockholders.................................................... 42
6.11 Antitrust Improvements Act Compliance............................................ 42
6.12 Use of Business Name............................................................. 42
6.13 Related Party / Stockholders Loan................................................ 42
6.14 Stock Restriction Agreement...................................................... 42
6.15 Personal Items................................................................... 43
6.16 Liability for Transfer Taxes..................................................... 43
6.17 Certificates of Tax Authorities.................................................. 43
6.18 Release by Stockholders.......................................................... 43
6.20 Cooperation in Preparation of Registration Statement............................. 43
6.21 Audits........................................................................... 43
ARTICLE 7 CONDITIONS TO THE OBLIGATIONS OF BAG AND THE SUBS TO
EFFECT THE CLOSING............................................................... 44
7.1 Representations and Warranties; Agreements; Covenants............................ 44
7.2 Authorization; Consent........................................................... 44
7.3 Opinions of Each Company's and the Stockholder's Counsel......................... 44
7.4 Absence of Litigation............................................................ 44
7.5 No Material Adverse Effect....................................................... 45
7.6 Registration Statement........................................................... 45
7.7 Completion of Due Diligence...................................................... 45
7.8 Real Estate Purchase Agreements; Leases.......................................... 45
7.9 Certificates..................................................................... 46
7.10 Legal Matters.................................................................... 46
7.11 Approval of Manufacturer and Distributor......................................... 46
7.13 Employment Agreements; Non Competition Agreements................................ 46
7.14 Environmental Laws............................................................... 46
7.15 Lease Termination Agreement / Memorandum of Lease / Consents and Estoppels....... 46
7.16 Resignation of each Company's Directors and Officers............................. 47
7.17 Schedules........................................................................ 47
7.18 Share Certificates............................................................... 47
7.19 Non Foreign Status............................................................... 47
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ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERSTO
EFFECT THE CLOSING............................................................... 47
8.1 Representations and Warranties; Agreements....................................... 47
8.2 Authorization of the Agreement; Consents......................................... 47
8.3 Opinions of BAG's and Sub's Counsel.............................................. 48
8.4 Absence of Litigation............................................................ 48
8.5 Real Estate Purchase Agreements; Leases. ....................................... 48
8.6 Certificates..................................................................... 48
8.7 Legal Matters.................................................................... 48
ARTICLE 9 TERMINATION...................................................................... 48
9.1 Termination...................................................................... 48
9.2 Procedure and Effect of Termination.............................................. 49
ARTICLE 10 INDEMNIFICATION AND SURVIVAL..................................................... 50
10.1 Survival of Representations and Warranties....................................... 50
10.2 Indemnification Provisions for Benefit of BAG and the Subs....................... 50
10.3 Indemnification Provisions for Benefit of the Stockholders....................... 51
10.4 Matters Involving Third Parties.................................................. 51
10.5 Other Indemnification Provisions................................................. 52
10.6 Tax Savings...................................................................... 53
ARTICLE 11 TAX MATTERS...................................................................... 53
11.1 Tax Matters...................................................................... 53
11.2 Section 338(h)(10) Election...................................................... 53
11.3 Tax Periods Ending on or Before the Closing Date................................. 53
11.4 Tax Periods Beginning Before and Ending After the Closing Date................... 53
11.5 Cooperation on Tax Matters....................................................... 54
11.6 Certain Taxes.................................................................... 54
ARTICLE 12 MISCELLANEOUS.................................................................... 54
12.1 Fees and Expenses................................................................ 54
12.2 Headings......................................................................... 54
12.3 Notices.......................................................................... 55
12.4 Assignment....................................................................... 56
12.5 Entire Agreement................................................................. 56
12.6 Waiver and Amendments............................................................ 56
12.7 Counterparts..................................................................... 57
12.8 Governing Law.................................................................... 57
12.9 Accounting Terms................................................................. 57
12.10 Schedules........................................................................ 57
12.11 Severability..................................................................... 57
12.12 Remedies......................................................................... 57
12.13 Time Is Of the Essence........................................................... 57
12.14 Authority........................................................................ 57
ADDENDUM 1..................................................................................... 60
ADDENDUM 2..................................................................................... 61
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AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement"), is entered into as of November 21, 1997 among BOOMERSHINE
AUTOMOTIVE GROUP, INC., a Georgia corporation ("BAG"), B.A.G. GEORGIA I, INC., a
Georgia corporation ("Sub I"), B.A.G. GEORGIA II, INC., a Georgia corporation
("Sub II") (Sub I and Sub II are hereinafter individually referred to as a "Sub"
and collectively referred to as the "Subs"), and WADE FORD, INC., a Georgia
corporation, and WADE FORD BUFORD, INC., a Georgia corporation (individually, a
"Company" and collectively, the "Companies"), and the stockholder(s) listed on
the signature pages hereof (each, a "Stockholder" and, if more than one,
collectively, the "Stockholders"). BAG, the Subs, the Companies and the
Stockholders are referred to individually as a "Party" and collectively as the
"Parties."
W I T N E S S E T H:
WHEREAS, the Companies operate Ford automobile dealership businesses in
Smyrna, Georgia and Buford, Georgia;
WHEREAS, BAG is engaged in the automobile dealership business in
Georgia and in other states of the United States of America;
WHEREAS, the Stockholders own all of the issued and outstanding shares
of common stock, $1.00 par value, of the Companies (the "Wade Shares") in the
following amounts:
(a) WADE FORD, INC.: 10,000 shares authorized; 1,000
shares issued and outstanding:
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900 shares owned by Alan K. Arnold
25 shares owned by Mildred S. Arnold Custodian for Kelly L. Arnold under
the Uniform Transfer to Minor Act of Georgia
25 shares owned by Mildred S. Arnold Custodian for Brett D. Arnold under
the Uniform Transfer to Minor Act of Georgia
25 shares owned by Mildred S. Arnold Custodian for Kristie A. Arnold
under the Uniform Transfer to Minor Act of Georgia
25 shares owned by Mildred S. Arnold Custodian for Alan Chad Arnold
under the Uniform Transfer to Minor Act of Georgia
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(b) WADE FORD BUFORD, INC.: 500,000 shares authorized;
12,800 shares issued and outstanding:
10,240 shares owned by Alan K. Arnold
2,560 shares owned by Gary R. Billings
WHEREAS, each Sub is a wholly-owned subsidiary of BAG; and
WHEREAS, BAG, the Subs and the Companies intend to effect mergers such
that Wade Ford, Inc. will merge into Sub I, with Sub I being the survivor
entity, and Wade Ford Buford, Inc. will merge into Sub II, with Sub II being the
survivor entity, all in accordance with this Agreement and the Georgia Business
Corporations Code (each, a "Merger," and collectively, the "Mergers"). Upon the
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consummation of the Mergers, the Companies will cease to exist, and each Sub
will continue to exist as the surviving corporation of each Merger.
WHEREAS, it is intended that each Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Parties hereto hereby agree as follows:
CERTAIN DEFINITIONS.
"Accountants" has the meaning set forth in Section 2.1(c) below.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Associate" used to indicate a relationship with any Person means: (i)
any corporation, partnership, joint venture or other entity of which such Person
is an officer or partner or is, directly or indirectly, through one or more
intermediaries, the beneficial owner of thirty percent (30%) or more of: (1) any
class or type of equity securities or other profits interest; or (2) the
combined voting power of interests ordinarily entitled to vote for management or
otherwise; and (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity.
"BAG" has the meaning set forth in the preface above.
"BAG IPO" shall mean the consummation of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933.
"BAG IPO Share Price" shall mean the price per share of each share of
common stock offered pursuant to the BAG IPO.
"BAG IPO Stock" shall mean shares of common stock offered pursuant to
the BAG IPO.
"BAG Common Stock" shall mean the unregistered, 0.001 par value,
authorized common stock of BAG.
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"Balance Sheet" means the unaudited balance sheet as of October 31,
1997 with respect to each Company, and the unaudited statements of income and
stockholders' equity for the 10-month period ended on such date with respect to
each Company, together with notes thereto.
"Basis" means any past or present fact, situation, circumstance,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Best Efforts" shall be deemed to not include any obligation on the
part of any Person to undertake any liabilities, expend any funds or perform
acts (except liabilities, expenditures or performance, other than any best
efforts obligations, expressly required to be undertaken by the terms of this
Agreement) which are materially burdensome to such Person; provided, however,
that notwithstanding the foregoing, the term "best efforts" shall include an
obligation to take such actions which are normally incident to or reasonably
foreseeable in conjunction with such obligation or the transactions contemplated
hereby.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under federal law.
"Claims" shall mean any and all claims, demands, suits, proceedings,
actions or causes of action of any kind or character whatsoever, known or
unknown, fixed or contingent, suspected or unsuspected, direct or indirect,
however arising, whether arising at law or in equity, or pursuant to
administrative rule or regulation or otherwise.
"Closing" has the meaning set forth in Section 1.1(d) below.
"Closing Date" has the meaning set forth in Section 1.1(d) below.
"Closing Date Deadline" shall mean April 30, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" and "Companies" have the meanings set forth in the preface
above.
"Company Agreement" has the meaning set forth in Section 3.15 below.
"Compensation Commitment" has the meaning set forth in Section 3.18(a)
below.
"Confidential Information" means any and all data or information of a
Party which relates directly and primarily to the business of such Party and
which is not generally known to or by Persons whose businesses are competitive
with the business of such Party, including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, business and marketing plans and
proposals, information relating to sales records, profit and performance
reports, sales and training manuals, selling and pricing procedures, financing
methods, the special demands of particular customers, the current and
anticipated demands of particular customers, specifications of any new products
or services under development, and any other such information treated by a Party
as being confidential or labeled "Confidential," as well as all physical
embodiments of any of the foregoing, except information: (i) ascertainable or
obtained from public information; (ii) received from a third
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party not employed by or otherwise affiliated with the disclosing Party; or
(iii) which is or becomes known to the public other than through a breach of
this Agreement by another Party to it.
"Consent" means any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including but not limited to any Governmental Authority.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
Section 1.1502-13.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employment Agreements" has the meaning set forth in Section 7.14
below.
"Employment and Labor Agreement" has the meaning set forth in Section
3.16 below.
"Environmental, Health and Safety Requirements" shall mean all federal,
state, and local statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"Environmental Laws" has the meaning set forth in Section 3.11 below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means all Employee Pension Benefit Plans and Employee
Welfare Benefit Plans of a Company.
"Escrow Agent" has the meaning set forth in Section 1.1(e)(iii) below.
"Escrow Amount" has the meaning set forth in Section 1.1(e)(iii) below.
"Excess Loss Account" has the meaning set forth in Reg. Section
1.1502-19.
"Factory Statements" has the meaning set forth in Section 3.5(c) below.
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"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 3.5 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative function of or pertaining to
government, including without limitation, any government authority, agency,
department, board, commission or instrumentality of the United States, any State
of the United States or any political subdivision thereof, and any tribunal or
arbitrator of competent jurisdiction and any self-regulatory organization.
"Governmental Approval" means any Consent of, with or to any
Governmental Authority.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Materials" has the meaning set forth in Section 3.11 below.
"Improvements" has the meaning set forth in Section 3.10 below.
"Indemnified Party" has the meaning set forth in Section 10.4 below.
"Indemnifying Party" has the meaning set forth in Section 10.4 below.
"Insider" shall mean the Stockholders, any director or officer of the
Company, and any Affiliate, Associate or Relative of any of the foregoing
persons.
"Intellectual Property" means: (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof; (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith; (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith; (d) all mask
works and all applications, registrations, and renewals in connection therewith;
(e) all trade secrets and confidential business information; (f) all computer
software (including data and related documentation); (g) all other proprietary
rights; and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"IRS" shall mean the Internal Revenue Service.
"Judgment" has the meaning set forth in Section 3.9 below.
"Knowledge" means actual knowledge after reasonable investigation and,
with respect to any corporation, partnership, company or other entity, shall
include the knowledge of such entity's officers, directors and managers with
responsibility over the relevant subject matter.
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"Leased Real Property" has the meaning set forth in Section 3.10(b)
below.
"Legal Requirements" means laws, ordinances, codes, rules, regulations,
standards, judgments and other requirements of all governmental, administrative
or judicial entities.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Liens" shall mean any mortgages, pledges, title defects or objections,
liens, claims, security interests, conditions and installment sale agreements,
encumbrances or charges of any kind.
"Material Adverse Effect" shall mean any change in, or effect on, the
applicable Person (including the business thereof) which is, or could reasonably
be expected to be, materially adverse to the business, operations, assets,
condition (financial or otherwise) or prospects of said applicable Person.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Worth" has the meaning set forth in Section 1.2(g)(iii) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Property" has the meaning set forth in Section 3.10(a)
below.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means franchises, licenses, permits, registrations,
certificates, consents, approvals or authorizations.
"Permitted Liens" means: (a) Liens reserved against in the Company's
Balance Sheet, to the extent so reserved; (b) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
Company's books in accordance with GAAP; or (c) Liens that, individually and in
the aggregate, do not and would not materially detract from the value of any of
the property or assets of the Company or materially interfere with the use
thereof as currently used or contemplated to be used.
"Person" shall mean and include any individual, corporation, limited
liability company, partnership, joint venture, association, trust, any other
incorporated or unincorporated organization or entity and any governmental
entity or any department or agency thereto.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Real Estate Purchase Agreements" has the meaning set forth in Section
7.8 below.
"Relative" of a Person shall mean such Person's spouse, parents,
sisters, brothers, children and the spouses of the foregoing, and any member of
the immediate household of such Person.
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"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Stock Restriction Agreements" has the meaning set forth in Section
6.14 below.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property (including
property taxes paid by the Company pursuant to any lease), personal property,
sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 9.4 below.
"Wade Share" has the meaning set forth in the preface above.
ARTICLE 1
GENERAL TRANSACTION
1.1 DESCRIPTION OF TRANSACTION.
(a) MERGER OF WADE FORD, INC. INTO SUB I. Upon the terms and
conditions set forth in this Agreement, at the Effective Time, Wade Ford, Inc.
shall be merged with and into Sub I, and the separate existence of Wade Ford,
Inc. shall cease. Sub I shall continue as the surviving corporation of said
Merger ("Surviving Corporation I").
(b) MERGER OF WADE FORD BUFORD, INC. INTO SUB II. Upon the terms
and conditions set forth in this Agreement, at the Effective Time, Wade Ford
Buford, Inc. shall be merged with and into Sub II, and the separate existence of
Wade Ford Buford, Inc. shall cease. Sub II shall continue as the surviving
corporation of said Merger ("Surviving Corporation II") (Surviving Corporation I
and Surviving Corporation II shall individually be hereinafter referred to as a
"Surviving Corporation" and collectively as the "Surviving Corporations").
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(c) EFFECT OF MERGERS. The Mergers shall have the effects set
forth in this Agreement and in the applicable provisions of the Georgia Business
Corporations Code.
(d) CLOSING; EFFECTIVE TIME.
(i) Subject to the conditions set forth in this
Agreement, the consummation of the Mergers and the
other transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of
SCHNADER HARRISON SEGAL & LEWIS, LLP in Atlanta,
Georgia, or any other location agreed upon by the
Parties, contemporaneously with the BAG IPO described
in the Registration Statement referred to in Section
7.6 hereof.
(ii) If the BAG IPO fails to close on or before the
Closing Date Deadline, then the Subs shall have the
option to consummate the Mergers and the other
transactions contemplated by this Agreement upon such
terms and conditions that are mutually acceptable to
the Parties (in which event said alternate
consummation shall for purposes herein be referred to
as the "Closing"), and said Closing shall take place
at the offices of SCHNADER HARRISON SEGAL & LEWIS,
LLP in Atlanta, Georgia, or any other location agreed
upon by the Parties
(iii) The date on which the Closing actually occurs is
herein referred to as the "Closing Date." On or
before the Closing Date, a properly executed
certificate of merger for each Merger, conforming
with the requirements of the Georgia Business
Corporations Code (each, a "Certificate of Merger")
shall be filed with the Secretary of State of the
State of Georgia. Each Merger shall take effect on
the Closing Date (with respect to each Merger, the
"Effective Time").
(e) MERGER CONSIDERATION. The aggregate consideration for the
Mergers (the "Merger Consideration") shall be (in aggregate) the amount of
Fifteen Million and No/100 Dollars ($15,000,000.00). The Merger Consideration
shall be paid by the Subs as follows:
(i) The sum of ELEVEN MILLION Dollars ($11,000,000.00)
shall be paid to the Stockholders by the Subs at the
Closing in cash or other immediately available funds
("Cash Consideration Amount"), to be divided amongst
the Stockholders in accordance with ADDENDUM 1
attached hereto and incorporated herein.
(ii) The balance of the Merger Consideration, which equals
to a value of FOUR MILLION Dollars ($4,000,000.00),
shall be paid to the Stockholders at the Closing in
the form of BAG Common Stock in accordance with
Section 1.1(g) hereof (the "Stock Consideration Value
Amount"), to be divided amongst the Stockholders in
accordance with ADDENDUM 1 attached hereto and
incorporated herein..
(iii) Notwithstanding the payment of the Cash Consideration
Amount described in Section 1.1(e)(i) hereof and the
payment of the Stock Consideration Value Amount
described in Section 1.1(e)(ii) hereof, at the
Closing, the Subs shall place $366,666.67 of the Cash
Consideration Amount (the "Escrow Funds") in an
interest bearing escrow account with Joyce E.
Kitchens, Esq., or another escrow agent reasonably
satisfactory to BAG and Stockholders (the "Escrow
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Agent"), and the Subs shall also place the number of
shares representing $133,333.33 of the Stock
Consideration Value Amount in escrow with the Escrow
Agent (the "Escrow Stock") (the Escrow Funds and the
Escrow Stock shall hereinafter be collectively
referred to as the "Escrow Consideration"), all in
accordance with an escrow agreement substantially in
the form attached hereto as EXHIBIT A, with such
other changes as the Escrow Agent may reasonably
request (the "Escrow Agreement"). The release of the
Escrow Consideration shall be governed by the terms
and conditions of the Escrow Agreement.
(f) ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Upon the Effective Time:
(i) the Articles of Incorporation of Sub I and Sub II
shall continue as the Articles of Incorporation of
Surviving Corporation I and Surviving Corporation II,
respectively;
(ii) the Bylaws of Sub I and Sub II shall continue as the
Bylaws of Surviving Corporation I and Surviving
Corporation II, respectively;
(iii) The directors and officers of each Surviving
Corporation immediately after the Effective Time
shall be the individuals identified on EXHIBIT B.
(g) CONVERSION OF SHARES. Subject to Section 1.1(i)(iii), the
manner of converting the Wade Shares into shares of BAG Common Stock shall be as
is set forth in this Section 1.1(g). As of the Effective Time of the Merger, all
of the Wade Shares, by virtue of the Mergers without any action on the part of
the holder thereof, automatically shall be deemed to represent that number of
shares of BAG Common Stock that is equal to the number obtained by dividing the
Stock Consideration Value Amount by the BAG IPO Share Price (the "BAG Stock
Consideration Shares"). The BAG Stock Consideration Shares shall be divided
amongst the Stockholders on a pro-rata basis based on their stock ownership
interest in each of the Companies.
(h) CLOSING OF THE COMPANIES' TRANSFER BOOKS. At the Effective
Time, the holders of the Wade Share Certificates (as hereinafter defined) shall
cease to have any rights as stockholders of the Companies, and the stock
transfer books of the Companies shall be closed with respect to all such Wade
Shares. No further transfer of any such Wade Shares shall be made on such stock
transfer books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any Wade Shares is presented to any Sub or
BAG, such certificate shall be canceled and shall be exchanged as provided in
Section 1.1(e)(i) and 1.1(e)(ii), as applicable.
(i) EXCHANGE OF CERTIFICATES.
(i) At the Closing, the Wade Ford, Inc. Stockholders
shall surrender their certificates representing all
of the common stock of Wade Ford Inc. owned by said
Stockholders (the "Wade Ford Share Certificates") to
Surviving Corporation I, together with such
transmittal documents as BAG or Surviving Corporation
I may reasonably require.
(ii) At the Closing, the Wade Ford Buford, Inc.
Stockholders shall surrender their certificates
representing all of the common stock of Wade Ford
Buford, Inc.
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owned by said Stockholders (the "Wade Ford Buford
Share Certificates") to Surviving Corporation II,
together with such transmittal documents as BAG or
Surviving Corporation II may reasonably require. (The
Wade Ford Share Certificates and the Wade Ford Buford
Share Certificates shall hereinafter be referred to
as the "Wade Share Certificates").
(iii) No fractional shares of BAG Common Stock shall be
issued in connection with the Mergers, and no
certificates for any such fractional shares shall be
issued. Any fractional shares shall be rounded up to
the next whole share and any Stockholder who would
otherwise be entitled to receive a fraction of a
share of BAG Common Stock (after aggregating all
fractional shares of BAG Common Stock issuable to
such holder) shall, in lieu of such fractional share,
receive said additional whole share.
(iv) Until surrendered as contemplated by this Section
1.1(i), each Wade Share Certificate shall be deemed
from and after the Effective Time, to represent only
the right to receive a pro-rata share of the Merger
Consideration. If any Wade Share Certificate shall
have been lost, stolen or destroyed, each applicable
Sub may, at its discretion and as a condition
precedent to the delivery of any Merger Consideration
to the Stockholder who owns such lost, stolen or
destroyed Wade Share Certificate, require said owner
to provide an appropriate affidavit and to deliver a
bond (in such sum as BAG or the applicable Sub may
reasonably direct) as indemnity against any Claim
that may be made against BAG or any Sub with respect
to such Wade Share Certificate.
(v) The BAG Stock Consideration Shares to be issued in
the Merger shall be characterized as "restricted
securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any
of such shares shall bear a legend identical or
similar in effect to the following legend (together
with any other legend or legends required by
applicable state securities laws or otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
(vi) The Subs shall be entitled to deduct and withhold
from any consideration payable or otherwise
deliverable to any holder or former holder of the
Wade Shares pursuant to this Agreement such amounts
as the Subs may be required to deduct or withhold
therefrom under the Code or under any provision of
state, local or foreign tax law. To the extent such
amounts are so deducted or withheld, such amounts
shall be treated for all purposes under this
Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
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<PAGE> 15
(vii) The Stockholders agree and acknowledge that the Subs
shall not be liable to any holder or former holder of
the Wade Shares for any shares of BAG Common Stock
(or dividends or distributions with respect thereto),
or for any cash amounts, delivered to any public
official pursuant to any applicable abandoned
property, escheat or similar law.
1.2 TAX CONSEQUENCES. For federal income tax purposes, the Mergers are
intended to constitute reorganizations within the meaning of Section 368 of the
Code. The Parties hereby adopt this Agreement as a "plan of reorganization" with
respect to each Company and Sub within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.3 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by BAG or the Subs to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Subs with full title, right
and possession of and to all rights and property of the applicable Company, the
officers and directors of each Sub shall be fully authorized (in the name of the
applicable Company and otherwise) to take such action.
ARTICLE 2
MINIMUM REQUIREMENTS
The Parties hereby agree that Seller and the Companies shall deliver
the Companies in financial conditions which adhere to the minimum requirements
set forth in this Article 2:
2.1 1997 YEAR END MINIMUM NET WORTH REQUIREMENT.
(a) UPWARD NET WORTH ADJUSTMENT. If the 1997 Aggregate Net Worth
(as hereinafter defined) exceeds the 1997 Minimum Net Worth (as hereinafter
defined), BAG will pay to the Stockholders, on a dollar for dollar basis, the
entire amount of such excess by wire transfer or delivery of other immediately
available funds within three (3) business days after the later of (i) the
Closing Date or (ii) the date on which the Actual 1997 Adjusted EBIT is finally
determined pursuant to SECTION 2.1(e) hereof. This additional amount shall be
allocated to the Stockholders on the same ratio basis as the Merger
Consideration is allocated amongst the Stockholders in accordance with ADDENDUM
1.
(b) DOWNWARD NET WORTH ADJUSTMENT. If the 1997 Aggregate Net Worth
is less than the 1997 Minimum Net Worth, Stockholders will pay to BAG, on a
dollar for dollar basis, the entire amount of such deficiency by wire transfer
or delivery of other immediately available funds within three (3) business days
after the later of (i) the Closing Date or (ii) the date on which the Actual
1997 Adjusted EBIT is finally determined pursuant to SECTION 2.1(e) hereof. If
Stockholders do not pay such deficiency amount to BAG within said three (3) day
period, BAG shall have the right to offset and deduct such deficiency amount, on
a dollar for dollar basis, from the Escrow Funds, and if no Escrow Funds remain
available, then from the Escrow Stock (based on the BAG IPO Share Price). BAG
shall have the option to offset and deduct such deficiency amount from the
Stockholders on the same ratio basis as the Merger Consideration is allocated
amongst the Stockholders in accordance with ADDENDUM 1. Furthermore, if no
Escrow Consideration remains available for payment of all or any portion such
deficiency amount, then each Stockholder shall pay, reimburse and disburse to
BAG all amounts of such deficiency amount that is in excess of any remaining
Escrow Consideration on the same ratio basis as the Merger Consideration is
allocated amongst the Stockholders in accordance with ADDENDUM 1.
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<PAGE> 16
(c) 1997 AGGREGATE NET WORTH. For purposes herein, the "1997
Aggregate Net Worth" of the Companies shall be defined as the following: (i)
Total Stockholders' Equity of the Companies, on a consolidated basis, as of the
December 31, 1996 audited financial statements for Wade Ford, Inc. and Wade Ford
Buford, Inc., which amount equals Two Million Four Hundred Forty-Four Thousand
Four Hundred Ninety-Three and No/100 Dollars ($2,444,493.00) ("1996
Stockholders' Equity"), plus (ii) the Actual 1997 Adjusted EBIT (as hereinafter
defined) of the consolidated Companies as of December 31, 1997, as determined
pursuant to the calculation of the Accountants (hereinafter defined) in
accordance with SECTION 2.1(e) hereof, minus (iii) Seven-Hundred Eighty Seven
Thousand Four Hundred Eight and No/100 Dollars ($787,408.00), which number
represents the aggregate 1997 distributions for taxes as of the date hereof from
the Companies to the Stockholders, minus (iv) Four Hundred Fifty Thousand and
No/100 Dollars ($450,000.00), which number represents the additional 1997
distributions that will be made by the Companies to the Stockholders for income
tax purposes.
(d) 1997 MINIMUM NET WORTH. For purposes herein, "1997 Minimum Net
Worth" shall be an amount equal to Four Million Seven Hundred Seven Thousand
Eighty-Five and No/100 Dollars ($4,707,085.00). This 1997 Minimum Net Worth
amount is based on the sum of (i) the 1996 Stockholders' Equity, plus (ii) a
projected adjusted earnings before interest and taxes for the year 1997 equal to
Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) (the
"Target 1997 Adjusted EBIT"), minus (iii) Seven-Hundred Eighty Seven Thousand
Four Hundred Eight and No/100 Dollars ($787,408.00), which number represents the
aggregate 1997 distributions as of the date hereof from the Companies to the
Stockholders, minus (iv) Four Hundred Fifty Thousand and No/100 Dollars
($450,000.00), which number represents the additional 1997 distributions that
will be made by the Companies to Stockholders for income tax purposes.
(e) EBIT. Within the later of sixty (60) days after the Closing
Date or sixty (60) days after December 31, 1997 (the "Audit Deadline"), BAG's
accountant, Ernst & Young (the "Accountants"), will compute the combined net
income of the Target Companies as of close of business on December 31, 1997
using GAAP (the "1997 Net Income"). Once the 1997 Net Income has been
determined, but in any event prior to the Audit Deadline, the Accountants shall
make the adjustments set forth on ADDENDUM 2 attached hereto and incorporated
herein to the 1997 Net Income in order to determine the combined adjusted
earnings before interest and taxes for the Companies as of the close of business
on December 31, 1997 (the "Actual 1997 Adjusted EBIT"). Additional adjustments
may be made to the 1997 Net Income in order to determine the Actual 1997
Adjusted EBIT, and the determination of the Accountants with respect to whether
or not there are such additional adjustments shall be conclusive and binding
upon the Parties. Furthermore, the determination of the Accountants with respect
to the 1997 Net Income and Actual 1997 Adjusted EBIT shall be conclusive and
binding upon the Parties.
(f) INVENTORY. If required by the Accountants in connection with
the audit described in Section 2.1(c) above, the Stockholders, the applicable
Company, the Accountants and other representatives of BAG or the Subs shall
conduct a physical inventory at each location where inventory is held by the
applicable Company in order to determine the physical inventory of each
applicable Company as of December 31, 1997.
2.2 DETERMINATION OF 1998 PROFIT/LOSS. The Parties intend and understand
that the Companies shall be delivered to Sub I and Sub II on the Closing Date in
substantially the same financial condition as the financial condition of the
Companies as of December 31, 1997. To that end, the Companies and the
Stockholders represent and warrant to BAG, Sub I and Sub II that the net worth
of the Companies, as delivered on the Closing Date, shall not be materially less
than the 1997 Minimum Net Worth. The Parties hereby additionally agree that if
the Closing does not occur on or before December 31, 1997, then the Stockholders
shall retain any profits earned by the Companies during the interim period
beginning
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<PAGE> 17
on January 1, 1998 and ending on the Closing Date (the "Interim Period"), or,
alternatively, that the Stockholders shall reimburse BAG and the Subs for any
losses incurred by the Companies during the Interim Period. The determination of
such profits or losses shall be achieved solely by combining the amounts of the
profits or losses as listed on line 28 of each Company's monthly Factory
Statements during the Interim Period to determine a final amount of either
profit or loss. More specifically:
(a) If the Companies earn a profit for the Interim Period, then
BAG shall pay to the Stockholders, on a dollar for dollar basis, the following
amount by wire transfer or delivery of other immediately available funds on or
before the Interim Due Date (as hereinafter defined): The entire amount of the
1998 Interim Profits (as hereinafter defined) of the Companies less any
distributions made by the Companies to the Stockholders during the Interim
Period (the "1998 Interim Profit Reimbursement"). This 1998 Interim Profit
Reimbursement amount shall be allocated to the Stockholders on the same ratio
basis as the Merger Consideration is allocated amongst the Stockholders in
accordance with ADDENDUM 1; or
(b) If the Companies incur a loss for the Interim Period, then the
Stockholders shall pay to BAG, on a dollar for dollar basis, the entire amount
of the 1998 Interim Loss (as hereinafter defined) of the Companies by wire
transfer or delivery of other immediately available funds on or before the
Interim Due Date. If Stockholders do not pay such 1998 Interim Loss amount to
BAG on or before the Interim Due Date, BAG shall have the right to offset and
deduct such 1998 Interim Loss amount, on a dollar for dollar basis, from the
Escrow Funds, and if no Escrow Funds remain available, then from the Escrow
Stock (based on the BAG IPO Share Price). BAG shall have the option to offset
and deduct such 1998 Interim Loss amount from the Stockholders on the same ratio
basis as the Merger Consideration is allocated amongst the Stockholders in
accordance with ADDENDUM 1. Furthermore, if no Escrow Consideration remains
available for payment of all or any portion such 1998 Interim Loss amount, then
Alan K. Arnold shall pay, reimburse and disburse to BAG all of such 1998 Interim
Loss amount that is in excess of any remaining Escrow Consideration, and BAG
shall not be required to demand the payment of such 1998 Interim Loss amount
from any of the Stockholders other than Alan K. Arnold.
(c) The 1998 Interim Profit or the 1998 Interim Loss shall be
determined by combining the amounts listed on Line 28 (entitled "Profit/Loss")
of each monthly Factory Statement of each Company for each month during the
Interim Period (including the Closing Month, as hereinafter defined); if the
resulting amount is a positive number, it shall be called the "1998 Interim
Profit" for purposes hereunder, and if the resulting amount is a negative
number, then the positive value of such number it shall be called the "1998
Interim Loss."
(d) The Companies shall provide copies of all monthly Factory
Statements for the Interim Period to BAG and the Subs on the Closing Date and
shall provide the Factory Statement of each Company for the month (the "Closing
Month") in which the Closing occurs (the "Closing Month Factory Statement") to
BAG and the Subs within fifteen (15) days after the last day of the Closing
Month, and BAG and the Subs shall have an opportunity to review said monthly
Factory Statements for accuracy. The calculation of the 1998 Interim Profit or
1998 Interim Loss, as the case may be, shall be made no later than thirty-five
(35) days following the last day of the Closing Month, and any payment of the
1998 Interim Profit or 1998 Interim Loss by the paying Party, as the case may
be, shall be made no later than forty (40) days after said last day of the
Closing Month, as set forth in SECTIONS 2.2(a) and (b) hereof (the "Interim Due
Date"). If any disputes arise between the Parties with regard to the calculation
of the 1997 Interim Profit or the 1998 Interim Loss, and the Parties are unable
to resolve such dispute on or before the Interim Due Date, the disputed matter
shall be submitted to binding arbitration for resolution.
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<PAGE> 18
(e) In the event the Closing does not occur on the last day of a
month, then the profit or loss for the Closing Month, as the case may be, shall
be determined by pro-rating the actual profit or loss shown on Line 28
(Profit/Loss) of the Closing Month Factory Statement as of the Closing Date and
including in the calculation of the 1998 Interim Profit or the 1998 Interim
Loss, as the case may be, only that pro-rated portion of the Closing Month
profit/loss which is allocable to the period prior to the Closing Date
(inclusive).
2.3 MINIMUM CASH REQUIREMENT. Notwithstanding anything to the contrary
contained in this Agreement, immediately upon the consummation of the Closing,
the cash account of the Companies must contain a balance equal to an amount that
is no less than Eight Hundred Thousand and No/100 Dollars ($800,000.00), on an
aggregate basis (the "Minimum Cash Balance"). If the Companies' cash accounts
contain a balance, as of the time that is immediately after the consummation of
the Closing, that is less than the Minimum Cash Balance, BAG shall have the
right to offset and deduct any amount of such deficiency, on a dollar for dollar
basis, from the Escrow Funds, and if no Escrow Funds remain available, then from
the Escrow Stock (based on the BAG IPO Share Price).
2.4 MINIMUM FLOOR PLAN REQUIREMENT. As of the Date of the Closing Date, the
Companies shall not be "Out of Trust," as such term is commonly used in the
automotive business and, with respect to Wade Ford, Inc., relates to the floor
plan of its new and used cars. As of the Closing Date, Wade Ford Inc.'s floor
plan liability must not exceed Wade Ford Inc.'s Floor Plan Assets by more than
three percent (3%), where "Floor Plan Assets" shall mean Wade Ford Inc.'s actual
inventory of financed automobiles, plus its contracts in transits, plus its
current (not over ninety (90) days) fleet car receivables. If, as of the date of
Closing Date, the floor plan liability exceeds Wade Ford Inc.'s Floor Plan
Assets by more than three percent (3%), then Stockholders shall pay such excess
to BAG in cash or other immediately available funds at the Closing. If
Stockholders do not pay such excess amount to BAG at the Closing, BAG shall have
the right to offset and deduct such excess amount, on a dollar for dollar basis,
from the Escrow Funds, and if no Escrow Funds remain available, then from the
Escrow Stock (based on the BAG IPO Share Price).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANIES AND THE STOCKHOLDERS
Subject to the Parties' agreement and acknowledgment that all of the
Schedules referred to in this Article 3 are to be delivered by the Companies and
the Stockholders no later than ten (10) business days after the execution of
this Agreement to BAG and the Subs, the Companies and the Stockholders hereby
jointly and severally represent and warrant to BAG and the Subs that the
statements contained in this Article 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article 3) as to each Company:
3.1 ORGANIZATION AND GOOD STANDING. Each Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation and has the corporate power and authority to own, lease and
operate the properties used in its business and to carry on its business as now
being conducted. Each Company is duly qualified to do business and is in good
standing as a foreign corporation in each state and jurisdiction where
qualification as a foreign corporation is required except where the lack of such
qualification would not have a Material Adverse Effect on each Company. SCHEDULE
3.1(a) hereto lists: (i) the states and other jurisdictions where each Company
is so qualified;
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<PAGE> 19
and (ii) the assumed names under which each Company conducts business and
contains complete and correct copies of each Company's Articles of Incorporation
and Bylaws, each as amended and presently in effect.
3.2 SUBSIDIARIES. Except as set forth in SCHEDULE 3.2 hereof, no Company
has any subsidiaries or any other interest or investment in any Person.
3.3 CAPITALIZATION. The authorized stock of each Company and the number of
shares of capital stock that are issued and outstanding are set forth on
SCHEDULE 3.3(a) hereto. The shares listed on SCHEDULE 3.3(a) hereto constitute
all the issued and outstanding shares of capital stock of each Company, have
been validly authorized and issued, are fully paid and non-assessable, have not
been issued in violation of any pre-emptive rights or of any federal or state
securities law and no personal liability attaches to the ownership thereof.
Except for as set forth on SCHEDULE 3.3(b) hereto, there is no security, option,
warrant, right, call, subscription, agreement, commitment or understanding of
any nature whatsoever, fixed or contingent, that directly or indirectly: (i)
calls for issuance, sale, pledge or other disposition of any shares of capital
stock of any Company or any securities convertible into, or other rights to
acquire, any shares of capital stock of each Company; (ii) obligates each
Company to grant, offer or enter into any of the foregoing; or (iii) relates to
the voting or control of such capital stock, securities or rights, except as
provided in this Agreement. Neither Company has agreed to register any
securities under the Securities Act.
3.4 AUTHORITY, APPROVALS AND CONSENTS. Each Company has the corporate power
and authority to enter into this Agreement and the other documents referenced
herein or related hereto (collectively, the "Transaction Documents") and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
and approved by the Board of Directors of each Company and no other corporate
proceedings on the part of each Company are necessary to authorize and approve
this Agreement and the Transaction Documents and the transactions contemplated
hereby and thereby. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, each Company, enforceable against
each Company in accordance with its terms. The execution, delivery and
performance by each Company and the Stockholders of this Agreement and the
consummation of the transactions contemplated hereby and thereby do not and will
not:
(a) contravene any provisions of the Charter or Bylaws of any
Company;
(b) except as set forth on SCHEDULE 3.4(b), conflict with, result
in a breach of any provision of, constitute a default under, result in the
modification or cancellation of, or give rise to any right of termination or
acceleration in respect of, any Company Agreement, require any consent of waiver
of any party to any Company Agreement, except where such conflict or default
would not have a Material Adverse Effect on any Company or on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(c) result in the creation of any Lien upon, or any Person
obtaining any right to acquire, any properties, assets or rights of any Company
(other than the rights of each Sub to acquire the Wade Shares pursuant to this
Agreement);
(d) violate or conflict with any Legal Requirements applicable to
each Company or any of its businesses or properties, except where such conflict
or default would not have a Material Adverse
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Effect on each Company or on the ability of the Parties to consummate the
transactions contemplated by this Agreement; or
(e) require any authorization, consent, order, permit or approval
of, or notice to, or filing, registration or qualification with, any
Governmental Authority, other than in connection with or in compliance with the
provisions of the Hart-Scott-Rodino Act, except where such conflict or default
would not have a Material Adverse Effect on each Company or on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
Except as referred to above, no permit or approval of, or notice to any
Governmental Authority is necessary to be obtained or made by each Company to
enable each Company to continue to conduct its business and operations and use
its properties after the Closing in a manner which is in all material respects
consistent with that in which they are presently conducted and used.
3.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 3.5 are true and complete
copies of:
(a) the unaudited balance sheets of each Company as of December
31, 1994, December 31, 1995 and the audited balance sheets of each Company as of
December 31, 1996, and the related statements of income, stockholders' equity
and cash flow for the fiscal year ended December 31, 1994, December 31, 1995 and
December 31, 1996, together with the notes thereto;
(b) the unaudited balance sheet of each Company as of October 31,
1997 (with respect to each Company, the "Balance Sheet") and the unaudited
statements of income and stockholders' equity for the 10 month period ended on
such date, together with notes thereto; and
(c) the most recent monthly and year-to-date financial statements
provided to Ford Motor Company (with respect to each Company, the "Factory
Statements");
(the financial statements referred to in clauses (a) and (b) above, including
the notes thereto, being referred to herein collectively as the "Financial
Statements"). The Financial Statements of each Company are in accordance with
books and records of each Company, fairly present the financial position,
results of operations, stockholders' equity and changes in the financial
position of each Company as of the dates and for the periods indicated, are in
conformity with GAAP consistently applied (except as otherwise indicated in such
statements or on SCHEDULE 3.5 hereof) during such periods, and can be
legitimately reconciled with the financial statements and the financial records
maintained and the accounting methods applied by each Company for federal income
tax purposes. The Financial Statements of each Company include all adjustments,
which consist of only normal recurring accruals, necessary for such fair
presentations. The statements of income included in the Financial Statements of
each Company do not contain any items of special or non-recurring income except
as expressly identified therein, and the balance sheets included in the
Financial Statements of each Company do not reflect any write up or revaluation
increasing the book value of any assets except as expressly identified therein.
The books and accounts of each Company are complete and current in all material
respects and fairly reflect all of the transactions, items of income and expense
and all assets and liabilities of the businesses of each Company consistent with
prior practices of each Company. Each Factory Statement is accurate and complete
and was prepared in compliance with the requirements of the appropriate
automobile manufacturer, including, but not limited to, all requirements set
forth in the contract with such automobile manufacturer.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Each Company does not have any
material liability of any nature whatsoever (whether known or unknown, due or to
become due, accrued, absolute, contingent or
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otherwise), including, without limitation, any unfunded obligation under
employee benefit plans or arrangements as described in Sections 3.17 and 3.18
hereof or liabilities for Taxes, except for: (a) liabilities reflected or
reserved against in the most recent Financial Statements of each Company; (b)
current liabilities incurred in the ordinary course of business and consistent
with past practice after the date of each Company's Balance Sheet which,
individually and in the aggregate, do not have, and cannot reasonably be
expected to have, a Material Adverse Effect on each Company; and (c) liabilities
disclosed or SCHEDULE 3.6 hereto. Except as set forth in SCHEDULE 3.6 hereto,
each Company is not a party to any Company Agreement, or subject to any Charter
or Bylaw provision, any other corporate limitation or any Legal Requirement
which has, or can reasonably be expected to have, a Material Adverse Effect on
each Company. Except as set forth in SCHEDULE 3.6 hereto, none of the employees
of each Company is now or will with the passage of time become entitled to
receive any vacation time, vacation pay or severance pay attributable to
services rendered prior to the Closing Date.
3.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS.
(a) Since December 31, 1996, except as set forth on SCHEDULE
3.7(a) hereto, each Company has operated in the ordinary course of business
consistent with past practice and there has not been:
(i) any material adverse change in the assets,
properties, business, contractual relations,
operations, prospects, net income or financial
condition of each Company and no factor, event,
condition, circumstance or prospective development
exists which threatens or may threaten to have a
Material Adverse Effect on each Company;
(ii) any material loss, damage, destruction or other
casualty to the property or other assets of each
Company, whether or not covered by insurance;
(iii) any material change in any method of accounting or
accounting practice of each Company; or
(iv) any material loss of the employment, services or
benefits of any key employee of each Company.
(b) Since December 31, 1996, except as set forth in SCHEDULE
3.7(b) hereto, each Company has not:
(i) incurred any material obligation or liability
(whether absolute, accrued, contingent or otherwise),
except in the ordinary course of business consistent
with past practice;
(ii) failed to disclose or satisfy any lien or pay or
satisfy any obligation or liability (whether
absolute, accrued, contingent or otherwise), other
than liabilities being contested in good faith and
for which adequate reserves have been provided;
(iii) mortgaged, pledged or subjected to any Lien any of
its property or other assets except for mechanics'
liens and liens for taxes not yet due and payable;
(iv) sold or transferred any asset or canceled any debts
or claims or waived any rights, except in the
ordinary course of business consistent with past
practices;
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(v) defaulted on any material obligation;
(vi) entered into any material transaction, except in the
ordinary course of business consistent with past
practice;
(vii) written down the value of any inventory or written
off as uncollectible any accounts receivable or any
portion thereof not reflected in each Company's
Financial Statements;
(viii) received any notice of termination of any contract,
lease or other agreement or suffered any damage,
destruction or loss (whether or not covered by
insurance) which, in any case or in the aggregate,
has had a Material Adverse Effect on any Company;
(ix) transferred or granted any rights under, or entered
into any settlement regarding the breach or
infringement of, any Intellectual Property, or
modified any existing rights with respect thereto;
(x) made any change in the rate of compensation,
commission, bonus or other direct or indirect
remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any
bonus, incentive, retention or other compensation,
retirement, welfare, fringe or severance benefit or
vacation pay, to or in respect of any shareholder,
director, officer, employee, salesman, distributor or
agent of each Company other than increases in
accordance with past practices not exceeding ten
percent (10%) in the aggregate;
(xi) encountered any labor union organizing activity, had
any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts, or had any material
change in its relations with its employees, agents,
customers or suppliers;
(xii) failed to replenish inventories and supplies in a
normal and customary manner consistent with its prior
practice, or made any purchase commitment in excess
of the normal, ordinary and usual requirements of its
business or at any price in excess of then-current
market price or upon terms and conditions more
onerous than those usual and customary in the
industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with
its prior practice;
(xiii) instituted, settled or agreed to settle any, or had
any material involvement in, litigation, action or
proceeding before any court or governmental body
relating to each Company other than in the ordinary
course of business consistent with past practices but
not in any case involving amounts in excess of
$100,000;
(xiv) entered into any transaction, contract or commitment
other than in the ordinary course of business or paid
or agreed to pay any legal, accounting, brokerage,
finder's fee, Taxes or other expenses in connection
with, or incurred any severance pay obligations by
reason of, this Agreement or the transactions
contemplated hereby;
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<PAGE> 23
(xv) declared, set aside or paid any dividend or other
distribution in respect of any shares of capital
stock of each Company or any repurchase, redemption
or other acquisition by any Stockholder or each
Company of any outstanding shares of capital stock or
other securities of, or other ownership interest in,
each Company;
(xvi) made any individual capital expenditure in excess of
$25,000 (excluding automobiles, vans and other
vehicles that are part of inventory), or aggregate
capital expenditures in excess of $100,000 (excluding
automobiles, vans and other vehicles that are part of
inventory), or additions to property, plant and
equipment other than ordinary repairs and
maintenance;
(xvii) discontinued any franchise or the sale of any
products or product line;
(xviii) incurred any obligation or liability to any employee
for the payment of severance benefits; or
(xix) entered into any agreement or made any commitment to
do any of the foregoing.
3.8 TAXES. Except as set forth on SCHEDULE 3.8, (i) all Tax Returns
required to be filed by or on behalf of each Company have been properly prepared
and duly and timely filed with the appropriate taxing authorities in all
jurisdictions in which such Tax Returns are required to be filed (after giving
effect to any valid extensions of time in which to make such filings), and all
such Tax Returns were true, complete and correct in all material respects, (ii)
all Taxes required to be paid by or on behalf of each Company or in respect of
each Company's income, assets or operations have been fully and timely paid,
(iii) each Company has not executed or filed with the IRS or any other taxing
authority any agreement, waiver or other document or arrangement extending or
having the effect of extending the period for assessment or collection of Taxes
(including, but not limited to, any applicable statute of limitation, and no
power of attorney with respect to any Tax matter is currently in force, and (iv)
all Taxes required to be withheld by each Company have been duly and timely
withheld and have been paid over to the appropriate taxing authorities for all
periods under all applicable Legal Requirements. Copies of all Tax Returns for
each fiscal year since the date of incorporation of each Company have been
furnished or made available to the Subs , as applicable, and to BAG or its
representatives and such copies are accurate and complete as of the date hereof.
Each Company has also furnished or made available to the Subs and BAG correct
and complete copies of all material notices and correspondence sent or received
since December 31, 1992 by each Company to or from any federal, state or local
tax authorities.
(a) The unpaid Taxes of each Company with respect to periods ended
on, prior to or through the date of each Company's Balance Sheet will not exceed
by any material amount the reserve for Taxes reflected on such financial
statements. Each Company has made adequate provision on its books (on an annual
basis) for the payment of all Taxes (including for the current fiscal period)
owed by each Company. Except to the extent reserves therefor are reflected on
each Company's Balance Sheet, each Company is not liable, or will not become
liable, for any Taxes for any period ending on, prior to or through the date of
each Company's Balance Sheet.
(b) Except as set forth on SCHEDULE 3.8 hereto, each Company has
not been subject to a federal or state tax audit of any kind and no adjustment
has been proposed by the IRS or any other taxing authority with respect to any
return for any year. With respect to the audits referred to on SCHEDULE 3.8
hereto, no such audit has resulted in an adjustment in excess of $50,000.
Neither each Company nor any of the Stockholders knows of any basis for any
assertion of a deficiency for Taxes against each Company.
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<PAGE> 24
The Stockholders will cooperate with each Company in the filing of any returns
and in any audit or refund claim proceedings involving Taxes for which each
Company may be liable or with respect to which each Company may be entitled to a
refund.
(c) Except as set forth on SCHEDULE 3.8 hereto, each Company has
not executed or filed with the IRS or any other taxing authority any agreement,
waiver or other document or arrangement extending or having the effect of
extending the period for assessment or collection of Taxes (including, but not
limited to, any applicable statute of limitation), and no power of attorney with
respect to any Tax matter is currently in force;
(d) Except as set forth on SCHEDULE 3.8 hereto, all Taxes required
to be withheld by each Company have been duly and timely withheld and have been
paid over to the appropriate taxing authorities for all periods under all
applicable laws;
(e) SCHEDULE 3.8 lists all material types of Taxes paid and
material types of tax returns filed by or on behalf of each Company. Except as
set forth on SCHEDULE 3.8, no claim has been made by a taxing authority in a
jurisdiction where each Company does not file tax returns such that it is or may
be subject to taxation by that jurisdiction;
(f) Except as set forth on SCHEDULE 3.8, all deficiencies asserted
or assessments made as a result of any examinations by the IRS or any other
taxing authority of the tax returns of or covering or including each Company
have been fully paid, and there are no other audits or investigations by any
taxing authority in progress, nor have Stockholders or each Company received any
notice from any taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised by a federal, state, local or foreign
taxing authority in any current or prior examination which, by application of
the same or similar principles, could reasonably be expected to result in
proposed deficiency for any subsequent Tax period.
(g) Except as set forth on SCHEDULE 3.8, neither each Company nor
any other Person (including the Stockholders) on behalf of each Company has: (i)
agreed to or is required to make any adjustments pursuant to Section 481(a) of
the Code or any similar provision of state, local or foreign law by reason of a
change in accounting method initiated by each Company or has Knowledge that the
IRS has proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of each
Company; (ii) executed or entered into a closing agreement pursuant to Section
7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law with respect to each Company; or (iii) requested
any extension of time within which to file any tax return, which tax return has
not since been filed;
(h) Except as set forth on SCHEDULE 3.8 hereto, no property owned
by each Company is: (i) property required to be treated as being owned by
another Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986; (ii) constitutes "tax-exempt use
property" within the meaning of Section 168(h)(1) of the Code; or (iii) is
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code;
(i) Except as set forth on SCHEDULE 3.8 hereto, none of the
Stockholders is a foreign Person within the meaning of Section 1445 of the Code;
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<PAGE> 25
(j) Except as set forth on SCHEDULE 3.8 hereto, each Company is
not a party to any tax-sharing or similar agreement or arrangement (whether or
not written) pursuant to which it will have any obligation to make any payments
after the Closing;
(k) Except as set forth on SCHEDULE 3.8 hereto, there is no
contract, agreement, plan or arrangement covering any Person that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible by the Subs or their Affiliates by reason of Section 280G of the
Code, or would constitute compensation in excess of the limitation set forth in
Section 162(m) of the Code;
(l) Except as set forth on SCHEDULE 3.8 hereto, each Company is
not subject to any private letter ruling of the IRS or comparable rulings of
other taxing authorities;
(m) Except as set forth on SCHEDULE 3.8 hereto, there are no Liens
as a result of any unpaid Taxes upon any of the assets of each Company;
(n) Except as set forth on SCHEDULE 3.8 hereto, each Company has
properly and timely elected under Section 1362 of the Code, and under each
analogous or similar provision of state or local law in each jurisdiction where
each Company is required to file a tax return, to be treated as an "S"
corporation for all taxable periods since the date of incorporation of each
Company. Sub I and Sub II, as applicable, have received a copy of any such
elections and there has not been any voluntary or involuntary termination or
revocation of any such election;
(o) Except as set forth in SCHEDULE 3.8, each Company has never
owned any subsidiaries and has never been a member of any consolidated, combined
or affiliated group of corporations for any Tax purposes;
(p) Except as set forth in SCHEDULE 3.8, each Company does not
have any undistributed earnings and profits and has not had for any taxable
years gross receipts more than twenty-five percent (25%) of which are "passive
investment income" (as defined in Section 1375 of the Code).
3.9 LEGAL MATTERS.
(a) Except as set forth on SCHEDULE 3.9(a) hereto: (i) to the
Knowledge of Seller and each Company, there is no Claim pending against, or
threatened against or affecting, each Company, any ERISA Plan) or any of their
respective assets, properties or rights before any court, arbitrator, panel,
agency or other governmental, administrative or judicial entity, domestic or
foreign, nor is any basis known to the Stockholders or each Company for any such
Claims; and (ii) neither each Company nor any of its assets are subject to any
judgment, decree, writ, injunction, ruling or order (collectively, "Judgments")
of any Governmental Authority, domestic or foreign. SCHEDULE 3.9(a) hereto
identifies each Claim and Judgment disclosed thereon.
(b) The businesses of each Company are being conducted in
compliance with all Legal Requirements applicable to each Company or any of its
respective businesses or properties. Each Company holds, and is in compliance
with, all Permits required by all applicable Legal Requirements. A list of all
Permits is set forth on SCHEDULE 3.9(b) hereof. No event has occurred and is
continuing which permits, or after notice or lapse of time or both would permit,
any modification or termination of any Permit.
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<PAGE> 26
(c) To the Knowledge of Seller and each Company, there are no
proposed laws, rules, regulations, ordinances, orders, judgments, decrees,
governmental takings, condemnations or other proceedings which would be
applicable to the business, operations or properties of each Company and which
might materially adversely affect the properties, assets, liabilities,
operations or prospects of each Company, either before or after the Closing
Date.
(d) SCHEDULE 3.9(d) sets forth all Governmental Approvals and
other Consents necessary for, or otherwise material to, the conduct of each
Company's business. Except as set forth in SCHEDULE 3.9(d), all such
Governmental Approvals and Consents have been duly obtained and are in full
force and effect, and each Company is in compliance with each of such
Governmental Approvals and Consents held by it.
(e) There have been no citations, notices or complaints issued to
or received by each Company by the Occupational Health and Safety Administration
or any similar state or local agency.
3.10 PROPERTY. The properties and assets owned by or leased to each Company
(including improvements to the Real Property (the "Improvements") and all
machinery, equipment and other tangible property) are in all material respects
adequate for the purposes of which such assets are currently used or are held
for use, and are in good repair and operating condition (subject to normal wear
and tear) and there are no facts or conditions affecting such assets which
could, individually or in the aggregate, interfere in any material respect with
the use, occupancy or operation thereof as currently used, occupied or operated,
or their adequacy for such use.
(a) OWNED REAL PROPERTY. SCHEDULE 3.10 contains a complete list of
all real property owned by each Company (the "Owned Real Property") setting
forth the address and owner of each parcel and describing all improvements
thereon, including without limitation, the properties reflected as being so
owned on each Company's Financial Statements. Each Company has, or on the
Closing Date will have, good, valid and marketable fee simple title to the Owned
Real Property indicated on SCHEDULE 3.10 as being owned by it, free and clear of
all Liens other than Permitted Liens. There are no outstanding leases, options
or rights of first refusal to purchase the Owned Real Property, or any portion
thereof or interest therein.
(b) LEASES. SCHEDULE 3.10 contains a complete list of all leases
of real property setting forth the address, landlord and tenant for each Lease.
Stockholders have delivered to BAG and the Subs complete copies of the Leases.
Each Lease is legal, valid, binding, enforceable, and in full force and effect,
except as may be limited by bankruptcy, insolvency, reorganization and similar
applicable laws affecting creditors generally and by the availability of
equitable remedies. Each Company is not in default, violation or breach in any
respect under any Lease, and no event has occurred and is continuing that
constitutes or, with notice or the passage of time or both, would constitute a
default, violation or breach in any respect under any Lease. Each Lease grants
the tenant under the Lease the exclusive right to use and occupy the demised
premises thereunder (the "Leased Real Property"). Each Company has good and
valid title to the leasehold estate under each Lease free and clear of all Liens
other than Permitted Liens. Each Company enjoys peaceful and undisturbed
possession under its respective Leases for the Leased Real Property.
(c) FEE AND LEASEHOLD INTERESTS. The Real Property constitutes all
the fee and leasehold interests in real property held for use in connection
with, necessary for the conduct of, or otherwise material to, the business of
each Company as it is currently conducted.
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<PAGE> 27
(d) NO PROCEEDINGS. There are no eminent domain or other similar
proceedings pending or threatened affecting any portion of the Real Property.
There is no writ, injunction, decree, order or judgment outstanding, nor any
action, claim, suit or proceeding, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of any Real
Property.
(e) CURRENT USE. The use and operation of the Real Property by
each Company does not violate in any material respect any instrument of record
or agreement affecting the Real Property. There is no violation of any covenant,
condition, restriction, easement or order of any Governmental Authority having
jurisdiction over such property or of any other Person entitled to enforce the
same affecting the Real Property or the use or occupancy thereof. No damage or
destruction has occurred with respect to any of the Real Property that would,
individually or in the aggregate, have a Material Adverse Effect on any Company.
(f) COMPLIANCE WITH REAL PROPERTY LAWS. The Real Property is in
full compliance with all applicable building, zoning, subdivision and other land
use and similar applicable laws affecting the Real Property (collectively, the
"Real Property Laws"), and each Company and the Stockholders have not received
any notice of violation or claimed violation of any Real Property Law. There is
no pending or anticipated change in any Real Property Law that will have or
result in a Material Adverse Effect upon the ownership, alteration, use,
occupancy or operation of the Real Property or any portion thereof. No current
use by each Company of the Real Property is dependent on a nonconforming use or
other Governmental Approval, the absence of which would materially limit the use
of such properties or assets held for use in connection with, necessary for the
conduct of, or otherwise material to, each Company.
(g) REAL PROPERTY TAXES. Each parcel included in the Real Property
is assessed for real property tax purposes as a wholly independent tax lot,
separate from adjoining land or improvements not constituting a part of that
parcel.
(h) LEASED PREMISES. With respect to Leased Real Property, each
Company has complied with and caused such premises to comply with: (i) all
federal, state, county, municipal and other governmental statutes, laws, rules,
orders, regulations, ordinances or recommendations affecting such premises or
any part thereof, or the use thereof, including without limitation, the
Americans with Disabilities Act, whether or not such statutes, laws, rules,
orders, regulations, ordinances or recommendations which may hereafter be
enacted involve a change of policy on the part of the governmental body enacting
the same; (ii) all rules, orders and regulations of the National Board of Fire
Underwriters or other bodies exercising similar functions and responsibilities
in connection with the prevention of fire or other correction of hazardous
conditions which apply to such premises; and (iii) the requirements of all
policies of public liability, fire and other insurance which at any time may be
in force with respect to such premises. Each Company is the owner of the
furniture and other personal property utilized in the business and located at
such premises.
(i) CERTIFICATE OF OCCUPANCY; UTILITIES; EMINENT DOMAIN. No
certificate of occupancy is required with respect to the Improvements. All
utilities servicing the Real Property and the Improvements are provided by
publicly dedicated utility lines and are located within public rights-of-way and
do not cross or encumber any private land. No notice of any pending, threatened
or contemplated action by any governmental authority or agency having the power
of eminent domain has been given to each Company or the Stockholders with
respect to the Real Property.
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3.11 ENVIRONMENTAL MATTERS.
(a) Except as set forth on SCHEDULE 3.11(A) hereto: (i) each
Company, the Real Property, the Improvements and any property formerly owned,
occupied or leased by each Company are in compliance with all Environmental Laws
(as defined below); (ii) each Company has obtained all Environmental Permits (as
defined below); (iii) such Environmental Permits are in full force and effect;
and (iv) each Company is in compliance with all terms and conditions of such
Environmental Permits. As used herein, "Environmental Laws" shall mean all
applicable requirements of environ-mental, public or employee health and safety,
public or community right to know, ecological or natural resource laws or
regulations or controls, including all applicable requirements imposed by any
law (including, without limitation, common law), rule, order, or regulations of
any federal, state or local executive, legislative, judicial, regulatory or
administrative agency, board or authority, or any applicable private agreement
(such as covenants, conditions and restrictions), which relate to: (A) noise;
(B) pollution or protection of the air, surface water, groundwater or soil; (C)
solid, gaseous or liquid waste generation, treatment, storage, disposal or
transportation; (D) exposure to Hazardous Materials (as defined below); or (E)
regulation of the manufacture, processing, distribution and commerce, use or
storage of Hazardous Materials. As used herein, "Environmental Permits" shall
mean all permits, licenses, approvals, authorizations, consents or registrations
required under applicable Environmental Law in connection with ownership, use
and/or operation of each Company's business or the Real Property or
Improvements.
As used in this Section 3.11, "Hazardous Materials" shall mean,
collectively: (i) those substances included within the definitions of or
identified as "hazardous chemicals," "hazardous waste," "hazardous substances,"
"hazardous materials," "toxic substances" or similar terms in or pursuant to,
without limitation: the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (42 U.S.C. Section 9601 et seq. ("CERCLA"), as amended by
Superfund Amendments and Reauthorization Act of 1986 (Pub. L. 99-499, 100 State,
1613); the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq.) ("RCRA"); the Occupational Safety and Health Act of 1970 (29
U.S.C. Section 651 et seq.) ("OSHA"); and the Hazardous Materials Transportation
Act (49 U.S.C. Section 1801 et seq. ("HWA"), and in the regulations promulgated
pursuant to such laws, all as amended; (ii) those substances listed in the
United States Department of Transportation Table (49 CFR 172.101 and amendments
thereto) or by the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto); (iii) any
material, waste or substance which is or contains: (A) petroleum, including
crude oil or any fraction thereof, natural gas or synthetic gas usable for fuel
or any mixture thereof; (B) asbestos; (C) polychlorinated biphenyls; (D)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1317) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (E) flammable
explosives; (F) radioactive materials; and (iv) such other substances, materials
and wastes which are or become regulated or classified as hazardous, toxic or as
"special wastes" under any Environmental Laws.
(b) Each Company and the Stockholders have not violated, done or
suffered any act which could give rise to liability under, and are not otherwise
exposed to liability under, any Environmental Law. No event has occurred with
respect to the Real Property, the Improvements or an any property formerly
owned, occupied or leased by each Company, which, with the passage of time or
the giving of notice, or both, would constitute a violation of or noncompliance
with any applicable Environmental Law. Each Company has no contingent liability
under any Environmental Law. There are no liens under any Environmental Law on
the Real Property.
(c) Except as set forth on SCHEDULE 3.11(C) hereto: (i) neither
each Company, the Real Property or any portion thereof, the Improvements or any
property formerly owned, occupied or leased by each Company, nor any property
adjacent to the Real Property is being used or has been used for the treatment,
generation, transportation, processing, handling, production or disposal of any
Hazardous
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<PAGE> 29
Materials or as a landfill or the waste disposal site, and there has been no
spill, release or migration of any Hazardous Materials on or under the Real
Property and no Hazardous Material is present on or under the Real Property
(provided, however, that certain petroleum products are stored and handled on
the Real Property in the ordinary course of each Company's business in
compliance with all Environmental Laws including the existing regulations of the
United States Environmental Protection Agency and the State of Georgia requiring
spill protection, overfill protection and corrosion protection by December 22,
1998); (ii) none of the Real Property or portion thereof, the Improvements or
any property formerly owned, occupied or leased by each Company has been subject
to investigation by any Governmental Authority evaluating the need to
investigate or undertake Remedial Action (as defined below) at such property;
and (iii) none of the Real Property, the Improvements or any property formerly
owned, occupied or leased by each Company or any site or location where each
Company sent waste of any kind, is identified on the current or proposed: (A)
National Priorities List under 40 C.F.R. 300 Appendix B; (B) CERCLA Inventory
System list; or (C) any use arising from any statute analogous to CERCLA. As
used herein, "Remedial Action" shall mean any action required to: (i) clean up,
remove or treat Hazardous Materials; (ii) prevent a release or threat of release
of any Hazardous Material; (iii) perform pre-remedial studies, investigations or
post-remedial monitoring and care; (iv) cure a violation of Environmental Law;
or (v) take corrective action under sections 3004(u), 3004(v) or 3008(h) of RCRA
or analogous state law.
(d) Except as set forth in SCHEDULE 3.11(d) hereto, there have
been and are no: (i) above ground or underground storage tanks, subsurface
disposal systems, or wastes, drums or containers disposed of or buried on, in or
under the ground or any surface waters; (ii) asbestos or asbestos containing
materials or radon gas; (iii) polychlorinated biphenyls ("PCB") or
PCB-containing equipment, including transformers; or (iv) wetlands (as defined
under any Environmental Law) located within any portion of the Real Property,
nor have any liens been placed upon any portion of the Real Property, the
Improvements or any property formerly owned, occupied or leased by each Company
in connection with any actual or alleged liability under any Environmental Law.
(e) Except as set forth on SCHEDULE 3.11(e) hereto: (i) there is
no pending or threatened claim, litigation or administrative proceeding, or
known prior claim, litigation or administrative proceeding, arising under any
Environmental Law involving each Company, the Real Property, the Improvements,
any property formerly owned, leased or occupied by each Company, any off site
contamination affecting the business of each Company or any operations conducted
at the Real Property; (ii) there are no ongoing negotiations with or agreements
with any Governmental Authority relating to any Remedial Action or other
environmental related claim; (iii) each Company has not submitted notice
pursuant to Section 103 of CERCLA or analogous statute or notice under any other
applicable Environmental Law reporting a release of a Hazardous Material into
the environment; and (iv) each Company has not received any notice, claim,
demand, suit or request for information from any governmental or private entity
with respect to any liability or alleged liability under any Environmental Law,
nor has any other entity whose liability therefor, in whole or in part, may be
attributed to each Company, received such notice claim, demand, suit or request
for information.
(f) The Stockholders and each Company have provided to BAG all
environmental studies and reports obtained by them or known to them pertaining
to the Real Property, the Improvements, each Company and any property formerly
owned, occupied or leased by each Company, and have permitted (or will have
permitted as of the Closing Date), the testing of the soil, groundwater,
building components, tanks, containers and equipment on the Real Property, the
Improvements, and any property formerly owned, occupied or leased by each
Company, by BAG or BAG's agents or experts as they have or shall have deemed
necessary or appropriate to confirm the condition of such properties.
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3.12 INVENTORIES. The values at which inventories are carried on each
Company's Balance Sheet reflect the normal inventory valuation policies of each
Company, and such values are in conformity with GAAP consistently applied,
except that no adjustment to the LIFO reserves will be recorded on such
financial statement. All inventories reflected on each Company's Balance Sheet
and Company's Factory Statement or arising since the date thereof are currently
marketable, are of good, usable and merchantable quality in all material
respects, and can reasonably be anticipated to be sold at normal mark-ups within
120 days after the date hereof in the ordinary course of business (subject to
the reserve for obsolete, off-grade or slow-moving items that is reflected in
each Company Balance Sheet), except for spare parts inventory which inventory is
good and usable.
3.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
reflected on each Company's Balance Sheet are good and have been or will have
been collected or are collectible in accordance with their terms at their
recorded amounts, and are subject to no material defenses, setoffs or
counterclaims other than normal cash discounts accrued in the ordinary course of
business, subject to the reserve for bad debts set forth on each Company's
Balance Sheet, as adjusted for operations and transactions through the Closing
Date in the ordinary course of business and consistent with past practices.
3.14 INSURANCE. All material properties and assets of each Company which are
of an insurable character are insured against loss or damage by fire and other
risks to the extent and in the manner reasonable in light of the risks attendant
to the businesses and activities in which each Company is engaged and customary
for companies engaged in similar businesses or owning similar assets. Set forth
on SCHEDULE 3.14 hereto is a list and brief description (including the name of
the insurer, the type of coverage provided, the amount of the annual premium for
the current policy period, the amount of remaining coverage and deductibles and
the coverage period) of all policies for such insurance and each Company has
made or will make available to BAG true and complete copies of all such
policies. All such policies are in full force and effect sufficient for all
applicable requirements of law and will not in any way be effected by or
terminated or lapsed by reason of the consummation of the transactions
contemplated by this Agreement. No notice of cancellation or non-renewal with
respect to, or disallowance of any claim under, any such policy has been
received by each Company.
3.15 CONTRACTS.
(a) SCHEDULE 3.15 contains a complete list of all agreements,
contracts, commitments and other instruments and arrangements (whether written
or oral) of the types described below which exceed $10,000 in value or exceed
one year in duration (excluding any agreements, contracts, commitments and other
instruments and arrangements pertaining to automobiles, vans and other vehicles
that are part of inventory) to which each Company is a party or by which it is
bound ("Company Agreements"):
(i) leases, master rental agreements, service agreements,
insurance policies, Governmental Approvals and other
contracts concerning or relating to the Real Property
(including those referred to on SCHEDULE 3.10);
(ii) employment, consulting, agency, collective bargaining
or other similar contracts, agreements and other
instruments and arrangements relating to or for the
benefit of current, future or former employees,
officers, directors or consultants;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements,
deeds of trust, bonds, notes, guarantees and other
agreements
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and instruments relating to the borrowing of money or
obtaining of or extension of credit;
(iv) licenses, licensing arrangements and other contracts
providing in whole or in part for the use of, or
limiting the use of, any Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including
but not limited to joint research and development and
joint marketing contracts);
(vii) asset purchase agreements and other acquisition or
divestiture agreements, including but not limited to
any agreements relating to the sale, lease or
disposal of any assets (other than sales of inventory
in the ordinary course of business) or involving
continuing indemnity or other obligations;
(viii) orders and other contracts for the purchase or sale
of materials, supplies, products or services;
(ix) contracts with respect to which the aggregate amount
that could reasonably be expected to be paid or
received thereunder in the future exceeds $10,000 per
annum or $50,000 in the aggregate;
(x) sales agency, manufacturer's representative, dealer,
marketing or distributorship agreements;
(xi) master lease agreements providing for the leasing of
personal property used in, or held for use in
connection with, each Company's business;
(xii) contracts, agreements or commitments with any
employee, director, officer, stockholder or affiliate
of each Company;
(xiii) powers of attorney;
(xiv) any guaranty, warranty or indemnity, other than
standard warranties from any automobile manufacturers
with whom each Company has a franchise agreement (or
comparable agreement), given by each Company to its
customers; and
(xv) any other contracts, agreements or commitments that
are material to each Company's business.
(b) Each Company and the Stockholders have delivered to BAG and
the Subs complete copies of all written Company Agreements together with all
amendments thereto, and accurate descriptions of all material terms of all oral
Company Agreements set forth or required to be set forth on SCHEDULE 3.15.
(c) All Company Agreements are in full force and effect and
enforceable against each party thereto, except as such enforceability may be
limited by the effect of bankruptcy, insolvency or similar laws affected
creditors' rights generally or by general principles of equity. There does not
exist under
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any Company Agreement any event of default or event or condition that, after
notice or lapse of time or both, would constitute a violation, breach or event
of default thereunder on the part of each Company, or any other party thereto,
except as set forth in SCHEDULE 3.15 and except for such events or conditions
that, individually and in the aggregate: (i) have not had or result in, and will
not have or result in, a Material Adverse Effect on any Company; and (ii) have
not and will not materially impair the ability of each Company or the
Stockholders to perform their obligations under this Agreement. Except as set
forth in SCHEDULE 3.15, no consent of any third party is required under any
Company Agreement as a result of or in connection with, and the enforceability
of any Company Agreement will not be affected in any manner by, the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
(d) There are no material unresolved disputes involving any
Stockholder, each Company or its employees under any Company Agreement.
3.16 LABOR RELATIONS.
(a) Each Company has paid or made provision for the payment of all
salaries and accrued wages and has complied in all material respects with all
applicable laws, rules and regulations relating to the employment of labor,
including those relating to wages, hours, collective bargaining and the payment
and withholding of taxes, and has withheld and paid to the appropriate
Governmental Authority, or is holding for payment not yet due, to such
authority, an amounts required by law or agreement to be withheld from the wages
or salaries of its employees.
(b) Except as Set forth on SCHEDULE 3.16(b) hereto, each Company
is not a party to any: (i) outstanding employment agreements or contracts with
officers or employees that are not terminable at will, or that provide for
payment of any bonus or commission; (ii) agreement, policy or practice that
requires it to pay termination or severance pay to non-exempt or hourly
employees (other than as required by law); (iii) collective bargaining agreement
or other labor union contract applicable to persons employed by each Company,
nor are there any activities or proceedings of any labor union to organize any
such employees. Each Company has furnished to BAG complete and correct copies of
all such agreements ("Employment and Labor Agreements"). Each Company has not
breached or otherwise failed to comply with any material provisions of any
Employment or Labor Agreement.
(c) Except as set forth in SCHEDULE 3.16(c) hereto: (i) there is
no unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (ii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or threatened, against or
affecting each Company, and each Company has not experienced any such material
slow down or material work stoppage, lockout or other collective labor action by
or with respect to employees of each Company; (iii) there is no representation
claim or petition pending before the NLRB or any similar foreign agency and no
question concerning representation exists relating to the employees of each
Company; (iv) the are no charges with respect to or relating to each Company
pending before the Equal Employment Opportunity Commission or any state, local
or foreign agency responsible for the prevention of unlawful employment
practices; (v) each Company has not received formal notice from any federal,
state, local or foreign agency responsible for the enforcement of labor or
employment laws of an intention to conduct an investigation of each Company and
no such investigation is in progress; and (vi) the consents of the unions that
are parties to any Employment and Labor Agreements are not required to complete
the transactions contemplated by this Agreement.
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(d) Each Company has never caused any "plant closing" or "mass
layoff" as such actions are defined in the Worker Adjustment and Retraining
Notification Act, as codified at 29 U.S.C. Sections 2101-2109, and the
regulations promulgated therein.
3.17 EMPLOYEE BENEFIT PLANS.
(a) Set forth on SCHEDULE 3.17(A) hereto is a true and complete
list of:
(i) each Employee Pension Benefit Plan maintained by each
Company or to which each Company is required to make
contributions;
(ii) each Employee Welfare Benefit Plan maintained by each
Company or to which each Company is required to make
contributions; and
(iii) True and complete copies of all ERISA Plans have been
delivered to or made available to BAG together with,
as applicable with respect to each such ERISA Plan,
trust agreements, summary plan descriptions, all IRS
determination letters or applications therefor with
respect to any Pension Benefit Plan intended to be
qualified pursuant to Section 401(c) of the Code, and
valuation or actuarial reports, accountant's
opinions, financial statements, IRS Form 5500s (or
5500-C or 5500-R) and summary annual reports for the
last three years.
(b) With respect to the ERISA Plans, except as set forth on
SCHEDULE 3.17(b):
(i) there is no ERISA Plan which is a Multiemployer Plan;
(ii) no event has occurred or is threatened or about to
occur which would constitute a prohibited transaction
under Section 406 of ERISA or under Section 4975 of
the Code;
(iii) each ERISA Plan has operated since its inception in
accordance in all material respects with the
reporting and disclosure requirements imposed under
ERISA and the Code and has timely filed Form 5500e
(or 5500-C or 5500-R) and predecessors thereof; and
(iv) no ERISA Plan is liable for any federal, state, local
or foreign Taxes.
(c) Each Pension Benefit Plan intended to be qualified under
Section 401(a) of the Code:
(i) has been qualified, from its inception, under Section
401(a) of the Code, and the trust established
thereunder has been exempt from taxation under
Section 501(a) of the Code and is currently in
compliance with applicable federal laws;
(ii) has been operated, since its inception, in all
material respects in accordance with its terms and
there exists no fact which would adversely affect its
qualified status; and
(iii) is not currently under investigation, audit or review
by the IRS and no such action is contemplated or
under consideration and the IRS has not asserted that
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any Pension Benefit Plan is not qualified under
Section 401(a) of the Code or that any trust
established under a Pension Benefit Plan is not
exempt under Section 501(a) of the Code.
(d) With respect to each Employee Pension Benefit Plan which is a
defined benefit plan under Section 414(j) and, for the purpose solely of Section
3.17(d)(iv) hereof, each defined contribution plan under Section 414(i) of the
Code:
(i) no liability to the PBGC under Sections 4062-4064 of
ERISA has been incurred by each Company since the
effective date of ERISA and all premiums due and
owing to the PBGC have been timely paid;
(ii) no PBGC has notified each Company or any Employee
Pension Benefit Plan of the commencement of any
proceedings under Section 4042 of ERISA to terminate
any such plan;
(iii) no event has occurred since the inception of any
Employee Pension Benefit Plan or is threatened or
about to occur which would constitute a reportable
event within the meaning of Section 4043(b) of ERISA;
(iv) no Employee Pension Benefit Plan ever has incurred an
"accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code; and
(v) if any of such Employee Pension Benefit Plans were to
be terminated on the Closing Date: (A) no liability
under Title IV of ERISA would be incurred by each
Company; and (B) all benefits accrued to the day
prior to the Closing Date (whether or not vested)
would be fully funded in accordance with the
actuarial assumptions and method utilized by such
plan for valuation purposes.
(e) With respect to each Employee Pension Benefit Plan, SCHEDULE
3.17(a) contains a list of all Employee Pension Benefit Plans to which ERISA has
applied which have been or are being terminated, or for which a termination is
contemplated, and a description of the actions taken by the PBGC and the IRS
with respect thereto.
(f) The aggregate of the amounts of contributions by each Company
to be paid or accrued under ERISA Plans for the current fiscal year is not
expected to exceed approximately one hundred and ten percent (110%) of the
amounts of such contributions for the past fiscal year. To the extent required
in accordance with GAAP, each Company's Balance Sheet reflects in the aggregate
an accrual of all amounts of employer contributions accrued by and unpaid by
each Company under the ERISA Plans as of the date of each Company's Balance
Sheet.
(g) With respect to any Multiemployer Plan: (i) each Company has
not, since its formation, made or suffered any "complete withdrawal" or "partial
withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of
ERISA; (ii) there is no withdrawal liability of each Company under any
Multiemployer Plan, computed as if a "complete withdrawal" by each Company had
occurred under each such Plan as of the Closing Date; and (iii) each Company has
not received notice to the effect that any Multiemployer Plan is either in
reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in
Section 4245 of ERISA).
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(h) With respect to the Employee Welfare Benefit Plan:
(i) There are no liabilities of each Company under
Employee Welfare Benefit Plans with respect to any
condition which relates to a claim filed on or before
the Closing Date; and
(ii) No claims for benefits are in dispute or litigation.
3.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS.
(a) Set forth on SCHEDULE 3.18(a) hereto is a true and complete
list of:
(i) each employee stock purchase, employee stock option,
employee stock ownership, deferred compensation,
performance, bonus, incentive, vacation pay, holiday
pay, insurance, severance, retirement, excess benefit
or other plan, trust or arrangement which is not an
ERISA Plan whether written or oral, which each
Company maintains or is required to make
contributions to;
(ii) each other agreement, arrangement, commitment and
understanding of any kind, whether written or oral,
with any current or former officer, director or
consultant of each Company pursuant to which payments
may be required to be made at any time following the
date hereof (including, without limitation, any
employment, deferred compensation, severance,
supplemental pension, termination or consulting
agreement or arrangement); and
(iii) each employee of each Company whose aggregate
compensation for the fiscal year ended December 31,
1996 exceeded, and whose aggregate compensation for
the fiscal year ending December 31, 1997 is likely to
exceed, $50,000. True and complete copies of all of
the written plans, arrangements and agreements
referred to on SCHEDULE 3.18(A) ("Compensation
Commitments") have been provided to BAG together
with, where prepared by or for each Company, any
valuation, actuarial or accountant's opinion or other
financial reports with respect to each Compensation
Commitment for the last three years. An accurate and
complete written summary has been provided to BAG
with respect to any Compensation Commitment which is
unwritten.
(b) Each Compensation Commitment:
(i) since its inception, has been operated in all
material respects in accordance with its terms;
(ii) is not currently under investigation, audit or review
by the IRS or any other federal or state agency and
no such action is contemplated or under
consideration;
(iii) has no liability for any federal, state, local or
foreign Taxes;
(iv) has no claim subject to dispute or litigation;
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(v) has met all applicable requirements, if any, of the
Code; and
(vi) has operated, since its inception, in material
compliance with the reporting and disclosure
requirements imposed under ERISA and the Code.
3.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 3.19 hereto is a
complete and accurate description of all material transactions between each
Company or any ERISA Plan, on the one hand, and any Insider, on the other hand,
that have occurred since January 1, 1994.
3.20 PROPRIETY OF PAST PAYMENTS. Except as set forth on SCHEDULE 3.20
hereto, no funds or assets of each Company have been used for illegal purposes;
no unrecorded funds or assets of each Company have been established for any
purpose; no accumulation or use of each Company's corporate funds or assets has
been made without being properly accounted for in the respective books and
records of each Company; all payments by or on behalf of each Company have been
duly and properly recorded and accounted for in their respective books and
records; no false or artificial entry has been made in the books and records of
each Company for any reason; no payment has been made by or on behalf of each
Company with the understanding that any part of such payment is to be used for
any purpose other than that described in the documents supporting such payment;
and each Company has not made, directly or indirectly, any illegal contributions
to any political party or candidate, either domestic or foreign. Neither the IRS
nor any other federal, state, local or foreign government agency or entity has
initiated or threatened any investigation of any payment made by each Company
of, or alleged to be, the type described in this Section 3.20.
3.21 INTEREST IN COMPETITORS. Except as set forth on SCHEDULE 3.21, neither
each Company nor the Stockholders, nor any of their Affiliates, have any
interest, either by way of contract or by way of investment (other than as
holder of not more than two percent (2%) of the outstanding capital stock of a
publicly traded Person, so long as such holder has no other connection or
relationship with such Person) or otherwise, directly or indirectly, in any
Person other than each Company that is engaged in the retail sale of automobiles
in the United States of America.
3.22 BROKERS. Except as set forth on SCHEDULE 3.22, neither Company, nor any
director, officer or employee thereof, nor the Stockholders or any
representative of the Stockholders, has employed any broker or finder or has
incurred or will incur any broker's, finder's or similar fees, commissions or
expenses, in each case in connection with the transactions contemplated by this
Agreement.
3.23 TERRITORIAL RESTRICTIONS. Except as set forth on SCHEDULE 3.23, each
Company is not restricted by any written agreement or under-standing with any
Person from carrying on its business anywhere in the world. Sub I and Sub II,
solely as a result of the transactions contemplated hereby, will not thereby
become restricted in carrying on any business anywhere in the world.
3.24 INTELLECTUAL PROPERTY.
(a) TITLE. SCHEDULE 3.24(a) contains a complete list of all
Intellectual Property that is owned by each Company and primarily related to,
used in, held for use in connection with, or necessary for the conduct of, or
otherwise material to each Company (the "Owned Intellectual Property") other
than: (i) inventions, trade secrets, processes, formulae, compositions, designs
and confidential business and technical information; and (ii) Intellectual
Property that is both not registered or subject to application for registration
and not material to each Company. Each Company owns or has the exclusive right
to
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use pursuant to license, sublicense, agreement or permission all Intellectual
Property, free from any Liens (other than Permitted Liens) and free from any
requirement of any past, present or future royalty payments, license fees,
charges or other payments, or conditions or restrictions whatsoever. The
Intellectual Property comprises all of the Intellectual Property necessary for
the Subs to conduct and operate the Companies as now being conducted by the
Stockholders. Each Company does not infringe on or otherwise conflict with any
rights of any Person in respect of any Intellectual Property.
(b) LICENSING ARRANGEMENTS. SCHEDULE 3.24(b) sets for all
agreements, arrangements or laws: (i) pursuant to which each Company has
licensed Intellectual Property to, or the use of Intellectual Property is
otherwise permitted (through non-assertion, settlement or similar agreements or
otherwise) by, any other Person; and (ii) pursuant to which each Company has had
Intellectual Property licensed to it, or has otherwise been permitted to use
Intellectual Property. Except as set forth on SCHEDULE 3.24(b), all of the
agreements or arrangements set forth on SCHEDULE 3.24(b): (A) are in full force
and effect in accordance with their terms and no default exists thereunder by
each Company or by any other party thereto; (B) are free and clear of all Liens;
and (C) do not contain any change in control or other terms or conditions that
will become applicable or inapplicable as a result of the consummation of the
transactions contemplated by this Agreement. Stockholders have delivered to BAG
and the Subs complete copies of all licenses and arrangements (including
amendments) set forth on SCHEDULE 3.24(b). All royalties, license fees, charges
and other amounts payable by, on behalf of, to, or for the account of, each
Company in respect of any Intellectual Property are disclosed in each Company's
Financial Statements to the extent material to each Company's Financial
Statements.
(c) LITIGATION. No claim or demand of any Person has been made,
nor is there any proceeding that is pending or threatened, which: (i) challenges
the rights of each Company in respect of any Intellectual Property; (ii) asserts
that each Company is infringing or otherwise in conflict with, or is, except as
set forth in SCHEDULE 3.24(b), required to pay any royalty, license fee, charge
or other amount with regard to, any Intellectual Property; or (iii) claims that
any default exists under any agreement or arrangement listed on SCHEDULE
3.24(b). None of the Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court, arbitrator or
administrative agency.
(d) DUE REGISTRATION. The Owned Intellectual Property has been
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark Office, United States Copyright Office, or such
other filing offices, and each Company has taken such other actions to ensure
full protection under any applicable laws or regulations, and such
registrations, filings, issuances and other actions remain in full force and
effect.
(e) USE OF NAME AND MARK. Except as set forth in SCHEDULE 3.24(e),
there are, and immediately after the Closing will be, no contractual restriction
or limitation pursuant to any orders, decisions, injunctions, judgments, awards
or decrees of any Governmental Authority on the Subs' right to use the names and
marks "Wade Ford" or "Wade Ford Buford" in the conduct of the businesses as
presently carried on by the Companies or as such businesses may be extended by
the Subs.
3.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 3.25 contains an
accurate list, as of the date of this Agreement, of:
(a) the name of each financial institution in which each Company
has accounts or safe deposit boxes;
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(b) the names in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each Person authorized to draw thereon or have
access thereto.
3.26 DISCLOSURE. Neither each Company nor any Stockholder has made any
material misrepresentation to BAG relating to each Company or the Wade Shares,
and neither each Company nor any Stockholder has omitted to state to BAG any
material fact relating to each Company or the Wade Shares which is necessary in
order to make the information given by or on behalf of each Company or the
Stockholders to BAG not misleading or which if disclosed would reasonably affect
the decision of a Person considering an acquisition of the Wade Shares. No fact,
event, condition or contingency exists or has occurred which has, or in the
future can reasonably be expected to have, a Material Adverse Effect on any
Company, which has not been disclosed in each Company's Financial Statements or
the schedules to this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Subject to the Parties' agreement and acknowledgment that certain of
the Schedules referred to in this Article 4 are to be delivered by each Company
and the Stockholders no later than ten (10) business days from the date this
Agreement is executed, the Stockholders and the Companies hereby jointly and
severally represents and warrant to BAG and the Subs that the statements
contained in this Article 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 4) as to each Stockholder:
4.1 OWNERSHIP OF SHARES; TITLE. Each Stockholder is the owner of record and
beneficiary of the Wade Shares set forth on SCHEDULE 4.1 hereof and has, and
shall transfer to the Subs at the Closing, good and marketable title to the Wade
Shares owned by him, free and clear of any and all Liens, claims and
encumbrances and free and clear of any restrictions on transfer (other than
restrictions on transfer imposed by applicable federal and state securities
laws), proxies and voting, or other agreements. Each Stockholder is not a party
to any option, warrant, purchase right or other contract or commitment that
could require any Stockholder to sell, transfer or otherwise dispose of the Wade
Shares (other than this Agreement). Each Stockholder is not a party to any
voting trust, proxy or other agreement or understanding with respect to the
voting of any capital stock of a Company.
4.2 AUTHORITY. Each Stockholder has all requisite power and authority and
has full legal capacity and is competent to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby (including the
disposition of the Wade Shares to the Subs as contemplated by Agreement). This
Agreement has been duly executed and delivered by each Stockholder and
constitutes a valid and binding obligation of each Stockholder, enforceable
against each Stockholder in accordance with its terms. Except as set forth on
SCHEDULE 4.2, the execution, delivery and performance of this Agreement by each
Stockholder and the consummation of the transactions contemplated hereby, do not
and will not:
(a) (after notice or lapse of time or both) conflict with, result
in a breach of any provision of, constitute a default under, result in the
modification or cancellation of, or give rise to any right of termination or
acceleration in respect of, any material contract, agreement, commitment,
understanding,
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arrangement or restriction to which any Stockholder is a party or to which any
Stockholder or any of Stockholders' property is subject;
(b) violate or conflict with any Legal Requirements applicable to
any Stockholder or any of such Stockholder's businesses properties; or
(c) require any authorization, consent, order, permit or approval
of, or notice to, or filing, registration or qualification with, any
Governmental Authority, except in connection with or in compliance with the
provisions of the Hart-Scott-Rodino Act.
4.3 BROKER'S FEES. Each Stockholder has no Liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which BAG or the Subs could
become liable or obligated.
4.4 INVESTMENT. Each Stockholder: (a) understands that any BAG Stock
Consideration Shares have not been, and will not be, registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering; (b) is acquiring any BAG Stock Consideration
Shares solely for his own account for investment purposes, and not with a view
to the distribution thereof; (c) is a sophisticated investor with knowledge and
experience in business and financial matters; (d) has received certain
information concerning BAG and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and risks inherent in
holding any BAG Stock Consideration Shares; (e) is able to bear the economic
risk and lack of liquidity inherent in holding any BAG Stock Consideration
Shares; and (f) is an Accredited Investor for the reasons set forth on ADDENDUM
3. Each Stockholder further acknowledges and understands that the
representations and warranties of the Stockholders and each Company set forth in
this Agreement will be used and relied on by BAG and the Subs to prepare and
file the Registration Statement with the Securities and Exchange Commission.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BAG AND THE SUBS
BAG and the Subs hereby jointly and severally represent and warrant to
each Company and the Stockholders that the statements contained in this Article
5 are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Article 5) as to BAG, Sub I and Sub II:
5.1 ORGANIZATION AND GOOD STANDING. BAG and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the corporate power and authority to
own, lease and operate the properties used in its business and to carry on its
business as now being conducted. BAG and each of its subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each state and jurisdiction where qualification as a foreign corporation is
required, except for such failures to be qualified and in good standing, if any,
which when taken together with all other such failures of BAG and its
subsidiaries would not, or could not reasonably be expected to, in the aggregate
have a Material Adverse Effect on BAG and its subsidiaries, taken as a whole.
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5.2 AUTHORITY; APPROVALS AND CONSENTS. BAG and the Subs have the corporate
power and authority to enter into this Agreement and to perform their respective
obligations hereunder. This Agreement has been duly executed and delivered by,
and constitutes a valid and binding obligation of BAG and the Subs, enforceable
against BAG and the Subs in accordance with its terms. Except as set forth on
SCHEDULE 5.2 hereto, the execution, delivery and performance by BAG and the Subs
of this Agreement and the consummation of the transactions contemplated hereby
do not and will not:
(a) contravene any provisions of the certificate of incorporation
or bylaws of BAG or the Subs;
(b) (after notice or lapse of time or both) conflict with, result
in a breach of any provision, constitute a default under, result in the
modification or cancellation of, or give rise to any right of termination or
acceleration in respect of, any agreements to which BAG or the Subs are a party
(the "BAG Agreements") or require any consent or waiver of any party to any BAG
Agreement other than agreements the breach or violation of which could not
reasonably be expected to have a Material Adverse Effect on BAG and its
subsidiaries, taken as a whole;
(c) violate or conflict with any Legal Requirements applicable to
BAG or any of its subsidiaries or any of their respective businesses or
properties; or
(d) require any authorization, consent, order, permit or approval
of, or notice to, or filing, registration or qualification with, any
Governmental Authority, except in connection with or in compliance with the
provisions of the Hart-Scott-Rodino Act.
5.3 BROKERS. Neither BAG, the Subs nor any of their directors, officers or
employees has employed any broker or finder or has incurred or will incur any
broker's, finder's or similar fees, commissions or expenses, in each case in
connection with the transactions contemplated by this Agreement or the Real
Estate Agreement.
5.4 DISCLOSURE. Neither BAG nor the Subs has made any material
misrepresentations to the Stockholders and neither BAG nor the Subs has omitted
to state to the Stockholders any material fact relating to BAG or the Subs which
is necessary in order to make the information given by BAG or the Subs not
misleading or which if disclosed would reasonably affect the decision of a
Person considering the sale of the Wade Shares. No fact, event, condition or
contingency exists or has occurred which has, or in the future can reasonably be
expected to have, a Material Adverse Effect on BAG or Sub I or Sub II, which has
not been disclosed in the financial statements of BAG, Sub I or Sub II.
ARTICLE 6
COVENANTS AND ADDITIONAL AGREEMENTS
6.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the Closing Date,
the Stockholders and each Company will: (a) provide to the officers and other
authorized representatives of BAG and the Subs full access, during normal
business hours and upon reasonable advanced notice, to any and all premises,
properties, files, books, records, documents and other information of each
Company, and will cause each Company's officers to furnish to BAG and its
authorized representatives any and all financial, technical and operating data
with other information pertaining to the businesses and properties of each
Company (including the Real Property and the Improvements); and (b) make
available for inspection and copying by BAG and the Subs true and complete
copies of any documents relating to the foregoing. BAG and
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the Subs will make their best efforts not to cause any material disruptions to
the business operations of each Company in conducting the due diligence
described in the previous sentence. BAG and the Subs will hold, and will cause
their representatives to hold, in confidence (unless and to the extent compiled
to disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law) all Confidential Information (as defined
below) and will not disclose the same to any third party except in connection
with obtaining financing and otherwise as may reasonably be necessary to carry
out this Agreement and the transactions contemplated hereby, including any due
diligence review by or on behalf of BAG and the Subs. If this Agreement is
terminated, BAG and the Subs will, and will cause their representatives to,
promptly return to each Company all Confidential Information furnished by such
Company, including all copies and summaries thereof. As used herein,
"Confidential Information" with respect to each Company shall mean all
information concerning such Company obtained by BAG, the Subs and their
representatives from such Company in connection with the transactions
contemplated by this Agreement, except information (i) ascertainable or obtained
from public information; (ii) received from a third party not employed by or
otherwise affiliated with such Company; or (iii) which is or becomes known to
the public other than through a breach by BAG or the Subs or any of their
representatives of this Agreement. The Stockholders and the Companies will hold,
and will cause their representatives to hold, in confidence (unless and to the
extent compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law) all Confidential
Information regarding BAG, Subs or the Registration Statement and will not
disclose the same to any third party or use the same for any purpose except as
may be reasonably necessary to carry out this Agreement and the transactions
contemplated hereby. If this Agreement is terminated, the Stockholders and the
Companies will, and will cause their representatives to, promptly return to BAG,
upon the reasonable request of BAG, all Confidential Information furnished by
BAG or Subs or which relates to the Registration Statement, including all copies
and summaries thereof. If the Closing does occur, the Stockholders shall
continue to comply with and be bound by these nondisclosure and nonuse
obligations for a period of five (5) years following the Closing, except that,
with respect to any such Confidential Information which constitutes a trade
secret under the laws of the State of Georgia, the Stockholders shall continue
to comply with and be bound by these nondisclosure and nonuse obligations for so
long as such Confidential Information remains a trade secret.
6.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholders and each
Company, on the one hand, and BAG and the Subs, on the other hand, will, as soon
as practical after reasonable request therefor, furnish to the other all
information concerning the Stockholders and each Company or BAG and the Subs,
respectively, required for inclusion in any statement or application made by BAG
or the Subs or a Company or the Stockholders to any governmental or regulatory
body or to any manufacturer or distributor or in connection with obtaining any
third party consent in connection with the transactions contemplated by this
Agreement. Neither the Stockholders nor any Company, on the one hand, nor BAG or
the Subs, on the other hand, nor any representative thereof, shall issue any
press release or otherwise make any public statement with respect to the
transactions contemplated hereby without the prior consent of the other, except
as may be required by law. BAG shall reimburse each Company and the Stockholders
for any reasonable expenses incurred by such Company and the Stockholders in
connection with this Section.
6.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) Except as set forth on SCHEDULE 6.3(a), from and after the
date of this Agreement and until the Closing Date, each Company shall, and the
Stockholders shall cause each Company to, conduct its businesses solely in the
ordinary course consistent with past practices and, without the prior written
consent of BAG, neither the Stockholders nor any Company will, except as
required or settled pursuant to the terms hereof, permit any Company to:
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(i) make any material change in the conduct of its
businesses and operations or enter into any
transaction other than in the ordinary course of
business consistent with past practices;
(ii) make any change in its Bylaws, issue any additional
shares of capital stock or equity securities or grant
any option, warrant or right to acquire any capital
stock or equity securities or issue any security
convertible into or exchangeable for its capital
stock or alter any material term of any if its
outstanding securities or make any change in its
outstanding shares of capital stock or other
ownership interests or its capitalization, whether by
reason of a reclassification, recapitalization, stock
split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(iii) (A) incur, assume or guarantee any indebtedness for
borrowed money, issue any notes, bonds, debentures or
other corporate securities or grant any option,
warrant or right to purchase any thereof, except
pursuant to transactions in the ordinary course of
business consistent with past practices; (B) issue
any securities convertible or exchangeable for debt
securities of any Company; or (C) issue any options
or other rights to acquire from any Company, directly
or indirectly, debt securities of any Company or any
security convertible into or exchangeable for such
debt securities;
(iv) make any sale, assignment, transfer, abandonment or
other conveyance of any of its assets or any part
thereof, except transactions pursuant to existing
contracts (which will be set forth in SCHEDULE 3.15
hereto) and dispositions in the ordinary course of
business consistent with past practices;
(v) subject any of its assets, or any part thereof, to
any Liens or suffer such to be imposed other than
such liens as may arise in are ordinary course of
business consistent with past practices;
(vi) acquire any assets, raw materials or properties, or
enter into any other transaction, other than in the
ordinary course of business, consistent with past
practices;
(vii) enter into any new (or amend any existing) employee
benefit plan, program or arrangement or any new (or
amend any existing) employment severance or
consulting agreement, grant any general increase in
the compensation of officers or employee (including
any such increase pursuit to any bonus, pension,
profit-sharing or other plan or commitment) or grant
any increase in compensation payable or to become
playable to any employee, except in accordance with
pre-existing contractual provisions or consistent
with past practices;
(viii) make or commit to make any individual material
capital expenditure in excess of $10,000, or
aggregate capital expenditures in excess of $50,000,
except in the ordinary course of business;
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(ix) pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets to, or enter into
any agreement or arrangement with, any of its
Affiliates, except in the ordinary course of
business;
(x) guarantee any indebtedness for borrowed money or any
other obligation of any other Person, other than in
the ordinary course of business consistent with past
practice;
(xi) fail to keep in full force and effect insurance
comparable in amount and scope to coverage maintained
by it (or on behalf of it) on the date hereof;
(xii) make any loan, advance or capital contribution to
investment in any Person, except in the ordinary
course of business;
(xiii) make any change in any method of accounting or
accounting principle, method, estimate or practice
except for any such change required by reason of a
concurrent change in GAAP or write-down the value of
any inventory or write-off as uncollectible any
accounts receivable except in the ordinary course of
business consistent with past practices;
(xiv) settle, release or forgive any material claim or
litigation or waive any material right;
(xv) make, enter into, modify, amend in any material
respect or terminate any material commitment, bid or
expenditure, other than in the ordinary course of
business consistent with past practice; or
(xvi) commit itself to do any of the foregoing.
(b) Except as set for the on SCHEDULE 6.3(b), from and after the
date hereof and until the Closing Date, the Stockholders and each Company will
use their reasonable best efforts to cause each Company to:
(i) continue to maintain, in all material respects, each
Company's properties, all Real Property and all
Improvements in accordance with present practices in
a condition suitable for their current use;
(ii) comply with all applicable Environmental Laws, and,
in the event it shall receive notice that there
exists a violation of any Environmental Law with
respect to its operations, any Improvements or any
Real Property, promptly (and in any event within the
time period permitted by the applicable governmental
authority) remove or remedy such violation in
accordance with all applicable Environmental Laws;
(iii) file, when due or required, federal, state, foreign
and other tax returns and other reports required to
be filed and pay when due all Taxes, assessments,
fees and other charges lawfully levied or assessed
against it unless the validity thereof is contested
in good faith and by appropriate proceedings
diligently conducted;
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(iv) keep its books of account, records and files in the
ordinary course and in accordance with existing
practices;
(v) preserve its business organization intact and
continue to maintain existing business relationships
with suppliers, customers and others with whom
business relationships exist other than relationships
that are, at the same time, not economically
beneficial to it; and
(vi) continue to conduct its business in the ordinary
course consistent with past practices.
6.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. At the Closing there will be
no intercompany payables or intercompany receivables due and/or owing between
the Stockholders and any of their Affiliates, on the one hand, and any Company,
on the other hand, except for the Stockholders' loans as set forth in Section
6.13 hereof, which shall be paid in full on or before the Closing Date.
6.5 NEGOTIATIONS. Until the earlier of the Closing Date Deadline or the
termination of this Agreement pursuant to Section 8.1 hereof, no Stockholder,
nor any Company, nor any Company's officers, directors, employees, advisors,
agents, representatives, Affiliates or anyone acting on behalf of the
Stockholders, any Company or such persons, shall, directly or indirectly,
encourage, solicit, initiate or engage in discussions or negotiations with, or
provide any information to, any Person (other than BAG or its representatives)
concerning any merger, sale of assets (other than in the ordinary course of
business), purchase or sale of shares of capital stock or similar transaction
involving any Company. The Stockholders shall promptly communicate to BAG any
inquiries or communications concerning any such transaction (including the
identity of any Person making such inquiry or communication) which the
Stockholders may receive or of which the Stockholders may become aware.
6.6 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the
Stockholders and each Company and BAG and the Subs will use their respective
best efforts at their own expense:
(a) to obtain prior to the earlier of the date required (if so
required) or the Closing Date, all Government Approvals, and make all filings
and registrations with Governmental Authorities which are required on their
respective parts for: (i) the consummation of the transactions contemplated by
this Agreement; (ii) the ownership or leasing and operating after the Closing by
each Company of all its material properties; and (iii) the conduct after the
Closing by each Company of its businesses as conducted by it on the date hereof;
(b) to obtain approval of Ford Motor Company of the proposed
Agreement herein and each Company and the Subs and the dealer Wade Ford, Inc. in
Smyrna, Georgia and Wade Ford Buford, Inc. in Buford, Georgia;
(c) to defend, consistent with applicable principles and
requirements of law, any lawsuit or other legal proceedings, whether judicial or
administrative, whether brought derivatively or on behalf of third persons
(including Governmental Authorities) challenging this Agreement or the
transactions contemplated hereby; and
(d) to furnish each other such information and assistance as may
reasonably be requested in connection with the foregoing.
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6.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this
Agreement, each of the Parties hereto agrees to use its best efforts at its own
expense to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable Legal
Requirements to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers of each Company shall take all such necessary action. Furthermore, each
Stockholder and the officers and directors of each Company expressly agree to
execute any and all additional documents, and to provide any and all additional
information, that are required by the Georgia Business Corporation Code, the
rules and regulations of the Securities Act, any other Governmental Authority,
or reasonably requested by counsel to BAG or the Subs, to effectuate the
transactions contemplated by this Agreement.
6.8 INTERIM FINANCIAL STATEMENTS. If requested by BAG and at BAG's expense,
within thirty (30) days after the end of each calendar month after October 31,
1997, each Company shall deliver to BAG unaudited balance sheets of such Company
at the end of such calendar month and at the end of the corresponding calendar
month of the previous fiscal year, together with the related unaudited
statements of income and cash flow for the first months then ended of each
Company. Each Company will also deliver to BAG copies of such Company's Factory
Statements provided to Ford Motor Company after the date hereof within five (5)
days of their delivery to Ford Motor Company. All such financial statements
shall fairly present the financial position and results of operations of each
such Company as of the date or for the periods indicated. All unaudited
financial statements delivered pursuant to this Section 6.8 shall be prepared on
a basis consistent with each Company's Financial Statements.
6.9 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing, each Party to this Agreement will give prompt notice in writing to the
other Party hereto of: (i) any information that indicates that any
representation and warranty of such Party contained herein was not true and
correct as of the date made, or will not be true and correct as of the Closing;
(ii) the occurrence of any event which could result in the failure to satisfy a
condition specified in Article 7 or Article 8 hereof, as applicable; (iii) any
notice or other communication from any third Person alleging that the consent of
such third Person is or may be required in connection with the transactions
contemplated by this Agreement; and (iv) in the case of the Stockholders and
each Company, any notice of, or other communication relating to, any default or
event which, with notice or lapse of time or both, would become a default under
any Company Agreement set forth on SCHEDULE 3.15. Each Company and the
Stockholders will: (a) promptly advise BAG of any event that has, or could
reasonably be expected in the future to have, a Material Adverse Effect on any
Company; (b) confer on a regular and frequent basis with one or more designated
representatives of BAG to report operational matters and to report the general
status of ongoing operations; and (c) notify BAG of any emergency or other
change in the normal course of business or relating to the Real Property or
Improvements of each Company and the Stockholder Real Property and of any
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any Governmental Authority or adjudicatory
proceedings involving any Company, the Real Property or the Improvements or the
Stockholder Real Property and will keep BAG fully informed of such events and
permit BAG's representatives access to all materials prepared in connection
therewith. Each Stockholder shall give prompt notice to BAG of any notice or
other communication from any third Person asserting any right, title or interest
in any of the Wade Shares held by such Stockholder, including, without
limitation, any threat to commerce, or notice of the commencement of any action
or other proceeding with respect to the Wade Shares, or the occurrence of any
other event of which such Stockholder has Knowledge which could result in any
failure to consummate the sale of the Wade Shares as contemplated hereby. The
delivery of any notice pursuant to this Section 6.9 shall not be deemed to: (i)
modify the representations and warranties hereunder of the Party
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delivering such notice, which modification may only be made pursuant to the last
part of this Section 6.9; (ii) modify the conditions set forth in Articles 7 and
8; or (iii) limit or otherwise affect the remedies available hereunder to the
Party receiving such notice. Each Party hereto agrees that with respect to the
representations and warranties of such Party contained in this Agreement, such
Party shall have the continuing obligation until the Closing to supplement or
amend promptly the Schedules hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules. For all
purposes of this Agreement, including, without limitation, for purposes of
determining whether the conditions set forth in Section 7.1 and Section 8.1 have
been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 6.9. No amendment or supplement
to a schedule shall be made later than forty-eight (48) hours prior to the
anticipated effectiveness of the Registration Statement.
6.10 ASSURANCE BY THE STOCKHOLDERS. Each Stockholder shall use its best
efforts to cause each Company to comply with its respective covenants set forth
in this Agreement.
6.11 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. BAG, the Stockholders and each
Company, as applicable, shall each file or cause to be filed with the Federal
Trade Commission and the United States Department of Justice any notifications
required to be filed by the respective "ultimate parent" entities under the
Hart-Scott-Rodino Act and the rules and regulations promulgated thereunder with
respect to the transactions contemplated herein. BAG shall pay the
Hart-Scott-Rodino Act filing fee relating to such filings. The Parties shall use
their best efforts to make such filings promptly, to respond to any requests for
additional information made by either of such agencies, to cause the waiting
periods under the Hart-Scott-Rodino Act to terminate or expire at the earliest
possible date, and to resist vigorously, at BAG's expense (including, without
limitation, the institution or defense of legal proceedings), any assertion that
the transactions contemplated herein constitute a violation of the antitrust
laws, all to the end of expediting consummation of the transactions contemplated
herein; provided, however, that if BAG shall determine that continuing such
resistance is not in its best interest, BAG may, by written notice to the other
Parties, terminate this Agreement with the effect set forth in Section 9.2
hereof.
6.12 USE OF BUSINESS NAME. After the Closing Date, BAG and each Company may
use the names "Wade Ford" and "Wade Ford Buford" in connection with business of
each Company, respectively. After the Closing, none of the Stockholders nor any
of their Affiliates shall ever use, without the prior written permission of BAG,
which permission BAG may withhold or deny in its sole discretion for any reason
whatsoever, the names "Wade Ford" and "Wade Ford Buford" in connection with the
sale or servicing of new or used automobiles, light-duty trucks or any other
motorized vehicles.
6.13 RELATED PARTY / STOCKHOLDERS LOAN. On or before the Closing Date, the
Stockholders shall cause each Company to pay, and each Company shall pay, all of
the outstanding principal and all accrued but unpaid interest on any related
Party/Stockholder loans (the "Stockholder Loans"). For purposes of this Section,
the Stockholder Loans shall mean the loans to each Company from Stockholders and
their Affiliates as set forth on such Company's Balance Sheet and listed on
SCHEDULE 6.13.
6.14 STOCK RESTRICTION AGREEMENT. Prior to the Closing Date, any and all
stock restriction agreements, buy/sell agreements, shareholder agreements or
other similar agreements of each Company (the "Stock Restriction Agreement")
shall be terminated in accordance with its terms and the parties thereto shall
have released any and all claims arising under or relating to the Stock
Restriction Agreement and its termination.
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6.15 PERSONAL ITEMS. The Parties acknowledge and agree that the Stockholders
may retain certain personal items (which items are not reflected as assets on
any Company's Balance Sheet). These items will include personal pictures, awards
and mementos.
6.16 LIABILITY FOR TRANSFER TAXES. Stockholders shall be responsible for the
timely payment of, and shall indemnify and hold harmless BAG and the Subs
against, all income, sales (including without limitation bulk sales), use, value
added, documentary, stamp, gross receipts, registration, transfer, conveyance,
excise, recording, license and other similar Taxes and fees ("Transfer Taxes")
arising out of or in connection with or attributable to the transactions
effected pursuant to this Agreement. Stockholders shall prepare and timely file
all tax returns required to be filed in respect of Transfer Taxes (including
without limitation all notices required to be given with respect to bulk sales
taxes), provided that the Subs shall be permitted to prepare any such tax
returns that are the primary responsibility of the Subs under applicable law.
6.17 CERTIFICATES OF TAX AUTHORITIES. On or before the Closing Date,
Stockholders shall provide to the Subs copies of certificates from the
appropriate taxing authority stating that no Taxes are due to any state or other
taxing authority for which the Subs could have liability to withhold or pay
Taxes with respect to the sale of any Company. If Stockholders fail to provide
such certificates, the Subs shall withhold or, where appropriate, escrow such
amount as necessary based upon Sub's reasonable estimate of the amount of such
potential liability, or as determined by the appropriate taxing authority, to
cover such Taxes until such time as certificates are provided.
6.18 RELEASE BY STOCKHOLDERS. The Stockholders hereby agree and confirm that
they hereby fully release, acquit and forever discharge each Company, together
with each Company's successors, assigns, affiliates, parent and related parties,
from any and all Claims, except for compensation payable to the Stockholders by
each applicable Company for the most recent standard payroll period (based upon
each Company's standard practices) which have not been paid plus the reasonable
reimbursable expenses based upon the past practices of each Company.
6.19 ELECTION OF DIRECTOR. At an appropriate time, to be determined by BAG
in its sole discretion, prior to the Closing, Mr. Alan Arnold, if he so desires,
shall be elected to become a member of the board of directors of BAG.
6.20 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Companies and
the Stockholders shall furnish or cause to be furnished to BAG and the
underwriters of the BAG IPO (the "Underwriters") all of the information
concerning the Companies and the Stockholders required for inclusion in, and
will cooperate fully and completely with BAG, BAG's legal counsel, BAG's
accountants and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including any and all audited
financial statements, as required by the applicable securities laws and
regulations, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement).
6.21 AUDITS. For purposes of any audits that are to be conducted by the
Accountants as required by this Agreement, BAG shall instruct the Accountants to
conduct such audits in a manner that is consistent with the accounting practices
that are utilized by the Accountants in their audits of BAG.
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ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF BAG
AND THE SUBS TO EFFECT THE CLOSING
The Obligations of BAG and the Subs required to be performed by them at
the Closing shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions, each of which may be waived by BAG and the
Subs in writing as provided herein except as otherwise required by applicable
law:
7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the
representations and warranties of each Company and the Stockholders contained in
this Agreement shall be true and correct on the date made and shall be true and
correct in all material respects as of the Closing. Each of the obligations of
each Company and the Stockholders required by this Agreement to be performed by
them at or prior to the Closing shall have been duly performed and complied with
in all material respects as of the Closing. At the Closing, the Subs shall have
received a certificate, dated the Closing Date and duly executed by the
Stockholders and each Company, to the effect that the conditions set forth in
the two preceding sentences have been satisfied.
7.2 AUTHORIZATION; CONSENT.
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and the Transaction Documents, and
the consummation of the transactions contemplated hereby shall have been duly
and validly taken by each Company. All filings required to be made under the
Hart-Scott-Rodino Act in connection with transactions contemplated hereby shall
have been made, and all applicable waiting periods with respect to each such
filing, including extensions thereof, shall have expired or been terminated.
(b) All notices to, and declarations, filings and registrations
with Governmental Authorities, and all Government Approvals and all third
persons, including, but not limited to, all automobile manufacturers with whom
each Company has a franchise agreement (or comparable agreement), required to
consummate the transactions contemplated hereby and all other consents or
waivers shall have been made or obtained.
7.3 OPINIONS OF EACH COMPANY'S AND THE STOCKHOLDER'S COUNSEL. BAG and the
Subs shall have been furnished with the opinion of each Company's and the
Stockholders' counsel, dated the Closing Date, in a form as set forth on EXHIBIT
C-1 attached hereto and incorporated herein.
7.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any
court of competent jurisdiction in the United States shall be in effect: (a)
that prevents or delays the consummation of any of the transactions contemplated
hereby; or (b) would impose any limitation on the ability of BAG or the Subs
effectively to exercise all rights of ownership of the Wade Shares. No action,
suit or proceeding before any court or any governmental or regulatory entity
shall be pending (or threatened by any governmental or regulatory entity), and
no investigation by any governmental or regulatory entity shall have been
commenced (and be pending), seeking to restrain or prohibit (or questioning the
validity or legality of) the consummation of the transactions contemplated by
this Agreement or the Transaction Documents or seeking damages in connection
therewith which BAG or the Subs, in good faith and with the advice of counsel,
believes it makes it undesirable to proceed with the consummation of the
transactions contemplated hereby.
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7.5 NO MATERIAL ADVERSE EFFECT. During the period from December 31, 1996 to
the Closing Date, there shall not have been any Material Adverse Effect on any
Company, other than payments to Stockholders in accordance with the terms of
this Agreement.
7.6 REGISTRATION STATEMENT. BAG shall have filed with the SEC a
registration statement on Form S-1 (the "Registration Statement") covering the
offer and sale of the BAG IPO Stock. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire, subject to the conditions set forth in the underwriting
agreement, shares of BAG IPO Stock. The closing of the sale of the BAG IPO Stock
to the underwriters shall have occurred simultaneously with the Closing
hereunder.
7.7 COMPLETION OF DUE DILIGENCE. BAG and the Subs shall have completed
their due diligence examination of each Company, and the results of such
examination shall be reasonably satisfactory to BAG and the Subs; provided,
however, that the conditions contained in this SECTION 7.7 shall not be a
condition precedent to the Obligations of BAG and the Subs hereunder after the
date that is sixty (60) days after the date hereof.
7.8 REAL ESTATE PURCHASE AGREEMENTS; LEASES.
(a) REAL ESTATE PURCHASE OPTION. The Stockholders and the Subs or
their respective assignees shall have entered into an option to purchase
substantially in the form attached hereto as EXHIBIT D (the "Real Estate Option
Agreements") pursuant to which Subs or their assignee shall have the options to
purchase one or both of the real property parcels owned by Mr. Alan Arnold and
used in the business of Wade Ford, Inc. and Wade Ford Buford, Inc. (the "Arnold
Properties"). The Subs must exercise their respective options to purchase the
Arnold Properties pursuant to the Real Estate Option Agreements on or before the
date that is thirty (30) days after the Closing Date (the "Real Estate Option
Deadline"), and the real estate transactions underlying each such Real Estate
Option Agreement must be consummated on or before the date that is sixty (60)
days after the date on which each of the Sub's exercises its option.
(b) LEASES. In addition to the Real Estate Option Agreements, the
real estate leases affecting the Arnold Properties as of the date hereof (the
"Arnold Leases") shall have been modified and amended upon terms that are
mutually acceptable to the Parties and substantially as follows: (i) Each Arnold
Lease shall be for a term of ten (10) years and the lessees shall have options
to renew each Arnold Lease for two (2) additional terms of five (5) years each;
(ii) each Arnold Lease shall be a triple net lease; (iii) the base monthly
rental for each Arnold Lease for the period beginning on the Closing Date and
ending on the date that is twelve months after the Closing Date (the "Lease
Anniversary") shall equal the same base monthly rental in effect with respect to
the Arnold Leases as of the date hereof; (iv) the base monthly rental for each
Arnold Lease for the one year period following the Lease Anniversary shall equal
one percent (1%) of the Fair Market Value (as hereinafter defined) of each
respective Arnold Property (the "Initial FMV Rent"); (v) on the second
anniversary after the Closing Date, and on every second (2nd) anniversary
thereafter, the base monthly rental of each Arnold Lease shall increase to an
amount equal to the base monthly rental then in effect plus an amount equal to a
percentage increase in the Consumer Price Index published from time to time by
the United States Department of Labor ("CPI") for the Atlanta metropolitan area
from the time of the last adjustment to the base monthly rental, or, in the
event no CPI is published, a comparable index. BAG or another operating
Subsidiary of BAG reasonably acceptable to the lessors of the Arnold Leases
shall unconditionally guaranty the payments and performance of each lessee under
each Arnold Lease. For purposes herein, the term "Fair Market Value" shall be
the amount determined by the mutual agreement of the Parties subsequent to
valuations of each Arnold Property by an appraiser selected by the Subs and a
second appraiser selected by Mr.
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Alan K. Arnold. If the Parties do not reach an agreement with respect to the
Fair Market Value, a third appraiser shall be selected by the two initial
appraisers and the third appraiser shall determine the Fair Market Value, and
said third appraiser's determination shall be binding on the Parties. The costs
of such a third appraiser, if any, shall be shared equally by the Parties.
7.9 CERTIFICATES. The Stockholders and officers of each Company shall have
furnished BAG and the Subs with a certificate, dated as of the Closing Date and
substantially in the form attached hereto as EXHIBIT E-1 and E-2, executed by
the Stockholders and said officers certifying to the fulfillment of the
conditions set forth in Sections 7.5 and 7.14 hereof, and shall have furnished
BAG and the Subs with such any other certificates of its officers as BAG and the
Subs may reasonably request to evidence compliance with the conditions set forth
in this Article 7.
7.10 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of the
Stockholders and each Company under the provisions of this Agreement, and all
other actions and proceedings required to be taken by or on behalf of the
Stockholders and each Company in furtherance of the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to counsel for
BAG and the Subs.
7.11 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. Ford Motor Company shall have
consented to, authorized and approved the transactions contemplated by this
Agreement on reasonable terms that are acceptable to BAG and Sub I and Sub II in
their sole discretion.
7.12 REGISTRATION RIGHT AGREEMENT. BAG and the Stockholders shall have
entered into a registration rights agreement with respect to the BAG Stock
Consideration Shares substantially in the form attached hereto as EXHIBIT F (the
"Registration Rights Agreement").
7.13 EMPLOYMENT AGREEMENTS; NON-COMPETITION AGREEMENTS. The Subs, the
Companies, Mr. Alan Arnold, Mr. Gary Billings and other key employees of the
Companies, as mutually selected by the Parties, shall have entered into
employment agreements in the forms attached hereto as EXHIBITS G-1 and G-2 (the
"Employment Agreements") and non-competition agreements in the forms attached
hereto as EXHIBITS H-1 and H-2.
7.14 ENVIRONMENTAL LAWS. Each Company shall be in material compliance with
all applicable Environmental laws.
7.15 LEASE TERMINATION AGREEMENT / MEMORANDUM OF LEASE / CONSENTS AND
ESTOPPELS. The appropriate parties shall have executed a lease termination
agreement and a memorandum of lease with respect to each lease listed in
SCHEDULE 3.10 in form and substance satisfactory to BAG and each Company.
Alternatively, if the transactions contemplated hereby would constitute an
"assignment" pursuant to said leases, Sub I or Sub II, as applicable, shall have
received consents from the lessor of each such lease to the "assignment" of such
lease to Sub I or Sub II, as applicable, to the extent such consent is required
by such applicable lease. Sub I and Sub II shall also have received estoppel
certificates addressed to Sub I or Sub II, as applicable, from the lessor of
each such Lease, dated within thirty (30) days prior to the Closing Date,
identifying the lease documents and any amendments thereto, stating that such
lease is in full force and effect and that the tenant is not in default under
such lease and no event has occurred that, with notice or lapse of time or both,
would constitute a default by the tenant under such lease and containing any
other information reasonably requested by Sub I or Sub II, as applicable.
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7.16 RESIGNATION OF EACH COMPANY'S DIRECTORS AND OFFICERS. Each of the
persons who is a director or officer of each Company on the Closing Date shall
have tendered to the Subs in writing his or her resignation as such director or
officer in a form and substance satisfactory to the Subs and BAG.
7.17 SCHEDULES. Each Company and the Stockholders shall have delivered to
BAG and the Subs all Schedules referred to in Articles 3 and 4 of this Agreement
and such Schedules shall be acceptable in form and substance satisfactory to BAG
and the Subs.
7.18 SHARE CERTIFICATES. Certificates representing one hundred percent
(100%) of the shares of common stock of Wade Ford, Inc. and Wade Ford Buford,
Inc. shall have been, or shall at the Closing be, validly delivered and
transferred to Sub I and Sub II, respectively, free and clear of any and all
Liens.
7.19 NON-FOREIGN STATUS. Each of the Stockholders shall have provided BAG
and the Subs with an affidavit of non-foreign status that complies with Section
1445 of the Code.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS
TO EFFECT THE CLOSING
The obligations of the Stockholders and each Company required to be
performed by them at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which may be
waived by the Companies and the Stockholders in writing as provided herein
except as otherwise required by applicable law:
8.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the representations
and warranties of BAG and the Subs contained in this Agreement shall be true and
correct on the date made and shall be true and correct in all material respects
as of the Closing. Each of the obligations of BAG and the Subs required by this
Agreement to be performed by them at or prior to the Closing shall have been
duly performed and complied with in all material respects as of the Closing. At
the Closing, the Stockholders shall have received a certificate, dated the
Closing Date and duly executed by an officer of BAG and of the Subs to the
effect that the conditions set forth in the preceding two sentences have been
satisfied.
8.2 AUTHORIZATION OF THE AGREEMENT; CONSENTS.
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, shall have been duly and validly taken by BAG
and the Subs. All filings required to be made under the Hart-Scott-Rodino Act in
connection with transactions contemplated hereby shall have been made, and all
applicable waiting periods with respect to each such filing, including
extensions thereof, shall have expired or been terminated.
(b) All notices to, and declarations, filings and registrations
with Governmental Authorities, and all Government Approvals and all third
persons, including, but not limited to, all automobile manufacturers with whom
each Company has a franchise agreement (or comparable agreement), required to
consummate the transactions contemplated hereby and all consents or waivers
shall have been made or obtained.
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8.3 OPINIONS OF BAG'S AND SUB'S COUNSEL. The Stockholders shall have been
furnished with the opinion of The Whicker Law Firm, counsel to BAG and the Subs,
dated the Closing Date, in a form as set forth on EXHIBIT C-2 attached hereto
and incorporated herein.
8.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree shall have
been issued by any court and be in effect restraining or prohibiting the
consummation of the transactions contemplated hereby.
8.5 REAL ESTATE PURCHASE AGREEMENTS; LEASES. The conditions set forth in
SECTION 7.8 above shall have been satisfied.
8.6 CERTIFICATES. BAG and the Subs shall have furnished the Stockholders
with such certificates of its officers and others to evidence compliance with
the conditions set forth in this Article as may be reasonably requested by the
Stockholders.
8.7 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of BAG or the
Subs under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of BAG or the Subs in
furtherance of the transactions contemplated hereby, shall be reasonably
satisfactory in form and substance to counsel for the Stockholders.
8.8 REGISTRATION STATEMENT. BAG shall have filed with the SEC the
Registration Statement covering the offer and sale of the BAG IPO Stock. The
Registration Statement shall have been declared effective by the SEC and the
underwriters named therein shall have agreed to acquire, subject to the
conditions set forth in the underwriting agreement, shares of BAG IPO Stock. The
closing of the sale of the BAG IPO Stock to the underwriters shall have occurred
simultaneously with the Closing hereunder.
8.9 REGISTRATION RIGHT AGREEMENT. BAG and the Stockholders shall have
entered into the Registration Rights Agreement with respect to the BAG Common
Stock substantially in the form attached hereto as EXHIBIT F.
8.10 EMPLOYMENT AGREEMENTS. The Subs, the Companies, Mr. Alan Arnold and Mr.
Gary Billings and other key employees of the Companies, as mutually selected by
the Parties, shall have entered into the Employment Agreements.
8.11 STOCK PRICE PROTECTION AGREEMENT. BAG and the Stockholders shall have
entered into the Agreement substantially in the form attached hereto as EXHIBIT
I with respect to certain stock price protection in favor of the Stockholders.
8.12 CONSIDERATION. The Subs shall have tendered to the Stockholders the
Merger Consideration (less the Escrow Consideration) payable to the Stockholders
at the Closing and shall have placed into escrow the Escrow Consideration.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(a) by written mutual consent of BAG, the Subs and the
Stockholders;
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(b) by either BAG, the Subs or the Stockholders by written notice
if the Closing shall not have taken place on or prior to the Closing Date
Deadline, or such other date as shall have been approved by BAG, the Subs and
the Stockholders in writing (provided that the terminating Party is not
otherwise in material breach of its representation, warranties, covenants or
agreements under this Agreement);
(c) by BAG, the Subs or the Stockholders if any court of competent
jurisdiction in United States or other United States governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, any such order, decree, ruling or other action shall have become
final and non-appealable;
(d) by BAG or the Subs if any of the conditions specified in
Article 7 hereof have not been met or waived by BAG or the Subs at such time as
such condition is no longer capable of satisfaction (provided that neither BAG
nor the Subs is otherwise in material breach of its representations, warranties,
covenants or agreements under this Agreement);
(e) by the Stockholders if any of the conditions specified in
Article 8 hereof have not been met or waived by the Stockholders at such time as
such condition is no longer capable of satisfaction (provided that neither the
Stockholders nor any Company is otherwise in material breach of his or its
representations, warranties, covenants or agreements under this Agreement); or
(f) by either BAG, the Subs or the Stockholders if there has been
a material breach on the part of the other of any representation, warranty,
covenant or agreement set forth in this Agreement, which breach has not been
cured within ten (10) Business Days following receipt by the breaching Party of
written notice of such breach.
If BAG, the Subs or the Stockholders shall terminate this Agreement
pursuant to the provisions hereof, such termination shall be effectuated by
written notice to the other Parties specifying the provision hereof pursuant to
which such termination is made.
9.2 PROCEDURE AND EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 9.1 above, this Agreement shall forthwith become
null and void, and none of the Parties hereto or any of their respective
officers, directors, employees, agents, affiliates, consultants, stockholders or
principals shall have any liability or obligation hereunder or with respect
hereto, except for (a) any liability arising out of any breach of this Agreement
prior to its termination; (b) the obligations contained in Section 6.1 and
Section 6.2 hereof, and (d) as set forth below in this Section 9.2:
(i) If this Agreement is terminated by the Stockholders
or the Companies pursuant to the provisions of
Section 9.1(b) above, Sub I and Sub II shall, within
five (5) days of written demand therefore by the
Stockholders, pay to the Stockholders in immediately
available funds, as liquidated damages for the loss
of the transaction and not as a penalty, a
termination fee of Five Hundred Thousand Dollars
($500,000) ("Termination Fee").
(ii) Notwithstanding anything to the contrary contained in
Section 9.2(i) hereof or elsewhere in this Agreement,
no Termination Fee shall be due hereunder if the
Closing does not occur on or before the Closing Date
due to any of the following reasons: (A) all
Government Approvals required to consummate the
transactions contemplated hereby have not been
obtained by BAG or the Subs; (B) all consents or
approvals from automobile manufacturers with whom
each Company
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has a franchise agreement (or comparable agreement)
have not been obtained by BAG or the Subs on terms
and conditions which are comparable with or
substantially similar in form to the terms and
conditions of said manufacturer's consent or
approvals in other similar transactions that occurred
during the twelve (12) month period immediately
preceding the date hereof; (C) due to any war,
natural disaster or other acts of God; or (D) there
has been a material breach on the part of any Company
or any Stockholder of any of such Company's or
Stockholder's representation, warranty, covenant or
agreement set forth in this Agreement.
(iii) The Termination Fee shall be the sole and exclusive
remedy of Stockholders and the Companies for damages
as a result of a breach of this Agreement. Because
the actual damages that the Stockholders and the
Companies would sustain if any of BAG, Sub I or Sub
II breaches its obligations under this Agreement are
uncertain and would be impossible or very difficult
to ascertain accurately, the Parties agree in good
faith that the Termination Fee would be reasonable
and just compensation for the harm caused by such
breach. Therefore, the Stockholders and the Companies
acknowledge and agree to accept said Termination Fee,
if due and paid hereunder, as liquidated damages, and
not as a penalty, in the event of a breach by BAG or
Sub I or Sub II.
ARTICLE 10
INDEMNIFICATION AND SURVIVAL
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement shall survive the execution and delivery
of this Agreement, any examination by or on behalf of the Parties, and the
Closing contemplated herein, only to the extent specified below:
(a) the representations and warranties contained in Section 2.2,
Sections 3.5-3.7, Sections 3.9-3.10, Sections 3.12-3.25, Section 4.3, and
Section 5.3 shall survive for a period of two (2) years following the Closing
Date;
(b) the representations and warranties contained in Section 3.11
shall survive for a period of five (5) years following the Closing Date;
(c) the representations and warranties contained in Sections
3.1-3.4, Section 3.26, Section 4.1, Section 4.2, Section 4.4 Section 5.1,
Section 5.2, and Section 5.4 shall survive without limitation; and
(d) the representations and warranties contained in Section 3.8
shall survive as to any Tax covered by such representations and warranties for
so long as any statute of limitations for such Tax remains open, in whole or in
part, including without limitation by reason of waiver of such statute of
limitations.
10.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF BAG AND THE SUBS.
(a) In the event any Stockholder breaches (or in the event any
third party alleges facts that, if true, would mean the Stockholders had
breached) any of his representations, warranties and covenants contained herein
(other than the covenants in Article I above and the representations and
warranties in Sections 3.1-3.4, Section 3.8, 3.11, Section 3.26, Section 4.1,
Section 4.2, and Section 4.4 above), and, if there is an applicable survival
period pursuant to Section 10.1 above, provided that BAG or the Subs make a
written claim for indemnification against
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the Stockholders pursuant to Section 10.4 below within such survival period,
then the Stockholders shall jointly and severally indemnify BAG and the Subs
from and against the entirety of any Adverse Consequences BAG and the Subs may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences BAG and the Subs may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach); provided, however,
that the Stockholders shall not have any obligation to indemnify BAG and the
Subs from and against any Adverse Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or alleged breach) of
any representation or warranty of the Stockholders contained in Section 2.2,
Sections 3.5-3.7, Sections 3.9-3.10, Sections 3.12-3.25, and Section 4.3 above
until BAG and the Subs have suffered Adverse Consequences by reason of all such
breaches (or alleged breaches) in excess of a Two Hundred Thousand Dollars
($200,000) aggregate threshold (at which point the Stockholders will be
obligated to indemnify BAG and the Subs from and against only those Adverse
Consequences which are in excess of said $200,000 amount) not to exceed a
maximum dollar amount of Six Million Two Hundred Fifty Thousand Dollars
($6,250,000).
(b) In the event the Stockholders breach their covenants in
Article I above or any of their representations and warranties in Sections
3.1-3.4, 3.11, Section 3.26, Section 4.1, Section 4.2, and Section 4.4 above,
and, if there is an applicable survival period pursuant to Section 10.1 above,
provided that BAG or the Subs make a written claim for indemnification against
the Stockholders pursuant to Section 10.4 below within such survival period,
then the Stockholders agree to indemnify BAG and the Subs from and against the
entirety of any Adverse Consequences BAG and the Subs may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences BAG and the Subs may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(c) The Stockholders agree to indemnify BAG and the Subs from and
against the entirety of any Adverse Consequences BAG and the Subs may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Liability of any Company for any Taxes of any Company with respect to any Tax
period or portion thereof ending on or before the Closing Date (or for any Tax
period beginning before and ending after the Closing Date to the extent
allocable determined in a manner consistent with Section 10.3 to the portion of
such period beginning before and ending on the Closing Date).
10.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE STOCKHOLDERS. In the
event BAG or the Subs breach any of its representations, warranties and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 10.1 above, provided that the Stockholders make a written
claim for indemnification against BAG or the Subs pursuant to Section 10.4 below
within such survival period, then BAG and the Subs agree to indemnify the
Stockholders from and against the entirety of any Adverse Consequences the
Stockholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Stockholders may suffer
after the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
10.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 10, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified
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Party in notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as: (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen (15)
days after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim; (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder; (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief; (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedental custom or practice materially adverse to the
continuing business interests of the Indemnified Party; and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with this Section 10.4: (A) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim; (B) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably); and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in this Section 10.4 are or
become unsatisfied, however: (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses); and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 10.
10.5 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable or common law remedy (including without limitation any such remedy
arising under Environmental Laws) any Party may have with respect to any Company
or the transactions contemplated by this Agreement. The Stockholders hereby
agree that they will not make any claim for indemnification against any Company
by reason of the fact that any such Stockholder was a director, officer,
employee or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses or otherwise and whether such claim
is pursuant to any statute, charter document, bylaw, agreement or otherwise)
with respect to any action, suit, proceeding, complaint, claim or demand brought
by BAG or the Subs against the Stockholders (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
Legal Requirements, or otherwise).
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10.6 TAX SAVINGS. Costs arising or resulting from any breaches of
Stockholders or BAG hereunder shall be reduced to the extent of the amount of
any tax savings resulting from the indemnified matter to which such costs relate
which are actually realized (or can reasonably be expected to be realized in
future years) by the Indemnified Party.
ARTICLE 11
TAX MATTERS
11.1 TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between the Subs and Stockholders for certain tax matters
following the Closing Date:
11.2 SECTION 338(h)(10) ELECTION. The Stockholders agree, if so directed by
the Subs, to join with the Subs in making an election under Section 338(h)(10)
of the Code (and any corresponding elections under state, local or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale of the stock of each Company hereunder. The Subs agree with
the Stockholders that if the Subs direct the Stockholders to join in the Section
338(h)(10) Election, the Subs will indemnify the Stockholders against any
additional tax liability ascompared to the tax liability of the Stockholders
absent a Section 338(h)(10) Election directly resulting solely from the making
of the Section 338(h)(10) Election. The Subs will also indemnify the
Stockholders against any additional tax liability directly resulting solely from
an election under state, local or foreign law similar to the election available
under Section 338(g) of the Code (or which results from the making of an
election under Section 338(g) of the Code) with respect to the purchase and sale
of the stock of any Company hereunder.
11.3 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Subs shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for each Company for all periods ending on or prior to the Closing Date which
are filed after the Closing Date. The Stockholders shall reimburse the Subs for
Taxes and reasonable Tax Return preparation fees of each Company with respect to
such periods within fifteen (15) days after payment by any Sub or a Company of
such Taxes and fees.
11.4 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. The
Subs shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of each Company for Tax periods which begin before the Closing Date and
end on or after the Closing Date. Stockholders shall pay to the Subs within
fifteen (15) days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis and are
payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall: (A) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the Closing Date and
the denominator of which is the number of days in the entire Taxable period; and
(B) in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of each Company.
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11.5 COOPERATION ON TAX MATTERS.
(a) The Subs, each Company and Stockholders shall cooperate fully,
as and to the extent reasonably requested by the other Party, in connection with
the filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. Each Company and Stockholders agrees: (A) to retain all books and
records with respect to Tax matters pertinent to a Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Subs or Stockholders,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority; and (B) to
give the other Parties reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if any other Party so
requests, each Company or Stockholders, as the case may be, shall allow the
other Party to take possession of such books and records.
(b) The Subs and Stockholders further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) The Subs and Stockholders further agree, upon request, to
provide the other Parties with all information that either Party may be required
to report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
11.6 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Stockholders when due, and Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, the Subs will, and will cause its affiliates to,
join in the execution of any such Tax Returns and other documentation.
ARTICLE 12
MISCELLANEOUS
12.1 FEES AND EXPENSES. Except as otherwise expressly provided in this
Agreement, all legal and other fees, costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby through the Closing
Date shall be paid by the Party incurring such fees, costs or expenses;
provided, however, that if the Closing does not occur and Section 6.5 hereof is
breached, then the Stockholders of each Company shall pay to BAG, within five
(5) Business Days after receipt of a request therefor, an amount equal to all of
the legal and other fees, costs and expenses incurred by BAG in conjunction with
this Agreement and the transactions contemplated hereby.
12.2 HEADINGS. The section headings herein are for convenience of reference
only, do not constitute part of this Agreement, and shall not be deemed to limit
or otherwise affect any of the provisions hereof.
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12.3 NOTICES. All notices or other communications required or permitted
hereunder shall be given in writing and shall be deemed sufficient if delivered
by hand, recognized overnight delivery service or facsimile transmission or
mailed by registered or certified mail, postage prepaid and return receipt
requested), as follows:
<TABLE>
<S> <C>
If to the Companies before the Closing Date:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
with a copy to: with an additional copy to:
Mr. Steve Lovett Keith A. O'Daniel, Esq.
THE HARTSFIELD GROUP, INC. 625 Brisbane Manor
Six Concourse Parkway / Suite 1930 Alpharetta, Georgia 30202
Atlanta, Georgia 30328 Phone: 770-475-2365
Phone: 770-901-9000 Fax: 770-475-2456
Fax: 770-901-9100
If to the Companies after the Closing Date:
___________________________________________
___________________________________________
___________________________________________
with a copy to:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
If to the Stockholders:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
with a copy to: with an additional copy to:
Mr. Steve Lovett Keith A. O'Daniel, Esq.
THE HARTSFIELD GROUP, INC. 625 Brisbane Manor
Six Concourse Parkway / Suite 1930 Alpharetta, Georgia 30202
Atlanta, Georgia 30328 Phone: 770-475-2365
Phone: 770-901-9000 Fax: 770-475-2456
Fax: 770-901-9100
If to BAG or the Subs:
BOOMERSHINE AUTOMOTIVE GROUP, INC.
2150 Cobb Parkway
Smyrna, GA 30080
</TABLE>
-55-
<PAGE> 60
with a copy to:
Stephen C. Whicker, Esq.
THE WHICKER LAW FIRM
6111 Peachtree Dunwoody Road / Suite 102-D
Atlanta, GA 30328
Phone: 770-394-7755
Fax: 770-934-8472
with an additional copy to:
David S. Cooper, Esq.
SCHNADER HARRISON SEGAL & LEWIS LLP
SunTrust Plaza / Suite 2800
303 Peachtree Street, N.E.
Atlanta, GA 30308-3252
Phone: 404-215-8100
Fax: 404-223-5164
or such other address as shall be furnished in writing by such Party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so delivered or (3) days after the date so mailed; provided,
however, that any notice or communication changing any of the addresses set
forth above shall be effective and deemed given only upon its receipt.
12.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure the benefit of the Parties hereto (and with respect to
the Stockholders, the personal representatives and heirs of the Stockholders)
and their respective successors and permitted assigns, and the provisions of
Article 9 hereof shall inure to the benefit of the Indemnified Parties referred
to therein; provided, however, that neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned by any of the
Parties hereto without the prior written consent of the other Parties.
Notwithstanding the foregoing, BAG and the Subs shall have the unrestricted
right to assign this Agreement and to delegate all or any part of their
obligations hereunder to any Affiliate of BAG, but in such event BAG shall
remain fully liable for the performance of all of such obligations in the manner
prescribed in this Agreement.
12.5 ENTIRE AGREEMENT. This Agreement (including the Exhibits, Addendums,
Annexes and Schedules attached hereto) and the Transaction Documents embody the
entire agreement and understanding of the Parties with respect to the
transactions contemplated hereby and supersede all prior written or oral
commitments, arrangements or understandings between the Parties with respect
thereto and all prior drafts of this Agreement and the Transaction Documents.
There are no restrictions, agreements, promises, warranties, covenants or
undertakings with respect to the transactions contemplated hereby other than
those expressly set forth herein or in the Transaction Documents. Prior drafts
of this Agreement and the Transaction Documents shall not be used as a basis for
interpreting this Agreement or the Transaction Documents.
12.6 WAIVER AND AMENDMENTS. Each of the Stockholders, each Company, BAG and
the Subs may by written notice to the other Parties: (a) extend the time for the
performance of any of the obligations or other actions of the other Parties; (b)
waive any inaccuracies in the representations or warranties of the other Parties
contained in this Agreement; (c) waive compliance with any of the covenants of
the other Parties contained in this Agreement; (d) waive performance of any of
the obligations of the other Parties created under this Agreement; or (e) waive
fulfillment of any of the conditions to its own
-56-
<PAGE> 61
obligations under this Agreement. The waiver by any Party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach, whether or not similar. This Agreement may be amended,
modified or supplemented only by a written instrument executed by the Parties
hereto.
12.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
12.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
choice or conflict of law provision or rule that would cause the laws of any
other jurisdiction to apply.
12.9 ACCOUNTING TERMS. All accounting terms used herein which are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with GAAP.
12.10 SCHEDULES. Disclosure of any matter in any Schedule hereto or in the
Financial Statements shall be considered as disclosure pursuant to any other
provision, subprovision, section or subsection of this Agreement or Schedule to
this Agreement.
12.11 SEVERABILITY. If any one or more of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be
affected thereby. To the extent permitted by applicable law, each Party waives
any provision of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
12.12 REMEDIES. None of the remedies provided for in this Agreement,
including termination this Agreement as set forth in Article 8, the payment of
certain fees, costs and expenses as set forth in Section 12.1 or the specific
performance as set forth in this Section 12.13 shall be the exclusive remedy of
either Party for a breach of this Agreement, the Parties hereto having the right
to seek any other remedy in law or equity in lieu of or in addition to any
remedies provided in this Agreement, including an action for damages for breach
of contract.
12.13 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this
Agreement.
12.14 AUTHORITY. Any Person executing this Agreement on behalf of any
individual Stockholder hereby represents and warrants that said executing Person
has the right, authority and permission to so execute this Agreement on behalf
of said individual Stockholder.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"BAG:"
ATTEST: BOOMERSHINE AUTOMOTIVE GROUP, INC.
BY: BY: /s/ WALTER M. BOOMERSHINE, JR.
------------------------------- -----------------------------------
Name: ________________________ Name: Walter M. Boomershine, Jr.
Title: ________________________ Title: President
[CORPORATE SEAL]
-57-
<PAGE> 62
"SUB :"
ATTEST: B.A.G. GEORGIA I, INC.
BY: BY: /s/ WALTER M. BOOMERSHINE, JR.
------------------------------- -----------------------------------
Name: ________________________ Name: Walter M. Boomershine, Jr.
Title: ________________________ Title: President
[CORPORATE SEAL]
"SUB II:"
ATTEST: B.A.G. GEORGIA II, INC.
BY: BY: /s/ WALTER M. BOOMERSHINE, JR.
------------------------------- -----------------------------------
Name: ________________________ Name: Walter M. Boomershine, Jr.
Title: ________________________ Title: President
[CORPORATE SEAL]
THE "COMPANIES"
ATTEST: WADE FORD, INC.
BY: BY: /s/ ALAN K. ARNOLD
------------------------------- -----------------------------------
Name: ________________________ Name: Alan K. Arnold
Title: ________________________ Title: President
[CORPORATE SEAL]
ATTEST: WADE FORD BUFORD, INC.
BY: BY: /s/ ALAN K. ARNOLD
------------------------------- -----------------------------------
Name: ________________________ Name: Alan K. Arnold
Title: ________________________ Title: President
[CORPORATE SEAL]
-58-
<PAGE> 63
THE "STOCKHOLDERS"
/s/ ALAN K. ARNOLD [SEAL]
---------------------------------
Alan K. Arnold
/s/ GARY R. BILLINGS [SEAL]
---------------------------------
Gary R. Billings
MILDRED S. ARNOLD CUSTODIAN FOR KELLY L.
ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
/s/ ALAN K. ARNOLD / POA
----------------------------------------
[SEAL]
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR BRETT D.
ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
/s/ ALAN K. ARNOLD / POA
----------------------------------------
[SEAL]
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR KRISTIE
A. ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
/s/ ALAN K. ARNOLD / POA
----------------------------------------
[SEAL]
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR ALAN
CHAD ARNOLD UNDER THE UNIFORM TRANSFER
TO MINOR ACT OF GEORGIA:
/s/ ALAN K. ARNOLD / POA
----------------------------------------
[SEAL]
By: Mildred Arnold, Custodian
-59-
<PAGE> 64
ADDENDUM 1
ALLOCATION OF MERGER CONSIDERATION
[TO BE PROVIDED BY SELLER]
<TABLE>
<CAPTION>
% of Cash % of Stock
Consideration Consideration
------------- -------------
<S> <C> <C>
Alan K. Arnold:
Gary R. Billings:
Mildred S. Arnold Custodian
for Kelly L. Arnold under the
Uniform Transfer to Minor Act of Georgia:
Mildred S. Arnold Custodian
for Brett D. Arnold under the
Uniform Transfer to Minor Act of Georgia:
Mildred S. Arnold Custodian
for Kristie A. Arnold under the
Uniform Transfer to Minor Act of Georgia:
Mildred S. Arnold Custodian
for Alan Chad Arnold under the
Uniform Transfer to Minor Act of Georgia:
</TABLE>
-60-
<PAGE> 65
ADDENDUM 2
ADJUSTMENTS TO 1997 NET INCOME
<TABLE>
<S> <C> <C>
(1) Plus 1996 owner's salaries paid
(2) Minus One-half (1/2) of the old owner's salaries post-acquisition
(3) Plus or Minus Additional rents (different from current lease)
(4) Plus or Minus LIFO - Current year increase (decrease)
(5) Minus LIFO tax liability for the current year
(6) Plus Family members' salaries and owner's benefits
(7) Plus Additional contributions (church)
(8) Plus Christmas bonus (only portion in excess of normal
average)
(9) Plus Management fees
(10) Plus Loss on sales of notes receivable (if determined to be out
of the normal course of business)
(11) Plus Related parties' salaries
(12) Minus Goodwill amortized expense (1 year)
</TABLE>
Additionally, the approximately $160,000 amount due and payable to the
IRS pursuant to the agreement between the IRS and the Companies in connection
with certain LIFO adjustments shall not be deducted as 1997 expenses for
purposes of calculating the 1997 Adjusted EBIT hereunder.
-61-
<PAGE> 66
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this "Amendment") is entered into as of January 19, 1998 by and among
Boomershine Automotive Group, Inc., a Georgia corporation ("BAG"), B.A.G.
Georgia I, Inc., a Georgia corporation ("Sub I"), B.A.G. Georgia II, Inc., a
Georgia corporation ("Sub II") (Sub I and Sub II are hereinafter individually
referred to as a "Sub" and collectively referred to as the "Subs"), and Wade
Ford, Inc., a Georgia corporation, and Wade Ford Buford, Inc., a Georgia
corporation (individually, a "Company" and collectively, the "Companies"), and
the stockholder(s) listed on the signature pages hereof (each, a "Stockholder"
and, if more than one, collectively, the "Stockholders"). BAG, the Subs, the
Companies and the Stockholders are referred to individually as a "Party" and
collectively as the "Parties."
W I T N E S S E T H :
WHEREAS, the Parties are parties to that certain Agreement and Plan of
Merger and Reorganization entered into as of November 21, 1997 (the
"Agreement"); and
WHEREAS, the Parties desire to amend the Agreement, with such amendment
to be effective as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Parties hereto hereby agree as follows:
1. EFFECTIVE DATE OF AMENDMENT. The Parties agree that this Amendment
shall be effective as of January 19, 1998.
2. DUE DILIGENCE DEADLINE.
(a) The Parties agree to amend the Agreement by replacing Section 7.7
of the Agreement with the following:
"7.7 COMPLETION OF DUE DILIGENCE. BAG and the Subs shall have completed
their due diligence examination of each Company, and the results of
such examination shall be reasonably satisfactory to Bag and the Subs;
provided, however, that the conditions contained in this Section 7.7
shall not be a condition precedent to the Obligations of BAG and the
Subs hereunder after January 30, 1998."
3. USE OF DEFINED TERMS; Entire Agreement. All capitalized terms that are
used but not expressly defined in this Amendment have the meanings ascribed to
them in the Agreement, and the definitions of those terms in the Agreement are
incorporated by reference in this Amendment. Each reference to the Agreement
shall be deemed to refer to the Agreement as amended by this Amendment. This
Amendment and the documents contemplated by it record the final, complete, and
exclusive understanding between the Parties regarding the modification of the
Agreement.
-62-
<PAGE> 67
Except as amended and modified by this Amendment, the Agreement remains in full
force and effect in accordance with its respective terms.
4. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
choice or conflict of law provision or rule that would cause the laws of any
other jurisdiction to apply.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly
executed, effective as of the date and year first above written.
"BAG:"
ATTEST: BOOMERSHINE AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
----------------------------- ------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Assistant Secretary Title: Secretary & Treasurer
[CORPORATE SEAL]
"SUB :"
ATTEST: B.A.G. GEORGIA I, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
----------------------------- ------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
"SUB II:"
ATTEST: B.A.G. GEORGIA II, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY.
----------------------------- ------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
THE "COMPANIES:"
ATTEST: WADE FORD, INC.
-63-
<PAGE> 68
BY: /s/ K. LAMAR LESTER BY: /s/ ALAN K. ARNOLD
----------------------------- ------------------------------
Name: K. Lamar Lester Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
ATTEST: WADE FORD BUFORD, INC.
BY: /s/ JOHN KENNEDY BY: /s/ ALAN K. ARNOLD
----------------------------- ------------------------------
Name: John Kennedy Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
THE "STOCKHOLDERS"
/s/ ALAN K. ARNOLD [SEAL]
---------------------------------
Alan K. Arnold
/s/ GARY R. BILLINGS [SEAL]
---------------------------------
Gary R. Billings
MILDRED S. ARNOLD CUSTODIAN FOR KELLY
L. ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
/s/ MILDRED ARNOLD [SEAL]
---------------------------------
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR BRETT
D. ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
/s/ MILDRED ARNOLD [SEAL]
---------------------------------
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR KRISTIE
A. ARNOLD UNDER THE UNIFORM TRANSFER TO
MINOR ACT OF GEORGIA:
-64-
<PAGE> 69
/s/ MILDRED ARNOLD [SEAL]
---------------------------------
By: Mildred Arnold, Custodian
MILDRED S. ARNOLD CUSTODIAN FOR ALAN
CHAD ARNOLD UNDER THE UNIFORM TRANSFER
TO MINOR ACT OF GEORGIA:
/s/ MILDRED ARNOLD [SEAL]
---------------------------------
By: Mildred Arnold, Custodian
-65-
<PAGE> 70
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION (this "Amendment") is entered into as of March 31, 1998 by and
among Boomershine Automotive Group, Inc., a Georgia corporation ("BAG"), B.A.G.
Georgia I, Inc., a Georgia corporation ("Sub I"), B.A.G. Georgia II, Inc., a
Georgia corporation ("Sub II") (Sub I and Sub II are hereinafter individually
referred to as a "Sub" and collectively referred to as the "Subs"), Sunbelt
Automotive Group, Inc., a Georgia corporation ("Sunbelt") and Wade Ford, Inc., a
Georgia corporation, and Wade Ford Buford, Inc., a Georgia corporation
(individually, a "Company" and collectively, the "Companies"), and the
stockholder(s) listed on the signature pages hereof (each, a "Stockholder" and,
if more than one, collectively, the "Stockholders"). BAG, the Subs, Sunbelt, the
Companies and the Stockholders are referred to individually as a "Party" and
collectively as the "Parties."
W I T N E S S E T H :
WHEREAS, all Parties except Sunbelt are parties to that certain
Agreement and Plan of Merger and Reorganization entered into as of November 21,
1997, which was amended by an Amendment to Agreement and Plan of Merger and
Reorganization dated January 19, 1998 (the "Agreement"); and
WHEREAS, the Parties desire to further amend the Agreement, with such
amendment to be effective as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Parties hereto hereby agree as follows:
1. EFFECTIVE DATE OF AMENDMENT. The Parties agree that this Amendment
shall be effective as of January 8, 1998.
2. REPLACEMENT OF ARTICLE I OF THE AGREEMENT. As a result of the
assignments contemplated by Section 3 of this Amendment, Sunbelt will acquire
the Wade Shares (as defined in the Agreement) directly from the Stockholders,
and the Parties agree that there is no need for the Companies to merge into
Sunbelt. Therefore, the Parties agree to amend the Agreement by replacing
Article I of the Agreement with the following:
-66-
<PAGE> 71
"ARTICLE I"
"PURCHASE AND SALE OF THE SHARES"
"1.1 PURCHASE AND SALE OF THE SHARES."
"(a) Purchase and Sale of the Shares. Upon the terms and subject to the
conditions set forth in this Agreement, the Stockholders shall sell to BAG, and
BAG shall purchase from the Stockholders, the Wade Shares for an aggregate
purchase price equal to FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00) (the
"Base Price"), which Base Price is subject to adjustment after Closing as
provided in Article 2 of this Agreement. At the Closing referred to in Section
1.1(b) hereof:"
"(i) the Stockholders shall sell, assign, transfer and deliver
to BAG the Wade Shares representing 100% of the outstanding common
stock of the Companies, free and clear of all Liens, and shall deliver
the certificates representing the Wade Shares accompanied by stock
powers duly executed in blank; and"
"(ii) BAG shall accept and purchase the Wade Shares from the
Stockholders and in payment therefor shall pay the Base Price to the
Stockholders as follows:"
"(A) The sum of Eleven Million Dollars ($11,000,000.00)
shall be paid to the Stockholders by BAG at the
Closing in cash or other immediately available funds
("Cash Consideration Amount"), to be divided amongst
the Stockholders in accordance with ADDENDUM 1
attached hereto and incorporated herein."
"(B) The balance of the Base Price, which equals to a
value of Four Million Dollars ($4,000,000.00), shall
be paid to the Stockholders at the Closing in the
form of BAG Common Stock (the "Stock Consideration
Value Amount"), to be divided amongst the
Stockholders in accordance with ADDENDUM 1 attached
hereto and incorporated herein."
"(C) Notwithstanding the payment of the Cash Consideration
Amount described in Section 1.1(a)(ii)(A) hereof and
the payment of the Stock Consideration Value Amount
described in Section 1.1(a)(ii)(B) hereof, at the
Closing, BAG shall place $366,666.67 of the Cash
Consideration Amount (the "Escrow Funds") in an
interest bearing escrow account with Joyce E.
Kitchens, Esq., or another escrow agent reasonably
satisfactory to BAG and Stockholders (the "Escrow
Agent"), and BAG shall also place the number of
shares representing
-67-
<PAGE> 72
$133,333.33 of the Stock Consideration Value Amount
in escrow with the Escrow Agent (the "Escrow Stock")
(the Escrow Funds and the Escrow Stock shall
hereinafter be collectively referred to as the
"Escrow Consideration"), all in accordance with an
escrow agreement substantially in the form attached
hereto as EXHIBIT A, with such other changes as the
Escrow Agent may reasonably request (the "Escrow
Agreement"). The release of the Escrow Consideration
shall be governed by the terms and conditions of the
Escrow Agreement."
"(B) CLOSING."
"(i) Subject to the conditions set forth in this
Agreement, the purchase and sale of the Wade Shares and the
other transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Schnader
Harrison Segal & Lewis, LLP in Atlanta, Georgia, or any other
location agreed upon by the Parties, contemporaneously with
the BAG IPO described in the Registration Statement referred
to in Section 7.6 hereof."
"(ii) If the BAG IPO fails to close on or before the
Closing Date Deadline, then the Subs shall have the option to
consummate the purchase and sale of the Wade Shares and the
other transactions contemplated by this Agreement upon such
terms and conditions that are mutually acceptable to the
Parties (in which event said alternate consummation shall for
purposes herein be referred to as the "Closing"), and said
Closing shall take place at the offices of Schnader Harrison
Segal & Lewis, LLP in Atlanta, Georgia, or any other location
agreed upon by the Parties."
"(iii) The date on which the Closing actually occurs
is herein referred to as the "Closing Date."
"(C) DELIVERIES AT THE CLOSING. Subject to the conditions set forth
in this Agreement, at the Closing:"
"(i) The Stockholders shall deliver to BAG (A)
certificates representing the Wade Shares bearing the
restrictive legend customarily placed on securities that have
not been registered under applicable federal and state
securities laws and accompanied by stock powers as required by
Section 1.1(a)(i) hereof, and any other documents that are
necessary to transfer to BAG good title for the Wade Shares,
and (B) all opinions, certificates and other instruments and
documents required to be delivered by the Stockholders and the
Company at or prior to Closing or otherwise required in
connection herewith;"
"(ii) BAG shall pay and deliver to the Stockholders
(A) the Cash Consideration Amount and the Stock Consideration
Amount, and shall deliver the
-68-
<PAGE> 73
Escrow Funds to the Escrow Agent, as required by Section
1.1(a)(ii) hereof, and (B) all opinions, certificates and
other instruments and documents required to be delivered by
BAG at or prior to the Closing or otherwise required in
connection herewith."
"(D) INDEMNIFICATION FOR ADVERSE TAX CONSEQUENCES. BAG agrees to
indemnify the Stockholders against any additional tax liability of the
Stockholders which results solely from the restructuring of this transaction
from a merger to a stock purchase."
3. CONSENT TO ASSIGNMENT. BAG and the Subs wish to assign all of their
rights and obligations under the Agreement to Sunbelt. BAG also hereby informs
the Companies and the Stockholders that, prior to Closing, BAG is expected to
merge with and into Sunbelt, and the Subs will be merged into BAG or dissolved.
If the proposed merger of BAG into Sunbelt is completed, BAG will cease to exist
as a separate corporation. By their signatures below, as required by Section
12.4 of the Agreement, the Companies and the Stockholders hereby consent to (i)
the express assignment by BAG and the Subs of all of their rights and
obligations under the Agreement to Sunbelt and Sunbelt's express assumption of
such rights and obligations; (ii) the proposed merger of BAG into Sunbelt, as a
result of which BAG will cease to exist as a separate corporation and will have
no further rights or obligations under the Agreement, and Sunbelt, by operation
of law, will assume all rights and obligations of BAG under the Agreement; (iii)
the merger of the Subs into BAG, and/or the dissolution of the Subs; and (iv)
the future assignment by Sunbelt, whether done expressly or via merger, of all
of Sunbelt's rights and obligations under the Agreement to any Affiliate of
Sunbelt. At or prior to the Closing, if any such mergers or future assignments
are completed, Sunbelt shall deliver to the Companies and the Stockholders
copies of documents which confirm such actions.
In addition, the Parties agree that all references in the Agreement to
the "BAG IPO," the "BAG IPO Stock" and the "Registration Statement" shall be
deemed to refer to a public offering and sale of shares of the common stock of
Sunbelt, and that all references in the Agreement to the "BAG Common Stock"
shall be deemed to refer to common stock of Sunbelt.
4. ASSIGNMENT TO AND ASSUMPTION BY SUNBELT. BAG and the Subs hereby assign
all of their right, title and interest in and to and all of their obligations
under the Agreement to Sunbelt. Sunbelt hereby accepts said assignment of the
Agreement and hereby agrees to perform and carry out the obligations of BAG and
the Subs under the Agreement.
5. USE OF DEFINED TERMS; ENTIRE AGREEMENT. All capitalized terms that are
used but not expressly defined in this Amendment have the meanings ascribed to
them in the Agreement, and the definitions of those terms in the Agreement are
incorporated by reference in this Amendment. Each reference to the Agreement
shall be deemed to refer to the Agreement as amended by this Amendment and the
prior Amendment dated January 19, 1998. This Amendment and the documents
contemplated by it record the final, complete, and exclusive understanding
between the Parties regarding the modification of the Agreement described
herein. Except as amended and modified by this Amendment and the prior Amendment
dated January 19, 1998, the Agreement remains in full force and effect in
accordance with its respective terms.
-69-
<PAGE> 74
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
choice or conflict of law provision or rule that would cause the laws of any
other jurisdiction to apply.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed,
effective as of the date and year first above written.
"BAG:"
ATTEST: BOOMERSHINE AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Assistant Secretary Title: Secretary & Treasurer
[CORPORATE SEAL]
"SUB :"
ATTEST: B.A.G. GEORGIA I, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
"SUB II:"
ATTEST: B.A.G. GEORGIA II, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY.
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
"SUNBELT:"
ATTEST: SUNBELT AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY.
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary & General Counsel Title: Chief Executive Officer
[CORPORATE SEAL]
-70-
<PAGE> 75
THE "COMPANIES:"
ATTEST: WADE FORD, INC.
BY: /s/ K. LAMAR LESTER BY: /s/ ALAN K. ARNOLD
------------------------------ -----------------------------
Name: K. Lamar Lester Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
ATTEST: WADE FORD BUFORD, INC.
BY: /s/ JOHN KENNEDY BY: /s/ ALAN K. ARNOLD
------------------------------ -----------------------------
Name: John Kennedy Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
THE "STOCKHOLDERS"
/s/ ALAN K. ARNOLD [SEAL]
---------------------------
Alan K. Arnold
/s/ GARY R. BILLINGS [SEAL]
---------------------------
Gary R. Billings
Mildred S. Arnold Custodian for
Kelly L. Arnold under the Uniform
Transfer to Minor Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
Mildred S. Arnold Custodian for
Brett D. Arnold under the Uniform
Transfer to Minor Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
-71-
<PAGE> 76
Mildred S. Arnold Custodian for
Kristie A. Arnold under the Uniform
Transfer to Minor Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
Mildred S. Arnold Custodian for
Alan Chad Arnold under the Uniform
Transfer to Minor Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
-72-
<PAGE> 77
THIRD AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this "Amendment") is entered into as of April 28, 1998 by and among BOOMERSHINE
AUTOMOTIVE GROUP, INC., a Georgia corporation ("BAG"), B.A.G. GEORGIA I, INC., a
Georgia corporation ("Sub I"), B.A.G. GEORGIA II, INC., a Georgia corporation
("Sub II") (Sub I and Sub II are hereinafter individually referred to as a "Sub"
and collectively referred to as the "Subs"), SUNBELT AUTOMOTIVE GROUP, INC., a
Georgia corporation ("Sunbelt") and WADE FORD, INC., a Georgia corporation, and
WADE FORD BUFORD, INC., a Georgia corporation (individually, a "Company" and
collectively, the "Companies"), and the stockholder(s) listed on the signature
pages hereof (each, a "Stockholder" and, if more than one, collectively, the
"Stockholders"). BAG, the Subs, Sunbelt, the Companies and the Stockholders are
referred to individually as a "Party" and collectively as the "Parties."
W I T N E S S E T H :
WHEREAS, all Parties except Sunbelt are parties to that certain
Agreement and Plan of Merger and Reorganization entered into as of November 21,
1997, which was amended by an Amendment to Agreement and Plan of Merger and
Reorganization dated January 19, 1998 and the Second Amendment to Agreement and
Plan of Merger and Reorganization dated March 31 1998 (the "Agreement"); and
WHEREAS, pursuant to the Second Amendment to Agreement and Plan of
Merger and Reorganization dated March 31, 1998 and an Assignment Instrument
dated March 31, 1998, BAG and the Subs assigned to Sunbelt, and Sunbelt assumed
from BAG and the Subs, all of BAG's and the Subs' right, title and interest in
and to and all of their obligations under the Agreement; and
WHEREAS, the Parties desire to further amend the Agreement, with such
amendment to be effective as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Parties hereto hereby agree as follows:
1. EFFECTIVE DATE OF AMENDMENT. The Parties agree that this Amendment
shall be effective as of April 28, 1998.
2. RE-DEFINING THE TERM "CLOSING DATE DEADLINE". As a result of the time
consuming nature of the various requirements for the consummation of the
transactions contemplated by this Agreement, the Parties agree that in the
section captioned "Certain Definitions" beginning on page 2 of the Agreement,
the following definition on page 3 thereof is deleted in its entirety:
"'Closing Date Deadline' shall mean April 30, 1998.'"
The Parties agree that the following definition is substituted
therefor:
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<PAGE> 78
"'Closing Date Deadline' shall mean June 30, 1998.'"
3. PURCHASE AND SALE OF THE SHARES. The Parties hereby agree that:
a. Article 1, Section 1.1(a) of the Agreement is amended by deleting
"FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00)" and substituting therefor
"FOURTEEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($14,500,000.00)";
and
b. Article 1, Section 1.1(a)(ii)(A) of the Agreement is amended by
deleting "ELEVEN MILLION Dollars ($11,000,000.00)" and substituting therefor
"TEN MILLION SIX HUNDRED AND FIFTY THOUSAND AND NO/100 DOLLARS
($10,650,000.00)"; and
c. Article 1, Section 1.1(a)(ii)(B) of the Agreement is amended by
deleting "FOUR MILLION Dollars ($4,000,000.00)" and substituting therefor "THREE
MILLION EIGHT HUNDRED AND FIFTY THOUSAND AND NO/100 DOLLARS ($3,850,000.00)".
4. MINIMUM REQUIREMENTS. The Parties hereby agree that:
a. Article 2, Section 2.1 of the Agreement is hereby deleted in
its entirety, and Sections 2.2, 2.3 and 2.4 are respectively re-captioned as
Sections 2.1, 2.2 and 2.3.
b. Article 2, Section 2.2 (which becomes Section 2.1 on the
effective date of this Amendment) is amended by the deletion of the first two
sentences of said section in their entirety and the substitution of the
following therefor:
"The Parties intend and understand that the Companies shall be
delivered to the Subs on the Closing Date in substantially the
same financial condition as reflected on the audited financial
statements of the Companies prepared as of December 31, 1997
by Pyke & Pierce, CPAs, reduced by FOUR HUNDRED AND FIFTY
THOUSAND DOLLARS ($450,000.00), which the Parties previously
agreed would be distributed by the Companies to the
Shareholders in 1997 but which the Parties now agree has been
or will be distributed in 1998 prior to the Closing. No other
distributions shall be made from the Companies other than
distributions attributable to 1998 interim earnings, if any,
as described below in this Section 2.1 (formerly captioned as
Section 2.2) of the Agreement."
c. Because of a change by Ford Motor Company in its monthly
Factory Statements reporting form, the references in the Agreement relative to
1998 interim earnings which refer to "line 28" of each Company's monthly Factory
Statements shall be changed to refer to "line 29, page 2, Net Profit After Tax"
of each Company's monthly Factory Statements.
d. The first sentence of Article 2, Section 2.2(a) (which becomes
Section 2.1(a) on the effective date of this Amendment) is hereby deleted in its
entirety and replaced with the following:
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<PAGE> 79
"If the Companies earn a profit for the Interim Period, then
BAG shall pay to the Stockholders, on a dollar for dollar
basis, the following amount by wire transfer or delivery of
other immediately available funds on or before the Interim Due
Date (as hereinafter defined): The entire amount of the 1998
Interim Profits (as hereinafter defined) of the Companies less
any distributions made by the Companies to the Stockholders
during the Interim Period (other than the $450,000.00
distribution described above in this Section 2.1 (formerly
captioned as Section 2.2) of the Agreement) (the "1998 Interim
Profit Reimbursement")."
5. USE OF DEFINED TERMS; ENTIRE AGREEMENT. All capitalized terms that are
used but not expressly defined in this Amendment have the meanings ascribed to
them in the Agreement, and the definitions of those terms in the Agreement are
incorporated by reference in this Amendment. Each reference to the Agreement
shall be deemed to refer to the Agreement as amended by this Amendment and the
prior Amendments dated January 19, 1998 and March 31, 1998. This Amendment and
the documents contemplated by it record the final, complete, and exclusive
understanding between the Parties regarding the modification of the Agreement
described herein. Except as amended and modified by this Amendment and the prior
Amendment dated January 19, 1998 and March 31, 1998, the Agreement remains in
full force and effect in accordance with its respective terms.
6. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
choice or conflict of law provision or rule that would cause the laws of any
other jurisdiction to apply.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed,
effective as of the date and year first above written.
"BAG:"
ATTEST: BOOMERSHINE AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Assistant Secretary Title: Secretary & Treasurer
[CORPORATE SEAL]
"SUB :"
ATTEST: B.A.G. GEORGIA I, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
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<PAGE> 80
"SUB II:"
ATTEST: B.A.G. GEORGIA II, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY.
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary Title: Chief Executive Officer
[CORPORATE SEAL]
"SUNBELT:"
ATTEST: SUNBELT AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY.
------------------------------ -----------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary & General Counsel Title: Chief Executive Officer
[CORPORATE SEAL]
THE "COMPANIES:"
ATTEST: WADE FORD, INC.
BY: /s/ K. LAMAR LESTER BY: /s/ ALAN K. ARNOLD
------------------------------ -----------------------------
Name: K. Lamar Lester Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
ATTEST: WADE FORD BUFORD, INC.
BY: /s/ JOHN KENNEDY BY: /s/ ALAN K. ARNOLD
------------------------------ -----------------------------
Name: John Kennedy Name: Alan K. Arnold
Title: Secretary & Treasurer Title: President
[CORPORATE SEAL]
THE "STOCKHOLDERS"
/s/ ALAN K. ARNOLD [SEAL]
---------------------------
Alan K. Arnold
/s/ GARY R. BILLINGS [SEAL]
---------------------------
Gary R. Billings
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<PAGE> 81
Mildred S. Arnold Custodian for Kelly L.
Arnold under the Uniform Transfer to Minor
Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
Mildred S. Arnold Custodian for Brett D.
Arnold under the Uniform Transfer to Minor
Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
Mildred S. Arnold Custodian for Kristie A.
Arnold under the Uniform Transfer to Minor
Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
Mildred S. Arnold Custodian for Alan Chad
Arnold under the Uniform Transfer to Minor
Act of Georgia:
/s/ MILDRED ARNOLD [SEAL]
---------------------------
By: Mildred Arnold, Custodian
-77-
<PAGE> 1
EXHIBIT 2.3
MOSS ROBERTSON
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of
March 1, 1998 is entered into by and among the following parties
(the "Parties"): ROBERTSON OLDSMOBILE-CADILLAC, INC., a Georgia corporation
("Company"), E. MOSS ROBERTSON, JR., an individual ("Stockholder"), SUNBELT
AUTOMOTIVE GROUP, INC., a Georgia corporation ("Sunbelt"), and BOOMERSHINE
AUTOMOTIVE GROUP, INC., a Georgia corporation ("BAG").
WITNESSETH:
WHEREAS, the Company operates Oldsmobile, Cadillac, Isuzu, and Mazda
automobile dealerships in Gainesville, Hall County, Georgia;
WHEREAS, the Stockholder owns all of the issued and outstanding shares
of common stock of the Company (the "Common Stock"); and
WHEREAS, Sunbelt desires to purchase all of the issued and outstanding
shares of Common Stock from the Stockholder (such shares being collectively
referred to herein as the "Shares") and the Stockholder desires to sell the
Shares to Sunbelt (upon the terms and subject to the conditions set forth in
this Agreement) such that immediately after giving effect to such purchase and
sale, Sunbelt will own one hundred percent (100%) of all of the issued and
outstanding shares of Common Stock, on a fully diluted basis;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the parties hereto hereby agree as follows:
CERTAIN DEFINITIONS.
"Accounting Principles" has the meaning set forth in ss.1.3(a) below.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
<PAGE> 2
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act
"Affiliated Group" means any affiliated group within the meaning of
Code ss. 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
"Applicable Rate" means the corporate base rate of interest publicly
announced from time to time by NationsBank of Georgia, N. A.
"Associate" used to indicate a relationship with any Person means: (i)
any corporation, partnership, joint venture or other entity of which such Person
is an officer or partner or is, directly or indirectly, through one or more
intermediaries the beneficial owner of thirty percent (30%) or more of: (1) any
class or type of equity securities or other profits interest; or (2) the
combined voting power of interests ordinarily entitled to vote for management or
otherwise; and (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity.
"Balance Sheet" means the Company's unaudited balance sheet as of
October 31, 1997.
"Base Price" has the meaning set forth in ss. 1.1 below.
"Basis" means any past or present fact, situation, circumstance,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that actually forms or could reasonably form the
basis for any specified consequence.
"Best Efforts" shall be deemed to not include any obligation on the
part of any Person to undertake any liabilities, expend any funds or perform
acts which are materially burdensome to such Person; provided, however, that
notwithstanding the foregoing, the term "best efforts" shall include an
obligation to take such actions which are normally incident to or reasonably
foreseeable in conjunction with such obligation or the transactions contemplated
hereby.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under federal law.
"Claims" has the meaning set forth in ss. 2.9 below.
"Closing" has the meaning set forth in ss. 1.1(b) below.
"Closing Date" has the meaning set forth in ss. 1.1(b) below.
"Closing Date Balance Sheet" has the meaning set forth in ss. 1.3(a)
below.
"Code" means the Internal Revenue Code of 1986, as amended.
-2-
<PAGE> 3
"Company" has the meaning set forth in the preface above.
"Company Agreement" has the meaning set forth in ss. 2.15 below.
"Compensation Commitment" has the meaning set forth in ss. 2.18(a)
below.
"Confidential Information" means any and all data or information of the
Stockholder or the Company which relates directly and primarily to the business
of the Company and which is not generally known to or by Persons whose
businesses are competitive with the Company, including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, business and
marketing plans and proposals, information relating to sales records, profit and
performance reports, sales and training manuals, selling and pricing procedures,
financing methods, the special demands of particular customs, the current and
anticipated demands of particular customers, specifications of any new services
under development, and any other such information treated by the Stockholder or
the Company as being confidential or labeled "Confidential," as well as all
physical embodiments of any of the foregoing.
"Consent" means any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including but not limited to any Governmental Authority.
"Costs" for Article 9 has the meaning set forth in ss. 9.7 below.
"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan: (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi-employer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA ss.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA ss.
3(1).
"Employment Agreement" means the Employment Agreement between the
Company, Sunbelt, BAG and the Stockholder attached hereto as Exhibit A.
"Employment and Labor Agreement" has the meaning set forth in ss. 2.16
below.
"Environmental, Health and Safety Requirements" shall mean all federal,
state and local statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial
-3-
<PAGE> 4
and administrative orders and determinations, all contractual obligations and
all applicable common law concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including without
limitation all those relating to the presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides. pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation,
each as amended and as now or hereafter in effect.
"Environmental Law" has the meaning set forth in ss. 2.11 below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means all Employee Pension Benefit Plans and Employee
Welfare Benefit Plans of the Company.
"Escrow Agent" has the meaning set forth in the Escrow Agreement.
"Escrow Agreement" refers to Exhibit B attached to this Agreement.
"Escrow Amount" has the meaning set forth in the Escrow Agreement.
"Estimated Closing Date Balance Sheet" has the meaning set forth in
ss. 6.6 below.
"Factory Statements" has the meaning set forth in ss. 2.5(c) below.
"Fiduciary" has the meaning set forth in ERISA ss. 3(21).
"FIFO Net Worth" has the meaning set forth in Section 1.2 below.
"Financial Statement" has the meaning set forth in ss. 2.5 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising an executive,
legislative, judicial, regulatory or administrative function of or pertaining to
government, including without limitation, any government authority, agency,
department, board, commission or instrumentality of the United States, any State
of the United States or any political subdivision thereof, and any tribunal or
arbitrator of competent jurisdiction and any self-regulatory organization.
-4-
<PAGE> 5
"Governmental Approval" means any material Consent of, with or to any
Governmental Authority.
"Guaranty" refers to Exhibit C attached to this Agreement.
"Hart-Scott-Rodino Act" or "H.S.R. Act" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
"Hazardous Materials" has the meaning set forth in ss. 2.11 below.
"Improvements" has the meaning set forth in ss. 2.10 below.
"Indemnified Party" has the meaning set forth in ss. 9.3 below.
"Indemnifying Party" has the meaning set forth in ss. 9.3 below.
"Insider" shall mean the Stockholder, any director or officer of the
Company, and any Affiliate, Associate or Relative of any of the foregoing
persons.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (c) all copyrights, and all applications, registrations, and renewals
in connection therewith; (d) all mask works and all applications, registrations,
and renewals in connection therewith; (e) all trade secrets and confidential
business information; (f) all computer software (including data and related
documentation); (g) all other proprietary rights; and (i) all copies and
tangible embodiments thereof (in whatever form or medium).
"Judgment" has the meaning set forth in ss. 2.9 below.
"Knowledge of the Stockholder", "Stockholder's Knowledge" or "Known to
the Stockholder" means only the actual knowledge of the Stockholder and Lindsay
B. Robertson, and shall not include implied or constructive knowledge, or
knowledge that would have been available after investigation or inquiry.
"Leased Real Property" has the meaning set forth in ss. 2.10(b) below.
-5-
<PAGE> 6
"Legal Requirements" means material laws, ordinances, codes, rules,
regulations, standards, judgments and other requirements of all governmental,
administrative or judicial entities.
"Liability" means any material liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any Liability for Taxes.
"Liens" shall mean any material mortgages, pledges, title defects or
objections, liens, claims, security interests, and encumbrances or charges of
any kind against the Company's property, other than Permitted Liens.
"Market Value" means with respect to any share of Sunbelt Common Stock,
the opening sale price of Sunbelt IPO Stock on the public securities trading
markets on the Closing Date.
"Material Adverse Effect" shall mean any change in, or effect on, the
Company (including the business thereof) which is, or could reasonably be
expected to be, materially adverse to the overall financial condition of the
Company taken as a whole.
"Multi-Employer Plan" has the meaning set forth in ERISA ss. 3(37).
"Non-competition and Confidentiality Agreement" refers to Exhibit D
attached to this Agreement.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Property" has the meaning set forth in ss. 2.10(a) below.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means material franchises, licenses, permits, registrations,
certificates, consents, approvals or authorizations.
"Permitted Liens" means: (a) Liens reserved against in the Company's
Balance Sheet, to the extent so reserved; (b) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
Company's books in accordance with GAAP; or (c) Liens that, individually and in
the aggregate, do not and would not materially detract from the value of any of
the property or assets of the Company or materially interfere with the use
thereof as currently used or contemplated to be used.
-6-
<PAGE> 7
"Person" shall mean and include any individual, corporation, limited
liability company, partnership, joint venture, association, trust, any other
incorporated or unincorporated organization or entity and any governmental
entity or any department or agency thereto.
"Post-Closing Real Estate Lease" means the lease of the Company's
facilities attached hereto as Exhibit E.
"Prohibited Transaction" has the meaning set forth in ERISA ss. 406 and
Code ss. 4975.
"Registration Rights Agreement" refers to Exhibit F attached to this
Agreement.
"Relative" of a Person shall mean such Person's spouse, parents,
sisters, brothers, children and the spouses of the foregoing, and any member of
the immediate household of such Person.
"Reportable Event" has tile meaning set forth in ERISA ss. 4043.
"Reviewer" has the meaning set forth in ss. 1.3(b) below.
"Reviewed Balance Sheet" has the meaning set forth in ss. 1.3(b) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Share" means any share of the Common Stock of the Company.
"Share Consideration" has the meaning set forth in ss. 1.1(c)(iii)
below.
"Stock Restriction Agreement" has the meaning set forth in ss. 2.3
below.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Sunbelt" has the meaning set forth in the preface above.
"Sunbelt Public Offering Date" shall mean the date of the consummation
of an underwritten public offering (the "Sunbelt IPO") pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offering and sale of shares of Sunbelt common stock (the "Sunbelt IPO
Stock").
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental
-7-
<PAGE> 8
(including taxes under Code ss. 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property (including property taxes paid by the Company pursuant to any
lease), personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss. 9.3 below.
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE OF THE SHARES.
(A) PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, the Stockholder shall sell to Sunbelt,
and Sunbelt shall purchase from the Stockholder, the Shares for an aggregate
purchase price (the "Purchase Price") equal to the sum of (i) Four Million Seven
Hundred Thousand Dollars ($4,700,000) (the "Base Price"), plus (ii) the "FIFO
Net Worth" of the Company as shown on the Estimated Closing Date Balance Sheet.
The Purchase Price is subject to adjustment after the Closing as provided in ss.
1.3(g) below.
(B) CLOSING. Subject to the conditions set forth in this
Agreement, the purchase and sale of the Shares pursuant to this Agreement (the
"Closing") shall take place at the offices of Sunbelt's legal counsel in
Atlanta, Georgia, or any other location agreed upon by the Parties, on the
earlier of the Sunbelt Public Offering Date or a mutually agreeable date no
later than June 30, 1998, subject to the Stockholder's and Sunbelt's respective
rights to extend the Closing as provided in Section 8.1(b) hereof. The date on
which the Closing occurs is herein referred to as the "Closing Date."
(C) DELIVERIES AT THE CLOSING. Subject to the conditions set forth
in this Agreement, at the Closing:
(i) the Stockholder shall sell, assign, convey, transfer
and deliver to Sunbelt the Shares representing one
hundred percent (100%) of the outstanding capital
stock of the Company, free and clear of all Liens,
and the Stockholder shall deliver to Sunbelt: (A)
certificates representing the Shares bearing the
restrictive legend customarily placed on securities
that
-8-
<PAGE> 9
have not been registered under applicable federal and
state securities laws and accompanied by stock powers
duly executed in blank, and any other documents that
are necessary to transfer to Sunbelt good title to
all the Shares, and (B) all opinions, certificates
and other instruments and documents required to be
delivered by the Stockholder at or prior to the
Closing or otherwise required in connection herewith;
(ii) Sunbelt shall accept and purchase the Shares from the
Stockholder and in payment therefor by wire transfer
in immediately available funds pay to the Stockholder
the Purchase Price, less the Escrow Amount and less
$400,000;
(iii) Sunbelt shall deliver to the Stockholder (A)
certificates representing Sunbelt common stock with
an aggregate Market Value of $400,000 (the "Share
Consideration"), bearing the restrictive legend
customarily placed on securities that have not been
registered under applicable federal and state
securities laws, and any other documents that are
necessary to transfer to Stockholder good title to
such shares of Sunbelt Common Stock, or (B) at
Sunbelt's option, in lieu of the delivery of such
shares of Sunbelt common stock, an additional
$400,000 by wire transfer in immediately available
funds;
(iv) Sunbelt shall deliver to the Stockholder all options,
certificates and other instruments and documents
required to be delivered by Sunbelt and BAG at or
prior to the Closing or otherwise required in
connection herewith;
(v) Sunbelt, BAG, the Company and the Stockholder shall
sign and deliver to one another executed copies of
the Employment Agreement attached as Exhibit A;
(vi) Sunbelt, the Stockholder and Escrow Agent shall sign
and deliver to one another executed copies of the
Escrow Agreement attached as Exhibit B;.
(vii) Sunbelt and BAG shall sign and deliver to the
Stockholder an executed copy of the Guaranty attached
as Exhibit C.
(viii) Sunbelt shall pay and deliver the Escrow Amount to
the Escrow Agent pursuant to the terms of the Escrow
Agreement;
(ix) Sunbelt, BAG and the Stockholder shall sign and
deliver to one another executed copies of the
Non-competition and Confidentiality Agreement
attached as Exhibit D;
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(x) The Company, Sunbelt, BAG and the Stockholder (as the
lessor) shall sign and deliver to one another
executed copies of the Post-Closing Real Estate Lease
attached as Exhibit E; and
(xi) The Stockholder and Sunbelt shall sign and deliver to
one another executed copies of the Registration
Rights Agreement attached as Exhibit F.
1.2 COMPUTATION OF FIFO NET WORTH.
(A) Generally Accepted Accounting Principals ("GAAP"),
consistently applied, shall be utilized in determining the FIFO Net Worth of the
Company on the Closing Date for purposes of the Estimated Closing Date Balance
Sheet, the Closing Date Balance Sheet, the Reviewed Balance Sheet and the Final
Balance Sheet. For purposes of this Agreement the following methods of valuation
shall be deemed to be in accordance with GAAP and consequently shall be used for
the purpose of determining the amounts to be included in the calculation of the
FIFO Net Worth of the Company on the Closing Date.
(i) Parts, Accessories, Chemicals and Miscellaneous Supplies.
All new, undamaged parts, accessories, chemicals and supplies shall be valued by
an independent inventory valuation service (a) at prices determined by each
automobile manufacturer's most current Parts Catalog price immediately prior to
the Closing without regard to whether they were purchased directly from such
manufacturer; and (b) if not listed in the automobile manufacturer's most
current Parts Catalog, then all such unlisted parts and supplies (e.g., "NPNs"
and "aftermarket parts") shall be valued at the Company's cost for such items as
of the Closing Date. Sunbelt and the Company shall each pay one-half (1/2) of
the fees and cost of the independent inventory valuation service engaged by the
Parties to complete the inventory. NPNs shall include all nuts, bolts, brackets,
clips and similar supplies used in connection with the Company's business.
Damaged parts shall not be required to be included in the valuation. Used parts
and obsolete parts (those parts on the Closing Date with no sales during the
twelve (12) month period preceding the Closing Date and which are non-returnable
to the manufacturer or distributor) shall be valued at a price determined in
good faith negotiations between Sunbelt and the Stockholder. In maintaining its
books and records, the Company's practice is to book the automobile
manufacturer's then current Parts Catalog price as the cost of any item referred
to in clause (a) of this subparagraph (i) and to recognize as income or loss
when purchased the difference between (1) the automobile manufacturer's then
current Parts Catalog price for an item referred to in clause (a) of this
subparagraph (i), and (2) the Company's cost thereof when not purchased from the
automobile manufacturer (e.g., when purchased from another automotive dealer or
a distributor that is not wholly owned by the automobile manufacturer). In
computing the FIFO Net Worth of the Company for purposes of the Estimated
Closing Date Balance Sheet, the Closing Date Balance Sheet, the Reviewed Balance
Sheet and the Final Balance Sheet, the value of any items referred to in clause
(a) of this subparagraph (i) that were not purchased from an automobile
manufacturer shall be determined in the same manner as stated in the preceding
sentence.
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(ii) New Vehicles. All untitled new, demonstrator and
courtesy loaner/rental motor vehicles of the Company shall be valued under the
FIFO (first in-first out) method of accounting at a price (the "Vehicle Cost")
equal to the sum of (i) the Company's original factory invoice cost, minus (ii)
any factory holdback received by the Company; minus (iii) any dealer marketing
allowance ("DMA") received or to be received by the Company on eligible Mazda
vehicles, plus (iv) the cost of dealer installed items, and plus (v) vehicle
freight and handling charges (not otherwise included in the invoice cost). For
the purpose of Sections 1.2 (a)(ii) and (iii), the cost of dealer installed
items shall be equal to the charge for parts and labor customarily placed on the
Company's vehicle inventory records, plus the actual cost of all sublet and
outside vendor charges on such vehicles. Notwithstanding the foregoing, the
value of any untitled demonstrator or courtesy loaner/rental vehicle shall be
the lesser of (a) the Vehicle Cost (as determined above) reduced by a
depreciation charge of $.10 per mile for all miles in excess of 2,500 on the
odometer of such vehicle, or (b) the Vehicle Cost (as determined above) reduced
by any rental credits applied to that vehicle in the Company's vehicle inventory
records. No other depreciation shall be taken on such vehicle for purposes of
Sections 1.2 and 1.3 hereof.
(iii) Used Vehicles. The valuation of the Company's used
vehicle inventory as of the Closing shall be at (a) the Company's actual cost
(including buyer fees, transportation and auction fees) as shown on its used
vehicle inventory records before (without) write down to market if lower than
cost, plus (b) the cost of refurbishing and dealer installed items (computed in
accordance with subparagraph (ii) immediately above); provided, however, that
any used vehicle in the Company's inventory for more than seventy-five (75) days
as of the Closing Date shall be valued at ninety percent (90%) of the Company's
cost for such vehicle, as determined in accordance with clauses (a) and (b) of
this sentence. Thus, the used vehicle valuation shall be made without (and
consequently shall disregard) any used vehicle reserve that otherwise may be on
the Company's books and records. The used vehicles to be valued pursuant to this
subparagraph (iii) as modified by Section 1.2(b) below shall be listed in
SCHEDULE 1.2(A)(III) USED VEHICLES INVENTORY to be prepared by the Parties
immediately prior to the Closing and initialed by them at the Closing. Said
Schedule shall show the valuation price of each used vehicle.
(iv) Depreciation. All of the Company's assets eligible
for depreciation, including those previously expensed under Code ss. 179, shall
be valued under the straight line method of depreciation regardless of whether
they were expensed under Code ss. 179 or how they were depreciated for tax or
financial accounting purposes.
(v) Special Tools. All manufacturer's "special tools"
(as they are commonly referred to in automotive dealerships) that were expensed
when acquired by the Company shall be valued in the aggregate at Ten Thousand
($10,000) Dollars.
(B) It is further agreed that in the event any (1) new, demonstrator or
courtesy loaner/rental vehicle referred to in Section 1.2(a)(ii) shall have been
damaged prior to the Closing, or (2) used vehicle referred to in Section
1.2(a)(iii) shall have been damaged prior to the Closing
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after such used vehicle was purchased by the Company, (i) the Company shall
repair such vehicle to the reasonable satisfaction of Sunbelt, or (ii) in the
event any such vehicle has not been so repaired prior to the Closing, the
Stockholder, Company and Sunbelt shall agree on the cost to complete such
repairs, computed in accordance with the Company's past practice at the
Company's internal cost of repair for a physically damaged vehicle, and such
cost less the amount of the insurance proceeds eligible to be recovered thereon
shall be deducted from the value referred to herein. The new, demonstrator or
courtesy loaner/rental vehicles to be valued pursuant to Section 1.2(a)(ii) as
modified by this paragraph shall be listed in SCHEDULE 1.2 (A)(II) NEW AND
DEMONSTRATOR INVENTORY to be prepared by the Parties immediately prior to the
Closing and initialed by them at the Closing. Said Schedule shall show the value
of each vehicle computed as set forth in Section 1.2(a)(ii) as modified by this
paragraph (b) and when delivered to Sunbelt shall become a part of this
Agreement as if initially a part hereof.
(C) In determining the FIFO Net Worth of the Company, the deferred
tax liability arising from the Company's use of LIFO based accounting principles
for tax purposes shall be discounted to present value (calculated at a discount
rate equal to the Applicable Rate) based on the payment of such tax liability in
four (4) annual installments as provided by the applicable federal income tax
rules and regulations, and such present value shall be reflected as a liability
in determining the FIFO Net Worth of the Company on the Estimated Closing Date
Balance Sheet, the Closing Date Balance Sheet, the Reviewed Balance Sheet and
the Final Balance Sheet.
(D) Notwithstanding any requirement or principle under GAAP or any
contrary entry on any of the Company's financial statements, in determining the
FIFO Net Worth of the Company for purposes of this Agreement, (i) any reserves
for finance chargebacks, credit life chargebacks and service contract
chargebacks shall not exceed the sum of $12,000 in the aggregate, (ii) any
reserves for doubtful accounts and bad debts shall not exceed in the aggregate
$2,000, (iii) any reserves against the uncollectibility of warranty receivables
shall not exceed $2,000, (iv) any reserves for accrued but unpaid vacation, sick
or holiday leave shall not exceed in the aggregate $2,000, and (v) any reserves
against manufacturer warranty and incentive chargebacks shall not exceed in the
aggregate $10,000.
(E) If the transactions contemplated by this Agreement are not
consummated by May 25, 1998, then in determining the FIFO Net Worth of the
Company for purposes of this Agreement, the settlement amount paid by the
Company in accordance with Internal Revenue Procedure 97-44, up to $20,000,
shall be treated as an add-back in determining the FIFO Net Worth of the Company
on the Estimated Closing Date Balance Sheet, the Closing Date Balance Sheet, the
Reviewed Balance Sheet and the Final Balance Sheet.
1.3 PAYMENT OF FIFO NET WORTH.
(A) As soon as practicable after the Closing Date, the Stockholder
shall deliver to Sunbelt a balance sheet of the Company dated as the Closing
Date (such balance sheet so delivered is referred to herein as the "Closing Date
Balance Sheet"). Sunbelt shall reimburse the
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Company for all reasonable fees and expenses incurred by the Company's certified
public accountants in connection with the preparation of both the Closing Date
Balance Sheet and the Estimated Closing Date Balance Sheet referred to in
Section 6.6. The Closing Date Balance Sheet shall be prepared in good faith on
the same basis and in accordance with the accounting principles, methods and
practices used in preparing the Company Financial Statements (as defined in
Section 2.5 hereof), except as modified by GAAP and subject to the
modifications, adjustments and exceptions to GAAP and such accounting
principles, methods and practices set forth in ss. 1.2 above (such accounting
principles, methods and practices as so modified and adjusted, and such
procedures, are referred to herein as the "Accounting Principles"). As provided
in Section 1.2 above in connection with the preparation for the calculation of
inventory to be valued for purposes of determining the FIFO Net Worth of the
Company, the Stockholder and the Company and the Reviewer (as defined below) and
other representatives of Sunbelt will conduct a physical inventory at each
location where inventory is held by the Company. From the results of such
inventory and immediately prior to the Closing Date, Sunbelt and the Stockholder
(or the respective representatives thereof) will prepare a schedule, which shall
be signed by the Parties setting forth the nature and quality of such inventory
and such other items as shall be agreed upon by Sunbelt and the Stockholder to
be included in the Estimated Closing Date Balance Sheet, the Closing Date
Balance Sheet, the Reviewed Balance Sheet and the Final Balance Sheet.
(B) Within thirty (30) days after delivery of the Closing Date
Balance Sheet, (i) Ernst & Young, LLC or such other national accounting firm
(the "Reviewer") selected by Sunbelt, shall audit or otherwise review the
Closing Date Balance Sheet in such manner as Sunbelt and the Reviewer deem
appropriate, and (ii) Sunbelt shall deliver such reviewed balance sheet (the
"Reviewed Balance Sheet"), together with the Reviewer's report thereon, to the
Stockholder. The Reviewed Balance Sheet (i) shall be prepared on the same basis
and in accordance with the Accounting Principles and (ii) shall include a
schedule showing the Reviewer's computation of the FIFO Net Worth, computed in
accordance with the calculation of FIFO Net Worth set forth in Section 1.2
hereof. Sunbelt and the Reviewer shall have the opportunity to consult with the
Stockholder, the Company and each of the accountants and other representatives
of the Stockholder and the Company and examine the work papers, schedules and
other documents prepared by the Stockholder, the Company and each of such
accountants and other representatives during the preparation of the Closing Date
Balance Sheet. The Stockholder and the Stockholder's independent public
accountants shall have the opportunity to consult with the Reviewer and examine
the work papers, schedules and other documents prepared by Sunbelt and the
Reviewer during the preparation of the Reviewed Balance Sheet. If Sunbelt does
not deliver to Stockholder a Reviewed Balance Sheet within thirty (30) days
after the Closing Date Balance Sheet is delivered to Sunbelt, then the Closing
Date Balance Sheet shall be accepted as the "Final Balance Sheet," and a
supplemental closing (the "Supplemental Closing") shall take place within ten
(10) Business Days following the expiration of such 30-day period, or on such
other date as may be mutually agreed upon in writing by Sunbelt and the
Stockholder.
(C) The Stockholder shall have a period of fifteen (15) days after
delivery to the Stockholder of the Reviewed Balance Sheet to present in writing
to Sunbelt all objections the
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Stockholder may have to any of the matters set forth or reflected therein, which
objections shall be set forth in reasonable detail. During said fifteen (15) day
period, the Stockholder, his accountants and other representatives of the
Stockholder may examine Reviewer's work papers, schedules, research notes and
all correspondence between Reviewer and Sunbelt or any representative of
Sunbelt, which relate to the Closing Date Balance Sheet or Reviewed Balance
Sheet and any entry thereto made or considered by Reviewer. If no objections are
raised within such 15 day period, the Reviewed Balance Sheet shall be deemed
accepted and approved by the Stockholder (the "Final Balance Sheet") and a
supplemental closing (the "Supplemental Closing") shall take place within ten
(10) Business Days following the expiration of such 15-day period, or on such
other date as may be mutually agreed upon in writing by Sunbelt and the
Stockholder.
(D) If the Stockholder shall raise any objection within the 15-day
period, Sunbelt and the Stockholder shall attempt to resolve the matter or
matters in dispute and, if resolved shall be reflected in a "Final Balance
Sheet," and the Supplemental Closing shall take place within ten (10) Business
Days following such resolution.
(E) If such dispute cannot be resolved by Sunbelt and the
Stockholder within fifteen (15) days after the delivery of the Reviewed Balance
Sheet to the Stockholder, then the specific matters in dispute shall be
submitted to a firm of independent certified public accountants having a
reputation for special expertise in automobile dealership accounting and
mutually acceptable to Sunbelt and the Stockholder, which firm shall make a
final and binding determination as to such matter or matters, which shall be
reflected in the "Final Balance Sheet." Such accounting firm shall send its
written determination to Sunbelt and the Stockholder and the Supplemental
Closing, if any, shall take place five (5) Business Days following the receipt
of such determination by Sunbelt and the Stockholder. The fees and expenses of
the accounting firm referred to in this Section 1.3(e) shall be paid by Sunbelt.
(F) Sunbelt and the Stockholder agree to cooperate with each other
and each other's authorized representatives and with any accounting firm
selected by Sunbelt and the Stockholder pursuant to Section 1.3(e) hereof in
order that any and all matters in dispute shall be resolved as soon as possible.
(G) The difference between (i) the FIFO Net Worth as shown on the
Estimated Closing Date Balance Sheet, and (ii) the FIFO Net Worth as shown on
the Final Balance Sheet shall be paid as follows to the Stockholder if (ii) is
greater than (i) (a "Positive Post-Closing Adjustment"), or to Sunbelt if (i) is
greater than (ii) (a "Negative Post-Closing Adjustment"):
(1) the Parties shall cause the Escrow Agent (a) to
deliver to Sunbelt at the Supplemental Closing the amount of any Negative
Post-Closing Adjustment from the Escrow Account, and (b) to deliver to the
Stockholder at the Supplemental Closing any balance remaining after the payment
of the Negative Post-Closing Adjustment to Sunbelt from the Escrow Account, with
any deficiency in the Escrow Account paid directly by the Stockholder to Sunbelt
at the Supplemental Closing; or
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(2) the amount of any Positive Post-Closing Adjustment
shall be paid by Sunbelt and/or BAG to the Stockholder at the Supplemental
Closing and in such event, the Parties shall cause the Escrow Agent to deliver
to the Stockholder at the Supplemental Closing all funds then in the Escrow
Account.
ARTICLE 2
REPRESENTATION AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDER
Subject to the Parties' agreement and acknowledgment that all of the
Schedules referred to in this Article 2 or Article 5 are to be delivered by the
Company and the Stockholder no later than sixty (60) days after the execution of
this Agreement, the Company and the Stockholder hereby jointly and severally
represent and warrant to Sunbelt and BAG that the following statements contained
in this Article 2 are correct and complete as of the date of this Agreement:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized and validly existing under the laws of the State of its
incorporation and has the corporate power and authority to own, lease and
operate the properties used in its business and to carry on its business as now
being conducted. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each state and jurisdiction where
qualification as a foreign corporation is required except where the lack of such
qualification would not have a Material Adverse Effect on the financial
condition of the Company. SCHEDULE 2.1(a) hereto lists: (i) the states and other
jurisdictions where the Company is so qualified; and (ii) the assumed names
under which the Company conducts business and contains complete and correct
copies of the Company's Articles of Incorporation and Bylaws, each as amended
and presently in effect.
2.2 SUBSIDIARIES. Except as set forth in SCHEDULE 2.2 hereof, the
Company does not have any subsidiaries or any other similar active business
interest or investment in any Person.
2.3 CAPITALIZATION. The authorized stock of the Company and the
number of shares of capital stock that are issued and outstanding are set forth
on SCHEDULE 2.3(A) hereto. The shares listed on SCHEDULE 2.3(A) hereto
constitute all the issued and outstanding shares of capital stock of the
Company, have been validly authorized and issued, are fully paid and
non-assessable, have not been issued in violation of any preemptive rights or of
any federal or state securities law and no personal liability attaches to the
ownership thereof. Except for the stock restriction agreement set forth on
SCHEDULE 2.3(B) hereto (the "Stock Restriction Agreement") which will be
terminated prior to the Closing Date and except for the provisions in any
automobile manufacturer's franchise agreements under which the Company has an
automobile franchise, there is no security, option, warrant, right, call,
subscription, agreement, commitment or understanding of any nature whatsoever,
fixed or contingent, that directly or indirectly: (i) calls for issuance, sale,
pledge or other disposition of any Shares of capital stock of the Company or
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any securities convertible into, or other rights to acquire, any Shares of
capital stock of the Company; (ii) obligates the Company to grant, offer or
enter into any of the foregoing; or (iii) relates to the voting or control of
such capital stock, securities or rights, except as provided in this Agreement.
The Company has not agreed to register any securities under the Securities Act.
2.4 AUTHORITY, APPROVALS AND CONSENTS. The Company has the
corporate power and authority to enter into this Agreement and the other
documents referenced herein or related hereto (collectively, the "Transaction
Documents") and to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize and approve this Agreement and the Transaction Documents
and the transactions contemplated hereby and thereby. This Agreement has been
duly executed and delivered by, and constitutes a valid and binding obligation
of, the Company, enforceable against the Company in accordance with its terms.
The execution, delivery and performance by the Company and the Stockholder of
this Agreement and, at the Closing, the Post Closing Real Estate Lease and the
consummation of the transactions contemplated hereby and thereby do not and will
not, except as set forth on SCHEDULE 2.4:
(A) contravene any provisions of the Charter or Bylaws of the
Company;
(B) to the Knowledge of the Stockholder, after notice or lapse of
time or both, conflict with, result in a breach of any provision of, constitute
a default under, result in the modification or cancellation of, or give rise to
any right of termination or acceleration in respect of, any Company Agreement,
require any consent or waiver of any party to any Company Agreement, except
where such conflict or default would not have a Material Adverse Effect on the
financial condition of the Company or on the ability of the Parties to
consummate the transactions contemplated by this Agreement;
(C) to the Knowledge of the Stockholder, result in the creation of
any Lien upon, or any Person obtaining any right to acquire, any properties,
assets or rights of the Company (other than the rights of Sunbelt to acquire the
Shares pursuant to this Agreement) except where such Lien or rights would not
have a Material Adverse Effect on the financial condition of the Company or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement;
(D) to the Knowledge of the Stockholder, violate or conflict with
any Legal Requirements applicable to the Company or any of its businesses or
properties, except where such conflict or violation would not have a Material
Adverse Effect on the financial condition of the Company or on the ability of
the parties to consummate the transactions contemplated by this Agreement; or
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(E) to the Knowledge of the Stockholder, require any
authorization, Consent, order, permit or approval of, or notice to, or filing,
registration or qualification with, any Governmental Authority, other than in
connection with or in compliance with the provisions of the Hart-Scott-Rodino
Act, except where the absence of such Consent or filing, qualification or
registration would not have a Material Adverse Effect on the financial condition
of the Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
2.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 2.5 are true and
complete copies of:
(A) the unaudited balance sheet of the Company as of December 31,
1996, and the related statements of income, stockholder's equity and cash flow
for the fiscal year ended December 31, 1996, together with the notes thereto, in
each case accompanied by the reviewed report of independent certified public
accountants;
(B) the unaudited balance sheet of the Company as of October 31,
1997 (the "Balance Sheet") and the unaudited statements of income and
stockholder's equity for the ten (10) month period ended on such date; and
(C) the most recent monthly and year-to-date financial statements
provided to each automotive manufacturer with which the Company has an
automotive franchise dealership (the "Factory Statements");
(the financial statements referred to in clauses (a) and (b) above, including
the notes referred to in clause (a), being referred to herein collectively as
the "Financial Statements"). The December 31, 1996 year end financial statement
of the Company is in accordance with the books and records of the Company,
fairly presents the financial position, results of operations, stockholder's
equity and changes in the financial position of the Company as of the date and
for the period indicated, is in conformity with GAAP (except as disclosed
therein or in SCHEDULE 2.5 hereto or as such statement would otherwise be
modified by SECTION 1.2 hereof) during such periods, and can be legitimately
reconciled with the financial statements and the financial records maintained
and the accounting methods applied by the Company for federal income tax
purposes. The Balance Sheet is in accordance with the books and records of the
Company, fairly presents the financial position and Stockholder's equity of the
Company as of the date indicated, is in conformity with the Company's accounting
principles consistently applied in preparing interim statements, and can be
legitimately reconciled with the financial statements and records maintained and
accounting methods applied by the Company for federal income tax purposes. The
statements of income included in the Financial Statements of the Company do not
contain any material items of special or non-recurring income except as
expressly identified therein, and the balance sheets included in the Financial
Statements of the Company do not reflect any material write up or revaluation
increasing the book value of any assets except as expressly identified therein
or as described in Section 1.2(a)(i). The books and accounts of the Company are
complete and current in all
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material respects and fairly reflect all of the transactions, items of income
and expense and assets and liabilities of the businesses of the Company
consistent with prior practices of the Company.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Knowledge of the
Stockholder, the Company does not have any material liability of any nature
whatsoever (whether due or to become due, accrued, absolute or contingent),
including, without limitation, any unfunded obligation under Employee Benefit
Plans or arrangements as described in Sections 2.17 and 2.18 hereof or
liabilities for Taxes, except for: (a) liabilities reflected or reserved against
on the Company's Balance Sheet; (b) current liabilities incurred after the date
of the Company's Balance Sheet in the Ordinary Course of Business and consistent
with past practice; and (c) liabilities disclosed on SCHEDULE 2.6 hereto. Except
as set forth in SCHEDULE 2.6 hereto, none of the employees of the Company are
now or will by the passage of time become entitled to receive any vacation time,
vacation pay or severance pay attributable to services rendered prior to the
date of the Closing Date.
2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS.
(A) To the Knowledge of the Stockholder, since October 31, 1997,
except as set forth on SCHEDULE 2.7(A) hereto, the Company has operated in the
Ordinary Course of Business consistent with past practice and there has not
been:
(i) any material adverse change in the assets,
properties, business, contractual relations, operations, net income or financial
condition of the Company resulting in, or which could be reasonably expected to
result in, a Material Adverse Effect;
(ii) any material loss, damage, destruction or other
casualty to the property or other assets of the Company, whether or not covered
by insurance;
(iii) any change in the method of accounting or accounting
practice of the Company; or
(iv) any loss of the employment, services or benefits of
any key employee of the Company.
(B) To the Knowledge of the Stockholder, since October 31, 1997,
except as set forth in SCHEDULE 2.7(B) hereto, the Company has not:
(i) incurred any material obligation or liability
(whether absolute, accrued or contingent), except in the Ordinary Course of
Business consistent with past practice;
(ii) except in the Ordinary Course of Business consistent
with past practice failed to satisfy any Lien when due or pay or satisfy when
due any obligation or liability (whether
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absolute, accrued or contingent), other than liabilities being contested in good
faith and for which adequate reserves have been provided;
(iii) except in the Ordinary Course of Business, mortgaged,
pledged or subjected to any Lien any of its property or other assets except for
Permitted Liens and mechanics' liens;
(iv) sold or transferred any asset or canceled any debts
or claims or waived any rights, except in the Ordinary Course of Business
consistent with past practices;
(v) defaulted on any material obligation;
(vi) entered into any material transaction, except for the
signing of this Agreement or in the Ordinary Course of Business consistent with
past practice;
(vii) except in the Ordinary Course of Business, written
down the value of any inventory, or written off as uncollectible any accounts
receivable or any portion thereof reflected in the Company's Financial
Statements;
(viii) received any notice of termination of any contract,
lease or other agreement which, in any case or in the aggregate, has had a
Material Adverse Effect;
(ix) transferred or granted any rights under, or entered
into any settlement regarding the breach or infringement of, any material
Intellectual Property, or modified any material existing rights with respect
thereto;
(x) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable, or paid or
agreed or orally promised to pay, conditionally or otherwise any bonus,
incentive, retention or other Compensation, retirement, welfare, fringe or
severance benefit or vacation pay, to or in respect of any employee, salesman,
distributor or agent of the Company other than increases (1) in accordance with
past practices not exceeding fifteen percent (15%), or (2) in addition to (1),
to the Stockholder or Lindsay B. Robertson;
(xi) encountered any labor union organizing activity, had
any actual or threatened employee strikes, work stoppages, slowdowns or
lockouts;
(xii) failed to replenish inventories and supplies in a
normal and customary manner consistent with its prior practice, or made any
purchase commitment materially in excess of the normal, ordinary and usual
requirements of its business or at any price materially in excess of
then-current market price or upon terms and conditions materially more onerous
than those usual and customary in the industry for businesses of like size and
nature, or made any material change in its selling, pricing, advertising or
personnel practices inconsistent with its prior practice;
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(xiii) instituted, settled or agreed to settle any, or had
any material involvement in, litigation, action or proceeding before any court
or governmental body relating to the Company other than in the Ordinary Course
of Business consistent with past practices but not in any individual case
involving amounts in excess of $100,000;
(xiv) entered into any transaction, contract or commitment
other than in the Ordinary Course of Business or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, Taxes or other expenses in
connection with, or incurred any severance pay obligations by reason of, this
Agreement or the action contemplated hereby;
(xv) declared, set aside or paid any dividend or other
distribution in respect of any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by any Stockholder or the Company of
any outstanding shares of capital stock or other securities of, or other
ownership interest in, the Company;
(xvi) made any individual capital expenditure in excess of
$50,000.00, or aggregate capital expenditures in excess of $100,000.00, or
additions to property, plant and equipment other than ordinary repairs and
maintenance;
(xvii) discontinued any of the Company's franchise
agreements for its Cadillac, Oldsmobile, Mazda or Isuzu dealerships; or
(xviii) entered into any agreement or made any commitment to
do any of the foregoing.
2.8 TAXES. Except as set forth on SCHEDULE 2.8, for the fiscal year
ending December 31, 1996, the Company has filed timely all federal, state, local
and foreign tax returns, reports and declarations required to be filed (or has
obtained or timely applied for an extension with respect to such filing)
correctly reflecting, to the Stockholder's Knowledge, the Taxes and all other
information required to be reported thereon and has paid, or made adequate
provision for the payment of, all Taxes which are due pursuant to such returns
or pursuant to any assessment received by the Company. Copies of all tax returns
for each fiscal year since the date of incorporation of the Company (the "Tax
Returns") have been furnished or will be made available to Sunbelt or its
representatives and such copies are accurate and complete as of the dates
thereof. The Company will furnish or make available for review by Sunbelt
correct and complete copies of any material notices and correspondence sent or
received since 1995 by the Company to or from any federal, state or local tax
authorities. To the Knowledge of the Stockholder, the Company has made adequate
provision on its books (on an annual basis) for the payment of all Taxes
(including for the current fiscal period) owed by the Company. Except to the
extent reserves therefor are reflected on the Company's Balance Sheet and to the
Stockholder's Knowledge, the Company is not liable, or will not become liable,
for any Taxes for any period ending prior to or inclusive of the date of the
Company's Balance Sheet, except as set forth on SCHEDULE 2.8 hereto. On the
Estimated Closing Date
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Balance Sheet, the Closing Date Balance Sheet, the Reviewed Balance Sheet and
the Final Balance Sheet, there shall be an adequate reserve for the payment of
any Taxes Known to the Stockholder for any period ending on the day immediately
prior to the date of the Closing and in addition, there shall be an accrual as
provided in Section 1.2(c) above for Taxes attributable to the Company's
anticipated conversion to FIFO based accounting principles from and after the
Closing. Except as set forth on SCHEDULE 2.8 hereto, since January 1, 1995, the
Company has not been subject to a federal or state tax audit of any kind and no
adjustment has been proposed by the Internal Revenue Service ("IRS") with
respect to any return for any year commencing on or after January 1, 1995. With
respect to the audits referred to on SCHEDULE 2.8 hereto, no such audit has
resulted in an adjustment in excess of $50,000.00. The Stockholder has no
Knowledge of any assertion of a deficiency for Taxes against the Company. The
Stockholder will cooperate with the Company in the filing of any returns and in
any audit or refund claim proceedings involving Taxes for which the Company may
be liable or with respect to which the Company may be entitled to a refund.
Furthermore:
(A) the Company has not executed or filed with the IRS or any
other taxing authority any agreement, waiver or other document or arrangement
extending or having the effect of extending the period for assessment or
collection of Taxes (including, but not limited to, any applicable statute of
limitation), and no power of attorney with respect to any Tax matter is
currently in force;
(B) all Taxes, which to the Knowledge of the Stockholder, are
required to be withheld by the Company have been duly and timely withheld and
have been paid over as due to the appropriate taxing authorities for all periods
under all applicable laws;
(C) SCHEDULE 2.8 lists all material types of Taxes paid and
material types of tax returns filed by or on behalf of the Company. Except as
set forth on SCHEDULE 2.8, no claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns such that it is or may
be subject to taxation by that jurisdiction;
(D) except as set forth on SCHEDULE 2.8, all deficiencies asserted
or assessments made as a result of any examinations by the IRS or any other
taxing authority of the tax returns of or covering or including the Company have
been fully paid, and to Stockholder's Knowledge, there are no other audits or
investigations by any taxing authority in progress, nor have the Stockholder and
the Company received any notice from any taxing authority that it intends to
conduct such an audit or investigation. No issue has been raised by a federal,
state, local or foreign taxing authority in any current or prior examination
which, by application of the same or similar principles, could reasonably be
expected to result in a proposed deficiency for any subsequent tax period;
(E) except as set forth in SCHEDULE 2.8, neither the Company nor
any other Person (including the Stockholder) on behalf of the Company has: (i)
agreed to, or to the Stockholder's Knowledge, is required to make any
adjustments pursuant to ss.481(a) of the Code or any similar
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provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or has Knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application pending
with any taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company; (ii) executed
or entered into a closing agreement pursuant to Section 7121 of the Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law with respect to the Company; or (iii) requested any extension of
time within which to file any tax return, which tax return has not since been
filed;
(F) no property owned by the Company is: (i) property required to
be treated as being owned by another Person pursuant to the provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986; (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code; or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code;
(G) the Stockholder is not a foreign person within the meaning of
Section 1445 of the Code;
(H) the Company is not a party to any tax-sharing or similar
agreement or arrangement (whether or not written) pursuant to which it will have
any obligation to make any payments after the Closing;
(I) there is no contract, agreement, plan or arrangement covering
any person that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by the Company by reason of Section 280G
of the Code, or would constitute compensation in excess of the limitation set
forth in Section 162(m) of the Code;
(J) the Company is not subject to any private letter ruling of the
IRS or comparable rulings of other taxing authorities;
(K) there are no Liens as a result of any unpaid Taxes upon any of
the assets of the Company other than Permitted Liens;
(L) the Company has properly and timely elected under Section 1362
of the Code, and under each analogous or similar provision of state or local law
in each jurisdiction where the Company is required to file a tax return, to be
treated as an "S" corporation for all taxable periods since January 1, 1987.
Sunbelt will be provided with a copy of any such election and there has not been
any voluntary or involuntary termination or revocation of such election prior to
the Closing;
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(M) except as set forth in SCHEDULE 2.8, the Company has never
owned any subsidiaries and has never been a member of any consolidated, combined
or affiliated group of corporations for any Tax purposes;
(N) except as set forth in SCHEDULE 2.8, the Company does not have
any undistributed earnings and profits and has not had for any taxable year
gross receipts more than twenty-five percent (25%) of which are "passive
investment income" (as defined in Section 1375 of the Code).
2.9 LEGAL MATTERS.
(A) Except as set forth on SCHEDULE 2.9(A) hereto: (i) there is no
claim, action, suit, litigation or proceeding (collectively, "Claims'") pending
against, or, to the Knowledge of the Stockholder, threatened against or
affecting, the Company or any ERISA Plan or any of their respective assets,
properties or rights before any court, arbitrator, panel, agency or other
governmental, administrative or judicial entity, domestic or foreign; and (ii)
neither the Company nor any of its assets are subject to any judgment, decree,
writ, injunction, ruling or order (collectively, "Judgments") of any
Governmental Authority, domestic or foreign.
(B) To the Knowledge of the Stockholder, the business of the
Company is being conducted in compliance with all Legal Requirements applicable
to the Company or its business or properties, except where the failure to comply
would not have a Material Adverse Effect upon the financial condition of the
Company. To the Knowledge of the Stockholder, the Company holds, and is in
compliance with, all Permits required by all applicable Legal Requirements,
except where the failure to comply would not have a Material Adverse Effect upon
the financial condition of the Company. A list of all Permits is set forth on
SCHEDULE 2.9(B) hereof. To the Knowledge of the Stockholder, no event has
occurred and is continuing which permits, or after notice or lapse of time or
both would permit, any modification or termination of any Permit, except as
disclosed on SCHEDULE 2.9(b).
(C) SCHEDULE 2.9(C) sets forth all Governmental Approvals and
other Consents which to the Stockholder's Knowledge are necessary for, or
otherwise material to, the conduct of the Company's business. Except as set
forth in SCHEDULE 2.9(C), all such Governmental Approvals and Consents have been
duly obtained and, and to the Stockholder's Knowledge, are in full force and
effect and the Company is in substantial compliance with each of such
Governmental Approvals and Consents held by it.
(D) To the Stockholder's Knowledge, there have been no citations,
notices or complaints issued to or received by the Company from the Occupational
Health and Safety Administration or any similar state or local agency except as
listed on SCHEDULE 2.9(D).
2.10 PROPERTY. To the Knowledge of the Stockholder, except as disclosed
on SCHEDULE 2.10, the properties and assets owned by or leased to the Company
(including
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improvements to the Real Property (the "Improvements") and all machinery,
equipment and other tangible property) are in substantially good repair and
operating condition (subject to normal wear and tear) and, to the Knowledge of
the Stockholder, there are no facts or conditions affecting such assets which
could, individually or in the aggregate, interfere in any material respect with
the use, occupancy or operation thereof as currently used, occupied or operated.
(A) OWNED REAL PROPERTY. SCHEDULE 2.10 contains a complete list of
all real property owned by the Company (the "Owned Real Property") setting forth
the address and owner of each parcel and describing all improvements thereon,
including without limitation, the Owned Real Property reflected as being so
owned on the Company's Financial Statements. The Company has, or on the Closing
Date will have, good, valid and marketable fee simple title to the Owned Real
Property indicated on SCHEDULE 2.10 as being owned by it, free and clear of all
Liens other than Permitted Liens. There are no outstanding leases, options or
rights of first refusal to purchase the Owned Real Property, or any portion
thereof or interest therein.
(B) LEASES. SCHEDULE 2.10 contains a complete list of all leases
(the "Leases") of real property (the "Real Property") setting forth the address,
landlord and tenant for each Lease. Stockholder has delivered or will make
available to Sunbelt complete copies of the Leases. Each Lease is legal, valid,
binding, enforceable, and in full force and effect, except as may be limited by
bankruptcy, insolvency, reorganization and similar applicable laws affecting
creditors generally and by the availability of equitable remedies. The Company
is not in default, violation or breach in any respect under any Lease, and no
event has occurred and is continuing that constitutes or, with notice or the
passage of time or both, would constitute a default, violation or breach in any
respect under any Lease. Each Lease grants the tenant under the Lease the
exclusive right to use and occupy the demised premises thereunder (the "Leased
Real Property"). The Company has good and valid title to the leasehold estate
under each Lease free and clear of all recorded Liens other than Permitted
Liens. The Company enjoys peaceful and undisturbed possession under its
respective Leases for the Leased Real Property. At the Closing all of the then
existing Leases shall be canceled and replaced by the Post-Closing Real Estate
Lease attached hereto as Exhibit E.
(C) FEE AND LEASEHOLD INTERESTS. The Real Property constitutes all
the fee and leasehold interests in real property held by the Company for use in
connection with, or otherwise material to, the business of the Company as it is
currently conducted.
(D) NO PROCEEDINGS. There are no eminent domain or other similar
proceedings pending, or to the Stockholder's Knowledge, threatened or affecting
any portion of the Real Property. There is no writ, injunction, decree, order or
judgment outstanding, nor any action, claim, suit or proceeding, pending, or to
the Stockholder's Knowledge, threatened, relating to the ownership, lease, use,
occupancy or operation by any Person of any Real Property.
(E) CURRENT USE. Except as noted on SCHEDULE 2.10(E), to the
Knowledge of the Stockholder, the use and operation of the Real Property by the
Company does not violate in any
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material respect any instrument of record or agreement affecting the Real
Property. To the Knowledge of the Stockholder, there is no violation of any
covenant, condition, restriction, easement or order of any Governmental
Authority having jurisdiction over such property or of any other Person entitled
to enforce the same affecting the Real Property or the use or occupancy thereof.
No damage or destruction has occurred with respect to any of the Real Property
that would, individually or in the aggregate, have a Material Adverse Effect.
(F) COMPLIANCE WITH REAL PROPERTY LAWS. To the Stockholder's
Knowledge, the Real Property is in substantial compliance with all material
building, zoning, subdivision and other land use and similar applicable laws
affecting the Real Property (collectively, the "Real Property Laws"), and the
Stockholder has not received any notice of violation or claimed violation of any
Real Property Law. To the Knowledge of the Stockholder, there is no pending or
anticipated change in any Real Property Law that will have or result in a
material adverse effect upon the ownership, alteration, use, occupancy or
operation of the Real Property or any portion thereof. To the Stockholder's
Knowledge, no current use by the Company of the Real Property is dependent on a
nonconforming use approval, the absence of which would materially limit the use
of such properties or assets held for use in connection with, necessary for the
conduct of, or otherwise material to, the business of the Company as currently
conducted.
(G) REAL PROPERTY TAXES. Except as noted in SCHEDULE 2.10(G), each
parcel included in the Real Property is assessed for real property tax purposes
as a wholly independent tax lot, separate from adjoining land or Improvements
not constituting a part of that parcel.
(H) LEASED PREMISES. Except as noted in SCHEDULE 2.10(H), with
respect to Leased Real Property, to the Knowledge of the Stockholder, the
Company has substantially complied with and caused such premises to
substantially comply with: (i) all material federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances or
recommendations affecting such premises or any part thereof, or the use thereof,
including without limitation, the Americans with Disabilities Act; (ii) all
material rules, orders and regulations of the National Board of Fire
Underwriters or other bodies exercising similar functions and responsibilities
in connection with the prevention of fire or other correction of hazardous
conditions which apply to such premises; and (iii) the requirements of all
policies of public liability, fire and other insurance which may be in force
with respect to such premises.
(I) CERTIFICATE OF OCCUPANCY; UTILITIES; EMINENT DOMAIN. To the
Knowledge of the Stockholder, the Company has obtained any required certificate
of occupancy with respect to the Improvements. To the Knowledge of the
Stockholder, all utilities servicing the Real Property and the Improvements are
provided by publicly dedicated utility lines. No notice of any pending,
threatened or contemplated action by any governmental authority or agency having
the power of eminent domain has been given to the Company and the Stockholder
with respect to the Real Property.
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2.11 ENVIRONMENTAL MATTERS.
(A) Except as set forth on SCHEDULE 2.11(A) hereto: (i) the
Stockholder has not received notice that the Real Property, the Improvements and
any property formerly owned, occupied or leased by the Company are not in
compliance with all Environmental Laws (as defined below); (ii) to the Knowledge
of the Stockholder, the Company has obtained all Environmental Permits (as
defined below); (iii) such Environmental Permits are in full force and effect;
and (iv) the Stockholder has not received a notice of non-compliance regarding
the terms and conditions of such Environmental Permits. As used herein,
"Environmental Laws" shall mean all material applicable requirements of
environmental, public or employee health and safety, public or community right
to know, ecological or natural resource laws or regulations or controls,
including all applicable requirements imposed by any law (including, without
limitation, common law), rule, order, or regulations of any federal, state or
local executive, legislative, judicial, regulatory or administrative agency,
board or authority, or any applicable private agreement (such as covenants,
conditions and restrictions), which relate to: (A) noise; (B) pollution or
protection of the air, surface water, groundwater or soil; (C) solid, gaseous or
liquid waste generation, treatment, storage, disposal or transportation; (D)
exposure to Hazardous Materials (as defined below); or (E) regulation of the
manufacture, processing, distribution and commerce, use or storage of Hazardous
Materials. As used herein, "Environmental Permits" shall mean all material
permits, licenses, approvals, authorizations, consents or registrations required
under applicable Environmental Law in connection with ownership, use and/or
operation of the Company's business or the Real Property or Improvements.
As used in this ss. 2.11, "Hazardous Materials" shall mean,
collectively: (i) those substances included within the definitions of or
identified as "hazardous chemicals," "hazardous waste." "hazardous substances,"
"hazardous materials," "toxic substances" or similar terms in or pursuant to:
the Comprehensive Environmental Response Compensation and Liability Act of 1980
(42 U.S.C. ss. 9601 et seq. ("CERCLA"), as amended by Superfund Amendments and
Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613); the Resource
Conservation and Recovery Act of 1776 (42 U.S.C. ss. 6901 et seq.) ("RCRA"); the
Occupational Safety and Health Act of 1970 (29 U.S.C, ss. 651 et seq.) ("OSHA");
and the Hazardous Materials Transportation Act (49 U.S.C, ss. 1801 et seq.
("HWA"), and in the regulations promulgated pursuant to such laws, all as
amended; (ii) those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); (iii) any material waste or
substance which is or contains: (A) petroleum, including crude oil or any
fraction thereof, natural gas or synthetic gas usable for fuel or any mixture
thereof; (B) asbestos; (C) polychlorinated biphenyls; (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
ss. 1251 et seq. (33 U.S.C. ss. 1317) or listed pursuant to Section 307 of the
Clean Water Act (33 U.S.C. ss. 1317); (E) flammable explosives; (F) radioactive
materials; and (iv) such other substances, materials and wastes which are
regulated or classified as hazardous, toxic or as "special wastes" under any
Environmental Laws.
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(B) To the Knowledge of the Stockholder, the Company and the
Stockholder have not done any act which would give rise to liability under any
Environmental Law. To the Knowledge of the Stockholder, no event has occurred
with respect to the Real Property, the Improvements or any property formerly
owned, occupied or leased by the Company, which, with the passage of time or the
giving of notice, or both, would constitute a violation of or noncompliance with
any applicable Environmental Law. To the Knowledge of the Stockholder, the
Company has no contingent liability under any Environmental Law. To the
Knowledge of the Stockholder, there are no Liens under any Environmental Law on
the Real Property.
(C) To the Knowledge of the Stockholder, except as set forth on
SCHEDULE 2.11(C) hereto: (i) neither the Company, the Real Property or any
portion thereof, the Improvements or any property formerly owned, occupied or
leased by the Company, nor, any property adjacent to the Real Property is being
used or has been used for the treatment, generation, transportation, processing,
handling, production or disposal of any Hazardous Materials or as a landfill or
the waste disposal site in violation any Environmental Law and there has been no
spill, release or migration of any Hazardous Materials on or under the Real
Property and no Hazardous Material is present on or under the Real Property
(provided, however, that certain petroleum products are stored and handled on
the Real Property in the ordinary course of the Company's business in
substantial compliance with all Environmental Laws, including the existing
regulations of the United States Environmental Protection Agency and the State
of Georgia requiring spill protection, overfill protection and corrosion
protection by December 22, 1998); (ii) none of the Real Property or portion
thereof, the Improvements or any property formerly owned, occupied or leased by
the Company has been subject to investigation by any Governmental Authority
evaluating the need to investigate or undertake Remedial Action (as defined
below) at such property; and (iii) none of the Real Property, the Improvements
or any property formerly owned, occupied or leased by the Company or any site or
location where the Company sent waste of any kind, is identified on the current
or proposed: (A) National Priorities List under 40 C.F.R. 300 Appendix B; (B)
CERCLA Inventory System list; or (C) any use arising from any statute analogous
to CERCLA. As used herein, "Remedial Action" shall mean any action required to:
(i) clean up, remove or treat Hazardous Materials; (ii) prevent a release or
threat of release of any Hazardous Material; (iii) perform pre-remedial studies,
investigations or post-remedial monitoring and care; (iv) cure a violation of
Environmental Law; or (v) take corrective action under Sections 3004(u), 3004(v)
or 3008(h) of RCRA or analogous state law.
(D) To the Knowledge of the Stockholder, except as set forth in
SCHEDULE 2.11(D) hereto, there have been and are no: (i) above ground or
underground storage tanks, subsurface disposal systems, or wastes, drums or
containers disposed of or buried on, in or under the ground or any surface
waters; (ii) asbestos or asbestos containing materials or radon gas; (iii)
polychlorinated biphenyls ("PCD") or PCB-containing equipment, including
transformers; or (iv) wetlands (as defined under any Environmental Law) located
within any portion of the Real Property, nor have any Liens been placed upon any
portion of the Real Property or the Improvements or any property formerly owned,
occupied or leased by the Company in connection with any actual or alleged
liability under any Environmental Law.
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(E) Except as set forth on SCHEDULE 2.11(E) hereto: (i) there is
no pending or, to the Knowledge of the Stockholder, threatened claim, litigation
or administrative proceeding, or to the Knowledge of the Stockholder, prior
claim, litigation or administrative proceeding, arising under any Environmental
Law involving the Company, the Real Property, the Improvements, any property
formerly owned, leased or occupied by the Company, any off site contamination
affecting the business of the Company or any operations conducted at the Real
Property; (ii) there are no ongoing negotiations with or agreements with any
Governmental Authority relating to any Remedial Action or other environmental
related claim; (iii) the Company has not submitted notice pursuant to Section
103 of CERCLA or analogous statute or notice under any other applicable
Environmental Law reporting a release of a Hazardous Material into the
environment; and (iv) the Company and the Stockholder has not received any
notice, claim, demand, suit or request for information from any governmental or
private entity with respect to any liability or alleged liability under any
Environmental Law, nor to Knowledge of the Stockholder, has any other entity
whose liability therefor, in whole or in part, may be attributed to the Company,
received such notice claim, demand, suit or request for information.
(F) The Stockholder will make available to Sunbelt all
environmental studies and reports obtained by them or Known to the Stockholder
pertaining to the Real Property, the Improvements, the Company and any property
formerly owned, occupied or leased by the Company, and will permit prior to the
Closing Date the testing of the soil, groundwater, building components, tanks,
containers and equipment on the Real Property or the Improvements by Sunbelt or
Sunbelt's agents or experts as they have or shall have deemed necessary or
appropriate to confirm the condition of such properties.
2.12 INVENTORIES. The values at which inventories are carried on
the Company's Balance Sheet reflect the normal inventory valuation policies of
the Company. All inventories reflected on the Company's Balance Sheet and
Company's Factory Statements or arising since the date thereof can reasonably be
anticipated to be sold or disposed of in the Ordinary Course of Business, in
such manner or manners and at such rates as are substantially consistent with
the Company's historical experience, taking into account the Company's customary
practices with respect to the sale of obsolete, off-grade or slow-moving
inventory items from time to time during prior periods.
2.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable reflected on the Company's Balance Sheet, and all notes and accounts
receivable that will be reflected on the Estimated Closing Date Balance Sheet,
the Closing Date Balance Sheet, the Reviewed Balance Sheet and the Final Balance
Sheet will represent receivables arising from sales made or services performed
in the Ordinary Course of Business.
2.14 INSURANCE. All material properties and assets of the Company which
are of an insurable character are insured against loss or damage by fire and
other risks to the extent and in the manner the Stockholder deems reasonable in
light of the risks attendant to the businesses and activities in which the
Company is engaged. Set forth on SCHEDULE 2.14 hereto is a list and
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brief description (including the name of the insurer) of the type of coverage
provided, the amount of the annual premium for the current policy period, the
amount of remaining coverage and deductibles and the coverage period of all
policies for such insurance and the Company has made or will make available to
Sunbelt true and complete copies of all such policies. No notice of cancellation
or non-renewal with respect to, or disallowance of any claim under any such
policy has been received by the Company as of the date hereof.
2.15 CONTRACTS.
(A) SCHEDULE 2.15 contains a complete list of all material
agreements, contracts, commitments and other instruments and arrangements
(whether written or oral) of the types described below to which the Company is a
party or by which it is bound ("Company Agreements"):
(i) leases, master rental agreements, service agreements,
insurance polices, Governmental Approvals and other
contracts concerning or relating to the Real Property
(including those referred to on SCHEDULE 2.10);
(ii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements,
deeds of trust, bonds, notes, guarantees and other
agreements and instruments relating to the borrowing
of money or obtaining of or extension of credit;
(iii) licenses, licensing arrangements and other contracts
providing in whole or in part for the use of, or
limiting the use of, any Intellectual Property;
(iv) brokerage or finder's agreements;
(v) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including
but not limited to joint research and development and
joint marketing contracts);
(vi) asset purchase agreements and other acquisition or
divestiture agreements, including but not limited to
any agreements relating to the sale, lease or
disposal of any assets (other than sales of inventory
in the Ordinary Course of Business) or involving
continuing indemnity or other obligations;
(vii) sales agency, manufacturer's representative, dealer,
marketing or distributorship agreements;
(viii) master lease agreements providing for the leasing of
personal property used in, or held for use in
connection with, the Company's business; and
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(ix) powers of attorney.
For purposes of this Agreement "material agreements, contracts,
commitments and other instruments and arrangements" means only those contracts,
agreements, commitments, instruments or arrangements with respect to which the
aggregate amount that could reasonably be expected to be paid or received
thereunder in the future exceeds $12,000 per annum.
(B) The Company and the Stockholder will use their Best Efforts to
make available for review by Sunbelt complete copies of all written Company
Agreements together with all amendments thereto, and accurate descriptions of
all material terms of all oral Company Agreements set forth or required to be
set forth on SCHEDULE 2.15.
(C) To the Knowledge of Stockholder, all Company Agreements are in
full force and effect and enforceable against each party thereto, except as such
enforceability may be limited by the effect of bankruptcy, insolvency or similar
laws affected creditors' rights generally or by general principles of equity. To
the Knowledge of Stockholder, there does not exist under any Company Agreement
any event of default or event or condition that, after notice or lapse of time
or both, would constitute a violation, breach or event of default thereunder on
the part of the Company, or, any other party thereto, except as set forth in
SCHEDULE 2.15, and except for such events or conditions that, individually and
in the aggregate: (i) have not had or result in, and will not have or result in,
a Material Adverse Effect; and (ii) have not and will not materially impair the
ability of the Company or the Stockholder to perform their obligations under
this Agreement. Except as set forth in SCHEDULE 2.15, to the Knowledge of the
Stockholder, no consent of any third party is required under any Company
Agreement as a result of or in connection with, and the enforceability of any
Company Agreement will not be affected in any manner by, the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby.
(D) To the Knowledge of the Stockholder, there are no material
unresolved disputes involving the Stockholder, the Company or its employees
under any Company Agreement
2.16 LABOR RELATIONS.
(A) To the Knowledge of the Stockholder, the Company has paid or
made provision consistent with prior practices for the payment of all salaries
and accrued wages and has complied in all material respects with all material
applicable laws, rules and regulations relating to the employment of labor,
including those relating to wages, hours, collective bargaining and the payment
and withholding of taxes, and to the Knowledge of the Stockholder, has withheld
and paid to the appropriate Governmental Authority, or is holding for payment
not yet due, to such authority, any amounts required by law or agreement to be
withheld from the wages or salaries paid by the Company to its employees.
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(B) Except as set forth on SCHEDULE 2.16(B) hereto, the Company is not
a party to any: (i) outstanding employment agreements or contracts with officers
or employees that are not terminable at will; (ii) agreement, policy or practice
that requires it to pay termination or severance pay to non-exempt or hourly
employees (other than as required by law); (iii) collective bargaining agreement
or other labor union contract applicable to persons employed by the Company, nor
are there, to the Knowledge of the Stockholder, any activities or proceedings of
any labor union to organize any such employees. The Company will make available
to Sunbelt complete and correct copies of all such agreements ("Employment and
Labor Agreements"). To the Knowledge of the Stockholder, the Company has not
materially breached or otherwise materially failed to comply with any material
provisions of any Employment or Labor Agreement.
(C) Except as set forth in SCHEDULE 2.16(C) hereto, to the
Stockholder's Knowledge: (i) there is no unfair labor practice, charge or
complaint pending before the National Labor Relations Board ("NLRB"); (ii) there
is no labor strike, material slowdown or material work stoppage or lockout
actually pending or threatened against or affecting the Company, and the Company
has not experienced any such material slow down or material work stoppage,
lockout or other collective labor action by or with respect to employees of the
Company; (iii) there is no representation claim or petition pending before the
NLRB or any similar foreign agency and no question concerning representation
exists relating to the employees of the Company; (iv) there are no charges with
respect to or relating to the Company pending before the Equal Employment
Opportunity Commission or any state, local or foreign agency responsible for the
prevention of unlawful employment practices; (v) the Company and the Stockholder
have not received formal notice from any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws of an intention to
conduct an investigation of the Company and no such investigation is in
progress; and (vi) the consents of the unions that are parties to any Employment
and Labor Agreements are not required to complete the transactions contemplated
by this Agreement.
(D) The Company has never caused any "plant closing" or "mass layoff"
as such actions are defined in the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. ss.ss.2101-2109, and the regulations promulgated
therein.
2.17 EMPLOYEE BENEFIT PLANS.
(A) Set forth on SCHEDULE 2.17(A) hereto is a true and complete list
of:
(i) each Employee Pension Benefit Plan maintained by the Company
or to which the Company is required to make contributions; and
(ii) each Employee Welfare Benefit Plan maintained by the Company
or to which the Company is required to make contributions.
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True and complete copies of all ERISA Plans have been delivered to or will be
made available to Sunbelt together with, as applicable with respect to each such
ERISA Plan, trust agreements, summary plan descriptions, the most recent IRS
determination letter and, if any, pending applications therefor, with respect to
any Pension Benefit Plan intended to be qualified pursuant to Section 401(a) of
the Code, and valuation or actuarial reports, accountant's opinions, financial
statements, IRS Form 5500 (or 5500-C or 5500-R) and summary annual reports for
the last three years.
(B) With respect to the ERISA Plans, except as set forth on SCHEDULE
2.17(B):
(i) there is no ERISA Plan which is a Multi-Employer Plan;
(ii) to the Knowledge of the Stockholder, no event has occurred or
is threatened or about to occur which would constitute a
prohibited transaction under Section 406 of ERISA or under
Section 4975 of the Code;
(iii) to the Knowledge of the Stockholder, each ERISA Plan has
operated since its inception in all material respects with the
reporting and disclosure requirements imposed under ERISA and
the Code and has timely filed Form 5500 (or 5500-C or 5500-R)
and predecessors thereof; and
(iv) to the Knowledge of the Stockholder, no ERISA Plan is liable
for any federal, state, local or foreign Taxes.
(C) Each Pension Benefit Plan, intended to be qualified under Section
401(a) of the Code, to the Knowledge of the Stockholder:
(i) has been qualified, from its inception, under Section 401(a)
of the Code, and the trust established thereunder has been
exempt from taxation under Section 501(a) of the Code and is
currently in material compliance with applicable federal laws;
(ii) has been operated, since its inception, in all material
respects in accordance with its terms and there exists no fact
which would adversely affect its qualified status; and
(iii) is not currently under investigation, audit or review by the
IRS and no such action is contemplated or under consideration
and the IRS has not asserted that any Pension Benefit Plan is
not qualified under Section 401(a) of the Code or that any
trust established under a Pension Benefit Plan is not exempt
under Section 501(a) of the Code.
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(D) With respect to each Employee Pension Benefit Plan which is a
defined benefit plan under Section 414(j) and each defined contribution plan
under Section 414(i) of the Code:
(i) to the Knowledge of the Stockholder, no liability to the PBGC
under Sections 4062-4064 of ERISA has been incurred by the
Company since the effective date of ERISA and all premiums due
and owing to the FBOC have been timely paid;
(ii) no notification from the PBGC has been received by the Company
or any Employee Pension Benefit Plan of the commencement of
any proceedings under Section 4042 of' ERISA to terminate any
such plan;
(iii) to the Knowledge of the Stockholder, no event has occurred
since the inception of any Employee Pension Benefit Plan or is
threatened or about to occur which would constitute a
reportable event within the meaning of Section 4043(b) of
ERISA;
(iv) no Employee Pension Benefit Plan ever has incurred an
"accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code); and
(v) if any of such Employee Pension Benefit Plans were to be
terminated on the Closing Date: (A) to the Knowledge of the
Stockholder, no liability under Title IV of ERISA would be
incurred by the Company; and (B) all benefits accrued to the
day prior to the Closing Date (whether or not vested) would be
fully funded in accordance with the actuarial assumptions and
method utilized by such plan for valuation purposes.
(E) With respect to each Employee Pension Benefit Plan, SCHEDULE
2.17(A) contains a list of all Employee Pension Benefit Plans to which ERISA has
applied which have been or are being terminated, or for which a termination is
contemplated, and a description of the actions taken by the PBGC and the IRS
with respect thereto.
(F) The aggregate of the amounts of contributions by the Company to be
paid or accrued under ERISA Plans for the current fiscal year is not expected to
exceed approximately one hundred and fifty percent (150%) of the amounts of such
contributions for the past fiscal year. To the extent required in accordance
with GAAP, the Company's Final Balance Sheet shall reflect in the aggregate an
accrual of all amounts of employer contributions accrued and unpaid by the
Company under the ERISA Plans as of the date thereof.
(G) With respect to any Multi-Employer Plan: (i) the Company has not,
since its formation, made or suffered any "complete withdrawal" or "partial
withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of
ERISA, (ii) there is no withdrawal liability of
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the Company under any Multi-Employer Plan, computed as if a "complete
withdrawal" by the Company had occurred under each such Plan as of December 31,
1996; and (iii) the Company has not received notice to the effect that any
Multi-Employer Plan is either in reorganization (as defined in Section 4241 of
ERISA) or insolvent (as defined in Section 4245 of ERISA).
(H) With respect to the Employee Welfare Benefit Plans, except as
disclosed on SCHEDULE 2.17(H):
(i) There are no liabilities of the Company under
Employee Welfare Benefit Plans with respect to any
condition which relates to a claim filed on or before
the Closing Date other than claims being processed in
the normal course of business; and
(ii) No claims for benefits are presently in litigation
or, to the Stockholder's Knowledge, in dispute.
2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS.
(A) The Company will furnish or make available to Sunbelt true and
correct copies of:
(i) each employee stock purchase, employee stock option,
employee stock ownership, deferred compensation,
performance, bonus, incentive, vacation pay, holiday
pay, insurance, severance, retirement, excess benefit
or other plan, trust or arrangement which is not an
ERISA Plan whether written or oral, which the Company
maintains or is required to make contributions to;
(ii) each other agreement, arrangement, commitment and
understanding of any kind, whether written or oral,
with any current or former officer, director or
consultant of the Company pursuant to which payments
may be required to be made at any time following the
date hereof (including, without limitation, any
employment, deferred compensation, severance,
supplemental pension, termination or consulting
agreement or arrangement); and
(iii) each employee of the Company (other than the
Stockholder and Lindsay B. Robertson) whose aggregate
compensation for the fiscal year ended December 31,
1997 exceeded $75,000. True and complete copies of
all of the written plans, arrangements and agreements
referred to on SCHEDULE 2.18(A) ("Compensation
Commitments") have been provided or will be made
available to Sunbelt together with, where prepared by
or for the Company, any valuation, actuarial or
accountant's opinion or other financial reports with
respect to each Compensation Commitment for the last
three years. An accurate and complete written summary
has been
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provided or will be made available to Sunbelt with
respect to any Compensation Commitment which is
unwritten.
(B) To the Knowledge of the Stockholder, each Compensation
Commitment:
(i) since its inception, has been operated in all
material respects in accordance with its terms;
(ii) is not currently under investigation, audit or review
by the IRS or any other federal or state agency and
no such action is contemplated or under
consideration;
(iii) has no liability for any federal, state, local or
foreign Taxes;
(iv) has no claim subject to dispute or litigation;
(v) has met all applicable requirements, if any, of the
Code; and
(vi) has operated, since its inception, in material
compliance with the reporting and disclosure
requirements imposed under ERISA and the Code.
2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto
is a complete and accurate description of all material transactions between the
Company or any ERISA Plan, on the one hand, and any Insider, on the other hand,
that have occurred since December 31, 1996.
2.20 PROPRIETY OF PAST PAYMENTS. To the Knowledge of the
Stockholder, except as set forth on SCHEDULE 2.20 hereto: (a) no funds or assets
of the Company have been used for illegal purposes; (b) no unrecorded funds or
assets of the Company have been established for any purpose; (c) no accumulation
or use of the Company's corporate funds or assets has been made without being
accounted for in the respective books and records of the Company; (d) all
payments by or on behalf of the Company have been recorded and accounted for in
their respective books and records; (e) no false or artificial entry has been
made in the books and records of the Company for any reason; (f) no payment has
been made by or on behalf of the Company with the understanding that any part of
such payment is to be used for any purpose other than that described in the
documents supporting such payment; (g) and the Company has not made, directly or
indirectly, any illegal contributions to any political Party or candidate,
either domestic or foreign. To the Knowledge of the Stockholder, neither the IRS
nor any other federal, state, local or foreign government agency or entity has
initiated nor is there pending any investigation of any payment made by the
Company of, or alleged to be, the type described in this ss.2.20.
2.21 INTEREST IN COMPETITORS. Except as set forth on SCHEDULE 2.21,
neither the Company nor the Stockholder, nor any of their Affiliates, have any
interest, either by way of contract or by way of investment (other than as
holder of not more than two percent (2%) of the
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outstanding capital stock of a publicly traded Person, so long as such holder
has no other connection or relationship with such person) or otherwise, directly
or indirectly, in any Person other than the Company that is engaged in the
retail sale of automobiles in Hall County, Georgia.
2.22 BROKERS. Neither the Company, nor any director, officer or
employee thereof, nor the Stockholder or any representative of the Stockholder,
has employed any broker or finder or has incurred or will incur any broker's,
finder's or similar fees, commissions or expenses, in each case in connection
with the transactions contemplated by this Agreement.
2.23 ACCOUNTS. SCHEDULE 2.23 hereof correctly identifies each bank
account maintained by or on behalf of or for the benefit of the Company, and the
name of each person with any power or authority to act with respect thereto.
2.24 TERRITORIAL RESTRICTIONS. Except as restricted in its
automobile manufacturer franchise agreement or as set forth on SCHEDULE 2.24,
the Company is not restricted by any written agreement or understanding with any
Person from carrying on its business anywhere in the world by reason of any
contract, agreement or arrangement to which the Company is a party.
2.25 INTELLECTUAL PROPERTY.
(A) TITLE. SCHEDULE 2.25(A) contains a complete list of all
Intellectual Property with a value greater than $50,000 or on behalf of which
payments greater than $50,000 per year are made by the Company, that is owned by
the Company and primarily related to, used in, held for use in connection with,
or necessary for the conduct of, or otherwise material to the Company (the
"Owned Intellectual Property") other than: (i) inventions, trade secrets,
processes, formulae, compositions, designs and confidential business and
technical information; and (ii) Intellectual Property that is both not
registered or subject to application for registration and not material to the
Company. To the Stockholder's Knowledge, except as set forth on SCHEDULE 2.25(A)
the Company owns or has the exclusive right to use pursuant to license or
sublicense agreement or permission all Intellectual Property which is the
subject of the license, free from any Liens (other than Permitted Liens) and
free from any requirement of any past, present or future royalty payments,
license fees, charges or other payments or conditions or restrictions
whatsoever. As of the date hereof, the Intellectual Property comprises all of
the Intellectual Property necessary for the Company to conduct and operate the
Company as it is now being conducted. To the Stockholder's Knowledge, the
Company does not infringe on or otherwise conflict with any rights of any Person
in respect of any Intellectual Property. For purposes of this Section 2.25,
Intellectual Property shall exclude any Intellectual Property obtained by the
Company from any automobile manufacturer with whom the Company has executed a
franchise agreement.
(B) LICENSING ARRANGEMENTS. SCHEDULE 2.25(B) sets forth all
agreements or arrangements: (i) pursuant to which the Company has licensed
Intellectual Property to, or the use of Intellectual Property is otherwise
permitted (through non-assertion, settlement or similar agreements or otherwise)
by, any other Person; and (ii) pursuant to which the Company has had
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Intellectual Property licensed to it, or has otherwise been permitted to use
Intellectual Property, in each case under which agreement or arrangement
payments greater than $50,000 per year are made or received by the Company. To
the Stockholder's Knowledge, except as set forth on SCHEDULE 2.25(B), all of the
agreements or arrangements set forth on SCHEDULE 2.25(B): (A) are in full force
and effect in accordance with their terms and no default exists thereunder by
the Company, or to the Knowledge of the Stockholder, by any other party thereto;
(B) are free and clear of all Liens; and (C) do not contain any change in
control or other terms or conditions that will become applicable or inapplicable
as a result of the consummation of the transactions contemplated by this
Agreement. Stockholder has delivered or will make available to Sunbelt copies of
all written licenses and arrangements (including amendments) set forth on
SCHEDULE 2.25(B). All royalties, license fees, charges and other amounts payable
by, on behalf of, to, or for the account of, the Company in respect of any
Intellectual Property are disclosed in the Company's Financial Statements to the
extent material to the Company's Financial Statements.
(C) LITIGATION. Except as set forth in SCHEDULE 2.25(C), the
Company and the Stockholder have not received notice that any claim or demand of
any Person has been made, nor is there any proceeding that is pending, or to the
Knowledge of Stockholder, threatened, which: (i) challenges the rights of the
Company in respect of any Intellectual Property; (ii) asserts that the Company
is infringing or otherwise in conflict with, or is, except as set forth in
SCHEDULE 2.25(B), required to pay any royalty, license fee, charge or other
amount with regard to, any Intellectual Property; or (iii) claims that any
default exists under any agreement or arrangement listed on SCHEDULE 2.25(B). To
the Knowledge of the Stockholder, none of the Intellectual Property is subject
to any outstanding order, ruling, decree, judgment or stipulation by or with any
court, arbitrator or administrative agency.
(D) USE OF NAME AND MARK. Except as set forth in SCHEDULE 2.25(D)
or elsewhere in this Agreement, there are, and immediately after the Closing
will be, no contractual restriction or limitation pursuant to any orders,
decisions, injunctions, judgments, awards or decrees of any Governmental
Authority on Company's right to use the name and mark "Moss Robertson" in the
conduct of the business as presently carried on by the Company.
2.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 2.26 contains
an accurate list, as of the date of this Agreement, of:
(A) the name of each financial institution in which the Company
has accounts or safe deposit boxes;
(B) the names in which the accounts or boxes are held:
(C) the type of account; and
(D) the name of each person authorized to draw thereon or have
access thereto.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Subject to the Parties' agreement and acknowledgment that all of the
Schedules referred to in this Article 3 are to be delivered by the Company and
the Stockholder no later than sixty (60) days after the execution of this
Agreement, the Company and the Stockholder hereby jointly and severally
represent and warrant to Sunbelt and BAG that the following statements contained
in this Article 3 are correct and complete as of the date of this Agreement:
3.1 OWNERSHIP OR SHARES; TITLE. The Stockholder is the owner of
record and beneficiary of the Shares set forth on SCHEDULE 3.1 hereof and has,
and shall transfer to Sunbelt at the Closing, good and marketable title to the
Shares owned by him, free and clear of any and all Liens, claims and
encumbrances and free and clear of any restrictions on transfer (other than
restrictions on transfer imposed by applicable federal and state securities
laws), proxies and voting, or other agreements. The Stockholder is not a party
to any option, warrant, purchase right or other contract or commitment that
could require the Stockholder to sell, transfer or otherwise dispose of the
Shares (other than this Agreement). The Stockholder is not a party to any voting
trust, proxy or other agreement or understanding with respect to the voting of
any capital stock of the Company.
3.2 AUTHORITY. The Stockholder has all requisite power and
authority and has full legal capacity and is competent to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby
(including the disposition of the Shares to Sunbelt as contemplated by
Agreement). This Agreement has been duly executed and delivered by the
Stockholder and constitutes a valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms. Except as set
forth on SCHEDULE 3.2, the execution, delivery and performance of this Agreement
by the Stockholder and the consummation of the transactions contemplated hereby,
do not and will not, to the Knowledge of the Stockholder:
(A) (after notice or lapse of time or both) conflict with,
result in a breach of any provision of, constitute a default under, result in
the modification or cancellation of, or give rise to any right of termination or
acceleration in respect of, any material contract, agreement, commitment,
understanding, arrangement or restriction to which the Stockholder is a party or
to which the Stockholder or any of Stockholder's property is subject;
(B) violate or conflict with any Legal Requirements applicable
to the Stockholder or any of the Stockholder's businesses or properties; or
(C) require any authorization, consent, order, permit or
approval of, or notice to, or filing, registration or qualification with, any
Governmental Authority, except in connection with or in compliance with the
provisions of the Hart-Scott-Rodino Act.
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3.3 BROKER'S FEES. The Stockholder has no Liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which Sunbelt, BAG or the
Company could become liable or obligated.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SUNBELT AND BAG
Sunbelt and BAG hereby jointly and severally represent and warrant to
the Company and the Stockholder as follows:
4.1 ORGANIZATION AND GOOD STANDING. Except as set forth on
Schedule 4.1 attached hereto, each of Sunbelt and BAG is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the corporate power and authority to own, lease and
operate the properties used in its business and to carry on its business as now
being conducted. Except as set forth on Schedule 4.1 attached hereto, each of
Sunbelt and BAG is duly qualified to do business and is in good standing as a
foreign corporation in each state and jurisdiction where qualification as a
foreign corporation is required, except for such failures to be qualified and in
good standing, if any, which when taken together with all other such failures of
Sunbelt and/or BAG would not, or could not reasonably be expected to, in the
aggregate have a material adverse effect on Sunbelt and/or BAG.
4.2 AUTHORITY; APPROVALS AND CONSENTS. Sunbelt and BAG have the
corporate power and authority to enter into this Agreement and to perform their
respective obligations hereunder. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, Sunbelt and
BAG, enforceable against Sunbelt and BAG in accordance with its terms. Except as
set forth on SCHEDULE 4.2 hereto, the execution, delivery and performance by
Sunbelt and BAG of this Agreement and the consummation of the transactions
contemplated hereby do not and will not:
(i) contravene any provisions of the certificate of
incorporation or bylaws of Sunbelt or BAG;
(ii) (after notice or lapse of time or both) conflict
with, result in a breach of any provision, constitute
a default under, result in the modification or
cancellation of, or give rise to any contract,
agreement, commitment, understanding, arrangement or
restriction or, require any Consent or waiver of any
party to any such agreement, restriction or
arrangement other than agreements the breach or
violation of which could not reasonably be expected
to have a Material Adverse Effect on Sunbelt or BAG;
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(iii) violate or conflict with any Legal Requirements
applicable to Sunbelt or BAG, or any of their
respective businesses or properties; or
(iv) require any authorization, consent, order, permit or
approval of, or notice to, or filing, registration or
qualification within any governmental, administrative
or judicial authority, except in connection with or
in compliance with the provisions of the H.S.R. Act.
4.3 BROKERS. Neither Sunbelt or BAG, nor any of their respective
directors, officers, employees or agents has employed any broker or finder or
has incurred or will incur any broker's, finder's or similar fees, commissions
or expenses, in each case in connection with the transactions contemplated by
this Agreement or the Post-Closing Real Estate Lease.
4.4 SHARE CONSIDERATION. The Share Consideration to be delivered
to the Stockholder pursuant to this Agreement will be duly authorized, validly
issued, fully paid and nonassessable. The delivery of the Share Consideration
pursuant to this Agreement will transfer to the Stockholder valid title to such
shares of Sunbelt Common Stock, free and clear of all liens, encumbrances and
claims of every kind except for any created by the Stockholder. Except for the
restrictions on transfer imposed by the Securities Act and other applicable
federal and state securities laws and those normal and customary restrictions
imposed by the underwriters of the Sunbelt IPO, all shares of Sunbelt Common
Stock delivered to the Stockholder pursuant to this Agreement will be eligible
for resale under the Securities Act.
4.5 DISCLOSURE. As of the Closing Date, the prospectus relating to
the Sunbelt IPO filed or to be filed with the Securities and Exchange Commission
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS
5.1 ACCESS; CONFIDENTIALITY. Between the date hereof and the
Closing Date, the Stockholder and the Company will: (a) provide to the officers
and other authorized representatives of Sunbelt full access, during normal
business hours, to any and all premises, properties, files, books, records,
documents and other information of the Company, and at the request of Sunbelt,
will furnish to Sunbelt and its authorized representatives any and all
financial, technical and operating data and other information pertaining to the
businesses and properties of the Company (including the Real Property and the
Improvements); and (b) make available for inspection and copying by Sunbelt true
and complete copies of any documents relating to the foregoing; provided,
however, that scheduling of any and all inspections, tours or other due
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diligence activities at the premises of the Company shall be subject to the
prior approval of the Stockholder; and provided, further, that neither Sunbelt
or BAG nor any representative of any such party shall contact any employee,
agent, representative, supplier or creditor of the Company (other than the
Stockholder or Lindsay B. Robertson) without the prior approval of the
Stockholder. From and after the date hereof, Sunbelt and BAG will hold, and will
cause their representatives to hold, in confidence (unless and to the extent
compelled to disclose by judicial or administrative process) all Confidential
Information (as defined in this Agreement) and will not use or disclose the
Confidential Information to any third party except in connection with obtaining
financing and the transactions contemplated hereby, including any due diligence
review by or on behalf of Sunbelt and/or BAG. If this Agreement is terminated,
Sunbelt and BAG will, and will cause their representatives to, promptly return
to the Company, all Confidential Information furnished by the Company, the
Stockholder, or their representatives, including all copies and summaries
thereof. As used herein, "Confidential Information" shall not include
information (i) obtained from public information; (ii) received from a third
party not employed by or otherwise affiliated with the Company or to BAG's or
Sunbelt's knowledge, not under any duty not to disclose or use the Confidential
Information; or (iii) which is or becomes known to the public other than through
a breach by Sunbelt or BAG, or any of their respective representatives of this
Agreement.
5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholder and the
Company, on the one hand, and Sunbelt and BAG, on the other hand, will, as soon
as practical after reasonable request therefor, furnish to the other all
information concerning the Stockholder and the Company or Sunbelt and BAG,
respectively, required for inclusion in any statement or application made by
Sunbelt and BAG or the Company or the Stockholder to any governmental or
regulatory body or to any manufacturer or distributor or in connection with
obtaining any third party consent in connection with the transactions
contemplated by this Agreement. Neither the Stockholder nor the Company, on the
one hand, nor Sunbelt or BAG, on the other hand, nor any representative thereof
shall issue any press release or otherwise make any public statement with
respect to the transactions contemplated hereby without the prior written
consent of the other, except as may be required by law. Sunbelt shall reimburse
the Company and the Stockholder for any reasonable expenses, fees and costs
incurred by the Company and the Stockholder in connection with this Section.
5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) Except as set forth on SCHEDULE 5.3(A), from and after the
date of this Agreement and until the Closing Date, the Company shall, and the
Stockholder shall cause the Company to, conduct its business solely in the
ordinary course consistent with past practices and, without the prior written
consent of Sunbelt, neither the Stockholder nor the Company will, except as
required or contemplated herein, cause the Company to:
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(i) make any material change in the conduct of its
business and operations or enter into any transaction
other than in the Ordinary Course of Business
consistent with past practices;
(ii) make any change in its Bylaws, issue any additional
shares of capital stock or equity securities or grant
any option, warrant or right to acquire any capital
stock or equity securities or issue any security
convertible into or exchangeable for its capital
stock or alter any material term of any if its
outstanding securities or make any change in its
outstanding shares of capital stock or other
ownership interests or its capitalization, whether by
reason of a reclassification, recapitalization, stock
split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(iii) (A) incur, assume or guarantee any indebtedness for
borrowed money, issue any notes, bonds, debentures or
other corporate securities or grant any option,
warrant or right to purchase any thereof, except
pursuant to transactions in the Ordinary Course of
Business consistent with past practices; (B) issue
any securities convertible or exchangeable for debt
securities of the Company; or (C) issue any options
or other rights to acquire from the Company, directly
or indirectly, debt securities of the Company or any
security convertible into or exchangeable for such
debt securities;
(iv) make any sale, assignment, transfer, abandonment or
other conveyance of any of its assets or any part
thereof, except transactions pursuant to existing
contracts and other dispositions in the Ordinary
Course of Business consistent with past practices;
(v) subject any of its assets, or any part thereof, to
any Liens or suffer such to be imposed other than
such Liens as may arise in the Ordinary Course of
Business consistent with past practices;
(vi) declare, set aside or pay any dividends or other
distribution (whether in cash, stock, property or any
combinations thereof) in respect of any shares of its
capital stock which would decrease the FIFO Net Worth
of the Company as of the Closing Date below
$1,000,000;
(vii) acquire any assets, raw materials or properties, or
enter into any other transaction, other than in the
Ordinary Course of Business consistent with past
practices;
(viii) except to comply with ERISA or other applicable law,
enter into any new (or amend any existing) employee
benefit plan, program or arrangement or
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any new (or amend any existing) employment, severance
or consulting agreement; grant any general increase
in the compensation of officers or employees
(including any such increase pursuit to any bonus,
pension, profit-sharing or other plan or commitment)
or grant any increase in compensation payable or to
become payable to any employee (other than to the
Stockholder or Lindsay B. Robertson), except in
accordance with pre-existing contractual provisions
or consistent with past practices;
(ix) make or commit to make any individual capital
expenditure in excess of $50,000, or aggregate
capital expenditures in excess of $100,000, except in
the Ordinary Course of Business;
(x) pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets to, or enter into
any agreement or arrangement with, any of its
Affiliates, except in the Ordinary Course of Business
or as expressly contemplated in this Agreement such
as by execution of the Post-Closing Real Estate
Lease;
(xi) guarantee any indebtedness for borrowed money or any
other obligation of any other Person, other than in
the Ordinary Course of Business consistent with past
practice;
(xii) fail to keep in full force and effect insurance
comparable in amount and scope to coverage maintained
by it (or on behalf of it) on the date hereof;
(xiii) make any loan, advance or capital contribution or
investment in any Person, except in the Ordinary
Course of Business;
(xiv) make any change in any method of accounting or
accounting principle, method, estimate or practice
except for any such change required to conform to
GAAP accounting (with incorporation of the
modifications referred to in Section 1.2 above) or
write-down the value of any inventory or write-off as
uncollectible any accounts receivable except in the
Ordinary Course of Business consistent with past
practices;
(xv) settle, release or forgive any material claim or
litigation or waive any material right;
(xvi) make, enter into, modify, amend in any material
respect or terminate any material commitment, bid or
expenditure, other than in the Ordinary Course of
Business; or
(xvii) commit itself to do any of the foregoing.
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(b) Except as set forth on SCHEDULE 5.3(B), from and after the
date hereof and until the Closing Date, the Stockholder and the Company will use
their reasonable Best Efforts to cause the Company to:
(i) continue to maintain, in all material respects, the
Company's properties, all Real Property and all
Improvements in accordance with present practices in
a condition suitable for their current use;
(ii) substantially comply with all material Environmental
Laws which, to the Knowledge of the Stockholder,
applies to the Company;
(iii) file, when due or required, federal, state, foreign
and other tax returns and other reports required to
be filed and pay when due all Taxes of which the
Stockholder has Knowledge, assessments, fees and
other charges lawfully levied or assessed against it
unless the validity thereof is contested in good
faith and by appropriate proceedings diligently
conducted;
(iv) keep its books of account, records and files in the
Ordinary Course of Business and in accordance with
existing practices; and
(v) continue to conduct its business in the Ordinary
Course of Business consistent with past practices.
5.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. At the Closing there
will be no intercompany payables or intercompany receivables due and/or owing
between the Stockholder and any of its Affiliates, on the one hand, and the
Company, on the other hand, except any obligations of the Company to the
Stockholder arising under the Post-Closing Real Estate Lease or the predecessor
Lease of the Real Property subject thereto.
5.5 NEGOTIATIONS. Until the earlier of one hundred eighty (180)
days from the date hereof or the termination of this Agreement pursuant to
Section 8.1 hereof, neither the Stockholder, nor the Company, nor its directors,
E. Moss Robertson, Jr. and Lindsay B. Robertson, nor anyone acting on behalf of
the Stockholder pursuant to express direction from him, shall, directly or
indirectly, solicit, initiate or engage in discussions or negotiations with any
person (other than Sunbelt or BAG or their representatives or the Stockholder's
attorneys) concerning any merger, sale of assets (other than in the Ordinary
Course of Business), purchase or sale of shares of capital stock or similar
transaction involving the Company. The Stockholder shall promptly communicate to
Sunbelt any inquiries or communications concerning any such transaction which
the Stockholder may receive.
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5.6 CONSENTS; COOPERATION. Subject to the terms and conditions
hereof, the Company and Sunbelt and BAG will use their respective Best Efforts
at their own expense (except as noted below):
(A) at Sunbelt's expense, to obtain prior to the earlier of the
date required (if so required) or the Closing Date, all Government Approvals,
and make all filings and registrations with Governmental Authorities which are
required on their respective parts for: (i) the consummation of the transactions
contemplated by this Agreement; (ii) the ownership or leasing and operating
after the Closing by the Company of all its material properties; and (iii) the
conduct after the Closing by the Company of its business as conducted by it on
the date hereof;
(B) at Sunbelt's expense (including all legal fees, other fees and
all costs incurred), to obtain approval of each respective automobile
manufacturer of its automotive dealer sales and service agreement for the
Company's ongoing operation of its Cadillac, Oldsmobile, Isuzu and Mazda
franchise, as the case may be, in Gainesville, Hall County, Georgia; and
(C) to furnish each other such information and assistance as may
reasonably be requested in connection with the foregoing.
5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of
this Agreement, each of the Company, Sunbelt and BAG agrees to use its Best
Efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under Legal Requirements
applicable to such Party to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers of the Company, Sunbelt and BAG shall take all
such necessary action.
5.8 INTERIM FINANCIAL STATEMENTS. Upon Sunbelt's request, the
Company will deliver to Sunbelt copies of the Company Factory Statements
hereafter provided monthly to the automobile manufacturers of the Company's
franchised dealerships within five (5) Business Days of their delivery to the
respective manufacturers.
5.9 NOTIFICATION OF CERTAIN MATTERS.
(A) Between the date hereof and the Closing, each Party to this
Agreement after obtaining actual knowledge (and for purposes of this Section
5.9, "actual knowledge" of the Stockholder or the Company shall mean the
"Knowledge of the Stockholder" as defined in the preface to this Agreement) will
give prompt notice in writing to the other Party hereto of (i) any information
that indicates that any representation and warranty of such Party contained
herein was not true and correct as of the date made, or will not be true and
correct as of the Closing; (ii) the occurrence of any event which could result
in the failure to satisfy a condition specified in Article 6 or Article 7
hereof, as applicable; (iii) any notice or other communication from any third
person alleging that the consent of such third person is or may be required in
connection with the
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transactions contemplated by this Agreement; and (iv) in the case of the
Stockholder and the Company, any notice of, or other communication relating to,
any default or event which, with notice or lapse of time or both, would become a
default under any Company Agreement set forth on SCHEDULE 2.15. The Company and
the Stockholder will: (a) promptly advise Sunbelt of any event that has, or
could reasonably be expected in the future to have, a Material Adverse Effect on
the Company; (b) confer on a regular and frequent basis with one or more
designated representatives of Sunbelt to report operational matters and to
report the general status of ongoing operations; and (c) notify Sunbelt of any
emergency or other change in the normal course of business or relating to the
Real Property or Improvements of the Company and of any complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) of any Governmental Authority or adjudicatory proceedings
involving the Company, the Real Property or the Improvements and will keep
Sunbelt fully informed of such events and permit Sunbelt's representatives
access to all materials prepared in connection therewith. The Stockholder shall
give prompt notice to Sunbelt of any notice or other communication from any
third person asserting any right, title or interest in any of the Shares held by
the Stockholder, including, without limitation, any threat to commence, or
notice of the commencement of any action or other proceeding with respect to the
Shares held by the Stockholder, or the occurrence of any other event of which
the Stockholder has Knowledge which could result in any failure by the
Stockholder to consummate the sale of the Shares as contemplated hereby.
(B) The Stockholder may elect at any time prior to the Closing
deliver written notification to Sunbelt of any development or change causing a
breach of any of the representations, warranties or covenants in Article 2,
Article 3 or Section 5.3 hereof, which notice shall state that it is being
delivered pursuant to this Section 5.9(b). Unless Sunbelt otherwise has the
right to terminate this Agreement pursuant to Section 8.1 (e) hereof by reason
of the development or change and exercises that right within the period of ten
(10) Business Days referred to in Section 8.1(e), the written notice pursuant to
this Section 5.9(b) will be deemed to have amended the relevant Schedules
hereto, to have qualified the representations, warranties and covenants
contained in Article 2, Article 3 and Section 5.3 hereof, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of the development or change.
5.10 ASSURANCE BY THE STOCKHOLDER. The Stockholder shall use his
Best Efforts to cause the Company to comply with its respective covenants set
forth in this Agreement
5.11 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. Sunbelt, BAG, the
Stockholder and the Company, as applicable, shall each file or cause to be filed
with the Federal Trade Commission and the United States Department of Justice
and any notifications required to be filed by the respective "ultimate parent"
entities under the Hart-Scott-Rodino Act and the rules and regulations
promulgated thereunder with respect to the transactions contemplated herein.
Sunbelt shall pay the Hart-Scott-Rodino Act filing fee and all legal and other
fees, costs and expenses reasonably incurred by any Party relating to such
filings. The Parties shall use their Best Efforts
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to make such filings promptly, to respond to any requests for additional
information made by either of such agencies, to cause the waiting periods under
the Hart-Scott-Rodino Act to terminate or expire at the earliest possible date,
and to resist vigorously, at Sunbelt's expense (including, without limitation,
the institution or defense of legal proceedings), any assertion that the
transactions contemplated herein constitute a violation of the antitrust laws,
all to the end of expediting consummation of the transactions contemplated
herein; provided, however, that if Sunbelt shall reasonably determine that
continuing such resistance is not likely to result in a favorable determination,
Sunbelt may, by written notice to the other Parties, terminate this Agreement
with the effect set forth in ss.8.2 hereof
5.12 USE OF BUSINESS NAME. After the Closing Date, Sunbelt and the
Company may use the name "Moss Robertson" in connection with business of the
Company. After the Closing, neither the Stockholder nor any of his Affiliates
shall use the name Moss Robertson in connection with the sale or servicing of
new or used automobiles, light-duty trucks or any other motorized vehicles
within a thirty (30) mile radius of the Real Property prior to the fifth (5th)
year anniversary of the Closing Date. Effective as of the Closing Date, the
Company hereby grants to the Stockholder a perpetual, non-exclusive and
nontransferable license to use the trade name and trade mark "Moss Robertson",
subject to the restrictions set forth above in this Section 5.12. The
Stockholder shall not be required to pay for the use of such trade name or trade
mark.
5.13 RELATED PARTY/STOCKHOLDER LOAN. On or before the Closing Date,
the Stockholder shall cause the Company to pay, and the Company shall pay, the
outstanding principal and all accrued but unpaid interest on any related
party/Stockholder loans (the "Stockholder Loans"). For purposes of this Section,
the Stockholder Loans shall mean the loans to the Company from Stockholder and
his Affiliates as set forth on the Company's Balance Sheet and listed on
SCHEDULE 5.13.
5.14 STOCK RESTRICTION AGREEMENT. Prior to the Closing Date, any
and all stock restriction agreements, buy/sell agreements, shareholder
agreements or other similar agreements of the Company (the "Stock Restriction
Agreement") shall be terminated in accordance with its terms and the parties
thereto shall have released any and all claims arising under or relating to the
Stock Restriction Agreement and its termination.
5.15 PERSONAL ITEMS. The parties acknowledge and agree that the
Stockholder may retain certain personal items (which items are not reflected as
assets on the Company's Balance Sheet and will not be reflected as assets on the
Final Balance Sheet of the Company). These items will include personal pictures,
awards and mementos and paintings.
5.16 CONTINUING INDEMNIFICATION OF OFFICERS AND DIRECTORS; OTHER
RELEASE BY STOCKHOLDER. The Stockholder hereby agrees and confirms that except
as otherwise provided in this Agreement, as of the Closing he will fully
release, acquit and forever discharge the Company from any and all liability,
claim, damage, suit, cost, expense or obligation of any nature whatsoever
whether known or unknown, arising in respect of or in connection with any time
or
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period of time on or prior to the Closing Date, except for (a) compensation
payable by the Company to the Stockholder for services prior to the Closing
Date; (b) reimbursable expenses owed to Stockholder on or prior to the Closing;
and (c) the Stockholder's rights to indemnification for serving as an officer,
director and employee of the Company. Sunbelt and BAG agree that (i) all rights
to indemnification existing in favor of any director, officer, employee or agent
of the Company (the "Indemnified Parties") as provided in the Articles of
Incorporation or Bylaws of the Company or in written indemnification agreements
with the Company, in effect as of the date hereof, shall survive the Closing and
shall continue in full force and not less than six (6) years from the Closing
Date, and (ii) Sunbelt and BAG shall jointly and severally guarantee the
performance by the Company of its obligations referred to in this Section 5.16,
provided that, in the event any claim or claims are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims, and Sunbelt's and BAG's guarantee with respect thereto, shall continue
until final disposition of any and all such claims. Sunbelt and BAG jointly and
severally agree to indemnify all Indemnified Parties to the fullest extent
permitted by applicable law with respect to all acts and omissions arising out
of such individuals' services as officers, directors, employees or agents of the
Company occurring prior to the Closing Date. Without limiting the generality of
the foregoing, if any such Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter occurring prior to the Closing Date, the Company shall pay as incurred
such Indemnified Party's legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith; provided that
Sunbelt shall have the right to approve such Indemnified Party's legal counsel,
which approval shall not be unreasonably withheld.
5.17 RETENTION OF RECORDS; POST-CLOSING ACCESS. Without cost to the
Stockholder, Sunbelt and BAG shall cause the Company to retain all books and
records of the Company (the "Records") in existence as of the Closing Date for
the greater of five (5) years from the Closing Date or such longer period of
time as required by applicable statutes, rules and regulations. For a period of
not less than five (5) years after the Closing Date, and for such longer period
as the Records are maintained, the Stockholder and his agents and
representatives shall have reasonable access to the Records at his sole cost and
expense for purposes of preparing and filing tax returns, preparing for audits
and for all other purposes as the Stockholder may reasonably request from time
to time.
5.18 SPECIAL INDEMNITY. The Parties acknowledge and agree that it
is anticipated that the Company will incur tax liability as a result of the
Company's expected conversion after the Closing Date from LIFO based accounting
methods to FIFO based accounting methods. In contemplation of such anticipated
tax liability, an adjustment to FIFO Net Worth (a reduction to the Purchase
Price) has been provided under Section 1.2(c) above. It is the Parties'
intention that such tax liability will be recognized by the Company after the
Closing Date as a C corporation, rather than during any period in which its
election to be treated as a Subchapter S corporation is in effect. In short, the
Parties intend that the Company, and not the Stockholder, bear any tax liability
resulting from the Company's conversion from LIFO based accounting methods to
FIFO based accounting methods. If for any reason the tax liability for such
conversion from LIFO to
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FIFO based accounting methods is properly recognizable by the Stockholder rather
than by the Company, then Sunbelt, BAG and the Company shall jointly and
severally indemnify and hold the Stockholder, his estate, heirs, representatives
and assigns (collectively, the "Tax Indemnitees") harmless from and against any
and all taxes and interest suffered, incurred or paid by any of the Tax
Indemnitees arising from the Company's conversion or deemed conversion from LIFO
based accounting methods to FIFO based accounting methods. The aggregate amount
of the indemnification obligations under this Section 5.18 shall be limited to:
(A) in the event the Company does not report and pay the tax
liability resulting from the conversion, the total amount of the actual
adjustment under Section 1.2(c) to FIFO Net Worth, plus interest at the
Applicable Rate from the Closing Date through the date of the indemnification
payment; or
(B) in the event the Company does report and pay the tax liability
resulting from the conversion, the total amount of the actual adjustment under
Section 1.2(c) to FIFO Net Worth, plus the aggregate amount of interest, if any,
paid to the Company by the Department of the Treasury and the Georgia Department
of Revenue in connection with any refund of any such tax liability payment.
5.19 RELEASE FROM COMPANY OBLIGATIONS. Sunbelt, BAG and the Company
shall use their respective Best Efforts to secure the release of the Stockholder
from any and all claims, debts, liabilities and obligations of the Company
guaranteed by the Stockholder or for which the Stockholder is otherwise liable,
including but not limited to, any dealer charges under or with respect to the
Company's dealer codes (collectively, the "Guarantee Liabilities"). Sunbelt, BAG
and the Company shall jointly and severally indemnify and hold the Stockholder,
his estate, heirs, representatives and assigns (collectively, the "Guarantee
Indemnitees") harmless from and against any and all claims, costs, expenses
(including reasonable attorneys' fees), losses and liabilities incurred or
suffered by any of the Guarantee Indemnitees arising from or related to the
Guarantee Liabilities.
5.20 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The
Stockholder shall prepare or cause to be prepared and file or cause to be filed
all Tax Returns for the Company for all periods ending on or prior to the
Closing Date which are filed after the Closing Date. The Stockholder shall
permit Sunbelt and BAG to review and comment on each such Tax Return prior to
filing, and shall consider any revisions reasonably requested by Sunbelt or BAG.
To the extent permitted by applicable law, the Stockholder shall include any
income, gain, loss, deduction or other tax items for such periods on his Tax
Returns in a manner consistent with the Schedule K-1s prepared by the
Stockholder for such periods.
5.21 TAX PERIODS BEGINNING ON OR BEFORE AND ENDING AFTER THE
CLOSING DATE. Sunbelt shall prepare or cause to be prepared and file or cause to
be filed all Tax Returns of the Company for Tax periods which begin on or before
the Closing Date and end after the Closing Date. BAG and Sunbelt shall permit
the Stockholder to review and comment on each such Tax
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Return prior to filing and to make such revisions to such Tax Returns as are
reasonably requested by the Stockholder.
5.22 COOPERATION ON TAX MATTERS.
(A) BAG, Sunbelt, the Company and the Stockholder shall cooperate
fully, as and to the extent reasonably requested by the other Parties, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon any Party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Each of the Parties agrees: (A) to retain all books
and records within their possession with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent notified by any
of the Parties, any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with any taxing
authority; and (B) to give the other Parties reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if any
other Party so requests, each of the other Parties shall allow the other Party
to take possession of such books and records.
(B) Each of the Parties further agrees, upon request, to use its
Best Efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(C) Each of the Parties further agrees, upon request, to provide
the other Parties with all information that any other Party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS
OF SUNBELT AND BAG TO EFFECT THE CLOSING
The Obligations of Sunbelt and BAG required to be performed by them at
the Closing shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions, each of which may be waived by Sunbelt and BAG
as provided herein except as otherwise required by applicable law, and Sunbelt
and BAG, shall, to the extent within their control, use their respective Best
Efforts to cause such conditions to be satisfied:
6.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of
the representations and warranties of the Company and the Stockholder contained
in this Agreement
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shall be true and correct in all material respects as of the Closing. Each of
the obligations of the Company, and the Stockholder required by this Agreement
to be performed by them at or prior to the Closing shall have been duly
performed and complied with in all material respects as of the Closing. At the
Closing, Sunbelt shall have received a certificate, dated the Closing Date and
duly executed by the Stockholder that the conditions set forth in the two
preceding sentences have been satisfied.
6.2 AUTHORIZATION; CONSENT.
(A) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and all collateral agreements, and
the consummation of the transactions contemplated hereby shall have been duly
and validly taken by the Company. All filings required to be made under the
H.S.R. Act in connection with transactions contemplated hereby shall have been
made and all applicable waiting periods with respect to each such filing,
including extensions thereof, shall have expired or been terminated.
(B) All notices to, and declarations, rulings and registrations
with, and material consents, authorizations, approvals and waivers from,
governmental and regulatory bodies and third persons, required to consummate the
transactions contemplated hereby and all material Consents or waivers shall have
been made or obtained. This Section 6.2 shall not apply to any consents,
authorizations, approvals and waivers from any automobile manufacturer.
6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDER'S COUNSEL.
Sunbelt and BAG shall have been furnished with the opinion of the Company's and
the Stockholder's counsel, dated the Closing Date, in the form and substance
reasonably satisfactory to Sunbelt and BAG and their counsel.
6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of
any court of competent jurisdiction in the United States shall be in effect (i)
that prevents or delays the consummation of any of the transactions contemplated
hereby or (ii) would impose any limitation on the ability of Sunbelt effectively
to exercise full rights of ownership of the Shares. No action, suit or
proceeding before any court or any governmental or regulatory entity shall be
pending (or threatened by any governmental or regulatory entity), and no
investigation by any governmental or regulatory entity shall have been commenced
(and be pending), seeking to restrain or prohibit (or questioning the validity
or legality of) the consummation of the transactions contemplated by this
Agreement or seeking damages in connection therewith which Sunbelt, in good
faith and with the advice of counsel, believes makes it undesirable to proceed
with the consummation of the transactions contemplated hereby.
6.5 NO MATERIAL ADVERSE EFFECT. During the period from December
31, 1997 to the Closing Date, the Company shall not have suffered a Material
Adverse Effect other than dividend distributions and other payments to
Stockholder that are not in violation of the terms of this Agreement.
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6.6 NET WORTH. On the Closing Date, the Stockholder shall deliver
to Sunbelt a balance sheet of the Company dated as of the most recent
practicable date preceding the Closing Date, prepared in accordance with the
Accounting Principles as modified by Section 1.2 above (the "Estimated Closing
Date Balance Sheet"). As a condition to Sunbelt's performance of its obligations
hereunder, the Estimated Closing Date Balance Sheet shall show as of the date
thereof) after taking into account the obligation for payment of any of the
non-reimbursable fees, costs and expenses incurred by the Company in connection
with this Agreement, FIFO Net Worth of no less than $1,000,000.
6.7 DUE DILIGENCE. Sunbelt shall be reasonably satisfied with the
results of their due diligence examination of the Company, the Real Property and
the Improvements.
6.8 REAL ESTATE LEASE. Stockholder shall have executed and
delivered the Post-Closing Real Estate Lease attached hereto as Exhibit E.
6.9 CERTIFICATES. The Stockholder and the Company shall have
furnished Sunbelt with a certificate, dated as of the Closing Date, executed by
the Stockholder certifying to the fulfillment as required herein and shall have
furnished Sunbelt with any other such certificates of its officers as Sunbelt
may reasonably request to evidence compliance with the conditions set forth in
this Article 6.
6.10 LEGAL MATTERS. All certificates, instruments, opinions and
title documents required to be executed or delivered by or on behalf of the
Stockholder and the Company under the provisions of this Agreement, and all
other actions and proceedings required to be taken by or on behalf of the
Stockholder and the Company in furtherance of the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to counsel for
Sunbelt.
6.11 APPROVAL OF MANUFACTURER. Each automotive manufacturer of the
Company's automotive franchised dealerships shall have consented to, authorized
and approved (subject to Sunbelt and BAG fulfilling all requirements to obtain
such consent [monetary and otherwise]) the transactions contemplated by this
Agreement on terms substantially no less favorable than the terms which the
Company is subject to immediately prior to the execution of this Agreement. If
Sunbelt does not terminate this Agreement pursuant to Section 8.1(d) hereof
within thirty (30) days after their receipt of a Definitive Response (as
hereinafter defined) from any automobile manufacturer concerning the transaction
contemplated herein, then for all purposes of this Agreement, including, but not
limited to, this Section 6.11, the consent of such automobile manufacturer shall
be conclusively deemed to have been given to the transactions contemplated
herein. For purposes of this Section 6.11, "Definitive Response" shall mean any
automobile manufacturer's written response to any notice delivered by the
Company of the transactions contemplated hereby, which response withholds
consent or conditions consent or further consideration on specified actions or
obligations to be undertaken by Sunbelt, BAG, the
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Company, the Stockholder and/or any other party; provided, that a response
including only a request for additional information shall not be considered a
Definitive Response.
6.12 EMPLOYMENT AGREEMENT. The Stockholder shall have executed and
delivered the Employment Agreement.
6.13 ENVIRONMENTAL LAWS. The Company shall be in substantial
compliance with all applicable, material Environmental Laws.
6.14 NONDISTURBANCE AGREEMENT. The Stockholder (as lessor of the
Real Property) shall have obtained from the holder of the security deed
encumbering the Real Property a nondisturbance agreement in form and substance
reasonably satisfactory to the Company and Sunbelt.
6.15 TITLE INSURANCE. The Company shall have obtained leasehold
title insurance with respect to the Real Property subject to the Post-Closing
Real Estate Lease in form and substance reasonably satisfactory to Sunbelt.
Sunbelt shall be responsible for the cost of such title insurance and the legal
fees and costs for examination of title.
6.16 LEASE. The Stockholder shall have signed and delivered to the
Company the Post-Closing Real Estate Lease and a Memorandum of Lease in form
and substance reasonably satisfactory to the Stockholder, Sunbelt and BAG.
6.17 RESIGNATION OF THE COMPANY'S DIRECTORS. Each of the persons
who is a director of the Company on the Closing Date shall have tendered to
Sunbelt in writing his or her resignation in such in form and substance as is
reasonably satisfactory to Sunbelt.
6.18 SCHEDULES. The Company and the Stockholder shall have
delivered to Sunbelt all Schedules and updates thereof to the Closing Date as
referred to in Articles 2 and 3 and such Schedules shall be reasonably
acceptable in form and substance to Sunbelt.
6.19 SUNBELT TRANSACTION. Sunbelt shall have (i) filed with the SEC
a registration statement on Form S-1 (the "Registration Statement") covering the
offer and sale of the Sunbelt IPO stock; the Registration Statement shall have
been declared effective by the SEC and the underwriters named therein shall have
agreed to acquire shares of the Sunbelt IPO stock; and the closing of the sale
of the Sunbelt IPO Stock to the underwriters shall have occurred simultaneously
with the Closing hereunder, or (ii) after the date hereof, fifty percent (50%)
or more of the outstanding capital stock of Sunbelt, BAG or any Associate or
Affiliate of either, shall have been sold, transferred or otherwise disposed of,
whether in a single transaction or in a series of related transactions, to an
independent third party in an arms-length transaction (or series of
transactions) for fair market value, or (iii) Sunbelt, BAG or any Associate or
Affiliate of either, shall have combined with an independent third party in an
arms-length transaction (or series of transactions) pursuant to a merger,
consolidation or other similar transaction, for fair market
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value, or (iv) all or substantially all of the assets of Sunbelt, BAG or any
Associate or Affiliate of either, shall have been sold, transferred or otherwise
disposed of, whether in a single transaction or in a series of related
transactions, to an independent third party in an arms-length transaction (or
series of transactions) for fair market value.
6.20 ESCROW AGREEMENT. The Stockholder and the Escrow Agent shall
have executed the Escrow Agreement.
6.21 NON-COMPETITION AND CONFIDENTIALITY AGREEMENT. The Stockholder
shall have executed and delivered the Non-competition and Confidentiality
Agreement.
6.22 REGISTRATION RIGHTS AGREEMENT. The Stockholder shall have
executed and delivered the Registration Rights Agreement.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF
THE STOCKHOLDER TO EFFECT THE CLOSING
The obligations of the Stockholder and the Company required to be
performed by them at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which may be
waived by the Company and the Stockholder as provided herein except as otherwise
required by applicable law:
7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the
representations and warranties of Sunbelt and BAG contained in this Agreement
shall be true and correct as of the date made and shall be true and correct in
all material respects as of the Closing. Each of the obligations of Sunbelt and
BAG required by this Agreement to be performed by them at or prior to the
Closing shall have been duly performed and complied with in all material
respects as of the Closing. At the Closing, the Stockholder shall have been paid
by wire transfer in immediately available funds all cash due at Closing, the
Escrow Amount shall have been delivered to the Escrow Agent, who along with
Sunbelt shall have signed the Escrow Agreement, and the Stockholder shall have
received a certificate, dated the Closing Date and duly executed by an officer
of Sunbelt and of BAG to the effect that the conditions set forth in the
preceding two sentences have been satisfied.
7.2 AUTHORIZATION OF THE AGREEMENT; CONSENTS.
(A) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and the other documents executed
pursuant to the terms hereof, and the consummation of the transactions
contemplated hereby shall have been duly and validly
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taken by Sunbelt and BAG. All filings required to be made under the H.S.R. Act
in connection with transactions contemplated hereby shall have been made and all
applicable waiting periods with respect to each such ruling, including
extensions thereof, shall have expired or been terminated.
(B) All notices to, and declarations, filings and registrations
with, and consents, authorizations, approvals and waivers from, governmental and
regulatory bodies and third persons (including, but not limited to, all
automobile manufacturers with whom the Company has a franchise agreement (or
comparable instrument) required to consummate the transactions contemplated
hereby (which may be conditioned on Sunbelt and/or BAG fulfilling monetary and
other obligations to obtain such consents) and all consents or waivers shall
have been made or obtained.
7.3 OPINIONS OF SUNBELT'S AND BAG'S COUNSEL. The Stockholder shall
have been furnished with the opinion of The Whicker Law Firm, counsel to Sunbelt
and BAG, dated the Closing Date, in the form and substance satisfactory to the
Stockholder and his counsel, which opinions, when taken together, shall have
been rendered with respect to those matters contained in Sections 4.1 and 4.2
hereof.
7.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree
shall have been issued by any court and be in effect restraining or prohibiting
the consummation of the transactions contemplated hereby. No action, suit or
proceeding before any court or any governmental or regulatory entity shall be
pending (or threatened by any governmental or regulatory entity), and no
investigation by any governmental or regulatory entity shall have been commenced
(and be pending), seeking to restrain or prohibit (or questioning the validity
or legality of) the consummation of the transactions contemplated by this
Agreement or seeking damages in connection therewith which Stockholder, in good
faith and with the advice of counsel, believes makes it undesirable to proceed
with the consummation of the transactions contemplated hereby.
7.5 REAL ESTATE; LEASES. The Company shall have executed and
delivered the Post-Closing Real Estate Lease attached hereto as Exhibit E.
7.6 CERTIFICATES. Sunbelt and BAG shall have furnished the
Stockholder with such certificates of its officers and others to evidence
compliance with the conditions set forth in this Article 7 as may be reasonably
requested by the Stockholder.
7.7 LEGAL MATTERS. All certificates, instruments, opinions and
other documents required to be executed or delivered by or on behalf of Sunbelt
and/or BAG under the provisions of this Agreement, and all other actions and
proceedings required to be taken by or on behalf of Sunbelt or BAG in
furtherance of the transactions contemplated hereby, shall be reasonably
satisfactory in form and substance to counsel for the Stockholder.
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7.8 EMPLOYMENT AGREEMENT. The Employment Agreement shall have been
executed and delivered by the Company, BAG and Sunbelt.
7.9 REGISTRATION RIGHTS AGREEMENT. BAG shall have executed and
delivered the Registration Rights Agreement.
7.10 GUARANTY. BAG and Sunbelt shall have executed and delivered
the Guaranty.
ARTICLE 8
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time
prior to Closing:
(A) by mutual consent of Sunbelt, BAG, the Company and the
Stockholder;
(B) subject to the Parties' rights in this Section 8.1(b) to
extend the date of the Closing, by either Sunbelt or the Stockholder if the
Closing shall not have taken place on or prior to June 30, 1998, or such later
date as shall have been approved by Sunbelt and the Stockholder, which approval
may be conditioned or withheld for any reason or no reason whatsoever (provided
that the terminating Party is not otherwise in material breach of its
representations, warranties, covenants or agreements under this Agreement). By
written notice to Sunbelt within ten (10) days prior to the date of the last
designated Closing, the Stockholder shall have the right to extend the date of
the Closing from June 30, 1998 to September 30, 1998, and if such option is
exercised (or Sunbelt exercises its option provided in this Section 8.1(b)), to
again extend the date of the Closing from September 30, 1998 to December 31,
1998. So long as Sunbelt and BAG are continuing to use their Best Efforts to
effect the Sunbelt IPO and there remains a reasonable probability that the
Sunbelt Public Offering Date will occur prior to September 30, 1998, Sunbelt
shall have the right to extend the date of the Closing from June 30, 1998 to
September 30, 1998 by delivering written notice to the Stockholder within ten
(10) days prior to the date of the last designated Closing;
(C) by Sunbelt or the Stockholder if any court of competent
jurisdiction in the United States or other United States governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and non-appealable;
(D) by Sunbelt if any of the conditions specified in Article 6
hereof have not been met or waived by Sunbelt at such time and such condition is
no longer capable of satisfaction (provided that Sunbelt is not otherwise in
material breach of its representations, warranties, covenants or agreements
under this Agreement);
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(E) by Sunbelt if (i) the Stockholder has within the then previous
ten (10) Business Days given Sunbelt any notice pursuant to Section 5.9(b)
hereof, and (ii) the development or change that is the subject of the notice has
had, or could reasonably be expected to have, a Material Adverse Effect;
(F) by the Stockholder if any of the conditions specified in
Article 7 hereof have not been met or waived by the Stockholder at such time and
such condition is no longer capable of satisfaction (provided that the
Stockholder is not otherwise in material breach of its material representations,
warranties, covenants or agreements under this Agreement);
(G) by Sunbelt on one side or the Stockholder on the other side if
there has been a material breach on the part of the other side of any
representation, warranty, covenant or agreement set forth in this Agreement,
which breach has not been cured within thirty (30) Business Days following
receipt by the breaching Party of written notice of such breach; or
(H) within twenty (20) days after the Stockholder's and the
Company's initial delivery of all of the Schedules referred to in Article 2,
Article 3 or Article 5 hereof, by Sunbelt if Sunbelt determines in its
reasonable discretion that any matter disclosed in such Schedules would
materially and adversely affect the value or prospects of the Company; provided,
that the Company shall have twenty (20) days after receipt of notice from
Sunbelt of its intention to terminate this Agreement to resolve or cure any such
matter; and provided, further, that Sunbelt shall not have the right to
terminate this Agreement under this Section 8.1(h) as a result of any matter of
a kind or amount which Sunbelt could reasonably expect to find present with
respect to any business of a like kind and size.
If Sunbelt, the Company or the Stockholder shall terminate this
Agreement pursuant to the provisions hereof, such termination shall be
effectuated by notice to the other Parties specifying the provision hereof
pursuant to which such termination is made.
8.2 EFFECT OF TERMINATION. Termination of this Agreement shall be
deemed an election of remedies, and thus, if this Agreement is terminated
pursuant to Section 8.1, all rights and obligations of the Parties under this
Agreement will terminate, except that the obligations in Section 5.1, Section
5.2, Section 8.3 and Section 10.2 shall survive.
8.3 TERMINATION FEE. Within thirty (30) days after the termination
of this Agreement by any Party for any reason other than (i) Sunbelt's
termination of this Agreement due to a breach of the no shop provisions of
Section 5.5 above, or (ii) the failure to receive the consent of the automobile
manufacturers to the transactions contemplated herein (as provided in Section
6.11 hereof), or (iii) Sunbelt's termination of this Agreement pursuant to
Section 8.1(e), or (iv) Sunbelt's termination of this Agreement pursuant to
Section 8.1(h) hereof, Sunbelt shall pay to the Stockholder Fifty Thousand
Dollars ($50,000.00) as a termination fee. The Parties hereby acknowledge and
agree that the Stockholder's damages from termination of this Agreement will be
difficult to ascertain and that the termination fee is a negotiated liquidated
damages provision
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designed to compensate the Stockholder for the costs and expenses incurred in
connection with transactions contemplated hereby, including, but not limited to,
attorney's fees, time spent in negotiating and working towards the consummation
of the transactions contemplated hereby and the opportunity cost of agreeing to
the no shop provisions of Section 5.5, and not as a penalty.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE STOCKHOLDER. Notwithstanding the
Closing or the delivery of the Shares, the Stockholder shall indemnify and fully
defend, save and hold harmless Sunbelt, BAG and the Company (after the Closing)
(each a "Sunbelt Indemnified Party"), if a Sunbelt Indemnified Party (including
the Company after the Closing Date) shall at any time or from time to time
suffer any Costs (as defined in Section 9.7 below) arising, directly or
indirectly, out of or resulting from, or shall pay or become obligated to pay
any sum on account of any and all Stockholder Events of Breach (as defined
below). As used herein, "Stockholder Event of Breach" shall be and mean any one
or more of the following: (i) any material untruth or inaccuracy in any
representation of the Stockholder or the Company in this Agreement or the
material breach of any warranty of the Stockholder or the Company contained in
this Agreement, including, without limitation, any misrepresentation in, or
omission from, any statement, certificate, schedule, exhibit, annex or other
document attached to this Agreement by the Stockholder or delivered by the
Stockholder to Sunbelt at the Closing, and (ii) any intentional failure of the
Stockholder at any time, or the Company prior to the Closing to duly perform or
observe any material term, provision, covenant, agreement or condition of such
Party in this Agreement on the part of the Stockholder or the Company to be
performed or observed at or prior to the Closing.
9.2 INDEMNIFICATION BY SUNBELT AND BAG. Notwithstanding the
Closing, Sunbelt and BAG shall jointly and severally indemnify and fully defend,
save and hold harmless the Stockholder and his estate, heirs, representatives
and assigns, the Company, and any of their respective officers, directors,
employees, advisors, representatives, agents and affiliates (each a "Stockholder
Indemnified Party"), if a Stockholder Indemnified Party (including the Company)
shall at any time or from time to time suffer any Costs arising, directly or
indirectly, out of or resulting from, or shall pay or become obligated to pay
any sum on account of any and all Sunbelt Events of Breach (as defined below).
As used herein, "Sunbelt Event of Breach" shall be and mean any one or more of
the following: (i) any untruth or inaccuracy in any representation of Sunbelt
and/or BAG or the breach of any warranty of Sunbelt and/or BAG contained in this
Agreement, including, without limitation, any misrepresentation in, or omission
from, any statement, certificate, schedule, exhibit, annex or other document
furnished pursuant to this Agreement by Sunbelt and/or BAG (or any
representative of Sunbelt or BAG) to the Stockholder (or any representative of
the Stockholder) and any misrepresentation in or omission from many document
furnished to the Stockholder in connection with the Closing, and (ii) any
failure of
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Sunbelt or BAG duly to perform or observe any term, provision, covenant,
agreement or condition on the part of Sunbelt or BAG to be performed or observed
under this Agreement.
9.3 PROCEDURES.
(a) For all purposes of this Section 9.3, Sunbelt shall
mean and include Sunbelt and BAG as the Sunbelt Indemnified Party. If (i) the
Stockholder Event of Breach occurs or is alleged and a Sunbelt Indemnified Party
asserts that the Stockholder has or may become obligated to a Sunbelt
Indemnified Party pursuant to Section 9.1, or any claim, action, suit or
proceeding is begun, made or instituted as a result of which the Stockholder may
become obligated to a Sunbelt Indemnified Party hereunder (a "Third Party
Claim"), or (ii) a Sunbelt Event of Breach occurs or is alleged and a
Stockholder Indemnified Party asserts that Sunbelt has become obligated to a
Stockholder Indemnified Party pursuant to Section 9.2, or if any claim, action,
suit or proceeding is begun, made or instituted as a result of which Sunbelt may
become obligated to a Stockholder Indemnified Party hereunder (a "Third Party
Claim") (for purposes of this Article 9, any Sunbelt Indemnified Party and
Stockholder Indemnified Party are sometimes referred to as an "Indemnified
Party" and Sunbelt and BAG on the one hand or the Stockholder on the other hand
is sometimes referred to as an "Indemnified Party," and Sunbelt and BAG on the
one hand and the Stockholder on the other hand are sometimes referred to as an
"Indemnifying Party," in each case as the context so requires), such Indemnified
Party shall give written notice to the Indemnifying Party within ten (10)
Business Days after the Indemnified Party becomes aware of such breach or claim
in as much detail as is reasonably possible of the basis for the Indemnifying
Party's obligation to provide indemnification hereunder.
(b) The Indemnifying Party shall have the right to assume
the control of the defense of such Third Party Claim with counsel of its
choosing, and subject to the restrictions contained in this Section 9.3, shall
have the right to settle or compromise any such claim. Such Indemnified Party
shall have the right, but not the obligation, to participate at its own expense
in the defense thereof by counsel of such Indemnified Party's choice and shall
in any event cooperate with and assist the Indemnifying Party to the extent
reasonably possible. If the Indemnifying Party fails timely to defend, contest
or otherwise protect against any Third Party Claim against any Indemnified Party
for which the Indemnifying Party was given timely written notice of such Third
Party Claim by the Indemnified Party, such Indemnified Party shall have the
right to do so, including, without limitation, the right to make any reasonable
compromise or settlement thereof (with the prior written consent of the
Indemnifying Party), and such Indemnified Party shall be entitled to recover the
entire Cost thereof from the Indemnifying Party, including, without limitation,
reasonable attorneys' fees, disbursements and amounts paid (or of which such
Indemnified Party has become obligated to pay) as the result of such Third Party
Claim. Failure by the Indemnifying Party to notify such Indemnified Party of its
or their election to defend against any such Third Party Claim within fifteen
(15) days after notice thereof shall have been given to the Indemnifying Party
shall be deemed a waiver by the Indemnifying Party of its or their right to
against defend such Third Party Claim. If the Indemnifying Party assumes the
defense of the particular Third Party Claim, the Indemnifying Party shall not,
in the defense of such Third Party Claim, consent to entry of any judgment or
enter into any settlement which does not include
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as an unconditional term thereof the giving by the claimant or the plaintiff to
such Indemnified Party a full release from all liability in respect of such
Third Party Claim. Notwithstanding the foregoing, the Indemnifying Party shall
not be entitled to control (but shall be entitled to participate at their own
expense in the defense of), and the Indemnified Party shall be entitled to have
sole control over, the defense or settlement of any Third Party Claim to the
extent the Third Party Claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful could materially
adversely interfere with the business, operations, assets, condition (financial
or otherwise) or prospects of the Indemnified Party.
9.4 OFFSET. In addition to and not in limitation of all rights of
offset that an Indemnified Party may have under applicable law, the Parties
agree that, at any Indemnified Party's option, any or all amounts owing to such
Indemnified Party under this Article 9 or any other provision of this Agreement
or any other liability (other than under the Post-Closing Real Estate Lease) of
the other Parties (or any Affiliate (excluding the landlord under the Real
Estate Lease) of the other parties) to such Indemnified Party in connection with
this Agreement or the transactions contemplated hereby may be recovered by the
Indemnified Party by an offset against any or all amounts due to such other
Parties pursuant to this Agreement.
9.5 REMEDIES. Except as provided in Article 8 and Section 10.2
hereof, the remedies provided in this Article 9 constitute the sole and
exclusive remedies for recovery against any Party to this Agreement based upon
any inaccuracy, untruth, incompleteness or breach of any representation,
warranty, covenant or obligation contained herein.
9.6 LIMITATION ON INDEMNIFICATION. Except for indemnification
claims based on fraud, no Sunbelt Indemnified Party shall be entitled to
indemnification for any Costs hereunder unless the aggregate amount of Costs
incurred by all of the Sunbelt Indemnified Parties exceeds the amount of
$250,000, in which event the Sunbelt Indemnified Parties shall be entitled to
indemnification for all such Costs in excess of $250,000. Further provided that,
except for indemnification claims based on fraud, the maximum liability
hereunder of the Stockholder and the Company, in the aggregate shall not exceed
the sum of $500,000.
9.7 DEFINITIONS. For purposes of this Article 9, "Costs" shall
mean all liabilities, losses, costs and actual damages and reasonable expenses,
reasonable attorneys' fees, reasonable experts' fees, reasonable consultants'
fees, and reasonable disbursements of any kind or of any nature whatsoever. The
amount of any Cost arising from the breach of any representation, warranty,
covenant or agreement shall be the entire amount of any Cost suffered, paid or
required to be paid to the respective Indemnified Party as a result of such
breach; provided, however, that the liability of a Party under this Agreement
shall be limited to direct, actual damages and in any event shall not include
any incidental, consequential or special damages, or damages for lost profits.
9.8 ADJUSTMENTS. Costs as defined in Section 9.7 above arising or
resulting from any Stockholder Event of Breach or Sunbelt Event of Breach shall
be reduced to the extent of the
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amount of any tax savings resulting from the indemnified matter to which such
Costs relate which are actually realized (or can reasonably be expected to be
realized in future years) by the Indemnified Party. Costs as defined in Section
9.7 above, arising or resulting from any Stockholder Event of Breach or Sunbelt
Event of Breach shall also be reduced to the extent of the amount of any
insurance proceeds payable to the Indemnified Party resulting from the
indemnified matter to which such Costs relate.
ARTICLE 10
MISCELLANEOUS
10.1 SURVIVAL OF PROVISIONS.
(A) The respective representations, covenants and agreements of
each of the Parties to this Agreement (except covenants and agreements which are
expressly required to be performed and are performed in full on or before the
Closing Date) shall survive indefinitely the Closing Date and the consummation
of the transactions contemplated by this Agreement, subject to Section 10.1(b)
below. In the event of a breach of any such representations or covenants, the
Party (Sunbelt and BAG on one side, and the Stockholder and the Company (before
the Closing) on the other side) to whom such representations or covenants have
been made shall have all rights and remedies for such breach available to it
under the provisions of this Agreement, but only so long as such Party (such
side) had no knowledge of such breach by the other Party (side) on or before the
Closing Date. For purposes of the immediately preceding sentence, "knowledge" of
the Company or the Stockholder, shall mean the Knowledge of the Stockholder, and
"knowledge" of Sunbelt or BAG shall mean the actual knowledge of any of Ricky
Brown, Charles K. Yancey and the accountants of Sunbelt and/or BAG, and shall
not include implied or constructive knowledge.
(B) Each of the representations and warranties set forth in
Article 2, Article 3 and Article 4 hereof and in any certificate delivered
pursuant to Article 6 or Article 7 hereof, and the indemnification obligations
set forth in Article 9 hereof shall survive, and not be affected in any respect
by the Closing, but shall terminate on the later of (i) the date that is one (1)
year after the Closing Date, and (ii) with respect to any claim for which
Indemnifying Party receives written notice prior to the expiration of the one
(1) year period after the Closing Date with respect to any breach of such
representations and warranties pursuant to Section 9.3 hereof, on the date such
claim is finally liquidated or otherwise resolved; provided, however, that
(1) indemnification obligations set forth in Article 9
hereof arising from the breach or default of any covenant or provision set forth
in Article 5 (other than Sections 5.3 or 5.9 thereof) shall survive indefinitely
the Closing Date and the transactions contemplated by this Agreement;
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(2) indemnification obligations set forth in Article 9
arising from any claim based on fraud shall survive indefinitely the Closing
Date and the transactions contemplated by this Agreement;
(3) indemnification obligations set forth in Article 9
arising from any claim arising from the breach of Sections 2.1, 2.2, 2.3,
2.4(a), 2.22, 3.1, 3.3, 4.1, 4.2, 4.3 or the first sentence of Section 3.2 shall
survive indefinitely the Closing Date and the transactions contemplated by this
Agreement.
Notice of any claims or violations must be made within thirty days
after discovery.
10.2 FEES AND EXPENSES. Except as otherwise expressly provided in
this Agreement, all legal and other fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby through
the Closing Date shall be paid by the Party incurring such fees, costs or
expenses; provided, however, that if the Closing does not occur and Section 5.5
hereof is breached and if Sunbelt terminates this Agreement solely as a result
thereof immediately upon learning of a breach by Stockholder of Section 5.5,
then the Company shall pay to Sunbelt, within five (5) Business Days after
receipt of a request therefor, an amount equal to all of the legal and other
out-of-pocket fees, costs and expenses incurred by Sunbelt in connection with
this Agreement and the transactions contemplated hereby.
10.3 HEADINGS. The section headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof.
10.4 NOTICES. All notices or other communications required or
permitted hereunder shall be given in writing and shall be deemed sufficient if
delivered by hand, recognized overnight delivery service or facsimile
transmission or mailed by registered or certified mail, postage prepaid (return
receipt requested), as follows:
If to the Company before the Closing Date:
Robertson Oldsmobile-Cadillac, Inc.
2355 Browns Bridge Road
Gainesville, GA 30504
Attention: E. Moss Robertson, Jr.
with a copy to (which shall not constitute notice):
Altman, Kritzer & Levick, P.C.; Attn: Allen D. Altman, Esq.
6400 Powers Ferry Road, N.W.
Suite 224
Atlanta, GA 30339
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If to the Company after the Closing Date:
Robertson Oldsmobile-Cadillac, Inc.
2355 Browns Bridge Road
Gainesville, GA 30504
Attention: President
with a copy to (which shall not constitute notice):
Stephen C. Whicker, Esq.
c/o The Whicker Law Firm
6111 Peachtree Dunwoody Road, NE
Suite 102-D
Atlanta, Georgia 30328
If to the Stockholder:
E. Moss Robertson, Jr.
2418 Island Drive
Gainesville, GA 30503
with a copy to (which shall not constitute notice):
Altman, Kritzer & Levick, P.C.
6400 Powers Ferry Road, N.W.
Suite 224
Atlanta, GA 30339
Attention: Allen D. Altman, Esq.
If to Sunbelt or BAG:
Boomershine Automotive Group, Inc.
2150 Cobb Parkway
Smyrna, Georgia 30080
with a copy to (which shall not constitute notice):
Stephen C. Whicker, Esq.
c/o The Whicker Law Firm
6111 Peachtree Dunwoody Road, NE
Suite 102-D
Atlanta, Georgia 30328
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or such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so delivered or three (3) days after the date so mailed;
provided, however, that any notice or communication changing any of the
addresses set forth above shall be effective and deemed given only upon its
receipt.
10.5 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Parties hereto (and with
respect to the Stockholder, the personal representatives and heirs of the
Stockholder) and their respective successors and permitted assigns, and the
provisions of Article 9 hereof shall inure to the benefit of the Indemnified
Parties referenced to therein; provided, however, that neither this Agreement
nor any of the rights, interests, or obligations hereunder may be assigned by
any of the Parties hereto without the prior written consent of the other
Parties. Notwithstanding the foregoing, Sunbelt shall have the unrestricted
right to assign this Agreement and to delegate all or any part of their
obligations hereunder to BAG, but in such event Sunbelt shall remain fully
liable for the performance of all of such obligations in the manner prescribed
in this Agreement.
10.6 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits hereto) embody the entire agreement and understanding of the Parties
with respect to the transactions contemplated hereby and supersede all prior
written or oral commitments, arrangements or understandings between the Parties
with respect thereto and all prior drafts of this Agreement, including, but not
limited to, the Stock Purchase Agreement dated effective as of January 3, 1998,
by and among BAG, Sunbelt Georgia IV, Inc., the Company and the Stockholder.
There are no restrictions, agreements, promises, warranties, covenants or
undertakings with respect to the transactions contemplated hereby other than
those expressly set forth herein. Prior drafts of this Agreement shall not be
used as a basis for interpreting this Agreement
10.7 WAIVER AND AMENDMENTS. The Stockholder, the Company and
Sunbelt may by written notice to the other Parties (i) extend the time for the
performance of any of the obligations or other actions of the other Parties,
(ii) waive any inaccuracies in the representations or warranties of the other
Parties contained in this Agreement, (iii) waive compliance with any of the
covenants of the other Parties contained in this Agreement, (iv) waive
performance of any of the obligations of the other Parties created under this
Agreement, or (v) waive fulfillment of any of the conditions to its own
obligations under this Agreement. The waiver by any Party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach, whether or not similar. This Agreement may be amended,
modified or supplemented only by a written instrument executed by the Parties
hereto.
10.8 BAG GUARANTY. BAG hereby absolutely, unconditionally and
jointly and severally guarantees the full, prompt and faithful performance by
Sunbelt of all covenants and obligations to be performed by Sunbelt under this
Agreement, including, but not limited to, the payment of all sums and delivery
of all documents, instruments and stock certificates by Sunbelt pursuant to this
Agreement. If Sunbelt fails to fully perform all such covenants and obligations
in
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accordance with their terms or pay all or any part of such sums when due, BAG
will perform all such covenants and obligations in accordance with their terms
and immediately pay to the Stockholder the amount due and unpaid by Sunbelt, it
being understood that each such covenant or obligation and each obligation to
pay any such amount constitutes the direct and primary obligation of BAG. BAG
hereby waives presentment, demand of payment, protest, dishonor, notice of
protest or dishonor, and notice of acceptance of the guaranty set forth in this
Section 10.8 and all rights to require Stockholder or the Company to proceed
against Sunbelt, or to pursue any other remedy either or both may have against
Sunbelt in the event of a breach by Sunbelt of any obligation or covenant
contained in this Agreement. If Sunbelt is not liable to perform any such
obligation or covenant because the act creating such obligation or covenant is
ultra vires, unauthorized or set aside by operation of law, and for such reason
such obligation or covenant cannot be enforced against Sunbelt, such fact shall
not affect BAG's liability under this Section 10.8. In the event of termination,
liquidation, dissolution or bankruptcy of Sunbelt, this unconditional guaranty
shall continue in full force and effect.
10.9 GOVERNING LAW; COUNTERPARTS. This Agreement shall be governed
by and construed in accordance with the laws of the State of Georgia without
giving effect to any choice or conflict of law provision or rule that would
cause the laws of any other jurisdiction to apply. This Agreement may be
executed in any number of counterparts, all of which shall be considered one and
the same agreement and each of which shall be deemed an original.
10.10 ACCOUNTING TERMS. All accounting terms used herein which are
not expressly defined in this Agreement shall have the respective meanings given
to them in accordance with GAAP.
10.11 SCHEDULES. Disclosure of any matter in any provision,
subprovision, section, subsection or Schedule hereto or in the Financial
Statements shall be considered as disclosure pursuant to any other provision,
subprovision, Section or subsection of this Agreement or Schedule to this
Agreement.
10.12 SEVERABILITY. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each Party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
10.13 REMEDIES. The remedies provided for in this Agreement,
including termination of this Agreement as set forth in Article 8,
indemnification as set forth in Article 9, the payment of certain fees, costs
and expenses as set forth in Section 10.2, shall be the exclusive remedy of a
Party for a breach of this Agreement, the Parties hereto having no right to seek
any other remedy in law or equity in lieu of or in addition to any remedies
provided in this Agreement.
10.14 TIME IS OF THE ESSENCE. Time is of the essence for purposes of
this Agreement.
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<PAGE> 66
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SUNBELT AUTOMOTIVE GROUP, INC.
By: /s/ Charles K. Yancey
------------------------------------
Name: Charles K. Yancey
----------------------------------
Title: Chief Executive Officer
---------------------------------
BOOMERSHINE AUTOMOTIVE GROUP, INC.
By: /s/ Charles K. Yancey
------------------------------------
Name: Charles K. Yancey
----------------------------------
Title: Secretary and Treasurer
---------------------------------
ROBERTSON OLDSMOBILE-CADILLAC, INC.
By: /s/ E. Moss Robertson, Jr.
------------------------------------
E. Moss Robertson, Jr., President
Attest: /s/ Lindsay B. Robertson,
--------------------------------
Lindsay B. Robertson, Secretary
(Signatures Continued on Next Page)
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<PAGE> 67
(Signatures Continued from Previous Page)
STOCKHOLDER:
/s/ E. Moss Robertson, Jr.
-----------------------------------
E. Moss Robertson, Jr.
-67-
<PAGE> 1
EXHIBIT 2.4
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
AMONG
SUNBELT AUTOMOTIVE GROUP, INC.
AND
BAG GEORGIA IV, INC.
AND
DAY'S CHEVROLET, INC.
AND
CALVIN DIEMER AND ALVIN DIEMER
MARCH 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE 1
PURCHASE AND SALE OF SHARES.................................................................................-1-
1.1 Description of Transaction....................................................................-1-
1.4 Tax Consequences..............................................................................-6-
1.5 Further Action................................................................................-6-
1.6 Net Worth Adjustment..........................................................................-6-
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS........................................................................-10-
2.1 Organization and Good Standing...............................................................-10-
2.2 Subsidiaries.................................................................................-10-
2.3 Capitalization...............................................................................-10-
2.4 Authority, Approvals and Consents............................................................-11-
2.5 Financial Statements.........................................................................-12-
2.6 Absence of Undisclosed Liabilities...........................................................-12-
2.7 Absence of Material Adverse Effect; Conduct of Business.....................................-12-
2.8 Taxes........................................................................................-14-
2.9 Legal Matters................................................................................-17-
2.10 Property.....................................................................................-17-
(a) Owned Real Property........................................................-17-
(b) Leases.....................................................................-18-
(c) Fee and Leasehold Interests................................................-18-
(d) No Proceedings.............................................................-18-
(e) Current Use................................................................-18-
(f) Compliance with Real Property Laws.........................................-18-
(g) Real Property Taxes........................................................-19-
(h) Leased Premises............................................................-19-
(i) Certificate of Occupancy; Utilities; Eminent Domain......................-19-
2.11 Environmental Matters........................................................................-19-
2.12 Inventories..................................................................................-20-
2.13 Notes and Accounts Receivable................................................................-20-
2.14 Insurance....................................................................................-20-
2.15 Contracts....................................................................................-20-
2.16 Labor Relations..............................................................................-22-
2.17 Employee Benefit Plans.......................................................................-23-
2.18 Other Benefit and Compensation Plans or Arrangements.........................................-25-
2.19 Transactions with Insiders...................................................................-26-
2.20 Propriety of Past Payments...................................................................-26-
2.21 Interest in Competitors......................................................................-26-
2.22 Brokers......................................................................................-26-
2.23 Territorial Restrictions.....................................................................-26-
2.24 Intellectual Property........................................................................-26-
(a) Title......................................................................-26-
(b) Licensing Arrangements.....................................................-27-
(c) Litigation.................................................................-27-
(d) Due Registration...........................................................-27-
</TABLE>
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<TABLE>
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(e) Use of Name and Mark.......................................................-27-
2.25 Deposit Accounts; Powers of Attorney........................................................-27-
2.26 Disclosure...................................................................................-28-
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.............................................................-28-
3.1 Ownership of Target Shares; Title...........................................................-28-
3.2 Authority....................................................................................-28-
3.3 Broker's Fees................................................................................-29-
3.4 Investment...................................................................................-29-
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SAG AND SUB..................................................................-29-
4.1 Organization and Good Standing...............................................................-29-
4.2 Authority; Approvals and Consents...........................................................-29-
4.3 Brokers......................................................................................-30-
4.4 Disclosure...................................................................................-30-
ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS............................................................................-30-
5.1 Access; Confidentiality; Remedies...........................................................-30-
5.2 Furnishing Information; Announcements.......................................................-31-
5.3 Certain Changes and Conduct of Business......................................................-31-
5.4 No Intercompany Payables or Receivables......................................................-34-
5.5 Negotiations.................................................................................-34-
5.6 Consents; Cooperation.......................................................................-34-
5.7 Additional Agreements........................................................................-35-
5.8 Interim Financial Statements.................................................................-35-
5.9 Notification of Certain Matters..............................................................-35-
5.10 Assurance by the Stockholders................................................................-36-
5.11 Antitrust Improvements Act Compliance........................................................-36-
5.12 Use of Business Name.........................................................................-36-
5.13 Related Party / Stockholders Loan............................................................-36-
5.14 Stock Restriction Agreement..................................................................-36-
5.15 Personal Items...............................................................................-36-
5.16 Liability for Transfer Taxes.................................................................-37-
5.17 Release by Stockholders......................................................................-37-
5.18 .............................................................................................-37-
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF SAG AND SUB TO EFFECT THE CLOSING.............................................-37-
6.1 Representations and Warranties; Agreements; Covenants......................................-37-
6.2 Authorization; Consent......................................................................-38-
6.3 Opinions of the Company's and the Stockholder's Counsel......................................-38-
6.4 Absence of Litigation........................................................................-38-
6.5 No Material Adverse Effect...................................................................-38-
6.6 Registration Statement. .....................................................................-38-
6.7 Completion of Due Diligence..................................................................-39-
6.8 Real Estate Lease Agreement..................................................................-39-
6.9 Board Approval...............................................................................-39-
</TABLE>
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<TABLE>
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6.10 Certificates.................................................................................-39-
6.11 Legal Matters................................................................................-39-
6.12 Approval of Manufacturer and Distributor.....................................................-39-
6.13 Employment Agreement;........................................................................-39-
6.14 Environmental Laws...........................................................................-39-
6.15 Lease Termination Agreement/Memorandum of Lease/Consents and Estoppels.
............................................................................................-39-
6.16 Resignation of the Company's Directors.......................................................-39-
6.17 Schedules....................................................................................-40-
6.18 Share Certificates...........................................................................-40-
6.19 Non-Foreign Status...........................................................................-40-
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS
TO EFFECT THE CLOSING..........................................................................................-40-
7.1 Representations and Warranties; Agreements..................................................-40-
7.2 Authorization of the Agreement; Consents....................................................-40-
7.3 Opinions of SAG's and Sub's Counsel..........................................................-40-
7.4 Absence of Litigation........................................................................-41-
7.5 Real Estate Lease Agreement. ................................................................-41-
7.6 Certificates.................................................................................-41-
7.7 Legal Matters................................................................................-41-
ARTICLE 8
TERMINATION....................................................................................................-41-
8.1 Termination..................................................................................-41-
8.2 Effect of Termination........................................................................-42-
ARTICLE 9
INDEMNIFICATION AND SURVIVAL...................................................................................-43-
9.1 Survival of Representations and Warranties...................................................-43-
9.2 Indemnification Provisions for Benefit of the Buyer..........................................-43-
9.3 Indemnification Provisions for Benefit of the Stockholders...................................-44-
9.4 Matters Involving Third Parties..............................................................-45-
9.5 Other Indemnification Provisions.............................................................-45-
9.6 Tax Savings..................................................................................-46-
ARTICLE 10
TAX MATTERS....................................................................................................-46-
10.1 Tax Matters..................................................................................-46-
10.2 Section 338(h)(10) Election..................................................................-46-
10.3 Tax Periods Ending on or Before the Closing Date.............................................-46-
10.4 Tax Periods Beginning Before and Ending After the Closing Date...............................-47-
10.5 Cooperation on Tax Matters...................................................................-47-
10.6 Certain Taxes................................................................................-47-
ARTICLE 11
MISCELLANEOUS..................................................................................................-48-
11.1 Fees and Expenses............................................................................-48-
11.3 Headings.....................................................................................-49-
</TABLE>
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<TABLE>
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11.4 Notices......................................................................................-50-
11.5 Assignment...................................................................................-51-
11.6 Entire Agreement.............................................................................-51-
11.7 Waiver and Amendments........................................................................-51-
11.8 Counterparts.................................................................................-51-
11.9 Governing Law................................................................................-52-
11.10 Accounting Terms.............................................................................-52-
11.11 Schedules....................................................................................-52-
11.12 Severability.................................................................................-52-
11.13 Remedies.....................................................................................-52-
11.14 Time Is Of the Essence.......................................................................-52-
11.15 Certain Definitions..........................................................................-52-
Addendum 1 - Allocation of Merger Consideration Amongst Stockholders
Exhibit A - Escrow Agreement
Exhibit B - Opinion Letter of Company Counsel
Exhibit C - Employment Agreement
Exhibit D - Non-Competition and Confidentiality Agreement
Exhibit E - Opinion Letter of SAG's Counsel
</TABLE>
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<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement"), is entered into as of March 3, 1998 by and between SUNBELT
AUTOMOTIVE GROUP, INC., a Georgia corporation ("SAG"), BAG GEORGIA IV, a Georgia
corporation ("Sub"), DAY'S CHEVROLET, INC., a Georgia corporation (the
"Company"), and CALVIN DIEMER and ALVIN DIEMER (each, a "Stockholder" and
collectively, the "Stockholders"). SAG, Sub, the Company and the Stockholders
are referred to collectively as the "Parties." SAG and Sub are sometimes
collectively referred to as the "Buyer."
W I T N E S S E T H:
WHEREAS, the Company operates a Chevrolet automobile and truck
dealership businesses in Acworth, Georgia;
WHEREAS, the Stockholders own all of the issued and outstanding shares
of common stock, _____ par value, of the Company (the "Target Shares") in the
following amounts:
(a) Calvin Diemer: 50%
(b) Alvin Diemer: 50%
WHEREAS, Sub is a wholly-owned subsidiary of SAG; and
WHEREAS, SAG, Sub and the Company intend to effect a merger of the
Company into Sub in accordance with this Agreement and the Georgia Business
Corporations Code (the "Merger"). Upon consummation of the Merger, the Company
will cease to exist, and the Sub will continue to exist as the surviving
corporation of the Merger;
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a)(2)(D) of the Code.
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 DESCRIPTION OF TRANSACTION.
(A) MERGER OF THE COMPANY INTO SUB. Upon the terms and conditions set
forth in this Agreement, at the Effective Time, the Company shall be merged with
and into Sub, and the separate existence of the Company shall cease. Sub shall
continue as the surviving corporation of said Merger (the "Surviving
Corporation").
(B) EFFECT OF MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Georgia Business
Corporations Code.
(C) CLOSING; EFFECTIVE TIME.
-1-
<PAGE> 7
(i) Subject to the conditions set forth in this
Agreement, the consummation of the Merger and the
other transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of
SCHNADER HARRISON SEGAL & LEWIS, LLP in Atlanta,
Georgia, or any other location agreed upon by the
Parties, contemporaneously with the SAG IPO described
in the Registration Statement referred to in Section
6.6 hereof.
(ii) If the SAG IPO fails to close on or before the
Closing Date Deadline, as such date may have been
extended pursuant to Section 1.1(d) hereof, then,
upon the mutual agreement of all Parties, the Parties
shall have the option to consummate the Merger and
the other transactions contemplated by this Agreement
upon such terms and conditions that are mutually
acceptable to the Parties (in which event said
alternate consummation shall for purposes herein be
referred to as the "Closing"), and said Closing shall
take place at the offices of SCHNADER HARRISON SEGAL
& LEWIS, LLP in Atlanta, Georgia, or any other
location agreed upon by the Parties
(iii) The date on which the Closing actually occurs is
herein referred to as the "Closing Date." On or
before the Closing Date, a properly executed
certificate of merger for the Merger, conforming with
the requirements of the Georgia Business Corporations
Code (the "Certificate of Merger") shall be filed
with the Secretary of State of the State of Georgia.
The Merger shall take effect on the Closing Date (the
"Effective Time").
(D) LOCK-UP CONSIDERATION; EXTENSION OF CLOSING DATE DEADLINE
(i) In consideration of the covenants contained in
Section 5.5 hereof, SAG shall pay to the Stockholders
the sum of Fifty-Five Thousand Dollars ($55,000)
("Lock-Up Consideration"), which shall be paid as
follows:
(a) SAG shall place into an escrow
account with the law firm of Moore
Ingram Johnson & Steele, LLP (the
Company's legal counsel) ("Escrow
Agent"), simultaneously with the
execution of this Agreement, the sum
of Ten Thousand Dollars ($10,000)
(the "Lock-Up Deposit"), all in
accordance with an escrow agreement
substantially in the form attached
hereto as EXHIBIT A (the "Escrow
Agreement"). The release of the
Lock-Up Deposit shall be governed by
the terms and conditions of the
Escrow Agreement.
(b) If the Closing occurs on or prior to
11:59 p.m. EST on June 30, 1998 (the
"Closing Date Deadline"), the
Lock-Up Deposit amount shall be
credited against and deducted from
the Merger Consideration due
hereunder, and the balance of the
Lock Up Consideration shall no
longer be due.
(c) If the Closing does not occur on or
before the Closing Date Deadline, or
if this Agreement is terminated by
SAG or Sub prior to Closing Date
Deadline for any reason, the Escrow
Agent
-2-
<PAGE> 8
shall pay the Lock-Up Deposit to the
Stockholders in accordance with the
terms and conditions of the Escrow
Agreement, and, in addition thereto,
SAG shall pay to the Stockholders,
on or before the earlier of (i) July
3, 1998 or (ii) three (3) business
days following the termination of
this Agreement, as applicable, the
balance of the Lock-Up Consideration
(the sum of Forty-Five Thousand
Dollars ($45,000)) in immediately
available funds.
(ii) In the event the Closing does not occur on or before
the Closing Date Deadline, SAG shall have the
unconditional right and option, in SAG's sole
discretion, to extent the Closing Date Deadline to
11:59 p.m. EST on July 31, 1998 (in which event, for
all purposes in this Agreement, the Closing Date
Deadline shall mean 11:59 p.m. EST on July 31, 1998),
provided that SAG shall pay to the Stockholders, on
or prior to June 30, 1998, the sum of Fifteen
Thousand Dollars ($15,000) ("First Extension
Consideration") as consideration for such extension,
such amount to be in addition to the Lock-Up
Consideration. If the Closing occurs on or prior to
the Closing Date Deadline as extended by this Section
1.1(d)(ii), the Lock-Up Consideration and the First
Extension Consideration amounts shall be credited
against and deducted from the Merger Consideration
due hereunder.
(iii) In the event SAG elects to extended the initial
Closing Date Deadline pursuant to Section 1.1(d)(ii)
above, and in the event the Closing does not occur on
or before 11:59 p.m. EST on July 31, 1998, SAG shall
have the unconditional right and option, in SAG's
sole discretion, to extent the Closing Date Deadline
(as extended pursuant to Section 1.1(d)(ii) above) to
11:59 p.m. EST on August 31, 1998 (in which event,
for all purposes in this Agreement, the Closing Date
Deadline shall mean 11:59 p.m. EST on August 31,
1998), provided that SAG shall pay to the
Stockholders, on or prior to July 31, 1998, the sum
of Fifteen Thousand Dollars ($15,000) as
consideration for such additional extension, such
amount to be in addition to the Lock-Up Consideration
and the First Extension Consideration. If the Closing
occurs on or prior to the Closing Date Deadline as
extended by this Section 1.1(d)(iii), the Lock-Up
Consideration, the First Extension Consideration and
the Second Extension Consideration amounts shall be
credited against and deducted from the Merger
Consideration due hereunder.
(E) MERGER CONSIDERATION. The aggregate consideration for the
Merger (the "Merger Consideration") shall be TEN MILLION FIVE HUNDRED THOUSAND
Dollars ($10,500,000.00). The Merger Consideration shall be allocated amongst
the Stockholders in accordance with ADDENDUM 1 attached hereto and shall be paid
by the Sub as follows:
(i) Forty-Five percent (45%) of the Merger Consideration
shall be paid to the Stockholders by the Sub at the
Closing in cash or other immediately available funds
("Cash Consideration"), to be divided amongst the
Stockholders on a pro-rata basis based on their stock
ownership interest in the Company.
(ii) Fifty-Five percent (55%) of the Merger Consideration,
which represents the balance of the Merger
Consideration, shall be paid to the Stockholders at
the Closing in the form of SAG Common Stock in
accordance with Section 1.1(g) hereof (the "Stock
Consideration").
-3-
<PAGE> 9
(F) ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Upon the Effective Time:
(i) the Articles of Incorporation of Sub shall continue
as the Articles of Incorporation of the Surviving
Corporation;
(ii) the Bylaws of Sub shall continue as the Bylaws of the
Surviving Corporation;
(iii) The directors and officers of the Surviving
Corporation immediately after the Effective Time
shall be selected by SAG.
(G) CONVERSION OF SHARES. Subject to Section 1.1(i)(iii), the
manner of converting the Target Shares into shares of SAG Common Stock shall be
as is set forth in this Section 1.1(g). As of the Effective Time of the Merger,
all of the Target Shares, by virtue of the Merger without any action on the part
of the holder thereof, automatically shall be deemed to represent that number of
shares of SAG Common Stock that is equal to the number obtained by dividing the
Stock Consideration by the SAG IPO Share Price (the "SAG Stock Consideration
Shares"). The SAG Stock Consideration Shares shall be divided amongst the
Stockholders on a pro-rata basis based on their stock ownership interest in the
Company.
(H) CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Time, the holders of the Target Share Certificates (as hereinafter defined)
shall cease to have any rights as stockholders of the Company, and the stock
transfer books of the Company shall be closed with respect to all such Target
Shares. No further transfer of any such Target Shares shall be made on such
stock transfer books after the Effective Time. If, after the Effective Time, a
valid certificate previously representing any Target Shares is presented to Sub
or SAG, such certificate shall be canceled and shall be exchanged as provided in
Section 1.1(i).
(I) EXCHANGE OF CERTIFICATES.
(i) At the Closing, each Stockholder shall surrender its
certificate representing any of the common stock of
the Company owned by said Stockholder (the "Target
Share Certificates") to Surviving Corporation,
together with such transmittal documents as SAG or
Surviving Corporation may reasonably require.
(ii) No fractional shares of SAG Common Stock shall be
issued in connection with the Merger, and no
certificates for any such fractional shares shall be
issued. Any fractional shares shall be rounded up to
the next whole share and any Stockholder who would
otherwise be entitled to receive a fraction of a
share of SAG Common Stock (after aggregating all
fractional shares of SAG Common Stock issuable to
such holder) shall, in lieu of such fractional share,
receive said additional whole share.
(iii) Until surrendered as contemplated by this Section
1.1(i)(iii), each Company Share Certificate shall be
deemed from and after the Effective Time, to
represent only the right to receive a pro-rata share
of the Merger Consideration. If any Company Share
Certificate shall have been lost, stolen or
destroyed, the Sub may, at its discretion and as a
condition precedent to the delivery of any Merger
Consideration to the Stockholder who owns such lost,
stolen or destroyed
-4-
<PAGE> 10
Company Share Certificate, require said owner to
provide an appropriate affidavit and to deliver a
bond (in such sum as SAG or the Sub may reasonably
direct) as indemnity against any Claim that may be
made against SAG or Sub with respect to such Company
Share Certificate.
(iv) The shares of SAG Shares to be issued in the Merger
shall be characterized as "restricted securities" for
purposes of Rule 144 under the Securities Act, and
each certificate representing any of such shares
shall bear a legend identical or similar in effect to
the following legend (together with any other legend
or legends required by applicable state securities
laws or otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
(v) The Sub shall be entitled to deduct and withhold from
any consideration payable or otherwise deliverable to
any holder or former holder of the Target Shares
pursuant to this Agreement such amounts as the Sub
may be required to deduct or withhold therefrom under
the Code or under any provision of state, local or
foreign tax law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been
paid to the Person to whom such amounts would
otherwise have been paid.
(vi) The Sub shall not be liable to any holder or former
holder of the Target Shares for any shares of SAG
Common Stock (or dividends or distributions with
respect thereto), or for any cash amounts, delivered
to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.2 PRE-JANUARY 1, 1998 TAXED INCOME DISTRIBUTIONS AND BASIS. Between the
date of this Agreement and the Closing Date, the Company shall be entitled to
make distributions to the Stockholders of previously taxed income, additional
paid-in-capital and basis in common stock (each, a "Pre-1998 Distribution" and
collectively the "Pre-1998 Distributions"). The amount will be distributed with
respect to the Stockholders' previously taxed income, additional paid-in-capital
and common stock which, as of December 31, 1997, equaled One Million Dollars
($1,000,000). The Company or the Stockholders will provide written notice to SAG
and Sub at least five (5) business days prior to the Closing Date of each
planned or executed Pre-1998 Distribution. In the event the Pre-1998
Distributions, in the aggregated, exceed said One Million Dollar ($1,000,000)
amount, the Merger Consideration shall be reduced by such excess, on a
dollar-for-dollar basis.
1.3 1998 EARNINGS DISTRIBUTIONS. Between the date of this Agreement and the
Closing Date, the Company shall be entitled to make distributions to the
Stockholders of any 1998 Earnings (hereinafter defined) of the Company ("1998
Earnings Distributions"), provided that the Company or the Stockholders will
provide written notice to SAG and Sub at least five (5) business days prior to
the Closing Date of each planned or executed 1998 Earnings Distribution. For
purposes herein, "1998 Earnings" shall equal
-5-
<PAGE> 11
the accrual basis income and expenses of the Company after December 31, 1997,
which amount shall be computed on a basis consistent with the closing records
(for tax purposes) of the Company as of December 31, 1997, except that: (a) 1998
Earnings shall include sixty percent (60%) of the increase in the computed
last-in/first-out ("LIFO") reserve for the period commencing on January 1, 1998
and ending on the Closing Date; (b) used car and truck inventories of the
Company shall be mutually agreed upon by the Parties; and (c) bad debt reserve
shall be mutually agreed upon by the Parties.
1.4 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The Parties hereby adopt this Agreement as a "plan of reorganization" with
respect to the Company and Sub within the meaning of Sections 1.368- 2(g) and
1.368-3(a) of the United States Treasury Regulations.
1.5 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by SAG or the Sub to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Sub with full title, right and
possession of and to all rights and property of the Company, the officers and
directors of the Sub shall be fully authorized (in the name of the Company and
otherwise) to take such action, except as otherwise provided in Section 10.3
hereof.
1.6 NET WORTH ADJUSTMENT.
(a) Within forty-five (45) days after the Closing Date, ERNST & YOUNG,
LLC (the "Accountants") shall prepare, at the cost and expense of SAG and/or
Sub, a balance sheet of the Company dated as of the Closing Date (the "Closing
Date Balance Sheet"). The Accountants shall prepare the Closing Date Balance
Sheet on the same basis and in accordance with the accounting principles,
methods and practices used in preparing the Company's 1997 Balance Sheet (as
hereinafter defined) prepared on a first-in/first-out basis ("FIFO") by Mr. John
Carpentier of the accounting firm of Tarpley & Underwood, P.C., accountants to
the Company, and agreed to by Mr. Ricky Brown, Controller of SAG (the
"Accounting Principles"). Within thirty (30) days after the Parties' receipt of
the completed Closing Date Balance Sheet, Mr. Carpentier and Mr. Brown shall
mutually determine the net worth of the Company as of the Closing Date (the
"Closing Date Net Worth"). The Closing Date Net Worth shall be determined based
on the Closing Date Balance Sheet prepared by the Accountants and using the
Accounting Principles, provided, however, that inventory shall be determined on
a LIFO basis and sixty percent (60%) of the increase in the LIFO reserve for the
period commencing on January 1, 1998 and ending on the Closing Date shall be
added to determine the Closing Date Net Worth. The determination by Mr.
Carpentier and Mr. Brown with respect to the Closing Date Balance Sheet and the
Closing Date Net Worth shall be conclusive and binding upon the Parties.
(b) In connection with the preparation of the Closing Date Balance
Sheet, the Accountants will conduct, at the cost and expense of SAG and/or Sub,
a physical inventory at the location where inventory is held by the Company and,
from the results of such inventory and prior to the Closing Date, prepare, at
the cost and expense of SAG and/or Sub, a schedule setting forth the nature and
quality of such inventory to be included in the Closing Date Balance Sheet. The
determination of the Accountants with respect to such inventory shall be
conclusive and binding upon the Parties.
(c) If the Closing Date Net Worth is less than zero (0) (the amount of
any such deficiency being referred to herein as the "Net Worth Deficiency"), the
Stockholders shall pay to Sub, on a dollar for dollar basis, the entire amount
of such Net Worth Deficiency (the "New Worth Deficiency Payment Amount") by wire
transfer or other immediately available funds within three (3) business days
after the date on which the Closing Date Net Worth has been determined (the
"CDNW Determination Date"),
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together with interest on such amount from the Closing Date to the date of the
CDNW Determination Date at the prime rate or its equivalent (as announced from
time to time by Citibank, N.A.).
(d) If the Closing Date Net Worth is greater than zero (0) (the amount
of any such excess being referred to herein as the "Net Worth Excess"), the Sub
shall pay to the Stockholders, on a dollar for dollar basis, the entire amount
of such Net Worth Excess (the "Net Worth Excess Payment Amount") by wire
transfer or other immediately available funds within three (3) business days
after the CDNW Determination Date, together with interest on such amount from
the Closing Date to the date of the CDNW Determination Date at the prime rate or
its equivalent (as announced from time to time by Citibank, N.A.). The Net Worth
Excess Payment Amount shall be allocated to the Stockholders on the same ratio
basis as the Merger Consideration is allocated amongst the Stockholders in
accordance with ADDENDUM 1.
1.7 MINIMUM FLOOR PLAN REQUIREMENT. As of the Date of the Closing Date, the
Company shall not be "Out of Trust," as such term is commonly used in the
automotive business and relates to the floor plan of the Company's new and used
cars. As of the Closing Date, the Company's floor plan liability must not exceed
the Company's Floor Plan Assets by more than three percent (3%), where "Floor
Plan Assets" shall mean the Company's actual inventory of financed automobiles,
plus its contracts in transits, plus its current (not over ninety (90) days)
fleet car receivables. If, as of the date of Closing Date, the floor plan
liability exceeds the Company's Floor Plan Assets by more than three percent
(3%), then such excess shall be offset against and deducted from the Cash
Consideration at the time of Closing.
1.8 PRICE PROTECTION FOR STOCK CONSIDERATION.
(a) PRICE PROTECTION. SAG acknowledges and agrees that the Stockholders
accept the Stock Consideration with the understanding that, during the period
beginning on the Closing Date and ending on the second anniversary of the
Closing Date (the "Second Anniversary Date") (such two-year period is
hereinafter referred to as the "Valuation Period), they will realize an
aggregate value of no less than Five Million Seven Hundred Seventy Five Thousand
and No/100 Dollars ($5,775,000) (the "Monetary Consideration Value") for such
Stock Consideration. If, on the Second Anniversary Date, there is a deficiency
between the amount of cash consideration the Stockholders have received from the
liquidation of any or all of the Stock Consideration and the Monetary
Consideration Value, SAG covenants and agrees to make the Stockholders whole for
such deficiency through the issuance of registered stock or the payment of cash
equal to any such deficiency, as hereinafter set forth (the "Price Protection").
To help ensure that the Stockholders realize the Monetary Consideration Value
during the Valuation Period, SAG may utilize or select to implement, at SAG's
sole cost and expense, various types of methodologies (including, without
limitation, the filing of a registration statement with the Securities and
Exchange Commission, the use of collars, or any other method selected by SAG),
designed to maintain the value of SAG's common stock.
(b) LIQUIDATION AGENT. The Stockholders covenant and agree that
throughout the Valuation Period, they shall utilize Raymond James and
Associates, Inc. (the "Raymond James") as their sole liquidation agent for the
purpose of liquidating any of the Stock Consideration, unless SAG consents to
the use of another liquidation agent in writing, which consent SAG may withhold
or deny in SAG's sole discretion (an "Approved Agent"). If Stockholders fail to
so utilize Raymond James or an Approved Agent for the liquidation of any or all
of the Stock Consideration during the Valuation Period, the Price Protection set
forth in this Section 1.8 shall become completely null and void and SAG shall no
longer be required to provide any Price Protection to any of the Stock
Consideration.
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<PAGE> 13
(c) LIQUIDATION OF STOCK. The Stockholders covenant and agree that
throughout the Valuation Period, they shall liquidate any or all of the Stock
Consideration at the times, in the manner and in the amounts directed by Raymond
James. If Raymond James directs the Stockholders to liquidate any or all of the
Stock Consideration (in each such instance, such stock is hereinafter referred
to as the "Directed Stock"), and the Stockholders fail to so liquidate any or
all of the Directed Stock at the times, in the manner and in the amounts
directed by Raymond James (such non-complying Directed Stock is hereinafter
referred to as the "Non-Complying Directed Stock"), then the Price Protection
set forth in this Section 1.8 shall become completely null and void only with
respect to the Non-Complying Directed Stock, and SAG shall no longer be required
to provide any Price Protection with respect to the Non-Complying Directed
Stock. SAG shall pay all of the brokerage fees, expenses or commissions due to
Raymond James and/or any Approved Agent in connection with the sale or
liquidation of any properly sold or liquidated Directed Stock or any or all of
the Stock Consideration that is sold or liquidated through an Approved Agent
(the "Brokerage Expenses"). The Stockholders may subsequently liquidate or sell
any Non-Complying Directed Stock for cash consideration only. In the event of
any such subsequent sale or liquidation of the NonComplying Directed Stock,
Raymond James or the Approved Agent, as the case may be, who will act as the
liquidating agent, shall promptly provide notice to SAG of such sale or
liquidation, and such notice shall include the date on which the Non-Complying
Directed Stock is sold or liquidated, the number of shares of Non-Complying
Directed Stock sold, and the aggregate consideration for which the NonComplying
Directed Stock was sold or liquidated (such amount is hereinafter referred to as
the "NonComplying Directed Stock Value").
(d) COOPERATION. The Stockholders covenant and agree to cooperate fully
with SAG, at SAG's expense, in SAG's efforts to maintain the value of SAG's
common stock, and the Stockholders covenant and agree to execute any and all
reasonable documentation as may be required to effectuate the methodologies
selected by SAG to maintain said value.
(e) SECOND ANNIVERSARY PRICE PROTECTION. If, on the Second Anniversary
Date, (i) the Stockholders still have a right to receive Price Protection
pursuant to this Section 1.8, and (ii) the Aggregate Stock Value ("Aggregate
Stock Value," for purposes herein, shall mean the aggregate cash consideration
(net of any Brokerage Expenses) that the Stockholders receive for the sale of
any or all of the Stock Consideration (including any Non-Complying Directed
Stock) during the Valuation Period plus the value, as of the Second Anniversary
Date, of any portion of the Stock Consideration (including any Non-Complying
Directed Stock) that is still owned by the Stockholders on the Second
Anniversary Date) is less than the Monetary Consideration Value (such deficiency
between the Aggregate Stock Value and the Monetary Consideration Value is
hereinafter referred to as the "Second Anniversary Deficiency Amount"), then SAG
shall compensate the Stockholders for the Second Anniversary Deficiency Amount.
SAG, at its sole option, may select one of the following methods of compensating
the Stockholders for the Second Anniversary Deficiency Amount:
(i) SAG may issue to the Stockholders additional shares of
registered common stock of SAG that are eligible for
immediate sale under the Securities Act and the Securities
Exchange Act, in accordance with the following formula:
Divide the Second Anniversary Deficiency Amount
by the SAG IPO Share Price on the Second
Anniversary Date to obtain the number of
additional shares of registered common stock of
SAG to be issued to the Stockholders.
SAG shall issue the additional shares of registered SAG
common stock, if any, due to the Stockholders within five
(5) business days following the Second
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Anniversary Date. No fractional shares of registered
SAG common stock shall be issued in connection with
the Price Protection, and no certificates for any
such fractional shares shall be issued. Any
fractional shares shall be rounded up to the next
whole share and any Stockholder who would otherwise
be entitled to receive a fraction of a share of
registered SAG common stock (after aggregating all
fractional shares of registered SAG common stock
issuable to such holder) shall, in lieu of such
fractional share, receive said additional whole
share.
(ii) SAG may pay the Stockholders cash consideration in an
amount equal to the Second Anniversary Deficiency
Amount. If SAG elects to so compensate the
Stockholders for the Second Anniversary Deficiency
Amount, SAG shall pay said cash consideration, if
any, due to the Stockholders via immediately
available funds delivered within five (5) business
days following the Second Anniversary Date.
(f) REIMBURSEMENT OF BROKERAGE EXPENSES.
(i) If at any time during the Valuation Period, but prior
to the Second Anniversary Date, the aggregate cash
consideration (net of any Brokerage Expenses) that
the Stockholders receive for the sale of any or all
of the Stock Consideration (including any
Non-Complying Directed Stock) exceeds the Monetary
Consideration Value (such excess is hereinafter
referred to as the "Excess Value Amount"), then the
Stockholders shall, within three (3) business days
following the sale or liquidation of any or all of
the Stock Consideration as a result of which an
Excess Value Amount is obtained, and in immediately
available funds, reimburse SAG for all of the
Brokerage Expenses incurred by SAG during the
Valuation Period, provided, however, that the
Stockholders shall not be obligated to reimburse SAG
for the Brokerage Expenses to the extent such
Brokerage Expenses would exceed the Excess Value
Amount.
(ii) If, on the Second Anniversary Date, the Aggregate
Stock Value is greater than the Monetary
Consideration Value (such excess is hereinafter
referred to as the "Second Anniversary Excess
Amount"), then the Stockholders shall, within three
(3) business days following the Second Anniversary
Date and in immediately available funds, reimburse
SAG for all of the Brokerage Expenses incurred by SAG
during the Valuation Period, provided, however, that
the Stockholders shall not be obligated to reimburse
SAG for the Brokerage Expenses to the extent such
Brokerage Expenses would exceed the Second
Anniversary Excess Amount.
(g) RECEIPT OF MONETARY CONSIDERATION VALUE. The Parties
acknowledge and agree that the intent of the Price Protection provided hereunder
is to ensure that the Stockholders receive all of the Monetary Consideration
Value. As such, notwithstanding anything to the contrary contained herein except
Section 1.8(f) above, if at any time during the Valuation Period the aggregate
cash consideration (net of any Brokerage Expenses) that the Stockholders receive
for the sale or liquidation of any or all of the Stock Consideration (including
any Non-Complying Directed Stock) equals or exceeds the Monetary Consideration
Value, then the Price Protection set forth in this Section 1.8 shall become
completely null and void, and SAG shall no longer be required to provide any
further Price Protection to the Stockholders for any of the Stock Consideration,
it being understood and acknowledged by the Parties that in such an event the
Stockholders will have been made whole and no further Price Protection will be
necessary.
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<PAGE> 15
(h) SURVIVAL. The provisions, terms and conditions of this Section
1.8 shall survive the execution of this Agreement and the Closing of the
transactions contemplated hereby. SAG's obligation to provide the Price
Protection shall expire and terminate upon the delivery by SAG to the
Stockholders of the registered common stock of SAG pursuant to Section 1.8(e)(i)
hereof or the payment by SAG to the Stockholders of the cash pursuant to Section
1.8(e)(ii) hereof, unless such Price Protection is terminated with respect to
any or all of the Stock Consideration as otherwise provided in this Section 1.8.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
Subject to the Parties' agreement and acknowledgment that all of the
Schedules referred to in this Article 2 are to be delivered by the Company and
the Stockholders no later than ten (10) days after the execution of this
Agreement to SAG and Sub, the Company and the Stockholders hereby jointly and
severally represent and warrant to SAG and Sub that the statements contained in
this Article 2 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article 2) as to the Company:
2.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
its incorporation and has the corporate power and authority to own, lease and
operate the properties used in its business and to carry on its business as now
being conducted. The Company is duly qualified to do business and is in good
standing as a foreign corporation in each state and jurisdiction where
qualification as a foreign corporation is required except where the lack of such
qualification would not have a Material Adverse Effect on the Company. SCHEDULE
2.1 hereto lists: (i) the states and other jurisdictions where the Company is so
qualified; and (ii) the assumed names under which the Company conducts business
and contains complete and correct copies of the Company's Articles of
Incorporation and Bylaws, each as amended and presently in effect.
2.2 SUBSIDIARIES. Except as set forth in SCHEDULE 2.2 hereof, the Company
does not have any subsidiaries or any other interest or investment in any
Person.
2.3 CAPITALIZATION. The authorized stock of the Company and the number of
shares of capital stock that are issued and outstanding are set forth on
SCHEDULE 2.3(A) hereto. The shares listed on SCHEDULE 2.3(A) hereto constitute
all the issued and outstanding shares of capital stock of the Company, have been
validly authorized and issued, are fully paid and non-assessable, have not been
issued in violation of any pre-emptive rights or of any federal or state
securities law and no personal liability attaches to the ownership thereof.
Except for as set forth on SCHEDULE 2.3(B) hereto, there is no security, option,
warrant, right, call, subscription, agreement, commitment or understanding of
any nature whatsoever, fixed or contingent, that directly or indirectly: (i)
calls for issuance, sale, pledge or other disposition of any shares of capital
stock of the Company or any securities convertible into, or other rights to
acquire, any shares of capital stock of the Company; (ii) obligates the Company
to grant, offer or enter into any of the foregoing; or (iii) relates to the
voting or control of such capital stock, securities or rights, except as
provided in this Agreement. The Company has not agreed to register any
securities under the Securities Act.
2.4 AUTHORITY, APPROVALS AND CONSENTS. The Company has the corporate power and
authority to enter into this Agreement and the other documents referenced herein
or related hereto (collectively, the "Transaction Documents") and to perform its
obligations hereunder and thereunder. The execution,
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<PAGE> 16
delivery and performance of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize and
approve this Agreement and the Transaction Documents and the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, the Company,
enforceable against the Company in accordance with its terms. The execution,
delivery and performance by the Company and the Stockholders of this Agreement
and the consummation of the transactions contemplated hereby and thereby do not
and will not:
(a) contravene any provisions of the Charter or Bylaws of the Company;
(b) except for the consent, authorization and approval that the Parties
must obtain from the Chevrolet Division of General Motors Corporation in
connection with the transactions contemplated hereby, and except as set forth on
SCHEDULE 2.4(B), conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or cancellation of, or
give rise to any right of termination or acceleration in respect of, any Company
Agreement, require any consent of waiver of any party to any Company Agreement,
except where such conflict or default would not have a Material Adverse Effect
on the Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement;
(c) result in the creation of any Lien upon, or any Person obtaining
any right to acquire, any properties, assets or rights of the Company (other
than the rights of Sub to acquire the Target Shares pursuant to this Agreement);
(d) violate or conflict with any Legal Requirements applicable to the
Company or any of its businesses or properties, except where such conflict or
default would not have a Material Adverse Effect on the financial condition of
the Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement; or
(e) require any authorization, consent, order, permit or approval of,
or notice to, or filing, registration or qualification with, any Governmental
Authority, other than in connection with or in compliance with the provisions of
the Hart-Scott-Rodino Act, except where such conflict or default would not have
a Material Adverse Effect on the Company or on the ability of the Parties to
consummate the transactions contemplated by this Agreement.
Except as referred to above, no permit or approval of, or notice to any
Governmental Authority is necessary to be obtained or made by the Company to
enable the Company to continue to conduct its business and operations and use
its properties after the Closing in a manner which is in all material respects
consistent with that in which they are presently conducted and used.
2.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 2.5 are true and complete
copies of:
(a) the unaudited balance sheets of the Company as of December 31,
1995, December 31, 1996 and December 31, 1997 (the December 31, 1997 balance
sheet is hereinafter referred to as the "1997 Balance Sheet"), and the related
statements of income, stockholders' equity and cash flow for the
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<PAGE> 17
fiscal year ended December 31, 1995, December 31, 1996 and December 31, 1997,
together with the notes thereto; and
(b) the most recent monthly and year-to-date financial statements
provided to the Chevrolet Motor Division of General Motors Corporation (the
"Factory Statements");
(the financial statements referred to in clauses (a) and (b) above, including
the notes thereto, being referred to herein collectively as the "Financial
Statements"). The Financial Statements of the Company are in accordance with
books and records of the Company, fairly present the financial position, results
of operations, stockholders' equity and changes in the financial position of the
Company as of the dates and for the periods indicated, and can be legitimately
reconciled with the financial statements and the financial records maintained
and the accounting methods applied by the Company for federal income tax
purposes. The Financial Statements of the Company include all adjustments, which
consist of only normal recurring accruals, necessary for such fair
presentations. The statements of income included in the Financial Statements of
the Company do not contain any items of special or non-recurring income except
as expressly identified therein, and the balance sheets included in the
Financial Statements of the Company do not reflect any write up or revaluation
increasing the book value of any assets except as expressly identified therein.
The books and accounts of the Company are complete and current in all material
respects and fairly reflect all of the transactions, items of income and expense
and all assets and liabilities of the businesses of the Company consistent with
prior practices of the Company. Each Factory Statement is accurate and complete
and was prepared in compliance with the requirements of the appropriate
automobile manufacturer, including, but not limited to, all requirements set
forth in the contract with such automobile manufacturer.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liability of any nature whatsoever (whether known or unknown, due or to
become due, accrued, absolute, contingent or otherwise), including, without
limitation, any unfunded obligation under employee benefit plans or arrangements
as described in Sections 2.17 and 2.18 hereof or liabilities for Taxes, except
for: (a) liabilities reflected or reserved against in the most recent Financial
Statements of the Company; (b) current liabilities incurred in the ordinary
course of business and consistent with past practice after the date of the
Company's 1997 Balance Sheet which, individually and in the aggregate, do not
have, and cannot reasonably be expected to have, a Material Adverse Effect on
the Company; and (c) liabilities disclosed or SCHEDULE 2.6 hereto. The Company
is not a party to any Company Agreement, or subject to any Charter or Bylaw
provision, any other corporate limitation or any Legal Requirement which has, or
can reasonably be expected to have, a Material Adverse Effect on the Company.
Except as set forth in SCHEDULE 2.6 hereto, none of the employees of the Company
is now or will with the passage of time become entitled to receive any vacation
time, vacation pay or severance pay attributable to services rendered prior to
the date of the Closing Date.
2.7 ABSENCE OF MATERIAL ADVERSE EFFECT; CONDUCT OF BUSINESS.
(a) Since the date of the 1997 Balance Sheet, except as set forth on
SCHEDULE 2.7(A) hereto, the Company has operated in the ordinary course of
business consistent with past practice and there has not been:
(i) any material adverse change in the assets,
properties, business, contractual relations,
operations, prospects, net income or financial
condition of the Company and no factor, event,
condition, circumstance or prospective development
exists which threatens or may threaten to have a
Material Adverse Effect on the Company;
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<PAGE> 18
(ii) any material loss, damage, destruction or other
casualty to the property or other assets of the
Company, whether or not covered by insurance;
(iii) any change in any method of accounting or accounting
practice of the Company; or
(iv) any loss of the employment, services or benefits of
any key employee of the Company.
(b) Since the date of the 1997 Balance Sheet, except as set forth
in SCHEDULE 2.7(B) hereto, the Company has not:
(i) incurred any material obligation or liability
(whether absolute, accrued, contingent or otherwise),
except in the ordinary course of business consistent
with past practice;
(ii) failed to disclose or satisfy any lien or pay or
satisfy any obligation or liability (whether
absolute, accrued, contingent or otherwise), other
than liabilities being contested in good faith and
for which adequate reserves have been provided;
(iii) mortgaged, pledged or subjected to any Lien any of
its property or other assets except for mechanics'
liens and liens for taxes not yet due and payable;
(iv) sold or transferred any asset or canceled any debts
or claims or waived any rights, except in the
ordinary course of business consistent with past
practices;
(v) defaulted on any material obligation;
(vi) entered into any material transaction, except in the
ordinary course of business consistent with past
practice;
(vii) written down the value of any inventory or written
off as uncollectible any accounts receivable or any
portion thereof not reflected in the Company's
Financial Statements;
(viii) received any notice of termination of any contract,
lease or other agreement or suffered any damage,
destruction or loss (whether or not covered by
insurance) which, in any case or in the aggregate,
has had a Material Adverse Effect on the Company;
(ix) transferred or granted any rights under, or entered
into any settlement regarding the breach or
infringement of, any Intellectual Property, or
modified any existing rights with respect thereto;
(x) made any change in the rate of compensation,
commission, bonus or other direct or indirect
remuneration payable, or paid or agreed or orally
promised to pay, conditionally or otherwise, any
bonus, incentive, retention or other compensation,
retirement, welfare, fringe or severance benefit or
vacation pay, to or in respect of any shareholder,
director, officer, employee, salesman,
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distributor or agent of the Company other than
increases in accordance with past practices not
exceeding ten percent (10%);
(xi) encountered any labor union organizing activity, had
any actual or threatened employee strikes, work
stoppages, slowdowns or lockouts, or had any material
change in its relations with its employees, agents,
customers or suppliers;
(xii) failed to replenish inventories and supplies in a
normal and customary manner consistent with its prior
practice, or made any purchase commitment in excess
of the normal, ordinary and usual requirements of its
business or at any price in excess of then-current
market price or upon terms and conditions more
onerous than those usual and customary in the
industry, or made any change in its selling, pricing,
advertising or personnel practices inconsistent with
its prior practice;
(xiii) instituted, settled or agreed to settle any, or had
any material involvement in, litigation, action or
proceeding before any court or governmental body
relating to the Company other than in the ordinary
course of business consistent with past practices but
not in any case involving amounts in excess of
$100,000;
(xiv) entered into any transaction, contract or commitment
other than in the ordinary course of business or paid
or agreed to pay any legal, accounting, brokerage,
finder's fee, Taxes or other expenses in connection
with, or incurred any severance pay obligations by
reason of, this Agreement or the transactions
contemplated hereby;
(xv) declared, set aside or paid any dividend or other
distribution in respect of any shares of capital
stock of the Company or any repurchase, redemption or
other acquisition by any Stockholder or the Company
of any outstanding shares of capital stock or other
securities of, or other ownership interest in, the
Company;
(xvi) made any individual capital expenditure in excess of
$25,000, or aggregate capital expenditures in excess
of $100,000, or additions to property, plant and
equipment other than ordinary repairs and
maintenance;
(xvii) discontinued any franchise or the sale of any
products or product line;
(xviii) incurred any obligation or liability to any employee
for the payment of severance benefits; or
2.8 TAXES. Except as set forth on SCHEDULE 2.8, (i) all Tax Returns required to
be filed by or on behalf of the Company have been properly prepared and duly and
timely filed with the appropriate taxing authorities in all jurisdictions in
which such Tax Returns are required to be filed (after giving effect to any
valid extensions of time in which to make such filings), and all such Tax
Returns were true, complete and correct in all material respects, (ii) all Taxes
required to be paid by or on behalf of the Company or in respect of the
Company's income, assets or operations have been fully and timely paid, (iii)
the Company has not executed or filed with the IRS or any other taxing authority
any agreement, waiver or other document or arrangement extending or having the
effect of extending the period for assessment or collection of Taxes (including,
but not limited to, any applicable statute of limitation, and no power of
attorney with respect to any Tax matter is currently in force, and (iv) all
Taxes required to be withheld by the Company have been duly and timely withheld
and have been paid over to the appropriate taxing
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authorities for all periods under all applicable Legal Requirements. Copies of
all Tax Returns of the Company for each of the five (5) fiscal years preceding
the date hereof have been furnished or made available to the Sub and to SAG or
its representatives and such copies are accurate and complete as of the date
hereof. The Company has also furnished or made available to the Sub and SAG
correct and complete copies of all material notices and correspondence sent or
received since December 31, 1992 by the Company to or from any federal, state or
local tax authorities.
(a) The unpaid Taxes of the Company with respect to periods ended on,
prior to or through the date of the Company's 1997 Balance Sheet will not exceed
by any material amount the reserve for Taxes reflected on such financial
statements. The Company has made adequate provision on its books (on an annual
basis) for the payment of all Taxes (including for the current fiscal period)
owed by the Company. Except to the extent reserves therefor are reflected on the
Company's 1997 Balance Sheet, the Company is not liable, or will not become
liable, for any Taxes for any period ending on, prior to or through the date of
the Company's 1997 Balance Sheet.
(b) Except as set forth on SCHEDULE 2.8 hereto, the Company has not
been subject to a federal or state tax audit of any kind and no adjustment has
been proposed by the IRS with respect to any return for any year. With respect
to the audits referred to on SCHEDULE 2.8 hereto, no such audit has resulted in
an adjustment in excess of $50,000. Neither the Company nor any of the
Stockholders knows of any Basis for any assertion of a deficiency for Taxes
against the Company. The Stockholders will cooperate with the Company in the
filing of any returns and in any audit or refund claim proceedings involving
Taxes for which the Company may be liable or with respect to which the Company
may be entitled to a refund.
(c) Except as set forth on SCHEDULE 2.8 hereto, the Company has not
executed or filed with the IRS or any other taxing authority any agreement,
waiver or other document or arrangement extending or having the effect of
extending the period for assessment or collection of Taxes (including, but not
limited to, any applicable statute of limitation), and no power of attorney with
respect to any Tax matter is currently in force;
(d) Except as set forth on SCHEDULE 2.8 hereto, all Taxes required to
be withheld by the Company have been duly and timely withheld and have been paid
over to the appropriate taxing authorities for all periods under all applicable
laws;
(e) SCHEDULE 2.8 lists all material types of Taxes paid and material
types of tax returns filed by or on behalf of the Company. Except as set forth
on SCHEDULE 2.8, no claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns such that it is or may be subject to
taxation by that jurisdiction;
(f) Except as set forth on SCHEDULE 2.8, all deficiencies asserted or
assessments made as a result of any examinations by the IRS or any other taxing
authority of the tax returns of or covering or including the Company have been
fully paid, and there are no other audits or investigations by any taxing
authority in progress, nor have Stockholders or the Company received any notice
from any taxing authority that it intends to conduct such an audit or
investigation. No issue has been raised by a federal, state, local or foreign
taxing authority in any current or prior examination which, be application of
the same or similar principles, could reasonably be expected to result in
proposed deficiency for any subsequent tax period.
(g) Except as set forth in SCHEDULE 2.8, neither the Company nor any
other Person (including the Stockholders) on behalf of the Company has: (i)
agreed to or is required to make any adjustments
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pursuant to ss.481(a) of the Code or any similar provision of state, local or
foreign law be reason of a change in accounting method initiated by the Company
or has knowledge that the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or operations of the Company; (ii) executed or entered into a closing
agreement pursuant to Section 7121 of the Code or any predecessor provision
thereof or any similar provision of state, local or foreign law with respect to
the Company; or (iii) requested any extension of time within which to file any
tax return, which tax return has not since been filed;
(h) Except as set forth on SCHEDULE 2.8 hereto, no property owned by
the Company is: (i) property required to be treated as being owned by another
Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "tax-exempt use property" within the
meaning of Section 168(h)(1) of the Code; or (iii) is "tax-exempt bond financed
property" within the meaning of Section 168(g) of the Code;
(i) Except as set forth on SCHEDULE 2.8 hereto, none of the
Stockholders is a foreign person within the meaning of Section 1445 of the Code;
(j) Except as set forth on SCHEDULE 2.8 hereto, the Company is not a
party to any tax-sharing or similar agreement or arrangement (whether or not
written) pursuant to which it will have any obligation to make any payments
after the Closing;
(k) Except as set forth on SCHEDULE 2.8 hereto, there is no contract,
agreement, plan or arrangement covering any person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by Buyer or its affiliates by reason of Section 280G of the Code, or
would constitute compensation in excess of the limitation set forth in Section
162(m) of the Code;
(l) Except as set forth on SCHEDULE 2.8 hereto, the Company is not
subject to any private letter ruling of the IRS or comparable rulings of other
taxing authorities;
(m) Except as set forth on SCHEDULE 2.8 hereto, there are no Liens as a
result of any unpaid Taxes upon any of the assets of the Company;
(n) Except as set forth on SCHEDULE 2.8 hereto, the Company has
properly and timely elected under Section 1362 of the Code, and under each
analogous or similar provision of state or local law in each jurisdiction where
the Company is required to file a tax return, to be treated as an "S"
corporation for all taxable periods since the date of the Company's initial "S"
corporation election, and there has not been any voluntary or involuntary
termination or revocation of any such election;
(o) Except as set forth on SCHEDULE 2.8 hereto, the Company has never
owned any subsidiaries and has never been a member of any consolidated, combined
or Affiliated Group of corporations for any Tax purposes;
(p) Except as set forth in SCHEDULE 2.8, as of December 31, 1997, the
Company does not have any undistributed earnings and profits and has not had for
any taxable years gross receipts more than twenty-five percent (25%) of which
are "passive investment income" (as defined in Section 1375 of the Code).
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2.9 LEGAL MATTERS.
(a) Except as set forth on SCHEDULE 2.9(A) hereto: (i) there is no
Claim pending against, or threatened against or affecting, the Company, any
ERISA Plan or any of their respective assets, properties or rights before any
court, arbitrator, panel, agency or other governmental, administrative or
judicial entity, domestic or foreign, nor is any Basis known to the Stockholders
or the Company for any such Claims; and (ii) neither the Company nor any of its
assets are subject to any judgment, decree, writ, injunction, ruling or order
(collectively, "Judgments") of any Governmental Authority, domestic or foreign.
SCHEDULE 2.9(A) hereto identifies each Claim and Judgment disclosed thereon.
(b) The businesses of the Company are being conducted in compliance
with all Legal Requirements applicable to the Company or any of its respective
businesses or properties, and the Company has no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand or notice has been
filed or commenced against the Company for failure to so comply. The Company
holds, and is in compliance with, all Permits required by all applicable Legal
Requirements. A list of all Permits is set forth on SCHEDULE 2.9(B) hereof. No
event has occurred and is continuing which permits, or after notice or lapse of
time or both would permit, any modification or termination of any Permit.
(c) Except as set forth on SCHEDULE 2.9(C) hereto, to the knowledge of
the Company and the Stockholders, there are no proposed laws, rules,
regulations, ordinances, orders, judgments, decrees, governmental takings,
condemnations or other proceedings which would be applicable to the business,
operations or properties of the Company and which might materially adversely
affect the properties, assets, liabilities, operations or prospects of the
Company, either before or after the Closing Date.
(d) SCHEDULE 2.9(D) sets forth all Governmental Approvals and other
Consents necessary for, or otherwise material to, the conduct of the Company's
business. Except as set forth in SCHEDULE 2.9(D), all such Governmental
Approvals and Consents have been duly obtained and are in full force and effect,
and the Company is in compliance with each of such Governmental Approvals and
Consents held by it.
(e) There have been no citations, notices or complaints issued to or
received by the Company by the Occupational Health and Safety Administration or
any similar state or local agency.
2.10 PROPERTY. The properties and assets owned by or leased to the Company
(including improvements to the Owned Real Property (the "Improvements") and all
machinery, equipment and other tangible property) are in all material respects
adequate for the purposes of which such assets are currently used or are held
for use, and are in good repair and operating condition (subject to normal wear
and tear) and there are no facts or conditions affecting such assets which
could, individually or in the aggregate, interfere in any material respect with
the use, occupancy or operation thereof as currently used, occupied or operated,
or their adequacy for such use.
(A) OWNED REAL PROPERTY. SCHEDULE 2.10(A) contains a complete list of
all real property owned by the Company (the "Owned Real Property"), setting
forth the address and owner of each parcel and describing all improvements
thereon, including without limitation, the real property of the Stockholders
on which the Company's dealership operations are located in Acworth, Georgia
(the "Dealership Real Estate") and any other properties reflected as being so
owned on the Company's Financial Statements. Except as otherwise set forth on
SCHEDULE 2.10(A), the Company has, or on the Closing Date will have, good, valid
and marketable fee simple title to the Owned Real Property indicated on SCHEDULE
2.10(A) as being owned by it, free and clear of all Liens other than Permitted
Liens. There are no outstanding leases, options or rights of first refusal to
purchase the Owned Real Property, or any portion thereof or interest therein.
Since the date of the Company's incorporation, the Company has not
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owned or held any ownership interest in any real property other than the Owned
Real Property set forth on SCHEDULE 2.10(A).
(B) LEASES. SCHEDULE 2.10(B) contains a complete list of all leases of
real property setting forth the address, landlord and tenant for each Lease.
Stockholders have delivered to Buyer complete copies of the Leases. Each Lease
is legal, valid, binding, enforceable, and in full force and effect, except as
may be limited by bankruptcy, insolvency, reorganization and similar applicable
laws affecting creditors generally and by the availability of equitable
remedies. The Company is not in default, violation or breach in any respect
under any Lease, and no event has occurred and is continuing that constitutes
or, with notice or the passage of time or both, would constitute a default,
violation or breach in any respect under any Lease. Each Lease grants the tenant
under the Lease the exclusive right to use and occupy the demised premises
thereunder (the "Leased Real Property"). The Company has good and valid title to
the leasehold estate under each Lease free and clear of all Liens other than
Permitted Liens. The Company enjoys peaceful and undisturbed possession under
its respective Leases for the Leased Real Property. Since the date of the
Company's incorporation, the Company has not leased or held any leasehold or
other possessory interest in any real property other than the Leased Real
Property set forth on SCHEDULE 2.10(B).
(C) FEE AND LEASEHOLD INTERESTS. The Leased Real Property constitutes
all the fee and leasehold interests in real property held for use in connection
with, necessary for the conduct of, or otherwise material to, the business of
the Company as it is currently conducted.
(D) NO PROCEEDINGS. Except as otherwise set forth on SCHEDULE 2.10(D),
to the knowledge of the Company and the Stockholders, there are no eminent
domain or other similar proceedings pending or threatened affecting any portion
of the Owned Real Property or the Leased Real Property. There is no writ,
injunction, decree, order or judgment outstanding, nor any action, claim, suit
or proceeding, pending or threatened, relating to the ownership, lease, use,
occupancy or operation by any Person of any Owned Real Property or Leased Real
Property.
(E) CURRENT USE. The use and operation of the Owned Real Property or
the Leased Real Property by the Company does not violate in any material respect
any instrument of record or agreement affecting the Owned Real Property or the
Leased Real Property. There is no violation of any covenant, condition,
restriction, easement or order of any Governmental Authority having jurisdiction
over such property or of any other Person entitled to enforce the same affecting
the Owned Real Property or the Leased Real Property or the use or occupancy
thereof. No damage or destruction has occurred with respect to any of the Owned
Real Property or the Leased Real Property that would, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(F) COMPLIANCE WITH REAL PROPERTY LAWS. The Owned Real Property is in
full compliance with all applicable building, zoning, subdivision and other land
use and similar applicable laws affecting the Owned Real Property (collectively,
the "Real Property Laws"), and the Company and the Stockholders have not
received any notice of violation or claimed violation of any Real Property Law.
No current use by the Company of the Owned Real Property or the Leased Real
Property is dependent on a nonconforming use or other Governmental Approval, the
absence of which would materially limit the use of such properties or assets
held for use in connection with, necessary for the conduct of, or otherwise
material to, the Company.
(G) REAL PROPERTY TAXES. Each parcel included in the Owned Real
Property is assessed for real property tax purposes as a wholly independent tax
lot, separate from adjoining land or improvements not constituting a part of
that parcel.
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<PAGE> 24
(H) LEASED PREMISES. With respect to Leased Real Property, the Company
has complied with: (i) all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances or
recommendations affecting such premises or any part thereof, or the use thereof,
including without limitation, the Americans with Disabilities Act, whether or
not such statutes, laws, rules, orders, regulations, ordinances or
recommendations which may hereafter be enacted involve a change of policy on the
part of the governmental body enacting the same; (ii) all rules, orders and
regulations of the National Board of Fire Underwriters or other bodies
exercising similar functions and responsibilities in connection with the
prevention of fire or other correction of hazardous conditions which apply to
such premises; and (iii) the requirements of all policies of public liability,
fire and other insurance which at any time may be in force with respect to such
premises. The Company is the owner of the furniture and other personal property
utilized in the business and located at such premises.
(I) CERTIFICATE OF OCCUPANCY; UTILITIES; EMINENT DOMAIN. No certificate
of occupancy is required with respect to the Improvements. All utilities
servicing the Owned Real Property or the Leased Real Property and the
Improvements are provided by publicly dedicated utility lines and are located
within public rights-of-way and do not cross or encumber any private land. No
notice of any pending, threatened or contemplated action by any governmental
authority or agency having the power of eminent domain has been given to the
Company or the Stockholders with respect to the Owned Real Property or the
Leased Real Property.
2.11 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of any of the Stockholders and the Company, the
Company is in compliance with Environmental, Health, and Safety Requirements,
except for such noncompliance as would not have a material adverse effect on the
financial condition of the Company taken as a whole.
(b) To the Knowledge of any of the Stockholders and the Company, the
Company has not received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health and Safety
Requirements, or any liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to the Company, the Owned Real
Property or the Company's facilities arising under Environmental, Health and
Safety Requirements, the subject of which would have a material adverse effect
on the financial condition of the Company taken as a whole.
(c) To the Knowledge of any of the Stockholders and the Company, the
Company has not, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health and
Safety Requirements.
(d) The Stockholders and the Company have provided to SAG all
environmental studies and reports obtained by them or known to them pertaining
to the Owned Real Property, the Improvements, the Company and any property
formerly owned, occupied or leased by the Company, and have permitted (or will
have permitted as of the Closing Date), the testing of the soil, groundwater,
building components, tanks, containers and equipment on the Owned Real Property,
the Improvements, and any property formerly owned, occupied or leased by the
Company, by SAG or SAG's agents or experts as they have or shall have deemed
necessary or appropriate to confirm the condition of such properties.
2.12 INVENTORIES. The values at which inventories are carried on the Company's
1997 Balance Sheet reflect the normal inventory valuation policies of the
Company. All inventories reflected on the
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Company's 1997 Balance Sheet and Company's Factory Statement or arising since
the date thereof are currently marketable, are of good, usable and merchantable
quality in all material respects, and can reasonably be anticipated to be sold
at normal mark-ups within 120 days after the date hereof in the ordinary course
of business (subject to the reserve for obsolete, off-grade or slow-moving items
that is reflected in the Company Balance Sheet), except for spare parts
inventory which inventory is good and usable.
2.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
reflected on the Company's 1997 Balance Sheet are, and all notes and accounts
receivable that will be or will have been reflected on the Closing Date Balance
Sheet of the Company will be, good and have been or will have been collected or
are collectible in accordance with their terms at their recorded amounts, and
are subject to no material defenses, setoffs or counterclaims other than normal
cash discounts accrued in the ordinary course of business, subject to the
reserve for bad debts set forth on the Company's 1997 Balance Sheet, as adjusted
for operations and transactions through the Closing Date in the ordinary course
of business and consistent with past practices.
2.14 INSURANCE. All material properties and assets of the Company which are
of an insurable character are insured against loss or damage by fire and other
risks to the extent and in the manner reasonable in light of the risks attendant
to the businesses and activities in which the Company is engaged and customary
for companies engaged in similar businesses or owning similar assets. Set forth
on SCHEDULE 2.14 hereto is a list and brief description (including the name of
the insurer, the type of coverage provided, the amount of the annual premium for
the current policy period, the amount of remaining coverage and deductibles and
the coverage period) of all policies for such insurance and the Company has made
or will make available to SAG true and complete copies of all such policies. All
such policies are in full force and effect sufficient for all applicable
requirements of law and will not in any way be effected by or terminated or
lapsed by reason of the consummation of the transactions contemplated by this
Agreement. No notice of cancellation or non-renewal with respect to, or
disallowance of any claim under, any such policy has been received by the
Company.
2.15 CONTRACTS.
(a) SCHEDULE 2.15 contains a complete list of all agreements,
contracts, commitments and other instruments and arrangements (whether written
or oral) of the types described below to which the Company is a party or by
which it is bound ("Company Agreements"):
(i) leases, master rental agreements, service agreements,
insurance policies, Governmental Approvals and other
contracts concerning or relating to the Owned Real
Property or the Leased Real Property (including those
referred to on SCHEDULE 2.10);
(ii) employment, consulting, agency, collective bargaining
or other similar contracts, agreements and other
instruments and arrangements relating to or for the
benefit of current, future or former employees,
officers, directors or consultants;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements,
deeds of trust, bonds, notes, guarantees and other
agreements and instruments relating to the borrowing
of money or obtaining of or extension of credit;
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(iv) licenses, licensing arrangements and other contracts
providing in whole or in part for the use of, or
limiting the use of, any Intellectual Property;
(v) brokerage or finder's agreements;
(vi) joint venture, partnership and similar contracts
involving a sharing of profits or expenses (including
but not limited to joint research and development and
joint marketing contracts);
(vii) asset purchase agreements and other acquisition or
divestiture agreements, including but not limited to
any agreements relating to the sale, lease or
disposal of any assets (other than sales of inventory
in the ordinary course of business) or involving
continuing indemnity or other obligations;
(viii) orders and other contracts for the purchase or sale
of materials, supplies, products or services, each of
which involves aggregate payments in excess of
$10,000 in the case of purchases or $10,000 in the
case of sales;
(ix) contracts with respect to which the aggregate amount
that could reasonably be expected to be paid or
received thereunder in the future exceeds $10,000 per
annum or $10,000 in the aggregate;
(x) sales agency, manufacturer's representative, dealer,
marketing or distributorship agreements;
(xi) master lease agreements providing for the leasing of
personal property used in, or held for use in
connection with, the Company's business;
(xii) contracts, agreements or commitments with any
employee, director, officer, stockholder or affiliate
of the Company;
(xiii) powers of attorney;
(xiv) any guaranty, warranty or indemnity, other than
standard warranties from any automobile manufacturers
with whom each Company has a franchise agreement (or
comparable agreement), given by each Company to its
customers; and
(xv) any other contracts, agreements or commitments that
are material to the Company's business.
(b) The Company and the Stockholders have delivered to Buyer
complete copies of all written Company Agreements together with all amendments
thereto, and accurate descriptions of all material terms of all oral Company
Agreements set forth or required to be set forth on SCHEDULE 2.15.
(c) All Company Agreements are in full force and effect and
enforceable against each party thereto, except as such enforceability may be
limited by the effect of bankruptcy, insolvency or similar laws affected
creditors' rights generally or by general principles of equity. There does not
exist under any Company Agreement any event of default or event or condition
that, after notice or lapse of time or both, would constitute a violation,
breach or event of default thereunder on the part of the Company, or any other
party thereto, except as set forth in SCHEDULE 2.15 and except for such events
or conditions
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that, individually and in the aggregate: (i) have not had or result in, and will
not have or result in, a Material Adverse Effect on the Company; and (ii) have
not and will not materially impair the ability of the Company or the
Stockholders to perform their obligations under this Agreement. Except as set
forth in SCHEDULE 2.15, no consent of any third party is required under any
Company Agreement as a result of or in connection with, and the enforceability
of any Company Agreement will not be affected in any manner by, the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
(d) There are no material unresolved disputes involving any
Stockholder, the Company or its employees under any Company Agreement.
2.16 LABOR RELATIONS.
(a) The Company has paid or made provision for the payment of all
salaries and accrued wages and has complied in all material respects with all
applicable laws, rules and regulations relating to the employment of labor,
including those relating to wages, hours, collective bargaining and the payment
and withholding of taxes, and has withheld and paid to the appropriate
Governmental Authority, or is holding for payment not yet due, to such
authority, an amounts required by law or agreement to be withheld from the wages
or salaries of its employees.
(b) Except as Set forth on SCHEDULE 2.16(B) hereto, the Company is not
a party to any: (i) outstanding employment agreements or contracts with officers
or employees that are not terminable at will, or that provide for payment of any
bonus or commission; (ii) agreement, policy or practice that requires it to pay
termination or severance pay to non-exempt or hourly employees (other than as
required by law); (iii) collective bargaining agreement or other labor union
contract applicable to persons employed by the Company, nor are there any
activities or proceedings of any labor union to organize any such employees. The
Company has furnished to SAG complete and correct copies of all such agreements
("Employment and Labor Agreements"). The Company has not breached or otherwise
failed to comply with any material provisions of any Employment or Labor
Agreement.
(c) Except as set forth in SCHEDULE 2.16(C) hereto: (i) there is no
unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (ii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or threatened, against or
affecting the Company, and the Company has not experienced any such material
slow down or material work stoppage, lockout or other collective labor action by
or with respect to employees of the Company; (iii) there is no representation
claim or petition pending before the NLRB or any similar foreign agency and no
question concerning representation exists relating to the employees of the
Company; (iv) the are no charges with respect to or relating to the Company
pending before the Equal Employment Opportunity Commission or any state, local
or foreign agency responsible for the prevention of unlawful employment
practices; (v) the Company has not received formal notice from any federal,
state, local or foreign agency responsible for the enforcement of labor or
employment laws of an intention to conduct an investigation of the Company and
no such investigation is in progress; and (vi) the consents of the unions that
are parties to any Employment and Labor Agreements are not required to complete
the transactions contemplated by this Agreement.
(d) The Company has never caused any "plant closing" or "mass layoff"
as such actions are defined in the Worker Adjustment and Retraining Notification
Act, as codified at 29 U.S.C. ss.ss.2101-2109, and the regulations promulgated
therein.
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2.17 EMPLOYEE BENEFIT PLANS.
(a) Set forth on SCHEDULE 2.17(A) hereto is a true and complete
list of:
(i) each Employee Pension Benefit Plan maintained by the
Company or to which the Company is required to make
contributions;
(ii) each Employee Welfare Benefit Plan maintained by the
Company or to which the Company is required to make
contributions; and
(iii) True and complete copies of all ERISA Plans have been
delivered to or made available to SAG together with,
as applicable with respect to each such ERISA Plan,
trust agreements, summary plan descriptions, all IRS
determination letters or applications therefor with
respect to any Pension Benefit Plan intended to be
qualified pursuant to Section 401(c) of the Code, and
valuation or actuarial reports, accountant's
opinions, financial statements, IRS Form 5500s (or
5500-C or 5500-R) and summary annual reports for the
last three years.
(b) With respect to the ERISA Plans, except as set forth on
SCHEDULE 2.17(B):
(i) there is no ERISA Plan which is a Multiemployer Plan;
(ii) no event has occurred or is threatened or about to
occur which would constitute a prohibited transaction
under Section 406 of ERISA or under Section 4975 of
the Code;
(iii) each ERISA Plan has operated since its inception in
accordance in all material respects with the
reporting and disclosure requirements imposed under
ERISA and the Code and has timely filed Form 5500e
(or 5500-C or 5500-R) and predecessors thereof; and
(iv) no ERISA Plan is liable for any federal, state, local
or foreign Taxes.
(c) Each Pension Benefit Plan intended to be qualified under
Section 401(a) of the Code:
(i) has been qualified, from its inception, under Section
401(a) of the Code, and the trust established
thereunder has been exempt from taxation under
Section 501(a) of the Code and is currently in
compliance with applicable federal laws;
(ii) has been operated, since its inception, in all
material respects in accordance with its terms and
there exists no fact which would adversely affect its
qualified status; and
(iii) is not currently under investigation, audit or review
by the IRS and no such action is contemplated or
under consideration and the IRS has not asserted that
any Pension Benefit Plan is not qualified under
Section 401(a) of the Code or that any trust
established under a Pension Benefit Plan is not
exempt under Section 501(a) of the Code.
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<PAGE> 29
(d) With respect to each Employee Pension Benefit Plan which is a
defined benefit plan under Section 414(j) and, for the purpose solely of
ss.2.17(d)(iv) hereof, each defined contribution plan under Section 414(i) of
the Code:
(i) no liability to the PBGC under Sections 4062-4064 of
ERISA has been incurred by the Company since the
effective date of ERISA and all premiums due and
owing to the PBGC have been timely paid;
(ii) no PBGC has notified the Company or any Employee
Pension Benefit Plan of the commencement of any
proceedings under Section 4042 of ERISA to terminate
any such plan;
(iii) no event has occurred since the inception of any
Employee Pension Benefit Plan or is threatened or
about to occur which would constitute a reportable
event within the meaning of Section 4043(b) of ERISA;
(iv) no Employee Pension Benefit Plan ever has incurred an
"accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code; and
(v) if any of such Employee Pension Benefit Plans were to
be terminated on the Closing Date: (A) no liability
under Title IV of ERISA would be incurred by the
Company; and (B) all benefits accrued to the day
prior to the Closing Date (whether or not vested)
would be fully funded in accordance with the
actuarial assumptions and method utilized by such
plan for valuation purposes.
(e) With respect to each Employee Pension Benefit Plan, SCHEDULE
2.17(A) contains a list of all Employee Pension Benefit Plans to which ERISA has
applied which have been or are being terminated, or for which a termination is
contemplated, and a description of the actions taken by the PBGC and the IRS
with respect thereto.
(f) The aggregate of the amounts of contributions by the Company
to be paid or accrued under ERISA Plans for the current fiscal year is not
expected to exceed approximately one hundred and ten percent (110%) of the
amounts of such contributions for the past fiscal year. To the extent required
in accordance with GAAP, the Company's 1997 Balance Sheet reflects in the
aggregate an accrual of all amounts of employer contributions accrued by and
unpaid by the Company under the ERISA Plans as of the date of the Company's 1997
Balance Sheet.
(g) With respect to any Multiemployer Plan: (i) the Company has
not, since its formation, made or suffered any "complete withdrawal" or "partial
withdrawal" as such terms are respectively defined in Sections 4203 and 4205 of
ERISA; (ii) there is no withdrawal liability of the Company under any
Multiemployer Plan, computed as if a "complete withdrawal" by the Company had
occurred under each such Plan as of the Closing Date; and (iii) the Company has
not received notice to the effect that any Multiemployer Plan is either in
reorganization (as defined in Section 4241 of ERISA) or insolvent (as defined in
Section 4245 of ERISA).
(h) With respect to the Employee Welfare Benefit Plan:
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(i) There are no liabilities of the Company under
Employee Welfare Benefit Plans with respect to any
condition which relates to a claim filed on or before
the Closing Date; and
(ii) No claims for benefits are in dispute or litigation.
2.18 OTHER BENEFIT AND COMPENSATION PLANS OR ARRANGEMENTS.
(a) Set forth on SCHEDULE 2.18(A) hereto is a true and complete
list of:
(i) each employee stock purchase, employee stock option,
employee stock ownership, deferred compensation,
performance, bonus, incentive, vacation pay, holiday
pay, insurance, severance, retirement, excess benefit
or other plan, trust or arrangement which is not an
ERISA Plan whether written or oral, which the Company
maintains or is required to make contributions to;
(ii) each other agreement, arrangement, commitment and
understanding of any kind, whether written or oral,
with any current or former officer, director or
consultant of the Company pursuant to which payments
may be required to be made at any time following the
date hereof (including, without limitation, any
employment, deferred compensation, severance,
supplemental pension, termination or consulting
agreement or arrangement); and
(iii) each employee of the Company whose aggregate
compensation for the fiscal year ended December 31,
1996 exceeded, and whose aggregate compensation for
the fiscal year ending December 31, 1997 is likely to
exceed, $50,000. True and complete copies of all of
the written plans, arrangements and agreements
referred to on SCHEDULE 2.18(A) ("Compensation
Commitments") have been provided to SAG together
with, where prepared by or for the Company, any
valuation, actuarial or accountant's opinion or other
financial reports with respect to each Compensation
Commitment for the last three years. An accurate and
complete written summary has been provided to SAG
with respect to any Compensation Commitment which is
unwritten.
(b) Each Compensation Commitment:
(i) since its inception, has been operated in all
material respects in accordance with its terms;
(ii) is not currently under investigation, audit or review
by the IRS or any other federal or state agency and
no such action is contemplated or under
consideration;
(iii) has no liability for any federal, state, local or
foreign Taxes;
(iv) has no claim subject to dispute or litigation;
(v) has met all applicable requirements, if any, of the
Code; and
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(vi) has operated, since its inception, in material
compliance with the reporting and disclosure
requirements imposed under ERISA and the Code.
2.19 TRANSACTIONS WITH INSIDERS. Set forth on SCHEDULE 2.19 hereto is a
complete and accurate description of all material transactions between the
Company or any ERISA Plan, on the one hand, and any Insider, on the other hand,
that have occurred since January 1, 1994.
2.20 PROPRIETY OF PAST PAYMENTS. Except as set forth on SCHEDULE 2.20
hereto, no funds or assets of the Company have been used for illegal purposes;
no unrecorded funds or assets of the Company have been established for any
purpose; no accumulation or use of the Company's corporate funds or assets has
been made without being properly accounted for in the respective books and
records of the Company; all payments by or on behalf of the Company have been
duly and properly recorded and accounted for in their respective books and
records; no false or artificial entry has been made in the books and records of
the Company for any reason; no payment has been made by or on behalf of the
Company with the understanding that any part of such payment is to be used for
any purpose other than that described in the documents supporting such payment;
and the Company has not made, directly or indirectly, any illegal contributions
to any political party or candidate, either domestic or foreign. Neither the IRS
nor any other federal, state, local or foreign government agency or entity has
initiated or threatened any investigation of any payment made by the Company of,
or alleged to be, the type described in this ss.2.20.
2.21 INTEREST IN COMPETITORS. Except as set forth on SCHEDULE 2.21, neither
the Company nor the Stockholders, nor any of their Affiliates, have any
interest, either by way of contract or by way of investment (other than as
holder of not more than two percent (2%) of the outstanding capital stock of a
publicly traded Person, so long as such holder has no other connection or
relationship with such person) or otherwise, directly or indirectly, in any
Person other than the Company that is engaged in the retail sale of automobiles
in the United States of America.
2.22 BROKERS. Except as set forth on SCHEDULE 2.22 hereto, neither the
Company, nor any director, officer or employee thereof, nor the Stockholders or
any representative of the Stockholders, has employed any broker or finder or has
incurred or will incur any broker's, finder's or similar fees, commissions or
expenses, in each case in connection with the transactions contemplated by this
Agreement.
2.23 TERRITORIAL RESTRICTIONS. Except as set forth on SCHEDULE 2.23, the
Company is not restricted by any written agreement or under-standing with any
Person from carrying on its business anywhere in the world. Buyer, solely as a
result of the transactions contemplated hereby, will not thereby become
restricted in carrying on any business anywhere in the world.
2.24 INTELLECTUAL PROPERTY.
(A) TITLE. SCHEDULE 2.24(A) contains a complete list of all
Intellectual Property that is owned by the Company and primarily related to,
used in, held for use in connection with, or necessary for the conduct of, or
otherwise material to the Company (the "Owned Intellectual Property") other
than: (i) inventions, trade secrets, processes, formulae, compositions, designs
and confidential business and technical information; and (ii) Intellectual
Property that is both not registered or subject to application for registration
and not material to the Company. The Company owns or has the exclusive right to
use pursuant to license, sublicense, agreement or permission all Intellectual
Property, free from any Liens (other than Permitted Liens) and free from any
requirement of any past, present or future royalty payments, license fees,
charges or other payments, or conditions or restrictions whatsoever. The
Intellectual Property comprise all of the Intellectual Property necessary for
Buyer to conduct and operate
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the Company as now being conducted by the Stockholders. The Company does not
infringe on or otherwise conflict with any rights of any Person in respect of
any Intellectual Property.
(B) LICENSING ARRANGEMENTS. SCHEDULE 2.24(B) sets for all agreements,
arrangements or laws: (i) pursuant to which the Company has licensed
Intellectual Property to, or the use of Intellectual Property is otherwise
permitted (through non-assertion, settlement or similar agreements or otherwise)
by, any other Person; and (ii) pursuant to which the Company has had
Intellectual Property licensed to it, or has otherwise been permitted to use
Intellectual Property. Except as set forth on SCHEDULE 2.24(B), all of the
agreements or arrangements set forth on SCHEDULE 2.24(B): (A) are in full force
and effect in accordance with their terms and no default exists thereunder by
the Company or by any other party thereto; (B) are free and clear of all Liens;
and (C) do not contain any change in control or other terms or conditions that
will become applicable or inapplicable as a result of the consummation of the
transactions contemplated by this Agreement. Stockholders have delivered to
Buyer complete copies of all licenses and arrangements (including amendments)
set forth on SCHEDULE 2.24(B). All royalties, license fees, charges and other
amounts payable by, on behalf of, to, or for the account of, the Company in
respect of any Intellectual Property are disclosed in the Company's Financial
Statements to the extent material to the Company's Financial Statements.
(C) LITIGATION. No claim or demand of any Person has been made, nor is
there any proceeding that is pending or threatened, which: (i) challenges the
rights of the Company in respect of any Intellectual Property; (ii) asserts that
the Company is infringing or otherwise in conflict with, or is, except as set
forth in SCHEDULE 2.24(B), required to pay any royalty, license fee, charge or
other amount with regard to, any Intellectual Property; or (iii) claims that any
default exists under any agreement or arrangement listed on SCHEDULE 2.24(B).
None of the Intellectual Property is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, arbitrator or
administrative agency.
(D) DUE REGISTRATION. The Owned Intellectual Property has been duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office, United States Copyright Office, or such other
filing offices, and the Company has taken such other actions to ensure full
protection under any applicable laws or regulations, and such registrations,
filings, issuances and other actions remain in full force and effect.
(E) USE OF NAME AND MARK. Except as set forth in SCHEDULE 2.24(E),
there are, and immediately after the Closing will be, no contractual restriction
or limitation pursuant to any orders, decisions, injunctions, judgments, awards
or decrees of any Governmental Authority on Buyer's right to use the name and
mark "Day's Chevrolet" in the conduct of the business as presently carried on by
the Company or as such business may be extended by Buyer.
2.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 2.25 contains an
accurate list, as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each Person authorized to draw thereon or have access
thereto.
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2.26 DISCLOSURE. To the best knowledge of the Company and the Stockholders,
neither the Company nor any Stockholder has made any material misrepresentation
to SAG relating to the Company or the Target Shares, and neither the Company nor
any Stockholder has omitted to state to SAG any material fact relating to the
Company or the Target Shares which is necessary in order to make the information
given by or on behalf of the Company or the Stockholders to SAG not misleading
or which if disclosed would reasonably affect the decision of SAG or the Sub to
consummate the transactions contemplated hereby. No fact, event, condition or
contingency exists or has occurred which has, or in the future can reasonably be
expected to have, a Material Adverse Effect on the Company, which has not been
disclosed in the Company's Financial Statements or the schedules to this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Subject to the Parties' agreement and acknowledgment that certain of
the Schedules referred to in this Article 3 are to be delivered by the Company
and the Stockholders no later than ten (10) days from the date this Agreement is
executed, each Stockholder hereby jointly and severally represents and warrants
to SAG and Sub that the statements contained in this Article 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 3):
3.1 OWNERSHIP OF TARGET SHARES; TITLE. Each Stockholder is the owner of
record and beneficiary of the Target Shares set forth on SCHEDULE 3.1 hereof and
has, and shall transfer to Sub at the Closing, good and marketable title to the
Target Shares owned by him, free and clear of any and all Liens, claims and
encumbrances and free and clear of any restrictions on transfer (other than
restrictions on transfer imposed by applicable federal and state securities
laws), proxies and voting, or other agreements. Each Stockholder is not a party
to any option, warrant, purchase right or other contract or commitment that
could require any Stockholder to sell, transfer or otherwise dispose of the
Target Shares (other than this Agreement). Each Stockholder is not a party to
any voting trust, proxy or other agreement or understanding with respect to the
voting of any capital stock of the Company.
3.2 AUTHORITY. Each Stockholder has all requisite power and authority and
has full legal capacity and is competent to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby (including the
disposition of the Target Shares to Sub as contemplated by Agreement). This
Agreement has been duly executed and delivered by each Stockholder and
constitutes a valid and binding obligation of each Stockholder, enforceable
against each Stockholder in accordance with its terms. Except as set forth on
SCHEDULE 3.2, the execution, delivery and performance of this Agreement by each
Stockholder and the consummation of the transactions contemplated hereby, do not
and will not:
(a) (after notice or lapse of time or both) conflict with, result in a
breach of any provision of, constitute a default under, result in the
modification or cancellation of, or give rise to any right of termination or
acceleration in respect of, any material contract, agreement, commitment,
understanding, arrangement or restriction to which any Stockholder is a party or
to which any Stockholder or any of Stockholders' property is subject;
(b) violate or conflict with any Legal Requirements applicable to any
Stockholder or any of such Stockholder's businesses properties; or
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(c) require any authorization, consent, order, permit or approval of,
or notice to, or filing, registration or qualification with, any Governmental
Authority, except in connection with or in compliance with the provisions of the
Hart-Scott-Rodino Act.
3.3 BROKER'S FEES. Each Stockholder has no Liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.4 INVESTMENT. Each Stockholder: (a) understands that any SAG Stock
Consideration Shares have not been, and will not be, registered under the
Securities Act, or under any state securities laws, and are being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering; (b) is acquiring any SAG Stock Consideration
Shares solely for his own account for investment purposes, and not with a view
to the distribution thereof; (c) is a sophisticated investor with knowledge and
experience in business and financial matters; (d) has received certain
information concerning SAG and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and risks inherent in
holding any SAG Stock Consideration Shares; (e) is able to bear the economic
risk and lack of liquidity inherent in holding any SAG Stock Consideration
Shares; and (f) is an Accredited Investor for the reasons set forth on ADDENDUM
1. Each Stockholder further acknowledges and understands that the
representations and warranties of the Stockholders and the Company set forth in
this Agreement will be used and relied on by SAG and Sub to prepare and file the
Registration Statement with the Securities and Exchange Commission.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SAG AND SUB
Each of SAG and Sub hereby jointly and severally represents and
warrants to the Company and the Stockholders that the statements contained in
this Article 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article 4):
4.1 ORGANIZATION AND GOOD STANDING. SAG and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the corporate power and authority to
own, lease and operate the properties used in its business and to carry on its
business as now being conducted. SAG and each of its subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each state and jurisdiction where qualification as a foreign corporation is
required, except for such failures to be qualified and in good standing, if any,
which when taken together with all other such failures of SAG and its
subsidiaries would not, or could not reasonably be expected to, in the aggregate
have a Material Adverse Effect on SAG and its subsidiaries, taken as a whole.
4.2 AUTHORITY; APPROVALS AND CONSENTS. SAG and Sub have the corporate power
and authority to enter into this Agreement and to perform their respective
obligations hereunder. This Agreement has been duly executed and delivered by,
and constitutes a valid and binding obligation of SAG and Sub, enforceable
against SAG and Sub in accordance with its terms. Except as set forth on
SCHEDULE 4.2 hereto, the execution, delivery and performance by SAG and Sub of
this Agreement and the consummation of the transactions contemplated hereby do
not and will not:
(a) contravene any provisions of the certificate of incorporation or
bylaws of SAG or Sub;
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(b) (after notice or lapse of time or both) conflict with, result in a
breach of any provision, constitute a default under, result in the modification
or cancellation of, or give rise to any right of termination or acceleration in
respect of, any SAG Agreement (as defined below) or require any consent or
waiver of any party to any SAG Agreement other than agreements the breach or
violation of which could not reasonably be expected to have a Material Adverse
Effect on SAG and its subsidiaries, taken as a whole;
(c) violate or conflict with any Legal Requirements applicable to SAG
or any of its subsidiaries or any of their respective businesses or properties;
or
(d) require any authorization, consent, order, permit or approval of,
or notice to, or filing, registration or qualification with, any Governmental
Authority, except in connection with or in compliance with the provisions of the
Hart-Scott-Rodino Act.
4.3 BROKERS. Neither SAG, Sub nor any of their directors, officers or
employees has employed any broker or finder or has incurred or will incur any
broker's, finder's or similar fees, commissions or expenses, in each case in
connection with the transactions contemplated by this Agreement or the Real
Estate Agreement.
4.4 DISCLOSURE. Neither SAG nor Sub has made any material
misrepresentations to the Stockholders and neither SAG nor Sub has omitted to
state to the Stockholders any material fact relating to SAG or Sub which is
necessary in order to make the information given by SAG or Sub not misleading or
which if disclosed would reasonably affect the decision of a Person considering
the sale of the Target Shares.
ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS
5.1 ACCESS; CONFIDENTIALITY; REMEDIES.
(a) Between the date hereof and the Closing Date, the Stockholders and
the Company will: (i) provide to the officers and other authorized
representatives of SAG and Sub full access, during normal business hours, to any
and all premises, properties, files, books, records, documents and other
information of the Company, and will cause the Company's officers to furnish to
SAG and its authorized representatives any and all financial, technical and
operating data with other information pertaining to the businesses and
properties of the Company (including the Owned Real Property or the Leased Real
Property and the Improvements); and (ii) make available for inspection and
copying by SAG and Sub true and complete copies of any documents relating to the
foregoing. SAG and Sub will hold, and will cause their representatives to hold,
in confidence (unless and to the extent compiled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law) all Confidential Information (as defined below) and will not disclose
the same to any third party except in connection with obtaining financing and
otherwise as may reasonably be necessary to carry out this Agreement and the
transactions contemplated hereby, including any due diligence review by or on
behalf of SAG and Sub. If this Agreement is terminated, SAG and Sub will, and
will cause their representatives to, promptly return to the Company, upon the
reasonable request of the Company, all Confidential Information furnished by
such Company, including all copies and summaries thereof. If the Closing does
occur, the Stockholders shall continue to comply with and be bound by these
nondisclosure and nonuse obligations for a period of five (5) years following
the Closing, except that, with respect to any such Confidential Information
which constitutes a trade secret under the laws of the State of Georgia, the
Stockholders shall
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continue to comply with and be bound by these nondisclosure and nonuse
obligations for so long as such Confidential Information remains a trade secret.
(b) The Stockholders and the Company will hold, and will cause their
representatives to hold, in confidence (unless and to the extent compelled to
disclose by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law) all Confidential Information regarding
SAG, Sub or the Registration Statement and will not disclose the same to any
third party or use the same for any purpose except as may be reasonably
necessary to carry out this Agreement and the transactions contemplated hereby.
If this Agreement is terminated, the Stockholders and the Company will, and will
cause their representatives to, promptly return to SAG, upon the reasonable
request of SAG, all Confidential Information furnished by SAG or Sub or which
relates to the Registration Statement, including all copies and summaries
thereof.
(c) Each of the Parties acknowledges and agrees that the other Party
would be damaged irreparably in the event any of the provisions of this Section
5.1 are not performed in accordance with their specific terms otherwise are
breached. Accordingly, each of the Parties agrees that the other Party shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Section 5.1 and to enforce specifically the terms and provisions of this
Section 5.1 in any action instituted in any court of the United States or any
state thereof having jurisdiction over the Parties and the matter, in addition
to any other remedy to which it may be entitled, at law or in equity.
5.2 FURNISHING INFORMATION; ANNOUNCEMENTS. The Stockholders and the
Company, on the one hand, and SAG and Sub, on the other hand, will, as soon as
practical after reasonable request therefor, furnish to the other all
information concerning the Stockholders and the Company or SAG and Sub,
respectively, required for inclusion in any statement or application made by SAG
or Sub or the Company or the Stockholders to any governmental or regulatory body
or to any manufacturer or distributor or in connection with obtaining any third
party consent in connection with the transactions contemplated by this
Agreement. Neither the Stockholders nor the Company, on the one hand, nor SAG or
Sub, on the other hand, nor any representative thereof, shall issue any press
release or otherwise make any public statement with respect to the transactions
contemplated hereby without the prior consent of the other, except as may be
required by law. SAG shall reimburse the Company and the Stockholders for any
reasonable expenses incurred by such Company and the Stockholders in connection
with this Section.
5.3 CERTAIN CHANGES AND CONDUCT OF BUSINESS.
(a) Except as set forth on SCHEDULE 5.3(A), from and after the date of
this Agreement and until the Closing Date, the Company shall, and the
Stockholders shall cause the Company to, conduct its businesses solely in the
ordinary course consistent with past practices and, without the prior written
consent of SAG, neither the Stockholders nor the Company will, except as
required or settled pursuant to the terms hereof, permit the Company to:
(i) make any material change in the conduct of its
businesses and operations or enter into any
transaction other than in the ordinary course of
business consistent with past practices;
(ii) make any change in its Bylaws, issue any additional
shares of capital stock or equity securities or grant
any option, warrant or right to acquire any capital
stock or equity securities or issue any security
convertible into or exchangeable for its capital
stock or alter any material term of any if its
outstanding securities or make any change in its
outstanding shares of capital stock or other
ownership
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interests or its capitalization, whether by reason of
a reclassification, recapitalization, stock split or
combination, exchange or readjustment of shares,
stock dividend or otherwise;
(iii) (A) incur, assume or guarantee any indebtedness for
borrowed money, issue any notes, bonds, debentures or
other corporate securities or grant any option,
warrant or right to purchase any thereof, except
pursuant to transactions in the ordinary course of
business consistent with past practices; (B) issue
any securities convertible or exchangeable for debt
securities of the Company; or (C) issue any options
or other rights to acquire from the Company, directly
or indirectly, debt securities of the Company or any
security convertible into or exchangeable for such
debt securities;
(iv) make any sale, assignment, transfer, abandonment or
other conveyance of any of its assets or any part
thereof, except transactions pursuant to existing
contracts (which will be set forth in SCHEDULE 2.15
hereto) and dispositions in the ordinary course of
business consistent with past practices;
(v) subject any of its assets, or any part thereof, to
any Liens or suffer such to be imposed other than
such liens as may arise in are ordinary course of
business consistent with past practices;
(vi) declare, set aside or pay any dividends or other
distribution (whether in cash, stock, property or any
combinations thereof) in respect of any shares of its
capital stock or redeem, retire, purchase or
otherwise acquire, directly or indirectly, any shares
of capital stock of the Company, except for any
Pre-1998 Distributions permitted to be distributed
pursuant to Section 1.2 hereof or unless otherwise
expressly provided hereunder;
(vii) acquire any assets, raw materials or properties, or
enter into any other transaction, other than in the
ordinary course of business, consistent with past
practices;
(viii) enter into any new (or amend any existing) employee
benefit plan, program or arrangement or any new (or
amend any existing) employment severance or
consulting agreement, grant any general increase in
the compensation of officers or employee (including
any such increase pursuit to any bonus, pension,
profit-sharing or other plan or commitment) or grant
any increase in compensation payable or to become
playable to any employee, except in accordance with
pre-existing contractual provisions or consistent
with past practices;
(ix) make or commit to make any individual material
capital expenditure in excess of $10,000, or
aggregate capital expenditures in excess of $50,000,
except in the ordinary course of business;
(x) pay, loan or advance any amount to, or sell, transfer
or lease any properties or assets to, or enter into
any agreement or arrangement with, any of its
Affiliates, except in the ordinary course of
business;
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(xi) guarantee any indebtedness for borrowed money or any
other obligation of any other Person, other than in
the ordinary course of business consistent with past
practice;
(xii) fail to keep in full force and effect insurance
comparable in amount and scope to coverage maintained
by it (or on behalf of it) on the date hereof;
(xiii) make any loan, advance or capital contribution to
investment in any Person, except in the ordinary
course of business;
(xiv) make any change in any method of accounting or
Accounting Principle, method, estimate or practice
except for any such change required by reason of a
concurrent change in GAAP or write-down the value of
any inventory or write-off as uncollectible any
accounts receivable except in the ordinary course of
business consistent with past practices;
(xv) settle, release or forgive any material claim or
litigation or waive any material right;
(xvi) make, enter into, modify, amend in any material
respect or terminate any material commitment, bid or
expenditure, other than in the ordinary course of
business consistent with past practice; or
(xvii) commit itself to do any of the foregoing.
(b) Except as set for the on SCHEDULE 5.3(B), from and after the
date hereof and until the Closing Date, the Stockholders and the Company will
use their reasonable Best Efforts to cause the Company to:
(i) continue to maintain, in all material respects, the
Company's properties, all Owned Real Property and
Leased Real Property and all Improvements in
accordance with present practices in a condition
suitable for their current use;
(ii) comply with all applicable Environmental Laws, and,
in the event it shall receive notice that there
exists a violation of any Environmental Law with
respect to its operations, any Improvements or any
Owned Real Property or Leased Real Property, promptly
(and in any event within the time period permitted by
the applicable governmental authority) remove or
remedy such violation in accordance with all
applicable Environmental Laws;
(iii) file, when due or required, or extend as reasonably
necessary, federal, state, foreign and other tax
returns and other reports required to be filed and
pay when due all Taxes, assessments, fees and other
charges lawfully levied or assessed against it unless
the validity thereof is contested in good faith and
by appropriate proceedings diligently conducted;
(iv) keep its books of account, records and files in the
ordinary course and in accordance with existing
practices;
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(v) preserve its business organization intact and
continue to maintain existing business relationships
with suppliers, customers and others with whom
business relationships exist other than relationships
that are, at the same time, not economically
beneficial to it; and
(vi) continue to conduct its business in the ordinary
course consistent with past practices.
5.4 NO INTERCOMPANY PAYABLES OR RECEIVABLES. At the Closing there will be
no intercompany payables or intercompany receivables due and/or owing between
the Stockholders and any of their Affiliates, on the one hand, and the Company,
on the other hand, except for the Stockholders' loans as set forth in ss.5.13
hereof, which shall be paid in full on or before the Closing Date.
5.5 NEGOTIATIONS. Until the earlier of Closing Date Deadline or the
termination of this Agreement pursuant to ss.8.1 hereof, no Stockholder, nor the
Company, nor the Company's officers, directors, employees, advisors, agents,
representatives, Affiliates or anyone acting on behalf of the Stockholders, the
Company or such persons, shall, directly or indirectly, encourage, solicit,
initiate or engage in discussions or negotiations with, or provide any
information to, any Person (other than SAG or its representatives) concerning
any merger, sale of assets (other than in the ordinary course of business),
purchase or sale of shares of capital stock or similar transaction involving the
Company. The Stockholders shall promptly communicate to SAG any inquiries or
communications concerning any such transaction (including the identity of any
Person making such inquiry or communication) which the Stockholders may receive
or of which the Stockholders may become aware.
5.6 CONSENTS; COOPERATION. Subject to the terms and conditions hereof, the
Stockholders and the Company and SAG and Sub will use their respective Best
Efforts at their own expense (unless otherwise set forth herein):
(a) to take all actions and do all things necessary, proper or
advisable, and to cooperate with each other, to expeditiously consummate the
transactions contemplated hereby;
(b) to obtain prior to the earlier of the date required (if so
required) or the Closing Date, all Government Approvals, and make all filings
and registrations with Governmental Authorities which are required on their
respective parts for: (i) the consummation of the transactions contemplated by
this Agreement; (ii) the ownership or leasing and operating after the Closing by
the Company of all its material properties; and (iii) the conduct after the
Closing by the Company of its businesses as conducted by it on the date hereof;
(c) to obtain approval of the Chevrolet Motor Division of General
Motors Corporation (at SAG's expense) of the proposed Agreement herein and the
Company and Sub and the dealer Day's Chevrolet, Inc. in Acworth, Georgia;
(d) to defend, consistent with applicable principles and requirements
of law, any lawsuit or other legal proceedings, whether judicial or
administrative, whether brought derivatively or on behalf of third persons
(including Governmental Authorities) challenging this Agreement or the
transactions contemplated hereby; and
(e) to furnish each other such information and assistance as may
reasonably be requested in connection with the foregoing.
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5.7 ADDITIONAL AGREEMENTS. Subject to the terms and conditions of this
Agreement, each of the Parties hereto agrees to use its Best Efforts at its own
expense to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable Legal
Requirements to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers of the Company shall take all such necessary action.
5.8 INTERIM FINANCIAL STATEMENTS. If requested by SAG and at SAG's expense,
within thirty (30) days after the end of each calendar month after December 31,
1997, the Company will deliver to SAG unaudited balance sheets of the Company at
the end of such calendar month and at the end of the corresponding calendar
month of the previous fiscal year, together with the related unaudited
statements of income and cash flow for the first months then ended. The Company
will also deliver to SAG copies of the Company's Factory Statements provided to
the Chevrolet Motor Division of General Motors Corporation after the date hereof
within five (5) days of their delivery to the Chevrolet Motor Division of
General Motors Corporation. All such financial statements shall fairly present
the financial position and results of operations of such Company as of the date
or for the periods indicated. All unaudited financial statements delivered
pursuant to this ss.5.8 shall be prepared on a basis consistent with the
Company's Financial Statements.
5.9 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing, each Party to this Agreement will give prompt notice in writing to the
other Party hereto of: (i) any information that indicates that any
representation and warranty of such Party contained herein was not true and
correct as of the date made, or will not be true and correct as of the Closing;
(ii) the occurrence of any event which could result in the failure to satisfy a
condition specified in Article 6 or Article 7 hereof, as applicable; (iii) any
notice or other communication from any third Person alleging that the consent of
such third Person is or may be required in connection with the transactions
contemplated by this Agreement; and (iv) in the case of the Stockholders and the
Company, any notice of, or other communication relating to, any default or event
which, with notice or lapse of time or both, would become a default under any
Company Agreement set forth on SCHEDULE 2.15. The Company and the Stockholders
will: (a) promptly advise SAG of any event that has, or could reasonably be
expected in the future to have, a Material Adverse Effect on the Company; (b)
confer on a regular and frequent basis with one or more designated
representatives of SAG to report operational matters and to report the general
status of ongoing operations; and (c) notify SAG of any emergency or other
change in the normal course of business or relating to the Owned Real Property
or the Leased Real Property or Improvements of the Company and the Stockholder
Real Property and of any complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Governmental
Authority or adjudicatory proceedings involving the Company, the Owned Real
Property, the Leased Real Property or the Improvements or the Stockholder Real
Property and will keep SAG fully informed of such events and permit SAG's
representatives access to all materials prepared in connection therewith. Each
Stockholder shall give prompt notice to SAG of any notice or other communication
from any third Person asserting any right, title or interest in any of the
Target Shares held by such Stockholder, including, without limitation, any
threat to commerce, or notice of the commencement of any action or other
proceeding with respect to the Target Shares, or the occurrence of any other
event of which such Stockholder has Knowledge which could result in any failure
to consummate the sale of the Target Shares as contemplated hereby.
5.10 ASSURANCE BY THE STOCKHOLDERS. Each Stockholder shall use its Best
Efforts to cause the Company to comply with its respective covenants set forth
in this Agreement.
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5.11 ANTITRUST IMPROVEMENTS ACT COMPLIANCE. SAG, the Stockholders and the
Company, as applicable, shall each file or cause to be filed with the Federal
Trade Commission and the United States Department of Justice any notifications
required to be filed by the respective "ultimate parent" entities under the
Hart-Scott-Rodino Act and the rules and regulations promulgated thereunder with
respect to the transactions contemplated herein. SAG shall prepare all of the
filings required pursuant to this Section 5.11 and SAG shall pay the
Hart-Scott-Rodino Act filing fee relating to such filings, provided, however,
that each Party shall pay the attorney's, consulting, accounting and other
consulting fees or expenses in connection with the preparation of each
respective Person's filing. The Parties shall use their Best Efforts to make
such filings promptly, to respond to any requests for additional information
made by either of such agencies, to cause the waiting periods under the
Hart-Scott-Rodino Act to terminate or expire at the earliest possible date, and
to resist vigorously, at SAG's expense (including, without limitation, the
institution or defense of legal proceedings), any assertion that the
transactions contemplated herein constitute a violation of the antitrust laws,
all to the end of expediting consummation of the transactions contemplated
herein; provided, however, that if SAG shall determine that continuing such
resistance is not in its best interest, SAG may, by written notice to the other
Parties, terminate this Agreement with the effect set forth in SS.8.2 hereof.
5.12 USE OF BUSINESS NAME. After the Closing Date, SAG and the Company may
use the names "Day's Chevrolet" in connection with business of the Company.
After the Closing, none of the Stockholders nor any of their Affiliates shall
use the names "Day's Chevrolet" in connection with the sale or servicing of new
or used automobiles, light-duty trucks or any other motorized vehicles.
5.13 RELATED PARTY/STOCKHOLDERS LOAN. On or before the Closing Date, the
Stockholders shall cause the Company to pay, and the Company shall pay, all
outstanding principal and all accrued but unpaid interest on any related
Party/Stockholder Loans (the "Stockholder Loans"). For purposes of this Section,
the Stockholder Loans shall mean the loans to the Company from Stockholders and
their Affiliates as set forth on such Company's 1997 Balance Sheet and listed on
SCHEDULE 5.13.
5.14 STOCK RESTRICTION AGREEMENT. Prior to the Closing Date, any and all
stock restriction agreements, buy/sell agreements, shareholder agreements or
other similar agreements of the Company (the "Stock Restriction Agreement")
shall be terminated in accordance with its terms and the parties thereto shall
have released any and all claims arising under or relating to the Stock
Restriction Agreement and its termination.
5.15 PERSONAL ITEMS. The Parties acknowledge and agree that the Stockholders
may retain certain personal items (which items are not reflected as assets on
any of the Company's balance sheets and will not be reflected as assets on the
Closing Date Balance Sheet of the Company). These items will include personal
pictures, awards and mementos.
5.16 LIABILITY FOR TRANSFER TAXES. Except for Tax that may become due as a
result of SAG's or Sub's election under Section 338(h)(10) of the Code pursuant
to Section 10.2 hereof, Stockholders shall be responsible for the timely payment
of, and shall indemnify and hold harmless SAG and Sub against, all income, sales
(including without limitation bulk sales), use, value added, documentary, stamp,
gross receipts, registration, transfer, conveyance, excise, recording, license
and other similar Taxes and fees ("Transfer Taxes") arising out of or in
connection with or attributable to the transactions effected pursuant to this
Agreement. Stockholders shall prepare and timely file all tax returns required
to be filed in respect of Transfer Taxes (including without limitation all
notices required to be given with respect to bulk sales taxes), provided that
Sub shall be permitted to prepare any such tax returns that are the primary
responsibility of Sub under applicable law.
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5.17 RELEASE BY STOCKHOLDERS. The Stockholders hereby agree and confirm that
they hereby fully release, acquit and forever discharge the Company, together
with the Company's successors, assigns, affiliates, parent and related parties,
from any and all Claims, except for compensation payable to the Stockholders by
the Company for the most recent standard payroll period (based upon the
Company's standard practices) which have not been paid plus the reasonable
reimbursable expenses based upon the past practices of the Company.
5.18 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
the Stockholders shall furnish or cause to be furnished to SAG and the
underwriters of the SAG IPO (the "Underwriters") all of the information
concerning the Company and the Stockholders required for inclusion in, and will
cooperate fully and completely with SAG, SAG's legal counsel, SAG's accountants
and the Underwriters in the preparation of, the Registration Statement and the
prospectus included therein (including any and all audited financial statements,
as required by the applicable securities laws and regulations, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). SAG shall be responsible for and
reimburse the Company and/or Stockholders for the reasonable expenses and fees
the Company and/or the Stockholders may incur in connection with their
compliance with this Section 5.18.
5.19 REAL ESTATE RELATED OBLIGATIONS. The Stockholders covenant and agree
that on or prior to the Closing Date, the Stockholders or the entity designated
by the Stockholders as the transferee of the Dealership Real Estate shall have
assumed any and all outstanding debt, mortgage or other indebtedness of any kind
encumbering and/or associated with the real estate so that the Company is
completely and unconditionally released from all of such debt, mortgage or other
indebtedness of any kind. On or prior to the Closing Date, the Stockholders
shall provide written evidence to SAG and/or Sub, in a form reasonably
satisfactory to SAG and/or Sub, that the conditions and requirements set forth
in this Section 5.19 have been fulfilled.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF SAG AND SUB TO EFFECT THE CLOSING
The Obligations of SAG and Sub required to be performed by them at the
Closing shall be subject to the satisfaction, at or prior to the Closing, of
each of the following conditions, each of which may be waived by SAG and Sub in
writing as provided herein except as otherwise required by applicable law:
6.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS; COVENANTS. Each of the
representations and warranties of the Company and the Stockholders contained in
this Agreement shall be true and correct on the date made and shall be true and
correct in all material respects as of the Closing. Each of the obligations of
the Company and the Stockholders required by this Agreement to be performed by
them at or prior to the Closing shall have been duly performed and complied with
in all material respects as of the Closing. At the Closing, Sub shall have
received a certificate, dated the Closing Date and duly executed by the
Stockholders and the Company, to the effect that the conditions set forth in the
two preceding sentences have been satisfied.
6.2 AUTHORIZATION; CONSENT.
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the Transaction Documents, and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by the Company. All filings required to be made under
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the Hart-Scott-Rodino Act in connection with transactions contemplated hereby
shall have been made, and all applicable waiting periods with respect to each
such filing, including extensions thereof, shall have expired or been
terminated.
(b) All notices to, and declarations, filings and registrations with
Governmental Authorities, and all Government Approvals and all third persons,
including, but not limited to, all automobile manufacturers with whom the
Company has a franchise agreement (or comparable agreement), required to
consummate the transactions contemplated hereby and all other consents or
waivers shall have been made or obtained.
6.3 OPINIONS OF THE COMPANY'S AND THE STOCKHOLDER'S COUNSEL. SAG and Sub
shall have been furnished with the opinion of the Company's and the
Stockholders' counsel, dated the Closing Date, in a form as set forth on EXHIBIT
B attached hereto and incorporated herein.
6.4 ABSENCE OF LITIGATION. No order, stay, injunction or decree of any
court of competent jurisdiction in the United States shall be in effect: (a)
that prevents or delays the consummation of any of the transactions contemplated
hereby; or (b) would impose any limitation on the ability of SAG or Sub
effectively to exercise all rights of ownership of the Target Shares. No action,
suit or proceeding before any court or any governmental or regulatory entity
shall be pending (or threatened by any governmental or regulatory entity), and
no investigation by any governmental or regulatory entity shall have been
commenced (and be pending), seeking to restrain or prohibit (or questioning the
validity or legality of) the consummation of the transactions contemplated by
this Agreement or the Transaction Documents or seeking damages in connection
therewith which SAG or Sub, in good faith and with the advice of counsel,
believes it makes it undesirable to proceed with the consummation of the
transactions contemplated hereby.
6.5 NO MATERIAL ADVERSE EFFECT. During the period from the date of the 1997
Balance Sheet to the Closing Date, there shall not have been any Material
Adverse Effect on the Company, other than payments to Stockholders in accordance
with the terms of this Agreement.
6.6 REGISTRATION STATEMENT. SAG shall have filed with the SEC a
registration statement on Form S-1 (the "Registration Statement") covering the
offer and sale of the SAG IPO Stock. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire, subject to the conditions set forth in the underwriting
agreement, shares of SAG IPO Stock. The closing of the sale of the SAG IPO Stock
to the underwriters shall have occurred simultaneously with the Closing
hereunder.
6.7 COMPLETION OF DUE DILIGENCE. SAG and Sub shall have completed their due
diligence examination of the Company, and the results of such examination shall
be satisfactory to SAG and Sub.
6.8 REAL ESTATE LEASE AGREEMENT. The Stockholders or the entity designated
by the Stockholders as the transferee of the Dealership Real Estate and the
Company or its assignee shall have entered into a real estate lease agreement
(the "Dealership Lease") upon terms that are mutually acceptable to the Parties.
6.9 BOARD APPROVAL. The Board of Directors of SAG and Sub shall have
approved the consummation of all of the transactions contemplated by this
Agreement.
6.10 CERTIFICATES. The Stockholders and officers of the Company shall have
furnished SAG and Sub with certificates, dated as of the Closing Date, executed
by the Stockholders and said officers certifying
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to the fulfillment of the conditions set forth in Sections 6.5 and 6.14, and
shall have furnished SAG and the Sub with such any other certificates of its
officers as SAG and the Sub may reasonably request to evidence compliance with
the conditions set forth in this Article 6.
6.11 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of the
Stockholders and the Company under the provisions of this Agreement, and all
other actions and proceedings required to be taken by or on behalf of the
Stockholders and the Company in furtherance of the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to counsel for
SAG and Sub.
6.12 APPROVAL OF MANUFACTURER AND DISTRIBUTOR. The Chevrolet Motor Division
of General Motors Corporation shall have consented to, authorized and approved
the transactions contemplated by this Agreement on reasonable terms that are
acceptable to SAG and Sub in their sole discretion.
6.13 EMPLOYMENT AGREEMENT; NON-COMPETITION AGREEMENTS. The Sub, the Company
and Mr. Calvin Diemer shall have entered into an employment agreement in the
form attached hereto as EXHIBIT C (the "Employment Agreement") and a
non-competition agreement in the form attached hereto as EXHIBIT D
("Non-Competition Agreement").
6.14 ENVIRONMENTAL LAWS. The Company shall be in material compliance with
all applicable Environmental laws.
6.15 LEASE TERMINATION AGREEMENT/MEMORANDUM OF LEASE/CONSENTS AND
ESTOPPELS. The appropriate parties shall have executed a lease termination
agreement and a memorandum of lease with respect to each Lease listed in
SCHEDULE 2.10 in form and substance satisfactory to SAG and the Company.
Alternatively, Buyer shall have received consents from the lessor of each such
Lease to the assignment of such Lease to Buyer, to the extent such consent is
required by such applicable Lease. Buyer shall also have received estoppel
certificates addressed to Buyer from the lessor of each Lease, dated within
thirty (30) days prior to the Closing Date, identifying the Lease documents and
any amendments thereto, stating that the Lease is in full forced and effect and
that the tenant is not in default under the Lease and no event has occurred
that, with notice or lapse of time or both, would constitute a default by the
tenant under the Lease and containing any other information reasonably requested
by Buyer.
6.16 RESIGNATION OF THE COMPANY'S DIRECTORS. Each of the persons who is a
director of the Company on the Closing Date shall have tendered to Sub in
writing his or her resignation as such in form and substance satisfactory to
SAG.
6.17 SCHEDULES. The Company and the Stockholders shall have delivered to SAG
and Sub all Schedules referred to in Articles 2 and 3 of this Agreement and such
Schedules shall be acceptable in form and substance satisfactory to SAG and Sub.
6.18 SHARE CERTIFICATES. Certificates representing one hundred percent
(100%) of the Target Shares of the Company shall have been, or shall at the
Closing be, validly delivered and transferred to Sub, free and clear of any and
all Liens.
6.19 NON-FOREIGN STATUS. Each of the Stockholders shall have provided Buyer
with an affidavit of non-foreign status that complies with Section 1445 of the
Code.
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ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS
TO EFFECT THE CLOSING
The obligations of the Stockholders and the Company required to be
performed by them at the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions, each of which may be
waived by the Company and the Stockholders in writing as provided herein except
as otherwise required by applicable law:
7.1 REPRESENTATIONS AND WARRANTIES; AGREEMENTS. Each of the representations
and warranties of SAG and Sub contained in this Agreement shall be true and
correct on the date made and shall be true and correct in all material respects
as of the Closing. Each of the obligations of SAG and Sub required by this
Agreement to be performed by them at or prior to the Closing shall have been
duly performed and complied with in all material respects as of the Closing. At
the Closing, the Stockholders shall have received a certificate, dated the
Closing Date and duly executed by an officer of SAG and of Sub to the effect
that the conditions set forth in the preceding two sentences have been
satisfied.
7.2 AUTHORIZATION OF THE AGREEMENT; CONSENTS.
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the Lease, and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by SAG
and Sub. All filings required to be made under the Hart-Scott-Rodino Act in
connection with transactions contemplated hereby shall have been made, and all
applicable waiting periods with respect to each such filing, including
extensions thereof, shall have expired or been terminated.
(b) All notices to, and declarations, filings and registrations with,
Governmental Authorities, and all Governmental Approvals and all third persons,
including, but not limited to, all automobile manufacturers with whom the
Company has a franchise agreement (or comparable agreement), required to
consummate the transactions contemplated hereby and all consents or waivers
shall have been made or obtained.
7.3 OPINIONS OF SAG'S AND SUB'S COUNSEL. The Stockholders shall have been
furnished with the opinion of The Whicker Law Firm, counsel to SAG and Sub,
dated the Closing Date, in a form as set forth on EXHIBIT E attached hereto and
incorporated herein.
7.4 ABSENCE OF LITIGATION. No order, stay, judgment or decree shall have
been issued by any court and be in effect restraining or prohibiting the
consummation of the transactions contemplated hereby.
7.5 REAL ESTATE LEASE AGREEMENT. The Stockholders and the Company or its
assignee shall have entered into the Dealership Lease.
7.6 CERTIFICATES. SAG and Sub shall have furnished the Stockholders with
such certificates of its officers and others to evidence compliance with the
conditions set forth in this Article as may be reasonably requested by the
Stockholders.
7.7 LEGAL MATTERS. All certificates, instruments, opinions and other
documents required to be executed or delivered by or on behalf of SAG or Sub
under the provisions of this Agreement, and all other actions and proceedings
required to be taken by or on behalf of SAG or Sub in furtherance of the
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transactions contemplated hereby, shall be reasonably satisfactory in form and
substance to counsel for the Stockholders.
7.8 REGISTRATION STATEMENT. SAG shall have filed with the SEC the
Registration Statement. The Registration Statement shall have been declared
effective by the SEC and the underwriters named therein shall have agreed to
acquire, subject to the conditions set forth in the underwriting agreement,
shares of SAG IPO Stock. The closing of the sale of the SAG IPO Stock to the
underwriters shall have occurred simultaneously with the Closing hereunder.
7.9 EMPLOYMENT AGREEMENT; NON-COMPETITION AGREEMENT. The Sub, the Company
and Calvin Diemer shall have entered into the Employment Agreement and the
Non-Competition Agreement.
ARTICLE 8
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time prior to
Closing:
(a) by written mutual consent of SAG, Sub and the Stockholders;
(b) by either SAG, Sub or the Stockholders by written notice if the
Closing shall not have taken place on or prior to Closing Date Deadline, as such
date may have been extended pursuant to Section 1.1(d) hereof, or such other
date as shall have been approved by SAG, Sub and the Stockholders in writing
(provided that the terminating Party is not otherwise in material breach of its
representation, warranties, covenants or agreements under this Agreement);
(c) by SAG, Sub or the Stockholders if any court of competent
jurisdiction in United States or other United States governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, any such order, decree, ruling or other action shall have become
final and non-appealable;
(d) by SAG or Sub if any of the conditions specified in Article 6
hereof have not been met or waived by SAG or Sub at such time as such condition
is no longer capable of satisfaction (provided that neither SAG nor Sub is
otherwise in material breach of its representations, warranties, covenants or
agreements under this Agreement);
(e) by the Stockholders if any of the conditions specified in Article 7
hereof have not been met or waived by the Stockholders at such time as such
condition is no longer capable of satisfaction (provided that neither the
Stockholders nor the Company is otherwise in material breach of his or its
representations, warranties, covenants or agreements under this Agreement); or
(f) by either SAG, Sub or the Stockholders if there has been a material
breach on the part of the other of any representation, warranty, covenant or
agreement set forth in this Agreement, which breach has not been cured within
ten (10) Business Days following receipt by the breaching Party of written
notice of such breach.
If SAG, Sub or the Stockholders shall terminate this Agreement pursuant
to the provisions hereof, such termination shall be effectuated by written
notice to the other parties specifying the provision hereof pursuant to which
such termination is made.
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8.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 8.1 above, this Agreement shall forthwith become null and void, and
none of the Parties hereto or any of their respective officers, directors,
employees, agents, affiliates, consultants, stockholders or principals shall
have any liability or obligation hereunder or with respect hereto, except for
(a) any liability arising out of any breach of this Agreement prior to its
termination; (b) the obligations contained in ss.5.1 hereof, and (d) as set
forth below in this Section 8.2:
(i) If this Agreement is terminated by the Stockholders
or the Company pursuant to the provisions of Section
8.1(b) above, Sub shall, within five (5) days of
written demand therefore by the Stockholders, pay to
the Stockholders in immediately available funds, as
liquidated damages for the loss of the transaction
and not as a penalty, all reasonable attorneys' fees
and expenses of Moore Ingram Johnson & Steele, LLP
and all reasonable accountant's fees and expenses of
Tarpley & Underwood, P.C. actually incurred by the
Company in connection with the transactions
contemplated hereby (the ("Expense Reimbursement") as
presented to SAG in written itemized billing
statements, provided, however, that neither Sub nor
SAG shall be required or obligated hereby to pay any
Expense Reimbursements that exceed, in the aggregate,
the sum of One Hundred Thousand Dollars ($100,000).
(ii) Notwithstanding anything to the contrary contained in
Section 8.2(i) hereof or elsewhere in this Agreement,
no Expense Reimbursement shall be due hereunder if
the Closing does not occur on or before the Closing
Date due to any of the following reasons: (A) all
Government Approvals required to consummate the
transactions contemplated hereby have not been
obtained by SAG or Sub; (B) SAG or Sub have not
received all necessary consents or approvals from
automobile manufacturers with whom the Company has a
franchise agreement (or comparable agreement), or SAG
or Sub have provided reasonable written evidence to
the Stockholders that such consents or approvals are
on terms and conditions which are not comparable with
or substantially similar in form to the terms and
conditions of said manufacturer's consents or
approvals in other similar transactions that occurred
during the twelve (12) month period immediately
preceding the date hereof; (C) due to any war,
natural disaster or other acts of God; (D) the legal
and/or financial due diligence of SAG and Sub reveals
any matter which, in the reasonable opinion of SAG,
are material; (E) there has been a material breach on
the part of the Company or any Stockholder of any of
the Company's or any Stockholder's representation,
warranty, covenant or agreement set forth in this
Agreement; or (F) the conditions set forth in Section
6.6 (Registration Statement) hereof have not been
fulfilled for any reason whatsoever.
(iii) The Expense Reimbursement shall be the sole and
exclusive remedy of Stockholders and the Company for
damages as a result of a breach of this Agreement.
Because the actual damages that the Stockholders and
the Company would sustain if any of SAG or Sub
breaches its obligations under this Agreement are
uncertain and would be impossible or very difficult
to ascertain accurately, the Parties agree in good
faith that the Expense Reimbursement would be
reasonable and just compensation for the harm caused
by such breach. Therefore, the Stockholders and the
Company acknowledge and agree to accept said Expense
Reimbursement, if due and paid hereunder, as
liquidated damages,
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and not as a penalty, in the event of a breach by SAG
or Sub. Notwithstanding anything to the contrary
contained herein, this Section 8.2(d)(iii) shall not
affect the Parties' remedies under Section 1.8 (Price
Protection) hereof.
ARTICLE 9
INDEMNIFICATION AND SURVIVAL
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement shall survive the execution and delivery
of this Agreement, any examination by or on behalf of the Parties, and the
Closing contemplated herein, only to the extent specified below:
(a) the representations and warranties contained in ss.2.1
(Organization & Good Standing), ss.2.2 (Subsidiaries), ss.2.3 (Capitalization),
ss.2.4 (Authority; Approval & Consents), ss.2.11 (Environmental), ss.2.26
(Disclosures), ss.3.1 (Ownership of Target Shares), ss.3.2 (Authority), 3.4
(Investment), ss.4.1 (Organization & Good Standing), ss. 4.2 (Authority;
Approval & Consents) and ss.4.4 (Disclosures) shall survive without limitation;
and
(b) the representations and warranties contained in ss.2.8 (Taxes)
shall survive as to any Tax covered by such representations and warranties for
so long as any statute of limitations for such Tax remains open, in whole or in
part, including without limitation by reason of waiver of such statute of
limitations; and
(c) all representations and warranties other than those listed in
Sections 9.1(a) and 9.1(b) above shall survive for a period of one (1) year
following the Closing Date.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(a) In the event the Stockholders breach (or in the event any third
party alleges facts that, if true, would mean the Stockholders had breached) any
of their representations, warranties and covenants contained herein (other than
the covenants in Article 1 and ss.5.1 above and the representations and
warranties in the sections listed in ss.9.1(a) and ss.9.1(b) above), and, if
there is an applicable survival period pursuant to ss.9.1 above, provided that
SAG or Sub make a written claim for indemnification against the Stockholders
pursuant to ss.9.4 below within such survival period, then the Stockholders
agree to indemnify SAG and Sub from and against the entirety of any Adverse
Consequences SAG and Sub may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences SAG and Sub may suffer after
the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach);
provided, however, that
(i) the Stockholders shall not have any obligation to indemnify
SAG and Sub from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or alleged breach) of any covenant,
representation or warranty of the Stockholders listed in
Section 9.1(c) above (other than those in Article 1,ss.5.1
orss.2.6 (Absence of Undisclosed Liabilities) hereof) until
SAG and Sub have suffered Adverse Consequences by reason of
all such breaches (or alleged breaches) in excess of a TWO
HUNDRED FIFTY THOUSAND Dollars ($250,000) aggregate threshold
(at which point the Stockholders will be obligated to
indemnify SAG and Sub from and against all such Adverse
Consequences which are in excess of such $250,000) not to
exceed a maximum dollar amount of FIVE MILLION DOLLARS
($5,000,000); and
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(ii) the Stockholders shall not have any obligation to
indemnify SAG and Sub from and against any Adverse
Consequences resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or
alleged breach) of any representation or warranty of
the Stockholders contained in ss.2.6 (Absence of
Undisclosed Liabilities) hereof until SAG and Sub
have suffered Adverse Consequences by reason of all
such breaches (or alleged breaches) in excess of a
TWO HUNDRED FIFTY THOUSAND Dollars ($250,000)
aggregate threshold (at which point the Stockholders
will be obligated to indemnify SAG and Sub from and
against all such Adverse Consequences which are in
excess of such $250,000) not to exceed the Merger
Consideration amount.
(b) In the event the Stockholders breach their covenants in
Article 1 or ss.5.1 above or any of their representations and warranties listed
in ss.9.1(a) above, and, if there is an applicable survival period pursuant to
ss.9.1 above, provided that SAG or Sub make a written claim for indemnification
against the Stockholders pursuant to ss.9.4 below within such survival period,
then the Stockholders agree to indemnify SAG and Sub from and against the
entirety of any Adverse Consequences SAG and Sub may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
SAG and Sub may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(c) The Stockholders agree to indemnify SAG and Sub from and
against the entirety of any Adverse Consequences SAG and Sub may suffer
resulting from, arising out of, relating to, in the nature of, or caused by any
Liability of the Company for any Taxes of the Company with respect to any Tax
period or portion thereof ending on or before the Closing Date (or for any Tax
period beginning before and ending after the Closing Date to the extent
allocable determined in a manner consistent with ss.10.4 to the portion of such
period beginning before and ending on the Closing Date).
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE STOCKHOLDERS. In the
event SAG or Sub breach any of their representations, warranties and covenants
contained herein, and, if there is an applicable survival period pursuant to
ss.9.1 above, provided that the Stockholders make a written claim for
indemnification against SAG or Sub pursuant to ss.9.4 below within such survival
period, then SAG and Sub agree to indemnify the Stockholders from and against
the entirety of any Adverse Consequences the Stockholders may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Stockholders may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
9.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Article 9, then the Indemnified Party shall promptly notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as: (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen (15)
days after the
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Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim; (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder; (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief; (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedental custom or practice materially adverse to the
continuing business interests of the Indemnified Party; and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with this ss.9.4: (A) the Indemnified Party may
retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim; (B) the Indemnified Party will not consent to
the entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying Party (not to
be withheld unreasonably); and (C) the Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not to
be withheld unreasonably).
(d) In the event any of the conditions in this ss.9.4 are or become
unsatisfied, however: (A) the Indemnified Party may defend against, and consent
to the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses); and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this ss.9.
9.5 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable or common law remedy (including without limitation any such remedy
arising under Environmental Laws) any Party may have with respect to the Company
or the transactions contemplated by this Agreement. The Stockholders hereby
agree that they will not make any claim for indemnification against the Company
by reason of the fact that any such Stockholder was a director, officer,
employee or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses or otherwise and whether such claim
is pursuant to any statute, charter document, bylaw, agreement or otherwise)
with respect to any action, suit, proceeding, complaint, claim or demand brought
by SAG or Sub against the Stockholders (whether such action, suit, proceeding,
complaint, claim or demand is pursuant to this Agreement, applicable Legal
Requirements, or otherwise).
9.6 TAX SAVINGS. Costs arising or resulting from any breaches of
Stockholders or SAG hereunder shall be reduced to the extent of the amount of
any tax savings resulting from the indemnified matter to which such costs relate
which are actually realized (or can reasonably be expected to be realized in
future years) by the Indemnified Party.
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ARTICLE 10
TAX MATTERS
10.1 TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between Sub and Stockholders for certain tax matters following
the Closing Date:
10.2 SECTION 338(H)(10) ELECTION. The Stockholders agree, if so directed by
Sub or SAG, to join with Sub in making an election under Section 338(h)(10) of
the Code (and any corresponding elections under state, local or foreign tax law)
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the stock of the Company hereunder. The Sub agrees to determine prior to
the Closing whether or not Sub will make a Section 338(h)(10) Election, and if
Sub elects to make such a Section 338(h)(10) Election, then prior to or at
Closing, Sub shall deposit into escrow, pursuant to an escrow agreement that is
mutually acceptable to the Parties, any additional tax liability (as compared to
the tax liability of the Stockholders absent a Section 338(h)(10) Election) that
will directly result solely from the making of the Section 338(h)(10) Election,
and such escrow agreement shall provide that the Stockholders shall receive said
escrowed taxes in the event such additional taxes become due and payable as a
result of said Section 338(h)(10) Election.
10.3 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
(a) Stockholders shall prepare or cause to be prepared and file or
cause to be filed the final S corporation income tax returns of the Company, and
Stockholders shall provide copies of said returns to SAG within ten (10)
business days of the date such returns have been filed. In the event
Stockholders fail to timely file said income tax returns (or properly request
extension for the filing date thereof), then SAG shall be authorized to prepare
or file such income tax returns of the Company.
(b) Sub shall prepare or cause to be prepared and file or cause to be
filed all Tax Returns (other than the income tax returns of the Company
described in Section 10.3(a) hereof) for the Company for all periods ending on
or prior to the Closing Date which are filed after the Closing Date.
Stockholders shall reimburse Sub for Taxes of the Company with respect to such
periods within fifteen (15) days after payment by Sub or the Company of such
Taxes.
10.4 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. Sub
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Stockholders shall pay to Sub within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall: (A) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period; and (B)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company.
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10.5 COOPERATION ON TAX MATTERS.
(a) Sub, the Company and Stockholders shall cooperate fully, as and to
the extent reasonably requested by the other Party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other Party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Company and Stockholders agree: (A) to retain all books and
records with respect to Tax matters pertinent to the Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Sub or Stockholders, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority; and (B) to
give the other Party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the any other Party so
requests, the Company or Stockholders, as the case may be, shall allow the other
Party to take possession of such books and records.
(b) Sub and Stockholders further agree, upon request, to use their Best
Efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).
(c) Sub and Stockholders further agree, upon request, to provide the
other Party with all information that either Party may be required to report
pursuant to Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
10.6 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Stockholders when due, and Stockholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Sub will, and will cause its affiliates to, join in
the execution of any such Tax Returns and other documentation.
ARTICLE 11
MISCELLANEOUS
11.1 FEES AND EXPENSES.
(a) Except as otherwise expressly provided in this Agreement, all legal
and other fees, costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby through the Closing Date shall be paid
by the Party incurring such fees, costs or expenses; provided, however, that (i)
Buyer shall pay the fees and expenses payable to the Accountants for financial
audits of the Company performed by the Accountants, and (ii) if the Closing does
not occur and ss.5.5 hereof is breached, then the Stockholders shall pay to SAG,
within five (5) Business Days after receipt of a request therefor, an amount
equal to all of the reasonable legal and other fees, costs and expenses incurred
by SAG in conjunction with this Agreement and the transactions contemplated
hereby, provided, however, that the Stockholders shall not be required or
obligated hereby to pay any such legal or other fees, costs or expenses that
exceed, in the aggregate, the sum of One Hundred Thousand Dollars ($100,000).
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(b) Notwithstanding anything to the contrary in Section 11.1 (a), the
Company may pay the reasonable fees, costs and expenses of Stockholders in
connection with the transactions contemplated hereby, provided, however, that
the Stockholders, and not the Company, must pay and all fees, costs and expenses
in connection with this Agreement and the transactions contemplated hereby which
are payable to any brokers, attorneys, advisers or other consultants for
personal services provided by such persons to the Stockholders.
11.2 RIGHT OF FIRST REFUSAL.
(a) GRANT OF RIGHT OF FIRST REFUSAL. SAG does hereby grant to
Stockholders a right of first refusal (the "ROFR") for the purchase of all of
the then outstanding stock or substantially all of the assets of the Company
upon the terms and conditions set forth in this Section 11.2, said ROFR to be
exercisable only during the ROFR Period, as hereinafter defined.
(b) ROFR PERIOD. The ROFR may be exercised by the Stockholders, upon
the terms and conditions set forth in this Section 11.2, at any time during the
period (herein referred to as the "ROFR Period") commencing after the Closing
Date and continuing for so long as Mr. Calvin Diemer is an employee of SAG, Sub,
the Company or any of their Affiliates or Associates.
(c) EXERCISE OF ROFR.
(i) SAG shall give written notice to Stockholders, as
hereinafter provided, of each and every Original
Offer (as that term is hereinafter defined) received
and intended to be accepted by SAG for the sale of
all of outstanding stock of the Company or
substantially all of the assets of the Company. For
purposes herein, the term "Original Offer" shall mean
and refer to a bona fide written offer to purchase
all of the stock or substantially all assets of only
the Company (and no other Affiliate or Associate of
the Company, SAG, or Sub) received by SAG or SAG's
Affiliates or Associates during the ROFR Period from
any person setting forth in detail the true and
complete terms and conditions of such offer. The
Parties expressly acknowledge and understand that the
ROFR shall apply only to an offer which proposes to
acquire only the Company (i.e. the single dealership
known as of the date hereof as Day's Chevrolet, Inc.)
and the Stockholders shall not have a ROFR with
respect to any offer that proposes to acquire any or
all stock or any or all assets of the Company as part
of a larger acquisition that includes any other
Affiliates, Associates or related entities of SAG.
(ii) Before SAG shall agree to accept any such Original
Offer or otherwise agree to sell all of the then
outstanding stock or substantially all of the assets
of the Company (such stock or assets which are the
subject of an Original Offer being hereinafter
referred to as the "Subject Property") to any Person
during the ROFR Period, SAG shall, by giving written
notice to Stockholders, offer (hereinafter referred
to as the "Offer") the Subject Property to
Stockholders at a purchase price or consideration
equal to the highest price or consideration of the
range of prices contemplated by or negotiated between
SAG and the Person making the Original Offer.
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(iii) No later than three (3) business days after the date
on which SAG provides the Offer to the Stockholders
(the "Election Period"), the Stockholders may elect
to acquire the Subject Property upon the terms and
conditions set forth in any such Offer by (A)
providing written notice of such election to SAG (the
"Acceptance Notice")(such notice to be received by
SAG within the Election Period), and (B) paying the
sum of One Hundred Thousand Dollars ($100,000) to SAG
within the Election Period as a non-refundable
earnest money deposit which shall be credited toward
the purchase price of the Subject Property.
(iv) In the event Stockholders shall elect to acquire the
Subject Property in accordance with the provisions
herein set forth, acceptance of any such Offer shall
be deemed to create a legally binding contract for
the acquisition of the Subject Property by
Stockholders upon the terms and conditions set forth
in said Offer, and the closing of such acquisition of
the Subject Property shall be consummated no later
than ninety (90) days after the date on which SAG
receives the Acceptance Notice.
(v) In the event Stockholders shall fail to give notice
to SAG of their election to acquire the Subject
Property within the Election Period, SAG shall be
free to accept the Original Offer from such other
Person, upon the terms and conditions therein set
forth, at any time thereafter. In the event the
transaction contemplated by the Original Offer is not
consummated for any reason, SAG and the Subject
Property which is the subject matter of such Original
Offer shall again be subject to the restrictions
imposed by this Section 11.2.
(d) ASSIGNMENT; SURVIVAL. Stockholders' rights and duties under
this Section 5.1 shall not be transferable or assignable (either in whole or in
part, voluntarily or by operation of law) by Stockholders. The terms, conditions
and provisions of this Section 5.1 shall survive the Closing until the
expiration of the Offer Period.
11.3 HEADINGS. The section headings herein are for convenience of reference
only, do not constitute part of this Agreement, and shall not be deemed to limit
or otherwise affect any of the provisions hereof.
11.4 NOTICES. All notices or other communications required or permitted
hereunder shall be given in writing and shall be deemed sufficient if delivered
by hand, recognized overnight delivery service or facsimile transmission or
mailed by registered or certified mail, postage prepaid and return receipt
requested), as follows:
If to the Company before the Closing Date:
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with a copy to:
Matthew J. Howard, Esq. and Daniel A. Landis, Esq.
MOORE INGRAM JOHNSON & STEELE, LLP
192 Anderson Street
Marietta, Georgia 30060
Phone: 770-429-1499
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Fax: 770-429-8631
If to the Company after the Closing Date:
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with a copy to:
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If to the Stockholders:
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with a copy to:
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If to SAG or Sub:
Sunbelt Automotive Group, Inc.
2150 Cobb Parkway
Smyrna, GA 30080
with a copy to:
Stephen C. Whicker, Esq.
THE WHICKER LAW FIRM
6111 Peachtree Dunwoody Road/Suite 102-D Atlanta, GA 30328
with an additional copy to:
David S. Cooper, Esq.
SCHNADER HARRISON SEGAL & LEWIS LLP
SunTrust Plaza/Suite 2800
303 Peachtree Street, N.E.
Atlanta, GA 30308-3252
or such other address as shall be furnished in writing by such Party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so delivered or (3) days after the date so mailed; provided,
however, that any notice or communication changing any of the addresses set
forth above shall be effective and deemed given only upon its receipt.
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11.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure the benefit of the Parties hereto (and with respect to
the Stockholders, the personal representatives and heirs of the Stockholders)
and their respective successors and permitted assigns, and the provisions of
Article 9 hereof shall inure to the benefit of the Indemnified Parties referred
to therein; provided, however, that neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned by any of the
Parties hereto without the prior written consent of the other Parties.
Notwithstanding the foregoing, SAG and Sub shall have the unrestricted right to
assign this Agreement and to delegate all or any part of their obligations
hereunder to any Affiliate of SAG, but in such event SAG shall remain fully
liable for the performance of all of such obligations in the manner prescribed
in this Agreement.
11.6 ENTIRE AGREEMENT. This Agreement (including the Schedules hereto) and
the Transaction Documents embody the entire agreement and understanding of the
Parties with respect to the transactions contemplated hereby and supersede all
prior written or oral commitments, arrangements or understandings between the
Parties with respect thereto and all prior drafts of this Agreement and the
Transaction Documents. There are no restrictions, agreements, promises,
warranties, covenants or undertakings with respect to the transactions
contemplated hereby other than those expressly set forth herein or in the
Transaction Documents.
11.7 WAIVER AND AMENDMENTS. Each of the Stockholders, the Company, SAG and
Sub may by written notice to the other Parties: (a) extend the time for the
performance of any of the obligations or other actions of the other Parties; (b)
waive any inaccuracies in the representations or warranties of the other Parties
contained in this Agreement; (c) waive compliance with any of the covenants of
the other Parties contained in this Agreement; (d) waive performance of any of
the obligations of the other Parties created under this Agreement; or (e) waive
fulfillment of any of the conditions to its own obligations under this
Agreement. The waiver by any Party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach, whether or not similar. This Agreement may be amended, modified or
supplemented only by a written instrument executed by the Parties hereto.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
11.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
choice or conflict of law provision or rule that would cause the laws of any
other jurisdiction to apply.
11.10 ACCOUNTING TERMS. All accounting terms used herein which are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with GAAP.
11.11 SCHEDULES. Disclosure of any matter in any Schedule hereto or in the
Financial Statements shall be considered as disclosure pursuant to any other
provision, subprovision, section or subsection of this Agreement or Schedule to
this Agreement.
11.12 SEVERABILITY. If any one or more of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be
affected thereby. To the extent permitted by applicable law, each Party waives
any provision of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
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11.13 REMEDIES. None of the remedies provided for in this Agreement,
including termination of this Agreement as set forth in Article 8, the payment
of certain fees, costs and expenses as set forth in ss.11.1 or the specific
performance as set forth in ss.5.1, shall be the exclusive remedy of either
Party for a breach of this Agreement, the Parties hereto having the right to
seek any other remedy in law or equity in lieu of or in addition to any remedies
provided in this Agreement, including an action for damages for breach of
contract.
11.14 TIME IS OF THE ESSENCE. Time is of the essence for purposes of this
Agreement.
11.15 CERTAIN DEFINITIONS.
"Accountants" has the meaning set forth in ss.1.6 hereof.
"Accounting Principles" has the meaning set forth in ss.1.6 hereof.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Associate" used to indicate a relationship with any Person means: (i)
any corporation, partnership, joint venture or other entity of which such Person
is an officer or partner or is, directly or indirectly, through one or more
intermediaries, the beneficial owner of thirty percent (30%) or more of: (1) any
class or type of equity securities or other profits interest; or (2) the
combined voting power of interests ordinarily entitled to vote for management or
otherwise; and (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity.
"1997 Balance Sheet" has the meaning set forth in ss.2.5 hereof.
"Basis" means any past or present fact, situation, circumstance,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Best Efforts" shall be deemed to not include any obligation on the
part of any Person to undertake any liabilities, expend any funds or perform
acts (except liabilities, expenditures or performance, other than any best
efforts obligations, expressly required to be undertaken by the terms of this
Agreement) which are materially burdensome to such Person; provided, however,
that notwithstanding the foregoing, the term "best efforts" shall include an
obligation to take such actions which are normally incident to or reasonably
foreseeable in conjunction with such obligation or the transactions contemplated
hereby.
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"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under federal law.
"Cash Consideration" has the meaning set forth in ss.1.1(e)(i) hereof.
"Claims" shall mean any and all claims, demands, suits, proceedings,
actions or causes of action of any kind or character whatsoever, known or
unknown, fixed or contingent, suspected or unsuspected, direct or indirect,
however arising, whether arising at law or in equity, or pursuant to
administrative rule or regulation or otherwise.
"Closing" has the meaning set forth in ss.1.1(c)(i) hereof.
"Closing Date" has the meaning set forth in ss.1.1(c) (iii) hereof.
"Closing Date Balance Sheet" has the meaning set forth in ss.1.6
hereof.
"Closing Date Deadline" has the meaning set forth in ss.1.1(d) hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Agreement" has the meaning set forth in ss.2.15 hereof.
"Compensation Commitment" has the meaning set forth in ss.2.18(a)
hereof.
"Confidential Information" means all information concerning a given
Party obtained by another Party in connection with the transactions contemplated
by this Agreement, including, without limitation, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, business and
marketing plans and proposals, information relating to sales records, profit and
performance reports, sales and training manuals, selling and pricing procedures,
financing methods, the special demands of particular customers, the current and
anticipated demands of particular customers, specifications of any new products
or services under development, and any other such information treated by the
Party providing the Confidential Information as being confidential or labeled
"Confidential," as well as all physical embodiments of any of the foregoing,
except information (i) ascertainable or obtained from public information; (ii)
received from a third party not employed by or otherwise affiliated with the
Party providing such Confidential Information; or (iii) which is or becomes
known to the public other than through a breach by the receiving Party any of
the receiving Party's representatives of this Agreement.
"Consent" means any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice to,
any Person, including but not limited to any Governmental Authority.
"Controlled Group of Corporation" has the meaning set forth in Code
ss.1563.
"Dealership Leases" has the meaning set forth in ss.6.8 hereof.
"Dealership Real Estate" has the meaning set forth in ss.6.8 hereof.
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"Employee Benefit Plan" means any: (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan; (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan; (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan); or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Employment Agreement" has the meaning set forth in ss.6.14 hereof.
"Employment and Labor Agreement" has the meaning set forth in ss.2.16
hereof.
"Environmental, Health and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Plans" means all Employee Pension Benefit Plans and Employee
Welfare Benefit Plans of the Company.
"Expense Reimbursement" has the meaning set forth in ss.8.2(d)(i)
hereof.
"Factory Statements" has the meaning set forth in ss.2.5(b) hereof.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Financial Statement" has the meaning set forth in ss.2.5 hereof.
"Floor Plan Assets" means the Company's actual inventory of financed
automobiles, plus its contracts in transits, plus its current (not over ninety
(90) days) fleet car receivables.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative function of or pertaining to
government, including without limitation, any government authority, agency,
department, board, commission or instrumentality of the United States, any State
of the United States or any political subdivision thereof, and any tribunal or
arbitrator of competent jurisdiction and any self-regulatory organization.
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"Governmental Approval" means any Consent of, with or to any
Governmental Authority.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Materials" means, collectively: (i) those substances
included within the definitions of or identified as "hazardous chemicals,"
"hazardous waste," "hazardous substances," "hazardous materials," "toxic
substances" or similar terms in or pursuant to, without limitation: the
Comprehensive Environmental Response Compensation and Liability Act of 1980 (42
U.S.C. ss.9601 et seq. ("CERCLA"), as amended by Superfund Amendments and
Reauthorization Act of 1986 (Pub. L. 99-499, 100 State, 1613); the Resource
Conservation and Recovery Act of 1976 (42 U.S.C. ss.6901 et seq.) ("RCRA"); the
Occupational Safety and Health Act of 1970 (29 U.S.C. ss.651 et seq.) ("OSHA");
and the Hazardous Materials Transportation Act (49 U.S.C. ss.1801 et seq.
("HWA"), and in the regulations promulgated pursuant to such laws, all as
amended; (ii) those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); (iii) any material, waste
or substance which is or contains: (A) petroleum, including crude oil or any
fraction thereof, natural gas or synthetic gas usable for fuel or any mixture
thereof; (B) asbestos; (C) polychlorinated biphenyls; (D) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
ss.1251 et seq. (33 U.S.C. ss.1317) or listed pursuant to Section 307 of the
Clean Water Act (33 U.S.C. ss.1317); (E) flammable explosives; (F) radioactive
materials; and (iv) such other substances, materials and wastes which are or
become regulated or classified as hazardous, toxic or as "special wastes" under
any Environmental, Health and Safety Requirements.
"Improvements" has the meaning set forth in ss.2.10 hereof.
"Indemnified Party" has the meaning set forth in ss.9.4 hereof.
"Indemnifying Party" has the meaning set forth in ss.9.4 hereof.
"Insider" shall mean the Stockholders, any director or officer of the
Company, and any Affiliate, Associate or Relative of any of the foregoing
persons.
"Intellectual Property" means: (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof; (b) all trademarks, service marks, trade
dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith; (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith; (d) all mask
works and all applications, registrations, and renewals in connection therewith;
(e) all trade secrets and confidential business information; (f) all computer
software (including data and related documentation); (g) all other proprietary
rights; and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"IRS" shall mean the Internal Revenue Service.
"Judgment" has the meaning set forth in ss.2.9 hereof.
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"Knowledge" means actual knowledge after reasonable investigation and,
with respect to any corporation, partnership, company or other entity, shall
include the knowledge of such entity's officers, directors, managers and
employees with responsibility over the relevant subject matter.
"Leased Real Property" has the meaning set forth in ss.2.10(b) hereof.
"Legal Requirements" means laws, ordinances, codes, rules, regulations,
standards, judgments and other requirements of all governmental, administrative
or judicial entities.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Liens" shall mean any mortgages, pledges, title defects or objections,
liens, claims, security interests, conditions and installment sale agreements,
encumbrances or charges of any kind.
"Material Adverse Effect" shall mean any change in, or effect on, the
Company (including the business thereof) which is, or could reasonably be
expected to be, materially adverse to the business, operations, assets,
condition (financial or otherwise) or prospects of the Company.
"Merger Consideration" has the meaning set forth in ss.1.1(e) hereof.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"Non-Competition Agreement" has the meaning set forth in ss.6.14
hereof.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Out of Trust" shall have the meaning commonly ascribed to such term in
the automotive business and relates to the floor plan of the Company's new and
used cars.
"Owned Real Property" has the meaning set forth in ss.2.10(a) hereof.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means franchises, licenses, permits, registrations,
certificates, consents, approvals or authorizations.
"Permitted Liens" means: (a) Liens reserved against in the Company's
1997 Balance Sheet, to the extent so reserved; (b) Liens for Taxes not yet due
and payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
Company's books in accordance with GAAP; or (c) Liens that, individually and in
the aggregate, do not and would not materially detract from the value of any of
the property or assets of the Company or materially interfere with the use
thereof as currently used or contemplated to be used.
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"Person" shall mean and include any individual, corporation, limited
liability company, partnership, joint venture, association, trust, any other
incorporated or unincorporated organization or entity and any governmental
entity or any department or agency thereto.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Relative" of a Person shall mean such Person's spouse, parents,
sisters, brothers, children and the spouses of the foregoing, and any member of
the immediate household of such Person.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"SAG" has the meaning set forth in the preface above.
"SAG IPO" shall mean the consummation of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933.
"SAG IPO Share Price" shall mean the price per share of each share of
common stock offered pursuant to the SAG IPO.
"SAG IPO Stock" shall mean shares of common stock offered pursuant to
the SAG IPO.
"SAG Common Stock" shall mean the unregistered, $0.001 par value,
authorized common stock of SAG.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Stock Consideration" has the meaning set forth in ss.1.1(e)(ii).
"Stockholder Loans" has the meaning set forth in ss.5.13 hereof.
"Stock Restriction Agreement" has the meaning set forth in ss.5.14
hereof.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors. "Subsidiaries" shall mean more than one Subsidiary.
"Surviving Corporation" has the meaning set forth in ss.1.1(a) hereof.
"Target Shares" has the meaning set forth in the preface above.
"Transaction Documents" has the meaning set forth in ss.2.4 hereof.
"Transfer Taxes" has the meaning set forth in ss.5.16 hereof.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property (including property taxes
paid by the Company pursuant
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to any lease), personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss.9.4 hereof.
"Underwriters" has the meaning set forth in ss.5.18 hereof.
* * *
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
<TABLE>
<S> <C> <C>
BUYER:
ATTEST: SUNBELT AUTOMOTIVE GROUP, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------------------------ -------------------------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary & General Counsel Title: Chief Executive Officer
(Signatures Continued on Following Page)
(Signatures Continued From Previous Page)
SUB:
ATTEST: BAG GEORGIA IV, INC.
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
------------------------------------------------ -------------------------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Secretary & General Counsel Title: Chief Executive Officer
THE COMPANY:
ATTEST: DAY'S CHEVROLET, INC.
BY: /s/ REBECCA D. DIEMER BY: /s/ CALVIN L. DIEMER
------------------------------------------------ -------------------------------------------------
Name: Rebecca D. Diemer Name: Calvin L. Diemer
Title: Secretary Title: President
</TABLE>
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<PAGE> 64
<TABLE>
<S> <C> <C>
THE STOCKHOLDER(S):
WITNESS: /s/ DANIEL LANDIS /s/ CALVIN DIEMER [SEAL]
------------------------------ --------------------------------------------
Name: Daniel Landis Name: CALVIN DIEMER
WITNESS: /s/ DANIEL LANDIS /s/ ALVIN DIEMER [SEAL]
------------------------------ --------------------------------------------
Name: Daniel Landis Name: ALVIN DIEMER
Boomershine Automotive Group, Inc. unconditionally guarantees SAG's obligation to pay the
Expense Reimbursement as may be required pursuant to Section 8.2 of this Agreement.
BOOMERSHINE AUTOMOTIVE GROUP, INC.
ATTEST:
BY: /s/ STEPHEN C. WHICKER BY: /s/ CHARLES K. YANCEY
----------------------------------------------- ----------------------------------
Name: Stephen C. Whicker Name: Charles K. Yancey
Title: Assistant Secretary Title: Chief Executive Officer
</TABLE>
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<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
AMONG
BAG FLORIDA II, INC.
AND
THOMAS F. (TIFF) MURPHY, JR.
DECEMBER 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <C>
1. DEFINITIONS .......................................................... 1
2. PURCHASE AND SALE OF TARGET SHARES ................................... 4
(a) Basic Transaction ............................................... 4
(b) Purchase Price .................................................. 4
(d) The Closing ..................................................... 5
(e) Deliveries at the Closing ....................................... 5
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION ............ 5
(a) Representations and Warranties of the Seller .................... 5
(i) Authorization of Transaction ............................. 5
(ii) Noncontravention ......................................... 5
(iii) Brokers' Fees ............................................ 5
(iv) Target Shares ............................................ 6
(b) Representations and Warranties of the Buyer ..................... 6
(i) Organization of the Buyer ................................ 6
(ii) Authorization of Transaction ............................. 6
(iii) Noncontravention ......................................... 6
(iv) Brokers' Fees ............................................ 6
(v) Investment ............................................... 7
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET ................. 7
(a) Organization, Qualification and Corporate Power ................. 7
(b) Capitalization .................................................. 7
(c) Noncontravention ................................................ 7
(d) Brokers' Fees ................................................... 8
(e) Title to Assets ................................................. 8
(f) Financial Statements ............................................ 8
(g) Events Subsequent to Most Recent Fiscal Year End ................ 8
(h) Undisclosed Liabilities ......................................... 10
(i) Legal Compliance ................................................ 10
(j) Tax Matters ..................................................... 11
(k) Real Property ................................................... 12
(l) Intellectual Property ........................................... 13
(m) Tangible Assets ................................................. 15
(n) Contracts ....................................................... 15
(o) Notes and Accounts Receivable ................................... 16
(p) Powers of Attorney .............................................. 17
</TABLE>
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<TABLE>
<C> <C>
(q) Insurance ....................................................... 17
(r) Litigation ...................................................... 18
(s) Employees ....................................................... 18
(t) Employee Benefits ............................................... 18
(u) Guaranties ...................................................... 20
(v) Environmental, Health, and Safety Matters ....................... 20
(w) Disclosure ...................................................... 21
5. PRE-CLOSING COVENANTS ................................................ 21
(a) General ......................................................... 21
(b) Notices and Consents ............................................ 21
(c) Operation of Business ........................................... 22
(d) Preservation of Business ........................................ 22
(e) Full Access ..................................................... 22
(f) Notice of Developments .......................................... 22
(g) Exclusivity ..................................................... 22
6. POST-CLOSING COVENANTS 22
(a) General ......................................................... 22
(b) Litigation Support .............................................. 23
(c) Transition ...................................................... 23
(d) Confidentiality ................................................. 23
7. CONDITIONS TO OBLIGATION TO CLOSE .................................... 23
(a) Conditions to Obligation of the Buyer ........................... 23
(b) Conditions to Obligation of the Seller .......................... 25
8. REMEDIES FOR BREACHES OF THIS AGREEMENT .............................. 26
(a) Survival of Representations and Warranties ...................... 26
(b) Indemnification Provisions for Benefit of the Buyer ............. 26
(c) Indemnification Provisions for Benefit of the Seller ............ 27
(d) Matters Involving Third Parties ................................. 27
(e) Exclusive Remedy ................................................ 29
9. TAX MATTERS .......................................................... 29
(a) Tax Periods Ending on or Before the Closing Date ................ 29
(b) Tax Periods Beginning Before and Ending After the Closing Date .. 29
(c) Cooperation on Tax Matters ...................................... 30
10. TERMINATION .......................................................... 30
(a) Termination of Agreement ........................................ 30
(b) Effect of Termination ........................................... 31
</TABLE>
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<PAGE> 4
<TABLE>
<C> <C>
11. MISCELLANEOUS ........................................................ 32
(a) Press Releases and Public Announcements ......................... 32
(b) No Third Party Beneficiaries .................................... 32
(c) Entire Agreement ................................................ 32
(d) Succession and Assignment ....................................... 32
(e) Counterparts .................................................... 32
(f) Headings ........................................................ 32
(g) Notices ......................................................... 32
(h) Governing Law ................................................... 33
(i) Amendments and Waivers .......................................... 33
(j) Severability .................................................... 33
(k) Expenses ........................................................ 33
(l) Construction .................................................... 33
(m) Incorporation of Exhibits, Annexes and Schedules ................ 34
(n) Specific Performance ............................................ 34
(o) Submission to Jurisdiction ...................................... 34
</TABLE>
Exhibit A Escrow Agreement
Exhibit B Historical Financial Statements
Exhibit C Forms of Side Agreements
Exhibit D Form of Opinion of Counsel to the Seller
Exhibit E Form of Opinion of Counsel to the Buyer
Annex I Exceptions to the Seller's Representations and Warranties
Concerning the Transaction
Annex II Exceptions to the Buyer's Representations and Warranties
Concerning the Transaction
Disclosure Schedule Exceptions to Representations and Warranties Concerning
the Target and Its Subsidiaries
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<PAGE> 5
STOCK PURCHASE AGREEMENT
Agreement entered into on December 23, 1997 by and among BAG FLORIDA II,
INC., a Georgia corporation (the "Buyer"), and THOMAS F. (TIFF) MURPHY, JR. (the
"Seller"). The Buyer and the Seller are referred to collectively herein as the
"Parties."
The Seller in the aggregate owns all of the outstanding capital stock of
SOUTH FINANCIAL CORPORATION, a Florida corporation (the "Target").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Target in return for cash.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
ss.1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in ss.2(c) below.
"Closing Date" has the meaning set forth in ss.2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Target that is not already generally available to
the public.
"Disclosure Schedule" has the meaning set forth in ss.4 below.
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<PAGE> 6
"Employee Benefit Plan" means any: (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan; (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan; (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan); or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Financial Statement" has the meaning set forth in ss.4(g) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in ss.8(d) below.
"Indemnifying Party" has the meaning set forth in ss.8(d) below.
"Intellectual Property" means: (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof; (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith; (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith; (d) all mask works and all
applications, registrations, and renewals in connection therewith; (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas,
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<PAGE> 7
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals); (f) all
computer software (including data and related documentation); (g) all other
proprietary rights; and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge without independent investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in ss.4(g)
below.
"Most Recent Fiscal Month End" has the meaning set forth in ss.4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in ss.4(g) below.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Purchase Price" has the meaning set forth in ss.2(b) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge
or other security interest, other than: (a) mechanic's, materialmen's and
similar liens; (b) liens for Taxes not yet due and payable; (c) purchase money
liens and liens securing rental payments under capital lease
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<PAGE> 8
arrangements; and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller's Knowledge" shall mean actual knowledge of Seller without
independent investigation and without attribution of such knowledge to any other
employees, officers or directors of the Target.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, par value $.05 per
share, of the Target.
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code ss.59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss.8(d) below.
2. PURCHASE AND SALE OF TARGET SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of
this Agreement, the Buyer shall purchase from the Seller, and the Seller shall
sell to the Buyer, all of his Target Shares for the consideration specified
below in this ss.2.
(b) PURCHASE PRICE. The Buyer agrees to pay to the Seller at the
Closing FOUR MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS ($4,650,000) (the
"Purchase Price") in cash payable by wire transfer or delivery of other
immediately available funds.
(c) ESCROW. Buyer agrees that it shall place the sum of One Hundred
Thousand Dollars ($100,000) into an escrow account with ROBERT A. STERN pursuant
to the terms and conditions of an Escrow Agreement in the form of EXHIBIT B
attached hereto.
(d) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of SCHNADER HARRISON
SEGAL & LEWIS LLP in Atlanta, Georgia, commencing at 9:00 a.m. local time on the
later of (i) December 15, 1997, or (ii) the
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<PAGE> 9
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) (the "Closing Date").
(e) DELIVERIES AT THE CLOSING. At the Closing: (i) the Seller will
deliver to the Buyer the various certificates, instruments and documents
referred to in ss.7(a) below; (ii) the Buyer will deliver to the Seller the
various certificates, instruments and documents referred to in ss.7(b) below;
(iii) the Seller will deliver to the Buyer stock certificates representing all
of his Target Shares, endorsed in blank or accompanied by duly executed
assignment documents; and (iv) the Buyer will deliver to the Seller the
consideration specified in ss.2(b) above.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
represents and warrants to the Buyer that the statements contained in this
ss.3(a) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
ss.3(a)) with respect to himself, except as set forth in Annex I attached
hereto.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the
Seller, enforceable in accordance with its terms and
conditions. The Seller need not give any notice to, make
any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order
to consummate the transactions contemplated by this
Agreement.
(ii) NONCONTRAVENTION. To Seller's Knowledge, neither the
execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will:
(A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or
other restriction of any government, governmental agency,
or court to which the Seller is subject; or (B) conflict
with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which the
Seller is a party or by which he is bound or to which any
of his assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or
obligated.
(iv) TARGET SHARES. The Seller holds of record and owns
beneficially the number of Target Shares set forth next to
his name in ss.4(b) of the Disclosure Schedule, free and
clear of any restrictions on transfer (other than any
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<PAGE> 10
restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims
and demands. The Seller is not a party to any option,
warrant, purchase right, or other contract or commitment
that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of the Target (other
than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding
with respect to the voting of any capital stock of the
Target.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Seller that the statements contained in this ss.3(b) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this ss.3(b)),
except as set forth in Annex II attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions. The Buyer need
not give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions
contemplated hereby, will: (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any
government, governmental agency, or court to which the
Buyer is subject or any provision of its charter or bylaws;
or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement
to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this
Agreement for which the Seller could become liable or
obligated.
(v) INVESTMENT. The Buyer is not acquiring the Target Shares of
Seller with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities
Act.
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<PAGE> 11
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET. The Seller
represents and warrants to the Buyer that the statements contained in this ss.4
are true, correct and complete as of the date of this Agreement and will be
true, correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this ss.4) with respect to the Target, except as set forth in the
disclosure schedule delivered by the Seller to the Buyer as a part of this
Agreement and initialed by the Parties (the "Disclosure Schedule"). Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception to a representation or
warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this ss.4.
(a) ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Target is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Target is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Target has full corporate power and
authority and all licenses, permits and authorizations necessary to carry on the
businesses in which it is engaged and in which it presently proposes to engage
and to own and use the properties owned and used by it. ss.4(a) of the
Disclosure Schedule lists the directors and officers of the Target. The Seller
has delivered to the Buyer correct and complete copies of the charter and bylaws
of the Target (as amended to date). The minute book (containing the records of
meetings of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record books of
the Target is substantially and materially correct and complete. The Target is
not in material default under or in violation of any provision of its charter or
bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the Target
is as set forth on ss.4(b) of the Disclosure Schedule. The Target Shares of the
Target are issued and outstanding. All of the issued and outstanding Target
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Seller as set forth in ss.4(b) of
the Disclosure Schedule. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Target to
issue, sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Target. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of the capital stock of the Target.
(c) NONCONTRAVENTION. To Seller's Knowledge, neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will: (i) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge or other restriction
of any government, governmental agency, or court to which the Target is subject
or any provision of the charter or bylaws of the Target; or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate,
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<PAGE> 12
terminate, modify or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the Target
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets). To
Seller's Knowledge, the Target does not need to give any notice to, make any
filing with, or obtain any authorization, consent or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) BROKERS' FEES. The Target has no Liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. The Target has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are the
following financial statements of the Target (collectively, the "Financial
Statements"): (i) audited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1995 and December 31, 1996 (the "Most Recent Fiscal Year End") for
the Target, which financial statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Target as
of such dates and the results of operations of the Target for such periods, and
are correct and complete; and (ii) unaudited balance sheet and statement of
income (the "Most Recent Fiscal Month End") as of and for the ten (10) months
ended October 31, 1997 for the Target, which financial statements have not been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby. The Financial Statements present fairly the financial
condition of the Target as of such dates and the results of operations of the
Target for such periods, are correct and complete, and are consistent with the
books and records of the Target (which books and records are correct and
complete) prepared on a basis other than GAAP.
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Target. Without limiting the generality of the foregoing, since
that date:
(i) the Target has not sold, leased, transferred or assigned
any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Target has not entered into any agreement, contract,
lease or license (or series of related agreements,
contracts, leases and licenses) either involving more than
$100,000 or outside the Ordinary Course of Business;
(iii) the Target has not accelerated, terminated, modified or
cancelled any agreement, contract, lease or license (or
series of related agreements,
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<PAGE> 13
contracts, leases and licenses) involving more than
$100,000 to which the Target is a party or by which it is
bound;
(iv) the Target has not imposed any Security Interest upon any
of its assets, tangible or intangible;
(v) the Target has not made any capital expenditure (or series
of related capital expenditures either involving more than
$100,000 or outside the Ordinary Course of Business;
(vi) the Target has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments,
loans and acquisitions) either involving more than $100,000
or outside the Ordinary Course of Business;
(vii) the Target has not issued any note, bond or other debt
security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease
obligation either involving more than $100,000 singly or
$100,000 in the aggregate;
(viii) the Target has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary
Course of Business;
(ix) the Target has not cancelled, compromised, waived or
released any right or claim (or series of related rights
and claims) either involving more than $100,000 or outside
the Ordinary Course of Business;
(x) the Target has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no changes made or authorized in the charter
or bylaws of the Target;
(xii) the Target has not issued, sold or otherwise disposed of
any of its capital stock, or granted any options, warrants
or other rights to purchase or obtain (including upon
conversion, exchange or exercise) any of its capital stock;
(xiii) the Target has not declared, set aside or paid any dividend
or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased or
otherwise acquired any of its capital stock;
(xiv) the Target has not experienced any material damage,
destruction or loss (whether or not covered by insurance)
to its property;
(xv) the Target has not made any loan to, or entered into any
other transaction with, any of its directors, officers and
employees outside the Ordinary Course of Business;
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<PAGE> 14
(xvi) the Target has not entered into any employment contract
or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or
agreement;
(xvii) the Target has not granted any increase in the base
compensation of any of its directors, officers and
employees outside the Ordinary Course of Business;
(xviii) the Target has not adopted, amended, modified or
terminated any bonus, profit-sharing, incentive,
severance or other plan, contract or commitment for the
benefit of any of its directors, officers and employees
(or taken any such action with respect to any other
Employee Benefit Plan);
(xix) the Target has not made any other change in employment
terms for any of its directors, officers and employees
outside the Ordinary Course of Business;
(xx) the Target has not made or pledged to make any charitable
or other capital contribution outside the Ordinary Course
of Business;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside
the Ordinary Course of Business involving the Target; and
(xxii) the Target has not committed to any of the foregoing.
(h) UNDISCLOSED LIABILITIES. To Seller's Knowledge, the Target has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
it giving rise to any Liability), except for: (i) Liabilities set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto); and
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement or violation of law).
(i) LEGAL COMPLIANCE. To Seller's Knowledge, the Target and its
respective predecessors and Affiliates have materially complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings and charges thereunder) of federal, state,
local and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced against any of them alleging any failure so to
comply. To Seller's Knowledge, the Target holds and is in full compliance with
all permits and licenses required by applicable law. A list of all such permits
and licenses is set forth on the Disclosure Schedule.
(j) TAX MATTERS.
(i) The Target has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete
in all respects. All Taxes owed by the Target (whether or
not shown on any Tax Return) have been paid. The Target
currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever
been made by an authority in a
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<PAGE> 15
jurisdiction where the Target does not file Tax Returns
that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of
the assets of any of the Target that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Target has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor,
creditor, stockholder or other third party.
(iii) The Seller does not have any Knowledge of any authority
claiming or assessing any additional Taxes for any period
for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the
Target either: (A) claimed or raised by any authority in
writing; or (B) as to which the Seller has Knowledge
based upon personal contact with any agent of such
authority. ss.4(k) of the Disclosure Schedule lists all
federal, state, local and foreign income Tax Returns
filed with respect to the Target for taxable periods
ended on or after December 31, 1991, indicates those Tax
Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The
Seller has delivered to the Buyer correct and complete
copies of all Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to
by the Target since January 1, 1991.
(iv) The Target has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) The Target is not subject to any private letter ruling of
the IRS or comparable rulings of other taxing
authorities.
(vi) The Target has properly and timely elected under Section
1362 of the Code, and under each analogous or similar
provision of state or local law in each jurisdiction
where the Target is required to file a Tax Return, to be
treated as an "S" corporation for all taxable periods
since the date of incorporation of the Target. Buyer has
received a copy of any such elections and there has not
been any voluntary or involuntary termination or
revocation of any such election.
(vii) The Target has never owned any subsidiaries nor ever been
a member of any consolidated, combined or Affiliated
Group of corporations for any Tax purposes.
(viii) The Target has no undistributed earnings and profits nor
had for any taxable years gross receipts more than
twenty-five percent (25%) of which are "passive
investment income" (as defined in Section 1375 of the
Code).
(ix) The Target has not filed a consent under Codess.341(f)
concerning collapsible corporations. The Target has not
made any payments, is obligated to make
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<PAGE> 16
any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be deductible under Codess.280G.
The Target has not been a United States real property
holding corporation within the meaning of
Codess.897(c)(2) during the applicable period specified
in Code ss.897(c)(1)(A)(ii). The Target has disclosed on
its federal income Tax Returns all positions taken
therein that could give rise to a substantial
understatement of federal income Tax within the meaning
of Codess.6662.
(x) Neither the Target nor any other Person (including
Seller) on behalf of the Target has: (i) agreed to or is
required to make any adjustments pursuant to Section
481(a) of the Code or any similar provision of state,
local or foreign law by reason of a change in accounting
method initiated by the Target, or has any knowledge that
the IRS has proposed any such adjustment or change in
accounting method, or has any application pending with
any taxing authority requesting permission for any
changes in accounting methods that relate to the business
or operations of the Target; (ii) executed or entered
into a closing agreement pursuant to Section 7121 of the
Code or any predecessor provision thereof or any similar
provision of state, local or foreign law with respect to
the Target; or (iii) requested any extension of time
within which to file any Tax Return, which Tax Return has
since not been filed.
(k) REAL PROPERTY. ss.4(k) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Target. The
Seller has delivered to the Buyer correct and complete copies of the leases and
subleases listed in ss.4(k) of the Disclosure Schedule (as amended to date).
With respect to each lease and sublease listed in ss.4(k) of the Disclosure
Schedule, to Seller's Knowledge:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or
permit termination, modification or acceleration
thereunder;
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (v) above
are true and correct with respect to the underlying
lease;
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<PAGE> 17
(vii) the Target has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold;
(viii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities
(including licenses and permits) required in connection
with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules and
regulations;
(ix) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for
the operation of said facilities; and
(x) the owner of the facility leased or subleased has good
and marketable title to the parcel of real property, free
and clear of any Security Interest, easement, covenant or
other restriction, except for installments of special
easements not yet delinquent and recorded easements,
covenants and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
(l) INTELLECTUAL PROPERTY.
(i) To Seller's Knowledge, the Target owns or has the right
to use pursuant to license, sublicense, agreement or
permission all Intellectual Property necessary for the
operation of the businesses of the Target as presently
conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Target
immediately prior to the Closing hereunder will be owned
or available for use by the Target on identical terms and
conditions immediately subsequent to the Closing
hereunder. No item of Intellectual Property is subject to
cancellation as a result of the transaction as set forth
herein being consummated by the Parties. The Target has
taken all necessary action to maintain and protect each
item of Intellectual Property that it owns or uses.
(ii) To Seller's Knowledge, the Target has not interfered
with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of
third parties, and the Seller has not ever received any
charge, complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or
violation (including any claim that the Target must
license or refrain from using any Intellectual Property
rights of any third party). To the Seller's Knowledge, no
third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any
Intellectual Property rights of the Target.
(iii) To Seller's Knowledge,ss.4(l)(iii) of the Disclosure
Schedule identifies each patent or registration which has
been issued to the Target with respect to any of its
Intellectual Property, identifies each pending patent
application or application for registration which the
Target has made with respect to any of its Intellectual
Property, and identifies each license, agreement or other
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<PAGE> 18
permission which the Target has granted to any third
party with respect to any of its Intellectual Property
(together with any exceptions). The Seller has delivered
to the Buyer correct and complete copies of all such
patents, registrations, applications, licenses,
agreements and permissions (as amended to date) and has
made available to the Buyer correct and complete copies
of all other written documentation evidencing ownership
and prosecution (if applicable) of each such
item.ss.4(l)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used
by the Target in connection with any of its businesses.
With respect to each item of Intellectual Property
required to be identified inss.4(l)(iii) of the
Disclosure Schedule, to Seller's Knowledge, :
(A) the Target possess all right, title and interest
in and to the item, free and clear of any Security
Interest, license or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or
charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand
is pending or, to Seller's Knowledge, is
threatened which challenges the legality,
validity, enforceability, use or ownership of the
item; and
(D) the Target has never agreed to indemnify any
Person for or against any interference,
infringement, misappropriation or other conflict
with respect to the item.
(iv) To Seller's Knowledge, ss.(l)(iv) of the Disclosure
Schedule identifies each item of Intellectual Property
that any third party owns and that the Target uses
pursuant to license, sublicense, agreement or permission.
The Seller has delivered to the Buyer correct and
complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With
respect to each item of Intellectual Property required to
be identified in ss.4(l)(iv) of the Disclosure Schedule,
to Seller's Knowledge, :
(A) the license, sublicense, agreement or permission
covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement or permission
will continue to be legal, valid, binding,
enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby (including the
assignments and assumptions referred to in ss.2
above);
(C) no party to the license, sublicense, agreement or
permission is in breach or default, and no event
has occurred which with notice or lapse of time
would constitute a breach or default or permit
termination, modification or acceleration
thereunder;
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<PAGE> 19
(D) no party to the license, sublicense, agreement or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in
subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand
is pending or, to Seller's Knowledge, is
threatened which challenges the legality, validity
or enforceability of the underlying item of
Intellectual Property; and
(H) the Target has not granted any sublicense or
similar right with respect to the license,
sublicense, agreement or permission.
(v) To Seller's Knowledge, the Target does not interfere
with, infringe upon, misappropriate or otherwise come
into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of
its businesses as presently conducted.
(m) TANGIBLE ASSETS. The Target owns or leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of its
businesses as presently conducted.
(n) CONTRACTS. ss.4(n) of the Disclosure Schedule lists the following
contracts and other agreements to which the Target is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person
providing for lease payments in excess of $100,000 per
annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal
property, or for the furnishing or receipt of services,
the performance of which will extend over a period of
more than one year, result in a material loss to the
Target, or involve consideration in excess of $100,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed
any indebtedness for borrowed money, or any capitalized
lease obligation, in excess of $100,000 or under which
the Target has imposed a Security Interest on any of its
assets, tangible or intangible;
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<PAGE> 20
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with the Seller with the Target;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other
material plan or arrangement for the benefit of its
current or former directors, officers and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing
annual compensation in excess of $100,000 or providing
severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers and employees
outside the Ordinary Course of Business;
(xi) any agreement under which the consequences of a default
or termination could have a material adverse effect on
the business, financial condition, operations, results of
operations or future prospects of the Target; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
$100,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in ss.4(n) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss.4(n) of the Disclosure Schedule. With respect to
each such agreement, to Seller's Knowledge: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification or acceleration, under the agreement; and (D) no party
has repudiated any provision of the agreement.
(o) NOTES AND ACCOUNTS RECEIVABLE. To Seller's Knowledge, all notes
and accounts receivable of the Target are reflected properly on its books and
records, are valid receivables subject to no setoffs or counterclaims. To
Seller's Knowledge, (a) each of the notes and accounts receivable is secured by
title to, security interests in, or liens on, a motor vehicle under applicable
provisions of the motor vehicle or other similar laws of the jurisdiction in
which the motor vehicle is titled and registered, (b) Seller has a first
priority and perfected security interest in each note and account receivable
being sold to Buyer under all applicable laws in the jurisdiction in which any
motor vehicle subject to notes and accounts receivable is titled and registered,
or (c) all filings with the registrar of motor vehicles or any other appropriate
authority, and all notations on any certificates of title necessary to perfect a
first priority security interest in the motor vehicles subject to the notes and
accounts receivable have been duly filed, recorded, registered and made. To
Seller's Knowledge, (a) none of the notes or accounts receivable is subject to
any material offset, discount, counterclaim, dispute or any other defense,
including without limitation, usury, unrecorded credits,
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lack of consideration, fraud, violations of truth-in-lending, or any other
Federal or state laws pertaining to the notes or accounts receivable, or contain
any forgery, alterations, or undisclosed agreements with persons named therein
as debtors or any other third parties and (b) all payments recorded or being
credited under the notes or accounts receivable have been paid by the Buyer.
(p) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Target.
(q) INSURANCE. ss.4(q) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability and Workers' Compensation coverage and
bond and surety arrangements) to which the Target has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
five (5) years:
(i) the name, address and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) to Seller's Knowledge,
the policy will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Target nor any other party to
the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification or acceleration, under the policy; and (D) no party to
the policy has repudiated any provision thereof. The Target has been covered
during the past five (5) years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. ss.4(q) of the Disclosure Schedule describes any self-insurance
arrangements affecting the Target.
(r) LITIGATION. ss.4(r) of the Disclosure Schedule sets forth each
instance in which the Target: (i) is subject to any outstanding injunction,
judgment, order, decree, ruling or charge; or (ii) is a party or, to Seller's
Knowledge, is threatened to be made a party to any action, suit, proceeding,
hearing or investigation of, in or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings and
investigations set forth in ss.4(r) of the Disclosure Schedule could result in
any material adverse change in the business, financial condition, operations,
results
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of operations, or future prospects of the Target. The Seller has no reason to
believe that any such action, suit, proceeding, hearing or investigation may be
brought or threatened against the Target.
(s) EMPLOYEES. To Seller's Knowledge, no executive, key employee or
group of employees has any plans to terminate employment with the Target. The
Target is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Target has not committed any unfair
labor practice. The Seller has no Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Target.
(t) EMPLOYEE BENEFITS.
(i) ss.4(t) of the Disclosure Schedule lists each Employee
Benefit Plan that the Target maintains or to which the
Target contributes.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in
form and in operation in all respects with the
applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1s, and Summary Plan Descriptions) have been
filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements
of Part 6 of Subtitle B of Title I of ERISA and of
Code ss.4980B have been met with respect to each
such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction
contributions) which are due have been paid to
each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and all
contributions for any period ending on or before
the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and
practice of the Target. All premiums or other
payments for all periods ending on or before the
Closing Date have been paid with respect to each
such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under Code
ss.401(a) and has received, within the last two
years, a favorable determination letter from the
Internal Revenue Service.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan)
equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in
accordance with
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PBGC methods, factors, and assumptions applicable
to an Employee Pension Benefit Plan terminating on
the date for determination.
(F) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary
plan descriptions, the most recent determination
letter received from the Internal Revenue Service,
the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts and
other funding agreements which implement each such
Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the
Target maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been
required to contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated
or been the subject of a Reportable Event as to
which notices would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate
any such Employee Pension Benefit Plan (other than
any Multiemployer Plan) has been instituted or, to
Seller's Knowledge, threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No
Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or
comply in connection with the administration or
investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing
or investigation with respect to the
administration or the investment of the assets of
any such Employee Benefit Plan (other than routine
claims for benefits) is pending or, to Seller's
Knowledge, threatened. The Seller has no Knowledge
of any Basis for any such action, suit,
proceeding, hearing or investigation.
(C) The Target has not incurred, and the Seller has no
reason to expect that the Target will incur, any
Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the
Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(iii) The Target does not contribute to, ever has contributed
to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(iv) The Target does not maintain or ever has maintained or
contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit
Plan providing medical, health, or life insurance or
other welfare-type
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<PAGE> 24
benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than
in accordance with Code ss.4980B).
(u) GUARANTIES. The Target is not a guarantor or otherwise is liable
for any Liability or obligation (including indebtedness) of any other Person.
(v) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) To Seller's Knowledge, the Target has complied and is in
compliance with all Environmental, Health and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, to
Seller's Knowledge, the Target has obtained and complied
with, and is in compliance with, all permits, licenses
and other authorizations that are required pursuant to
Environmental, Health and Safety Requirements for the
occupation of its facilities and the operation of its
business; a list of all such permits, licenses and other
authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) To Seller's Knowledge, the Target has not received any
written or oral notice, report or other information
regarding any actual or alleged violation of
Environmental, Health and Safety Requirements, or any
liabilities or potential liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective
obligations, relating to it or its facilities arising
under Environmental, Health and Safety Requirements.
(iv) To Seller's Knowledge, none of the following exists at
any property or facility owned or operated by the Target:
(A) underground storage tanks; (B) asbestos- containing
material in any form or condition; (C) materials or
equipment containing polychlorinated biphenyls; or (D)
landfills, surface impoundments or disposal areas.
(v) To Seller's Knowledge, the Target has not treated,
stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any
substance, including without limitation any hazardous
substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any
such substance) in a manner that has given or would give
rise to liabilities, including any liability for response
costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees,
pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste Disposal Act, as amended
("SWDA"), or any other Environmental, Health and Safety
Requirements.
(vi) To Seller's Knowledge, neither this Agreement nor the
consummation of the transaction that is the subject of
this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent
of government
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<PAGE> 25
agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible
property transfer" Environmental, Health and Safety
Requirements.
(vii) To Seller's Knowledge, the Target has not, either
expressly or by operation of law, assumed or undertaken
any liability, including without limitation any
obligation for corrective or remedial action, of any
other Person relating to Environmental, Health and Safety
Requirements.
(viii) To Seller's Knowledge, no facts, events or conditions
relating to the past or present facilities, properties or
operations of the Target will prevent, hinder or limit
continued compliance with Environmental, Health and
Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to
Environmental, Health and Safety Requirements, or give
rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to
Environmental, Health and Safety Requirements, including
without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or
natural resources damage.
(w) DISCLOSURE. To Seller's Knowledge, the representations and
warranties contained in this ss.4 do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements and information contained in this ss.4 not misleading.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in ss.7 below).
(b) NOTICES AND CONSENTS. The Seller will cause the Target to give any
notices to third parties, and will cause the Target to use its reasonable best
efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in ss.4(c) above. Each of the
Parties will (and the Seller will cause the Target to) give any notices to, make
any filings with, and use its reasonable best efforts to obtain any
authorizations, consents and approvals of governments and governmental agencies
in connection with the matters referred to in ss.3(a)(i), ss.3(b)(ii), and
ss.4(c) above.
(c) OPERATION OF BUSINESS. The Seller will not cause or permit the
Target to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not cause or permit the Target to: (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock; or
(ii) otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in ss.4(g) above.
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<PAGE> 26
(d) PRESERVATION OF BUSINESS. The Seller will cause the Target to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers and employees.
(e) FULL ACCESS. The Seller will permit, and the Seller will cause the
Target to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target, to all premises, properties, personnel,
books, records (including Tax records), contracts and documents of or pertaining
to the Target.
(f) NOTICE OF DEVELOPMENTS. The Seller will give prompt written notice
to the Buyer of any material adverse development causing a breach of any of the
representations and warranties in ss.4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in ss.3 above. No
disclosure by any Party pursuant to this ss.5(f), however, shall be deemed to
amend or supplement Annex I, Annex II, or the Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Seller will not (and the Seller will not cause or
permit the Target to): (i) solicit, initiate or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets, of
the Target (including any acquisition structured as a merger, consolidation or
share exchange); or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will not vote any of his Target Shares in favor
of any such acquisition structured as a merger, consolidation or share exchange.
The Seller will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry or contact with respect to any of the foregoing.
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
period following the Closing.
(a) GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ss.8 below). The
Seller acknowledges and agrees that from and after the Closing, the Buyer will
be entitled to possession of all documents, books, records (including Tax
records), agreements and financial data of any sort relating to the Target.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with:
(i) any transaction contemplated under this Agreement; or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction, on or prior
to the Closing Date involving the Target, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall
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<PAGE> 27
be necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under ss.8 below).
(c) TRANSITION. The Seller will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Target from maintaining the same
business relationships with the Target after the Closing as it maintained with
the Target prior to the Closing. The Seller will refer all customer inquiries
relating to the businesses of the Target to the Buyer from and after the
Closing.
(d) CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the Buyer or
destroy, at the request and option of the Buyer, all tangible embodiments (and
all copies) of the Confidential Information which are in his possession. In the
event that the Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this ss.6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, the Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, the Seller may disclose the
Confidential Information to the tribunal; provided, however, that the Seller
shall use his best efforts to obtain, at the request of the Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(a)
and ss.4 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of
its covenants hereunder in all material respects through
the Closing;
(iii) the Target shall have procured all of the third party
consents specified in ss.5(b) above;
(iv) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling
or charge would: (A) prevent consummation of any of the
transactions contemplated by this Agreement;
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<PAGE> 28
(B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation; (C)
affect adversely the right of the Buyer to own the Target
Shares of the Seller of the Target and to control the
Target; or (D) affect adversely the right of the Target
to own its assets and to operate its businesses (and no
such injunction, judgment, order, decree, ruling or
charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions
specified above in ss.7(a)(i)-(iv) is satisfied in all
respects;
(vi) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and the Parties, the
Target shall have received all other authorizations,
consents and approvals of governments and governmental
agencies referred to in ss.3(a)(i), ss.3(b)(ii), and
ss.4(c) above;
(vii) the relevant parties shall have entered into side
agreements and the real estate lease in form and
substance as set forth in EXHIBITS C-1 THROUGH C-__
attached hereto and the same shall be in full force and
effect;
(viii) the Buyer shall have received from counsel to the Seller
an opinion in form and substance as set forth in EXHIBIT
D attached hereto, addressed to the Buyer, and dated as
of the Closing Date;
(ix) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the
Target other than those whom the Buyer shall have
specified in writing at least five business days prior to
the Closing;
(x) The Buyer shall have completed its due diligence of the
Target and be satisfied with the results of such due
diligence in its sole discretion;
(xi) The Buyer shall have obtained adequate financing from
GENERAL ELECTRIC CAPITAL CORPORATION or some similar
financial institution on no less favorable terms and
conditions as is presently in place at SOUTH FINANCIAL
CORPORATION;
(xii) The Seller must have caused all receivables from
affiliated companies due to SOUTH FINANCIAL CORPORATION
be paid in full as of the Closing Date;
(xiii) The Buyer, the Seller and SOUTHERN LIFE REINSURANCE
COMPANY, LTD., a Turks and Caicos Islands corporation,
shall have entered into an Asset Purchase Agreement, in
form and substance as set forth in EXHIBIT F attached
hereto, which agreement shall obligate the Buyer to
purchase, and shall obligate the Seller and SOUTHERN LIFE
REINSURANCE COMPANY, LTD. to sell to the Buyer, certain
assets of SOUTHERN LIFE REINSURANCE COMPANY, LTD. in
accordance with the terms and conditions set forth in
said Asset Purchase Agreement; the closing for such asset
sale shall occur on the same date as the Closing of the
transactions contemplated by this Agreement;
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(xiv) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other
documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in
form and substance to the Buyer and its counsel.
The Buyer may waive any condition specified in this ss.7(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by him in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b)
above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through
the Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling
or charge would: (A) prevent consummation of any of the
transactions contemplated by this Agreement; or (B) cause
any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling or charge
shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions
specified above in ss.7(b)(i)-(iii) is satisfied in all
respects;
(v) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and the Parties, the
Target shall have received all other authorizations,
consents and approvals of governments and governmental
agencies referred to in ss.3(a)(i), ss.3(b)(ii), and
ss.4(c) above;
(vi) the relevant parties shall have entered into side
agreements in form and substance as set forth in EXHIBITS
C-__ through C-__ and the same shall be in full force and
effect;
(vii) the Seller shall have received from counsel to the Buyer
an opinion in form and substance as set forth in EXHIBIT
E attached hereto, addressed to the Seller, and dated as
of the Closing Date; and
(viii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and
all certificates, opinions, instruments
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and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in
form and substance to the Seller and his counsel.
The Seller may waive any condition specified in this ss.7(b) if they execute a
writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Seller contained in ss.4(a)-(i) and
ss.4(k)-(v) above shall survive the Closing hereunder and continue in full force
and effect for a period of two (2) years thereafter. All of the other
representations and warranties of the Parties contained in this Agreement
(including the representations and warranties of the Seller contained in ss.4(j)
and ss.4(w) above) shall survive the Closing and continue in full force and
effect forever thereafter (subject to any applicable statutes of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) Subject strictly to the limitations set forth
inss.8(b)(v) below, in the event the Seller breaches any
of his representations, warranties and covenants
contained herein, and, if there is an applicable survival
period pursuant toss.8(a) above, provided that the Buyer
makes a written claim for indemnification against the
Seller pursuant toss.8(d) below within such survival
period, then the Seller agrees to indemnify the Buyer
from and against the entirety of any Adverse Consequences
the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out
of, relating to, in the nature of, or caused by the
breach.
(ii) Subject strictly to the limitations set forth in
ss.8(b)(v) below, the Seller agrees to indemnify the
Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising
out of, relating to, in the nature of, or caused by any
Liability of the Target for any Taxes of the Target with
respect to any Tax year or portion thereof ending on or
before the Closing Date (or for any Tax year beginning
before and ending after the Closing Date to the extent
allocable (determined in a manner consistent with
ss.9(c)) to the portion of such period beginning before
and ending on the Closing Date).
(iii) The Seller's indemnification obligations set forth in
ss.8(b)(i) through ss.8(b)(iv) above shall be strictly
limited by the following limitations and conditions:
(A) The Seller shall not be obligated to indemnify the
Buyer from and against any Adverse Consequences
resulting from, arising out of, relating to, in
the nature of, or caused by the breach of any
representation and warranty by the Seller until
the Buyer has suffered
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<PAGE> 31
Adverse Consequences by reason of any single
breach in excess of a Seven Thousand Five Hundred
Dollar ($7,500.00) threshold, at which point the
Seller will be obligated to indemnify the Buyer
from and against all Adverse Consequences the
Buyer may suffer as a result of such single breach
back to the first dollar (the "Basket").
(B) The Seller's maximum aggregate liability to the
Buyer for any and all Adverse Consequences
resulting from, arising out of, relating to, in
the nature of, or cause by the breach of any
representation and warranty by the Seller shall
not exceed Three Hundred Fifty Thousand Dollars
($350,000.00) (the "Cap").
(C) Notwithstanding anything to the contrary contained
in ss.8(b)(iii)(A) and ss.8(b)(iii)(B) hereof,
neither the Basket nor the Cap shall apply to, and
the Seller shall be obligated to fully indemnify
the Buyer from and against, any Adverse
Consequences resulting from, arising out of,
relating to, in the nature of, or caused by the
fraud of the Seller.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER. In the event
the Buyer breaches any of its representations, warranties and covenants
contained herein, and, if there is an applicable survival period pursuant to
ss.8(a) above, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to ss.8(d) below within such survival
period, then the Buyer agrees to indemnify the Seller from and against the
entirety of any Adverse Consequences the Seller may suffer through and after the
date of the claim for indemnification (including any Adverse Consequences the
Seller may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for
indemnification against any other Party (the
"Indemnifying Party") under this ss.8, then the
Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; provided, however, that no
delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is
prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with
counsel of its choice reasonably satisfactory to the
Indemnified Party so long as: (A) the Indemnifying Party
notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of
any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim; (B) the
Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party
that the Indemnifying
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<PAGE> 32
Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification
obligations hereunder; (C) the Third Party Claim involves
only money damages and does not seek an injunction or
other equitable relief; (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not,
in the good faith judgment of the Indemnified Party,
likely to establish a precedential custom or practice
materially adverse to the continuing business interests
of the Indemnified Party; and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance
withss.8(d)(ii) above: (A) the Indemnified Party may
retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim;
(B) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld
unreasonably); and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without
the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions inss.8(d)(ii) above is
or becomes unsatisfied, however: (A) the Indemnified
Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to,
the Third Party Claim in any manner it reasonably may
deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (B) the
Indemnifying Parties will reimburse the Indemnified Party
promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable
attorneys' fees and expenses); and (C) the Indemnifying
Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent
provided in thisss.8.
(e) EXCLUSIVE REMEDY. The Buyer and the Seller acknowledge and agree
that the foregoing indemnification provisions in this ss.8 shall be the
exclusive remedy of the Buyer and the Seller with respect to the Target, the
representations and warranties of the parties, and the transactions contemplated
by this Agreement, except where fraud is involved in a breach of the terms,
conditions, covenants, representations and warranties set forth in this
Agreement. The Seller hereby agrees that he will not make any claim for
indemnification against the Target by reason of the fact that he was a director,
officer, employee or agent of any such entity or was serving at the request of
any such entity as a partner, trustee, director, officer, employee or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by the Buyer against the Seller (whether such action, suit,
proceeding, complaint, claim or demand is pursuant to this Agreement, applicable
law, or otherwise).
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<PAGE> 33
9. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters
following the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Target for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Seller shall reimburse Buyer for Taxes of the
Target with respect to such periods within fifteen (15) days after payment by
Buyer or the Target of such Taxes to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet of the Target.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Target for Tax periods which begin before the Closing Date
and end after the Closing Date. Seller shall pay to Buyer within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet. For purposes of this Section, in
the case of any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the Closing Date, the portion
of such Tax which relates to the portion of such Taxable period ending on the
Closing Date shall: (A) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period; and (B)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Target.
(c) COOPERATION ON TAX MATTERS.
(i) Buyer, the Target and Seller shall cooperate fully, as
and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns
pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's
request) the provision of records and information which
are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a
mutually convenient basis to provide additional
information and explanation of any material provided
hereunder. The Target and Seller agree: (A) to retain all
books and records with respect to Tax matters pertinent
to the Target relating to any taxable period beginning
before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by
Buyer or Seller, any extensions thereof) of the
respective taxable periods, and to abide by all record
retention agreements entered into with any taxing
authority; and (B) to give the other
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<PAGE> 34
party reasonable written notice prior to transferring,
destroying or discarding any such books and records and,
if the other party so requests, the Target or Seller, as
the case may be, shall allow the other party to take
possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to use
their best efforts to obtain any certificate or other
document from any governmental authority or any other
Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions
contemplated hereby).
(iii) Buyer and Seller further agree, upon request, to provide
the other party with all information that either party
may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated
thereunder.
10. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may terminate
this Agreement as provided below:
(i) The Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) The Buyer may terminate this Agreement by giving written
notice to the Seller on or before December 31, 1997 if
the Buyer is not reasonably satisfied with the results of
its continuing business, legal, environmental and
accounting due diligence regarding the Target;
(iii) The Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing:
(A) in the event the Seller has breached any material
representation, warranty or covenant contained in this
Agreement in any material respect, the Buyer has notified
the Seller of the breach, and the breach has continued
without cure for a period of 30 days after the notice of
breach; or (B) if the Closing shall not have occurred on
or before December 31,1997, by reason of the failure of
any condition precedent underss.7(a) hereof (unless the
failure results primarily from the Buyer itself breaching
any representation, warranty or covenant contained in
this Agreement), except as set forth in Section 10(a)(v)
hereof; and
(iv) The Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing: (A)
in the event the Buyer has breached any material
representation, warranty or covenant contained in this
Agreement in any material respect, the Seller has
notified the Buyer of the breach, and the breach has
continued without cure for a period of 30 days after the
notice of breach; or (B) if the Closing shall not have
occurred on or before December 31, 1997, by reason of the
failure of any condition
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<PAGE> 35
precedent underss.7(b) hereof (unless the failure results
primarily from the Seller himself breaching any
representation, warranty or covenant contained in this
Agreement), except as set forth in Section 10(a)(v)
hereof.
(v) Notwithstanding Sections 10(a)(iii)(B) and 10(a)(iv)(B)
hereof, neither Buyer nor Seller may terminate this
Agreement if the Closing shall not have occurred on or
before December 31, 1997 by reason of the failure of the
conditions contained in Sections 7(a)(vi) (Governmental
Consent), 7(b)(v) (Governmental Consent) or 7(a)(xi) (GE
Capital Consent).
(vi) Notwithstanding anything contained in this ss.10 to the
contrary, either Buyer or Seller may terminate this
Agreement by written notice to the other party if the
Closing shall not have taken place on or prior to 11:59
p.m. EST on March 31, 1998, or such other date as shall
have been approved by Buyer and Seller in writing
(provided that the terminating party is not otherwise in
material breach of its representations, warranties,
covenants or agreements under this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ss.10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in material breach).
11. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests or obligations hereunder without the prior
written approval of the Buyer and the Seller; provided, however, that the Buyer
may: (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates; and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which
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<PAGE> 36
cases the Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Seller: Mr. Thomas F. (Tiff) Murphy, Jr.
5307 N.W. 91st Blvd.
Gainesville, FL 32653
Copy to: Robert A. Stern, Esq.
ROBERT A. STERN, P.A.
537 N.E. First Street, Suite 5
Gainesville, FL 32601
If to Buyer: Stephen C. Whicker, Esq.
THE WHICKER LAW FIRM
6111 Peachtree Dunwoody Rd.
Suite 102 / Building D
Atlanta, GA 30328
Copy to: David S. Cooper, Esq.
SCHNADER HARRISON SEGAL & LEWIS LLP
SunTrust Plaza / Suite 2800
303 Peachtree Street, N.E.
Atlanta, GA 30308-3252
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Georgia without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Florida or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Georgia.
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<PAGE> 37
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by any Party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties and the Target will bear his or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Seller agrees that the Target has not borne and will not bear any of the
Seller's costs and expenses (including any of its legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties 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 and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
(m) INCORPORATION OF EXHIBITS, ANNEXES AND SCHEDULES. The Exhibits,
Annexes and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in ss.10(o) below),
in addition to any other remedy to which they may be entitled, at law or in
equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state court sitting in Cobb County, Georgia, or federal
court sitting in the Northern District of the State of Georgia in any action or
proceeding arising out of or relating to this Agreement and agrees
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<PAGE> 38
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. For
purposes of service of process, Seller designates Robert A. Stern, Esq. as his
agent for service of process to acknowledge receipt of any service of process
intended to be served on Seller, provided, however, that Seller may designate
another person as his agent for service of process by providing the name and
address of such person to Buyer in the manner provided for giving notices in
ss.10(g) above, and further provided that all service of process served on such
agent shall be served as it would otherwise be served on Seller pursuant to
applicable law. Nothing in this ss.10(o), however, shall affect the right of any
Party to bring any action or proceeding arising out of or relating to this
Agreement in any other court or to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
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<PAGE> 39
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
BUYER: BAG FLORIDA II, INC.
BY: /s/ RICKY L. BROWN
-------------------------------------
Title: President
SELLER: THOMAS F. (TIFF) MURPHY, JR.
/s/ THOMAS F. MURPHY, JR.
----------------------------------------
THOMAS F. (TIFF) MURPHY, JR.
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SUNBELT AUTOMOTIVE GROUP, INC.
ARTICLE 1
OFFICES
The Corporation shall at all times maintain a registered office in the
State of Georgia and a registered agent at that address, but may have other
offices located within or without the State of Georgia as the Board of Directors
may determine.
ARTICLE 2
SHAREHOLDERS' MEETINGS
2.1 ANNUAL MEETING. A meeting of shareholders of the Corporation shall
be held annually. The annual meeting shall be held at such time and place and
on such date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting. At such meeting, the Shareholders
entitled to vote will elect Directors and transact such other business as may
properly be brought before the meeting.
2.2 SPECIAL MEETINGS. Special meetings of the Shareholders, for any
purpose, unless otherwise prescribed by statute or the Articles of
Incorporation, may be called by the Chairman of the Board, the Chief Executive
Officer or by a majority vote of the Directors then holding such office. Special
meetings shall be held at such a time and place and on such a date as shall be
specified in the notice of the meeting to the Shareholders.
2.3 PLACE. Annual or special meetings of Shareholders may be held
within or without the State of Georgia.
2.4 NOTICE OF MEETINGS. The Corporation shall notify Shareholders of
the date, time and place of each annual and special Shareholders' meeting no
fewer than ten (10) nor more than sixty (60) days before the meeting date.
Notice of such meetings shall be given to each Shareholder by mail or by telex,
facsimile, electronic mail or other similar means of communication. Unless the
Georgia Business Corporation Code (the "Code") or the Articles of Incorporation
require otherwise, the Corporation is required to give notice only to
Shareholders entitled to vote at the meeting. Unless the Code or the Articles of
Incorporation require otherwise, notice of an annual meeting need not include a
description of the purpose for which the meeting is called. Notice of a special
meeting must include a description of the purpose for which the meeting is
called. If not otherwise fixed pursuant to Code ss.14-2-703, as amended, or
Section 2.9 of these Bylaws, the record date for determining Shareholders
entitled to notice of and to vote at annual or special Shareholders' meetings is
the close of business on
<PAGE> 2
the date before the first notice is delivered to the Shareholders. Unless other
provisions of these Bylaws require otherwise, if an annual or special
Shareholders' meeting is adjourned to a different date, time or place, notice
need not be given of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment. If a new record date for the
adjourned meeting is or must be fixed pursuant to Section 2.9 of these Bylaws,
however, notice of the adjourned meeting must be given under this Section to
persons who are Shareholders as of the new record date. If mailed, such notice
shall be deemed to be delivered when deposited in the U. S. mail with first
class postage thereon paid, addressed to the Shareholder at his address as it
appears on the Corporation's record of Shareholders. If sent be telex,
facsimile, electronic mail or other similar means of communication, such notice
shall be deemed to be delivered the day such notice is transmitted to the
Shareholder. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting.
2.5 WAIVER OF NOTICE. A Shareholder may waive any notice required by
the Code, the Articles of Incorporation, or these Bylaws before or after the
date and time stated in the notice. The waiver must be in writing, be signed by
the Shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. A Shareholder's
attendance at a meeting: (a) waives objection to lack of notice or defective
notice of the meeting, unless the Shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting; and (b)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the Shareholder
objects to considering the matter when it is presented. Unless otherwise
required by these Bylaws, neither the business transacted nor the purpose of the
meeting need be specified in the waiver; provided, however, that any waiver of
notice of a meeting required with respect to an amendment of the Articles of
Incorporation pursuant to Code ss.14-2-1003, as amended, a plan of merger or
share exchange pursuant to Code ss.14-2-1202, as amended, or any other action
which would entitle the Shareholders to dissent pursuant to Code ss.14-2-1302,
as amended, shall only be effective upon compliance with Code ss.14-2-706, as
amended.
2.6 QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares, present in
person or represented by proxy, exists with respect to that matter. Unless the
Articles of Incorporation, other provisions of these Bylaws or the Code provide
otherwise, a majority of the votes entitled to be cast on the matter by the
voting group constitutes a quorum of that voting group for action on that
matter. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or must be set
for that adjourned meeting. When a quorum is once present at a meeting, it is
not broken by the subsequent withdrawal of any of those present. The holders of
a majority of the voting shares represented at a meeting, whether or not a
quorum is present, may adjourn such meeting from time to time.
2.7 VOTING. If a quorum exists, action on a matter (other than the
election of Directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles of Incorporation, a Bylaw adopted by the Shareholders
pursuant to Code ss.14-2-1021, as amended, or the Code, requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, Directors are elected
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<PAGE> 3
by a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present. Except as provided in subsections (b)
and (c) of Code ss.14-2-721, as amended, or unless the Articles of Incorporation
provide otherwise, each outstanding share, regardless of class, is entitled to
one vote in person or by proxy on each matter voted on at a Shareholders'
meeting. Only outstanding shares are entitled to vote. The Board of Directors,
by a resolution duly adopted by them, may require the use of written ballots at
any annual or special meeting of the Shareholders. In the absence of such a
resolution, written ballots will not be required.
2.8 PROXIES. A Shareholder may vote his or her shares in person or by
proxy. A Shareholder or his or her agent or attorney-in-fact may appoint a proxy
to vote or otherwise act for him or her by signing an appointment form, either
personally or by his or her attorney-in-fact. An appointment of a proxy is
effective when a signed appointment form or facsimile transmission of the signed
appointment is received by the inspector of election or the officer or agent of
the Corporation authorized to tabulate votes. An appointment is valid for eleven
(11) months from its date unless a longer period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the Shareholder
unless the appointment form or facsimile transmission states that it is
irrevocable and the appointment is coupled with an interest in accordance with
Code ss.14-2-722, as amended.
2.9 RECORD DATE. The Board of Directors, in order to determine the
Shareholders entitled to notice of or to vote at any meeting of the Shareholders
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights or entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, shall fix in advance a record date which shall not be
more than seventy (70) days before the date of such meeting, nor more than
seventy (70) days prior to any other action, and in such case only such
Shareholders as shall be Shareholders of record on the date so fixed, shall be
entitled to such notice of or to vote at such meeting or any adjournment
thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date is fixed as aforesaid.
2.10 CONDUCT OF MEETINGS. The Chairman of the Board of Directors, or in
his absence the President, or in their absence a person appointed by the Board
of Directors, shall preside at meetings of the Shareholders. The Secretary of
the Corporation, or in the Secretary's absence, any person appointed by the
presiding Officer, shall act as Secretary for meetings of the Shareholders.
2.11 INSPECTORS OF ELECTION. All votes by ballot at any meeting of
Shareholders shall be conducted by such number of inspectors of election as are
appointed for the purpose by either the Board of Directors or by the Chairman of
the meeting. The inspectors of election shall decide upon the qualifications of
voters, count the votes and declare the results.
2.12 NOTICE OF SHAREHOLDER PROPOSALS. A proposal for action to be
presented by any Shareholder at an annual or special meeting of Shareholders,
including notice of any nominations of persons for election to the Board of
Directors, shall be out of order and shall not be acted upon at such
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meeting unless such proposal was specifically described in the Corporation's
notice to all Shareholders of the meeting and the matters to be acted upon
thereat, or unless: (a) such proposal shall have been submitted in writing to
the Chairman of the Board of Directors and received at the principal executive
offices of the Corporation at least sixty (60) days prior to the date of such
annual or special meeting by the Shareholder who intends to present such
proposal; and (b) such proposal shall set forth: (1) as to each person whom the
Shareholder proposes to nominate for election as Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the Proxy Statement
as a nominee and to serving as Director if elected), and evidence reasonably
satisfactory to the Corporation that such nominee has no interests that would
limit his ability to fulfill the duties of office; (2) as to any other business
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest such business of such Shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (3) as to the
Shareholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made: (i) the name and address of such
Shareholder, as they appear on the Corporation's books, and of such beneficial
owner; and (ii) the class and number of shares of the Corporation that are owned
beneficially and held of record by such Shareholder and such beneficial owner.
ARTICLE 3
BOARD OF DIRECTORS
3.1 MANAGEMENT. Subject to the Articles of Incorporation, these Bylaws
and any lawful agreement between the Shareholders, the full and entire
management of the affairs and business of the Corporation shall be vested in the
Board of Directors, which shall have and may exercise all of the powers that may
be exercised or performed by the Corporation.
3.2 CLASSIFICATION; NUMBER; TERM. The number of Directors of the
Corporation shall be between three (3) and fifteen (15), the exact number of
which shall be determined from time to time by the affirmative vote of the
holders of at least two-thirds (2/3) of the shares of the Corporation entitled
to vote for the election of Directors. The Board of Directors shall be divided
into three (3) classes, as nearly equal in number as possible, with respect to
the first time for which they shall severally hold office. Each Director of the
First Class first chosen shall hold office until the first annual meeting of the
Shareholders following his election, and until a successor shall be elected and
qualified, or until his earlier death, resignation, incapacity to serve, or
removal; each Director of the Second Class first chosen shall hold office until
the second annual meeting of the Shareholders following his election, and until
a successor shall be elected and qualified, or until his earlier death,
resignation, incapacity to serve, or removal; each Director of the Third Class
first chosen shall hold office until the third annual meeting of the
Shareholders following his election, and until a successor shall be elected and
qualified, or until his earlier death, resignation, incapacity to serve, or
removal. At each annual meeting of Shareholders held thereafter, the successors
to the class of Directors whose terms shall expire at that time shall be elected
to hold office until the third succeeding annual meeting of the Shareholders
following their election, and until their successors shall be elected and
qualified, or until their earlier deaths, resignations, incapacities to serve,
or removals. Any increase or decrease
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in the number of Directors shall be so apportioned among the classes as to make
all classes authorized by the requisite number of Shareholders as nearly equal
in number as possible.
3.3 QUALIFICATIONS. Directors need not be Shareholders nor employees
of the Corporation.
3.4 VACANCIES. A vacancy on the Board of Directors shall exist upon the
death, resignation, removal, or incapacity to serve of any Director; upon the
increase in the number of authorized Directors; and upon the failure of the
Shareholders to elect the full number of Directors authorized. Any vacancy on
the Board of Directors resulting from the death, resignation or retirement of a
Director, or from any other cause other than removal by the Shareholders or
increase in the number of Directors, shall be filled by a majority vote of the
remaining Directors, though less than a quorum, for a term corresponding to the
unexpired term of his predecessor in office. Any vacancy on the Board of
Directors occurring as a result of the removal of a Director by the Shareholders
shall be filled by the Shareholders or, if authorized by the Shareholders, by a
majority vote of the remaining Directors, though less than a quorum, for a term
corresponding to the unexpired term of his predecessor in office. Newly-created
Directorships resulting from any increase in the authorized number of Directors
shall be filled by a majority vote of the remaining Directors, though less than
a quorum, and the Directors so chosen shall hold office for a term expiring at
the next annual meeting of Shareholders at which a successor shall be elected
and shall qualify.
3.5 RESIGNATION. A Director may resign at any time by delivering
written notice to the Board of Directors, the Chairman, or to the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If the resignation is effective at a future
time, a successor may be elected before that time to take office when the
resignation becomes effective.
3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held at such time and place within or without the State of Georgia as shall from
time to time be determined by the Board of Directors by resolution, and such
resolution shall constitute notice thereof. No further notice shall be required
in order legally to constitute such regular meeting.
3.7 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman, the President, the Chief Executive Officer or on the
written request of any two (2) or more members of the Board of Directors. Notice
of each special meeting will be given to each Director in writing actually
received not less than twenty-four (24) hours prior to the meeting or in writing
mailed by deposit in the U. S. mail, first class postage prepaid, addressed to
the Director at the Director's address appearing on the records of the
Corporation not less than forty-eight (48) hours prior to the meeting. Special
meetings of the Directors may also be held at any time without prior notice when
all members of the Board of Directors are present and consent to a special
meeting. Special meetings of the Directors will be held at any place designated
by a majority of the Board of Directors. No notice of any special meeting of the
Board of Directors need state the purpose thereof.
3.8 ELECTRONIC COMMUNICATION. The Board of directors may permit
Directors to participate in a meeting by any means of communication by which all
of the persons participating in the meeting can hear each other at the same
time. Participation in such meeting will constitute presence in person at the
meeting.
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3.9 WAIVER OF NOTICE. A Director may, at any time, waive any notice
required by these Bylaws, the Articles of Incorporation, or the Code. Except as
otherwise provided in this Section, the waiver must be in writing signed by the
Director, must specify the meeting for which notice is waived, and must be
delivered to the Corporation for inclusion in the minutes and filing in the
corporate records. A Director's attendance at a meeting waives any required
notice, unless the Director at the beginning of the meeting or promptly upon the
Director's arrival objects to the holding of the meeting or transacting business
at the meeting and does not thereafter vote for or assent to any action taken at
the meeting.
3.10 QUORUM. Unless otherwise required by the Articles of
Incorporation, Bylaws or the Code, a quorum of the Board of Directors consists
of a majority of the number of Directors prescribed by Section 3.2 hereof, or,
if no number is prescribed, the number in office immediately before the meeting
begins. If a quorum is present when a vote is taken, the affirmative vote of a
majority of Directors present is the act of the Board of Directors unless the
Articles of Incorporation, other provisions of these Bylaws or the Code
otherwise require the vote of a greater number of Directors. If a quorum shall
not be present at any meeting of the Board or committee, the members present at
such meeting may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
3.11 VOTING. The act of the majority of the Directors present at the
meeting at which a quorum is present will for all purposes constitute the act of
the Board of Directors, unless otherwise provided by the Articles of
Incorporation, these Bylaws or the Code.
3.12 PRESUMPTION OF ASSENT. A Director who is present at a meeting of
the Board of Directors or a committee of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless: (a) he
objects at the beginning of the meeting (or promptly upon his arrival) to
holding it or transacting business at the meeting; (b) his dissent or abstention
from the action taken is entered in the minutes of the meeting; or (c) he
delivers written notice of his dissent or abstention by telex, facsimile,
electronic mail or other similar means of communication to the presiding officer
of the meeting before its adjournment or to the Corporation immediately after
adjournment of the meeting. The right of dissent or abstention is not available
to a Director who votes in favor of the action taken.
3.13 ACTION WITHOUT MEETING. Unless otherwise provided by the Articles
of Incorporation, any action required or permitted to be taken at a Board of
Directors meeting may be taken without a meeting if a written consent describing
the action taken is signed by each and every Director and delivered to the
Corporation for inclusion in the minutes and filed in the corporate records. The
action is effective when the last Director signs the consent, unless the consent
specifies an earlier or later effective date. A consent signed under this
Section has the effect of an act of the Board of Directors at a meeting and may
be described as such in any document.
3.14 ORGANIZATION. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, or in his absence, Vice Chairman of the
Board, or in his absence, the President, or in his absence, the meeting shall be
presided over by a chairman chosen at the meeting.
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The Secretary of the Corporation, or in the Secretary's absence any person
appointed by the presiding Officer, shall act as Secretary for meetings of the
Board of Directors.
3.15 CHAIRMAN OF THE BOARD. The Board of Directors shall elect one of
its members to be Chairman of the Board of Directors by a majority vote of the
Directors entitled to vote on the matter. The Chairman of the Board shall serve
for a term of one (1) year from the date elected and until a successor is
elected and qualified. The Chairman of the Board will advise and consult with
the Board of Directors and the officers of the Corporation as to the
determination of policies of the Corporation and will preside at all meetings of
the Board of Directors and of the Shareholders. The Chairman of the Board may be
removed from office at any meeting of the Directors expressly called for that
purpose, for good and reasonable cause shown, by the affirmative vote of not
less than the majority of the Directors then entitled to vote at an election of
the Chairman of the Board.
3.16 COMPENSATION OF DIRECTORS. The Board of Directors shall have the
authority to fix the compensation of the Directors.
ARTICLE 4
COMMITTEES
4.1 EXECUTIVE COMMITTEE. The Board of Directors may by resolution
adopted by a majority of the entire Board, designate an Executive Committee of
three or more Directors, with equal representation from each class of Directors.
Each member of the Executive Committee shall hold office until the first meeting
of the Board of Directors after the annual meeting of the Shareholders next
following his election and until his successor member of the Executive Committee
is elected, or until his death, resignation, removal, or until he shall
otherwise cease to be a Director.
4.2 EXECUTIVE COMMITTEE POWERS. During intervals between meetings of
the Board of Directors, the Executive Committee may exercise all powers of the
Board of Directors in the management of the business affairs of the Corporation,
including all powers specifically granted to the Board of Directors by these
Bylaws or by the Articles of Incorporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
that the Executive Committee shall not have the power to amend or repeal any
resolution of the Board of Directors that by its terms shall not be subject to
amendment or repeal by the Executive Committee, and the Executive Committee
shall not have the authority of the Board of Directors in reference to: (a)
amending the Articles of Incorporation; (b) adopting, amending or approving a
plan of merger or share exchange; (c) adopting, amending or repealing the Bylaws
of the Corporation; (d) the filling of vacancies on the Board of Directors or on
any committee; (e) approving or proposing to Shareholders action that the Code
requires to be approved by Shareholders; (f) a sale, lease, exchange or other
disposition of all or substantially all the property or assets of the
Corporation; (g) the removal of any or all of the Officers of the Corporation;
or (h) a voluntary dissolution of the Corporation or a revocation of any such
voluntary dissolution.
4.3 EXECUTIVE COMMITTEE MEETINGS. The Executive Committee shall meet
from time to time on call of the Chairman of the Board, the President, or any
two (2) or more members of the Executive Committee. Meetings of the Executive
Committee may be held at such places, within or
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without the State of Georgia, as the Executive Committee shall determine or as
may be specified or fixed in the respective notices of such meetings. The
Executive Committee may fix its own rules of procedure, including provision for
notice of its meetings, shall keep a record of its proceedings, and shall report
these proceedings to the Board of Directors at the meeting thereof held next
after such meeting of the Executive Committee. All such proceedings shall be
subject to revision or alteration by the Board of Directors, except to the
extent that action shall have been taken pursuant to or in reliance upon such
proceedings prior to any such revision or alteration. The Executive Committee
shall act by a majority vote of its members.
4.4 OTHER COMMITTEES. The Board of Directors, by resolution adopted by
a majority of the entire Board, may designate one or more additional committees,
each committee to consist of three (3) or more Directors, which shall have such
name and shall have and may exercise such powers of the Board of Directors in
the management of the business affairs of the Corporation, except the powers
denied to the Executive Committee, as may be determined from time to time by the
Board of Directors.
4.5 ALTERNATE MEMBERS. The Board of Directors, by resolution adopted in
accordance with Section 4.1, may designate one or more Directors as alternate
members of a committee, who may act in the place and stead of any absent member
at any meeting of such committee.
4.6 REMOVAL OF COMMITTEE MEMBERS. The Board of Directors shall have the
power at any time to remove any or all of the members of any committee, with or
without cause, and to fill vacancies on and to dissolve any such committee.
ARTICLE 5
OFFICERS
5.1 COMPOSITION. The Board of Directors, at its first meeting after
each annual meeting of Shareholders, shall elect a President and may elect such
other of the following Officers: Chairman of the Board, Chief Executive Officer,
Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer,
Executive Vice President of Corporate Development, Secretary, and may include
one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents,
one or more Assistant Secretaries, and one or more Assistant Treasurers, who
shall hold their offices for such terms as shall be determined by the Board of
Directors, and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors or the Chairman of the
Board.
5.2 RESIGNATION OR REMOVAL. Any Officer may resign at any time upon
written notice to the Board of Directors or President or Secretary of the
Corporation. Such resignation shall take effect at the time specified in the
notice, and unless otherwise specified in the notice, no acceptance of the
resignation shall be necessary to make it effective. The Board of Directors may
remove any Officer, assistant officer or agent, with or without cause, at any
time. Any such removal shall be without prejudice to the contractual rights of
such Officer, if any, with the Corporation, but the election of an Officer shall
not of itself create contractual rights.
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5.3 POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall preside at all meetings of the Board of Directors and at all
meetings of the Shareholders at which he is present, and shall have and may
exercise such powers as may from time to time be assigned to him by the Board of
Directors or as may be provided by law.
5.4 POWERS AND DUTIES OF THE PRESIDENT. The President shall have the
powers and duties set forth by the Board of Directors from time to time.
5.5 POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer will be responsible for implementing the policies and goals of
the Corporation as stated by the Board of Directors, and will have general
supervisory responsibility and authority over the property, business and affairs
of the Corporation. The Chief Executive Officer may sign any documents or
instruments of the Corporation which require signature of the President or other
corporate Officer under the Code.
5.6 POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. In the
absence of the Chairman of the Board, the Vice Chairman of the Board shall
preside at all meetings of the Board of Directors and at all meetings of the
Shareholders at which he is present.
5.7 POWERS AND DUTIES OF THE VICE PRESIDENT. The Vice President will
have such responsibilities and authority as may be prescribed by the Board of
Directors or any may be delegated by the Chief Executive Officer or the
President to such Vice President. The Vice President shall have all of the
powers and perform all of the duties of the President during the absence or
disability of the President.
5.8 POWERS AND DUTIES OF THE CHIEF OPERATING OFFICER. The Chief
Operating Officer shall have the powers and duties set forth by the Board of
Directors or the Chief Executive Officer from time to time.
5.9 POWERS AND DUTIES OF THE CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall have the powers and duties set forth by the Board of
Directors or the Chief Executive Officer from time to time.
5.10 POWER AND DUTIES OF THE SECRETARY. The Secretary shall attend all
meetings of the Board of directors, all meetings of the Shareholders and record
all votes and the minutes of all proceedings in books to be kept for that
purpose, and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, any notice required to
be given of any meetings of the Shareholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors,
the Chairman of the Board or the Chief Executive Officer, under whose
supervision the Secretary shall be. The Secretary may sign any documents or
instruments of the Corporation which require signature of the President or other
corporate Officer under the Code. The Secretary may in the name of the
Corporation affix the seal of the Corporation to all contracts of the
Corporation and attest the seal of the Corporation thereto, and he or she may
sign with other appointed officers all certificates for shares of stock of the
Corporation.
5.11 POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
charge of all funds and securities of the Corporation, shall endorse the same
for deposit or collection when necessary and
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deposit same to the credit of the Corporation in such banks or depositories as
the Board of Directors may authorize. The Treasurer may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation and may
sign all receipts and vouchers for payments made to the Corporation. The
Treasurer shall have all such powers and duties as generally are incident to the
position of corporate treasurer or as may be assigned by the President or the
Board of Directors.
5.12 POWERS AND DUTIES OF THE EXECUTIVE VICE PRESIDENT OF CORPORATE
DEVELOPMENT. The Executive Vice President for Corporate Development shall have
the powers and duties set forth by the Board of Directors or the Chief Executive
Officer.
5.13 OTHER OFFICERS. The other Officers, if any, of the Corporation
shall have such powers and duties as shall be stated in a resolution of the
Board of Directors which is not inconsistent with these Bylaws. The other
Officers shall have all such powers and duties as may be assigned by the Board
of Directors or the President.
5.14 ABSENCES. In case of the absence of any Officer of the
Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may delegate, for the time being, any or all
of the powers or duties of such Officer to any Officer or to any Director.
ARTICLE 6
STOCK
6.1 CERTIFICATES. The interest of each Shareholder shall be evidenced
by a certificate or certificates representing shares of the Corporation, which
shall be in such form as the Board of Directors may from time to time adopt, and
shall be numbered, and shall be entered in the books of the Corporation as they
are issued. Each certificate representing shares shall set forth upon the face
thereof the following:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the State
of Georgia;
(c) the name(s) of the person(s) to whom the certificate is
issued;
(d) the number and class of shares, the designation of the
series, if any, which the certificate represents, and the par value of each
share or a statement that the shares are without par value; and
(e) if any shares represented by the certificate are nonvoting
shares, a statement or notation to that effect; and, if the shares represented
by the certificate are subordinate to shares of any other class or series with
respect to dividends or amounts payable on liquidation, the certificate shall
contain a clear and concise statement of either the face or the back of the
certificate to that effect.
Each certificate shall be signed by the President or Chief Executive
Officer, and the Secretary, and may also (but need not be) be signed by the
Executive Vice President, Treasurer, Assistant
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Treasurer or an Assistant Secretary, and may be sealed with the seal of the
Corporation or a facsimile thereof. If a certificate is countersigned by a
transfer agent or registered by a registrar, other than the Corporation itself
or an employee of the Corporation, the signature of any such Officer of the
Corporation may be a facsimile. In case any Officer(s) who shall have signed, or
whose facsimile signature(s) shall have been used on, any such certificate(s)
shall cease to be such Officer(s) of the Corporation, whether because of death,
resignation or otherwise, before such certificate(s) shall have been delivered
by the Corporation, such certificate(s) may nevertheless be delivered as though
the person(s) who signed such certificate(s) or whose facsimile signature(s)
have been used thereon had not ceased to be such Officer(s).
6.2 CLASS; SERIES; PREFERRED. If the Corporation is authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such a class or series of stock; provided, that, except as
otherwise provided by law, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock a statement that the
Corporation will furnish without charge to each Shareholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
6.3 SHAREHOLDER LIST. The Corporation shall keep or cause to be kept a
record of the Shareholders of the Corporation which readily shows, in
alphabetical order or by alphabetical index, by voting group and, within each
group, by classes or series of stock, if any, the names of the Shareholders
entitled to vote, with the address of and the number of shares held by each.
Said record shall be presented and kept open at all meetings of the
Shareholders.
6.4 TRANSFERS.
(A) MANNER OF MAKING TRANSFER. Transfers of shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his duly-authorized attorney, or with a transfer clerk or
transfer agent appointed as provided in Section 6.5 of this Article, and on
surrender of the certificate(s) for such shares properly endorsed and the
payment of all taxes thereon.
(B) RECORD OWNER. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive any distributions, to vote as such owner, and for all other
purposes, and shall not be bound to recognize any equitable or other claim to or
interest in such share(s) on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by law.
(C) DELIVERY OF CERTIFICATE. Shares of the Corporation may be
transferred by delivery of the certificate(s) therefore, accompanied either by
any assignment in writing on the back of the certificate(s) or by separate
written power of attorney to sell, assign or transfer the same, signed by the
record holder thereof, or by his duly-authorized attorney-in-fact, but no
transfer shall affect the
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right of the Corporation to make any distribution to the holder of record as
holder in fact thereof for all purposes, and no transfer shall be valid, except
between the parties thereto, until such transfer shall have been made upon the
books of the Corporation as herein provided.
(D) ADDITIONAL REQUIREMENTS. The Board may from time to time
make such additional rules and regulations as it may deem expedient, not
inconsistent with these Bylaws or the Articles of Incorporation, concerning the
issue, transfer and registration of certificates for shares of the Corporation.
6.5 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint
one or more transfer agents and one or more registrars and may require each
stock certificate to bear the signature(s) of a transfer agent or a registrar,
or both.
6.6 LOST CERTIFICATES. The Board of Directors may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation and alleged to have been lost, stolen or destroyed. When authorizing
such issue of a new certificate, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
6.7 FRACTIONAL SHARES OR SCRIP. The Corporation may, when and if
authorized by the Board of Directors, issue certificates for fractional shares
or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the Corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a Shareholder of the Corporation, including voting
rights, dividend rights or the right to participate in any of the assets of the
Corporation in the event of liquidation. In lieu of issuing fractional shares or
scrip, the Corporation may pay in cash the fair value of fractional interests as
determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including, without limitation, the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
ARTICLE 7
INDEMNIFICATION
7.1 DEFINITIONS. For purposes of this Article 7, the terms "director,"
"officer," "disinterested director," "expenses," "liability," "official
capacity," "party" and "proceeding" shall have the meanings found in Code
ss.14-2-850, as amended.
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7.2 AUTHORITY TO INDEMNIFY.
(A) GOOD FAITH CONDUCT. Except as otherwise provided in this
Section, the Corporation shall indemnify an individual who is a party to a
proceeding because he is or was a Director against liability incurred in the
proceeding if: (1) such individual conducted himself in good faith; and (2) such
individual reasonably believed: (A) in the case of conduct in his official
capacity, that such conduct was in the best interests of the Corporation; (B) in
all other cases, that such conduct was at least not opposed to the best
interests of the Corporation; and (C) in the case of any criminal proceeding,
that the individual had no reasonable cause to believe such conduct was
unlawful.
(B) EMPLOYEE BENEFIT PLANS. A Director's conduct with respect
to an employee benefit plan for a purpose he believed in good faith to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection (a)(2)(B) of this Section 7.2.
(C) PROCEEDINGS. The termination of a proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, is not, of itself, determinative that the Director did not meet the
standard of conduct described in this Section 7.2
(D) PROHIBITIONS ON INDEMNIFICATION. The Corporation may not
indemnify a Director under this Section:
(1) In connection with a proceeding by or in the right
of the Corporation, except for reasonable expenses
incurred in connection with the proceeding if it is
determined that the director has met the relevant
standard of conduct under this Section; or
(2) In connection with any proceeding with respect to
conduct for which he was adjudged liable on the
basis that personal benefit was improperly received
by him, whether or not involving action in his
official capacity.
7.3 MANDATORY INDEMNIFICATION. The Corporation shall indemnify a
Director who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which he was a party because he was a Director of the
Corporation against reasonable expenses incurred by the Director in connection
with the proceeding.
7.4 ADVANCE FOR EXPENSES.
(A) CONDITIONS. The Corporation may, before final disposition
of a proceeding, advance funds to pay for or reimburse the reasonable expenses
incurred by a Director who is a party to a proceeding because he is a Director
if he delivers to the Corporation:
(1) A written affirmation of his good faith belief that
he has met the relevant standard of conduct
described in this Section or that the proceeding
involves conduct for which liability has been
eliminated
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under a provision of the Articles of Incorporation
of the Corporation as authorized by Code ss.14-2-202
(b)(4), as amended; and,
(2) His written undertaking to repay any funds advanced
if it is ultimately determined that the Director is
not entitled to indemnification under this Article.
(B) REPAYMENT OBLIGATION. The undertaking required by Section
7.4(a)(2) must be an unlimited general obligation of the Director but need not
be secured and may be accepted without reference to the financial ability of the
Director to make repayment.
(C) AUTHORIZATIONS. Authorizations under this Section 7.4
shall be made:
(1) By the Board of Directors:
(A) When there are two or more disinterested
Directors, by a majority vote of all the
disinterested Directors (a majority of whom
shall for such purpose constitute a quorum),
or by a majority of the members of a
committee of two or more disinterested
Directors appointed by such a vote; or
(B) When there are fewer than two disinterested
Directors, by the vote necessary for action
by the Board of Directors in accordance with
Code ss.14-2-824(c), as amended, in which
authorization Directors who do not qualify as
disinterested Directors may participate; or
(2) By the Shareholders, but shares owned or voted under
the control of a director who at the time does not
qualify as a disinterested director with respect to
the proceeding may not be voted on the
authorization.
7.5 COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES. A
Director of the Corporation who is a party to a proceeding because he is a
Director may apply for indemnification or advance for expenses to the court
conducting the proceeding or to another court of competent jurisdiction.
7.6 DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(A) DETERMINATION REQUIRED. The Corporation may not indemnify
a Director under Section 7.2 unless authorized thereunder and a determination
has been made for a specific proceeding that indemnification of the Director is
permissible in the circumstances because he has met the relevant standard of
conduct set forth in Section 7.2.
(B) METHOD OF DETERMINATION. The determination shall be made:
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(1) If there are two or more disinterested Directors, by
the Board of Directors by a majority vote of all the
disinterested Directors (a majority of whom shall
for such purpose constitute a quorum) or by a
majority of the members of a committee of two or
more disinterested Directors appointed by such a
vote;
(2) By special legal counsel:
(A) Selected in the manner prescribed in
paragraph (1) of this subsection; or
(B) If there are fewer than two disinterested
Directors, selected by the Board of Directors
(in which selection Directors who do not
qualify as disinterested Directors may
participate); or
(3) By the Shareholders, but shares owned by or voted
under the control of a Director who at the time does
not qualify as a disinterested Director may not be
voted on the determination.
(C) EXPENSES. Authorization of indemnification or an
obligation to indemnify and evaluation as to reasonableness of expenses shall be
made in the same manner as the determination that indemnification is
permissible, except that if there are fewer than two disinterested Directors or
if the determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses shall be made by
those entitled under Section 7.6(b)(2)(B) of this Article to select special
legal counsel.
7.7 SHAREHOLDER APPROVED INDEMNIFICATION.
(A) APPROVAL OF SHAREHOLDERS. The Corporation may indemnify or
obligate itself to indemnify a Director made a party to a proceeding, including
a proceeding brought by or in the right of the Corporation, without regard to
the limitations found in other sections of these Bylaws or the Code, but shares
owned or voted under the control of a Director who at the time does not qualify
as a disinterested Director with respect to any existing or threatened
proceeding that would be covered by the authorization may not be voted on the
authorization.
(B) EXCEPTIONS. The Corporation shall not indemnify a Director
under this Section 7.7 for any liability incurred in a proceeding in which the
Director is adjudged liable to the Corporation or is subjected to injunctive
relief in favor of the Corporation:
(1) For any appropriation, in violation of the
Director's duties, of any business opportunity of
the Corporation;
(2) For acts or omissions which involve intentional
misconduct or a knowing violation of law;
(3) For the types of liability set forth in Code
ss.14-2-832, as amended; or
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(4) For any transaction from which he received an
improper personal benefit.
(C) EXPENSES. Where approved or authorized in the manner
described in subsection (a) of this Section 7.7, the Corporation may advance or
reimburse expenses incurred in advance of final disposition of the proceeding
only if:
(1) The Director furnishes the Corporation a written
affirmation of his good faith belief that his
conduct does not constitute behavior of the kind
described in subsection (b) of this Section 7.7; and
(2) The Director furnishes the Corporation a written
undertaking, executed personally or on his behalf,
to repay any advances if it is ultimately determined
that the Director is not entitled to indemnification
under this Section 7.7.
7.8 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS.
(A) OFFICERS. The Corporation shall indemnify and advance
expenses under this Article 7 to an Officer of the Corporation who is a party to
a proceeding because he is an Officer of the Corporation:
(1) To the same extent as a Director; and
(2) If he is not a Director, to the same extent, and
subject to the same conditions, as a Director of the
Corporation is entitled to and subject to under
Sections 7.2 - 7.7, except for liability arising out
of conduct that constitutes:
(A) Appropriation, in violation of his duties, of
any business opportunity of the Corporation;
(B) Acts or omissions which involve intentional
misconduct or a knowing violation of law;
(C) The types of liability set forth in Code
Section 14-2-832, as amended; or
(D) Receipt of an improper personal benefit.
(B) OFFICERS. The provisions of subsection 7.8(a)(2) shall
apply to an Officer who is also a Director if the sole basis on which he is made
a party to the proceeding is an act or omission solely as an Officer.
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<PAGE> 17
(C) APPLICATION TO COURT. An Officer of the Corporation who is
not a Director is entitled to mandatory indemnification under Section 7.3, and
may apply to the court under Section 7.5 for indemnification or advances for
expenses, in each case to the same extent to which a Director may be entitled to
indemnification or advances for expenses under those provisions.
(D) EMPLOYEES AND AGENTS. An employee or agent of the
Corporation who is not a Director or Officer is entitled to indemnification and
advancement of expenses to the same extent, and subject to the same conditions,
as a Director of the Corporation is entitled to and subject to under Sections
7.2 - 7.6.
7.9 INSURANCE. The Corporation may purchase and maintain insurance
on behalf of an individual who is a Director, Officer, employee or agent of the
Corporation or who, while a Director, Officer, employee or agent of the
Corporation, serves at the Corporation's request as a Director, Officer,
partner, trustee, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan, or other entity
against liability asserted against or incurred by him in that capacity or
arising from his status as a Director, Officer, employee or agent, whether or
not the Corporation would have power to indemnify or advance expenses to him
against the same liability under this Article 7.
7.10 APPLICATION OF ARTICLE.
(a) Any provision for indemnification of or advance for
expenses to Directors, Officers, employees, agents or others contained in the
Articles of Incorporation, these Bylaws, a resolution of the Corporation's
Shareholders or Board of Directors, or in a contract or otherwise, is valid only
if and to the extent the provision is allowable under the Code. If the Articles
of Incorporation limit indemnification or advance for expenses, indemnification
and advance for expenses are valid only to the extent consistent with the
Articles of Incorporation. This Article 7 does not limit the Corporation's power
to pay or reimburse expenses incurred by a Director in connection with his
appearance as a witness in a proceeding at a time when he is not a party. Except
as expressly provided in Section 7.8, this Article 7 does not limit the
Corporation's power to indemnify, advance expenses to, or provide or maintain
insurance on behalf of an employee or agent of the Corporation.
(b) The indemnification and/or advancement of expenses
provided by or granted pursuant to this Article 7 shall not be deemed exclusive
of any other rights, in respect of indemnification, advancement of expenses, or
otherwise, to which those persons seeking indemnification or advancement of
expenses may be entitled under, to the extent applicable, any other provision of
these Bylaws, the Articles of Incorporation, or a valid resolution, agreement or
contract, to the extent consistent with the Code.
7.11 SEVERABILITY. In the event that any of the provisions of this
Article 7 (including any provision within a single sentence) is held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions are severable and shall remain enforceable to the fullest
extent permitted by law.
7.12 AMENDMENT TO CODE. This Article 7 is intended to authorize
indemnification of Directors, Officers, agents and employees of the Corporation
to the fullest extent permitted by the
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<PAGE> 18
Code. If the Code hereafter is amended to authorize broader indemnification of
Directors, Officers, agents and employees, then the indemnification of such
Directors, Officers, agents and employees of the Corporation shall be expanded
to the fullest extent permitted by the Code as amended.
ARTICLE 8
MISCELLANEOUS
8.1 INSPECTION OF BOOKS. The Board of Directors shall have the power to
determine which accounts, books and records for the Corporation, if any, shall
be open to the inspection of Shareholders, except with respect to such accounts,
books and records as may by law be specifically open to inspection by
Shareholders, and shall have the power to fix reasonable rules and regulations
not in conflict with applicable laws, if any, for the inspection of accounts,
books and records which by law or by determination of the Board shall be
restricted and limited accordingly.
8.2 SEAL. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the Corporation followed by the
word "SEAL" enclosed in parenthesis or scroll shall be deemed the seal of the
Corporation.
8.3 APPOINTMENT OF AGENTS. The Chairman of the Board, the President,
the Secretary or any Vice President shall be authorized and empowered in the
name of and as the act and deed of the Corporation to name and appoint general
and special agents, representatives and attorneys to represent the Corporation
in the United States or in any foreign country; to name and appoint attorneys
and proxies to vote any shares of stock in any other corporation at any time
owned or held of record by the Corporation; to prescribe, limit and define the
powers and duties of such agents, representatives, attorneys and proxies; and to
make substitution, revocation or cancellation in whole or in part of any power
or authority conferred on any such agent, representative, attorney or proxy. All
powers of attorney or other instruments under which such agents,
representatives, attorneys or proxies shall be so named and appointed shall be
signed by the Chairman of the Board, the President, the Secretary or a Vice
President, and the corporate seal shall be affixed thereto. Any substitution,
revocation or cancellation shall be signed in like manner, provided always that
any agent, representative, attorney or proxy, when so authorized by the
instrument appointing him, may substitute or delegate his powers in whole or in
part and revoke and cancel such substitutions or delegations. No special
authorization by the Board of Directors shall be necessary in connection with
the foregoing, but these Bylaws shall be deemed to constitute full and complete
authority to the Officers above designated to do all the acts and things as they
deem necessary or incidental thereto or in connection therewith.
8.4 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
8.5 BUSINESS COMBINATIONS. All of the requirements within ss.ss.
14-2-1110 through 14-2-1113 and ss.ss.14-2-1131 through 14-2-1133 of the Code
shall be applicable to "business combinations" (as that term is defined therein)
of the Corporation.
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8.6 CHECKS; NOTES; DRAFTS. Checks, notes, drafts, acceptances, bills
of exchange and other orders or obligations for the payment of money shall be
signed by such Officer(s) or person(s) as the Board of Directors by resolution
shall from time to time designate.
ARTICLE 9
AMENDMENTS
The Bylaws of the Corporation may be altered or amended and new Bylaws
may be adopted by the Shareholders at any annual or special meeting of the
Shareholders or by the Board of Director at any regular or special meeting of
the Board of Directors; provided, however, that is such action is to be taken
at a meeting of the Shareholders, notice of the general nature of the proposed
change in the Bylaws shall be given in the notice of the meeting. Action by the
Shareholders with respect to Bylaws shall be taken by an affirmative vote of at
least two-thirds (2/3) of all shares entitled to elect Directors, and action by
the Board of Directors with respect to Bylaws shall be taken by an affirmative
vote of a majority of all Directors then holding office.
ARTICLE 10
SEVERABILITY
If any provision of these Bylaws is found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining provisions shall not be affected.
ADOPTED by action of the Board of Directors of Sunbelt Automotive
Group, Inc. as of this 18th day of December, 1997.
/s/ STEPHEN C. WHICKER
- -----------------------------
Stephen C. Whicker, Secretary
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 11, 1998 with respect to the financial
statements of Sunbelt Automotive Group, Inc., the use of our report dated
January 30, 1998 with respect to the consolidated financial statements of
Boomershine Automotive Group, Inc. and Subsidiaries, the use of our report dated
March 26, 1998 with respect to the financial statements of Jay Automotive Group,
Inc., the use of our report dated February 13, 1998 with respect to the
financial statements of Grindstaff, Inc., the use of our report dated March 23,
1998 with respect to the financial statements of Day's Chevrolet, Inc., and the
use of our report dated January 26, 1998 with respect to the financial
statements of Robertson Oldsmobile-Cadillac, Inc., in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-51451) and related Prospectus of
Sunbelt Automotive Group, Inc. for the Registration of 5,500,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
May 11, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 9, 1998 with respect to the combined
financial statements of Wade Ford, Inc. and Wade Ford Buford, Inc. in Amendment
No. 1 to the Registration Statement (Form S-1 No. 333-51451) and related
Prospectus of Sunbelt Automotive Group, Inc. for the Registration of 5,500,000
shares of its common stock.
/s/ PYKE & PIERCE, CPA'S
Atlanta, Georgia
May 11, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 12, 1998 with respect to the financial
statements of South Financial Corporation in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-51451) and related Prospectus of Sunbelt Automotive
Group, Inc. for the Registration of 5,500,000 shares of its common stock.
/s/ DAVIS, MONK & COMPANY
Atlanta, Georgia
May 11, 1998
