As filed with the Securities and Exchange Commission on
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HOMETOWN AUTO RETAILERS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 5511 06-150-1703
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or 831 Straits Turnpike
Organization) Watertown, CT 06795
(860) 945-4900
(860) 945-4909 Facsimile
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
-------------------------
Joseph Shaker
President and Chief Operating Officer
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, CT 06795
(860) 945-4900
(860) 945-4909 Facsimile
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------------
Copies to:
Stephen A. Zelnick, Esq. Stephen A. Weiss, Esq,
Morse, Zelnick, Rose & Lander, LLP Andrew J. Cosentino, Esq.
450 Park Avenue Greenberg Traurig Hoffman
New York, New York 10022 Lipoff Rosen & Quentel
(212) 838-8040 200 Park Avenue, 15th Floor
(212) 838-9190 (Facsimile) New York, New York 10166
(212) 801-9200
(212) 801-6400 (Facsimile)
-------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities 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, as amended (the "Securities Act") 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 statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
- ----------------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================
Proposed
Maximum Proposed
Offering Maximum
Price Aggregate Amount of
Title of Each Class of Amount To Be Per Share Offering Registration
Securities to be Registered Registered (1) Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................ 2,300,000 $11.00 $25,300,000 $2,403.50
shs.(2)
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Representative's Warrants............ 200,000 wts. (3) (3) (3)
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Common Stock issuable upon exercise
of Representative's Warrants....... 200,000(3) $13.20 $ 2,640,000 $ 250.80
- ------------------------------------------------------------------------------------------
Total Registration Fee .............. $2,654.30
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended (the "Securities
Act").
(2) Includes 300,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(3) No registration fee required pursuant to Rule 457 under the Securities
Act.
(4) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the anti-dilution provisions of the
Representative's Warrants.
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, AS AMENDED OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
Cross Reference Sheet
Showing Location in Prospectus of Information Required by
Items of Part I of Form S-1
Item and Caption in Form S-1 Location in Prospectus
- ---------------------------- ----------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus................................. Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside Front and Outside Back
Cover of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.......... Prospectus Summary -The
Company; Risk Factors
4. Use of Proceeds............................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price............. Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
6. Dilution.................................... Dilution
7. Selling Security - Holders.................. Not Applicable
8. Plan of Distribution........................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be
Registered.................................. Description of Securities;
Underwriting
10. Interests of Named Experts and Counsel...... Legal Matters; Experts
11. Information with Respect to the Registrant
(a) Description of Business............... Business
(b) Description of Property............... Business - Properties and
Facilities
(c) Legal Proceedings..................... Not Applicable
(d) Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters........... Front Cover Page; Dividend
Policy; Description of Capital
Stock; Shares Eligible for
Future Sale; Management - 1998
Stock Option Plan
(e) Financial Statements.................. Consolidated Financial
Statements; Capitalization
(f) Selected Financial Data............... Selected Consolidated Financial
Information and Operating Data
(g) Supplementary Financial Information... Not Applicable
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................. Not Applicable
(j) Directors, Executive Officers,
Promoters and Control Persons......... Management - Directors and
Executive Officers
(k) Executive Compensation................ Management - Executive
Compensation; and Management -
Stock Option Plan;
(l) Security Ownership of Certain
Beneficial Owners and Management...... Principal Stockholders
(m) Certain Relationships and Related
Transactions.......................... Management - Certain
Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
<PAGE>
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.
PROSPECTUS
2,000,000 Shares
HOMETOWN AUTO RETAILERS, INC.
CLASS A COMMON STOCK
--------------------
All of the shares of Class A Common Stock, par value $.001 per share (the
"Class A Common Stock"), offered hereby are being sold by Hometown Auto
Retailers, Inc. (the "Company" or "Hometown").
Prior to this offering (the "Offering"), there has been no public market
for the Class A Common Stock of the Company. It is expected that the initial
public offering price will be between $9.00 and $11.00 per share. For
information that was considered in determining the initial public offering
price, see "Underwriting." Application has been made for quotation of the Class
A Common Stock on the Nasdaq National Market under the symbol "HCAR."
The Company has two classes of authorized Common Stock, the Class A Common
Stock, which is offered hereby, and the Class B Common Stock, par value $.001
per share (the "Class B Common Stock"). Holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to ten votes per share. Both Class A Common Stock and Class B Common Stock vote
together as a single class on all matters to be voted on by stockholders of the
Company. Class A Common Stock is not convertible, while Class B Common Stock is
convertible, on a share for share basis, either at the option of the holder
thereof or automatically upon either public or private sale by the holder. All
of the authorized and outstanding shares of Class B Common Stock, which will
represent approximately 94.4% of the aggregate voting power of the Company upon
completion of this Offering, are beneficially owned by the existing stockholders
of the Company. See "Risk Factors - Concentration of Voting Power;" "Description
of Capital Stock" and "Principal Stockholders."
--------------------
For a discussion of certain factors that should be considered by
prospective purchasers of the Class A Common Stock offered hereby, see "Risk
Factors" beginning on page 10 .
--------------------
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 NOR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
================================================================================
Price to Underwriting Proceeds
Public Discounts and to
Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share....... $ $ $
- --------------------------------------------------------------------------------
Total(3)........ $ $ $
================================================================================
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. The Company has also agreed to issue to Paulson Investment
Company, Inc., as representative of the several Underwriters (the
"Representative"), warrants (the "Representative's Warrants") to purchase
up to 200,000 shares of Class A Common Stock for $ per share [120%
of the initial offering price].
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 300,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters and
subject to various prior conditions, including the right to reject orders in
whole or in part. It is expected that delivery of the certificates representing
the shares will be made against payment therefor at the offices of __________ in
New York, New York on or about ______________, 1998.
Paulson Investment Company, Inc.
The date of this Prospectus is ____________, 1998
<PAGE>
This Prospectus includes statistical data regarding the retail automobile
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 and
Automotive Executive Magazine publications and Crain Communications, Inc. in the
Automotive News - 1997 Market Data Book. This Prospectus includes trademarks of
companies other than Hometown Auto Retailers, Inc., which trademarks are the
property of their respective holders.
--------------------------
Neither Ford Motor Company ("Ford Motor"), General Motors Corporation
("GM"), Toyota Motor Corp. and its United States affiliate, Toyota Motor Sales,
U.S.A., Inc. (collectively, "Toyota Motor"), Chrysler Corporation ("Chrysler")
and American Isuzu Motors, Inc. ("American Isuzu"), nor any other automotive
manufacturer (a "Manufacturer") has been involved, directly or indirectly, in
the preparation of this Prospectus or in the Offering being made hereby. No
Manufacturer has made any statements or representations in connection with the
Offering or provided any information or materials that were used in connection
with the Offering, and no Manufacturer has any responsibility for the accuracy
or completeness of this Prospectus. The Company has agreed to indemnify each
Manufacturer with which it has a franchise agreement against certain liabilities
that may be incurred in connection with the Offering, including liabilities
under the Securities Act of 1933, as amended.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
THE CLASS A COMMON STOCK AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH
THE OFFERING.
--------------------------
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information contained in this Prospectus gives retroactive effect
to the consummation of (i) the Company's issuance of 3,760,000 shares of Class B
Common Stock in exchange for the capital stock of four corporations operating
six dealerships, a collision repair center and a factory auto-service center
(the "Exchange") and (ii) the cash acquisition of two additional dealerships
(the "Acquisitions"), all of which transactions shall be consummated on the
closing of this Offering. References herein to the "Company" or "Hometown" mean
Hometown Auto Retailers, Inc., its predecessor companies and subsidiaries after
giving effect to the foregoing transactions. Unless otherwise indicated, all
share, per share and financial information set forth herein has been adjusted
retroactively to give effect to (i) a 12,000-for-1 stock split resulting in the
issuance of 240,000 shares of Class A Common Stock, (ii) the issuance of
3,760,000 shares of Class B Common Stock in the Exchange, and (iii) the
amendment to the Certificate of Incorporation reducing the authorized capital
stock to 29,760,000 shares and the Class B Common Stock to 3,760,000 shares and
assumes that the Underwriters' over-allotment option and the Representative's
Warrants are not exercised. See "Underwriting."
The Company
The Company is engaged in the business of selling new and used cars and
light trucks, providing maintenance and repair services, selling replacement
parts and providing related financing, insurance and service contracts through 8
franchised dealerships located in New Jersey, Connecticut, Massachusetts and
Vermont. The Company's dealerships offer 12 American and Asian automotive
brands, including Chevrolet, Chrysler, Dodge, Eagle, Ford, Isuzu, Jeep, Lincoln,
Mercury, Oldsmobile, Plymouth and Toyota. The Company also operates a collision
repair center and is active in two "niche" segments of the automotive market,
the sale of Lincoln town cars and limousines to livery car and livery fleet
operators and the maintenance and repair of cars and trucks at a Ford and
Lincoln Mercury factory authorized free-standing service center. The Company
believes, based on available 1996 industry data, that it is one of the five
largest automotive dealers in New England and a leading dealer in the State of
New Jersey. The Company's growth strategy is to participate in the recent
consolidation trend in the automotive sales and service industry and, through
strategic acquisitions, become the largest dealer group in New England and parts
of the Mid-Atlantic region and to expand its two "niche" businesses: livery
sales and maintenance and light repair in free-standing neighborhood factory
authorized service centers.
The Company believes that it is the nation's largest seller of Lincoln
town cars and limousines to livery car and livery fleet operators. The Company
has achieved its market position in livery car sales through innovative sales,
financing and maintenance programs creating a high level of repeat business
under which livery car operators trade in their vehicles for new models every 18
to 24 months. The Company believes that it will be able to expand its livery
sales business throughout the New England and Mid-Atlantic regions by adding
additional sales locations and maintenance and repair facilities.
The Company's "Lincoln Mercury Autocare" center located in Connecticut was
the pilot facility for Ford's authorized free-standing neighborhood service
center concept for the maintenance and light repair of cars and trucks.
Free-standing neighborhood service centers are an innovative attempt by the
automobile retail industry to recapture repair and maintenance business which
has been lost in recent decades to chain and independent service businesses.
These services centers are designed to enhance customer convenience by operating
during extended hours, servicing vehicles without prior
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3
<PAGE>
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appointment and offering quick turnaround. The Company intends to establish
additional neighborhood service centers in locations in which they develop a
concentration of dealerships.
Operating Strategy
The Company will seek to consolidate operations and increase the
profitability of its existing dealerships by using a strategy that combines its
"best in class" operating practices with the advantages of its established
customer base, local presence and name recognition. Upon completion of the
Exchange and the Acquisition, each of the Company's dealerships will use a core
operating strategy specifically designed to produce a high shop absorption rate
(i.e., that portion of total dealership fixed costs borne by the gross profit
generated by the parts and service departments), a high rate of service
retention and a high ratio of retail used to new car sales, all in order to
maximize profitability and provide insulation from the cyclicality of new car
sales. Each dealership has a general manager who is highly-trained and
ultimately responsible for the operation, personnel and financial performance of
that dealership. The Company's established operating practices and procedures,
including the management and pricing of inventories of new and used vehicles,
are continually reviewed and updated by the general managers and members of the
Company's operating committee, consisting of its six senior executive officers,
each of whom is, or has been, the chief operating officer of a franchised
dealership. The executive officers of the Company have over 130 years of
combined experience in the automotive retailing industry and are members of
families who have owned dealerships since 1947. They are recognized leaders in
the automotive retailing industry and serve at various times in leadership
positions in state and national industry organizations. The Company has also
received numerous awards based on high customer satisfaction index ("CSI")
ratings and other performance measures regularly compiled or monitored by the
automobile Manufacturers.
The Company believes that the following factors, coupled with its
established organizational structure, will help it achieve its operating
strategy:
o an established customer base and name recognition for each of its
existing dealerships;
o a high ratio of retail used car to new car sales;
o a strong regional focus permitting cross-marketing of used and same
brand new vehicles;
o management and control efficiencies;
o strong presence in higher profit margin automotive "niche"
businesses: (i) sale, financing and maintenance of livery vehicles;
and (ii) operation of free-standing neighborhood factory authorized
service centers in locations with a concentration of Hometown
dealerships;
o brand diversity;
o potential cost savings from centralized financing and administrative
functions; and
o the ability to source high quality used vehicles cost-effectively
through coordinated auction buying, trade-ins and off-lease
programs.
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4
<PAGE>
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Growth Strategy
The Company's goals are to become, through selected acquisitions, the
leading consolidator and the largest dealer group in New England, to increase
the number of its dealerships in New Jersey and other portions of the
Mid-Atlantic region, to add additional sales locations and maintenance and
repair facilities for its livery sales business and to establish additional
factory authorized free-standing neighborhood service centers in parts of both
New England and the Mid-Atlantic region with a concentration of Hometown
dealerships. Its acquisition strategy will focus on small to mid-sized
dealerships, having annual revenues of between $20 million and $60 million per
location (some of which may be part of larger groups), which are located in
urban fringe or suburban areas. By the nature of their customer base and
"neighborhood" location, the Company believes that these small to mid-sized
dealerships are more compatible with its core operating strategy than larger
regional dealerships, as they are able to provide customers with convenient
access for the higher margin products and services, such as used vehicle retail
sales, light repair and maintenance services and sale of replacement parts.
The Industry
Over the past three decades, there has been a trend toward fewer, but
larger, automotive dealerships. In 1996, each of the largest 100 dealer groups
had more than $200 million in revenues. Although significant consolidation has
taken place since its inception, the industry today remains highly fragmented,
with only the largest 100 dealer groups generating less than 10% of total sales
revenues and controlling approximately 5% of all franchised dealerships. The
Company believes that the recent industry trend of consolidating larger
dealerships which has taken place in other parts of the country, can also be
applied to the small and mid-sized dealerships located in the densely populated
Northeastern region. Factors within the industry favoring the Company's
consolidation strategy include:
* Customer Convenience. Because they are able to provide their customers
with more convenient access for maintenance and repair, customers tend to
favor a large number of small to mid-size dealerships and service centers,
rather than one remotely-located large regional center.
* Economies of Scale. Small and mid-sized dealerships can most often
benefit from the synergies created by being a member of a larger
automotive group, including cross-utilization of same brand new and used
car inventories, lower cost financing, more effective auction positioning
and integration of computer systems.
* Consolidation is favored by Manufacturers. The Company believes that the
principal Manufacturers are seeking to reduce the number of dealerships
holding their franchises and to retain or establish higher quality dealers
with enhanced financial stability who can better foster the Manufacturer's
brand image.
Corporate History; Founders
The Company was founded in March 1997 to consolidate and operate
automobile dealerships in the Northeast, primarily New Jersey and New England.
On the closing of the Offering, the stockholders of four corporations operating
six franchised dealerships, one collision repair center and one factory
authorized free-standing neighborhood auto-service center in New Jersey and
Connecticut (collectively, the "Core Operating Companies") will exchange all of
their stock in such corporations for
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5
<PAGE>
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3,760,000 shares of Class B Common Stock (the "Exchange"). In 1997, the Core
Operating Companies had pro forma combined revenues and income before income
taxes of $178,433,000 and $2,760,000, respectively. In addition, the Company has
entered into agreements to acquire two operating dealerships in Massachusetts
and Vermont for an aggregate consideration of $5.7 million (the "Acquisitions")
which added $49,300,000 and $1,688,000, respectively, to 1997 pro forma revenues
and income before income taxes. See "Exchange and Acquisitions," "Use of
Proceeds" and "Description of Securities."
Consummation of the Offering is conditioned upon the consummation of the
transactions contemplated by the Exchange and the Acquisitions.
The Offering
Common Stock offered by the Company 2,000,000 shares of Class A Common
Stock
Common Stock to be outstanding after the 2,240,000 shares of Class A Common
offering Stock (1) 3,760,000 shares of Class B
Common Stock
Use of proceeds Finance the acquisition of two
automobile dealerships; repay certain
indebtedness; working capital and
general corporate purposes, including
additional acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol HCAR
- ------------
(1) Does not include: (a) an aggregate of 480,000 shares reserved for issuance
under the Company's Stock Option Plan, 240,000 of which are subject to
outstanding options exercisable at the initial public offering price per
share; and (b) 300,000 shares subject to the over-allotment option. See
"Management Stock Options" and "Underwriting."
Certain Risk Factors
The Company's acquisition program may be limited to some extent by general
policies adopted by the Manufacturers and by specific conditions imposed by the
Manufacturers in connection with approval of the Exchange and the Acquisitions.
See "Risk Factors--"Manufacturers' Control over Dealerships," Risks Relating to
Failure to Meet Manufacturer CSI Scores," "Dependence on Acquisitions for
Growth," and "Manufacturers' Restrictions on Acquisitions."
See "Risk Factors" beginning on page 10 for a description of the above and
certain other risks relevant to an investment in the Class A Common Stock.
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6
<PAGE>
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Summary Pro Forma Financial Data
The following summary pro forma financial data presents, for the year
ended December 31, 1997, certain historical pro forma financial data and
combined pro forma data for the Core Operating Companies and the Acquisitions as
if those transactions had occurred as of January 1, 1997. See "Selected
Financial Data" and the Unaudited Pro Forma Financial Statements and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
---------------------------------------------------------------------------------
Core Operating Companies(2) Consolidated
--------------------------------------- Core-Operating Acquisitions Pro Forma
Shaker(3) Westwood Muller Companies (2) (3)(4)
Unaudited Pro Forma ----------- --------- -------- ------------- ------------ ----------
Income Statement Data (1): (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales ........................ $ 29,345 $ 45,470 $ 33,308 $ 108,123 $ 18,928 $ 127,051
Used vehicle sales ....................... 21,800 8,396 19,996 50,192 25,387 75,579
Parts and service sales .................. 6,727 4,352 4,907 15,986 4,090 20,076
Other dealership revenues, net ........... 1,624 731 1,777 4,132 895 5,027
----------- -------- -------- --------- -------- ----------
Total revenues ........................ 59,496 58,949 59,988 178,433 49,300 227,733
Cost of sales ............................... 51,226 52,770 51,641 155,637 42,488 198,125
----------- -------- -------- --------- -------- ----------
Gross profit .......................... 8,270 6,179 8,347 22,796 6,812 29,608
Amortization of excess of purchase
price over net tangible
assets acquired ......................... -- -- -- -- -- 399 (5)
Selling, general and administrative
expenses (2) ............................. 7,077 4,931 6,936 18,943 4,731 23,675 (5)
----------- -------- -------- --------- -------- ----------
Income from operations ................ 1,193 1,248 1,411 3,853 2,081 5,534
Other income (expense)
Interest expense, net (2) ................ (427) (295) (420) (1,142) (361) (192)(5)
Other income (expense), net .............. 116 (39) (27) 50 (32) 18
----------- -------- -------- --------- -------- ----------
Income before taxes ................... $ 882 $ 914 $ 964 $ 2,761 $ 1,688 5,360
=========== ======== ======== ========= ========
Provision for income taxes ......................................................................................... 2,144 (5)
----------
Net income ................................................................................................... $ 3,216
==========
Earnings per share, basic and diluted .............................................................................. $ 0.54
Weighted average shares ............................................................................................ 6,000,000
Unaudited Pro Forma Other Data (1):
Gross margin ................................ 13.9% 10.5% 13.9% 12.8% 13.8% 13.0%
Operating margin ............................ 2.0% 2.1% 2.4% 2.2% 4.2% 2.4%
Pre-tax margin .............................. 1.5% 1.6% 1.6% 1.5% 3.4% 2.4%
Retail new vehicles sold .................... 1,297 1,473 1,511 4,281 819 5,100
Retail used vehicles sold ................... 1,256 377 1,301 2,934 1,542 4,476
</TABLE>
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7
<PAGE>
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As of December 31, 1997
------------------------------------
Core Operating Pro Forma
Shaker Companies As Adjusted
(6) (7)(8)
------- ---------- --------
Unaudited Pro Forma Balance Sheet Data(1): (in thousands)
Working capital (deficit) ............ $ 4,563 $ 4,024 $12,305
Inventories .......................... 7,609 27,295 31,543
Total assets ......................... 14,042 53,746 59,203
Total debt ........................... 8,944 36,429 26,686
Stockholders' equity ................. 5,098 17,317 32,517
Notes:
(1) For financial presentation purposes, the Unaudited Pro Forma Income
Statement Data give effect to the Exchange, the Acquisitions and the
Offering as if they had occurred as of January 1, 1997, the beginning of
the period. The Exchange and the Acquisitions will occur simultaneously
with the Closing of the Offering.
(2) Aggregate pro forma adjustments made to the historical financial
statements of the Core Operating Companies and the Acquisitions are as
follows:
Debit (Credit) Total 1997
--------------
(in thousands)
Selling, general and
administrative expenses .............................. $(2,166)(a)
Other income (expense)
Interest expense, net ............................... 163 (b)
-------
Income before taxes ................................. $(2,003)
=======
(a) Reflects a pro forma reduction to compensation expense, management
fees and rent expense based on contractual arrangements to be
effective immediately following the closing of the Offering as
though, for pro forma financial presentation purposes, such
arrangements had been given effect as of January 1, 1997. Such
reductions are as follows: Shaker $639,000; Westwood $663,000;
Muller $347,000; and Acquisitions $517,000. See Unaudited Pro Forma
Financial Statements and the notes thereto beginning on page F-4 for
a more detailed description of these pro forma adjustments.
(b) Reflects a pro forma reduction to interest income of Shaker of
$238,000 and of the Acquisitions of $50,000 of Cash and Cash
Equivalents not realized as part of the Exchange and the
Acquisitions offset by reductions in interest expense as follows;
(i) $92,000 of long-term debt incurred by Muller prior to the
Exchange will be liquidated out of proceeds of the Offering, and
(ii) $33,000 of leases and debt not assumed as part of the
Acquisitions. See Unaudited Pro Forma Financial Statements and the
notes thereto beginning on page F-4 for a more detailed description
of these pro forma adjustments.
(3) These transactions were accounted for using the purchase method of
accounting. ERR Enterprises, Inc. ("Shaker"), the parent of one of the
Core Operating Companies, was identified as the acquiror for financial
statement presentation purposes in accordance with SAB No. 97 because its
stockholders
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received the largest number of shares of Class B Common Stock in the
Exchange, representing the single largest voting inteest in the Company.
(4) Gives effect to: (i) the Exchange and the Acquisitions, (ii) the
consummation of the Offering and (iii) the pro forma adjustments,
specified in footnotes (1) above and (4) below, to the historical
financial statements.
(5) The combination of Income Statement Data of the Core Operating Companies'
and the Acquisitions does not equal the total set forth in the Pro Forma
Financial Statements because of the following pro forma adjustments which
are made in total only: (i) the amortization of the "excess purchase price
over net tangible assets acquired;" (ii) the decrease in interest expenses
of $998,000 resulting from the repayment of certain floor plan obligations
with proceeds from the Offering, and the decrease in interest of $313,000
resulting from refinancing of the balance of the floor plan obligations
with a commercial lender; (iii) the provision for federal and state income
taxes based on an effective rate of 40% for each of the Core Operating
Companies and Acquisitions and (iv) $1,000 of selling, general and
administrative expenses incurred by Hometown during 1997. See Unaudited
Pro Forma Financial Statements and the notes thereto beginning on page F-4
for a more detailed description of these pro forma adjustments.
(6) Gives effect to the Exchange on an historical basis and the pro forma
balance sheets adjustments on pages F-7 and F-8. See Unaudited Pro Forma
Financial Statements and the notes thereto beginning on page F-4 for a
description of these pro forma balance sheet adjustments.
(7) Gives effect to the Exchange and the Acquisitions on an historical basis
and the pro forma balance sheets adjustments on pages F-7 and F-8. See
Unaudited Pro Forma Financial Statements and the notes thereto beginning
on page F-4 for a description of these pro forma balance sheet
adjustments.
(8) Gives effect to the sales of the shares of Class A Common Stock offered
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds."
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RISK FACTORS
An investment in the Class A Common Stock involves various material risks.
Prospective investors should carefully consider the following factors, in
addition to the other information set forth in this Prospectus, in connection
with an investment in the Class A Common Stock.
Certain statements contained in this Prospectus, including the words,
"believes," "may," "will," "expect," "anticipate," "continue," "estimate,"
"project," "intend" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results or
performance of the Company, or industry results, to be materially different from
any future results or performance expressed or implied by such forward-looking
statements. Certain of these factors, risks and uncertainties and other factors
are discussed in more detail in the risk factors set forth below and elsewhere
in this Prospectus. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
Absence of Combined Operating History
The Company has conducted no combined or coordinated operations other than
in connection with the Exchange, the Acquisitions and the Offering. The Core
Operating Companies have been operated and managed as separate independent
entities and the Company's future operating results will depend, in part, on its
ability to integrate operations and manage the combined enterprise. The
management group that will lead the Company has been formed only recently and
there can be no assurance that it will be able to effectively and profitably
integrate the Core Operating Companies, the Acquisitions and any future
acquisitions, or to effectively manage the combined entity. The inability of the
Company to do so could have a material adverse effect on its business, financial
condition and results of operations.
Dependence on Automobile Manufacturers
The Company is significantly dependent upon its relationships with, and
the success of, certain Manufacturers. For the year ended December 31, 1997,
Ford Motor, Toyota Motor and Chrysler accounted for 63%, 17%, and 11% of the new
vehicle sales of the Company, respectively. The Company may become dependent on
additional manufacturers in the future as a result of its acquisition strategy
and changes in the Company's sales mix.
The Company also is dependent upon its Manufacturers to provide it with an
inventory of new vehicles. The most popular vehicles tend to provide the Company
with the highest profit margins and are frequently the most difficult to obtain
from the Manufacturers. In order to obtain sufficient numbers of these vehicles,
the Company may be required to purchase a larger number of less marketable makes
and models than it would otherwise purchase. Sales of less desirable makes and
models may result in lower profit margins than sales of the more popular
vehicles. If the Company were to be unable to
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obtain sufficient quantities of the most popular makes and models, its
profitability could be adversely affected.
The Company's franchise and dealership agreements with its Manufacturers
do not give the Company the exclusive right to sell any Manufacturer's product
within any given geographical area. Accordingly, a Manufacturer could grant a
franchise to another dealer to start a new dealership in proximity to one or
more of the Company's locations or an existing dealer could move its dealership
to a location which would be directly competitive with the Company. Although
under Connecticut and New Jersey law a manufacturer is prohibited from
establishing a new dealership, or authorizing the relocation of an existing
dealership, to a location within 14 miles (8 miles in New Jersey under certain
circumstances) of a pre-existing dealership holding a franchise to sell the same
brand, depending upon the dealership involved, such an event could have a
material adverse effect on the Company and its operations.
The success of each of the Company's franchises is also dependent to a
great extent on the success of the respective Manufacturer, including its
financial condition, marketing, vehicle demand, production capabilities and
management. Events such as labor strikes or negative publicity concerning a
particular Manufacturer, including safety recalls of a particular vehicle model,
could adversely affect the Company. The Company has attempted to lessen its
dependence on any one Manufacturer by obtaining agreements with a number of
different domestic and foreign automobile manufacturers.
Manufacturers' Control over Dealerships
The dealerships operated by the Company sell cars and light trucks
pursuant to franchise or dealership agreements with Ford Motor, GM, Toyota
Motor, Chrysler and American Isuzu. Through the terms and conditions of these
agreements, such Manufacturers exert considerable influence over the operations
of the Company's dealerships. Each of these agreements includes provisions for
the termination or non-renewal of the manufacturer-dealer relationship for a
variety of causes including any unapproved change of ownership or management and
other material breaches of the franchise agreement.
To its knowledge, the Company has, to date, complied with its dealership
agreements. There can be no assurance, however, that the Company will not from
time to time fail to comply with particular provisions of some or all of these
agreements. Although such agreements generally afford the Company a reasonable
opportunity to cure violations, if a Manufacturer were to terminate or decline
to renew one or more of the Company's significant agreements, such action could
have a material adverse effect on the Company and its business.
Dependence on Acquisitions for Growth
The Company's future growth and financial success will be dependent upon a
number of factors including, among others, the Company's ability to identify
acceptable acquisition candidates, consummate the acquisition of such
dealerships on terms that are favorable to the Company, obtain the consent of
applicable automobile manufacturers, acquire and retain or hire and train
professional management and sales personnel at each such acquired dealership and
promptly and profitably integrate the acquired operations into the Company. The
Company may acquire dealerships with net profit margins which are materially
lower than the Company's historical average net profit margin. No assurance can
be given that the Company will be able to improve the profitability of any such
acquired dealerships. To manage its expansion, the Company intends to evaluate
on an ongoing basis the
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adequacy of its existing systems and procedures, including, among others, its
financial and reporting control systems, data processing systems and management
structure. However, no assurance can be given that the Company will adequately
anticipate all of the demands its growth will impose on such systems, procedures
and structure. Any failure to adequately anticipate and respond to such demands
could have a material adverse effect on the Company.
Acquisitions of additional dealerships will require substantial capital
investment and could have a significant impact on the Company's financial
position and operating results. Any such acquisitions may involve the use of
cash (including the net proceeds of the Offering) or the issuance of additional
debt or equity securities which could have a dilutive effect on the then
outstanding capital stock of the Company. Acquisitions may also result in the
accumulation of substantial goodwill and intangible assets which would result in
amortization charges to the Company and adversely affect future earnings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Growth
Strategy."
Manufacturers' Restrictions on Existing and Future Acquisitions
As a condition to granting their consent to the Exchange and the
Acquisitions, the Manufacturers have imposed certain restrictions on the
Company. These include restrictions on: (i) the acquisition of more than a
specified percentage of the Common Stock (20% in the case of GM and Toyota
Motor, 50% in the case of Ford Motor and - % in the case of Chrysler) by any one
person who in the opinion of the Manufacturer is unqualified to own a dealership
of such Manufacturer or has interests incompatible with the Manufacturer, (ii)
certain material changes in the Company or extraordinary corporate transactions
such as an acquisition, merger or sale of a material amount of assets; (iii) a
change in the general manager of a dealership without the consent of the
applicable Manufacturer; (iv) the use of dealership facilities to sell or
service new vehicles of other Manufacturers; (v) in the case of GM, the
advertising or marketing of non-GM operations with GM operations; (vi) in the
case of GM, any change in control of the Company's Board of Directors; and (vii)
in the case of Ford Motor, any change in greater than 50% of the Company's Board
of Directors or management. If the Company is unable to comply with these
restrictions, the Manufacturer may require the Company to sell the assets of the
dealerships to the Manufacturer or to a third party acceptable to the
Manufacturer, or terminate the dealership agreements with the Manufacturer.
It may be anticipated that obtaining Manufacturer's consent will also be a
prerequisite to any future acquisitions which the Company will seek to
consummate. Various Manufacturers have set limits on the number of dealerships
carrying their brand which may be owned by one dealer group (or company)
nationally or in specified market areas or which may be acquired within
specified time periods. Certain state laws, however, limit the ability of
automobile manufacturers to reject proposed transfers of dealerships,
notwithstanding the terms of any dealership agreement. See "Business -
Dealership Agreements." The loss of one or more of the Company's dealership
agreements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Related to Acquisition Financing; Future Capital Requirements
The Company currently intends to finance future acquisitions by issuing
shares of Class A Common Stock as full or partial consideration for acquired
dealerships. The issuance of additional shares of Class A Common Stock may be
dilutive to the Company's future earnings per share. In addition, the extent to
which the Company will be able or willing to issue Class A Common Stock for
acquisitions will depend on the then current market value of the Class A Common
Stock and the willingness of potential acquisition candidates to accept shares
of that stock as part of the consideration
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for the sale of their businesses. To the extent that the Company is unable or
unwilling to do so, the Company may be required to use available cash or
proceeds from debt or equity financings. The Company currently expects that the
net proceeds from the Offering and other existing resources will be sufficient
to fund its acquisition program and other cash needs for at least the next 12
months. However, no assurance can be given that the net proceeds from the
Offering and other existing resources will be sufficient to fund the Company's
acquisition program and other cash needs or that the Company will be able to
obtain adequate additional capital from other sources for either such purposes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Operating Companies Commitments Credit Facility."
Risks Relating to Failure to Meet Manufacturer CSI Scores
Many manufacturers attempt to measure customers' satisfaction with
automobile dealerships through a CSI, or customer satisfaction index, rating
system. These manufacturers may use a dealership's CSI scores as a factor in
evaluating applications for additional dealership acquisitions and participation
by a dealership in incentive programs. The dealerships operated by the Core
Operating Companies have historically exceeded their Manufacturers' CSI
standards. However, there can be no assurance that either the Company
dealerships operated by members of the Core Operating Companies or other
subsequently acquired dealerships will continue to meet such standards.
Moreover, from time to time, the components of the various Manufacturer CSI
scores have been modified and there is no assurance that such components will
not be further modified or replaced by different systems in the future which
make it more difficult for key Company dealerships to meet such standards.
Reliance on Key Personnel
The Company will depend to a large extent upon the abilities and continued
efforts of its senior executive officers including Salvatore A. Vergopia, Joseph
Shaker, Edward A. Vergopia, Corey Shaker, William C. Muller Jr. and James
Christ. Further, the Company may be dependent on the senior management of the
dealerships acquired by means of the Acquisitions and any other businesses
acquired in the future. If any of these persons becomes unavailable to continue
in such capacity, or if the Company were unable to attract and retain other
qualified employees, its business or prospects could be adversely affected.
Although the Company has entered into a five-year employment agreement with each
of its six senior executive officers and directors, there can be no assurance
that any individual will continue in his present capacity for any particular
period of time. The Company has made application for life and disability
insurance on the lives of its senior executive officers as follows: Salvatore A.
Vergopia, $500,000; Joseph Shaker, $1,000,000; Edward A. Vergopia, $250,000;
Corey Shaker, $250,000; William C. Muller Jr., $250,000 and James Christ,
$250,000. No assurance can be given that any such policies will be issued. See
"Management."
Substantial Competition
The automotive retailing industry is highly competitive with respect to
price, service, location and assortment. The Company competes with automobile
dealerships (including public franchised dealership consolidators), private
market buyers and sellers of used vehicles, used vehicle dealerships, service
center chains, independent service and repair shops and financing and insurance
("F&I") operations. In the sale of new vehicles, the Company competes with other
franchised dealers. The Company does not have any cost advantage in purchasing
new vehicles from the Manufacturers, and typically will rely on advertising,
merchandising, sales expertise, service reputation and location of its
dealerships to sell new vehicles. In recent years, the Company has also faced
competition from non-traditional sources such as companies that sell automobiles
on the Internet, automobile rental
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agencies, independent leasing companies, used-car "superstores" and price clubs
associated with established consumer agencies such as the American Automobile
Association, some of which use non-traditional sales techniques such as
one-price shopping. In addition, Ford Motor has announced that it is exploring
the possibility of going into business with some of its dealers to create
automotive superstores in selected markets. Some of these recent market entrants
may have greater financial, marketing and personnel resources and/or lower
overhead or sales costs than the Company. In the parts and service area, the
Company also competes with a number of regional or national chains which offer
selected parts and services at prices that may be lower than the Company's
prices. In addition, there can be no assurance that the Company's strategy will
be more effective than the strategies of its competitors.
Mature Industry
The United States automobile dealership industry generally is considered a
mature industry in which minimal growth is expected in unit sales of new
vehicles. As a consequence, growth in the Company's revenues and earnings are
likely to be significantly affected by the Company's success in acquiring and
integrating dealerships and the pace and size of such acquisitions. See
"Business - Growth Strategy."
Cyclical Nature of Automobile Sales
Sales of motor vehicles, particularly new vehicles, historically have been
subject to substantial cyclical variation characterized by oversupply and weak
demand. The Company believes that the industry is affected by many factors,
including general economic conditions, consumer confidence, the level of
personal discretionary spending, interest rates and credit availability. There
can be no assurance that the industry will not experience sustained periods of
decline in vehicle sales, particularly new vehicle sales, in the future. Any
such decline could have a material adverse effect on the Company.
Seasonality; Variability of Quarterly Operating Results
The automobile industry is subject to seasonal variations in revenues.
Demand for cars and light trucks is generally lower during the winter months
than in other seasons, particularly in regions of the United States where the
Company is located which are associated with harsh winters. Accordingly, the
Company expects its revenues and operating results to be generally lower in its
first and fourth quarters than in its second and third quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Imported Products
A significant portion of the Company's new vehicle business will involve
the sale of vehicles, parts or vehicles composed of parts that are manufactured
outside the United States. As a result, the Company's operations will be subject
to customary risks of importing merchandise, including fluctuations in the value
of currencies, import duties, exchange controls, trade restrictions, work
stoppages and general political and economic conditions in foreign countries.
The United States or the countries from which the Company's products are
imported may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duties or tariffs, which
could affect the Company's operations and its ability to purchase imported
vehicles and/or parts.
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Governmental Regulations and Environmental Matters
The Company will be subject to a wide range of federal, state and local
laws and regulations which are administered by various federal, state and local
regulatory agencies, such as local licensing requirements, consumer protection
laws and environmental requirements governing, among other things, discharges to
the air and water, the storage of petroleum substances and chemicals, the
handling and disposal of wastes, and the remediation of contamination arising
from spills and releases. The violation of these laws and regulations could
result in civil and criminal penalties being levied against the Company or in a
cease and desist order against operations that are not in compliance. Future
acquisitions by the Company may also be subject to governmental regulation,
including antitrust reviews. The Company believes that the Core Operating
Companies substantially comply with all applicable laws and regulations relating
to its business, but future laws and regulations may be more stringent and
require the Company to incur significant additional costs. The failure to
satisfy current or future regulatory requirements could have a material adverse
effect on the operations and financial condition of the Company. See "Business
- -- Governmental Regulations" and "Business -- Environmental Matters."
Concentration of Voting Power; Anti-Takeover Provisions
The former stockholders of the Core Operating Companies own all of the
Class B Common Stock, which entitles them to ten votes for each share held,
while holders of Class A Common Stock, which is the only stock offered hereby,
are entitled to one vote per share held. Consequently, upon completion of the
Offering, such holders of the Class B Common Stock, who will own 62.7% of the
Company's outstanding Common Stock of all classes, will control 94.4% of the
aggregate number of votes eligible to be cast by stockholders for the election
of directors and certain other stockholder actions, and will be in a position to
control the policies and operations of the Company. In addition, the holders of
the Class B Common Stock have entered into a stockholders' agreement obligating
them, for a five-year period, to vote for Salvatore A. Vergopia, Joseph Shaker,
William C. Muller Jr., Corey Shaker, Edward A. Vergopia and James Christ as
members of the Company's Board of Directors. See "Description of Capital
Stock-Stockholders' Agreement." The executive officers and directors of the
Company will control 54.5% of the aggregate number of votes eligible to be cast
by stockholders for the election of directors and certain other stockholder
actions, and will be in a position to control the policies and operations of the
Company. Accordingly, absent a significant increase in the number of shares of
Class A Common Stock outstanding or conversion of Class B Common Stock into
Class A Common Stock, the holders of shares of Class B Common Stock will be
entitled, for the foreseeable future, to elect all members of the Board of
Directors and control all matters subject to stockholder approval.
The Delaware General Corporation Law requires super-majority voting
thresholds to approve certain "business combinations" between interested
stockholders and the Company which may render more difficult or tend to
discourage attempts to acquire the Company. In addition, the Company's Board of
Directors has the authority to issue shares of preferred stock ("Preferred
Stock"), of which 2,000,000 are currently authorized, in one or more series and
to fix the rights and preferences of the shares of any such series without
stockholder approval. Any series of Preferred Stock is likely to be senior to
all classes of Common Stock of the Company with respect to dividends,
liquidation rights and, possibly, voting rights. The ability to issue Preferred
Stock could also have the effect of discouraging unsolicited acquisition
proposals, thus affecting the market price of the Common Stock and preventing
stockholders from obtaining any premium which might otherwise be offered by a
potential buyer. In addition, certain of the Company's dealer agreements will
prohibit the acquisition of
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more than a specified percentage of the Common Stock without the consent of the
relevant Manufacturers. See "Management -- Executive Officers and Directors,"
"Principal Stockholders" and "Description of Capital Stock."
Broad Discretion by Management in Use of Proceeds
The Company intends to use approximately $10.7 million or 62.2%, ($13.4
million or 67.3% if the Underwriter's over-allotment option is exercised in
full) of the estimated net proceeds of the Offering for general corporate
purposes and working capital, including the making of additional acquisitions.
Accordingly, the Company's management will retain broad discretion as to the use
of a substantial portion of the net proceeds of the Offering. See "Use of
Proceeds."
Potential Effect of Shares Eligible for Future Sale on Price of Common Stock
Sales of substantial amounts of Class A Common Stock in the public market
subsequent to the Offering could adversely affect the market price of the Class
A Common Stock. Upon consummation of the Offering, the Company will have
2,240,000 shares of Class A Common Stock outstanding (2,540,000 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
2,000,000 shares of Class A Common Stock offered hereby (2,300,000 shares if the
Underwriter's over-allotment option is exercised in full) 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. The
remaining 240,000 of shares Class A and 3,760,000 shares of Class B Common Stock
outstanding will be "restricted securities" within the meaning of Rule 144 under
the Securities Act and will be eligible for resale subject to the volume, manner
of sale, holding period and other limitations of Rule 144. Currently, 240,000
shares of Class A Common Stock are issuable under existing stock options granted
to executive officers and employees under the Company's Stock Option Plan. See
"Management -Stock Options," "Description of Capital Stock" and "Shares Eligible
for Future Sale."
Pursuant to the Underwriting Agreement between the Company and the
Underwriters, the Company and its executive officers and directors have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the consent of the
representatives of the Underwriters other than: (i) pursuant to the Company's
Stock Option Plan, or (ii) in connection with and as consideration for
acquisitions of automobile dealerships, provided that the proposed transferees
agree in writing for the benefit of the Underwriters to be bound by the
foregoing provisions. See "Shares Eligible for Future Sale" and "Underwriting."
No Prior Public Market; Determination of Offering Price
Prior to this Offering, there has been no public market for the Class A
Common Stock. The Class A Common Stock has been approved for listing, subject to
notice of issuance, on the Nasdaq National Market under the symbol "HCAR."
However, there can be no assurance that an active trading market will develop
subsequent to this Offering or, if developed, that it will be sustained. The
initial public offering price of the Class A Common Stock was determined through
negotiations between the Company and the Representative and may bear no
relationship to the price at which the Class A Common Stock will trade after the
Offering. For information relating to the factors considered in determining the
initial public offering price, see "Underwriting." Prices for the Class A Common
Stock after the Offering may be influenced by a number of factors, including the
liquidity of the market for the Class A Common Stock, investor perceptions of
the Company and the automotive retailing industry and general economic and other
conditions. Sales of substantial amounts of Class A Common Stock in
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the public market subsequent to the Offering could adversely affect the market
price of the Class A Common Stock.
Possible Volatility of Price
The market price of the Class A Common Stock could be subject to wide
fluctuations in response to a number of factors, including quarterly variations
of operating results, investor perceptions of the Company and automotive
retailing industry and general economic and other conditions.
THE COMPANY
Corporate History; Founders
Hometown was organized under the laws of the State of Delaware in June
1997 as the successor to a corporation organized under the laws of the State of
New York in March 1997 by four persons: Morse, Zelnick, Rose & Lander, LLP, a
New York City law firm which is counsel to the Company in connection with this
Offering; Joseph Lauria, Esq., a lawyer practicing in New Jersey; Matthew J.
Visconti, Jr., a Vice President of the Company and an automobile retail industry
executive for more than twenty years; and AutoInfo, Inc., a non-prime automobile
finance company, who each received 60,000 shares of Class A Common Stock. These
four organizers identified the Core Operating Companies, consisting of the
Shaker Group, the Muller Group and Westwood.
The Company's corporate headquarters are located at 831 Straits Turnpike,
Watertown, CT 06795 and its telephone number is (860) 945-4900.
The Exchange
In May 1997, the Core Operating Companies agreed, in principle, to combine
their dealerships in the Company. Effective, as of July 1, 1997, the
stockholders of the Core Operating Companies entered into an Exchange Agreement
pursuant to which they agreed to exchange all of the outstanding shares of four
corporations for an aggregate of 3,760,000 shares of the Company's Class B
Common Stock.
Consummation of the Exchange will occur simultaneously with the closing of
this Offering. As a result, the Company will succeed to the ownership of, and
operate, six franchised dealerships, one factory authorized free-standing
neighborhood auto service center and one collision repair center located in
Connecticut and New Jersey offering a choice of nine American and Asian brands,
including Chevrolet, Eagle, Ford, Isuzu, Jeep, Lincoln, Mercury, Oldsmobile and
Toyota.
Acquisitions
On July 2, 1997, the Company entered into an agreement to purchase the
business and certain assets of Brattleboro Chrysler Plymouth Dodge, Inc.
("Brattleboro") for a purchase price of $2.7 million and the assumption of
certain of Brattleboro's liabilities. On the closing of this Acquisition, the
Company will acquire the Brattleboro dealership in Vermont which holds
franchises to sell the Chrysler, Dodge and Plymouth brands. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations -
Acquisitions."
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On August 14, 1997, the Company entered into an agreement to purchase the
business and certain assets of Leominster Lincoln Mercury, Inc., also doing
business as Bay State Lincoln Mercury ("Bay State"), for a purchase price of
$3.0 million and the assumption of certain of Bay State's liabilities. On the
closing of this Acquisition, the Company will acquire the Bay State dealership
in Framingham, Massachusetts which holds franchises to sell the Lincoln and
Mercury brands.
Each of the Acquisitions is subject to satisfaction of various conditions
precedent, including the achievement by each of the Sellers of certain levels of
income and the receipt of factory consents from all Manufacturers whose
franchises are held by each of the Sellers. The closing of each Acquisition is
to occur simultaneously with the closing of the Offering and with the closing of
the Exchange, but not later than July 15, 1998. Consummation of the Offering is
subject to consummation of the transactions contemplated by the Exchange and the
Acquisitions.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,000,000 shares of
Common Stock offered hereby, based upon an assumed initial public offering price
of $10.00 per share, are estimated to be $17.2 million ($19.9 million if the
Underwriters' over-allotment option for an additional 300,000 shares is
exercised in full) after deducting the underwriting discount and estimated
expenses of this Offering. Of the net proceeds, $5.7 million will be used to pay
the cash portion of the purchase price for the Acquisitions. In addition,
approximately $760,000 will be used to repay indebtedness with maturities of
less than one year with a weighted average interest rate of approximately 10.1%.
The remainder of the net proceeds, approximately $10.7 million or 62.2% ($13.4
million or 67.3% if the Underwriter's over-allotment option is exercised in
full) will be used for working capital and general corporate purposes, including
possible use in additional acquisitions of dealerships and for expansion of the
livery sales and factory authorized free-standing neighborhood service center
businesses. Pending application for these purposes, approximately $10.5 million
($13.2 million if the Underwriter's over-allotment option is exercised in full)
of the net proceeds will be used to pay down a portion of the Company's "floor
plan" indebtedness (i.e., revolving credit arrangements to finance inventory
purchases). The Company, from time to time, may draw down funds under its floor
plan financing arrangements with respect to its unencumbered vehicle inventory
as needed for acquisitions and other corporate purposes.
The Company intends to pursue acquisitions in the future which will be
financed with cash, Class A Common Stock or a combination of both cash and Class
A Common Stock. Although the Company has identified and has held preliminary
discussions with several potential acquisition candidates, no discussions have
resulted in definitive agreements or understandings or otherwise reached the
stage where it is probable that any such acquisition will occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Core Operating Companies Commitments -- Credit Facility."
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 its Board of Directors 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. Any
dividends will apply to both Class A Shares and Class B Shares as a group
without any distinction, See "Description of Capital Stock."
18
<PAGE>
DILUTION
The pro forma net tangible book value of Shaker as of December 31, 1997,
after giving effect to the receipt by Shaker stockholders in the Exchange of
1,880,000 shares of Class B Common Stock of Hometown, was $2.71 per share of
Common Stock. Pro forma net tangible book value per share is determined by
dividing the pro forma tangible net worth (pro forma tangible assets less pro
forma total liabilities) by the total number of outstanding shares of Common
Stock. After giving effect to the Exchange for the remaining Core Operating
Companies, Westwood and Muller, and to the issuance to the founders of Hometown
of 240,000 shares of Class A Common Stock, the net tangible book value of Shaker
was diluted by $1.06 per share to $1.65 After giving effect to the sale by
Hometown of the 2,000,000 shares of Class A Common Stock offered hereby and the
receipt of an estimated $17.2 million of net proceeds from the Offering (based
on an assumed initial public offering price of $10.00 per share), the
application of $5.7 million to complete the Acquisitions and after deducting the
underwriting discount and estimated expenses of the Offering), pro forma net
tangible book value of the Company at December 31, 1997 would have been $2.72
per share. This represents an immediate increase in pro forma net tangible book
value of $1.07 per share to existing stockholders and an immediate dilution of
$7.28 per share to the new investors purchasing Common Stock in the Offering.
The following table illustrates the per share dilution:
Assumed initial public offering price per share .............. $10.00
Pro forma net tangible book value of Shaker ............ $2.71
Decrease in pro forma net tangible book value per share
attributable to balance of Exchange ................ ($1.06)
Increase in pro forma net tangible book value per share
attributable to the Offering and the Acquisitions..... 1.07
Pro forma net tangible book value per share after giving
effect to the Offering ............................... 2.72
------
Dilution per share to new investors .......................... $ 7.28
======
The following table sets forth, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, after
giving effect to the Exchange, the total consideration paid to the Company and
the average price per share paid by existing stockholders and
19
<PAGE>
new investors purchasing shares in the Offering (before deducting underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
Shares purchased Total Consideration Average
----------------------- ---------------------- Price Per
Number Percent Amount Percent Share
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Shaker Stockholders...... 1,880,000 31.3% $ 5,098,000 19.2% $ 2.71
Westwood, Muller and
Other Stockholders.... 2,120,000 35.3% $ 1,493,000 5.6% $ 0.70
--------- ---- ----------- -----
New Investors............ 2,000,000 33.3% $20,000,000 75.2% $10.00
--------- ---- ----------- -----
Total 6,000,000(1) 100.0% $26,591,000 100.0%
========= ==== =========== =====
</TABLE>
- --------------
(1) Assumes no exercise of 240,000 outstanding stock options granted under the
Company's Stock Option Plan, all of which will be exercisable at the
initial public offering price per share. In addition, 240,000 additional
shares of Common Stock are reserved for future issuance under the Stock
Option Plan. See "Management -- Stock Options."
In the event the Underwriters exercise the over-allotment option in full,
the number of shares of Common Stock held by new investors will increase to
2,300,000 or 36.5% of the total number of shares of Common Stock outstanding
after the Offering.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (i) the pro forma
capitalization of Shaker after giving effect to the receipt by Shaker
stockholders in the Exchange of 1,880,000 shares of Class B Common Stock of
Hometown, (ii) the pro forma capitalization of the Core Operating Companies
after giving effect to the Exchange, and (iii) the pro forma capitalization of
the Company after giving effect to the Exchange, the Acquisitions and the
Offering of the 2,000,000 shares of Class A Common Stock at an assumed initial
public offering price of $10.00 per share, after deducting the underwriting
discount and estimated expenses of the Offering and the application of a portion
of the estimated net proceeds therefrom to pay certain existing indebtedness.
See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Unaudited Pro Forma Financial Statements of the Company and
the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------
Core Operating Pro Forma
Shaker Companies As Adjusted
(unaudited) (unaudited)
(1) (2) (3)
----------- ------------ -------
<S> <C> <C> <C>
Short-term debt (including current portion of long-term debt) ........................... $ 363 $ 2,009 $ 1,842
====== ======= =======
Long-term debt, less current maturities ................................................. 107 1,034 441
Stockholders' equity:
Preferred Stock, par value $001 per share, 2,000,000 shares
authorized; no shares issued and outstanding (1)(2)(3) ........................ -- -- --
Common Stock, Class A, par value $001 per share, 24,000,000
shares authorized; no shares issued and outstanding (1); 240,000
issued and outstanding (2); 2,240,000 issued and outstanding (3) .............. -- -- 2
Common Stock, Class B, par value $001 per share, 3,760,000
shares authorized; 1,880,000 issued and outstanding (1);
3,760,000 issued and outstanding (2)(3) ....................................... 2 4 4
Additional paid-in capital ......................................................... 67 12,285 29,483
Retained earnings .................................................................. 5,029 5,028 3,028
------ ------- -------
Total stockholders' equity .............................................................. 5,098 17,317 32,517
------ ------- -------
Total capitalization .................................................................... $5,205 $18,351 $32,958
====== ======= =======
</TABLE>
- ------------
(1) Reflects the pro forma capitalization of Shaker after giving effect to the
receipt by Shaker stockholders in the Exchange of 1,880,000 shares of
Class B Common Stock of Hometown.
(2) Reflects the pro forma historical capitalization of the Company after
giving effect to the Exchange.
(3) Reflects the pro forma as adjusted capitalization of the Company after
giving effect to the Exchange, the Acquisitions, the net proceeds from the
sale of 2,000,000 shares of Class A Common Stock, and the payment of
certain existing indebtedness. Excludes (i) an aggregate of
21
<PAGE>
480,000 shares of Class A Common Stock reserved for issuance under the
Company's Stock Option Plan, of which options to purchase 240,000 shares
are outstanding and (ii) 300,000 shares of Class A Common Stock subject to
the Underwriters' over-allotment option.
22
<PAGE>
SELECTED FINANCIAL DATA
The Company will acquire the Core Operating Companies and the Acquisitions
simultaneously with the closing of the Offering, which transactions will be
accounted for using the purchase method of accounting. E.R.R. Enterprises, Inc.
("Shaker"), the parent of one of the Core Operating Companies, has been
identified as the acquiror for financial statement presentation purposes in
accordance with SAB No. 97 because its stockholders will hold the single largest
voting interest subsequent to the Exchange. The following selected historical
financial data for Shaker for the years ended December 31, 1993 and 1994 have
been derived from the unaudited financial statements of Shaker, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of Shaker, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data. The following
selected historical financial data for Shaker as of December 31, 1996 and 1997
and for the years ended December 31, 1995, 1996 and 1997 have been derived from
the audited financial statements of Shaker included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
Income Statement Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues ...................................... $ 43,492 $ 52,644 $ 52,020 $ 62,222 $ 59,496
Cost of sales ................................. 37,418 45,778 44,189 53,076 51,226
-------- -------- -------- -------- --------
Gross profit ............................ 6,074 6,866 7,831 9,146 8,270
Selling, general and administrative
expenses ................................... 5,836 6,433 6,961 8,049 7,715
-------- -------- -------- -------- --------
Income from operations .................. 238 433 870 1,097 555
Other income (expense)
Interest income (expense), net ............. (131) (204) (555) (384) (189)
Other income (expense), net ................ 189 73 16 1 116
-------- -------- -------- -------- --------
Income before taxes ..................... 296 302 331 714 482
Provision for income taxes .................... 102 136 118 321 166
-------- -------- -------- -------- --------
Net income .............................. $ 194 $ 166 $ 213 $ 393 $ 316
======== ======== ======== ======== ========
Earnings per share ............................ $ 7.68 $ 6.57 $ 8.43 $ 15.56 $ 12.51
Weighted average shares ....................... 25,263 25,263 25,263 25,263 25,263
</TABLE>
As of December 31,
----------------------
1996 1997
Balance Sheet Data: (in thousands)
Working capital (deficit) ................... $ 4,138 $4,563
Inventories ................................. 8,504 7,609
Total assets ................................ 14,798 14,042
Total debt .................................. 10,016 8,944
Stockholders' equity ........................ 4,782 5,098
25
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Company will acquire the Core Operating Companies and Acquisitions
simultaneously with the closing of the Offering. However, for pro forma
financial presentation purposes, these transactions will be given effect as of
January 1, 1997. The various transactions will be accounted for using the
purchase method of accounting. E.R.R. Enterprises, Inc. ("Shaker"), the parent
of one of the Core Operating Companies, has been identified as the acquiror for
financial statement presentation purposes in accordance with SAB No. 97 because
its stockholders received the largest number of shares of Class B Common Stock
in the Exchange, which shares represent the single largest voting interest in
the Company. The following summary financial data presents, for the year ended
December 31, 1997 certain historical and pro forma data for the Core Operating
Companies and the Acquisitions. See "Selected Financial Data" and the Pro Forma
Financial Statements and the notes thereto
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
----------------------------------------------------------------------------
Core Operating Companies(2) Acquisitions(2) Pro Forma
------------------------------------ ----------------------- ---------
Shaker(3) Westwood Muller Bay State Brattleboro (3)(4)
--------- -------- ------ --------- ----------- ------
Unaudited Pro Forma
Income Statement Data (1): (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales ......................... $ 29,345 $ 45,470 $ 33,308 $ 9,890 $ 9,038 $ 127,051
Used vehicle sales ........................ 21,800 8,396 19,996 12,459 12,928 75,579
Parts and service sales ................... 6,727 4,352 4,907 2,066 2,024 20,076
Other dealership revenues, net ............ 1,624 731 1,777 301 594 5,027
-------- -------- -------- -------- -------- ----------
Total revenues ......................... 59,496 58,949 59,988 24,716 24,584 227,733
Cost of sales ................................ 51,226 52,770 51,641 21,502 20,986 198,125
-------- -------- -------- -------- -------- ----------
Gross profit ........................... 8,270 6,179 8,347 3,214 3,598 29,608
Amortization of excess of purchase
price over net tangible assets acquired .. -- -- -- -- -- 399 (5)
Selling, general and administrative
expenses (2) .............................. 7,077 4,931 6,936 1,966 2,765 23,675 (5)
-------- -------- -------- -------- -------- ----------
Income from operations ................. 1,193 1,248 1,411 1,248 833 5,534
Other income (expense)
Interest expense, net (2) ................. (427) (295) (420) (322) (39) (192)(5)
Other income (expense), net ............... 116 (39) (27) 9 (41) 18
-------- -------- -------- -------- -------- ----------
Income before taxes .................... $ 882 $ 914 $ 964 $ 935 $ 753 5,360
======== ======== ======== ======== ========
Provision for income taxes ..................................................................................... 2,144 (5)
----------
Net income ............................................................................................... $ 3,216
==========
Earnings per share, basic and diluted .......................................................................... $ 0.54
Weighted average shares ........................................................................................ 6,000,000
Unaudited Pro Forma Other Data (1):
Gross margin ................................. 13.9% 10.5% 13.9% 13.0% 14.6% 13.0%
Operating margin ............................. 2.0% 2.1% 2.4% 5.0% 3.4% 2.4%
Pre tax margin ............................... 1.5% 1.6% 1.6% 3.8% 3.1% 2.4%
Retail new vehicles sold ..................... 1,297 1,473 1,511 370 449 5,100
Retail used vehicles sold .................... 1,256 377 1,301 748 794 4,476
</TABLE>
26
<PAGE>
As of December 31, 1997
------------------------------------
Core Operating Pro Forma
Shaker Companies As Adjusted
(6) (7)(8)
-------- --------- ----------
Unaudited Pro Forma Balance Sheet Data (1): (in thousands)
Working capital (deficit) ............ $ 4,563 $ 4,024 $12,305
Inventories .......................... 7,609 27,295 31,543
Total assets ......................... 14,042 53,746 59,203
Total debt ........................... 8,944 36,429 26,686
Stockholders' equity ................. 5,098 17,317 32,517
Notes to Pro Forma Financial Data:
(1) For financial presentation purposes, the Unaudited Pro Forma Income
Statement Data give effect to the Exchange, the Acquisitions and the
Offering as if they had occurred as of January 1, 1997, the beginning of
the period.
(2) Aggregate pro forma adjustments made to the historical financial
statements of the Core Operating Companies and the Acquisitions are as
follows:
Debit (Credit) Total 1997
--------------
(in thousands)
Selling, general and
administrative expenses .............................. $(2,166)(a)
Other income (expense)
Interest expense, net ............................... 163 (b)
-------
Income before taxes ................................. $(2,003)
=======
(a) Reflects a reduction to compensation expense, management fees and
rent expenses based on contractual arrangements to be effective
simultaneously with the closing of the Offering as follows: Shaker,
$639,000; Westwood, $663,000; Muller $347,000; Bay State increase
$32,000; and Brattleboro $549,000. See Unaudited Pro Forma Financial
Statements and the notes thereto beginning on page F-4 for a more
detailed description of these pro forma adjustments.
(b) Reflects a reduction to interest income of Shaker of $238,000 and of
Bay State of $50,000 of Cash and Cash Equivalents not realized as
part of the Exchange and the Acquisitions offset by reductions in
interest expense as follows: certain long-term debt incurred by
Muller prior to the Closing will be liquidated out of proceeds of
the Offering - $92,000; leases and debt not assumed as part of the
Brattleboro - $33,000. See Unaudited Pro Forma Financial Statements
and the notes thereto beginning on page F-4 for a more detailed
description of these pro forma adjustments.
(3) These transactions were accounted for using the purchase method of
accounting. ERR Enterprises, Inc. ("Shaker"), the parent of one of the
Core Operating Companies, was identified as the acquiror for financial
statement presentation purposes in accordance with SAB No. 97 because its
stockholders
27
<PAGE>
received the largest number of shares of Class B Common Stock in the
Exchange, representing the single largest voting interest in the Company.
(4) Gives effect to: (i) the Exchange and the Acquisitions, (ii) the
consummation of the Offering and (iii) the pro forma adjustments,
specified in footnotes (1) above and (5) below, to the historical
financial statements.
(5) The combination of Income Statement Data of the Core Operating Companies'
and the Acquisitions does not equal the total set forth on the Pro Forma
Financial Statements because of the following pro forma adjustments which
are made in total only: (i) the amortization of the "excess purchase price
over net tangible assets acquired;" (ii) the decrease in interest expenses
of $998,000 resulting from the repayment of certain floor plan obligations
with proceeds from the Offering, and the decrease in interest of $313,000
resulting from refinancing of the balance of the floor plan obligations
with a commercial lender; (iii) the provision for federal and state income
taxes based on an effective rate of 40% for each of the Core Operating
Companies and Acquisitions and (iv) $1,000 of selling, general and
administrative expenses incurred by Hometown during 1997. See Unaudited
Pro Forma Financial Statements and the notes thereto beginning on page F-4
for a more detailed description of these pro forma adjustments.
(6) Gives effect to the Exchange on an historical basis and the pro forma
balance sheets adjustments on pages F-7 and F-8. See Unaudited Pro Forma
Financial Statements and the notes thereto beginning on page F-4 for a
description of these pro forma balance sheet adjustments.
(7) Gives effect to the Exchange and the Acquisitions on an historical basis
and the pro forma balance sheets adjustments on pages F-7 and F-8. See
Unaudited Pro Forma Financial Statements and the notes thereto beginning
on page F-4 for a description of these pro forma balance sheet
adjustments.
(8) Gives effect to the sales of the shares of Class A Common Stock offered
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds."
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and related notes thereto, the "Selected Financial Data" for ERR
Enterprises, Inc. (Shaker), the "Summary Pro Forma Financial Data," and the
unaudited "Pro Forma Financial Data" appearing elsewhere in this Prospectus.
The Company - Pro Forma Information
Overview
Hometown Auto Retailers, Inc. will acquire the Core Operating Companies
and the Acquisitions simultaneously with the closing of the Offering. The
Exchange and the Acquisitions will be accounted for using the purchase method of
accounting. E.R.R. Enterprises, Inc. (Shaker), one of the Core Operating
Companies, was identified as the acquiror for pro forma financial statement
presentation purposes in accordance with SAB No. 97 because its stockholders
will receive the largest number of shares of Class B Common Stock in the
Exchange, which shares represent the single largest voting interest in the
Company.
Operating Strategy
The Company, which has conducted no operations to date other than in
connection with the Acquisitions and the Offering, intends to integrate certain
functions following the Offering and to implement practices that have been
successful at other franchises, including those of the Core Operating Companies,
and in other retail segments ("best practices"). This integration and
implementation of best practices may present opportunities to increase revenues
and reduce costs but may also necessitate additional costs and expenditures for
corporate administration, including expenses necessary to implement the
Company's acquisition strategy. These various costs and possible cost-savings
and revenue enhancements may make historical operating results not comparable
to, or indicative of, future performance.
Pro Forma Combined Revenues and Gross Profit
On a pro forma combined basis, the revenue categories as a percent of
total revenue and the gross profit percent of sales by revenue category for
Hometown for 1997 was as follows:
% of Total Gross Profit
Revenue category Revenue % of Sales
New vehicle sales 55.8% 6.3%
Used vehicle sales 33.2% 9.3%
Parts and service sales 8.8% 47.8%
Other dealership revenues, net 2.2% 100.0%
Unit Sales
For the year ended December 31, 1997, the Company sold 5,100 new vehicles
for an average sales price and gross profit per vehicle of approximately $24,900
and $1,600, respectively. Retail used vehicle units sold for 1997 were 4,476.
Average sales price and gross profit per retail used vehicle were approximately
$13,000 and $1,500, respectively.
29
<PAGE>
Liquidity and Capital Resources.
The Company's primary source for financing its vehicle inventory is "floor
plan" financing arrangements with the Manufacturers. The floor plan arrangements
permit the Company to finance its new and used vehicle inventory and the
resulting liability is secured by the related inventory.
Each dealership maintains a floor plan financing line with its respective
Manufacturer, with the exception of Muller Chevrolet which has a floor plan line
financed through a bank. Interest rates on these lines vary from a low of 8.9%
to a high of 10.5%. The combined interest expense on floor plan notes payable,
before Manufacturers' interest assistance, totaled approximately $2.5 million
for the year ended December 31, 1997. Manufacturer interest assistance, which is
recorded as a reduction of interest expense, totaled approximately $1.2 million
for the year ended December 31, 1997. The pro forma balance of the Company's
floor plan lines at December 31, 1997 was $30,984,000 before the temporary
pay-down of floor plan obligations. It is anticipated that $10,500,000 of the
proceeds from the Offering will temporarily be applied to the floor plan
liability accounts until the funds are needed for future acquisitions.
Acquisitions
Shortly after the Company was organized, in June 1997, it entered into two
acquisition agreements providing for the purchase, at an aggregate price of $5.7
million, of two dealerships located in Massachusetts and Vermont, respectively.
These two acquisitions add $49,300,000 and $1,688,000 respectively, to the
Company's pro forma revenues and income before income taxes for the year ended
December 31, 1997.
Each of the Acquisitions is subject to satisfaction of various conditions
precedent, including the achievement by each of the Sellers of certain levels of
income, the receipt of factory consents from all Manufacturers whose franchises
are held by each of the Sellers and the Closing of the Offering on or prior to
July 15, 1998. The closing of each Acquisition is to occur simultaneously with
the closing of the Offering and with the closing of the Exchange.
Brattleboro. On July 2, 1997, the Company entered into an agreement to
purchase the business and assets of Brattleboro Chrysler Plymouth Dodge, Inc.
("Brattleboro") for a purchase price of $2.7 million and the assumption of all
of Brattleboro's liabilities. On the closing of this Acquisition, the Company
will own Brattleboro a dealership in Vermont which holds franchises to sell the
Chrysler, Dodge and Plymouth brands.
The Company also agreed to enter into a five-year lease for property owned
by an affiliate of Brattleboro at a monthly rental of $20,000 with a five year
renewal option at the same rental and an option to purchase the premises at its
then fair market value, but not less than $1.5 million.
In addition, the Company agreed to enter into an employment agreement with
Thomas E. Cosenzi ("Cosenzi"), a key employee of Brattleboro, at an annual base
salary of $150,000 plus a bonus, payable monthly, equal to 5% of the income
before income taxes of Brattleboro and any other business managed by Cosenzi for
Hometown up to $800,000 and 10% of the pre-tax income of such business in excess
of $800,000. The employment agreement will also provide that Cosenzi will be
granted a six-year incentive stock option to purchase such number of shares of
Hometown's Common Stock as have an aggregate value of $500,000, based on the per
share price in the Offering.
30
<PAGE>
Bay State. On August 14, 1997, the Company entered into an agreement to
purchase the business and certain assets of Leominster Lincoln Mercury, Inc.,
doing business as Baystate Lincoln Mercury ("Baystate"), for a purchase price of
$3.0 million and the assumption of certain of Baystate's liabilities. On the
closing of this Acquisition, the Company will own the Bay State dealership in
Framingham, Massachusetts holding franchises to sell the Lincoln and Mercury
brands.
The Company has entered into fifteen-year lease for property owned by an
affiliate of Leominster at a monthly rental of $30,000 during the first five
years, $35,000 during the second five years and a cost of living adjustment
thereafter.
Cyclicality
The Company's operations, like the automotive retailing industry in
general, are 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, may affect the Company's business, Hometown
believes that the impact on the Company's operations of future negative trends
in such factors will be somewhat mitigated by its (i) strong parts, service and
collision repair services, (ii) variable cost salary structure, (iii) geographic
regional focus, and (iv) product diversity.
Seasonality
The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more operating profit than the
first and fourth quarters. This seasonality is driven primarily by: (i)
Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers, (ii) weather-related
factors, which primarily affect parts and service and (iii) consumer buying
patterns.
Effects of Inflation
Due to the relatively low levels of inflation experienced in fiscal 1995,
1996 and 1997, inflation did not have a significant effect on the results of the
Core Operating Companies during those periods.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued the following
statements. The Company is currently not affected by these statements, however,
when applicable, the Company will adopt the provisions of each statement.
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
SFAS No. 123 defines a fair value based method of accounting for stock based
compensation and encourages adoption of that method. SFAS No. 123, however, also
allows measurement of compensation cost using the intrinsic value based method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees". If
the Company elects to use the accounting in Opinion No. 25, it must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting has been applied.
Statement No. 128 "Earnings Per Share" ("SFAS 128"). SFAS No. 128 requires
the presentation of basic earnings per share and diluted earnings per share.
"Basic earnings per share" represents net income divided by the weighted average
shares outstanding. "Diluted earnings per share" represents net income divided
by weighted average shares outstanding adjusted for the incremental dilution of
outstanding stock options. A
31
<PAGE>
reconciliation of weighted average common shares outstanding to weighted average
common shares outstanding assuming dilution is required as disclosure.
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS No.
130, requires the presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all changes in equity of an entity
during the reporting period, including net income and charges directly to
equity, which are excluded from net income.
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS No. 131 requires that enterprises report
certain information about operating segments, information about products and
services, the geographic areas in which they operate and their major customers.
Year 2000 Conversion
The Company has assessed the ability of its software and other computer
systems to properly utilize dates beyond December 31, 1999 (the "Year 2000
Conversion"). management believes that the costs of the modifications and
conversions required will not be material. However, if the modifications and
conversions are not made or not completed in a timely fashion, the failure of
its Year 2000 Conversion could have a material adverse effect on the operations
of the Company.
Although management believes it will not have material Year 2000
Conversion issues, its future operations are dependent upon the ability of its
vendors and suppliers to successfully address the Year 2000 Conversion issues.
There can be no assurance that the computer systems of other companies upon
which the Company's own computer system relies or upon which its business is
dependent, will be timely converted, or that failure of another company to
convert will not adversely affect the Company.
Shaker
The following discussion and analysis are based on the historical
financial statements of E.R.R. enterprises, Inc. ("Shaker"). Shaker is one of
the three Core Operating Companies of Hometown .
Overview.
Shaker is a holding company that operates one of the largest dealer groups
in Connecticut, consisting of Shaker's Lincoln Mercury, Inc. in Watertown
Connecticut; Family Ford, Inc. and Family Rental, Inc. in Waterbury,
Connecticut; and Shaker's Jeep/Eagle, Inc. in Waterbury, Connecticut. It also
operates Lincoln Mercury Autocare, Inc., a factory authorized free-standing
neighborhood automobile maintenance and repair center in Naugatuck, Connecticut.
Shaker is a franchised dealer for Lincoln, Mercury, Ford, Jeep, and Eagle cars
and trucks.
Shaker was originally founded as Shaker Auto Service, an automobile repair
shop, in Waterbury, Connecticut in 1930. After World War II, Shaker became an
automobile dealer, ultimately being awarded the Jeep, Lincoln Mercury and Ford
franchises. Currently, Shaker is owned and operated by a third generation of the
Shaker family.
Shaker has diverse sources of automotive revenues, including: new car
sales, new light truck sales, used car sales, used light truck sales, used cars
purchased from the manufacturers, parts sales, service sales, including from
Lincoln Mercury Autocare, Inc., finance fees, insurance commissions, extended
service contract sales, documentary fees and after-market product sales. Sales
revenues include sales to
32
<PAGE>
retail customers, other dealers and wholesalers. Other dealership revenue
includes revenue from the sale of financing, insurance and extended service
contracts, all net of a provision for anticipated chargebacks. and related
documentary fees charged to customers.
Shaker's gross profit varies as its automotive merchandise mix (the mix
between new vehicle sales, used vehicle sales, parts and service sales, and
other dealership revenues) changes. The gross margin realized by Shaker on the
sale of its products and services generally varies between approximately 13.9%
and 15.1%, with new vehicle sales generally resulting in the lowest gross margin
and parts and service sales generally resulting in the highest gross margin.
Revenues from related financing, insurance and service contracts contribute a
disproportionate share of gross, operating and pre-tax margins. When Shaker's
new vehicle sales increase or decrease at a rate greater than its other revenue
sources, its gross profit margin responds inversely. Factors such as
seasonality, weather, cyclicality and manufacturers' advertising and incentives
may impact Shaker's merchandise mix and therefore affect its gross profit
margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on debt, including floor plan inventory financing, net of
interest credits received from certain manufacturers and interest income earned.
33
<PAGE>
The following table sets forth certain selected financial data and data as
a percentage of revenues for Shaker for the periods indicated:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------------------------------
1995 1996 1997
------------------- ------------------ -------------------
Amount % Amount % Amount %
------- ------ -------- ----- -------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales ........................ $25,713 49.4% $30,511 49.0% $29,345 49.3%
Used vehicle sales ....................... 18,260 35.1% 22,429 36.0% 21,800 36.6%
Parts and service sales .................. 6,565 12.6% 7,406 11.9% 6,727 11.3%
Other dealership revenues, net ........... 1,482 2.8% 1,876 3.0% 1,624 2.7%
------- ----- ------- ----- ------- -----
Total revenues ...................... 52,020 100.0% 62,222 100.0% 59,496 100.0%
Cost of sales ............................... 44,189 84.9% 53,076 85.3% 51,226 86.1%
------- ----- ------- ----- ------- -----
Gross profit ................................ 7,831 15.1% 9,146 14.7% 8,270 13.9%
Selling, general & administrative
expenses ................................ 6,961 13.4% 8,049 12.9% 7,715 13.0%
------- ----- ------- ----- ------- -----
Income from operations ...................... 870 1.7% 1,097 1.8% 555 0.9%
Other income and expense:
Interest expense ........................ 555 1.1% 384 0.6% 189 0.3%
Other income (expense) net .............. 16 0.0% 1 0.0% 116 0.2%
------- ----- ------- ----- ------- -----
Income before income taxes .................. 331 0.6% 714 1.1% 482 0.8%
Provision for income taxes .................. 118 0.2% 321 0.5% 166 0.3%
------- ----- ------- ----- ------- -----
Net income .................................. $ 213 0.4% $ 393 0.6% $ 316 0.5%
======= ===== ======= ===== ======= =====
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues
Shaker's revenues decreased by $2,726,000, or 4.4%, from $62,222,000 for
the year ended December 31, 1996 to $59,496,000 for the year ended December 31,
1997. Most of the decrease was due to a decline in the sales of new and used
Ford cars and trucks at Family Ford and a decline in manufacturer's warranty
service revenue at Family Ford and Autocare.
Sales of new Ford cars and trucks generally declined in Family Ford's
primary market area in 1997. According to the Ford Dealer Performance Report for
1997, Family Ford's market penetration, i.e. share of its primary market area,
increased from 11.5% in 1996 to 12.7% in 1997 for new cars and from 22.3% in
1996 to 30.8% in 1997 for new trucks even though Family Ford sold 109 fewer new
cars and trucks in 1997 when compared to 1996. The decline in sales of new cars
and trucks at Family Ford reflects this decrease in general market demand for
Fords in its market area. In addition, the mild winter of 1996 to 1997 reduced
the demand
34
<PAGE>
for light trucks in its market. As a result, Family Ford experienced a decrease
in sales of new cars and trucks in 1997 of $1,440,000, or 8.3% below sales of
used cars in 1996. This revenue decline was partially offset by an increase of
$274,000 in new car sales at Shaker Lincoln Mercury, an increase of 2.1% over
new car sales in 1996, for a combined decline in revenue for Shaker of
$1,166,000, or 3.8% below revenue in 1996.
Sales of used cars at Family Ford were adversely impacted by a temporary
tightening of credit policy by local banks in the first half of 1997. The Family
Ford credit rejection rate (i.e. the percentage of potential used car buyers
rejected for car loans) increased from an average of 15% to 30%. As a result,
Family Ford sold 87 fewer used cars and trucks in 1997 than in 1996, for a drop
in revenue of $1,151,000, or 10.9% below 1996. In the second half of 1997, the
credit rejection rate returned to the historical average of 15%. Management
believes that the temporary increase in the credit rejection rate was in
response to an unusually high level of used car sales in 1996, and the resulting
increase in the number of used car loans in the portfolios of local banks. The
decline in used car sales at Family Ford was partially offset by an increase in
used car sales at Shaker Lincoln Mercury of $522,000, or 4.4%, over sales in the
prior year, for a combined Shaker used car revenue decrease of $629,000, or
2.8%, compared to sales in 1996.
Parts and service revenue at Family Ford decreased $520,000, or 17.2%, in
1997 when compared to parts and service revenues in 1996. The decrease was due
partly to the decline in sales of new and used cars and partly reflects a
general 25% decline in warranty service revenue on Ford cars and trucks in the
Northeast region. The general decline in warranty service revenue is
attributable to stricter guidelines on dealer warranty work imposed by Ford
Motor Company. Parts and service revenue decreased slightly at Shaker Lincoln
Mercury by $12,000, or 0.4%, below parts and service revenues in 1996 and
decreased at Autocare by $147,000, 14.1% below such revenues in 1996, for a
combined Shaker parts and service revenue decrease of $679,000, or 9.2%, below
parts and service revenues in 1996.
Revenues from financing and the sale of insurance ("F&I") at Family Ford
decreased $248,000, or 19.4%, in 1997 compared to F&I revenues in 1996. This
decrease reflected lower activity in F&I sales due to lower sales of new and
used vehicles. At Shaker Lincoln Mercury, F&I revenue decreased $4,000, a 0.7%
decrease over F&I revenues in 1996, reflecting the change in mix in sales of new
and used vehicles in 1997. The combined F&I revenue in 1997 for Shaker decreased
$252,000, or 13.4%, from total F&I revenues in 1996.
35
<PAGE>
Gross Profit
Shaker gross profit decreased $876,000, or 9.6%, from $9,146,000 for the
year ended December 31, 1996 to $8,270,000 for the year ended December 31, 1997.
At Family Ford, gross profit from the sale of new cars and trucks
decreased by $312,000, or 21.8%, from 1996 to 1997. Of the $312,000 decrease,
$118,000, or 37.8%, was due to a decline in sales of new cars and trucks. The
remaining $194,000, or 62.2%, was due to a decline in gross profit as a percent
of sales from 8.2% in 1996 to 7.0% in 1997, which reflects lower pricing
necessary to respond to the lower demand in its market area. At Shaker Lincoln
Mercury, gross profit from the sale of new cars and trucks decreased by $43,000,
or 5.6%, from 1996 to 1997. The decrease of $43,000 consisted of a gross margin
increase of $16,000 due to increased sales of new cars and trucks, offset by a
gross margin decrease of $59,000 due to the decline in gross profit as a percent
of sales from 5.8% in 1996 to 5.4% in 1997.
Gross profit from the sale of used cars at Family Ford in 1997 decreased
by $102,000, a decline of 11.3%, compared to gross profit in 1996. Of the
$102,000 decrease, $98,000, or 96.1%, was due to a decline in sales of used
cars, while $4,000, or 3.9%, was due to the decline in gross profit as a percent
of sales from 8.5% in 1996 to 8.4% in 1997, which reflected the tightened credit
situation in the first half of 1997. When banks tighten their credit policies,
they will often demand a higher down payment than the customer can afford,
forcing dealers to reduce their prices to bring their transactions within the
bank's guidelines in order to avoid losing the sale. At Shaker Lincoln Mercury,
gross profit from the sale of used cars increased by $280,000, or 41.4%, from
1996 to 1997. The increase of $280,000 consists of a gross margin increase of
$30,000 due to increased sales of used cars and $250,000 was due to an increase
in the gross profit as a percent of sales from 5.7% in 1996 to 7.7% in 1997.
Gross profit on parts and service decreased $310,000, or 20.7%, at Family
Ford from 1996 to 1997. Of the $310,000 decrease, $258,000 was due to a lower
volume of business, while $52,000 was due to a decline in gross profit as a
percent of sales from 49.7% of sales in 1996 to 47.6% in 1997. The decline in
gross profit margin reflects less warranty service as a percent of total
revenues. Dealers typically earn a higher gross profit percent on warranty
service than on customer paid work.
There is no cost of sales associated with revenue from F&I resulting in an
effective 100% gross profit.
Selling, General and Administrative Expense
Shaker selling, general and administrative expenses decreased by $334,000,
or 4.1%, from $8,049,000, for the year ended December 31, 1996, to $7,715,000,
for the year ended December 31, 1997. The principal differences were decreases
in commissions, telephone and utility expense, policy work and delivery, offset
by increases in owner's compensation. Commissions decreased $238,000, or 17.5%,
reflecting the lower sales volume in 1997. Telephone and utilities expense
decreased $200,000 or 50%, due to a change in long distance carriers to realize
lower rates and the installation of a waste oil heater in the Shaker Lincoln
Mercury service department that substantially reduced heating costs in 1997.
Policy work consists of repairs on cars prior to sale, the cost of which is not
recovered by the dealer. Policy work expense declined $24,000, or 16.6%,
reflecting the lower sales volume in 1997. Delivery expense declined $40,000, or
93%, in 1997 as a result of the lower sales volume and changes in delivery
policy. Compensation increased by $363,000, or 13.1%, in 1997 mostly due to
increased owner's compensation.
36
<PAGE>
Interest Expenses, Net
Shaker net interest expense decreased by $195,000, or 50.8%, from
$384,000, for the year ended December 31, 1996, to $189,000, for the year ended
December 31, 1997. Net floor plan interest, net of floor plan assistance
credits, declined from $566,000 in 1996, to $408,000 in 1997, a decline of
27.9%, primarily reflecting the lower sales volume in 1997. Net floor plan
interest was offset by net interest income which increased 20.3%, from $182,000
in 1996 to $219,000 in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues
Shaker revenues increased by $10,202,000, or 19.6%, from $52,020,000 for
the year ended December 31, 1995, to $62,222,000 for the year ended December 31,
1996. Most of the increase was due to increased demand for new cars and trucks
as a result of new model introductions and an increase in manufacturers'
rebates, increased sales of used cars due to increased advertising expenditures
and an increase in parts and service revenue resulting from the severe 1996
winter weather.
Sales of new cars and trucks at Family Ford increased $2,824,000, or
19.3%, from 1995 to 1996. In 1996, Family Ford sold 211 Ford Escorts compared to
109 in 1995. New truck sales increased in 1996 at Family Ford due partly to the
introduction of a completely restyled F-150 Ford truck (the first major restyle
since 1977) and the severe 1996 winter weather which increased demand for four
wheel drive vehicles. At Shaker Lincoln Mercury, sales of new cars and trucks
increased $1,974,000, or 17.8%, from 1995 to 1996. The sales increase was due
primarily to the introduction of the Mercury Mountaineer, Mercury's first four
wheel drive sports utility vehicle, prior to mid-year 1996, and increased sales
of Lincoln Town Cars supported by higher factory rebates and improved lease
programs on luxury cars. On a combined basis, sales of new cars and trucks
increased $4,798,000, or 18.7%, in 1996 compared with sales of new cars in 1995.
Sales of used cars and trucks increased by $4,169,000, or 22.8%, from 1995
to 1996. The increase at Family Ford was $2,202,000, or 26.2%, and at Shaker
Lincoln Mercury sales of used cars and trucks increased $1,967,000, or 20.0%, in
1996. The sales increase was due to improved used car inventory turns supported
by increased advertising expenditures.
Parts and service revenue increased $841,000 for Shaker, or 12.8%, from
1995 to 1996. That increase consisted of an increase in parts and service
revenues at Family Ford of $620,000, a 25.8% increase over 1995, an increase at
Shaker Lincoln Mercury of $119,000, a 3.7% increase over 1995, and an increase
at Autocare of $102,000, a 10.8% increase over 1995. The increase in parts and
service revenues is primarily attributable to the severe winter weather in the
winter of 1996. In addition, Family Ford's "Owner Loyalty" program began to show
results by increasing the customer retention rate.
Revenues from F&I at Family Ford increased $284,000, or 28.6%, in 1996
when compared to F&I revenues in 1995. This increase resulted from the increased
sales of new and used vehicles at Family Ford. At Shaker Lincoln Mercury,
finance and insurance revenue increased $110,000, a 22.5% increase over 1995,
reflecting the increased sales of new and used vehicles in 1996. The combined
finance and insurance revenue for Shaker increased $394,000, or 26.6%, in 1996
from 1995.
37
<PAGE>
Gross Profit
Shaker gross profit increased $1,315,000, or 16.8%, from $7,831,000 for
the year ended December 31, 1995, to $9,146,000 for the year ended December 31,
1996.
At Family Ford, gross profit from the sale of new cars and trucks
increased by $142,000, or 11%, from 1995 to 1996. Of the $142,000 increase,
$248,000 was due to the increase in sales of new cars and trucks. The remaining
$106,000 decrease was due to a decline in gross profit as a percent of sales
from 8.8% in 1995 to 8.2% in 1996, which reflects lower gross profit on the
increased sales of Ford Escorts compared to those sales in the prior year.. At
Shaker Lincoln Mercury, gross profit from the sale of new cars and trucks
increased by $8,000, or 1.1%, from 1995 to 1996. The increase of $8,000 consists
of a gross margin increase of $134,000 due to increased sales of new cars and
trucks, offset by a gross margin decrease of $126,000 due to the decline in the
gross profit as a percent of sales from 6.8% in 1995 to 5.8% in 1996.
Gross profit from the sale of used cars and trucks at Family Ford in 1996
increased by $226,000, or 11.3%, compared to 1995. Of the $226,000 increase,
$176,000, or 77.9%, was due to an increase in sales of used cars. The remaining
$50,000, or 22.1%, was due to an increase in gross profit as a percent of sales
from 8.0% in 1995 to 8.5% in 1996, which reflects a higher ratio of retail
versus wholesale used cars in 1996. At Shaker Lincoln Mercury, gross profit from
the sale of used cars increased by $56,000, or 9.0%, from 1995 to 1996. The
increase of $56,000 consisted of a gross margin increase of $124,000 from
increased sales of used cars offset by a gross margin decrease of $68,000 due to
the decrease in gross profit as a percent of sales from 6.3% in 1995 to 5.7% in
1996, which reflects the decrease in the gross profit on the sales of used cars
at auctions.
Gross profit on parts and service increased $392,000, or 35.3%, at Family
Ford from 1995 to 1996. Of the $392,000 increase, $286,000 was due to the higher
volume of business, while $106,000 was due to an increase in gross profit as a
percent of sales from 46.2% in 1995 to 49.7% in 1996. The increase in gross
profit as a percent of sales reflects greater cost absorption on the increased
sales volume.
There is no cost of sales associated with revenue from F&I sales resulting
in an effective 100% gross profit.
Selling, General & Administrative Expense
Shaker selling, general and administrative expenses increased by
$1,088,000, or 15.6%, from $6,961,000 for the year ended December 31, 1995 to
$8,049,000 for the year ended December 31, 1996. Expense increases generally
reflected the significant increase in selling activity. The principal increases
in 1996 occurred in commissions, compensation, policy work and demo, loaner
expense, telephone and utilities, and data processing. Commissions increased
$309,000, or 29.3%, from 1995. Compensation increased $411,000, or 17.4%, from
1995 due primarily to increased owner's compensation. Policy work, demo and
loaner expenses increased by $126,000, or 48.9%, from 1995. Policy work consists
of repairs on cars prior to sale, the cost of which is not recovered by the
dealer. Telephone and utilities expense increased $184,000, or 85%, from 1995.
Data processing expense increased $56,000, or 83.9%, from 1995 due to the
purchase of a new computer system.
Interest Expense, Net
Net interest expense decreased by $171,000, or 30.8%, from $555,000 for
the year ended December 31, 1995 to $384,000 for the year ended December 31,
1996. Net floor plan interest, net of floor plan assistance credits, declined
from $715,000, or 20.8%, in 1995 to $566,000 in 1996. The decrease was due
primarily to improved control of automobile inventory, resulting from an
increase in inventory turns and increased floor plan
38
<PAGE>
assistance credits. Net floor plan interest was offset by net interest income
which increased 13.8% from $160,000 in 1995 to $182,000 in 1996.
Liquidity and Capital Resources
Shaker's principal sources of liquidity are cash on hand, cash from
operations and floor plan financing.
Cash and Cash Equivalents
Shaker's total cash and cash equivalents at December 31, 1997 were $3.5
million.
Cash Flow from Operations
For the three-year period ended December 31, 1997, Shaker generated $1.7
million in cash from operating activities. Cash flow from operating activities
decreased from $1.0 million in 1996 to $0.3 million in 1997, due primarily to a
smaller decrease in new and used vehicle inventory and timing differences in the
income tax liability accounts.
The following table sets forth historical selected information from the
statements of cash flow:
Floor Plan Financing
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1995 1996 1997
------- -------- --------
Amount Amount Amount
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net Cash Provided by Operating Activities $ 389 $ 1,017 $ 334
Net Cash Provided by (Used) in Investing Activities (419) (18) (102)
Net Cash Provided by (Used) in Financing Activities 373 339 226
Net Increase (Decrease) in Cash and
Cash Equivalents $ 343 $ 1,338 $ 458
</TABLE>
Shaker obtains floor plan financing for its vehicle inventory from Ford
Motor Credit Corporation. As of December 31, 1997, Shaker had approximately $6.8
million of floor plan financing outstanding, bearing interest at prime rate plus
100 basis points. Interest expense on floor plan notes payable, before
manufacturer's interest assistance, totaled approximately $1.0 million, $0.9
million, and $0.8 million for the years ended December 31, 1995, 1996, and 1997,
respectively. Manufacturer interest assistance, which is recorded as a reduction
of interest expense, totaled approximately $0.3 million, $0.3 million, and $0.4
million for the years ended December 31, 1995, 1996, and 1997, respectively.
Cyclicality
Shaker's operations, like the automotive retailing industry in general,
are 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, may affect Shaker's business, Shaker believes that the impact on
the Shaker's operations of future negative trends in such factors will be
somewhat mitigated by its (i) strong parts, service and collision
39
<PAGE>
repair services, (ii) variable cost salary structure, (iii) geographic regional
focus, and (iv) product diversity.
Seasonality
Shaker's operations will be subject to seasonal variations, with the
second and third quarters generally contributing more operating profit than the
first and fourth quarters. This seasonality is driven primarily by: (i)
Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers, (ii) weather-related
factors, which primarily affect parts and service and (iii) consumer buying
patterns.
Effects of Inflation
Due to the relatively low levels of inflation experienced in fiscal 1995,
1996 and 1997, inflation did not have a significant effect on the results of
Shaker during those periods.
40
<PAGE>
BUSINESS
General
The Company is engaged in the business of selling new and used cars and
light trucks, providing maintenance and repair services, selling replacement
parts and providing related financing, insurance and service contracts through 8
franchised dealerships located in New Jersey, Connecticut, Massachusetts and
Vermont. The Company's dealerships offer 12 American and Asian automotive
brands, including Chevrolet, Chrysler, Dodge, Eagle, Ford, Isuzu, Jeep, Lincoln,
Mercury, Oldsmobile, Plymouth and Toyota. The Company also operates a collision
repair center and is active in two "niche" segments of the automotive market,
the sale of Lincoln town cars and limousines to livery car and livery fleet
operators and the maintenance and repair of cars and trucks at its Ford and
Lincoln Mercury factory authorized free-standing neighborhood service center.
The Company believes, based on available industry data, that it is one of the
five largest automotive dealers in New England and a leading dealer in the State
of New Jersey. The Company's growth strategy is to participate in the recent
consolidation trend in the automotive sales and service industry and, through
strategic regional acquisitions, become the largest dealer group in New England
and the Mid-Atlantic states, and to expand its two "niche" businesses: livery
sales and free-standing neighborhood factory authorized maintenance and light
repair centers in locations in which there is a concentration of Hometown
dealerships.
The six senior officers of the Company have over 130 years of combined
experience in the automotive retailing industry and are members of families who
have owned dealerships since 1947. In addition, they have been recognized as
leaders in the automotive retailing industry, serving at various times in
leadership positions in state and national industry organizations. The Core
Operating Companies have also received numerous awards based on high customer
satisfaction index ("CSI") ratings and other performance measures and their
principals, as well as many of the principals of the Acquisitions, will continue
to manage their dealerships. The persons who controlled and operated the Core
Operating Companies prior to the Exchange will play a dominant role in
establishing and implementing the Company's operating and acquisition
strategies.
Industry Overview
Domestic and foreign automobile manufacturers distribute their vehicles
through franchised dealerships. With more than $500 billion in 1996 sales,
automotive retailing is the largest retail trade sector in the United States.
The industry is highly fragmented, particularly in the northeastern United
States where Hometown is concentrated, and largely privately held, with
approximately 22,000 automobile dealership locations representing more than
53,000 franchised dealerships. In 1996, U.S. franchised automobile dealers sold
15.1 million new vehicles and 19.2 million used vehicles for sales of
approximately $328.4 billion and $171.8 billion, respectively, with the balance
attributable to sales of related automotive goods and services.. Since 1992, new
vehicle revenues have grown at a 10.5% compound annual rate. Over the same
period, used vehicle revenues have grown at a 14.6% compound annual rate. Slower
new vehicle unit sales growth over this time period has been offset by the
rising prices associated with new vehicles and, on average, the higher prices
paid for later model high quality used vehicles which now comprise a significant
part of the used vehicle market. Automobile sales are affected by many factors,
including rates of employment, income growth, interest rates, weather patterns
and other national and local economic conditions, automotive innovations and
general consumer sentiment. See "Risk Factors -- Cyclicality" and "Risk Factors
- -- Seasonality."
The following table sets forth new and used vehicle sales by franchised
automobile dealers in the United States for each of the five years ended
December 31, 1996. New vehicles can only be sold at retail
41
<PAGE>
by franchised dealerships. The following table excludes sales of used vehicles
by nonfranchised dealerships and casual sales by individuals. Nonfranchised
dealerships and individuals had aggregate sales of $117.3 billion, $133.2
billion, $173.8 billion, $181.3 billion and $172.4 billion, respectively, for
each of the five years ended December 31, 1996.
<TABLE>
<CAPTION>
United States Franchised Dealers' Vehicles Sales
------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(units in millions; dollars in billions)
<S> <C> <C> <C> <C> <C>
New vehicle unit sales................ 12.9 13.9 15.1 14.8 15.1
New vehicle sales..................... $220.6 $253.0 $289.9 $302.7 $328.4
Used vehicle unit sales............... 15.1 16.3 17.8 18.5 19.2
Used vehicle sales.................... $99.5 $115.0 $138.6 $157.0 $171.8
Total vehicle sales................... $320.1 $368.0 $428.5 $459.7 $500.2
Annual growth in total vehicle sales.. --% 15.0% 16.5% 7.3% 8.8%
</TABLE>
Manufacturers originally established franchised dealer networks for the
distribution of their vehicles as single-dealership, single-owner operations. In
return for distribution rights within specified territories, Manufacturers
exerted significant influence over such matters as a dealer's location,
inventory size and composition and merchandising programs, as well as the
identity of owners and managers. This strict control contributed to the
proliferation of small dealerships which, at their peak in the late 1940's,
numbered in excess of 46,000 dealership locations. Several manufacturers went
out of business in the 1950's, and the number of dealership locations decreased
to 36,000 by 1960. Significant industry changes took place in the 1970's when
fuel shortages forced dramatic increases in gasoline prices and foreign
manufacturers increased their penetration of the U.S. market with
fuel-efficient, low-cost vehicles. As a result of these competitive pressures,
dealers were able to negotiate significant changes in the traditional
distribution system with manufacturers. Dealers began to add foreign franchises
and the phenomenon of the multi-franchise automobile dealer emerged, prompting
the significant acquisition and consolidation activities of the 1980's. The
easing of restrictions against multi-franchise dealers, competitive pressures on
undercapitalized dealerships and the aging of dealership owners has led to
further consolidation of the industry. Since 1960, the number of dealership
locations has declined 39% to the 1996 level of approximately 22,000.
Over the past three decades, there has been a trend toward fewer, but
larger, automotive dealerships. In 1996, each of the largest 100 dealer groups
had more than $200 million in revenues. Although significant consolidation has
taken place since its inception, the industry today remains highly fragmented,
with the largest 100 dealer groups generating less than 10% of total sales
revenues and controlling approximately 5% of all franchised dealerships.
Hometown believes that these factors, together with increasing capital
requirements for operating automobile dealerships, lack of a viable exit
strategy and the aging of dealership owners provide an attractive environment
for the Company's consolidation strategy.
Due to intense competition, new vehicle sales were the smallest
proportionate contributors to United States dealers' gross profits during 1996,
earning an average gross margin of 6.5%. The typical dealership currently
generates substantially all of its profits from sales of used vehicles, parts
and service and F&I. The average used vehicle gross margin in 1996 was 11%. As
with retailers generally, automobile dealership profitability varies widely and
depends in part on the effective management of inventory, marketing, quality
control and responsiveness to customers. Since 1991, retail automobile
dealerships in the United States have earned, on average, between 12.9% and
14.1% total gross margin on sales.
42
<PAGE>
Operating Strategy
Hometown will seek to consolidate operations and increase the
profitability of its existing dealerships by using a strategy that combines its
"best in class" operating practices with the advantages of its established
customer base, local presence and name recognition. Each of the Company's
dealerships will use a core operating strategy specifically designed to produce
a high "shop absorption rate," a high rate of service retention and a high ratio
of retail used to new car sales, all in order to maximize profitability and
provide insulation from the cyclicality of new car sales.
The Company believes that the following factors, coupled with its
established organizational structure, will help it achieve its operating
strategy:
o Strong Regional Focus. The Company's eight franchised dealerships
are located in New Jersey, Connecticut, Massachusetts and Vermont.
Its acquisition program is focused on acquiring additional
dealerships in New England, New Jersey and contiguous portions of
the mid-Atlantic region. The Company believes that proximity of its
dealerships to one another will contribute to ease of management,
more effective control of dealership operations, increased sales
from coordinated marketing of new cars, used cars and livery
vehicles and cost savings from coordinated auction purchasing, car
transport and other activities.
o Established Customer Base. The Company believes that its existing
dealerships have good local reputations and have strong local name
recognition. Through "owner-loyalty" and similar programs, the
Company believes it has established a customer base that looks to
its existing "hometown" dealership as its first choice in buying
replacement vehicles.
o Experienced Management. Hometown's management is comprised of second
and third generation members of dealer families who have been
leaders in the automotive retailing industry. The executive officers
of the Company have over 130 years of combined experience in the
automotive retailing industry and are members of families who have
owned dealerships since 1947. They are recognized leaders in the
automotive retailing industry and have served at various times in
leadership positions in state and national industry organizations.
The Company has also received numerous awards based on high customer
satisfaction index ("CSI") ratings and other performance measures
regularly compiled and monitored by the automobile Manufacturers.
See "Management - Directors and Officers" for additional information
as to the numerous Manufacturer awards and citations earned by
Hometown's senior management and dealerships in recent years.
o Presence In Higher Profit Margin Businesses
o Livery Sales and Service. The Company's Westwood subsidiary is
the nation's largest seller of Lincoln Town Cars and
limousines to livery car and livery fleet operators. The sale
of livery vehicles also tends to generate significant
maintenance and repair business since the primary concern of
livery operators is keeping their cars in use and on the road
for a maximum number of hours per day. A major impediment to
further expansion of livery business has been a lack of
suitable service facilities in areas too distant from
Westwood's existing service location in Emerson, New Jersey to
permit the return of livery cars to that location for
servicing. As a first step in expansion of this livery
business, the Company
43
<PAGE>
intends to put in place special financing, sales and prepaid
service programs for livery vehicles, following the Westwood
model, at the Shaker Group's Lincoln Mercury dealership and
Bay State Lincoln Mercury and, in such connection, will modify
the service facilities of these dealerships where necessary to
make them more suitable for the servicing of limousines and
livery cars.
o Maintenance and Repair. The Company's Shaker subsidiary's
"Lincoln Mercury Autocare" facility was the pilot for Ford's
authorized free-standing neighborhood service centers for the
maintenance and light repair of cars and trucks. Free-standing
service centers are an innovative attempt by the automotive
retail industry to recapture repair and maintenance business
which has been lost in recent decades to chain and independent
service businesses. The service center encourages customers to
deal directly with service personnel and permits customers to
watch the progress of work on their cars by entering the shop
on railed walkways. The service center also operates during
extended hours, provides comfortable customer waiting areas
and quickly services vehicles without prior appointment.
o Focus on Higher Margin Operations
o Parts and Service. Hometown's dealerships emphasize sales of
parts and service which typically have a higher profit margin
than vehicle sales. For example, during 1996 maintenance and
light repair work was retained at the Company's Shaker
subsidiaries on approximately 63.6% of the new cars sold
compared to 20.1% at the average dealership selling Ford,
Lincoln and Mercury vehicles.
o Used Car Sales. The sale of used vehicles is emphasized at
each of the Company's dealerships. Typically, used vehicle
sales generate higher gross margins than new vehicle sales.
During 1997, the Company sold 8,484 used vehicles (combined
retail and wholesale) compared to 5,100 new vehicles. The
Company seeks to attract customers and enhance buyer
satisfaction by offering multiple financing options and
extended warranties on used vehicles.
o Ability To Source High Quality Used Vehicles. An important component
in selling used vehicles and maintaining high margins on such sales
is the ability to obtain high quality used vehicles at reasonable
prices. The Company obtains its used vehicles through trade-ins and
off-lease programs as well as regular auction buying. Key executives
at each dealership have developed the skills necessary for making
effective purchases at regularly scheduled auctions. The Company
believes that auction buying activities will be enhanced by its
ability to use common buyers to fill the needs of several
dealerships, handle its own transportation of vehicles from the
auction to the dealership and obtain discounted prices.
o Brand Diversity. Hometown's dealerships offer 12 American and Asian
automotive brands including Chevrolet, Chrysler, Dodge, Eagle, Ford,
Isuzu, Jeep, Lincoln, Mercury, Oldsmobile, Plymouth and Toyota. The
Company believes that brand diversity helps to insulate it from
changes in consumer preferences, short supplies of particular
automotive models and negative publicity concerning a particular
Manufacturer or vehicle model.
o Centralized Financing and Administrative Functions. The Company
believes that it will be able to generate cost savings by centrally
financing its new and used car inventories through bank lines of
credit rather than the "floorplan" financing now provided by
Manufacturers to its individual
44
<PAGE>
dealerships. Additional cost savings are believed possible through
centralizing accounting, personnel, employee benefits and other
functions.
o Quality Personnel. The Company employs professional management
practices in all aspects of its operations, including information
technology, employee training, profit-based compensation and cash
management. Each dealership is managed as a profit center by a
trained and experienced general manager who has primary
responsibility for decisions relating to inventory, pricing and
personnel. The Company compensates its general managers and
department managers pursuant to various formulas based upon
dealership or department profitability, rather than on sales volume.
Senior management uses computer-based management information systems
to monitor each dealership's sales, profitability and inventory on a
daily basis and to identify areas requiring improvement and provide
additional training where necessary. The Company believes that the
application of its professional management practices provides it
with an ability to achieve levels of profitability superior to
industry averages.
Growth Strategy
The Company's goals are to become, through selected acquisitions, the
leading consolidator and the largest dealer group in New England, to increase
the number of its dealerships in New Jersey and other portions of the
Mid-Atlantic region, to add additional sales locations and maintenance and
repair facilities for its livery sales business and to establish new factory
authorized free-standing neighborhood maintenance and repair centers in both New
England and the Mid-Atlantic regions.
The Company believes that the Northeast is the most fragmented automotive
retail market in the United States. Though some large dealerships operate in the
area, there are a large number of small to mid-size dealers operating in an area
of heavy population densities. The Company intends to focus its acquisition
strategy on dealerships with annual revenues of $20 million to $60 million per
location (some of which may be part of larger groups), located in urban fringe
or suburban areas. The Company believes that these small to mid-size dealerships
are more likely to provide their customers with convenient access for
maintenance and repair than larger dealerships, as well as being more compatible
with the Company's operating model which requires a high shop absorption and a
high rate of service retention. Also, these dealerships can benefit the most
from the synergies created by being a member of a larger automotive group, such
as cross-utilization of same brand new car inventories, lower cost financing,
swapping of used car inventories, more effective auction positioning and
integration of computer systems. Where dealerships are acquired in close
proximity to other existing Hometown dealerships, the Company may consolidate
their operations to create further efficiencies. Proximity is expected to
facilitate management control of diverse dealerships and make it easier to
implement "best in class" practices.
Upon completion of this Offering, the Company will acquire two dealerships
in Massachusetts and Vermont adding $49,300,000 and $1,688,000, respectively, to
combined pro forma 1997 revenues and income before income taxes for an aggregate
consideration of $5.7 million which will be paid from proceeds of the Offering.
The Company believes that these transactions demonstrate the opportunities for
acquisition of dealerships in New England at attractive prices. However, no
assurance can be given that the Company will be able to make additional
acquisitions in this or other geographic areas or that the prices will be
comparable to those of the existing Acquisitions.
Though many manufacturers have imposed limitations on the acquisition of
dealerships by public corporations, the Company believes that, because of
fragmentation of the market in the Northeast, the principal Manufacturers from
whom it holds franchises, are seeking to reduce the number of dealerships
holding their franchises. Accordingly, the Company believes that these
Manufacturers will be inclined to support further growth by Hometown. High CSI
ratings have been identified by certain of its
45
<PAGE>
Manufacturers as factors in their approval of additional acquisitions and each
of the Company's dealers has had historically high ratings.
The Company also believes that its livery sales business can be expanded
throughout the New England and mid-Atlantic regions based on the innovative
sales and marketing practices utilized by its Westwood subsidiary and its
reputation among livery car operators. The major impediment to expansion of this
business had been Westwood's lack of service facilities, which require extended
body lifts, beyond its existing service location in Emerson, New Jersey. Shaker
Lincoln Mercury already has installed such extended car body lifts and the
Company plans to install additional lifts in certain of its other facilities so
that they can service livery vehicles sold. The Company also intends to adopt
Westwood's innovative sales and financing programs to implement sales of livery
vehicles at other locations.
Dealership Operations
The Company's established operating practices and procedures, including
the management and pricing of inventories of new and used vehicles, are
regularly reviewed and updated by the general managers and members of the
Company's operating committee, consisting of its six senior executive officers,
each of whom is, or has been, the chief operating officer of a franchised
dealership. Each of the Company's dealerships will use a management structure,
currently used by the Core Operating Companies, that promotes and rewards the
achievement of benchmarks set by senior management and the Operations Committee.
Each local general manager of a Hometown dealership is ultimately responsible
for the operation, personnel and financial performance of that dealership. Each
general manager is complemented with a management team consisting of a new
vehicle sales manager, a used vehicle sales manager, service and parts managers
and F&I managers. The general manager and the other members of each dealership
management team, as long-time members of their local communities, are typically
best able to judge how to conduct day-to-day operations based on the team's
experience in and familiarity with its local market. Certain members of the
Company's senior management also serve as general managers of particular
dealerships. A similar management structure will be implemented for each
Acquisition, as well as subsequent acquisitions.
Each dealership engages in a number of inter-related businesses: new
vehicle sales; used vehicle sales; service and parts operations; and F&I.
New Vehicle Sales. Hometown's dealerships represent 12 American and Asian
brands of lower, mid and higher priced sport and family cars and light trucks,
including sport utility vehicles. The Company believes that offering numerous
new vehicle brands appeals to a variety of customers, minimizes dependence on
any one Manufacturer and reduces its exposure to supply problems and product
cycles. The following table sets forth for 1997, certain information relating to
the brands of new vehicles sold at retail by the Company:
46
<PAGE>
<TABLE>
<CAPTION>
Number of New Vehicles Sold
For the Year Ended December 31, 1997
----------------------------------------------------------------------------
BRANDS Shaker Westwood Muller Bay State Brattleboro Total Percentage
------ -------- ------ --------- ----------- ----- ----------
(Connecticut) (New Jersey) (New Jersey) (Mass.) (Vermont)
<S> <C> <C> <C> <C> <C> <C> <C>
LINCOLN/MERCURY 331 1,473 - 370 - 2,174 42.6%
TOYOTA - - 960 - - 960 18.8%
FORD 765 - - - - 765 15.0%
DODGE - - - - 396 396 7.8%
CHEVROLET - - 377 - - 377 7.4%
JEEP 200 - - - 200 3.9%
OLDSMOBILE - - 78 - - 78 1.5%
ISUZU - - 62 - - 62 1.2%
PLYMOUTH - - - - 43 43 0.8%
GEO - - 34 - - 34 0.7%
CHRYSLER - - - - 10 10 0.2%
EAGLE 1 - - - - 1 0.0%
----- ----- ----- --- --- ----- -----
1,297 1,473 1,511 370 449 5,100 100.0%
===== ===== ===== === === ===== =====
</TABLE>
The Company's new vehicle unit sales include lease transactions. New vehicle
leases generally have short terms which tend to bring the consumer back to the
market sooner than if the purchase were debt financed. In addition, leases
provide a steady source of late-model, off-lease vehicles for used vehicle
inventory. Leased vehicles generally remain under factory warranty for the term
of the lease which allows the dealerships to provide repair service to the
lessee throughout the lease term.
The Company seeks to provide customer-oriented service designed to meet
the needs of its customers and establish lasting relationships that will result
in repeat and referral business. For example, the Company intends to implement
the strategy of the Core Operating Companies by: (i) engaging in extensive
follow-up after a sale in order to develop long-term relationships with its
customers; (ii) training its sales staffs to be able to meet customer needs;
(iii) employing more efficient, non-confrontational selling systems; and (iv)
using computer technology that decreases the time necessary to purchase a
vehicle. The Company believes that its ability to share "best practices" among
its dealerships gives it an advantage over smaller dealerships.
The Company acquires substantially all of its new vehicle inventory from
the Manufacturers. Manufacturers allocate a limited inventory among their
franchised dealers based primarily on sales volume and input from dealers. The
Company finances its inventory purchases through revolving credit arrangements
known in the industry as "floorplan" financing
Used Vehicle Sales. The Company sells used vehicles at each of its
franchised dealerships. Sales of used vehicles have become an increasingly
significant source of profit for 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
emphasize used vehicle sales by maintaining a high quality inventory, providing
competitive prices and extended service contracts for its used vehicles and
continuing to promote used vehicle sales. The Company will also certify that its
used cars meet specified testing and quality standards.
47
<PAGE>
The following table shows the growth of used vehicle sales by the Company
from 1994 through 1997 and the pro forma combined used vehicle sales by the
Company in those years:
Number of Used and New Vehicles Sold
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shaker (Connecticut)
Used Vehicles - Retail 851 1097 1,318 1,256
Used Vehicles - Wholesale 951 996 1,144 1,153
New Vehicles 1,537 1,216 1,405 1,297
------ ------ ------ ------
Total Sales 2,339 2,309 3,867 3,706
Westwood (New Jersey)
Used Vehicles - Retail 258 263 325 377
Used Vehicles - Wholesale 382 365 346 265
New Vehicles 1,448 1,391 1,438 1,473
------ ------ ------ ------
Total Sales 2,088 2,019 2,109 2,115
Muller (New Jersey)
Used Vehicles - Retail 1,557 1,204 1,421 1,301
Used Vehicles - Wholesale 586 807 829 1,260
New Vehicles 1,682 1,457 1,524 1,511
------ ------ ------ ------
Total Sales 3,825 3,468 3,774 4,072
Bay State (Mass.)
Used Vehicles - Retail 552 835 793 748
Used Vehicles - Wholesale 443 482 383 395
New Vehicles 283 199 389 370
------ ------ ------ ------
Total Sales 1,278 1,516 1,565 1,513
Brattleboro (Vermont)
Used Vehicles - Retail 577 898 1,001 794
Used Vehicles - Wholesale 528 799 1,011 935
New Vehicles 378 281 332 449
------ ------ ------ ------
Total Sales 1,483 1,978 2,344 2,178
Total Hometown
Used Vehicles - Retail 3,795 4,297 4,858 4,476
Used Vehicles - Wholesale 2,890 3,449 3,713 4,008
New Vehicles 5,328 4,544 5,088 5,100
------ ------ ------ ------
Total Sales 12,013 12,290 13,659 13,584
</TABLE>
Sales of used vehicles are dependent on the ability of the dealerships to
obtain a supply of high quality used vehicles and effectively manage that
inventory. New vehicle operations provide a supply of such vehicles through
trade-ins and off-lease vehicles. Hometown supplements its used vehicle
inventory with used vehicles purchased at auctions where manufacturers re-market
lease return, rental buy back and manufacturer demonstration cars. To maintain a
broad selection of high quality used vehicles and to meet
48
<PAGE>
local preferences, the Company acquires used vehicles from trade-ins and a
variety of sources nationwide, including direct purchases and manufacturers' and
independent auctions.
The Company follows an inventory management strategy pursuant to which
used vehicles are offered at progressively lower gross profit margins the longer
they stay in inventory and if not sold at retail by the end of 10 weeks are sold
to another dealer or sold at auction. Pursuant to this strategy the Company
generally maintains only a 30 to 45 day supply of used vehicles. Unsold, excess
or unsuitable vehicles received as trade-ins are sold at auctions or sold
directly to other dealers and wholesalers. Trade-ins may be transferred among
Hometown dealerships to provide balanced inventories of used vehicles at each
location. The Company believes that the Acquisitions and acquisitions of
additional dealerships will expand its market for transfers of used vehicles
among its dealerships and, therefore, increase the ability of each dealership to
maintain a balanced inventory of used vehicles. The Company intends to develop
integrated computer inventory systems that will allow it to coordinate vehicle
transfers between its dealerships.
The Company has taken steps to build customer confidence in its used
vehicle inventory, including participation in the Manufacturers' certification
processes to make used vehicles eligible for new vehicle benefits such as new
vehicle finance rates and extended Manufacturer warranties.
Hometown believes that franchised dealership strengths in offering used
vehicles include: (i) access on new vehicle purchase to trade-ins 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, rental
returns and Manufacturer demos, and (iii) the availability of Manufacturer
certification and extended Manufacturer warranties for higher quality used
vehicles. The Company believes that a well-managed used vehicle operation at
each location affords it an opportunity to: (i) generate additional customer
traffic from a wide variety of prospective buyers, (ii) increase new and used
vehicle sales by aggressively pursuing customer trade-ins, (iii) generate
incremental revenues from customers financially unable or unwilling to purchase
a new vehicle, and (iv) increase ancillary product sales, particularly F&I, to
improve overall profitability.
Parts and Service. The Company regards service and repair activities as an
integral part of its overall approach to customer service, providing an
opportunity to foster ongoing relationships with its customers and deepen
customer loyalty. Hometown provides parts and service at each of its franchised
dealerships for the vehicle brands sold by these dealerships. Maintenance and
repair services are provided at 8 locations) one factory authorized neighborhood
service center and one collision repair center, using approximately 85 service
bays. Hometown provides both warranty and non-warranty service work.
The Company intends to implement an "owner loyalty program" similar to
programs used by the Core Operating Companies to encourage customers to return
to the dealership for all maintenance and light repair work. The program
provides customers with information as to recommended intervals of service and
details all charges for a wide range of maintenance activities and expected
replacements at such intervals. Customers who maintain their vehicles in
accordance with the owner loyalty program recommendations receive various items
of maintenance, such as oil changes, without charge and also receive specified
rebates against new or used vehicle purchases for money spent in Hometown's
service departments. The owner loyalty program is designed to combat the recent
trend for increasing percentages of repair and maintenance work to be performed
at service stations and other independent repair shops, chains of specialized
repair, maintenance and part replacement shops, such as muffler shops, brake
shops, and tire shops. Manufacturers' policies that require warranty work to be
performed at franchised dealerships support the Company's strategy of retaining
maintenance and light repair work.
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<PAGE>
The parts and service business is less cyclical than new vehicle sales and
provides an important recurring revenue stream to the Company's dealerships. The
Company will use systems, already in place at the Core Operating Companies, that
track its customers' maintenance records and notify owners of vehicles purchased
at the dealerships when their vehicles are due for periodic services. The
Company believes that this practice encourages preventive maintenance rather
than post-breakdown repairs.
Each dealership sells factory-approved parts for vehicle brands and models
sold by that dealership. These parts are either used in repairs made by the
dealership or sold at retail to its customers or at wholesale to independent
repair shops. Each dealership employs its own parts manager and independently
controls its parts inventory and sales. Hometown dealerships which sell the same
new vehicle brands will have access to each other's computerized inventories.
Further, certain Manufacturers have begun to offer discounts on volume purchases
of certain parts and components.
Finance, Insurance and Other Revenue. Hometown dealerships arrange financing for
their customers' vehicle purchases, sell vehicle service contracts and arrange
selected types of credit insurance in connection with the financing of vehicle
sales. The dealerships place heavy emphasis on F&I and offer advanced F&I
training to their F&I managers. Typically, the dealerships forward proposed
financing contracts to finance companies owned and operated by the Manufacturers
or to selected commercial banks or other financing parties. The dealerships
receive a finance fee from the lender for arranging the financing and may be
assessed a charge-back against a portion of the finance fee if the contract is
terminated prior to its scheduled maturity for any reason, including early
repayment or default. However, under existing agreements no charge-backs are
permitted after 90, or in some cases 120, days except for certain sales to
livery car operations. In addition, Hometown has guaranteed certain automobile
financing loans made by financial institutions to its livery customers for the
purchase new and used limousines. At December 31, 1997 contingent liability on
these guarantees to Ford Motor Credit Co. and two other financial institutions
aggregated $9,732,000, of which guarantees for $800,000 were limited to a
12-month period from the inception of the loan and guarantees of $754,000
covered loans to customers with below average credit ratings. Loan guarantees
for $935,000 were with a financial institution in which an officer, director and
principal stockholder of Hometown is a stockholder. The collectability of such
loans to customers in the livery business can be adversely affected by a decline
in economic conditions. The Company has established reserves for potential
liability arising from such guarantees, which it believes are adequate but not
excessive.
At the time of a new vehicle sale, the Company offers extended service
contracts to supplement the Manufacturer's warranty. Additionally, the Company
sells primary service contracts for used vehicles, as well as service contracts
of third party vendors.
Franchise Agreements
Each Hometown dealership operates pursuant to a franchise agreement
between the applicable Manufacturer and the dealership. The typical automotive
franchise agreement specifies the locations at which the dealer has the right
and the obligation to sell motor vehicles and related parts and products and to
perform certain approved services in order to serve a specified market area. The
designation of such areas and the allocation of new vehicles among dealerships
are subject to the discretion of the Manufacturer which generally does not
guarantee exclusivity with a specified territory. In addition, a franchise
agreement may impose requirements on the dealer concerning such matters as
showrooms, facilities and equipment for servicing vehicles, maintenance of
inventories of vehicles and parts, maintenance of minimum net working capital
and training of personnel. Compliance with each of these requirements is closely
monitored by the Manufacturer. In addition, Manufacturers require each
dealership to submit a
50
<PAGE>
financial statement of operations on a monthly and annual basis. The franchise
agreement also grants the dealer the non-exclusive right to use and display the
Manufacturer's trademarks, service marks and design in the form and manner
approved by the Manufacturer.
Each franchise agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the dealership's
operations and the names and ownership percentages of the approved owners of the
dealership and contains provisions requiring the Manufacturer's prior approval
of changes in management or transfers of ownership of the dealership. A number
of Manufacturers prohibit the acquisition of a substantial ownership interest in
the franchised dealer or transactions that may affect management control of the
franchised dealer, in each case without the approval of the Manufacturer. In
connection with approving the Exchange, the Manufacturers will require Hometown
to execute new franchise agreements which may contain different provisions from
the current agreements. For a description of these and other restrictions and
other material terms imposed by the Manufacturers in the franchise agreements,
see "Risk Factors - Manufacturers' Control Over Dealerships" and "Risk Factors -
Dependence on Acquisitions for Growth; Manufacturers' Restrictions on
Acquisitions."
Most franchise agreements expire within one to five years. The Company
expects to renew any expiring agreements in the ordinary course of business. The
typical franchise agreement provides for early termination or non-renewal by the
Manufacturer under certain circumstance such as change of management or
ownership without Manufacturer approval, insolvency or bankruptcy of the
dealership, death or incapacity of the dealer manager, conviction of a dealer
manager or owner of certain crimes, misrepresentation of certain information by
the dealership or dealer manager or owner to the Manufacturer, failure to
adequately operate the dealership, failure to maintain any license, permit or
authorization required for the conduct of business or material breach of other
provisions of the franchise agreement. The dealership is typically entitled to
terminate the franchise agreement at any time without cause.
The automobile franchise relationship is also governed by various federal
and state laws established to protect dealerships from the generally unequal
bargaining power between the parties. The state statutes generally provide that
it is a violation for a manufacturer to terminate, or to fail to renew, a
franchise without good cause. Most statutes also provide that the manufacturer
is prohibited from unreasonably withholding approval for a proposed change in
ownership of the dealership. Generally, in order to withhold approval, the
manufacturer must have material reasons relating to the character, financial
ability or business experience of the proposed transferee. Moreover, certain
states including Connecticut, New Jersey, Massachusetts and Vermont have laws
which grant to pre-existing dealers a right to contest, in court or before an
administrative agency, if a manufacturer establishes a new dealership, or
authorizes the relocation of an existing dealership, to a location within a
defined market area of a pre-existing dealership holding a franchise to sell the
same brand. Accordingly, the relationship between the Manufacturer and the
dealer, particularly as it relates to a manufacturer's rights to terminate, or
to fail to renew, the franchise, is the subject of a substantial body of case
law based upon specific facts in each instance. The above discussion of state
court and administrative holdings and various state laws is based on
management's beliefs and may not be an accurate description of the state court
and administrative holdings and various state laws.
51
<PAGE>
Competition
The automotive retailing industry is extremely competitive and consumers
generally have a number of choices in deciding where to purchase or service a
new or used vehicle.
The Company competes for new vehicle sales with other franchised dealers
in each of its marketing areas. Hometown does not have any cost advantage in
purchasing new vehicles from the Manufacturers and typically relies on sales
expertise, reputation and customer goodwill, the quality of its service and
location of its dealerships to sell new vehicles. In recent years, automobile
dealers have also faced increased competition in the sale or lease of new
vehicles from independent leasing companies, on-line purchasing services and
warehouse clubs. In addition, Ford Motor has announced that it is exploring the
possibility of going into business with some of its dealers to create automotive
superstores in selected markets. The Company believes that the principal
competitive factors in new vehicle sales are the marketing campaigns conducted
by Manufacturers, the ability of dealerships to offer a wide selection of the
most popular vehicles, the location of dealerships and the quality of customer
service. Other competitive factors include customer preference for particular
brands of automobiles, pricing (including Manufacturer rebates and other special
offers) and warranties. The Company believes that its dealerships are
competitive in all of these areas.
In used vehicles, Hometown competes with other franchised dealers,
independent used car dealers, automobile rental agencies and private parties for
supply and resale of used vehicles. The Company believes that the principal
competitive factors in used vehicle sales are the quality and condition of its
used cars, price and the quality of customer service.
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 non-warranty repair and routine
maintenance business. The Company competes with other automobile dealers,
service stores and automotive 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, a dealership's
expertise with a Manufacturer's brands and models, the quality of customer
service and convenience for the customer.
Facilities
Set forth in the table below is certain information relating to the
properties that the Company uses in its business. Certain of the leases
described below reflect the terms of new leases which became effective on the
closing of the Offering. See "Certain Transactions - Leases."
52
<PAGE>
<TABLE>
<CAPTION>
Occupant/Trade Name Location Use Lease/Own
<S> <C> <C> <C>
Shaker's Lincoln Mercury 831 Straits New and used car Lease expires in
Turnpike sales; service; F & I 2013; $240,000 per
Watertown, CT 06795 year with CPI
increases in 2002
and 2007
Lincoln Mercury Autocare 1189 New Haven Rd. Service Owned by dealership
Naugatuck, CT 06770
Family Ford 1200 Wolcott Street New and used car Lease expires in
Waterbury, CT 06705 sales; service; F & I 2013; $240,000 per
year with CPI
increases in 2002
and 2007
Shaker's Jeep Eagle 1311 South Main St. New and used car Lease expires in
Waterbury, CT 06706 sales; service; F & I 2013; $72,000 per
year with CPI
increases in 2002
and 2007
Westwood Lincoln Mercury 55 Kinderkamack Rd. New and used car Lease expires in
Emerson, NJ 07630 sales; service; F & 2013; $360,000 per
I; livery sales year with CPI
increases in 2002
and 2007
Muller Toyota Route 31 and New and used car Lease expires in
Van Sickles Rd. sales; service; F & I 2013; $360,000 per
Clinton, NJ 08809 year with CPI
increases in 2002
and 2007
Muller Toyota Route 31 and Used car sales Lease expires in
Spruce St. 2000; $60,000 per
Glen Gardner, NJ year with increases
08826 up to $72,000 per
year
Muller Chevrolet, Route 173 and New and used car Lease expires in
Oldsmobile, Isuzu Voorhees Rd. sales; service; F & I 2013; $396,000 per
Stewartsville, NJ year with CPI
08865 increases in 2002
and 2007
Muller Chevrolet 135 Fifth Street Auto collision repairs Lease expires in
Phillipsburg, NJ 2000 at
08865 $48,000 per year
Baystate Lincoln Mercury 571 Worcester Road New and used car Lease expires in
Framingham, MA 01701 sales; service; F & I 2013 at $360,000
per year for the
first 5 years,
$420,000 for the
next 5 years and
with a CPI increase
in 2008 for the last
5 years; two
five-year open
market at $420,000
per year
Brattleboro Chrysler Route 5, Putney Rd. New and use car Lease expires in
Plymouth Dodge N. Brattleboro, VT sales; service; F & I 2003 at $240,000
05304 per year; with one
five year renewal
option and option to
purchase at fair
market value of not
less than $1.5
million; $240,000
per year
</TABLE>
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<PAGE>
Governmental Regulations
A number of regulations affect Hometown's business of marketing, selling,
financing and servicing automobiles. The Company is also subject to laws and
regulations relating to business corporations generally.
Under New Jersey, Connecticut, Massachusetts and Vermont law, the Company
must obtain a license in order to establish, operate or relocate a dealership or
provide certain automotive repair services. These laws also regulate the
Company's conduct of business, including its advertising and sales practices.
Other states may have similar requirements.
The Company's financing activities are subject to federal
truth-in-lending, consumer leasing and equal credit opportunity regulations, as
well as state and local motor vehicle finance laws, installment finance laws,
insurance laws, usury laws and other installment sales laws. Some states
regulate finance fees that may be paid as a result of vehicle sales. Penalties
for violation of any of these laws or regulations may include revocation of
certain licenses, assessment of criminal and civil fines and penalties and, in
certain instances, may create a private cause of action for individuals. The
Company believes that its dealerships substantially comply with all laws and
regulations affecting their businesses and do not have any material liabilities
under such laws and regulations, and that compliance with all such laws and
regulations do not and will not, individually or in the aggregate, have a
material adverse effect on the Company's capital expenditures, earnings, or
competitive position.
Environmental Matters
The Company is subject to a wide range of federal, state and local
environmental laws and regulations, including those governing discharges to the
air and water, storage of petroleum substances and chemicals, handling and
disposal of wastes, and remediation of contamination arising from spills and
releases. As with automobile dealerships generally, and service and parts and
collision repair center operations in particular, the Company's business
involves the generation, use, handling and disposal of hazardous or toxic
substances or wastes. Operations involving the management of hazardous and
non-hazardous wastes are subject to requirements of the federal Resource
Conservation and Recovery Act and comparable state statutes. Pursuant to these
laws, federal and state environmental agencies have established approved methods
for storage, treatment, and disposal of regulated wastes with which the Company
must comply.
Hometown's business also involves the use of aboveground and underground
storage tanks. Under applicable laws and regulations, the Company is responsible
for the proper use, maintenance and abandonment of regulated storage tanks owned
or operated by it and for remediation of subsurface soils and groundwater
impacted by releases from such existing or abandoned aboveground or underground
storage tanks. In addition to these regulated tanks, the Company owns and
operates other underground and aboveground devices or containers (e.g.
automotive lifts and service pits) that may not be classified as regulated
tanks, but which are capable of releasing stored materials into the environment,
thereby potentially obligating the Company to remediate any soils or groundwater
resulting from such releases.
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The Company is also subject to laws and regulations governing remediation
of contamination at facilities it operates or to which it sends hazardous or
toxic substances or wastes for treatment, recycling or disposal. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
also known as the "Superfund" law, imposes liability, without regard to fault or
the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of the hazardous substances released at such sites. Under
CERCLA, these "responsible parties" may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the release of hazardous substances.
Further, the Federal Water Pollution Control Act, also known as the Clean
Water Act, and comparable state statutes prohibit discharges of pollutants into
regulated waters without authorized National Pollution Discharge Elimination
System (NPDES) and similar state permits, require containment of potential
discharges of oil or hazardous substances, and require preparation of spill
contingency plans. The Company expects to implement programs that address
wastewater discharge requirements as well as containment of potential discharges
and spill contingency planning.
Environmental laws and regulations have become very complex, making it
very difficult for businesses that routinely handle hazardous and non-hazardous
wastes to achieve and maintain full compliance with all applicable environmental
laws. Like virtually any network of automobile dealerships and vehicle service
facilities, the Company, from time to time, can be expected to experience
incidents and encounter conditions that will not be in compliance with
environmental laws and regulations. However, none of Hometown's dealerships have
been subject to any material environmental liabilities in the past and the
Company does not anticipate that any material environmental liabilities will be
incurred in the future. Although the Company is in the process of establishing
an environmental management program that is intended to reduce the risk of
noncompliance with environmental laws and regulations, environmental laws and
regulations and their interpretation and enforcement are changed frequently and
the Company believes that the trend towards broader and stricter environmental
legislation and regulations is likely to continue. Hence, there can be no
assurance that compliance with environmental laws or regulations or the future
discovery of unknown environmental conditions will not require additional
expenditures by the Company or that such expenditures would not be material. See
"Risk Factors - Governmental Regulations and Environmental Matters."
Employees
As of December 31, 1997, the Company (after giving effect to the Exchange
and the Acquisitions) employed 331 people, of whom approximately 74 were
employed in managerial positions, 61 were employed in non-managerial sales
positions, 108 were employed in non-managerial parts and service positions and
88 were employed in administrative support positions.
Hometown believes that its relationships with its employees are favorable.
None of the employees is represented by a labor union. Because of its dependence
on the Manufacturers, the Company may, however, be affected by labor strikes,
work slowdowns and walkouts at the manufacturing facilities of their
Manufacturers or of suppliers to, or shippers for, their Manufacturers.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company and their respective
ages as of January 31, 1998 are as follows:
Name Age Position
---- --- --------
Salvatore A. Vergopia 58 Chairman of the Board and Chief Executive
Officer
Joseph Shaker 30 President, Chief Operating Officer and
Director
William C. Muller Jr. 46 Vice President--New Jersey Operations and
Director
Corey Shaker 40 Vice President--Connecticut Operations and
Director
Edward A. Vergopia 28 Vice President--Fleet Operations and Director
James Christ 41 General Manager--Muller Toyota and Director
John Rudy 55 Chief Financial Officer and Secretary
Steven Shaker 28 Vice President--Parts and Service
Matthew J. Visconti Jr.(1) 41 Vice President--Mergers and Acquisitions
Domenic Colasacco(2) 49 Director
Steven A. Hirsh(2) 58 Director
Louis I. Margolis(2) 53 Director
- ----------------
(1) Mr. Visconti will take office immediately after the closing of the Offering.
(2) Messrs. Colasacco, Hirsh and Margolis will take office as directors
effective 45 days after the closing of this Offering.
All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve subject to the discretion of the Board of Directors.
Set forth below is a brief description of the background and business
experience of the executive officers and directors of the Company:
Salvatore A. Vergopia has been Chairman of the Board and Chief Executive
Officer since October 1, 1997. In addition, from 1992 to date, he has been
President and for over 20 years prior thereto, Vice President of Westwood
Lincoln Mercury Sales Inc. Under his management, Westwood has been a winner of
numerous awards, including: (a) Lincoln-Mercury 100 Champions Leadership
Conference award in each of the past 25 years; (b) North American Customer
Excellence Award; and (c) Ford Motor Credit Company's Partners in Quality Award.
In addition to his responsibilities as a dealer, he has served on the Customer
Dispute Settlement Board for New Jersey and Connecticut and is a member and past
Chairman of the Ford Lincoln-Mercury NADA 20 Group. He holds a B.S. degree from
Arizona State University.
Joseph Shaker has been the President and Chief Operating Officer since
October 1, 1997 and is in charge of the Company's dealer acquisition program,
including the implementation of such programs as may be necessary to assimilate
new dealers into Hometown's operational model. In addition, from 1991 to date,
he has been the Chief Operating Officer of Shaker's Lincoln Mercury, Shaker's
Jeep Eagle and Lincoln Mercury Autocare in Connecticut. In 1992, at the request
of Ford Motor Company, he developed the pilot free-standing neighborhood
Autocare Center which has become the model for Ford's free-standing neighborhood
auto maintenance centers. He also started Shaker's Lincoln Mercury limousine
department in 1992 and has been responsible for its growth and implementation.
He is a Member of the Executive Committee of the NADA 20 Group. He holds a B.S.
(Management) degree from Bentley College.
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<PAGE>
William C. Muller Jr. has been Vice President - New Jersey Operations
since October 1, 1997. In addition, from 1980 to date, he has been the President
of Muller Toyota, Inc. and of Muller Chevrolet, Oldsmobile, Isuzu, Inc. Under
his management, Muller Toyota has been: (a) a 9-time recipient of Toyota's
Prestigious President's Award, given to those dealers with superior levels of
customer satisfaction who also exceed capital standards and have high market
penetration and facilities that meet or exceed Toyota standards; (b) a 13-time
recipient of Toyota Parts Excellence Award; (c) a 9-time winner of Toyota
Service Excellence Award; and (d) a 3-time winner of Toyota's Sales Excellence
Award. He holds a B.A. degree from Fairleigh Dickinson University.
Corey Shaker has been Vice President - Connecticut Operations since
October 1, 1997 and is in charge of Hometown's Company-wide sales training
efforts. In addition, from 1989 to date, he has been Chief Operating Officer and
General Manager of Family Ford Inc. where he was responsible for all aspects of
its operations. He is a member of NADA Ford F01 20 group. He was awarded the
Lincoln Mercury Salesperson of the Nation award in 1980 and is a three time
winner of the Lincoln Mercury Inner Circle award. He holds a B.S. in Business
Administration from Providence College.
Edward A. Vergopia has been Vice President - Fleet Operations since
October 1, 1997. In addition, from 1988 to date, he has been Executive Vice
President of Westwood where, among other responsibilities, he managed the
Lincoln Mercury Division of Spoilers Plus (custom cars) and Westwood Lincoln
Mercury Limousine Department. During those periods, he also worked in the
Leasing, Financing and Parts and Service Departments of Westwood Lincoln
Mercury. He holds a B.B.A. from the University of Miami.
James Christ has been General Manager of the Muller Toyota division of the
Company since October 1, 1997. In addition, from 1995 to date, he has been
General Manager of Muller Toyota in Clinton, New Jersey. From March 1986 to
November 1994, he was Vice President and General Manager of Liberty Toyota, Inc.
in Burlington, New Jersey and from August 1989 to November 1994, he was Vice
President of Richardson Imports, Inc. a Lexus dealership, in Cherry Hill, New
Jersey. Prior thereto he had more than 5 years experience in managerial
capacities at Toyota. He holds a B.S. in Business Administration from West
Chester University.
John C. Rudy has been Chief Financial Officer since October 1, 1997 and,
upon the closing of the Offering, will assume full-time status. His
responsibilities include financial reporting, accounting and computer systems.
In addition, from 1992 to date, he has been President of Beacon Business
Services, Inc., a business consulting firm providing business strategy,
financial, and accounting services to small and mid-size businesses. From 1990
to 1992, he directed the Metropolitan New York area troubled business practice
for Coopers & Lybrand, and from 1987 through 1989, served as Chief Financial
Officer for Plymouth Lamston Stores Corporation, a chain of retail stores in New
York City. He holds a Bachelor of Science Degree in Economics from Albright
College in Reading, Pennsylvania, an MBA from Emory University in Atlanta,
Georgia, and is a Certified Public Accountant in New York State.
Steven Shaker has been Vice President in charge of Parts and Service since
October 1, 1997. In addition, from 1992 to date, he has been Director of Parts
and Service of all of the Shaker Group's operations and was instrumental in the
implementation of the pilot program to develop the Ford Motor Company's first
Autocare automobile service center. He holds a B.A. degree from Salve Regina
College.
Matthew J. Visconti Jr. will become Vice President--Mergers and
Acquisitions upon the closing of the Offering. During 1997 he served as one of
the organizers of the Company and consulted with it on
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<PAGE>
merger and acquisition matters. From January 1996 to December 1996, he was
General Manager of the Ray Catena Company which held Jaguar and Porsche
franchises in Edison, New Jersey. Prior thereto, from July 1994 to December
1995, he was General Sales Manager of Town Motors in Englewood, New Jersey which
held Audi, Lincoln, Mercury, Porsche, Subaru and Suzuki franchises. From prior
to 1992 to April 1994, he was an owner and President of The Blake Group, Inc., a
business consultant specializing in merger and acquisition transactions in the
retail automobile sector.
Domenic Colasacco is Chairman of the Board and President of United States
Trust Company (USTC), a Boston based firm specializing in trust and investment
management services for institutional and personal clients. Mr. Colasacco has
been serving as the Chief Investment Officer of USTC since 1980. From 1990 to
March 1998, he was also a director of UST Corp., the holding company for USTC
and USTrust, a commercial and retail bank in Greater Boston. He holds both a
bachelors degree and an M.B.A. from Babson College and is a Chartered Financial
Analyst.
Steven A. Hirsh has been a portfolio manager for William Harris & Co., a
financial services company, for more than five years. Since 1994 he has also
been Chairman, Chief Executive Officer and President of Astro Communications,
Inc., a manufacturer of strobe lights. Mr. Hirsh has been a director of Complete
Management, Inc., a physician practice management company since 1996 and Market
Guide, Inc, a financial data base company since 1997. He holds a Bachelor of
Science degree from the University of Colorado and a Master of Business
Administration from the University of Chicago.
Louis I. Margolis has been a General Partner of Pine Street Associates,
L.P., a private investment partnership that invests in other private limited
partnerships since January 1994. In January 1997, Mr. Margolis formed and is the
President and sole shareholder of Chapel Hill Capital Corp., a financial
services company. From 1991 through 1993, he was a Member of the Management
Committee of Nomura Securities International. From 1993 through 1995, he was
Chairman of Classic Capital Inc., a registered investment advisor. Mr. Margolis
has been a director of Milestone Scientific, Inc., a manufacturer of dental
devices, since 1997. Mr. Margolis has been a member of the Financial Products
Advisory Committee of the Commodity Futures Trading Commission since its
formation in 1986, a Trustee of the Futures Industry Institute since 1991 and a
Trustee of Saint Barnabas Hospital in Livingston, New Jersey since 1994.
Committees of the Board of Directors
The Company's Board of Directors has established Compensation and Audit
committees, whose members will be Messrs. Colasacco, Hirsh and Margolis. The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all officers of the Company, reviews general policy
matters relating to compensation and benefits of employees of the Company and
administers the issuance of stock options and discretionary cash bonuses to the
Company's officers, employees, directors and consultants. The Audit Committee
meets with management and the Company's independent public accountants to
determine the adequacy of internal controls and other financial reporting
matters. It is the intention of the Company to appoint only independent
directors to the Audit and Compensation Committees.
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Compensation of Executive Officers
The following table sets forth certain summary information for the year
ended December 31, 1997 with respect to compensation paid to Hometown's Chief
Executive Officer and four highest paid other officers by the Core Operating
Companies for services provided to such Core Operating Companies:
Other Annual
Name and Principal Position Salary(1) Bonus(2) Compensation(3)
Salvatore A. Vergopia, Chairman & Chief
Executive Officer $ 174,950 $380,000 $ 10,557
Joseph Shaker, President and Chief
Operating Officer $ 81,000 $100,000 $ 1,357
William C. Muller Jr., Vice President--
New Jersey Operations $ 259,247 -- $ 52,444
Corey Shaker, Vice President --
Connecticut Operations $ 114,400 $100,000
Edward A. Vergopia, Vice President -
Fleet Operations $ 129,388 $250,000
James Christ, General Manager -
Muller Toyota $ 108,000 $113,000
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid
in the first quarter of the following year.
(3) Consists of excess life insurance for Salvatore Vergopia, extra disability
insurance on Joe Shaker, and life insurance on co-owner for William C.
Muller, Jr.
Compensation Committee Interlocks and Insider Participation
Until after the consummation of the Offering, Hometown will have no
Compensation Committee or other Board committee performing equivalent functions.
Compensation contracts have been approved by the entire Board of Directors,
consisting of: Salvatore A. Vergopia; Joseph Shaker; William C. Muller Jr.;
Corey Shaker; Edward A. Vergopia; and James Christ.
Employment Contracts
In April 1998, Hometown entered into five-year employment agreements,
effective upon the closing of the Offering, with the following key personnel of
the Core Operating Companies: Salvatore A. Vergopia as Chairman and Chief
Executive Officer, Joseph Shaker as President and Chief Operating Officer,
William C. Muller Jr. as Vice President - New Jersey Operations, Corey Shaker as
Vice President - Connecticut Operations, Edward A Vergopia as Vice President -
Fleet Operations, James Christ as General Manager - Muller Toyota; and Steven
Shaker as Vice President - Parts and Service. The Company also entered into a
five-year employment agreement with Matthew J. Visconti to become Vice
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<PAGE>
President -- Mergers and Acquisitions. Each agreement provides for an annual
base salary of $200,000, except that the agreement with James Christ provides
for an annual base salary of $150,000 plus an annual bonus equal to five percent
of the pre-tax profits of Muller Toyota, the agreement with Steven Shaker
provides for an annual base salary of $100,000 and the agreement with Mr.
Visconti provides for an annual base salary of $150,000. Each agreement also
provides for participation by the employee in all executive benefit plans and,
if employment is terminated without cause (as defined in the agreement), payment
of an amount equal to the salary which would have been payable over the
unexpired term of his employment agreement.
Stock Options
In February 1998, in order to attract and retain persons necessary for the
success of the Company, Hometown adopted its 1998 Stock Option Plan (the "Stock
Option Plan") covering up to 480,000 shares of Class A Common Stock. Pursuant to
the Stock Option Plan officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive and/or
non-incentive stock options. The Stock Option Plan, which expires in January
2008, will be administered by the Board of Directors or a committee designated
by the Board of Directors. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the Board of Directors, or a committee thereof, in its
sole discretion. Stock options granted under the Stock Option Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive stock option granted
under the Stock Option Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the Common Stock on the date
of the grant. As of the effective date of the Offering, options for an aggregate
of 240,000 shares, exercisable at the Offering price during a five-year period,
were granted to eight officers and nine other employees of the Company and were
outstanding under the Stock Option Plan. These options will be exercisable for
one-third of the shares covered thereby on the first anniversary of the date of
the grant and for an additional one-third of the shares covered thereby each
year thereafter. In addition, options for 5,000 shares will be granted to each
of the Company's outside directors upon their taking office. Options granted to
outside directors will be exercisable at the fair market value per share on the
date of grant and will for 50% of the shares covered immediately upon grant and
for the remainder of the shares following one year's service.
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CERTAIN TRANSACTIONS
Leases
The Company has leased from various affiliates the premises occupied by
certain of its dealerships. Each of these governing leases will become effective
as of the closing of the Offering, have a term expiring in 2013, be on a triple
net basis and provide for a consumer price index ("CPI") increase to the base
rent for the five-year periods commencing January 1, 2004 and 2009.
Shaker Group. The Company will lease, for an initial annual base rental of
$240,000, the premises occupied by its Lincoln Mercury dealership in Watertown,
Connecticut from Shaker Enterprises, a Connecticut general partnership whose
seven partners include Joseph Shaker, Corey Shaker, Steven Shaker and Janet
Shaker. Joseph Shaker is President and Chief Operating Officer of Hometown and,
prior to the Offering, was a 5.17% stockholder. Corey Shaker is Vice
President-Connecticut Operations and, prior to the Offering, was a 6.23%
stockholder. Steven shaker is vice President - Parts and Service and, prior to
the Offering, was a 5.17% stockholder. Janet Shaker was a 5.70% stockholder of
Hometown prior to the Offering.
Muller Group. The Company will lease, for an initial annual base rental of
$360,000 and $396,000 respectively the premises occupied by its Toyota
dealership in Clinton, New Jersey and its Chevrolet/Oldsmobile/Isuzu dealership
in Stewartsville, New Jersey from Rellum Realty Company, a New Jersey general
partnership, one of whose two partners is William C. Muller Jr. Mr. Muller is
Vice President-New Jersey operations and, prior to the Offering, was a 9.42%
stockholder of Hometown.
Westwood. The Company will lease, for an initial annual base rental of
$360,000 the premises occupied by its Lincoln Mercury dealership in Emerson, New
Jersey from Salvatore A. Vergopia and his wife. Mr. Vergopia is Chairman of the
Board and Chief Executive Officer of Hometown and, prior to the Offering,
including shares owned by his wife, was a 17.63% stockholder of Hometown.
Exchange
The executive officers, directors and holders of more than five percent of
any class of the Company's voting securities who are listed in the table under
"Principal Stockholders" received their stock in the Exchange except one officer
included in "all Officers and Directors as a Group" who received 60,000 shares
of Class A Common Stock on the organization of Hometown. See "Exchange."
The Company will pay a fee of $175,000 to Matthew J. Visconti at the
Closing of the Offering for his services in connection with the Exchange. Mr.
Visconti was one of the organizers and will, upon the closing of the Offering,
become Vice President - Acquisitions and Mergers of the Company.
Loans
During the year ended December 31, 1997, a Core Operating Company lent
$59,000 to Corey Shaker, increasing the amount owed by him to that company to
$86,000 at December 31, 1997. The loan bears interest at 6.83% per annum and
will be repaid immediately prior to the closing of the Offering.
During the year ended December 31, 1997, a Core Operating Company: (a)
lent: (i) $769,000 to Salvatore A. Vergopia, increasing the amount owed by him
to that Core Operating Company to $940,000,
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which is offset by $1,000,000, or a net of $60,000, owed by that company to
Salvatore Vergopia; and (ii) $7,000 to Edward A. Vergopia, increasing the amount
owed by him to that Core Operating Company to $66,000; and (b) received
repayment of $10,000 from Worldwide Financing Co. Ltd. ("WFC"), reducing the
amount owed by WFC to $90,000. The loans to and from Salvatore A. Vergopia each
bear interest at prime rate, which was 8.5% in 1997 and the loans from WFC and
Edward A. Vergopia are each non-interest bearing. All of these loans will be
repaid immediately prior to the closing of the Offering. Edward A. Vergopia is
Vice President - Fleet Operations and a director of the Company and, prior to
the Offering, was a 5.88% Stockholder of Hometown. WFC, which is not being
acquired by the Company, is owned by Salvatore A. Vergopia and his wife.
During the year ended December 31, 1997, a Core Operating Company lent
Rellum Realty Company $106,000, increasing the amount owed to it by Rellum
Realty at year end to $430,000. The loan was repaid in 1998.
Guarantees
A Core Operating Company is the guarantor of a $2,000,000 credit facility
from SEC Funding Corp. ("SFC") pursuant to which loans are made to third party
purchasers of limousines. As at December 31, 1997 loans outstanding under this
credit line were $935,000. SFC is owned by Salvatore and Edward Vergopia and by
a manager at Westwood.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1998, after
giving pro forma effect to the consummation of the Exchange, by each stockholder
known by the Company to be the beneficial owner of more than 5% of its
outstanding shares, by each director of the Company, by the executive officers
named in the table above and by the directors and executive officers as a group
and as adjusted to effect the issuance of shares by the Company in the Offering.
<TABLE>
<CAPTION>
Percent of
Aggregate
Shares Beneficially Shares Beneficially Voting
Owned Owned Rights of
Before this Offering After this Offering all Classes
--------------------- --------------------- -----------
Name of Beneficial Owner(1) Number(3) Percent(2) Number(3) Percent(2)
--------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Salvatore A. Vergopia(4).......... 705,000 17.63 705,000 11.75 17.70
Joseph Shaker..................... 206,612 5.17 206,612 3.44 5.19
William C. Muller Jr.............. 470,034 11.75 470,034 7.83 11.80
Corey Shaker...................... 249,100 6.23 249,100 4.15 6.25
Edward A. Vergopia................ 235,000 5.88 235,000 3.92 5.90
James Christ...................... 93,248 2.33 93,248 1.55 2.34
Steven Shaker..................... 206,424 5.17 206,424 3.44 5.18
Paul Shaker....................... 218,268 5.46 218,268 3.64 5.48
Janet Shaker...................... 227,668 5.69 227,668 3.79 5.71
William C. Muller Sr.............. 376,718 9.42 376,718 6.28 9.46
All Officers and Directors as a
group (8 persons)(5)........... 2,225,418 55.64 2,225,418 37.09 54.50
</TABLE>
- ------------
(1) The respective addresses of the beneficial owners are: Salvatore A.
Vergopia and Edward A. Vergopia, c/o Westwood Lincoln Mercury, 55
Kinderkamack Road, Emerson, New Jersey 07630; Joseph Shaker, c/o Shaker's
Inc. 831 Straits Turnpike Watertown, Connecticut 06795; William C. Muller
Jr., James Christ and William C. Muller Sr. c/o Muller Toyota, Inc., Route
31, PO Box J, Clinton, New Jersey, 08809; Corey Shaker, Janet Shaker,
Steven Shaker and Paul Shaker, c/o Family Ford, Inc., 1200 Wolcott Street,
Waterbury, Connecticut 06705.
(2) Percentages based on number of shares of all classes.
(3) Class B Common Stock unless otherwise noted.
(4) Includes 225,600 shares owned by his wife Janet.
(5) Includes 60,000 shares of Class A Common Stock owned by one officer.
The Company's officers and directors and holders of more than five percent
of any class of its voting securities have agreed with the Representative that
they will not sell or otherwise dispose of any Common Stock, or any securities
convertible into shares of the Company's Common Stock without the prior written
consent of such Representative until , 1998. After that date,
an aggregate of
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shares of Common Stock will become eligible for sale pursuant to Rule 144 and
the limitations specified therein.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 29,760,000 shares
of which 24,000,000 are shares of Class A Common Stock, par value $.001 per
share, 3,760,000 are shares of Class B Common Stock, par value $.001 per share,
and two million are shares of Preferred Stock, par value $.001 per share,
issuable in series. As of March 31, 1998 none of the shares of Class B Common
Stock or Preferred Stock were outstanding and 240,000 shares of Class A Common
Stock were outstanding. Upon the closing of the Offering and the simultaneous
closings of the Exchange and the Acquisitions, the Company will issue 3,760,000
shares of Class B Common Stock to the stockholders of the Core Operating
Companies and 2,000,000 shares of Class A Common Stock in the Offering.
Common Stock - Class A and Class B
The Class A Common Stock and the Class B Common Stock each have a par
value of $.001 per share and are identical in all respects, except voting rights
and the convertibility of the Class B Common Stock. Subject to any special
voting rights of any series of Preferred Stock that may be issued in the future,
the holders of Class A Common Stock are entitled to one vote per share and the
holders of Class B Common Stock are entitled to ten votes per share. Except as
otherwise required by law, both Class A Common Stock and Class B Common Stock
vote together as one class on all matters to be voted on by stockholders of the
Company, including the election of directors. Class A Common Stock is not
convertible. The Class B Common Stock is convertible into Class A Common Stock
on a share for share basis, at any time at the election of the holder and is
automatically converted into Class A Common Stock upon any transfer to a person
who is not then an officer or director of the Company or of a subsidiary of the
Company. All of the outstanding shares of Class B Common Stock, representing
approximately 94% of the aggregate voting power of the Company upon completion
of the Offering, are beneficially owned by the principals of the Core Operating
Companies, including a majority of the Board of Directors of Hometown. Neither
class of Common Stock has redemption, preemptive or sinking fund rights. Holders
of both classes of Common Stock are entitled to dividends as and when declared
by the Board of Directors from funds legally available therefor and, upon
liquidation, dissolution or winding up of the Company, to participate ratably in
all assets remaining after payment of all liabilities. All shares of Common
Stock issued and outstanding are, and those offered hereby when issued will be,
legally issued, fully-paid and non-assessable. See "Dividend Policy."
Preferred Stock
The Company's Certificate of Incorporation provides that its Board of
Directors has the authority, without further action by the holders of the
outstanding Common Shares, to issue up to two million shares of Preferred Stock
from time to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. The
Company does not have any Preferred Stock outstanding and has no present
intention to issue any Preferred Stock. The designations, rights and preferences
of any Preferred Stock would be set forth in a Certificate of Designation which
would be filed with the Secretary of State of Delaware.
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Representative's Warrants
In connection with this Offering, the Company will sell to the
Representative, at a price of $____ per Warrant, ______ Representative's
Warrants, entitling the holders thereof to purchase up to 200,000 shares of
Class A Common Stock at a purchase price of $____ per share over a four year
period commencing one year from the effective date of the Offering.
Reports
The Company intends to furnish to its stockholders annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information. In addition, the Company is required to file periodic reports on
Forms 8-K, 10-Q and 10-K with the United States Securities and Exchange
Commission and to make such reports available to its stockholders.
Limitation of Directors' Liability; Indemnification
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty to the Company, a failure to act in good faith, intentional
misconduct, a knowing violation of the law, an improper personal benefit or an
illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Corporation Law of the State of Delaware against all expense,
liability and loss (including attorneys fees, judgments, fines, Employee
Retirement Income Security Act, excise taxes or penalties and amounts paid or to
be paid in settlement), reasonably incurred or suffered by such person in
connection therewith.
Business Combinations under Delaware Law
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined, generally, as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date on which that person becomes an interested stockholder
unless: (a) before that person became an interested stockholder, the Company's
Board of Directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (b) upon
completion of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the Company and by employee
stock plans that do not provide employees with the right to determine whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (c) following the transaction in which that person became an interested
stockholder, the business combination is approved by the Company's Board of
Directors and authorized at a meeting of stockholders by
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the affirmative vote of the holders of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder. Under Section 203, these
restrictions also do not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the Company and a person who was
not an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the Company's
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
the in office.
Stockholders' Agreement
The stockholders of the Core Operating Companies have entered into a
Stockholders' Agreement pursuant to which they have agreed, except under certain
circustances, to vote all of their shares, for a period of five years, in favor
of the election to the Board of Directors of Salvatore A. Vergopia, Joseph
Shaker, William C. Muller Jr., Corey Shaker, Edward A. Vergopia and James Christ
and to vote on all other matters in accordance with the recommendations of the
majority of the Board. Salvatore A. Vergopia is Chairman of the Board and Chief
Executive Officer of the Company, and Joseph Shaker is President and Chief
Operating Officer of the Company. Mr. Muller is Vice President--New Jersey
Operations, Corey Shaker, a cousin of Joseph Shaker, is Vice
President--Connecticut Operations, Edward A. Vergopia, the son of Salvatore A.
Vergopia, is Vice President--Fleet Operations and James Christ is General
Manager--Muller Toyota. These six directors, beneficially own approximately
52.1% of the Company's outstanding Class B Common Stock which, after the
Offering, will represent approximately 49.2% of the combined voting power of all
classes of Common Stock and, accordingly, as long as they vote as required by
the Stockholders' Agreement, will be in a position to elect all of the persons
chosen by them. Further, such control could preclude any unsolicited acquisition
of the Company and consequently affect the market price of the Common Stock
offered hereby.
Listings on Nasdaq National Market
Application has been made for quotation of the Company's Class A Common
Stock on the Nasdaq National Market under the symbol "HCAR."
Transfer Agent and Registrar
The transfer agent and registrar for the Common Shares is Continental
Stock Transfer and Trust Company, 2 Broadway, New York, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
2,240,000 shares of Class A Common Stock and 3,760,000 shares of Class B Common
Stock. Of these shares, the 2,000,000 shares (or a maximum of 2,300,000 shares
of Class A Common Stock in the event that the Representative exercises its
over-allotment option in full) sold in the Offering, will be freely tradeable
without restrictions under the Securities Act. The remaining 240,000 outstanding
shares of Class A Common Stock and 3,760,000 of Class B Common Stock were issued
by the Company in private transactions in reliance upon one or more exemptions
under the Securities Act, are "restricted securities" within the meaning of Rule
144 under that Act, and may be resold in a public distribution only if
registered under the Securities Act or
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pursuant to an exemption therefrom, including Rule 144. In general, under Rule
144 a person, including an affiliate of the Company, who has beneficially owned
restricted securities for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding Common Shares and the average weekly trading volume in
composite trading on all exchanges during the four calendar weeks preceding such
sale. In addition, sales under Rule 144 may be made only through unsolicited
"broker's transactions" or to a "market maker" and are subject to various other
conditions.
The Company's executive officers, directors and holders of more than 5% of
its voting securities have agreed with the Representative that they will not
sell or otherwise dispose of any Common Stock or any securities convertible into
Common Stock of the Company without the prior written consent of such
Representatives until , 1999 (the "lock-up period"). After the lock-up period,
such shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144 if the conditions of that Rule have been met. The Company
is unable to estimate the amount of restricted securities that will be sold
under Rule 144 because this will depend, among other factors, on the market
price for the Common Shares and the personal circumstances of the sellers.
In addition, 240,000 shares of Class A Common Stock are subject to
outstanding options that have been granted to officers, directors and key
employees.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
the Company and the Underwriters named below (the "Underwriters"), the Company
has agreed to sell to the Underwriters, for whom Paulson Investment Company,
Inc. is acting as representative (in such capacity, the "Representative"), and
the Underwriters have severally and not jointly agreed to purchase the shares of
Class A Common Stock set forth below:
Underwriters Number of Shares
- ------------ ----------------
Paulson Investment Company, Inc...................
Total................................ 2,000,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by their
counsel and various other conditions. The Underwriters are obligated to purchase
all of the above shares if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Class A Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $__ per share. The
Underwriters may allow, and such dealers may allow, a concession not in excess
of $___ per share to certain other dealers. After the Offering, the offering
price and other selling terms may be changed by the Representative. The Company
has granted to the Underwriters an option exercisable during the 45-day period
commencing on the date of this Prospectus to purchase from the Company, at the
offering price less underwriting discount, up to an aggregate of 300,000 shares
of Class A Common Stock for the sole purpose of covering over-allotments, if
any. To the extent that the Underwriters exercise the option, each Underwriter
will have a firm commitment to purchase approximately the same percentage
thereof that the total number of shares shown in the above table bears to the
total shown, and the Company will be obligated, pursuant to the option, to sell
such additional shares to the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants (the "Representative's
Warrants") to purchase up to 200,000 shares of its Class A Common Stock. The
Representative's Warrants are exercisable for a period of four years commencing
one year from the date of this Prospectus. The Representative's Warrants provide
for reductions, which in certain circumstances could be material, in the
exercise price of the Representative's Warrants upon the occurrence of certain
events, including the issuance by the Company of shares of its Class A Common
Stock for a price below the market price of such shares, and corresponding
potentially significant increases in the number of shares purchasable upon
exercise of the Representative's Warrants. The Representative's
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Warrants also provide for adjustment of the type of securities issuable upon
exercise of the Representative's Warrants to reflect changes in the Class A
Common Stock. The Representative's Warrants grant to the holders thereof certain
rights with respect to the registration under the Securities Act of the
securities issuable upon exercise of the Representative's Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. See "Available Information."
LEGAL MATTERS
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York
10022, counsel to the Company, will render an opinion that the shares of Class A
Common Stock offered hereby, when issued and paid for in accordance with the
terms of the Underwriting Agreement, will be duly authorized, validly issued,
fully paid and nonassessable. Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
200 Park Avenue, New York, New York 10166, has acted as counsel to the
Underwriters in connection with the Offering. Partners in Morse, Zelnick, Rose &
Lander, LLP own an aggregate of 60,000 shares of Class A Common Stock.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
with respect to the offer and sale of Common Stock pursuant to this Prospectus.
This Prospectus, filed as a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement or the exhibits
and schedules thereto in accordance with the rules and regulations of the
Commission and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document filed as an exhibit to the Registration Statement are summaries
of the terms of such contract, agreement or document and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 11400,
Chicago, Illinois 60661. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. For further information pertaining to the Common Stock offered by
this Prospectus and the Company, reference is made to the Registration
Statement.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-l, of which this Prospectus forms a part, and
the exhibits thereto which the Company has filed with the SEC under the
Securities Act, to which reference is hereby made for further information
concerning the Company and the shares of Class A Common Stock offered hereby.
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==============================================================================
No person has been authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or by any Underwriter. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any security other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
offer or sale made hereby shall under any circumstance imply that the
information contained herein is correct as of any date subsequent to the date
hereof.
TABLE OF CONTENTS
Page
----
Prospectus Summary .....................................................
Risk Factors ...........................................................
Use of Proceeds ........................................................
Dividend Policy ........................................................
Capitalization .........................................................
Dilution ...............................................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...........................................................
Business ...............................................................
Management .............................................................
Certain Transactions ...................................................
Description of Capital Stock ...........................................
Shares Eligible for Future Sale ........................................
Underwriters ...........................................................
Legal Matters ..........................................................
Experts ................................................................
Additional Information .................................................
Index to Consolidated Financial
Statements ...........................................................
Until ______________, 1998 [25] days after the commencement of the
offering], all dealers effecting transactions in the Common Stock, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
2,000,000 Shares
HOMETOWN AUTO RETAILERS, INC.
CLASS A COMMON STOCK
-------------
PROSPECTUS
-------------
Paulson Investment Company, Inc.
Dated May , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Expenses in connection with the issuance and distribution of the
securities being registered hereunder other than underwriting commissions and
expenses, are estimated below.
SEC registration fee.............................................. $ 2,654.30
NASD registration fee............................................. 3,294.00
NASDAQ listing fee................................................ 17,700.00
Printing expenses................................................. 100,000.00
Accounting fees and expenses...................................... 350,000.00
Legal fees and expenses........................................... 400,000.00
State securities law fees and expenses including
fees of counsel................................................. 10,000.00
Transfer Agent and Registrar Fees................................. 5,000.00
Stock Certificate Expenses........................................ 1,000.00
Miscellaneous expenses............................................ 10,351.70
-----------
Total........................................................ $900,000.00
===========
- ----------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers
Sections 145 of the Delaware General Corporation Law grants to the Company
the power to indemnify the officers and directors of the Company, under certain
circumstances and subject to certain conditions and limitations as stated
therein, against all expenses and liabilities incurred by or imposed upon them
as a result of suits brought against them as such officers and directors if they
act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful.
The Company's certificate of incorporation provides as follows:
"NINTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
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<PAGE>
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators: provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would
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have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law."
Item 15. Recent Sales of Unregistered Securities
During the past three years the Company has issued the following
unregistered securities:
(a) In March 1997 the Company issued an aggregate of 240,000 shares of
Class A Common Stock1 to its four organizers as follows: 60,000
shares to Matthew J. Visconti Jr.;60,000 shares to Morse, Zelnick,
Rose & Lander, LLP; 60,000 shares to Joseph Lauria, Esq.; and 60,000
AutoInfo, Inc. Mr. Visconti will become Vice President of the
Company upon the closing of the Offering.
(b) At the closing of the Offering the Company will issue an aggregate
of 3,760,000 shares of Class B Common Stock to the stockholders of
the Founding Dealers as follows: an aggregate of 1,880,000 shares to
the 12 stockholders of the parent company of the Shaker Group
including 206,612 shares to Joseph Shaker, President and Chief
Operating Officer and a Director of the Company, 249,100 shares to
Corey Shaker, Vice President - Connecticut Operations and a Director
of the Company, 206,424 shares, 218,268 shares, and 277,668 shares,
respectively, to Steven Shaker, Paul Shaker and Janet Shaker, all of
whom are holders of more than 5% of the voting securities of the
Company prior to the Offering; an aggregate 940,000 shares to the
stockholders of the Muller Group including 470,034 shares to William
C. Muller Jr., Vice President - New Jersey Operations, 93,248 shares
to James Christ, General Manager - Muller Toyota and a Director of
the Company and 376,718 shares to William C. Muller Sr. a holder of
more than 5% of the voting securities of the Company prior to and
after giving effect to the Offering; and 940,000 shares to the
stockholders of Westwood, consisting of 479,400 shares to Salvatore
A. Vergopia, Chairman of the Board and Chief Executive Officer of
the Company, 225,600 shares to Janet Vergopia, the wife of Salvatore
A. Vergopia and 235,000 shares to Edward A. Vergopia, Vice President
- Fleet Operations and a Director of the Company and the son of
Salvatore and Janet Vergopia.
The shares issued or to be issued in each of the above transactions have
been or will be issued for investment and without a view to distribution and
each share certificate bears or will bear an appropriate restricted security
legend. Each of the transactions did not involve a public offering of the
Company's securities and were exempt from the registration requirements of the
Securities Act pursuant to Section 4(2), thereof.
Item 16. Exhibits
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of Dealer-Co., Inc.
(NY-3/10/97)
3.2 Certificate of Incorporation of Hometown Auto Retailers,
Inc. (Del-6/5/97)
- ----------
(1) Adjusted to give effect to the re-classification and split in 1998 of 20
shares of Common Stock into 240,000 shares of Class A Common Stock.
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3.3 Certificate of Ownership and Merger of Dealer-Co., Inc.
into Hometown Auto Retailers, Inc. (Del-6/27/97)
3.4 Certificate of Merger of Dealer-Co., Inc. and Hometown
Auto Retailers, Inc. into Hometown Auto Retailers, Inc.
(the "Company") (NY-9/11/97)
3.5 Certificate of Amendment of the Certificate of
Incorporation filed February 19, 1998
3.6 Certificate of Amendment of the Certificate of
Incorporation to be filed May , 1998
3.7 By-Laws of the Company
4.1 Form of Class A Common Stock Certificate *
4.2 Form of Class B Common Stock Certificate*
4.3 Form of Warrant Agreement between the Company and Paulson
Investment Company and related Warrant*
4.4 Stock Option Plan of the Company
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP as to
legality of the securities being registered.*
10.1 Exchange Agreement, dated as of the 1st day of July, 1997,
among the Registrant and the members of the Shaker Group,
the Muller Group and the Westwood Group (Exchange)
10.2 Agreement, dated July 2, 1997, between the Registrant and
Brattleboro Chrysler Plymouth Dodge, Inc. (an
Acquisition), Amendment dated November 11, 1997 and April
14, 1998.
10.3 Agreement, dated August 14, 1997, between the Registrant
and Leominster Lincoln Mercury, Inc., dba Bay State
Lincoln Mercury (an Acquisition) and Amendments dated
October 31, 1997 and April 14, 1998, respectively
10.4 Stockholders Agreement, dated as of the 16th day of
February 1998, among the Shaker Stockholders, the Muller
Stockholders and the Westwood Stockholders
10.5 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and Salvatore A. Vergopia
10.6 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and Joseph Shaker
10.7 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and William C. Muller Jr.
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10.8 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and Corey Shaker
10.9 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and Edward A. Vergopia
10.10 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and James Christ
10.11 Proposed employment Agreement, dated as of the 20th day of
April, 1998, between the Registrant and Matthew J.
Visconti Jr.*
10.12 Employment Agreement, dated as of the 20th day of April,
1998, between the Registrant and Steven Shaker
10.13 Lease, dated as of April 20, 1998, between Shaker
Enterprises, as landlord, and Hometown (Lincoln/Mercury
dealership in Watertown, CT.)
10.14 Lease, dated as of April 20, 1998, between Joseph Shaker
Realty Company, as landlord, and Hometown (Ford dealership
in Waterbury, CT.)
10.15 Lease, dated as of April 20, 1998, between Joseph Shaker
Realty Company, as landlord, and Hometown (Jeep/Eagle
dealership Waterbury, CT.)
10.16 Lease, dated as of April 20, 1998, between Rellum Realty
Company, as landlord, and Hometown (Toyota dealership in
Clinton, NJ)
10.17 Lease, dated as of April 20, 1998, between Rellum Realty
Company, as landlord, and Hometown
(Chevrolet/Oldsmobile/Isuzu dealership In Stewartville,
NJ)
10.18 Lease, dated as of April 20, 1998, between Salvatore A.
Vergopia and Janet Vergopia, as landlord, and Hometown
(Lincoln Mercury dealership in Emerson, NJ)
10.19 Inventory Loan and Security Agreement between Toyota Motor
Credit Corporation and Muller Toyota, Inc.; Commercial
Promissory Notes; Dealer Floor Plan Agreement
10.20 Ford Motor Company Automotive Wholesale Installment Sale
and Security Agreement with Shakers, Inc.; Power of
Attorney for Wholesale Installment Sale Contract; and
Automotive Installment Sale Contract
10.21 Ford Motor Company Automotive Wholesale Installment Sale
and Security Agreement with Family Ford, Inc. and Power of
Attorney for Wholesale
10.22 Chrysler Financial Security Agreement and Master Credit
Agreement with Shaker's Inc.
23.1 Consent of Arthur Andersen LLP
II-5
<PAGE>
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in
Exhibit 5.1)*
23.3 Consent of Domenic Colasacco
23.4 Consent of Steven Hirsh
23.5 Consent of Louis I. Margolis
25.1 Power of Attorney of certain of Hometown's Officers and
directors (included on signature page)
99.1 Form of Warrant Agreement dated as of _____ __, 1998.*
- -----------
* To be filed by amendment.
Item 17. Undertakings
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933:
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement, and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE>
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question 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-7
<PAGE>
HOMETOWN AUTO RETAILERS, INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL PAGES
Basis of Presentation F-2
Unaudited Pro Forma Balance Sheets, December 31, 1997 F-4
Unaudited Pro Forma Statements of Operations, December 31, 1997 F-5
Notes to the Unaudited Pro Forma Financial Statements F-6
INDEX TO CORE OPERATING COMPANIES AND THE ACQUISITIONS
Name Representing these Entities
HOMETOWN Hometown Auto Retailers, Inc.
SHAKER E.R.R. Enterprises, Inc. and Subsidiaries
Shaker's, Inc.
Family Ford, Inc.
Family Rental, Inc.
Shaker's Lincoln Mercury Auto Care, Inc.
WESTWOOD Westwood Lincoln Mercury Sales, Inc.
MULLER Muller Toyota, Inc.
Muller Chevrolet, Oldsmobile, Isuzu, Inc. (Note 1)
William Chevrolet, Inc. (Inactive)(Note 1)
BAY STATE Leominster Lincoln Mercury, Inc.
(DBA Bay State Lincoln Mercury)
BRATTLEBORO Brattleboro Chrysler Plymouth Dodge, Inc.
Notes:
(1) The independent operations of William Chevrolet, Inc. have been
discontinued and for presentation purposes, the residual balance sheet
accounts have been combined with Muller Chevrolet, Oldsmobile, Isuzu,
Inc..
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma combined financial statements give effect to the
Exchange, the Acquisitions and consummation of the Offering as discussed below:
Exchange
In May 1997, the Core Operating Companies agreed, in principle, to combine
their dealerships in Hometown. Effective, as of July 1, 1997, the stockholders
of the Core Operating Companies entered into an Exchange Agreement pursuant to
which they agreed to exchange all of the outstanding shares of four corporations
operating six franchised dealerships, one collision repair center and one
factory authorized freestanding auto service center, for 3,760,000 shares of
Hometown Class B Common Stock as follows: 1,880,000 shares to the stockholders
of Shaker; 940,000 shares to the shareholders of Westwood; and 940,000 shares to
the stockholders of Muller.
The consideration to be paid by the Company to each of the stockholders in
the Core Operating Companies was determined by negotiations among the respective
principals of the Core Operating Companies as to the relative value of each of
the dealerships, which they controlled. As such, no one individual determined
the consideration to be paid. The Company and the principals of the Core
Operating Companies did not use an independent third party to determine the
relative values of each dealership but agreed among themselves on the values
attributable to each based on an evaluation of operating results, prospects for
growth and financial position.
The Exchange agreement is subject to certain conditions including, among
others: (i) the continuing accuracy on the closing date of the representations
and warranties of the applicable Core Operating Companies and the Company; (ii)
the performance of each of the covenants by the applicable Core Operating
Companies (iii) the receipt of all permits, approvals and consents required for
transfer of ownership of the Core Operating Companies and their assets including
the consent of the applicable manufacturers.
Acquisitions
In July and August 1997, under the direction of its Core Operating
Companies, the Company entered into two agreements (the "Acquisitions") to
acquire certain assets and liabilities of two dealerships in Massachusetts and
Vermont for an aggregate consideration of $5.7 million. A portion of the
proceeds from the Offering will be applied to the purchase price of the
Acquisitions. Each of the Acquisitions is subject to satisfaction of various
conditions precedent, including the achieving by each of the sellers of certain
levels of income, the receipt of factory consents from all automobile
manufacturers whose franchises are held by each of the sellers and the Closing
of the Offering being made hereby on or prior to July 15, 1998.
Initial Public Offering (the Offering)
The net proceeds to the Company from the sale of 2,000,000 shares of Class
A Common Stock, based upon an assumed initial public offering price of $10.00
per share, are estimated to be $17.2 million ($19.9 million if the Underwriters'
over-allotment option for an additional 300,000 shares is exercised in full)
after deducting the underwriting discount and estimated expenses of this
Offering. Of the net proceeds, approximately $5.7 million will be used to pay
the purchase price of the Acquisitions. In addition, approximately $.8 million
will be used to repay indebtedness with a weighted average interest rate of
approximately 10.1%. The remainder of the net proceeds will be used for working
capital and general corporate purposes, including possible use in additional
acquisitions of dealerships and for expansion of the livery sales business.
Pending such allocation of the remainder, that portion of the proceeds will be
used to reduce floor plan financing indebtedness.
Hometown, the Core Operating Companies, and the Acquisitions are
hereinafter referred to as the Company. The Exchange and the Acquisitions have
been accounted for using the purchase method of accounting.
F-2
<PAGE>
Shaker, the parent of one group of Core Operating Companies, has been identified
as the acquiror for financial statement presentation purposes in accordance with
SAB No. 97 because its stockholders hold the largest single number of shares of
Class B Common Stock in the Exchange, which shares represent the single largest
voting interest in the Company. The unaudited pro forma combined financial
statements also give effect to the issuance of Common Stock, which was issued by
the Company to the sellers of the Core Operating Companies. These statements are
based on the historical financial statements of the Core Operating Companies and
Acquisitions and the estimates and assumptions set forth below and should be
read in conjunction with such financial statements and related notes thereto
included in this document.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the Exchange, the Acquisitions and the Offering) as if they had
occurred on January 1, 1997. The unaudited pro forma combined statements of
operations for the year ended December 31, 1997 give effect to these
transactions as if they had occurred at the beginning of the period, January 1,
1997.
The Company believes that the accompanying unaudited pro forma combined
financial information contains all the material adjustments necessary to fairly
present its financial position as of December 31, 1997. The unaudited pro forma
financial information presented does not purport to be indicative of the
financial position or operating results which would have been achieved had the
acquisitions taken place at the dates indicated and should not be construed as
representative of the Company's financial position or results of operations for
any future date or period.
The unaudited pro forma adjustments are based on available information and
upon certain assumptions that the Company believes are reasonable under the
circumstances; however, the actual recording of the acquisitions will be based
on ultimate appraisals, evaluations and estimates of fair value. If these
appraisals and evaluations identify assets with lives shorter than 40 years,
such assets will be amortized over their expected useful lives. Periodically,
but no less than annually, the Company will evaluate the relative fair market
value of the intangible assets identified in its acquisitions by estimating the
future earnings streams of the related business lines and comparing the present
value of the result of that estimation to the stated value of the related
assets. Impairments, if any, will be charged to operations when identified.
F-3
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEETS
As of December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Muller
-----------------
Hometown Shaker Westwood Toyota Chevy Bay State
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ............................ $ 47 $ 3,539 $ 431 $ 614 $ 148 $ --
Accounts receivable, net ............................. -- 914 1,933 495 156 --
Inventories .......................................... -- 7,609 10,545 3,972 5,169 1,950
Prepaid expenses and other current assets ........... 103 234 132 16 11 --
Deferred income taxes ................................ -- -- 205 -- -- --
-------- -------- -------- -------- -------- ----------
Total current assets .............................. 150 12,296 13,246 5,097 5,484 1,950
Property and equipment, net ............................. -- 1,346 238 808 289 278
Receivable from finance companies ....................... -- -- -- 990 294 --
Due from related parties ................................ -- 294 1,096 1,184 -- --
Deferred income taxes ................................... -- -- -- -- -- --
Excess of purchase price over net
tangible assets acquired ............................. -- -- -- -- -- --
Other assets ............................................ -- 106 102 -- 210 --
-------- -------- -------- -------- -------- ----------
Total assets ...................................... $ 150 $ 14,042 $ 14,682 $ 8,079 $ 6,277 $ 2,228
======== ======== ======== ======== ======== ==========
Current Liabilities
Floor plan notes payable ............................. $ -- $ 6,761 $ 10,179 $ 4,492 $ 5,405 $ 1,891
Accounts payable and accrued expenses ................ 1 463 1,207 1,113 286 --
Current maturities of long-term debt ................. -- 278 2 164 80 --
Other current bank borrowings ........................ -- 85 1,000 200 200 --
Advances from officers and affilitates ............... 150 -- -- -- -- 337
Income taxes pabale .................................. -- 146 -- 37 -- --
-------- -------- -------- -------- -------- ----------
Total current liabilities ......................... 151 7,733 12,388 6,006 5,971 2,228
Long-term debt .......................................... -- 107 6 600 321 --
Long-term deferred income taxes ......................... -- 164 -- -- -- --
Due to related parites .................................. -- 888 1,000 -- 754 --
Other long-term liabilities ............................. -- 52 -- 288 -- --
Stockholders' Equity
Common stock ......................................... -- 69 60 30 345 --
Additional paid-in capital ........................... -- -- 76 96 811 --
Treasury stock, at cost .............................. -- -- -- (890) -- --
Retained earnings (deficit) .......................... (1) 5,029 1,152 1,949 (1,925) --
-------- -------- -------- -------- -------- ----------
Total stockholders' equity (deficit) .............. (1) 5,098 1,288 1,185 (769) --
-------- -------- -------- -------- -------- ----------
Total liabilities and stockholders' equity ........ $ 150 $ 14,042 $ 14,682 $ 8,079 $ 6,277 $ 2,228
======== ======== ======== ======== ======== ==========
<CAPTION>
Purchase &
Accounting I.P.O. Pro Forma
Brattleboro Sub-total Adjustments Proceeds As Adjusted
(4) (5)
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ............................ $ -- $ 4,779 $ (2,544) $ 317 $ 2,552
Accounts receivable, net ............................. -- 3,498 -- -- 3,498
Inventories .......................................... 2,298 31,543 -- -- 31,543
Prepaid expenses and other current assets ........... -- 496 (150) (260) 86
Deferred income taxes ................................ -- 205 -- -- 205
----------- -------- ----------- ----------- -----------
Total current assets .............................. 2,298 40,521 (2,694) 57 37,884
Property and equipment, net ............................. 50 3,009 -- -- 3,009
Receivable from finance companies ....................... -- 1,284 -- -- 1,284
Due from related parties ................................ -- 2,574 (1,936) -- 638
Deferred income taxes ................................... -- -- -- -- --
Excess of purchase price over net
tangible assets acquired ............................. -- -- 15,970 -- 15,970
Other assets ............................................ -- 418 -- -- 418
----------- -------- ----------- ----------- -----------
Total assets ...................................... $ 2,348 $ 47,806 $ 11,340 $ 57 $ 59,203
=========== ======== =========== =========== ===========
Current Liabilities
Floor plan notes payable ............................. $ 2,256 $ 30,984 -- (10,500) $ 20,484
Accounts payable and accrued expenses ................ -- 3,070 175 (175) 3,070
Current maturities of long-term debt ................. -- 524 -- (167) 357
Other current bank borrowings ........................ -- 1,485 -- -- 1,485
Advances from officers and affilitates ............... 92 579 5,129 (5,708) --
Income taxes pabale .................................. -- 183 -- -- 183
----------- -------- ----------- ----------- -----------
Total current liabilities ......................... 2,348 36,825 5,304 (16,550) 25,579
Long-term debt .......................................... -- 1,034 -- (593) 441
Long-term deferred income taxes ......................... -- 164 -- -- 164
Due to related parites .................................. -- 2,642 (2,480) -- 162
Other long-term liabilities ............................. -- 340 -- -- 340
Stockholders' Equity
Common stock ......................................... -- 504 (500) 2 6
Additional paid-in capital ........................... -- 983 11,302 17,198 29,483
Treasury stock, at cost .............................. -- (890) 890 -- --
Retained earnings (deficit) .......................... -- 6,204 (3,176) -- 3,028
----------- -------- ----------- ----------- -----------
Total stockholders' equity (deficit) .............. -- 6,801 8,516 17,200 32,517
----------- -------- ----------- ----------- -----------
Total liabilities and stockholders' equity ........ $ 2,348 $ 47,806 $ 11,340 $ 57 $ 59,203
=========== ======== =========== =========== ===========
</TABLE>
The accompanying Notes to Unaudited Pro Forma Financial Statements are an
integral part of this Balance Sheet.
F-4
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Muller
----------------
Hometown Shaker Westwood Toyota Chevy Bay State Brattleboro
-------- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales ...................... $ -- $ 29,345 $ 45,470 $ 21,604 $ 11,704 $ 9,890 $ 9,038
Used vehicle sales ..................... -- 21,800 8,396 14,454 5,542 12,459 12,928
Parts and service sales ................ -- 6,727 4,352 3,096 1,811 2,066 2,024
Other dealership revenues, net ......... -- 1,624 731 1,102 675 301 594
-------- -------- -------- -------- -------- ----------- -----------
Total revenues ...................... -- 59,496 58,949 40,256 19,732 24,716 24,584
Cost of sales ............................. -- 51,226 52,770 34,760 16,881 21,502 20,986
-------- -------- -------- -------- -------- ----------- -----------
Gross profit ........................ -- 8,270 6,179 5,496 2,851 3,214 3,598
Amortization of excess of purchase
price over net tangible assets acquired -- -- -- -- -- 399 399
Selling, general and administrative
expenses ............................... 1 7,715 5,594 4,569 2,714 1,934 3,314
-------- -------- -------- -------- -------- ----------- -----------
Income (loss) from operations ....... (1) 555 585 927 137 1,280 284
Other income (expense)
Interest expense, net .................. -- (189) (295) (219) (293) (272) (72)
Other income (expense), net ............ -- 116 (39) 26 (53) 9 (41)
-------- -------- -------- -------- -------- ----------- -----------
Income (loss) before taxes .......... (1) 482 251 734 (209) 1,017 171
Provision for income taxes ................ -- 166 106 36 -- 52 --
-------- -------- -------- -------- -------- ----------- -----------
Net income (loss) ................... $ (1) $ 316 $ 145 $ 698 $ (209) $ 965 $ 171
======== ======== ======== ======== ======== =========== ===========
Earnings per share, basic and diluted (7)....................................................................................
Weighted average shares .....................................................................................................
<CAPTION>
Sub- Pro Forma Pro Forma
Total Adjustments As Adjusted
(6)
--------- ----------- -----------
<S> <C> <C> <C>
Revenues
New vehicle sales ...................... $ 127,051 $ -- $ 127,051
Used vehicle sales ..................... 75,579 -- 75,579
Parts and service sales ................ 20,076 -- 20,076
Other dealership revenues, net ......... 5,027 -- 5,027
--------- ----------- -----------
Total revenues ...................... 227,733 -- 227,733
Cost of sales ............................. 198,125 -- 198,125
--------- ----------- -----------
Gross profit ........................ 29,608 -- 29,608
Amortization of excess of purchase
price over net tangible assets acquired
Selling, general and administrative
expenses ............................... 25,841 (2,166) 23,675
--------- ----------- -----------
Income (loss) from operations ....... 3,767 1,767 5,534
Other income (expense)
Interest expense, net .................. (1,340) 1,148 (192)
Other income (expense), net ............ 18 -- 18
--------- ----------- -----------
Income (loss) before taxes .......... 2,445 2,915 5,360
Provision for income taxes ................ 360 1,784 2,144
--------- ----------- -----------
Net income (loss) ................... $ 2,085 $ 1,131 $ 3,216
========= =========== ===========
Earnings per share, basic and diluted (7) ............................ $ 0.54
Weighted average shares .............................................. 6,000,000
</TABLE>
The accompanying Notes to Unaudited Pro Forma Financial Statements are an
integral part of this statement.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Hometown Auto Retailers, Inc.
Hometown Auto Retailers, Inc. has conducted no operations to date and has
acquired the Core Operating Companies and Acquisitions on the date of this
Prospectus and will consummate those transactions on the closing of the
Offering.
2. Basis of Combinations
The unaudited pro forma combined financial statements give effect to: the
acquisitions of substantially all of the net assets of (a) Shaker, (b) Westwood,
and (c) Muller (the "Exchange"); the acquisition of the business and certain
assets and liabilities of (d) Bay State and (e) Brattleboro (the
"Acquisitions"); the pro forma adjustments necessitated by the combinations; and
the consummation of the Offering of 2,000,000 shares of the Common Stock of
Hometown. The Exchange and the Acquisitions were accounted for using the
purchase method of accounting. These statements are based on the historical
financial statements of the Core Operating Companies and the Acquisitions and
the estimates and assumptions as discussed in these footnotes.
3. Consideration paid to Core Operating Companies and the Acquisitions
The following table sets forth the consideration to be paid to the
stockholders of the Core Operating Companies (excluding Shaker), the
Acquisitions and the Associated Transaction Costs, along with the estimated
"Excess of purchase price over net tangible assets acquired". For presentation
purposes, Muller represents the total of Muller Toyota, Muller Chevrolet, and
William Chevrolet (a discontinued operation):
<TABLE>
<CAPTION>
Associated
Westwood Muller Bay State Brattleboro Costs Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except share data)
Cash ............................ $ -- $ -- $ 3,000 $ 2,708 $ 175 $ 5,883
Common Stock .................... 6,110 6,110 -- -- -- 12,220
---------- ---------- ---------- ---------- ---------- ----------
Total ..................... 6,110 6,110 3,000 2,708 175 18,103
Less: Fair value of net tangible
assets acquired .............. 1,288 416 337 92 -- 2,133
---------- ---------- ---------- ---------- ---------- ----------
Excess of purchase price over
net tangible assets acquired . $ 4,822 $ 5,694 $ 2,663 $ 2,616 $ 175 $ 15,970
========== ========== ========== ========== ========== ==========
Number of shares ................ 940,000 940,000 1,880,000
</TABLE>
The Company's executive officers, directors and 5% stockholders have
agreed with the Representative that they will not sell or otherwise dispose of
any Common Stock or any securities convertible into Common Stock of the Company
without the prior written consent of the Representative until , ____. The fair
value of these shares, which has been supported through independent appraisals,
has been adjusted to reflect, among other things, these restrictions. After the
lock-up period, such shares of Common Stock will be eligible for sale in the
public market pursuant to Rule 144 if the conditions of that Rule have been met.
The Company is unable to estimate the amount of restricted securities that will
be sold under Rule 144 because this will depend, among other factors, on the
market price for the shares of Common Stock and the personal circumstances of
the sellers.
F-6
<PAGE>
HOMETWON AUTO RETAILERS, INC.
Based upon management's preliminary analysis, it is anticipated that the
historical carrying value of the assets and liabilities of the Core Operating
Companies and the Acquisitions will approximate fair value. The amount of
"Excess of purchase price over net tangible assets acquired" subsequent to the
Exchange and the Acquisitions is estimated to be $16 million. The Company will
use an estimated life of 40 years for the amortization of goodwill. Management
of Hometown has not currently identified any other material tangible or
identifiable intangible assets of the Core Operating Companies to which a
portion of the purchase price could reasonably be allocated.
4. Unaudited Pro Forma Balance Sheets - Purchase and Accounting Adjustments:
The following table sets forth the accounting adjustments required to
reflect the purchase of the Core Operating Companies and the Acquisitions, the
recording of the Associated Transaction Costs and the settlement of certain
related party payables and a distribution to the owners of Shaker. For
presentation purposes, Muller represents the total of Muller Toyota, Muller
Chevrolet and William Chevrolet:
<TABLE>
<CAPTION>
Debit (Credit) Shaker Westwood Muller Bay State Brattleboro
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ......................... $ -- $ -- $ -- $ -- $ --
Prepaid expenses and other current assets ........ -- -- -- -- --
Due from related parties .......................... -- -- -- -- --
Excess of purchase price over net
tangible assets acquired ....................... -- 4,822 5,694 2,663 2,616
Liabilities and shareholders' equity:
Advances from officers and affiliates ............. -- -- -- (2,663) (2,616)
Accounts payable and accrued expenses ............. -- -- -- -- --
Due to related parties ............................ -- -- -- -- --
Common stock ...................................... 67 59 374 -- --
Additional paid-in capital ........................ (67) (6,033) (5,202) -- --
Treasury stock, at cost ........................... -- -- (890) -- --
Retained earnings (deficit) ....................... -- 1,152 24 -- --
---------- ---------- ---------- ---------- ----------
Total purchase adjustments ........................ $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
<CAPTION>
Associated Related
Debit (Credit) Costs Parties (a) Total
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Assets:
Cash and cash equivalents ......................... $ -- $ (2,544) $ (2,544)
Prepaid expenses and other current assets ........ -- (150) (150)
Due from related parties .......................... -- (1,936) (1,936)
Excess of purchase price over net
tangible assets acquired ....................... 175 -- 15,970
Liabilities and shareholders' equity:
Advances from officers and affiliates ............. -- 150 (5,129)
Accounts payable and accrued expenses ............. (175) -- (175)
Due to related parties ............................ -- 2,480 2,480
Common stock ...................................... -- -- 500
Additional paid-in capital ........................ -- -- (11,302)
Treasury stock, at cost ........................... -- -- (890)
Retained earnings (deficit) ....................... -- 2,000 3,176
---------- ---------- ----------
Total purchase adjustments ........................ $ -- $ -- $ --
---------- ---------- ----------
</TABLE>
(a) Includes the pro forma adjustments to reflect the settlement of certain
Related Party Payables and a distribution to the owners of Shaker after the
audited Balance Sheet date.
F-7
<PAGE>
5. Unaudited Pro Forma Balance Sheets - Offering Proceeds:
The following table sets forth adjustments based on receipt of the net
Offering Proceeds:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------
Debit (Credit) (a) (b) (c) (d) (e) Total
-------- ------- ------- ----- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............................. $ 17,460 $(3,000) $(2,708) $(935) $(10,500) $ 317
Prepaid expenses and other current assets ............. (260) -- -- -- -- (260)
Liabilities and shareholders' equity:
Floor plan notes payable .............................. -- -- -- -- 10,500 10,500
Accounts payable and accrued expenses ................. -- -- -- 175 -- 175
Current maturities of long-term debt .................. -- -- -- 167 -- 167
Advances from officers and affiliates ................. -- 3,000 2,708 -- -- 5,708
Long-term debt ........................................ -- -- -- 593 -- 593
Common stock .......................................... (2) -- -- -- -- (2)
Additional paid-in capital ............................ (17,198) -- -- -- -- (17,198)
======== ======= ======= ===== ======== ========
Total pro forma adjustments ...................... $ -- $ -- $ -- $ -- $ -- $ --
======== ======= ======= ===== ======== ========
</TABLE>
(a) Reflects the proceeds from the issuance of 2,000,000 shares of Hometown Auto
Retailers, Inc. Class A Common Stock net of estimated Offering costs (based on
an assumed Offering price of $10 per share). Offering costs consist primarily of
underwriting discounts and commissions, accounting fees, legal fees and printing
expenses.
(b)(c) Reflects the settlement of the acquisition of (b) Bay State and (c)
Brattleboro in exchange for the accrued cash portion of the purchase price to be
paid from the Offering proceeds. See "Consideration paid to Core Operating
Companies and the Acquisitions" in footnote 3 for the allocation of the purchase
price.
(d) Reflects the pay-down of certain long-term debt and the settlement of the
Associated Transaction Costs with the proceeds from the Offering.
(e) Reflects the temporary pay-down of floorplan obligations with proceeds from
the Offering.
F-8
<PAGE>
6. Unaudited Pro Forma Statements of Operations - Pro Forma Adjustments
The following table sets forth the components of the pro forma
adjustments:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------
Debit (Credit) (a) (b) (c) (d) (e) (f) Total
------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of excess
purchase price over net
tangible assets acquired ........... $ 399 $ -- $ -- $ -- $ -- $ -- $ 399
Selling, general and
administrative expenses ............. -- (2,242) 76 -- -- -- (2,166)
Other income (expense)
Interest expense, net .............. -- -- -- 163 (1,311) -- (1,148)
Provision for income taxes ............ -- -- -- -- -- 1,784 1,784
------- ------- ------- ------- ------- ------- -------
Net income ...................... $ 399 $(2,242) $ 76 $ 163 $(1,311) $ 1,784 $(1,131)
======= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Reflects the amortization of the "excess purchase price over net tangible
assets acquired" using an estimated useful life of 40 years.
(b) Adjusts compensation expense and management fees to the level that certain
management employees and owners of the Core Operating Companies and the
Acquisitions will contractually receive subsequent to the closing of the
Exchange and the Acquisitions. The Company has entered into five-year
employment agreements with each of following: Salvatore A. Vergopia as
Chairman and Chief Executive Officer; Joseph Shaker as President and Chief
Operating Officer; William C. Muller Jr. as Vice President - New Jersey
Operations; Corey Shaker as Vice President - Connecticut Operations;
Edward A Vergopia as Vice President - Fleet Operations; James Christ as
General Manager -Muller Toyota; and Steven Shaker as Vice President -
Parts and Service. Each agreement provides for an annual base salary of
$200,000, except that the agreement with James Christ provides for an
annual base salary of $150,000 plus an annual bonus equal to five percent
of the pre-tax profits of Muller Toyota and the agreement with Steven
Shaker provides for an annual base salary of $100,000. Each agreement also
provides for participation by the employee in all executive benefit plans
and, if employment is terminated without cause (as defined in the
agreement), payment of an amount equal to the salary which would have been
payable over the unexpired term of his employment agreement.
(c) Adjusts rent expense to reflect newly negotiated fair market value leases.
(d) Reflects a reduction to interest income on Cash and Cash Equivalents not
realized as part of the Exchange and the Acquisitions offset by the
reduction of interest expense on certain long-term debt that will be
liquidated out of proceeds of the Offering and the reduction of interest
expense on debt and leases not assumed as part of the transactions with
the acquired dealerships.
(e) Reflects the pro forma decrease in interest expense resulting from the
temporary repayment of floor plan obligations with proceeds from the
Offering in the amount of $10.5 million with a weighted average interest
rate of 9.5%. Also includes interest savings for refinancing the balance
of the floor plan obligations with a commercial lender at 7.5%.
(f) Reflects the incremental provision for federal and state income taxes
relating to the pro forma adjustments described above and the loss of
S-corporation status of Muller Toyota, Muller Chevrolet, Bay State and
Brattleboro.
F-9
<PAGE>
7. Earnings per Share
Statement of Financial Accounting Standard No. 128 "Earnings Per Share"
("SFAS 128"). SFAS No. 128 requires the presentation of basic earnings per share
and diluted earnings per share. "Basic earnings per share" represents net income
divided by the weighted average shares outstanding. "Diluted earnings per share"
represents net income divided by weighted average shares outstanding adjusted
for the incremental dilution of outstanding stock options. In this pro forma
situation, the consideration of outstanding stock options is not dilutive.
F-10
<PAGE>
INDEX TO FINANCIAL PAGES
Report of Independent Public Accountants F-13
Balance Sheets, Hometown and Brattleboro for the year ended December
31, 1997 and Shaker, Westwood, Muller Toyota, Muller Chevrolet
and Bay State for the years ending December 31, 1997 and 1996 F-14
Statements of Operations, Hometown for the year ended December 31,
1997 and Shaker, Westwood and Muller Toyota for the years
ended December 31, 1997, 1996 and 1995 F-15
Statements of Operations, Muller Chevrolet and Bay State for the
years ended December 31, 1997, 1996 and 1995 and Brattleboro
for the year ended December 31, 1997 F-16
Statements of Stockholders' Equity, Hometown for the year ended
December 31, 1997 and Shaker, Westwood and Muller Toyota, for
the years ended December 31, 1997, 1996 and 1995 F-17
Statements of Stockholders' Equity, Muller Chevrolet and Bay State
for the years ended December 31, 1997, 1996 and 1995 and
Brattleboro for the year ended December 31, 1997 F-18
Statements of Cash Flows, Hometown for the year ended December 31,
1997 and Shaker, Westwood and Muller Toyota for the years
ended December 31, 1997, 1996 and 1995 F-19
Statements of Cash Flows, Muller Chevrolet and Bay State for the
years ended December 31, 1997, 1996 and 1995 and Brattleboro
for the year ended December 31, 1997. F-20
Notes to the Financial Statements F-21
F-11
<PAGE>
INDEX TO CORE OPERATING COMPANIES AND ACQUISITIONS
Name Representing these Entities
- --------------- ----------------------------------------------------
HOMETOWN Hometown Auto Retailers, Inc.
SHAKER E.R.R. Enterprises, Inc. and Subsidiaries
Shaker's, Inc.
Family Ford, Inc.
Family Rental, Inc.
Shaker's Lincoln Mercury Auto Care, Inc.
WESTWOOD Westwood Lincoln Mercury Sales, Inc.
MULLER Muller Toyota, Inc.
Muller Chevrolet, Oldsmobile, Isuzu, Inc. (Note 1)
William Chevrolet, Inc. (Inactive)(Note 1)
BAY STATE Leominster Lincoln Mercury, Inc.
(DBA Bay State Lincoln Mercury)
BRATTLEBORO Brattleboro Chrysler Plymouth Dodge, Inc. (Note 2)
Notes:
(1) The independent operations of William Chevrolet, Inc. have been
discontinued and for presentation purposes, the residual balance sheet
accounts have been combined with Muller Chevrolet, Oldsmobile, Isuzu, Inc.
(2) Certain financials have been excluded from this presentation, as their
operations are not significant subsidiaries under SX Rule No.305.
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Hometown Auto Retailers, Inc, E.R.R. Enterprises, Inc., Westwood Lincoln
Mercury Sales, Inc., Muller Toyota, Inc., Muller Chevrolet, Oldsmobile, Isuzu,
Inc., Leominster Lincoln Mercury, Inc., and Brattleboro Chrysler Plymouth Dodge,
Inc. (collectively "the Companies"):
We have audited the accompanying financial statements, as identified in
the index on page F-1. These financial statements are the responsibility of the
respective management of each of the Companies. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies and the
results of their operations and their cash flows for the periods identified in
the index on page F-1, are in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, NY
March 6, 1998
F-13
<PAGE>
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Hometown Shaker Westwood Muller Toyota
-------- ------------------ ------------------ -------------------
12/31/97 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents .................... $ 47 $ 3,539 $ 3,081 $ 431 $ 476 $ 614 $ 579
Accounts receivable, net .................... -- 914 1,091 1,933 1,580 495 208
Inventories ................................. -- 7,609 8,504 10,545 6,478 3,972 3,743
Prepaid expenses and other current assets ... 103 234 68 132 70 16 5
Deferred income taxes ....................... -- -- -- 205 217 -- --
------- ------- ------- ------- ------- ------- -------
Total current assets ..................... 150 12,296 12,744 13,246 8,821 5,097 4,535
Property and equipment, net .................... -- 1,346 1,428 238 280 808 819
Receivable from finance companies .............. -- -- -- -- -- 990 873
Due from related parties ....................... -- 294 558 1,096 330 1,184 664
Deferred income taxes .......................... -- -- -- -- -- -- 128
Other assets ................................... -- 106 68 102 26 -- 5
------- ------- ------- ------- ------- ------- -------
Total Assets ............................. $ 150 $14,042 $14,798 $14,682 $ 9,457 $ 8,079 $ 7,024
======= ======= ======= ======= ======= ======= =======
Current Liabilities
Floor plan notes payable .................... $ -- $ 6,761 $ 7,649 $10,179 $ 6,003 $ 4,492 $ 4,315
Accounts payable and accrued expenses ....... 1 463 451 1,207 695 1,113 1,063
Current maturities of long-term debt ........ -- 278 65 2 3 164 157
Other current bank borrowings ............... -- 85 101 1,000 500 200 --
Advances from officers and affilities ....... 150 -- -- -- -- -- --
Income taxes payable ........................ -- 146 340 -- 104 37 154
------- ------- ------- ------- ------- ------- -------
Total current liabilities ................ 151 7,733 8,606 12,388 7,305 6,006 5,689
Long-term debt ................................. -- 107 386 6 9 600 762
Long-term deferred income taxes ................ -- 164 150 -- -- -- --
Due to related parties ......................... -- 888 845 1,000 1,000 -- --
Other long-term liabilities .................... -- 52 29 -- -- 288 86
Stockholders' Equity
Common stock ................................ -- 69 69 60 60 30 30
Additional paid-in capital .................. -- -- -- 76 76 96 96
Treasury stock, at cost ..................... -- -- -- -- -- (890) (890)
Retained earnings (deficit) ................. (1) 5,029 4,713 1,152 1,007 1,949 1,251
------- ------- ------- ------- ------- ------- -------
Total stockholders' equity (deficit) ..... (1) 5,098 4,782 1,288 1,143 1,185 487
------- ------- ------- ------- ------- ------- -------
Total liabilities and stockholders' equity $ 150 $14,042 $14,798 $14,682 $ 9,457 $ 8,079 $ 7,024
======= ======= ======= ======= ======= ======= =======
<CAPTION>
Muller Chevrolet Bay State Brattleboro
------------------- ------------------ -----------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents .................... $ 148 $ 29 $ 888 $ 1,052 $ 54
Accounts receivable, net .................... 156 173 175 232 135
Inventories ................................. 5,169 4,061 2,805 3,900 3,406
Prepaid expenses and other current assets ... 11 -- 18 40 --
Deferred income taxes ....................... -- -- -- -- --
------- ------- ------- ------- -------
Total current assets ..................... 5,484 4,263 3,886 5,224 3,595
Property and equipment, net .................... 289 434 278 357 383
Receivable from finance companies .............. 294 231 -- -- --
Due from related parties ....................... -- -- 214 227 --
Deferred income taxes .......................... -- -- -- -- --
Other assets ................................... 210 234 177 191 14
------- ------- ------- ------- -------
Total Assets ............................. $ 6,277 $ 5,162 $ 4,555 $ 5,999 $ 3,992
======= ======= ======= ======= =======
Current Liabilities
Floor plan notes payable .................... $ 5,405 $ 4,364 $ 2,972 $ 3,787 $ 3,188
Accounts payable and accrued expenses ....... 286 393 187 388 158
Current maturities of long-term debt ........ 80 126 26 17 70
Other current bank borrowings ............... 200 -- -- -- --
Advances from officers and affilities ....... -- -- 474 -- --
Income taxes payable ........................ -- -- 3 62 --
------- ------- ------- ------- -------
Total current liabilities ................ 5,971 4,883 3,662 4,254 3,416
Long-term debt ................................. 321 499 51 33 148
Long-term deferred income taxes ................ -- -- -- -- --
Due to related parties ......................... 754 340 -- -- 252
Other long-term liabilities .................... -- -- 13 18 --
Stockholders' Equity
Common stock ................................ 345 345 25 25 33
Additional paid-in capital .................. 811 811 310 310 --
Treasury stock, at cost ..................... -- -- -- -- --
Retained earnings (deficit) ................. (1,925) (1,716) 494 1,359 143
------- ------- ------- ------- -------
Total stockholders' equity (deficit) ..... (769) (560) 829 1,694 176
------- ------- ------- ------- -------
Total liabilities and stockholders' equity $ 6,277 $ 5,162 $ 4,555 $ 5,999 $ 3,992
======= ======= ======= ======= =======
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
Balance Sheets.
F-14
<PAGE>
STATEMENTS OF OPERATIONS - CORE OPERATING COMPANIES
(in thousands)
<TABLE>
<CAPTION>
Hometown Shaker Westwood
-------- -------------------------------- --------------------------------
12/31/97 12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales ...................... $ -- $ 29,345 $ 30,511 $ 25,713 $ 45,470 $ 43,211 $ 41,507
Used vehicle sales ..................... -- 21,800 22,429 18,260 8,396 7,990 7,189
Parts and service sales ................ -- 6,727 7,406 6,565 4,352 4,586 4,193
Other dealership revenues, net ......... -- 1,624 1,876 1,482 731 742 669
-------- -------- -------- -------- -------- -------- --------
Total revenues ...................... -- 59,496 62,222 52,020 58,949 56,529 53,558
Cost of sales
New vehicle sales ...................... -- 27,505 28,316 23,668 42,985 41,124 39,663
Used vehicle sales ..................... -- 20,048 20,855 16,969 7,651 7,579 6,925
Parts and service sales ................ -- 3,673 3,905 3,552 2,134 2,363 2,129
-------- -------- -------- -------- -------- -------- --------
Cost of sales ............................. -- 51,226 53,076 44,189 52,770 51,066 48,717
-------- -------- -------- -------- -------- -------- --------
Gross profit ........................ -- 8,270 9,146 7,831 6,179 5,463 4,841
Selling, general and administrative
expenses ............................... 1 7,715 8,049 6,961 5,594 4,699 4,463
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ....... (1) 555 1,097 870 585 764 378
Other income (expense)
Interest expense, net .................. -- (189) (384) (555) (295) (360) (184)
Other income (expense), net ............ -- 116 1 16 (39) (36) 6
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes .......... (1) 482 714 331 251 368 200
Provision (benefit) for income taxes ...... -- 166 321 118 106 160 88
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ................... $ (1) $ 316 $ 393 $ 213 $ 145 $ 208 $ 112
======== ======== ======== ======== ======== ======== ========
S-Corporation pro forma provision (benefit)
for income taxes (unaudited) ........ -- -- -- -- -- -- --
Pro forma net income (loss) (unaudited) ...
<CAPTION>
Muller Toyota
--------------------------------
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
Revenues
New vehicle sales ...................... $ 21,604 $ 19,142 $ 17,776
Used vehicle sales ..................... 14,454 12,604 7,963
Parts and service sales ................ 3,096 3,013 2,906
Other dealership revenues, net ......... 1,102 1,227 1,267
-------- -------- --------
Total revenues ...................... 40,256 35,986 29,912
Cost of sales
New vehicle sales ...................... 20,095 17,761 16,554
Used vehicle sales ..................... 13,117 11,503 7,072
Parts and service sales ................ 1,548 1,605 1,599
-------- -------- --------
Cost of sales ............................. 34,760 30,869 25,225
-------- -------- --------
Gross profit ........................ 5,496 5,117 4,687
Selling, general and administrative
expenses ............................... 4,569 4,293 4,276
-------- -------- --------
Income (loss) from operations ....... 927 824 411
Other income (expense)
Interest expense, net .................. (219) (257) (494)
Other income (expense), net ............ 26 (21) (48)
-------- -------- --------
Income (loss) before taxes .......... 734 546 (131)
Provision (benefit) for income taxes ...... 36 216 (55)
-------- -------- --------
Net income (loss) ................... $ 698 $ 330 $ (76)
======== ======== ========
S-Corporation pro forma provision (benefit)
for income taxes (unaudited) ........ 251 -- --
-------
Pro forma net income (loss) (unaudited) ... $ 447
========
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-15
<PAGE>
STATEMENTS OF OPERATIONS - CORE OPERATING COMPANIES AND ACQUISITIONS
(in thousands)
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
-------------------------------- -------------------------------- -----------
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95 12/31/97
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales ...................... $ 11,704 $ 13,818 $ 11,687 $ 9,890 $ 9,640 $ 4,258 $ 9,038
Used vehicle sales ..................... 5,542 6,711 5,372 12,459 12,879 14,708 12,928
Parts and service sales ................ 1,811 1,812 1,336 2,066 1,847 1,306 2,024
Other dealership revenues, net ......... 675 964 962 301 205 211 594
-------- -------- -------- -------- -------- -------- --------
Total revenues ...................... 19,732 23,305 19,357 24,716 24,571 20,483 24,584
Cost of sales
New vehicle sales ...................... 10,918 13,101 11,103 9,198 8,921 4,057 8,371
Used vehicle sales ..................... 5,025 6,327 4,805 11,271 11,474 13,609 11,459
Parts and service sales ................ 938 962 776 1,033 933 600 1,156
-------- -------- -------- -------- -------- -------- --------
Cost of sales ............................. 16,881 20,390 16,684 21,502 21,328 18,266 20,986
-------- -------- -------- -------- -------- -------- --------
Gross profit ........................ 2,851 2,915 2,673 3,214 3,243 2,217 3,598
Selling, general and administrative
expenses ............................... 2,714 2,792 3,174 1,934 1,687 1,228 3,314
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ....... 137 123 (501) 1,280 1,556 989 284
Other income (expense)
Interest expense, net .................. (293) (251) (287) (272) (265) (193) (72)
Other income (expense), net ............ (53) (12) (20) 9 (5) 1 (41)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes .......... (209) (140) (808) 1,017 1,286 797 171
Provision (benefit) for income taxes ...... -- -- -- 52 67 44 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ................... $ (209) $ (140) $ (808) $ 965 $ 1,219 $ 753 $ 171
======== ======== ======== ======== ======== ======== ========
S-Corporation pro forma provision (benefit)
for income taxes (unaudited) ........ (66) (42) (276) 345 434 271 67
-------- -------- -------- -------- -------- -------- --------
Pro forma net income (loss) (unaudited) ... $ (143) $ (98) $ (532) $ 620 $ 785 $ 482 $ 104
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-16
<PAGE>
STATEMENTS OF CASH FLOWS - CORE OPERATING COMPANIES
(in thousands)
<TABLE>
<CAPTION>
Hometown Shaker Westwood
-------- -------------------------------- ----------------------------
12/31/97 12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1) $ 316 $ 393 $ 213 $ 145 $ 208 $ 112
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Loss (gain) on disposal of property -- -- -- -- -- -- --
Depreciation and amortization -- 184 149 134 29 63 57
Deferred income taxes -- 14 (2) 215 12 (94) (109)
Provision for finance reserves -- -- -- -- -- -- --
Changes in assets and liabilities:
Accounts receivable, net -- 177 (142) 136 (353) (51) (81)
Inventories -- 895 1,265 (152) (4,067) (197) 638
Prepaid expenses and other current assets (103) (166) (77) 174 (62) (27) 138
Receivable from finance company -- -- -- -- -- -- --
Other assets -- (38) 30 (77) (76) (15) 32
Floor plan notes payable -- (888) (811) (162) 4,176 (505) 310
Accounts payable and accrued expenses 1 12 (31) (99) 512 (29) 170
Income taxes payable -- (194) 227 (7) (104) 30 73
Other long term liabilities -- 23 16 14 -- -- --
---- ------- ------- ------- ----- ----- -----
Net cash provided by (used in) operating activities (103) 335 1,017 389 212 (617) 1,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (102) (18) (419) (9) (113) (86)
Proceeds from sale of property and equipment -- -- -- -- 22 7 --
---- ------- ------- ------- ----- ----- -----
Net cash provided by (used in) investing activities -- (102) (18) (419) 13 (106) (86)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings -- 60 56 276 -- -- --
Principal payments of long-term debt -- (126) (145) (59) (4) (5) (12)
Other current bank borrowings, net of repayments -- (16) (67) 10 500 500 (950)
Advance to/from officers and affiliates 150 -- -- -- -- 137 (140)
Due from/to related parties -- 307 495 146 (766) (168) 293
Capital contributions and (disbursements) -- -- -- -- -- -- --
Dividends paid -- -- -- -- -- -- --
---- ------- ------- ------- ----- ----- -----
Net cash provided by (used in) financing activities 150 225 339 373 (270) 464 (809)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 47 458 1,338 343 (45) (259) 445
CASH AND CASH EQUVALENTS,
beginning of period -- 3,081 1,743 1,400 476 735 290
CASH AND CASH EQUVALENTS,
end of period $ 47 $ 3,539 $ 3,081 $ 1,743 $ 431 $ 476 $ 735
==== ======= ======= ======= ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for -
Interest $-- $ 427 $ 595 $ 736 $ 302 $ 386 $ 207
Taxes -- 245 96 49 186 230 124
<CAPTION>
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 698 $ 330 $ (76)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities -
Loss (gain) on disposal of property -- -- --
Depreciation and amortization 37 29 10
Deferred income taxes 128 (43) (4)
Provision for finance reserves -- 175 780
Changes in assets and liabilities:
Accounts receivable, net (287) 24 (194)
Inventories (229) (508) 907
Prepaid expenses and other current assets (11) 19 (15)
Receivable from finance company (117) (420) (1,252)
Other assets 5 39 (58)
Floor plan notes payable 177 723 (392)
Accounts payable and accrued expenses 50 33 222
Income taxes payable (117) 154 (50)
Other long term liabilities 202 (80) 167
----- ----- -----
Net cash provided by (used in) operating activities 536 475 45
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (26) (155) (9)
Proceeds from sale of property and equipment - -- --
----- ----- -----
Net cash provided by (used in) investing activities (26) (155) (9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings -- 180 --
Principal payments of long-term debt (155) (97) (91)
Other current bank borrowings, net of repayments 200 -- --
Advance to/from officers and affiliates -- -- --
Due from/to related parties (520) (63) (218)
Capital contributions and (disbursements) -- -- (111)
Dividends paid -- -- --
----- ----- -----
Net cash provided by (used in) financing activities (475) 20 (420)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 35 340 (384)
CASH AND CASH EQUVALENTS,
beginning of period 579 239 623
----- ----- -----
CASH AND CASH EQUVALENTS,
end of period $ 614 $ 579 $ 239
===== ===== =====
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for -
Interest $ 219 $ 257 $ 494
Taxes 26 62 63
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-17
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY - CORE OPERATING COMPANIES AND ACQUISITIONS
(in thousands)
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
------------------------------ ------------------------------ -----------
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95 12/31/97
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
Balance ........................... $ 345 $ 345 $ 345 $ 25 $ 25 $ 25 $ 33
------- ------- ------- ------- ------- ------- -------
Additional Paid-in Capital
Balance, Beginning of period ......... $ 811 $ 811 $ 811 $ 310 $ -- $ -- $ --
Capital contribution (disbursement) -- -- -- -- 310 --
------- ------- ------- ------- ------- ------- -------
Balance, End of period ............ $ 811 $ 811 $ 811 $ 310 $ 310 $ -- $ --
------- ------- ------- ------- ------- ------- -------
Treasury Stock, at cost
Balance ........................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
------- ------- ------- ------- ------- ------- -------
Retained Earnings (Deficit)
Balance, Beginning of period ......... $(1,716) $(1,576) $ (768) $ 1,359 $ 732 $ 513 $ 192
Net Income (Loss) ................. (209) (140) (808) 965 1,219 753 171
Dividends and other changes ....... -- -- -- (1,830) (592) (534) (220)
------- ------- ------- ------- ------- ------- -------
Balance, End of period ............ $(1,925) $(1,716) $(1,576) $ 494 $ 1,359 $ 732 $ 143
------- ------- ------- ------- ------- ------- -------
Total Stockholders' Equity (Deficit).. $ (769) $ (560) $ (420) $ 829 $ 1,694 $ 757 $ 176
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-18
<PAGE>
STATEMENTS OF CASH FLOWS - CORE OPERATING COMPANIES
(in thousands)
<TABLE>
<CAPTION>
Hometown Shaker Westwood
-------- ------------------------------ ------------------------------
12/31/97 12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ (1) $ 316 $ 393 $ 213 $ 145 $ 208 $ 112
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Loss (gain) on disposal of property ............... -- -- -- -- -- -- --
Depreciation and amortization ..................... -- 184 149 134 28 63 57
Deferred income taxes ............................. -- 14 (2) 215 12 (94) (109)
Provision for finance reserves .................... -- -- -- -- -- -- --
Changes in assets and liabilities:
Accounts receivable, net ....................... -- 178 (142) 136 (353) (51) (81)
Inventories .................................... -- 895 1,265 (152) (4,066) (197) 638
Prepaid expenses and other current assets ...... (103) (167) (77) 174 (62) (27) 138
Receivable from finance company ................ -- -- -- -- -- -- --
Other assets ................................... -- (38) 30 (77) (76) (15) 32
Floor plan notes payable ....................... -- (888) (811) (162) 4,175 (505) 310
Accounts payable and accrued expenses .......... 1 11 (31) (99) 511 (29) 170
Income taxes payable ........................... -- (193) 227 (7) (104) 30 73
Other long term liabilities .................... -- 22 16 14 -- -- --
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating activities (103) 334 1,017 389 210 (617) 1,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ -- (102) (18) (419) (9) (113) (86)
Proceeds from sale of property and equipment ...... -- -- -- -- 22 7 --
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) investing activities -- (102) (18) (419) 13 (106) (86)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings ........... -- 60 56 276 -- -- --
Principal payments of long-term debt .............. -- (126) (145) (59) (3) (5) (12)
Other current bank borrowings, net of repayments .. -- (16) (67) 10 500 500 (950)
Advance to/from officers and affiliates ........... 150 -- -- -- -- 137 (140)
Due from/to related parties ....................... -- 308 495 146 (765) (168) 293
Capital contributions and (disbursements) ......... -- -- -- -- -- -- --
Dividends paid ................................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 150 226 339 373 (268) 464 (809)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 47 458 1,338 343 (45) (259) 445
CASH AND CASH EQUVALENTS,
beginning of period ............................... -- 3,081 1,743 1,400 476 735 290
------- ------- ------- ------- ------- ------- -------
CASH AND CASH EQUVALENTS,
end of period ..................................... $ 47 $ 3,539 $ 3,081 $ 1,743 $ 431 $ 476 $ 735
======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for
Interest .......................................... $ -- $ 427 $ 595 $ 736 $ 302 $ 386 $ 207
Taxes ............................................. -- 245 96 49 186 230 124
<CAPTION>
Muller Toyota
------------------------------
12/31/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ 698 $ 330 $ (76)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Loss (gain) on disposal of property ............... -- --
Depreciation and amortization ..................... 36 29 10
Deferred income taxes ............................. -- (43) (4)
Provision for finance reserves .................... -- 175 780
Changes in assets and liabilities:
Accounts receivable, net ....................... (287) 24 (194)
Inventories .................................... (229) (508) 907
Prepaid expenses and other current assets ...... (11) 19 (15)
Receivable from finance company ................ (117) (420) (1,252)
Other assets ................................... 5 39 (58)
Floor plan notes payable ....................... 177 723 (392)
Accounts payable and accrued expenses .......... 49 33 222
Income taxes payable ........................... (117) 154 (50)
Other long term liabilities .................... 332 (80) 167
------- ------- -------
Net cash provided by (used in) operating activities 536 475 45
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (26) (155) (9)
Proceeds from sale of property and equipment ...... -- --
------- ------- -------
Net cash provided by (used in) investing activities (26) (155) (9)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings ........... -- 180
Principal payments of long-term debt .............. (155) (97) (91)
Other current bank borrowings, net of repayments .. 200 --
Advance to/from officers and affiliates ........... -- --
Due from/to related parties ....................... (520) (63) (218)
Capital contributions and (disbursements) ......... -- -- (111)
Dividends paid ................................... -- --
------- ------- -------
Net cash provided by (used in) financing activities (475) 20 (420)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 35 340 (384)
CASH AND CASH EQUVALENTS,
beginning of period ............................... 579 239 623
------- ------- -------
CASH AND CASH EQUVALENTS,
end of period ..................................... $ 614 $ 579 $ 239
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for
Interest .......................................... $ 219 $ 257 $ 494
Taxes ............................................. 26 62 63
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-19
<PAGE>
STATEMENTS OF CASH FLOWS - CORE OPERATING COMPANIES AND ACQUISITIONS
(in thousands)
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
------------------------------ ------------------------------ -----------
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95 12/31/97
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ (209) $ (140) $ (808) $ 965 $ 1,219 $ 753 $ 171
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Loss (gain) on disposal of property ............... 60 -- -- -- -- -- --
Depreciation and amortization ..................... 127 50 57 98 74 10 10
Deferred income taxes ............................. -- -- -- -- -- -- --
Provision for finance reserves .................... -- 125 145 -- -- -- --
Changes in assets and liabilities:
Accounts receivable, net ....................... 17 (145) 671 57 14 (85) (52)
Inventories .................................... (1,108) (187) 970 1,095 (2,137) 438 (791)
Prepaid expenses and other current assets ...... (11) 12 (12) 22 4 (10) --
Receivable from finance company ................ (63) 161 17 -- -- -- --
Other assets ................................... 4 (6) -- -- (200) 8 9
Floor plan notes payable ....................... 1,041 1 (994) (815) 1,846 (432) 993
Accounts payable and accrued expenses .......... (106) (90) 24 (201) 190 100 (156)
Income taxes payable ........................... -- -- -- (59) 49 (16) --
Other long term liabilities .................... -- -- -- (5) (28) 9 --
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) operating activities (248) (219) 70 1,157 1,030 775 184
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (23) (355) (6) (4) (304) (9) (107)
Proceeds from sale of property and equipment ...... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) investing activities (23) (355) (6) (4) (304) (9) (107)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt borrowings ........... -- 545 153 46 -- 42 280
Principal payments of long-term debt .............. (224) (131) (67) (20) (48) (35) (61)
Other current bank borrowings, net of repayments .. 200 -- -- -- -- -- --
Advance to/from officers and affiliates ........... -- -- -- 474 -- -- --
Due from/to related parties ....................... 414 99 (78) 13 77 (46) (207)
Capital contributions and (disbursements) ......... -- -- -- -- 310 -- --
Dividends paid ................................... -- -- -- (1,830) (592) (533) (220)
------- ------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 390 513 8 (1,317) (253) (572) (208)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ............................. 119 (61) 72 (164) 473 194 (131)
CASH AND CASH EQUVALENTS,
beginning of period ............................... 29 90 18 1,052 579 385 185
------- ------- ------- ------- ------- ------- -------
CASH AND CASH EQUVALENTS,
end of period ..................................... $ 148 $ 29 $ 90 $ 888 $ 1,052 $ 579 $ 54
======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for
Interest .......................................... $ 211 $ 264 $ 302 $ 323 $ 284 $ 210 $ 72
Taxes ............................................. 16 -- -- 111 17 61 --
</TABLE>
The accompanying Notes to Financial Statements are an intergral part of these
statements.
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Notes apply to all dealerships except as noted.)
1. BUSINESS AND ORGANIZATION:
Business of Hometown Auto Retailers, Inc. ("Hometown")
Hometown was founded on March 10, 1997 as Dealerco, Inc., a New York
Corporation, and was later merged into Hometown Auto Retailers, Inc., a Delaware
Corporation. Hometown's purpose is to consolidate and operate automobile
dealerships in the Northeast, primarily in New Jersey and New England. Hometown
was formed to combine three dealership groups (the Core Operating Companies)
located in New Jersey and Connecticut, acquire two other dealerships (the
Acquisitions) located in Vermont and Massachusetts, complete an initial public
offering (the Offering) of its Common Stock and, subsequent to the Offering,
continue to acquire, through merger or purchase, additional dealerships to
expand its regional operations.
Business of Core Operating Companies and Acquisitions
Shaker, Westwood, Muller, Bay State and Brattleboro (the Companies) are
primarily engaged in the retail sale of new and used automobiles and the sale of
the related finance, insurance and service contracts. In addition, the Companies
sell automotive parts, provide vehicle servicing and sell wholesale used
vehicles. In addition, Westwood is engaged in the retail sale of livery cars to
livery fleet operators as well as the related finance, insurance and service
contracts. Finally, Shaker owns and operates a factory authorized free-standing
neighborhood automobile maintenance and light repair and parts center. The
following table lists the locations of the businesses:
Shaker's Lincoln Mercury, Inc. Watertown, Connecticut
Shaker's Jeep/Eagle, Inc. Waterbury, Connecticut
Shaker's Lincoln Mercury Autocare, Inc. Naugatuck, Connecticut
Family Ford, Inc. Waterbury, Connecticut
Family Rental, Inc. Waterbury, Connecticut
Westwood Lincoln Mercury Sales, Inc. Emerson, New Jersey
Muller Toyota, Inc. Clinton, New Jersey
Muller Chevrolet, Oldsmobile, Isuzu, Inc. Stewartsville, New Jersey
Muller Auto Body Phillipsburg, New Jersey
Bay State Lincoln Mercury, Inc. Framingham, Massachusetts
Brattleboro Chrysler Plymouth Dodge, Inc. North Brattleboro, Vermont
Organization of the Core Operating Companies
Shaker, Westwood and Muller have agreed to enter into a combination
whereby each company will exchange all of their common stock for an agreed upon
number of shares of Hometown Class B Common Stock. These transactions have been
accounted for using the purchase method of accounting with Shaker being deemed
the acquiror. Reference is made to footnote 18 for further information regarding
this transaction.
F-21
<PAGE>
Organization of the Acquisitions
Hometown has also entered into agreements to acquire Bay State and
Brattleboro for cash. These acquisitions will be accounted for using the
purchase method of accounting. Reference is made to footnote 18 for further
information regarding these transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Major Suppliers and Franchise Agreements
The Companies purchase substantially all of their new vehicles at the
prevailing prices charged by the applicable manufacturers to all franchised
dealers. The Companies' sales volume could be adversely impacted by the
manufacturers' inability to supply it with an adequate supply of popular models
or as a result of an unfavorable allocation of vehicles by the manufacturer.
Each dealer is franchise agreement contains provisions which may limit,
without the consent of the applicable manufacturer, changes in dealership
management and ownership, place certain restrictions on the dealership (such as
minimum working capital requirements) and provide for termination of the
franchise agreement by the manufacturer in certain instances. See footnote 3 for
a more detailed discussion of these risks.
Revenue Recognition
Revenue for vehicle and parts sales is recognized upon delivery to and
acceptance by the customer. Revenue for vehicle service is recognized when the
service has been completed.
Finance, Insurance and Service Contract Income Recognition
The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates
charged to customers and the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of
credit life and disability insurance and extended service contracts to
customers.
The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early
termination of the contracts by the customers. The revenues from financing fees
and commissions are recorded at the time of the sale of the vehicles. The
reserves for future chargebacks are based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
service contract income, net of estimated chargebacks, are included in other
dealership revenue in the accompanying financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash on deposit, cash
invested in applicable Manufacturers' cash management accounts, contracts in
transit, marketable securities and liquid investments, such as money market
accounts, that have an original maturity of three months or less at the date of
purchase. Contracts in transit represent contracts on vehicles sold, for which
the proceeds are in transit from financing institutions.
Inventories
New, used and demonstrator vehicle values are stated at the lower of cost
or market, determined on a specific unit basis. Parts and accessories are stated
at the lower of cost (determined on a first-in, first-out basis) or market.
F-22
<PAGE>
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated useful life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
that do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation and any
resulting gain or loss is reflected in current operations.
Other Assets
Organizational costs associated with E.R.R. Enterprises, Inc. and its
subsidiaries are amortized over a 60 month period.
The costs of acquiring an Oldsmobile franchise by Muller Chevrolet and to
record the acquisition of another dealership location by Bay State were
capitalized and are being amortized over 15 years on a straight-line basis.
Income Taxes
The Companies follow the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are realized or liabilities are settled. A valuation allowance
reduces deferred tax assets when it is more likely than not that some or all of
the deferred tax assets will not be realized.
Muller Chevrolet, Bay State and Brattleboro are S corporations as defined
by the Internal Revenue Code, whereby a company, electing such status, is not
subject to taxation for federal purposes. Under S corporation status, the
stockholders report their proportional shares of the company's taxable earnings
or losses in their personal tax returns.
Effective January 1, 1997, Muller Toyota had elected S corporation status.
Interest Expense
Automobile manufacturers periodically provide floor plan interest
assistance, or subsidies, which reduce the dealer's cost of financing. The
accompanying financial statements reflect interest expense net of floor plan
assistance.
Fair Value of Financial Instruments
The Companies' financial instruments consist primarily of cash
equivalents, floor plan notes payable, current bank borrowings and long-term
debt. The carrying amount of these financial instruments approximates fair value
due either to length of maturity or existence of variable interest rates that
approximate market rates.
Advertising and Promotion
The Companies expense advertising and promotion as incurred.
F-23
<PAGE>
Concentration of Credit Risk
Financial instruments that potentially subject the Companies to a
concentration of credit risk consist principally of cash, cash equivalents,
contracts in transit and accounts receivable. The Companies maintain cash
balances at financial institutions that may, at times, be in excess of federally
insured levels. Also, the Companies grant credit to individual customers and
local companies in the automobile repair business such as automotive parts
stores, automotive mechanics, and automotive body repair shops. The Companies
perform ongoing credit evaluations of their customers and generally do not
require collateral. The Companies maintain an allowance for doubtful accounts at
a level which management believes is sufficient to cover potential credit
losses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month.
Additionally, the net change in floor plan financing of inventory, which is a
customary financing technique in the industry, is reflected as an operating
activity in the accompanying statements of cash flows.
Long Lived Assets
The Companies review long lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of an assets may not be fully recoverable.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued the following
statements. The Companies are currently not affected by these statements,
however, when applicable, the Companies will adopt the provisions of each
statement.
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
SFAS No. 123 defines a fair value based method of accounting for stock based
compensation and encourages adoption of that method. SFAS No. 123, however, also
allows measurement of compensation cost using the intrinsic value based method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees". If
the Companies elect to use the accounting in Opinion No. 25, they must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting has been applied.
Statement No. 128 "Earnings Per Share" ("SFAS 128"). SFAS No. 128 requires
the presentation of basic earnings per share and diluted earnings per share.
"Basic earnings per share" represents net income divided by the weighted average
shares outstanding. "Diluted earnings per share" represents net income divided
by weighted average shares outstanding adjusted for the incremental dilution of
outstanding stock options. A reconciliation of weighted average common shares
outstanding to weighted average common shares outstanding assuming dilution is
required as disclosure.
Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS No.
130, requires the presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all
F-24
<PAGE>
changes in equity of an entity during the reporting period, including net income
and charges directly to equity, which are excluded from net income.
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS No. 131 requires that enterprises report
certain information about operating segments, information about products and
services, the geographic areas in which they operate and their major customers.
3. SUMMARY OF MATERIAL RISK FACTORS:
Manufacturers' Control over Dealerships
The dealerships operated by the Companies sell automobiles pursuant to
franchise agreements with automobile manufacturers or authorized distributors of
the manufacturers. Through the terms and conditions of these franchise
agreements, manufacturers exert considerable influence over the operations of
the company's dealerships. Each of the franchise agreements includes provisions
for the termination or non-renewal of the manufacturer-dealer relationship for a
variety of causes, including any unapproved change of ownership or management
and other material breaches of the franchise agreement. Prior approval of the
relevant manufacturer is required with respect to acquisition of additional
automobile dealerships and a manufacturer may deny a company's application to
make an acquisition or seek to impose further restrictions on a company as a
condition to granting approval of an acquisition. Certain state laws, however,
limit the ability of automobile manufacturers to reject proposed transfers of
dealerships, notwithstanding the terms of any dealer or franchise agreement. The
loss of one or more of the Companies' franchise agreements could have a material
adverse effect on the Companies' business, financial condition and results of
operations.
As a condition to granting their consent to the Exchange and the
Acquisitions, the Manufacturers have imposed restrictions on the Companies.
These restrictions include restrictions on (i) the acquisition of more than a
specified percentage of the Common Stock (20% in the case of GM and Toyota
Motor, 50% in the case of Ford Motor and -% in the case of ___________ by any
one person who in the opinion of the Manufacturer is unqualified to own a
dealership or who has interests incompatible with the Manufacturer;(ii) certain
material changes in the Companies or extraordinary corporate transactions such
as a merger or sale of a material amount of assets; (iii) the removal of a
dealership general manager without the consent of the manufacturer; (iv) the use
of dealership facilities to sell or service new vehicles of other manufacturers;
(v) in the case of GM, the advertising or marketing of non-GM operations with GM
operations; (vi) in the case of Ford Motor, mandatory binding arbitration of any
dispute between the Companies and Ford Motor concerning Ford Motor franchise
agreements; (vii) in the case of GM and Mitsubishi, any change in control of the
Companies' Board of Directors, and (viii) in the case of Ford Motor, any change
in the Companies' Board of Directors or management. If the Companies are unable
to comply with these restrictions, the Manufacturer may require the Companies to
(i) sell the assets of the dealerships to the Manufacturer or to a third party
acceptable to the Manufacturer and/or (ii) terminate the dealership agreements
with the Manufacturer.
Certain of the Manufacturers require their franchised dealerships to
appoint an employee (typically designated as the "Executive Manager") to act as
the primary contact between the dealership and the applicable Manufacturer. Such
individual typically is required to have operational control of all of the
applicable manufacturers' dealerships and to have full authority to resolve
issues raised by the applicable manufacturer in connection with the operation of
the dealership. The dealership is not allowed to change its Executive Manager
without the consent of the applicable Manufacturer. The agreements with the
Manufacturers also generally provide for periodic reporting and notice
provisions as a means of determining whether the Companies are in compliance
with the restrictions contained in those agreements. A manufacturer, upon its
determination of a violation of the restrictions, will notify the dealership of
the violation and the dealership will generally have a period to cure the
violation. If the dealership disputes the Manufacturer's claim of a violation or
is unwilling or unable to cure the violation, the manufacturer may enforce the
remedies specified in the agreement through judicial or regulatory proceedings
or in certain instances through arbitration.
F-25
<PAGE>
Dependence on Automobile Manufacturers
The Companies are significantly dependent upon their relationships with,
and the success of, certain manufacturers. For the year ended December 31, 1997,
Ford Motor, Toyota Motor and Chrysler, accounted for 63%, 17% and 11%,
respectively, of the new vehicle sales of Hometown, after giving effect to both
the Exchange and the Acquisitions. The Companies may become dependent on
additional manufacturers in the future as a result of its acquisition strategy
and changes in the Companies' sales mix.
F-26
<PAGE>
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
Shaker Westwood Muller Toyota
------------------- ------------------- -------------------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due from manufacturers $ 218 $ 211 $ 678 $ 406 $ 61 $ 70
Parts and service receivables 440 350 211 115 361 119
Warranty receivables ......... 25 19 79 68 47 14
Due from finance companies ... 171 452 788 777 69 32
Other ........................ 60 59 210 214 57 73
------- ------- ------- ------- ------- -------
Sub-total ................. 914 1,091 1,966 1,580 595 308
Less: Allowance for doubtful
accounts ................... -- -- (33) -- (100) (100)
------- ------- ------- ------- ------- -------
Total receivables ......... $ 914 $ 1,091 $ 1,933 $ 1,580 $ 495 $ 208
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
------------------- ------------------- -----------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Amounts due from manufacturers $ 4 $ 23 $ 86 $ 110 $ 71
Parts and service receivables 24 5 15 39 12
Warranty receivables ......... 30 16 12 3 37
Due from finance companies ... 117 212 58 85 11
Other ........................ 81 17 4 4 4
------- ------- ------- ------- -------
Sub-total ................. 256 273 175 241 135
Less: Allowance for doubtful
accounts ................... (100) (100) -- (9) --
------- ------- ------- ------- -------
Total receivables ......... $ 156 $ 173 $ 175 $ 232 $ 135
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Inventories consist of the following:
<TABLE>
<CAPTION>
Shaker Westwood Muller Toyota
-------------------- -------------------- --------------------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
--------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
New Vehicles $ 4,623 $ 4,936 $ 9,037 $ 5,406 $ 2,346 $ 2,498
Used Vehicles 2,420 3,044 1,115 709 1,139 1,024
Parts, accessories and other 566 524 393 363 487 221
v
Total Inventories $ 7,609 $ 8,504 $ 10,545 $ 6,478 $ 3,972 $ 3,743
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
-------------------- -------------------- ---------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
New Vehicles $ 4,592 $ 3,403 $ 1,821 $ 2,989 $ 2,190
Used Vehicles 429 492 855 770 1,108
Parts, accessories and other 148 166 129 141 108
--------- --------- --------- --------- ---------
Total Inventories $ 5,169 $ 4,061 $ 2,805 $ 3,900 $ 3,406
========= ========= ========= ========= =========
</TABLE>
Other assets:
Muller Chevrolet
In May 1993, Muller Chevrolet purchased an Oldsmobile franchise for
$300,000 which is being amortized over 15 years. The accumulated amortization as
of December 31, 1997 and December 31, 1996 was approximately $90,000 and
$66,000, respectively.
Bay State
Bay State changed locations in 1996 and purchased an existing automobile
dealership. The excess purchase price over the net assets acquired was $200,000.
This goodwill is included in Other Assets and is being amortized over 15 years
on a straight line basis. The accumulated amortization as of December 31, 1997
and December 31, 1996 was approximately $23,000 and $9,000, respectively.
F-28
<PAGE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
Shaker Westwood Muller Toyota
-------------------- -------------------- --------------------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
--------- --------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accounts payable, trade ..................... $ 233 $ 173 $ 157 $ 134 $ 568 $ 574
Accrued compensation costs .................. 44 76 311 73 49 39
Customer deposits ........................... 39 35 129 41 -- --
Reserve for finance, insurance
and service contracts
charge-backs ............................. 40 51 305 238 38 73
Other accrued expenses ...................... 107 116 305 209 458 377
--------- --------- --------- --------- --------- ---------
Total ....................................... $ 463 $ 451 $ 1,207 $ 695 $ 1,113 $ 1,063
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
-------------------- -------------------- ---------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Accounts payable, trade ..................... $ 147 $ 218 $ 28 $ 73 $ 22
Accrued compensation costs .................. -- -- -- -- --
Customer deposits ........................... -- -- 45 100 --
Reserve for finance, insurance
and service contracts
charge-backs ............................. 103 88 36 36 100
Other accrued expenses ...................... 36 87 78 179 36
--------- --------- --------- --------- ---------
Total ....................................... $ 286 $ 393 $ 187 $ 388 $ 158
========= ========= ========= ========= =========
</TABLE>
F-29
<PAGE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated Shaker Westwood Muller Toyota
Useful Lives ----------------------- ----------------------- ---------------------
in Years 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
----------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Land and land improvements 15 to 20 $ 188 $ 193 $ -- $ -- $ 500 $ 500
Building and leasehold improvements 7 to 31.5 1,061 1,037 289 298 277 258
Machinery, equipment, furniture
and fixtures 3 to 7 1,564 1,494 484 472 928 900
Vehicles 5 142 146 22 34 -- --
----------- -------- -------- -------- -------- -------- --------
Sub-total 2,955 2,870 795 804 1,705 1,658
Less -- Accumulated depreciation (1,609) (1,442) (557) (524) (897) (839)
----------- -------- -------- -------- -------- -------- --------
Property and equipment, net $ 1,346 $ 1,428 $ 238 $ 280 $ 808 $ 819
=========== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Estimated Muller Chevrolet Bay State Brattleboro
Useful Lives ----------------------- ----------------------- --------
in Years 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
----------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Land and land improvements 15 to 20 $ -- $ -- $ -- $ -- $ 148
Building and leasehold improvements 7 to 31.5 50 50 228
Machinery, equipment, furniture
and fixtures 3 to 7 497 483 376 376 62
Vehicles 5 73 137 77 58 --
-------- -------- -------- -------- --------
Sub-total 620 670 453 434 438
Less -- Accumulated depreciation (331) (236) (175) (77) (55)
-------- -------- -------- -------- --------
Property and equipment, net $ 289 $ 434 $ 278 $ 357 $ 383
======== ======== ======== ======== ========
</TABLE>
6. DUE FROM FINANCE COMPANIES:
Muller Toyota and Muller Chevrolet use specialty financing companies that
provide credit to customers with poor credit history. The dealerships are
advanced approximately 70% of the financed amount and are paid the balance from
the finance company when the loans are satisfied. Muller Chevrolet has a
receivable balance of $294,000 and $231,000, net of reserves for uncollectible
amounts of $270,000 as of December 31, 1997 and 1996. Muller Toyota has a
receivable balance of $990,000 and $873,000, net of reserves for uncollectible
amounts of $955,000 and $955,000, as of December 31, 1997 and 1996,
respectively. These receivables are classified as long-term due to the fact that
the remaining balances are paid to the dealerships when the loans are satisfied.
F-30
<PAGE>
7. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflects amounts payable for the purchase of specific
vehicle inventory and consists of the following:
<TABLE>
<CAPTION>
Shaker Westwood Muller Toyota
---------------------- ---------------------- ----------------------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
New vehicles ........................................... $ 4,895 $ 5,094 $ 9,098 $ 5,667 $ 2,989 $ 3,279
Used vehicles .......................................... 1,866 2,555 879 227 1,129 800
Rental and
other vehicles ...................................... -- -- 202 109 374 236
---------- ---------- ---------- ---------- ---------- ----------
Total .................................................. $ 6,761 $ 7,649 $ 10,179 $ 6,003 $ 4,492 $ 4,315
========== ========== ========== ========== ========== ==========
Floor plan obligations
related to sold
vehicles not yet
remitted to financial
institutions ........................................... $ -- $ -- $ 101 $ 277 $ 520 $ 572
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Muller Chevrolet Bay State Brattleboro
---------------------- ---------------------- ----------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
New vehicles ................................... $ 4,947 $ 3,869 $ 1,989 $ 2,974 $ 2,368
Used vehicles .................................. 458 435 983 813 820
Rental and
other vehicles .............................. -- 60 -- -- --
---------- ---------- ---------- ---------- ----------
Total .......................................... $ 5,405 $ 4,364 $ 2,972 $ 3,787 $ 3,188
========== ========== ========== ========== ==========
Floor plan obligations
related to sold
vehicles not yet
remitted to financial
institutions ................................... $ 355 $ 466 $ 98 $ 31 $ --
========== ========== ========== ========== ==========
</TABLE>
The floor plan arrangements permit the Companies to finance their vehicle
purchases dependent upon new and used vehicle sales and inventory levels. The
resultant liability is secured by the related inventory and normally by personal
guarantees from the owners. Payments are due when the related vehicles are sold.
F-31
<PAGE>
Information about the floor plan accounts is as follows:
<TABLE>
<CAPTION>
As of December 31, 1997
-------------------------------------------------------------------------------------
Interest Rate Floor Plan Interest Floor Plan Liability
---------------- --------------------------------- -------------------------------
Maximum Current Current
Avail- Avail- Out-
Ranging from Expense Credits Net ability ability standing
---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shaker ...............................9.50% 10.50% $ 831 $ (423) $ 408 $ 7,975 $ 1,214 $ 6,761
Westwood .............................9.50% 9.50% 423 (223) 200 6,900 -- 10,179
Muller Toyota ........................8.90% 9.50% 241 (166) 75 4,700 208 4,492
Muller Chevrolet .....................8.90% 9.50% 389 (138) 251 5,850 445 5,405
Bay State ............................9.50% 9.50% 390 (68) 322 2,900 -- 2,972
Brattleboro ..........................9.50% 10.25% 210 (171) 39 2,550 -- 3,188
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
-------------------------------------------------------------------------------------
Interest Rate Floor Plan Interest Floor Plan Liability
---------------- --------------------------------- -------------------------------
Maximum Current Current
Avail- Avail- Out-
Ranging from Expense Credits Net ability ability standing
---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shaker ...........................9.25% 10.00% $ 901 $ (335) $ 566 $ 7,850 $ 201 $ 7,649
Westwood .........................9.25% 9.25% 499 (202) 297 5,500 -- 6,003
Muller Toyota ....................8.25% 9.75% 306 (162) 144 4,700 385 4,315
Muller Chevrolet .................8.90% 9.50% 349 (147) 202 5,850 1,486 4,364
Bay State ........................9.50% 9.50% 378 (95) 283 3,300 -- 3,787
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995
-------------------------------------------------------------------------------------
Interest Rate Floor Plan Interest Floor Plan Liability
---------------- --------------------------------- -------------------------------
Maximum Current Current
Avail- Avail- Out-
Ranging from Expense Credits Net ability ability standing
---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shaker ................................ 9.25% 10.00% $ 1,029 $ (314) $ 715 $ 9,075 $ 614 $ 8,461
Westwood .............................. 9.50% 9.50% 599 (493) 106 5,500 -- 6,508
Muller Toyota ......................... 8.25% 9.75% 375 None 375 4,700 1,108 3,592
Muller Chevrolet ...................... 8.90% 9.50% 425 (151) 274 5,850 1,487 4,363
Bay State ............................. 9.50% 9.50% 244 (37) 207 4,000 2,059 1,941
</TABLE>
Management and the applicable financing companies are aware of and have
agreed to the financing in excess of the original lines of credit.
F-32
<PAGE>
<PAGE>
8. OTHER CURRENT BANK BORROWINGS:
Shaker
One of the subsidiaries of E.R.R. Enterprises, Inc., Family Rental, Inc.,
leases vehicles through the Manufacturer for its rental fleet. The terms of the
leases are six to twelve months at various interest rates.
Westwood
Effective May 24, 1996, Westwood entered into an agreement with Midland
Bank for a $1,000,000 revolving line of credit. This line of credit bears
interest at the prime rate (8.5% and 8.25% at December 31, 1997 and 1996,
respectively), expires in April 1998, and is guaranteed by a majority
stockholder of Westwood. As of December 31, 1997 and 1996, borrowings under this
line of credit amounted to $1,000,000 and $500,000, respectively. Westwood's
management intents and believes it has the ability to renew this line of credit
under substantially the same terms and conditions existing as of December 31,
1997.
Muller Toyota
During 1997, Muller Toyota obtained a $200,000 revolving line of credit.
This line of credit bears interest at the prime rate plus 1.5% (10.0% at
December 31, 1997), expires in April 1998, and is collateralized by certain
assets of the Company. As of December 31, 1997, borrowings under this line of
credit amounted to $200,000. Subsequent to December 31, 1997, this line was
repaid and closed.
Muller Chevrolet
During 1997, Muller Chevrolet obtained a $200,000 revolving line of
credit. This line of credit bears interest at the prime rate (8.5% at December
31, 1997), expires in April 1998, and is guaranteed by a majority shareholder of
Muller Chevrolet. As of December 31, 1997, borrowings under this line of credit
amounted to $200,000. Muller Chevrolet's management intents and believes it has
the ability to renew this line of credit under substantially the same terms and
conditions existing as of December 31, 1997.
F-33
<PAGE>
9. LONG TERM DEBT:
Shaker
12/31/97 12/31/96
-------- --------
(in thousands)
Notes payable for computer equipment, due in monthly
installments including interest at rates ranging from
7.4% to 7.9%, maturing in March and April 2000 $ 158 $ 199
Mortgage note payable, due in monthly installments
including interest at a variable rate (9.0% in 1997 and
8.5% in 1996), maturing in September 1998 227 252
------- -------
385 451
Less: Current portion 278 65
------- -------
$ 107 $ 386
======= =======
Maturities of long-term debt for each of the next five years and thereafter are
as follows:
Year ending Aggregate
December 31, Obligation
------------ ----------
(in thousands)
1998 $ 278
1999 62
2000 45
2001 -
2002 -
thereafter -
----------
$ 385
==========
F-34
<PAGE>
9. LONG TERM DEBT (CONTINUED):
Westwood
12/31/97 12/31/96
-------- --------
(in thousands)
Note for computer equipment, due in monthly installments
including interest, maturing in May 1997 .................... $ -- $ 1
Note for computer equipment, due in monthly installments
including interest, maturing in June 1997 ................... -- 1
Note for computer equipment, due in monthly installments
including interest, maturing in November 2001 ............... 8 10
-------- --------
8 12
Less: Current portion ....................................... 2 3
-------- --------
$ 6 $ 9
======== ========
Maturities of long-term debt for each of the next five years and thereafter are
as follows:
Year ending Aggregate
December 31, Obligation
------------ ----------
(in thousands)
1998 $ 2
1999 2
2000 2
2001 2
2002 -
thereafter -
----------
$ 8
==========
F-35
<PAGE>
9. LONG TERM DEBT (CONTINUED):
Muller Toyota
<TABLE>
<CAPTION>
12/31/97 12/31/96
--------- ---------
(in thousands)
<S> <C> <C>
Notes payable, due in monthly installments including interest at 3%
above the 3 month LIBOR rate (8.9% and 8.5% as of December 31, 1997
and 1996, respectively), maturing in July 1999, personally
guaranteed by the majority stockholders and collateralized by
substantially all the assets of Muller Toyota ..................... $139 $223
Notes payable, due in monthly installments including interest at
10.5%, maturing in October 2006 ................................... 529 591
Various equipment notes payable, due in monthly installments
including interest ranging from 103% to 131%, maturing on various
dates through 2003, collateralized by the related equipment ....... 96 105
--------- ---------
764 919
Less: Current portion ............................................. 164 157
--------- ---------
$600 $762
========= =========
</TABLE>
Maturities of long-term debt for each of the next five years and
thereafter are as follows:
Year ending Aggregate
December 31, Obligation
------------ ----------
(in thousands)
1998 $ 164
1999 145
2000 100
2001 105
2002 105
thereafter 145
----------
$ 764
==========
F-36
<PAGE>
9. LONG TERM DEBT (CONTINUED):
Muller Chevrolet
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
(in thousands)
<S> <C> <C>
Note payable, due in monthly installments including interest at
prime plus 2% (10.5% and 10.25% at December 31, 1997 and
1996, respectively), maturing in May 1998, collateralized by a
second mortgage on a shareholder's personal residence and the
assignment of Muller Chevrolet's open accounts with
Chevrolet, personally guaranteed by the shareholders and cross
guaranteed by Muller Toyota, Inc. and a company affiliated
through common ownership ............................................. $ 12 $ 42
Note payable, due in monthly installments including interest at
prime plus 2% (10.5% and 10.25% at December 31, 1997 and
1996, respectively), maturing in September 2000, collateralized
by substantially all corporate assets of Muller Chevrolet and a
company affiliated through common ownership and guaranteed
by the shareholders .................................................. 64 104
Note payable, due in monthly installments including interest at
9.5%, maturing in February 2016, collateralized by body shop
equipment ............................................................ 145 148
Note payable, due in monthly installments including interest at
prime plus 1.5% (10% and 9.75% at December 31, 1997 and
1996, respectively), maturing in January 2001, collateralized
by the related equipment ............................................. 62 82
Note payable, due in monthly installments including interest at
7.5%, maturing in February 2000 ...................................... 90 214
Note payable to bank, due in monthly installments including
interest at 7.5%; maturing in May 2001; collateralized by
related equipment .................................................... 28 35
----- -----
401 625
Less: Current portion ................................................ 80 126
-----
$ 321 $ 499
===== =====
</TABLE>
Maturities of long-term debt for each of the next five years and thereafter are
as follows:
Year ending Aggregate
December 31, Obligation
---------------- ----------
(in thousands)
1998 $ 80
1999 68
2000 42
2001 12
2002 12
thereafter 97
-----
$ 311
=====
F-37
<PAGE>
9. LONG TERM DEBT (CONTINUED):
Bay State
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
(in thousands)
<S> <C> <C>
Various notes payable for loaner vehicles, notes have 15 month
terms with monthly payments of 1.5% to 2.0% of capitalized
amounts plus interest at 9.5%. The balance is due at the end
of the term ..................................................... $ 77 $ 50
Less: Current portion ........................................... 26 17
---- ----
$ 51 $ 33
==== ====
</TABLE>
Maturities of long-term debt for each of the next five years and thereafter are
as follows:
Year ending Aggregate
December 31, Obligation
------------ ----------
(in thousands)
1998 $ 26
1999 51
2000
2001 --
2002 --
thereafter --
----
$ 77
====
F-38
<PAGE>
9. LONG TERM DEBT (CONTINUED):
Brattleboro
<TABLE>
<CAPTION>
12/31/97
--------
(in thousands)
<S> <C>
Note payable, due in monthly installments including interest at
9.25%, maturing in June 2002, collateralized by the related
buildings and improvements............................................. $ 218
Less: Current portion ................................................. 70
-----
$ 148
=====
</TABLE>
Maturities of long-term debt for each of the next five years and thereafter are
as follows:
Year ending Aggregate
December 31, Obligation
------------ ----------
(in thousands)
1998 $ 70
1999 70
2000 70
2001 8
2002
thereafter --
-----
$ 218
=====
10. STOCKHOLDERS' EQUITY:
Capital stock consists of the following:
<TABLE>
<CAPTION>
Par or
Shares Shares Shares Stated Value Treasury
Authorized Issued Outstanding per Share Stock
---------- ------ ----------- --------- -----
<S> <C> <C> <C> <C> <C>
E.R.R. Enterprises, Inc. Class A 10,000 7,218 7,218 $ 5.00 --
E.R.R. Enterprises, Inc. Class B 18,045 18,045 18,045 1.84 --
Westwood 100 60 60 1,000.00 --
Muller Toyota 100 100 75 400.00 $ 890,000
Muller Chevrolet 100 100 100 400.00 --
Bay State 15,000 100 100 250.00 --
Brattleboro 250 100 100 330.00 --
</TABLE>
F-39
<PAGE>
11. RELATED PARTY TRANSACTIONS:
Operating Leases with Stockholder
Some of the principal stockholders of the Companies lease to the
dealerships the premises under various operating leases. Additional information
regarding the terms of these leases is contained in Note 13, "Operating Leases."
Stockholder Loan Guarantees
The Companies have provided guarantees and/or pledged assets as security
for certain outstanding loan obligations of various related parties. See Note 15
"Commitments and Contingencies," for discussion of guarantee and security
arrangements provided on behalf of related parties.
F-40
<PAGE>
11. RELATED PARTY TRANSACTIONS (CONTINUED):
Shaker
<TABLE>
<CAPTION>
Due from related parties: 12/31/97 12/31/96
-------- --------
(in thousands)
<S> <C> <C>
Note receivable from Joseph Shaker Realty, a related party
through common ownership, non-interest bearing with
payment on demand $208 $167
Note receivable from Shaker Enterprises, a related
party through common ownership. Payable monthly
including interest at 6.34% maturing in May 2013 -- 364
(Repaid in 1997)
Note receivable from Corey Shaker, a stockholder. Interest
payable monthly at 6.83% maturing in December 1998 86 27
---- ----
$294 $558
==== ====
Due to related parties:
Note payable to Ed Shaker, a stockholder. Non interest
bearing with payment on demand $706 $667
Note payable to Edick Leasing, a related party through
common ownership. Interest payable monthly at 9.5%
with payment on demand 100 100
Note payable to Joseph Shaker Realty, a related party
through common ownership. Interest payable monthly
at 5.6% with payment on demand 82 78
---- ----
$888 $845
==== ====
</TABLE>
Other:
Shaker purchases certain used vehicles from Edick Leasing, a related party
through common ownership. Vehicles purchased from the affiliate for the years
ended December 31, 1997 , 1996 and 1995 aggregated approximately $312,000,
$446,000 and $440,000, respectively.
F-41
<PAGE>
11. RELATED PARTY TRANSACTIONS (CONTINUED):
Westwood
<TABLE>
<CAPTION>
Due from related parties: 12/31/97 12/31/96
--------- --------
(in thousands)
<S> <C> <C>
Note receivable from Salvatore Vergopia, a stockholder
Interest payable annually at the prime rate, 8.5% and 8.25%
at December 31, 1997 and 1996, respectively, with
payment on demand $ 940 $ 171
Note receivable from Worldwide Financing Co. Ltd., a
related party through common ownership. Non-interest
bearing with payment on demand 90 100
Note receivable from Edward Vergopia, a stockholder
Non-interest bearing with payment on demand 66 59
------ ------
$1,096 $ 330
====== ======
Due to related parties:
Note payable to Salvatore Vergopia, a stockholder
Interest payable annually at the prime rate, 8.5% and 8.25%
at December 31, 1997 and 1996, respectively, with
payment on demand $1,000 $1,000
====== ======
</TABLE>
F-42
<PAGE>
11. RELATED PARTY TRANSACTIONS (CONTINUED):
Muller Toyota
Due from related parties: 12/31/97 12/31/96
-------- --------
(in thousands)
Note receivable from Rellum Realty, a related party
through common ownership. Non-interest bearing
with no repayment terms. Subsequent to December
31, 1997 this note was repaid $ 430 $ 324
Note receivable from Muller Chevrolet. Non-interest
bearing with payment on demand 754 340
------ ------
$1,184 $ 664
====== ======
Muller Chevrolet
Due from related parties: 12/31/97 12/31/96
-------- --------
(in thousands)
Note payable to Muller Toyota. Non-interest
bearing with payment on demand. $ 754 $ 340
====== ======
F-43
<PAGE>
11. RELATED PARTY TRANSACTIONS (CONTINUED):
Bay State
Due from related parties: 12/31/97 12/31/96
-------- --------
(in thousands)
Advances to James Langway, stockholder,
non-interest bearing with payment on demand. $ 214 $ 227
====== ======
Due to related parties:
Advances from James Langway, stockholder,
non-interest bearing with payment on demand. $ 474 $ --
====== ======
Brattleboro
Due from related parties: 12/31/97
--------
(in thousands)
Note payable to Tom Cosenzi, stockholder,
non-interest bearing with payment on demand. $ 252
======
12. ADVERTISING:
Advertising expense (net of manufacturers' rebates and assistance) consist
of the following:
For the years ending December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(in thousands)
Shaker ...................................... $793 $790 $736
Westwood .................................... 17 66 65
Muller Toyota ............................... 523 464 422
Muller Chevrolet ............................ 450 385 450
Bay State ................................... 103 100 51
Brattleboro ................................. 395 N/P N/P
N/P (not presented)
F-44
<PAGE>
13. OPERATING LEASES:
The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases expire on
various dates. The lease agreements are subject to renewal under essentially the
same terms and conditions as the original leases. Equipment leases with third
parties are not material.
Total rent expense for operating leases and rental agreements with related
parties are as follows:
For the years ending December 31,
---------------------------------
1997 1996 1995
(in thousands)
Shaker ................................... $480 $480 $480
Westwood ................................. 352 256 264
Muller Toyota ............................ 488 478 457
Muller Chevrolet ......................... 460 460 404
Bay State ................................ 270 172 60
Brattleboro .............................. 276 N/P N/P
N/P = Not presented
Shaker
Shaker rents its operating facilities in Waterbury and Watertown on a year
to year basis. Shaker is obligated under the agreements to pay executory costs
such as insurance, repairs and maintenance, and other related expenses.
Shaker's Waterbury facilities are rented from a Connecticut partnership in
which the majority stockholders of Shaker are general partners.
Shaker's Watertown facility is rented from a second partnership in which
certain stockholders of Shaker are general partners.
Westwood
Westwood currently leases its operating facilities from two majority
stockholders of Westwood, under a lease agreement dated February 1, 1997 for 10
years. Westwood is committed under such agreement for rental payments of
$360,000 per year through 2002 and an aggregate of $1,470,000 thereafter. Prior
to February 1, 1997, Westwood leased its operating facilities from the same
majority shareholders under a lease agreement dated February 1, 1992 for 10
years.
Muller Toyota and Muller Chevrolet
Muller Toyota and Muller Chevrolet rent their operating facilities, on a
month to month basis, from a partnership owned by the stockholders of Muller
Toyota and Muller Chevrolet.
Bay State
Bay State rents its operating facilities, on a month to month basis, from
a partnership owned by the stockholders of Bay State.
F-45
<PAGE>
14. INCOME TAXES:
Federal and state income taxes are as follows:
Federal & State Income Taxes
<TABLE>
<CAPTION>
Hometown Shaker Westwood
-------- -----------------------------------------------------------
12/31/97 12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Federal
Current $ -- $ 103 $ 220 $(117) $ 73 $ 198 $ 154
Deferred -- 7 (7) 192 9 (74) (86)
State
Current -- 49 103 20 21 55 43
Deferred -- 7 5 23 3 (19) (23)
------ ----- ----- ----- ----- ----- -----
Total Taxes $ -- $ 166 $ 321 $ 118 $ 106 $ 160 $ 88
====== ===== ===== ===== ===== ===== =====
</TABLE>
Muller Toyota Muller Chevrolet
---------------------------------------------------------------
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
(in thousands)
Federal
Current $ -- $ 226 $ (40) $ -- $ -- $ --
Deferred -- (58) (3) -- --
State
Current 36 33 (11) -- --
Deferred -- 15 (1) -- --
------- ----- ----- ----- ----- -------
Total Taxes $ 36 $ 216 $ (55) $ -- $ -- $ --
======= ===== ===== ===== ===== =======
Bay State Brattleboro
------------------------------ -----------
12/31/97 12/31/96 12/31/95 12/31/97
-------- -------- -------- --------
(in thousands)
Federal
Current $ -- $ -- $ -- $ --
Deferred -- -- --
State
Current 52 67 44
Deferred -- -- --
------- ----- ----- -----
Total Taxes $ 52 $ 67 $ 44 $ --
======= ===== ===== =====
F-46
<PAGE>
14. INCOME TAXES (CONTINUED):
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34% to income before
income taxes as follows:
<TABLE>
<CAPTION>
Hometown Shaker Westwood
-------- ------------------------------ ------------------------------
12/31/97 12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Provision at the
statutory rate .................... 0% 34% 34% 34% 34% 34% 34%
Increase (decrease) resulting from
Income of S Corporation ........... 0% 0% 0% 0% 0% 0% 0%
State income tax, net of
benefit for federal deduction .. 0% 6% 6% 6% 6% 6% 6%
Other ............................. 0% -6% 5% -4% 2% 3% 4%
--- --- --- --- --- --- ---
Total Taxes .......................... 0% 34% 45% 36% 42% 43% 44%
=== === === === === === ===
<CAPTION>
Muller Toyota Muller Chevrolet
---------------------------- ----------------------------
12/31/97 12/31/96 12/31/95 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Provision at the
statutory rate .......................... 34% 34% 34% 34% 34% 34%
Increase (decrease) resulting from
Income of S Corporation ................. -34% 0% 0% -34% -34% -34%
State income tax, net of
benefit for federal deduction ........ 6% 6% 6% 6% 6% 6%
Other ................................... -1% 0% 2% -6% -6% -6%
--- --- --- --- --- ---
Total Taxes ................................ 5% 40% 42% 0% 0% 0%
=== === === === === ===
<CAPTION>
Bay State Brattleboro
---------------------------- ------------
12/31/97 12/31/96 12/31/95 12/31/97
-------- -------- -------- --------
(in thousands)
Provision at the
statutory rate .......................... 34% 34% 34% 34%
Increase (decrease) resulting from
Income of S Corporation ................. -34% -34% -34% -34%
State income tax, net of
benefit for federal deduction ........ 5% 5% 6% 0%
Other ................................... 0% 0% 0% 0%
--- --- --- ---
Total Taxes ................................ 5% 5% 6% 0%
=== === === ===
</TABLE>
F-47
<PAGE>
14. INCOME TAXES (CONTINUED):
Deferred income taxes are provided for temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
<TABLE>
<CAPTION>
Hometown Shaker Westwood Muller Toyota
-------- -------------------- -------------------- ------------------
12/31/97 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- -------- -------- -------- --------
Deferred tax assets - (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Reserves and accruals
not deductible until paid $ -- $ 5 $ 7 $ 192 $ 204 $-- $ 128
Depreciation ............. -- -- -- 5 3 --
Other .................... -- -- -- 8 10 --
----- ----- ----- ----- ----- --- -----
Total .................... -- 5 7 205 217 -- 128
Deferred tax liabilities
Depreciation ............. -- (72) (52) -- -- --
Other .................... -- (97) (105) -- -- --
----- ----- ----- ----- ----- --- -----
Total .................... -- (169) (157) -- -- --
----- ----- ----- ----- ----- --- -----
Net deferred tax asset
(liability) .............. $ -- $(164) $(150) $ 205 $ 217 $-- $ 128
===== ===== ===== ===== ===== === =====
<CAPTION>
Muller Chevrolet Bay State Brattleboro
----------------------- --------------------- -----------
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
-------- -------- -------- -------- --------
Deferred tax assets - (in thousands)
<S> <C> <C> <C> <C> <C>
Reserves and accruals
not deductible until paid ........ $ -- $ -- $ -- $ -- $ --
Depreciation ...................... -- -- -- -- --
Other ............................. -- -- -- -- --
------ ------ ------ ------ ------
Total ............................. -- -- -- -- --
Deferred tax liabilities
Depreciation ...................... -- -- -- -- --
Other ............................. -- -- -- -- --
------ ------ ------ ------ ------
Total ............................. -- -- -- --
------ ------ ------ ------ ------
Net deferred tax asset
(liability) ....................... $ -- $ -- $ -- $ -- $ --
====== ====== ====== ====== ======
</TABLE>
F-48
<PAGE>
15. COMMITMENTS AND CONTINGENCIES:
Litigation
The Companies are defendants in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on the Companies' financial
position or results of operations.
Insurance
The Companies carry a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage.
Westwood
As of September 29, 1995, Westwood entered into an agreement with a
financial institution for an indirect auto financing credit line in the amount
of $1,000,000 for the sale of new and used third party limousines to customers.
Loans advanced under this credit line to customers are made with the full
recourse to Westwood. Under the agreement, Westwood must also maintain an
account with this financial institution amounting to a minimum of 25% of the
loans outstanding. As of December 31, 1997 and 1996, loans outstanding under
this credit line amounted to approximately $475,000 and $863,000, respectively.
Westwood is a guarantor for a $2,000,000 credit line granted by a
financial institution to SEC Funding Corp., a company in which the majority
stockholder of Westwood is also a stockholder. This credit line is used for
financing the sale of new and used third party limousines. As of December 31,
1997 and 1996, loans outstanding under this credit line amounted to
approximately $935,000 and $950,000, respectively.
Westwood is a guarantor of a portfolio of customers limousine vehicle
loans granted by Ford Motor Credit Co. As of December 31, 1997 and 1996,
Westwood fully guaranteed limousine vehicle loans aggregating approximately
$6,768,000 and $1,879,000, respectively, and was a limited guarantor on loans
aggregating approximately $800,000 as of December 31, 1997. The limited
guarantee is effective for a twelve month period, commencing with the inception
of the respective loan, and expires thereafter.
Westwood is a guarantor of a portfolio of vehicle loans, granted by Ford
Motor Credit Co., to various customers of Westwood with below average credit. As
of December 31, 1997 and 1996, Westwood fully guaranteed vehicle loans
associated with these customers, aggregating approximately $754,000 and
$2,545,000 respectively.
F-49
<PAGE>
16. RETIREMENT PLANS:
Shaker
Shaker has a contributory qualified profit-sharing 401(k) plan covering
substantially all full-time employees. Profit sharing contributions, if any, are
determined annually by the Board of Directors. No profit sharing contributions
were made in 1997, 1996 and 1995. For the years ended December 31, 1997, 1996
and 1995, matching contributions made by Shaker were approximately $24,000,
$16,000 and $14,000, respectively.
Westwood
During 1997, Westwood established a contributory qualified 401(k) plan
covering substantially all full-time employees. Employee elective deferrals are
matched by Westwood at 25% of the first 5% of the deferrals. For the year ended
December 31, 1997, matching contributions made by Westwood were approximately
$30,000.
Muller Toyota and Muller Chevrolet
Muller Toyota and Muller Chevrolet have a profit-sharing plan with a
401(k) deferral feature. Employees may defer up to 20% of wages as a plan
contribution subject to limitations imposed by tax regulations. Profit-sharing
contributions are at the discretion of the Board of Directors. No contributions
were made for the years ended December 31, 1997, 1996 and 1995.
Bay State
Bay State has a contributory qualified 401(k) plan covering substantially
all full time employees. Baystate does not make any matching contributions to
the plan.
17. STOCK OPTION PLAN:
In February 1998, in order to attract and retain persons necessary for the
success of the Company, Hometown adopted its 1998 Stock Option Plan (the "Stock
Option Plan") covering up to 480,000 shares of Class A Common Stock. Pursuant to
the Stock Option Plan officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive and/or
non-incentive stock options. The Stock Option Plan, which expires in January
2008, will be administered by the Board of Directors or a committee designated
by the Board of Directors. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the Board of Directors, or a committee thereof, in its
sole discretion. Stock options granted under the Stock Option Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive stock option granted
under the Stock Option Plan to a stockholder owning more than 10% of the
outstanding Common Stock may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the Common Stock on the date
of the grant
F-50
<PAGE>
18. PROPOSED ACQUISITION BY SHAKER:
The stockholders of the Core Operating Companies have entered into
definitive purchase agreements with Hometown providing for the purchase of the
Companies by Shaker under the following terms and conditions:
Acquisition of Core Operating Companies
The stockholders of Shaker, Westwood and Muller (the Core Operating
Companies) entered into the Exchange agreement pursuant to which they have
agreed to exchange all of the outstanding shares of four corporations,
operating six franchised dealerships, one collision repair center and one
factory authorized freestanding auto service center, for 3,760,000 shares
of Hometown Class B Common Stock as follows: 1,880,000 shares to the
stockholders of Shaker; 940,000 shares to the shareholders of Westwood;
and 940,000 shares to the stockholders of Muller Toyota, Inc. and Muller
Chevrolet, Inc.
The Exchange agreement provides that the combination is subject to
certain conditions including, among others: (i) the continuing accuracy on
the closing date of the representations and warranties of the applicable
Core Operating Companies and Hometown; (ii) the performance of each of the
covenants by the applicable Core Operating Companies; and (iii) the
receipt of all permits, approvals and consents required for transfer of
ownership of the Core Operating Companies and their assets including the
consent of the manufacturers.
Acquisitions
Hometown entered into two agreements (the "Acquisitions") to acquire
certain assets and liabilities of two dealerships in Massachusetts and
Vermont for an aggregate consideration of $5.7 million, subject to
adjustment based on the book value of certain acquired assets. Each of the
Acquisitions is subject to satisfaction of various conditions precedent,
including the achieving by each of the sellers of certain levels of
income, the receipt of factory consents from all automobile manufacturers
whose franchises are held by each of the sellers.
F-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City, County and
State of New York on May 13, 1998.
HOMETOWN AUTO RETAILERS, INC.
by: /S/ JOSEPH SHAKER
----------------------------
Joseph Shaker, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below on May 13, 1998 by the
following persons in the capacities indicated and each of the undersigned
persons, in any capacity, hereby severally constitutes Joseph Shaker and Stephen
A. Zelnick, and each of them singularly, his true and lawful attorney with full
power to them and each of them to sign for him and in his name and in the
capacity indicated below, this Registration Statement and any and all amendments
thereto.
Signature Title
--------- -----
/S/ JOSEPH SHAKER President and Chief Operating Officer
--------------------------
Joseph Shaker
/S/ JOHN RUDY Chief Financial Officer
--------------------------
John Rudy
/S/ SALVATORE A. VERGOPIA
--------------------------
Salvatore A. Vergopia Director (Chairman)
/S/ WILLIAM C. MULLER JR.
--------------------------
William C. Muller Jr. Director
/S/ COREY SHAKER
--------------------------
Corey Shaker Director
/S/ EDWARD A. VERGOPIA
--------------------------
Edward A. Vergopia Director
/S/ JAMES CHRIST
--------------------------
James Christ Director
II-8
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all reference to our firm) included in or made a part of the
Registration Statement on Form S-1 registering 2,000,000 shares of Class A
Common Stock (2,300,000 if the over-allotment option is exercised in full) and
any other registration statement filed pursuant to Rule 462 under the Securities
Act of 1933, as amended.
/s/ Arthur Andersen LLP
New York, New York
May 13, 1998
N. Y. S. DEPARTMENT OF STATE
DIVISION OF CORPORATIONS AND STATE RECORDS ALBANY, NY 12231-00
FILING RECEIPT
================================================================================
ENTITY NAME : DEALER-CO., INC.
DOCUMENT TYPE : INCORPORATION (DOM. BUSINESS) COUNTY: NEWY
SERVICE COMPANY : ALBANY CORPORATE RESEARCH LTD. SERVICE CODE: 41
================================================================================
FILED: 03/10/1997 DURATION PERPETUAL CASH #: 970310000249 FILM: 9703100002
ADDRESS FOR PROCESS EXIST DA
--------
C/O MORSE, ZELNICK, ROSE & LANDER 03/10/19
ATTN: HOWARD L. MORSE, ESQ. 450 PARK AVENUE
NEW YORK, NY 10022
REGISTERED AGENT
[SEAL]
STATE OF NEW YORK
DEPARTMENT OF STATE
STOCK: 1000 PV
================================================================================
FILER FEES 170.00 PAYMENTS 170.
- ----- ---- --------
MORSE ZELNICK ROSE & LANDER, LLP FILING : 125.00 CASH : 0.
450 PARK AVENUE TAX : 10.00 CHECK : 0.
CERT : 0.00 BILLED: 0.
NEW YORK, NY 10022 COPIES : 10.00
HANDLING: 25.00
REFUND: 0.
================================================================================
OS-1025 (11/89)
<PAGE>
[SEAL]
STATE OF NEW YORK
GEORGE E. PATAKI
GOVERNOR
I would like to congratulate you on the formation of your business
in New York State. I am pleased that you have chosen the Empire State because we
are moving aggressively to transform New York into a business-friendly state.
My administration will continually strive to provide your business
with incentives for job creation and economic opportunity. We will also work
diligently to cut back on unnecessary regulations that hurt your ability to
compete.
Please be assured that I will make every effort to ensure that your
business experience in the state is rewarding. Thank you for your confidence in
New York.
Once again, congratulations and best wishes.
Very truly yours,
/s/ George E. Pataki
George E. Pataki
Governor
<PAGE>
State of New York )
ss:
Department of State )
I hereby certify that the annexed copy has been compared with the original
document in the custody of the Secretary of State and that the same is a true
copy of said original.
Witness my hand and seal of the Department of State on Mar 12 1997
[SEAL]
STATE OF NEW YORK
DEPARTMENT OF STATE /s/ [ILLEGIBLE]
Special Deputy Secretary of State
<PAGE>
Certificate Of Incorporation
Of
Dealer-Co., Inc.
------------------------------
Under Section 402 of the Business Corporation
The undersigned, being a natural person of at least eighteen (18) years of
age and acting as the incorporator of the corporation hereby being formed under
the Business Corporation Law, certifies that:
FIRST: The name of the corporation is: Dealer-Co., Inc.
SECOND: The corporation is formed for the following purpose or purposes:
To engage in any lawful act or activity for which corporations may
be organized under the Business Corporation Law, provided that the
corporation is not formed to engage in any act or activity requiring the
consent or approval of any state official, department, board, agency or
other body without such consent or approval first being obtained.
To have, in furtherance of the corporate purposes, all of the powers
conferred upon corporations organized under the Business Corporation Law
subject to any limitations thereof contained in this certificate of
incorporation or in the laws of the State of New York.
THIRD: The office of the corporation is to be located in the County of New
York, State of New York.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is one thousand, all of which are of a par value of one cent
each, and all of which are of the same class.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against the corporation may be served. The post
office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is: c/o
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York 10022,
Attn: Howard L. Morse, Esq..
SIXTH: The duration of the corporation is perpetual.
SEVENTH: Any action required or permitted to be taken by the Board of
Directors of the corporation or of any committee thereof may be taken without a
meeting if all members of the Board of Directors or of any committee thereof
consent in writing to the adoption of a resolution authorizing the action.
<PAGE>
Any one or more members of the Board of Directors or of any committee
thereof may participate in a meeting of said Board or of any such committee by
means of a conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time, and
participation by such means shall constitute presence in person at the meeting.
EIGHTH: No holder of any of the shares of any class of the corporation
shall be entitled as of right to subscribe for, purchase, or otherwise acquire
any shares of any class of the corporation which the corporation proposes to
issue or any rights or options for the purchase of any shares, bonds,
securities, or obligations of the corporation which are convertible into or
exchangeable for, or which carry any rights to subscribe for, purchase, or
otherwise acquire shares of any class of the corporation; and any and all of
such shares, bonds, securities or obligations of the corporation, whether now or
hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status, and any
and all of such rights and options may be granted by the Board of Directors to
such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering the same, or any thereof, to any said
holder. Without limiting the generality of the foregoing stated denial of any
and all preemptive rights, no holder of shares of any class of the corporation
shall have any preemptive rights in respect of the matters, proceedings, or
transaction specified in subparagraphs (1) to (6), inclusive, of paragraph (e)
of Section 622 of the Business Corporation Law.
NINTH: The corporation shall, to the fullest extent permitted by Article 7
of the Business Corporation Law of the State of New York, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said Article from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said Article, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which any person may be entitled under any By-Law, resolution of
shareholders, resolution of directors, agreement, or otherwise, as permitted by
said Article, as to action in any capacity in which he served at the request of
the corporation.
TENTH: A director of the corporation shall not be personally liable to the
corporation or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a financial profit or other advantage to which he
was not legally entitled or that his acts violated Section 719 of the New York
Business Corporation Law.
Subscribed and affirmed by me as true under the penalties of perjury on
March 6, 1997.
/s/ Howard L. Morse
--------------------------------
Howard L. Morse, Incorporator
Morse Zelnick Rose & Lander LLP
450 Park Avenue
New York, NY 10022
<PAGE>
Certificate Of Incorporation
Of
Dealer-Co., Inc.
Under Section 402 of the Business Corporation Law
Morse Zelnick Rose & Lander LLP
450 Park Avenue
New York, NY 10022
[STAMP]
STATE OF NEW YORK
DEPARTMENT OF STATE
FILED MAR 10 1997
TAX $ 10
BY: JC
State of Delaware
Office of the Secretary of State PAGE 1
-----------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "HOMETOWN AUTO RETAILERS, INC.", FILED IN THIS OFFICE ON THE
FIFTH DAY OF JUNE, A.D. 1997, AT 9 O'CLOCK A.M.
SEAL
SECRETARY'S OFFICE
1793 DELAWARE 1855
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2757864 8100 AUTHENTICATION: 8791862
971413557 DATE: 12-04-97
<PAGE>
Certificate of Incorporation
of
Hometown Auto Retailers, Inc.
The undersigned, being a natural person for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is Hometown Auto Retailers, Inc.
SECOND: The address, including street, number, city and county of
the registered office of the corporation in the State of Delaware is National
Registered Agents, Inc., 9 East Loockerman Street, Dover, Delaware 19901, County
of Kent; and the name of the registered agent of the corporation in the State of
Delaware at such address is National Registered Agents, Inc.
THIRD: The nature of the business and the purposes to be conducted
and promoted by the corporation are to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is 1,000. The par value of each of such shares is
$.001. All such shares are of one class and are shares of Common Stock.
No holder of any of the shares of the stock of the corporation,
whether now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any increase of the
authorized capital stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities convertible into
stock of the corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of other securities convertible into stock, or carrying any right to purchase
stock, may be issued and disposed of pursuant to resolution of the Board of
Directors to such persons, firms, corporations or associations and upon such
terms as may be deemed advisable by the Board of Directors in the exercise of
its discretion.
FIFTH: The name and the mailing address of the incorporator are as
follows:
Name Mailing Address
Howard L. Weinreich Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
[STAMP]
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILES 09:00 AM 06/05/1997
971184562 - 2757864
<PAGE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholder or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the corporation would have if there
were no vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the corporation may
be exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial By-Law or in a By-Law adopted by the stockholders entitled to vote of
the corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one class of
stock each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders. Whenever the corporation
shall be authorized to issue more than one class of stock no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (c)(2)
of Section 242 of the General Corporation Law of the State of Delaware shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve
2
<PAGE>
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators: provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
3
<PAGE>
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ELEVENTH: From time to time any of the provisions of this
certificate or incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Dated: June 18, 1996
/s/ Howard L. Weinreich
-------------------------------------
Howard L. Weinreich, Incorporator
4
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"DEALER-CO, INC.", A NEW YORK CORPORATION,
WITH AND INTO "HOMETOWN AUTO RETAILERS, INC." UNDER THE NAME OF "HOMETOWN
AUTO RETAILERS, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF
THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-SEVENTH
DAY OF JUNE, A.D. 1997, AT 3 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
SEAL
SECRETARY'S OFFICE
1793 DELAWARE 1855
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2757864 8100M AUTHENTICATION: 8535769
971215099 06-27-97
DATE:
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 06/27/1997
971215099 - 2757864
CERTIFICATE OF OWNERSHIP AND MERGER
of
DEALER-CO., INC.
(a New York corporation)
into
HOMETOWN AUTO RETAILERS, INC.
(a Delaware corporation)
It is hereby certified that:
1. Dealer-Co., Inc. (the "Corporation") is a corporation of the State of New
York, the laws of which permit a merger of a corporation of that jurisdiction
with a corporation of another jurisdiction.
2. The Corporation, as the owner of all of the outstanding shares of common
stock of Hometown Auto Retailers, Inc., hereby merges itself into Hometown Auto
Retailers, Inc., a corporation of the State of Delaware (hereinafter called the
"Surviving Corporation").
3. The following is a copy of the resolutions adopted on the 11th day of June,
1997, by the Board of Directors of the Corporation to merge the Corporation into
the Surviving Corporation.
RESOLVED, that the Corporation be reincorporated in the State of
Delaware by merging itself into Hometown Auto Retailers, Inc., (the
Surviving Corporation) pursuant to the laws of the State of New York
and the State of Delaware as hereinafter provided, so that the
separate existence of this Corporation shall cease as soon as the
merger shall become effective, and thereupon the Corporation and The
Surviving Corporation will become a single corporation, which shall
continue to exist under, and be governed by, the laws of the State
of Delaware.
RESOLVED, that the terms and conditions of the proposed merger are
as follows:
(a) From and after the effective time of the merger, all of
the estate, property, rights, privileges, powers, and
franchises of the Corporation shall become vested in and be
held by the Surviving Corporation as fully and entirely and
without change or diminution as the same were before held and
enjoyed by the Corporation, and The Surviving Corporation
shall assume all of the obligations of the Corporation.
<PAGE>
(b) Each share of Common Stock ($.01 par value) of the
Corporation which shall be issued and outstanding immediately
prior to the effective time of the merger shall be converted
into one issued and outstanding share of Common Stock ($.001
par value) of the Surviving Corporation, and, from and after
the effective time of the merger, the holders of all of said
issued and outstanding shares of Common Stock of the
Corporation shall automatically be and become holders of
shares of the Surviving Corporation, upon the basis above
specified, whether or not certificates representing said
shares are then issued and delivered. Each share of Common
stock of the Surviving Corporation which are owned by the
Corporation immediately prior the effective time of the merger
shall be surrendered and extinguished at the effective time of
the merger
(c) After the effective time of the merger, each holder of
record of any outstanding certificate or certificates
theretofore representing Common Stock of the Corporation may
surrender the same to the Surviving Corporation and such
holder shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates representing
an equal number of shares of Common Stock of the Surviving
Corporation. Until so surrendered, each outstanding
certificate which prior to the effective time of the merger
represented one or more shares of Common Stock of this
Corporation shall be deemed for all corporate purposes to
evidence ownership of an equal number of shares of Common
Stock of the Surviving Corporation.
(d) From and after the effective time of the merger, the
Certificate of Incorporation and the By-Laws of the Surviving
Corporation. shall be the Certificate of Incorporation and the
By-Laws of the Surviving Corporation, as in effect immediately
prior to such effective time.
(e) The members of the Board of Directors and officers of the
Surviving Corporation shall be the members of the Board of
Directors and the corresponding officers of the Surviving
Corporation, immediately before the effective time of the
merger.
(f) From and after the effective time of the merger, the
assets and liabilities of the Corporation and of the Surviving
Corporation shall be entered on the books of the Surviving
Corporation at the amounts at which they shall be carried at
such time on the respective books of the Corporation and of
the Surviving Corporation, subject to such inter-corporate
adjustments or eliminations, if any, as may be required to
give effect to the merger; and, subject to such action as may
be taken by the Board of Directors of the Surviving
Corporation in accordance with generally accepted accounting
principles, the capital and surplus of the Surviving
Corporation shall be equal to the capital and surplus of the
Corporation and of the Surviving Corporation.
2
<PAGE>
RESOLVED, that in the event that the proposed merger shall not be
terminated, the proper officers of the Corporation be, and they
hereby are, authorized and directed to make and execute a
Certificate of Ownership and Merger setting forth a copy of these
resolutions to merge itself into the Surviving Corporation and the
date of adoption thereof, and to cause the same to be filed and
recorded as provided by law, and to do all acts and things
whatsoever, within the State of New York and Delaware and in any
other appropriate jurisdiction, necessary or proper to effect this
merger.
4. The proposed merger herein certified has been adopted, approved, certified,
executed and acknowledged by Dealer-Co., Inc. in accordance with the laws under
which it is organized.
Executed on this 24th day of June, 1997.
DEALER-CO., INC.
By: /s/ [illegible]
----------------------------
President
3
N. Y. S. DEPARTMENT OF STATE
DIVISION OF CORPORATIONS AND STATE RECORDS ALBANY, NY 12231-000
FILING RECEIPT
================================================================================
ENTITY NAME : HOMETOWN AUTO RETAILERS, INC.
DOCUMENT TYPE : MERGER (UNA. BUSINESS) COUNTY:
PROCESS
SERVICE COMPANY : ALBANY CORPORATE RESEARCH LTD. SERVICE CODE: 41
CONSTITUENT NAME: DEALER-CO., INC.
================================================================================
FILED: 09/11/1997 DURATION ********* CASH : 970911000580 FILM : 97091100054
ADDRESS FOR PROCESS EFFECT DATE
- ------------------- -----------
C/O MORSE, ZELNICK, ROSE & LANDER, LLP 09/11/1997
ATTN: HOWARD L. MORSE, ESQ. 450 PARK AVENUE, SUITE 902
NEW YORK, NY 10022
[SEAL]
STATE OF NEW YORK
DEPARTMENT OF STATE
REGISTERED AGENT
================================================================================
FILER FEES 95.00 PAYMENTS 95.
- ----- ---- --------
MORSE ZELNICK ROSE & LANDER LLP FILING : 60.00 CASH : 0.
450 PARK AVENUE TAX : 0.00 CHECK : 0.
CERT : 0.00 BILLED: 95.
NEW YORK, NY 10022 COPIES : 10.00
HANDLING: 25.00
REFUND: 0.0
================================================================================
OS-1025 (11/89)
<PAGE>
State of New York )
) ss:
Department of State )
I hereby certify that the annexed copy has been compared with the original
document in the custody of the Secretary of State and that the same is a true
copy of said original.
Witness my hand and seal of the Department of State on SEP 15 1997
[SEAL]
STATE OF NEW YORK /s/ [ILLEGIBLE]
DEPARTMENT OF STATE
Special Deputy Secretary of State
<PAGE>
PR-30.31 (7/96)
New York State of Department of Taxation and Finance - Corporation Tax
Albany NY 12227
To: Secretary of State Date: 9/10/97
- --------------------------------------------------------------------------------
Name of Corporation
DEALER-CO., INC. ID# TF-1262352 AA4
- --------------------------------------------------------------------------------
Pursuant to provisions of section 907 of the Business Corporation Law, the
Commissioner of Taxation and Finance hereby consents to the Merger of the above
named corporation, into HOMETOWN AUTO RETAILERS, INC. (DE) - If filed on or
before 12/10/97.
Certificate and fee are attached.
Filed by: NCR Director, Processing Division
By /s/ Frances Bolligier
White-Department of State Yellow-Department of State Pink-Taxpayer
<PAGE>
CERTIFICATE OF MERGER
of
DEALER - CO., INC.
(a New York corporation)
and
HOMETOWN AUTO RETAILERS, INC.
(a Delaware corporation)
into
HOMETOWN AUTO RETAILERS, INC.
(Pursuant to Section 907 of the Business Corporation Law)
It is hereby certified, upon behalf of each of the constituent
corporations herein named, as follows:
FIRST: The Board of Directors of each of the constituent corporations has
duly adopted a plan merger setting forth the terms and condition of the merger
of said corporations.
SECOND: the name of the foreign constituent corporation, which is to be
the surviving corporation, and which is hereinafter sometimes referred to as the
"surviving constituent corporation", is Hometown Auto Retailers, Inc.
The jurisdiction of its incorporation is Delaware; and the date of its
incorporation therein is June 5, 1997.
No Application for Authority in the State of New York of the surviving
constituent corporation to transact business as a foreign corporation therein
was filed by the Department of State of the State of New York; and it is not to
do business in the State of New York until the Application for Authority shall
have been filed by the Department of State of the State of New York.
THIRD: The name of the domestic constituent corporation, which is being
merged into the surviving constituent corporation, and which is hereinafter
sometimes referred to as the "merged constituent corporation" is Dealer-Co.,
Inc. The date upon which its certificate of incorporation was filed by the
Department of State is March 10, 1997.
FOURTH: As to each constituent corporation, the plan of merger sets forth
the designation and number of outstanding shares of each class and series, the
specification of the
<PAGE>
classes and series entitled to vote on the plan of merger, and the specification
of each class and series entitled to vote as a class on the plan of merger, as
follows:
Hometown Auto Retailers, Inc.
Designation of Number of Classes and
each outstanding Outstanding Designation of series entitled
class and series shares of each class and series to vote as a
of shares class entitled to vote class
Common 10 Common None
Dealer-Co. Inc.
Designation of Number of Classes and
each outstanding Outstanding Designation of series entitled
class and series shares of each class and series to vote as a
of shares class entitled to vote class
Common 20 Common None
- ----------------- ---------------- --------------- -----------------
-- -- -- --
FIFTH: The merger herein certified was authorized in respect of the merged
constituent corporation by the written consent of the holders of all outstanding
shares of the corporation entitled to vote on the plan of merger.
SIXTH: The merger herein certified is permitted by the laws of the
jurisdiction of incorporation of the surviving constituent corporation and is in
compliance with said laws.
SEVENTH: The surviving constituent corporation agrees that it may be
served with process in the State of New York in any action or special proceeding
for the enforcement of any liability of obligation of the merged constituent
corporation, for the enforcement of any liability or obligation of the surviving
constituent corporation for which the surviving constituent corporation was
previously amenable to suit in the State of New York, and for the enforcement,
as provided in the Business Corporation Law of the State of New York, of the
right of shareholders of the merged constituent corporation to receive payment
for their shares against the surviving constituent corporation.
2
<PAGE>
EIGHTH: The surviving constituent corporation agrees that, subject to the
provisions of section 623 of the Business Corporation Law of the State of New
York, it will promptly pay to the shareholders of the merged constituent
corporation the amount, if any, to which they shall be entitled under the
provisions of the Business Corporation Law of the State of New York relating to
the rights of shareholders to receive payment for their shares.
NINTH: The surviving constituent Corporation hereby designates the
Secretary of State of the State of New York as its agent upon whom process
against it may be served in the manner set forth in paragraph (b) of section 306
of the Business Corporation Law of the State of New York in any action or
special proceeding. The post office address within the State of New York to
which the said Secretary of Sate shall mail a copy of any process against the
surviving corporation served upon him is:
c/o Morse Zelnick Rose & Lander, LLP.
450 Park Avenue, Suite 902
New York, NY 10022
Attn: Howard L. Morse, Esq.
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Executed on this day, June 24, 1997
/s/ Matthew Visconti
--------------------------
Matthew Visconti
President of Dealer-Co., Inc.
and
(signatures continued)
/s/ Howard L. Morse
---------------------------
Howard L. Morse
Secretary of Dealer-Co., Inc.
and
3
<PAGE>
/s/ Matthew Visconti
---------------------------
Matthew Visconti
President of Hometown Auto Retailers, Inc.
and
/s/ Howard L. Morse
----------------------------
Howard L. Morse
Secretary of Hometown Auto Retailers, Inc.
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE CF AMENDMENT
OF "HOMETOWN AUTO RETAILERS, INC.", FILED IN THIS OFFICE ON THE NINETEENTH DAY
OF FEBRUARY, A.D. 1998, AT 9 O'CLOCK AM.
/s/ Edward J. Freel
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
2757864 8100 AUTHENTICATION: 8929827
981065597 DATE: 02-19-96
<PAGE>
Certificate of Amendment of Certificate of Incorporation
of
Hometown Auto Retailers, Inc.
Hometown Auto Retailers, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware does hereby certify:
1. The name of the Corporation is Hometown Auto Retailers, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended
to: (a) increase and change the authorized capitalization from 1,000 shares of
Common Stock, par value $.001 per share, into 32,000,000 shares consisting of
24,000,000 shares of Class A Common Stock, par value $.001 per share; 6,000,000
shares of Class B Common Stock, par value $.001 per share; and 2,000,000 shares
of Preferred Stock, par value $.001 per share; (b) set forth the designations,
powers, rights and preferences of each class of stock; and (c) split and change
each of the outstanding 20 shares of Common Stock into 20,000 shares of Class A
Common Stock (or an aggregate of 400,000 shares of Class A Common Stock).
3. In order to effect the changes described in Paragraph 2 hereof, the
Certificate of Incorporation of the Corporation is hereby amended by striking
out Article FOURTH and by substituting the following new Article:
(a) General. The total number of shares of stock which the
Corporation shall have authority to issue is Thirty-two Million
(32,000,000), of which: (i) Twenty-four Million (24,000,000) shall
be shares of Class A Common Stock, having a par value of $.001 per
share, (ii) Six Million (6,000,000) shall be shares of Class B
Common Stock, having a par value of $.001 per share, and (iii) Two
Million (2,000,000) shall be shares of Preferred Stock, par value
$.001 per share.
<PAGE>
Upon the filing of this Certificate of Amendment, each of the
twenty (20) shares of Common Stock of the Corporation outstanding on
such date shall automatically be split and changed into Twenty
Thousand (20,000) shares of Class A Common Stock or an aggregate of
Four Hundred Thousand (400,000) shares of Class A Common Stock.
No holder of any of the shares of stock of the Corporation,
whether now or hereafter authorized and issued, shall be entitled as
of right to purchase or subscribe for (1) any unissued stock of any
class, or (2) any additional shares of any class to be issued by
reason of any increase of the authorized capital stock of the
Corporation of any class, or (3) bonds, certificates of
indebtedness, debentures or other securities convertible into stock
of the corporation, or carrying any right to purchase stock of any
class, but any such unissued stock or such additional authorized
issue of any stock or of other securities convertible into stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its
discretion.
(b) Class A Common Stock and Class B Common Stock.
(i) The Class A Common Stock and the Class B Common
Stock shall be of equal rank and shall entitle the holders
thereof to the same rights and privileges, except as
hereinafter expressly provided with respect to voting rights.
(ii) Both Class A Common Stock and Class B Common Stock
shall vote together as one class on all matters to be voted on
by stockholders of the Corporation, including the election of
directors, except as otherwise expressly provided by law. The
holders of Class B Common Stock shall be entitled to ten (10)
votes per share and the holders of Class A Common Stock shall
be entitled to one vote per share.
(iii) The holders of the Class A Common Stock and the
Class B Common Stock shall be entitled to dividends when, as
and if declared by the Board of Directors in equal amounts per
share and without preference or priority of either class of
stock over the other.
(iv) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether
voluntary or involuntary, all assets and funds of the
Corporation available for distribution shall be distributed
and paid over to the holders of the Class A Common Stock
2
<PAGE>
and Class B Common Stock in equal amounts per share and
without preference or priority of either class of stock over
the other.
(v) Each share of Class B Common Stock shall be
convertible at any time at the option of the holder thereof
into one share of Class A Common Stock. In addition, upon any
sale of Class B Common Stock in either a private transaction
or in the public market, each share of Class B Common Stock so
sold shall be automatically converted into one share of Class
A Common Stock, it being understood that such automatic
conversion shall not occur as a result of transfers because of
inter vivos gift, or bequests or other gifts under a last will
and testament, deed or other document of trust or as a result
of intestate succession.
(c) Preferred Stock. The Preferred Stock may be issued, from time to
time, in one or more series with such designations, preferences and
relative participating optional or other special rights and
qualifications, limitations or restrictions thereof, as shall be
stated in the resolutions adopted by the Board of Directors
providing for the issuance of such Preferred Stock or series
thereof; and the Board of Directors is hereby expressly vested with
authority to fix such designations, preferences and relative
participating optional or other special rights or qualifications,
limitations or restrictions for each series, including, but not by
way of limitation, the power to affix the redemption and liquidation
preferences, the rate of dividends payable and the time for and the
priority of payment thereof and to determine whether such dividends
shall be cumulative or not and to provide for and affix the terms of
conversion of such Preferred Stock or any series thereof into Common
Stock of the Corporation and fix the voting power, if any, of
Preferred Stock or any series thereof.
4. The Amendments of the Certificate of Incorporation herein certified
have been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware by the Unanimous Written
Consent of the Directors followed by the Unanimous Written Consent of the
Stockholders.
Executed on this 18th day of February, 1998.
HOMETOWN AUTO RETAILERS, INC.
By: /s/ Joseph Shaker
----------------------------------
Joseph Shaker
President
3
Certificate of Amendment of Certificate of Incorporation
of
Hometown Auto Retailers, Inc.
Hometown Auto Retailers, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware does hereby certify:
1. The name of the Corporation is Hometown Auto Retailers, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended
to: (a) decrease and change the authorized capitalization from 32,000,000 shares
consisting of 24,000,000 shares of Class A Common Stock, par value $.001 per
share; 6,000,000 shares of Class B Common Stock, par value $.001 per share; and
2,000,000 shares of Preferred Stock, par value $.001 per share; into 29,760,000
shares consisting of 24,000,000 shares of Class A Common Stock, par value $.001
per share; 3,760,000 shares of Class B Common Stock, par value $.001 per share;
and 2,000,000 shares of Preferred Stock, par value $.001 per share and (b)
effectuate a reverse split and change each of the outstanding 400,000 shares of
Class A Common Stock into .6 shares of Class A Common Stock (for an aggregate of
240,000 shares of Class A Common Stock).
3. In order to effect the changes described in Paragraph 2 hereof, the
Certificate of Incorporation of the Corporation is hereby amended by striking
out Article FOURTH and by substituting the following new Article:
(a) General. The total number of shares of stock which the
Corporation shall have authority to issue is Twenty-Nine Million
Seven Hundred Sixty Thousand (29,760,000), of which: (i) Twenty-four
Million (24,000,000) shall be shares of Class A Common Stock, having
a par value of $.001 per share, (ii) Three Million Seven Hundred
Sixty Thousand (3,760,000) shall be shares of Class B Common Stock,
having a par value of $.001 per share, and (iii) Two Million
(2,000,000) shall be shares of Preferred Stock, par value $.001 per
share.
<PAGE>
Upon the filing of this Certificate of Amendment, each of the
Four Hundred Thousand shares of Class A Common Stock of the
Corporation outstanding on such date shall automatically undergo a
reverse split and be changed into Two Hundred Forty Thousand
(240,000) shares of Class A Common Stock.
No holder of any of the shares of stock of the Corporation,
whether now or hereafter authorized and issued, shall be entitled as
of right to purchase or subscribe for (1) any unissued stock of any
class, or (2) any additional shares of any class to be issued by
reason of any increase of the authorized capital stock of the
Corporation of any class, or (3) bonds, certificates of
indebtedness, debentures or other securities convertible into stock
of the corporation, or carrying any right to purchase stock of any
class, but any such unissued stock or such additional authorized
issue of any stock or of other securities convertible into stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its
discretion.
(b) Class A Common Stock and Class B Common Stock.
(i) The Class A Common Stock and the Class B Common
Stock shall be of equal rank and shall entitle the holders
thereof to the same rights and privileges, except as
hereinafter expressly provided with respect to voting rights.
(ii) Both Class A Common Stock and Class B Common Stock
shall vote together as one class on all matters to be voted on
by stockholders of the Corporation, including the election of
directors, except as otherwise expressly provided by law. The
holders of Class B Common Stock shall be entitled to ten (10)
votes per share and the holders of Class A Common Stock shall
be entitled to one vote per share.
(iii) The holders of the Class A Common Stock and the
Class B Common Stock shall be entitled to dividends when, as
and if declared by the Board of Directors in equal amounts per
share and without preference or priority of either class of
stock over the other.
(iv) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether
voluntary or involuntary, all assets and funds of the
Corporation available for distribution shall be distributed
and paid over to the holders of the Class A Common Stock
2
<PAGE>
and Class B Common Stock in equal amounts per share and
without preference or priority of either class of stock over
the other.
(v) Each share of Class B Common Stock shall be
convertible at any time at the option of the holder thereof
into one share of Class A Common Stock. In addition, upon any
sale of Class B Common Stock in either a private transaction
or in the public market, each share of Class B Common Stock so
sold shall be automatically converted into one share of Class
A Common Stock, it being understood that such automatic
conversion shall not occur as a result of transfers because of
inter vivos gift, or bequests or other gifts under a last will
and testament, deed or other document of trust or as a result
of intestate succession.
(c) Preferred Stock. The Preferred Stock may be issued, from time to
time, in one or more series with such designations, preferences and
relative participating optional or other special rights and
qualifications, limitations or restrictions thereof, as shall be
stated in the resolutions adopted by the Board of Directors
providing for the issuance of such Preferred Stock or series
thereof; and the Board of Directors is hereby expressly vested with
authority to fix such designations, preferences and relative
participating optional or other special rights or qualifications,
limitations or restrictions for each series, including, but not by
way of limitation, the power to affix the redemption and liquidation
preferences, the rate of dividends payable and the time for and the
priority of payment thereof and to determine whether such dividends
shall be cumulative or not and to provide for and affix the terms of
conversion of such Preferred Stock or any series thereof into Common
Stock of the Corporation and fix the voting power, if any, of
Preferred Stock or any series thereof.
4. The Amendments of the Certificate of Incorporation herein certified
have been duly adopted in accordance with the provisions of Sections 228 and 242
of the General Corporation Law of the State of Delaware by the Unanimous Written
Consent of the Directors followed by the Unanimous Written Consent of the
Stockholders.
Executed on this ___ day of May, 1998.
HOMETOWN AUTO RETAILERS, INC.
By:
----------------------------------
Joseph Shaker
President
3
BY-LAWS
OF
HOMETOWN AUTO RETAILERS, INC.
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of Hometown Auto
Retailers, Inc. ("Corporation") in the State of Delaware shall be at 9 East
Loockerman Street, City of Dover, County of Kent. The name of the registered
agent in charge thereof is National Registered Agents, Inc.
Section 1.2 Principal Office. The principal office of the Corporation
shall be located in the State of Connecticut.
Section 1.3 Additional Offices. The Corporation may also maintain offices
at such other places within or without the State of Delaware and within or
without the United States of America as the Board of Directors may, from time to
time, determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings. Annual and special meetings of the
stockholders of the Corporation shall be held at such place within or without
the State of Delaware as may be fixed from time to time by the Board of
Directors and specified in the notice of the meeting or in a duly executed
waiver of notice thereof or if not so fixed, at the principal office of the
Corporation in the State of Connecticut.
Section 2.2 Annual Meetings. The annual meetings of stockholders for the
election of Directors of the Corporation and for the transaction of such other
business as may come before the meeting shall be held on a date selected by the
Board of Directors, not more than sixty (60) days after the financial statements
for the preceding fiscal year shall be available. At each Annual Meeting,
Directors and Officers shall be elected or re-elected, as the case may be. A
failure to hold the annual meeting on the date so fixed or to elect a sufficient
number of Directors to conduct the business of the Corporation shall not work a
forfeiture or give cause for dissolution of the Corporation except as expressly
required by applicable laws.
1
<PAGE>
Section 2.3 Special Meetings. A special meeting of the stockholders of the
Corporation may be called at any time and for any purpose or purposes by the
Board of Directors, and shall be called by the President or the Secretary as
otherwise provided by the General Corporation Law of the State of Delaware. At
any such special meeting only such business may be transacted which is related
to the purpose or purposes set forth in the written notice of meeting required
by the General Corporation Law of the State of Delaware or any applicable
successor provision thereto.
Section 2.4 Notice of Meetings. Written notice of the place, date and hour
of each annual or special meeting of stockholders shall be given personally or
by first class mail not less than ten (10) nor more than sixty (60) days before
the date of the meeting to each stockholder entitled to vote thereat. The notice
of any special meeting shall also state the purpose or purposes for which the
meeting is called and by or at whose direction the notice is being issued. If,
at any meeting, whether annual or special, action is proposed to be taken which
would, if taken, entitle stockholders fulfilling requirements of law to receive
payment for their shares, the notice of such meeting shall include a statement
of that purpose and to that effect. Such notice may be given personally or by
mail or by transmitting the notice thereof to him or her at such address or
telephone facsimile number, as the case may be, by telegram, cable, radiogram,
telephone facsimile or other appropriate written communication. If such notice
is mailed, it shall be deemed given when deposited in the United States Mail in
a postage-prepaid envelope directed to the stockholder of record at his address
as it appears on the record of stockholders, or, if he shall have filed with the
Secretary of the Corporation a written request that notices to him be mailed to
some other address, then directed to him at such other address. An affidavit of
the Secretary of the Corporation or other person giving the notice that the
notice required to be given has been given shall, in the absence of fraud, be
prima facie evidence of the facts therein stated. Notice of any adjourned
session of a meeting of stockholders shall not be required to be given if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken. If, however, the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 2.5 Waiver of Notice. Notice of meeting need not be given to any
stockholder who submits a waiver of notice, signed in person or by proxy, either
before or after the meeting. The attendance of any stockholder at a meeting, in
person or by proxy shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
Section 2.6 Organization of Meeting. At each meeting of stockholders, the
President, if present and able to act, or in the absence or inability to act of
the President, a Vice President in the order determined by the Board of
Directors, if present and able to act, shall act as Chairman of the meeting. In
the absence of all of the foregoing officers, the stockholders present in person
or by proxy and entitled to vote thereat shall elect a Chairman of the meeting.
The Secretary, or in his absence or inability to act, the Assistant Secretary
shall act as Secretary of the meeting and keep the minutes thereof, but if
neither the Secretary nor the Assistant Secretary is present or able to act, the
Chairman of the meeting shall appoint a Secretary of the meeting. The Board of
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Directors of the Corporation shall be entitled to make such rules or regulations
for the conduct of meetings of stockholders as it shall deem necessary,
appropriate or convenient. Subject to such rules and regulations of the Board of
Directors, if any, the Chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such Chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to stockholders of record of the
Corporation and their duly authorized and constituted proxies and such other
persons as the Chairman shall permit, restrictions on entry to the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot.
Unless, and to the extent, determined by the Board of Directors or the Chairman
of the meeting, meetings of stockholders shall not be required to be held in
accordance with rules of parliamentary procedure.
Section 2.7 Quorum and Adjournment. At all meetings of stockholders,
except as otherwise provided by applicable law or by the Certificate of
Incorporation of the Corporation, the holders of a majority of the shares
entitled to vote thereat, present in person or by proxy, shall be requisite for
and shall constitute a quorum for the transaction of business. In the absence of
a quorum, the stockholders present in person or by proxy may adjourn the meeting
from time to time. At any such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken. However, if,
after the adjournment, the Board of Directors shall fix a new record date for
the adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to notice as herein specified on the new record
date. The stockholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than the
number required to originally institute a quorum.
Section 2.8 Vote of Stockholders. Each stockholder of record of shares of
stock of the Corporation having voting power shall be entitled at every meeting
of stockholders to one vote for every share of such stock having voting rights
registered in his name in the Corporation's record of stockholders: (a) on the
date fixed pursuant to these By-Laws as the record date for the determination of
stockholders entitled to vote at the meeting; or (b) if no such record date
shall have been so fixed, then at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting. The election of directors and any other
corporate action required to be taken by vote of the stockholders shall, except
as otherwise required by applicable law or by the Certificate of Incorporation
of the Corporation, be authorized by a majority of the votes cast by the
stockholders entitled to vote thereon.
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Section 2.9 Proxies. Every stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy. Every proxy must be in
writing and signed by the stockholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven (11) months from the date thereof unless
otherwise provided in the proxy, but in no case shall a proxy be appointed for a
period over three (3) years. Every proxy shall be revocable at the pleasure of
the stockholder executing it except as otherwise provided in the proxy in those
cases where an irrevocable proxy is coupled with an interest in the stock itself
and is otherwise permitted by law. The termination of the proxy's authority by
act of the stockholder shall, subject to the aforesaid three (3) year
limitation, be ineffective until written notice of the termination has been
given to the Secretary of the Corporation. Unless otherwise provided therein, an
appointment filed with the Secretary of the Corporation shall have the effect of
revoking all proxy appointments of prior date. A proxy authority shall not be
revoked by the death or incapacity of the maker unless, before the vote is cast
or the authority is exercised, written notice of such death or incapacity is
given to the Corporation.
Section 2.10 Consents. Whenever by any provision of law stockholders are
required or permitted to take any action by vote at a meeting, such action may
be taken without a meeting on written consent if a record or memorandum thereof,
setting forth the action so taken, be made in writing and signed in person or by
proxy by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
such record or memorandum be filed with the Secretary of the Corporation and
made a part of the corporate records. Any resolution in writing, signed by the
holders of not less than the minimum number of shares required for approval
thereof, shall be and constitute action by such stockholders to the effect
therein expressed with the same force and effect as if the same had been duly
passed at a duly called meeting of stockholders. Prompt notice of the taking of
any corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 2.11 Fixing Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix a date as the record
date for any such determination of stockholders. Such date, which shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, shall not be more than sixty (60) nor less than ten (10)
days before the date of any such meeting nor more than sixty (60) days prior to
any other action. If a record date is so fixed, such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting and any adjournment thereof,
or to express such consent or dissent, or to receive payment of such dividend or
such allotment of rights, or otherwise to be recognized as stockholders for the
purpose of any other action, notwithstanding any transfer of any shares on the
books of the Corporation after any such record date so fixed. If no record is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding
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the day on which the meeting is held. The share ledger, or a duplicate thereof,
kept by the Corporation shall be prima facie evidence as to the stockholders who
are entitled to examine such share ledger, or duplicate thereof, or to vote at
any stockholder's meeting. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting, provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors. In addition to
the powers and authorities expressly conferred upon the Board of Directors by
the Certificate of Incorporation and these By-Laws, the Board of Directors of
the Corporation may exercise all such authority and powers of the Corporation
and do all such lawful acts and things as are not by applicable law or the
Certificate of Incorporation of the Corporation directed or required to be
exercised or done by the stockholders.
Section 3.2 Number, Election and Term of Office. The number of directors
which shall constitute the entire board shall be shall be determined by
resolution of the entire Board of Directors. As used in these By-Laws, the term
"entire board" means the total number of directors which the Corporation would
have if there were no vacancies. Except as otherwise provided by applicable law
or by the Certificate of Incorporation of the Corporation or in these By-Laws,
the directors shall be elected at the annual meeting of the stockholders and
each director so elected shall hold office until the next annual meeting of
stockholders and until his successor shall have been duly elected and qualified
or until his death or until he shall have resigned or been removed as provided
in these By-Laws. At each meeting of the stockholders for the election of
directors at which a quorum is present, the persons receiving a plurality of the
votes cast by the holders of shares entitled to vote in the election shall be
elected. Such election shall be by ballot whenever requested by any person
entitled to vote at such election but, unless so requested, such election may be
conducted in any manner approved at such meeting.
Section 3.3 Qualifications. Directors shall be stockholders of the
Corporation.
Section 3.4 Place of Meetings. Meetings of the Board of Directors, regular
or special, shall be held at such place, within or without the State of Delaware
as may from time to time be determined by the Board of Directors of the
Corporation, as shall be specified or fixed in the respective notices or waivers
of notice.
Section 3.5 Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately following the annual meeting of stockholders at the
same place where the annual meeting is held; other regular meetings of the Board
of Directors shall be held at such time and at such place as shall from time to
time be determined by resolution of the Board. In case the day so determined
shall be a legal holiday, such meeting shall be held on the next succeeding
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business day, not a legal holiday, at the same hour. No notice shall be required
for any such meeting of the Board of Directors, but a copy of every resolution
fixing or changing the time or place of such meetings shall be mailed to every
director at least seven (7) days before the first meeting held pursuant to such
resolution.
Section 3.6 Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board or President or as
otherwise provided by law. Notice of any special meeting, stating the place,
date and hour of the meeting, shall be mailed, postage prepaid, to each
director, addressed to him at his residence or usual place of business, at least
five (5) days before the day on which the meeting is to be held, or shall be
sent to him at such place by personal delivery, telegram, cable, radiogram or
other appropriate written communication or by telephone facsimile machine not
later than one (1) day before the day on which such meeting is to be held.
Unless limited by applicable law, the Certificate of Incorporation of the
Corporation, the By-Laws or the terms of the notice thereof, any and all
business may be transacted at any special meeting of the Board of Directors of
the Corporation.
Section 3.7 Waiver of Notice. Notice of any meeting of the Board of
Directors need not be given to any director who submits a signed waiver of
notice before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
Section 3.8 Organization. At each meeting of the Board of Directors, the
President or in his absence, a Vice President or in his absence, a director
chosen by a majority of the directors present, shall act as Chairman. The
Secretary or in his absence, an Assistant Secretary or in the absence of the
Secretary and all Assistant Secretaries, a person whom the chairman of the
meeting shall appoint, shall act as secretary of the meeting and keep a record
of the proceedings thereof. At all meetings of the Board of Directors, business
shall be transacted in the order determined by the President.
Section 3.9 Quorum and Manner of Acting. A majority of the directors in
office, but not less than two directors, at the time of any regular or special
meeting of the Board of Directors shall be present in person to constitute a
quorum for the transaction of business. Each director present shall have one
vote, irrespective of the number of shares of stock of the Corporation which he
may hold. The vote of a majority of the directors present at the time of such
vote, if a quorum is present at such time, shall be the act of the Board of
Directors except as otherwise required by applicable law or the Certificate of
Incorporation or these By-Laws. A majority of the directors present, whether or
not a quorum is present, or if no directors are present, the Secretary, may
adjourn any meeting to another time and place. Notice of the time and place of
any such adjourned meeting shall be given to the directors who were not present
at the time of adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called. The
directors shall act only as a Board and the individual directors shall have no
power as such. Participation of any one or more members of the Board by means of
a conference telephone or similar communications equipment, allowing all persons
participating in
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the meeting to hear each other at the same time, shall constitute presence in
person at any such meeting.
Section 3.10 Written Consents. Any action required or permitted to be
taken by the Board of Directors or any Committee thereof may be taken without a
meeting if all members of the Board or the Committee, as the case may be,
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board or
Committee shall be filed with the minutes of the proceedings of the Board or
Committee, as the case may be.
Section 3.11 Resignations. Any director may resign at any time by giving
written notice of his resignation to the Board of Directors or the President.
Any such resignation shall take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.12 Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors without cause may be filled by the vote of a majority of the
directors then in office though less than a quorum. Each director elected to a
newly created directorship or to fill a vacancy occurring in the Board for any
reason except the removal of a director without cause shall hold office until
the next annual meeting of stockholders and until his successor shall have been
duly elected and qualified or until he shall have resigned or been removed as in
these By-Laws provided.
Section 3.13 Removal. Any director may be removed with or without cause at
any time by the affirmative vote of stockholders holding of record in the
aggregate at least a majority of the outstanding shares of the Corporation at a
special meeting of the stockholders called for that purpose and may be removed
for cause by action of the Board of Directors.
Section 3.14 Contracts. No contract or other transaction between this
Corporation and one or more of its directors or between this Corporation and any
other corporation, partnership, association or other organization in which one
or more of its directors or officers are directors or officers or have a
financial interest shall be void, voidable, impaired, affected or invalidated,
nor shall any director be liable in any way, solely for such reason, or solely
because the director or officer is present at or participates in the meeting of
the Board or Committee which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose if: (a) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or made known to the Board of Directors or the Committee, and the
Board or Committee in good faith authorizes the contract or transactions by the
affirmative votes of a majority of the disinterested directors even if the
disinterested directors are less than a quorum; or (b) the material facts as to
his relationship or interest and as to the contract or transaction are disclosed
or are known to the stockholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (c) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a Committee or
the stockholders. Common or interested directors may be counted in
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determining the presence of a quorum at a meeting of the Board of Directors or
of a Committee which authorizes the contract or transaction. This section shall
not be construed to impair or invalidate or in any way affect any contract or
other transaction which would otherwise be valid under the law (common,
statutory or otherwise) applicable thereto.
ARTICLE IV
COMMITTEES
Section 4.1 Designation and Powers. The Board of Directors, by resolution
adopted by a majority of the entire Board, may from time to time designate from
among its members an Executive Committee and such other Committees as they deem
desirable, each consisting of one (1) or more members with such powers and
authority (to the extent permitted by law) as may be provided in such resolution
with respect to all matters other than: (a) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
Delaware General Corporation Law to be submitted to stockholders for approval or
(b) adopting, amending or repealing any by-law of the Corporation. A majority of
all the members of any such Committee may elect a chairman, fix its rules of
procedure, determine its actions, and fix the time and place (whether within or
without the State of Delaware) of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have power, either with or
without cause, at any time, and from time to time, to change the members of any
such Committee, to fill vacancies in, to change the membership of, or to
dissolve, any such Committee. Nothing herein contained shall be deemed to
prevent the Board from appointing one or more Committees consisting in whole or
in part of persons who are not directors of the Corporation; provided, however,
that no such Committee shall have or may exercise any authority of the Board of
Directors of the Corporation.
Section 4.2 Meetings. A majority of each such Committee may determine its
action and fix the time and place of its meetings unless the Board shall
otherwise provide. At all meetings of a Committee, the presence of a majority,
but not less than two (2), members of the Committee shall be necessary to
constitute a quorum for the transaction of business except as otherwise provided
by said resolution or by these By-Laws. Participation of any one or more members
of the Committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time, shall constitute presence in person at any such meeting.
Section 4.3 Written Consents. Any action authorized in writing by all of
the members of a Committee entitled to vote thereon and filed with the minutes
of the Committee shall be the act of the Committee with the same force and
effect as if the same had been passed by unanimous vote at a duly called meeting
of the Committee.
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ARTICLE V
OFFICERS
Section 5.1 Number, Qualifications and Election. The officers of the
Corporation shall be a President, a Secretary, a Treasurer and such other
officers as the Board of Directors may from time to time deem advisable. The
Board of Directors shall elect all such officers. Any officer other than the
President and, if any, the Chairman of the Board of Directors, may be, but is
not required to be, a director of the Corporation. Any two or more offices may
be held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity if such instrument is required to be
executed, acknowledged or verified, as the case may be, by any two or more
officers.
Section 5.2 Term of Office. Insofar as practicable, all officers shall be
elected at the first meeting of the Board of Directors following the Annual
Meeting of Stockholders in each year and, except as otherwise herein provided,
shall hold office until the first meeting of the Board of Directors following
the next Annual Meeting of Stockholders and until their respective successors
shall have been elected or appointed and qualified.
Section 5.3 Removal of Elected Officers. Any officer of the Corporation
may be removed at any time, with or without cause, by majority vote of the Board
of Directors at any meeting called for such purpose.
Section 5.4 Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Board or the President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5.5 Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of office which shall be vacant in the manner prescribed by
these By-Laws for the regular election to such office.
Section 5.6 Chairman of the Board. The Chairman of the Board, if there
shall be one, shall, when present, preside at all meetings of the stockholders
and of the Board of Directors. If the Chairman of the Board is also the Chief
Executive Officer of the Corporation, he shall be responsible for the
implementation of the business, programs and affairs of the Corporation and he
shall have general authority to execute bonds, deeds, mortgages and contracts in
the name and on behalf of the Corporation; to sign certificates for shares; to
vote, or sign proxies or give consents or waivers in respect of, shares of other
corporations owned or held by the Corporation; to cause the employment or
appointment of such employees and agents of the Corporation (other than officers
elected by the Board of Directors) as the conduct of the business of the
Corporation may require, and to fix their compensation; to remove or suspend any
employee or agent who shall not have been appointed by the Board of Directors;
to suspend for cause, pending final action by the Board of Directors, any
officer who shall have been elected by the Board of Directors; and, in general
to exercise all the powers generally appertaining to the office of the
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Chairman of the Board of a Corporation. The Chairman of the Board shall also be
an ex officio member of every Committee of the Board of Directors.
Section 5.7 President. The President shall be the Chief Operating Officer
of the Corporation, provided, however, that if there shall be no Chairman of the
Board, he shall also be Chief Executive Officer of the Corporation and shall
have all the powers and authority provided in these By-Laws to the Chairman of
the Board. In his role as Chief Operating Officer, he shall, in the absence of
the Chairman of the Board, exercise all the authority of such position. In
addition, he shall exercise responsibility for the implementation of all the
business, programs and affairs of the Corporation and shall participate in the
formulation of both immediate and long term planning programs of the
Corporation. He shall monitor the administration of the affairs of the
Corporation and shall advise and counsel the other officers of the Corporation,
particularly with respect to matters which are to be presented to the Board of
Directors. In addition to the Chairman of the Board, he shall have general
authority to execute bonds, deeds, mortgages and contracts in the name and on
behalf of the Corporation; to sign certificates for shares; to vote, or sign
proxies or give consents or waivers in respect of, shares of other corporations
owned or held by the Corporation; to cause the employment or appointment of such
employees and agents of the Corporation (other than officers elected by the
Board of Directors) as the conduct of the business of the Corporation may
require, and to fix their compensation; to remove or suspend any employee or
agent who shall not have been appointed by the Board of Directors; to suspend
for cause, pending final action by the Board of Directors, any officer who shall
have been elected by the Board of Directors; and, in general to exercise all the
powers generally appertaining to the office of President of a Corporation. The
President shall also be an ex officio member of every Committee of the Board of
Directors.
Section 5.8 The Vice Presidents. Each Vice President, including, if any,
Executive Vice Presidents and Senior Vice Presidents, shall have general
authority to sign certificates for shares, shall perform such duties and have
such powers as may from time to time be assigned to them by the President and
shall each report directly to the President. In the absence of the President,
his duties shall be performed and his powers may be exercised by such Vice
President as shall be designated by the President or, failing such designation,
such duties shall be performed and such powers may be exercised by the Vice
Presidents in the order of their last election to that office, subject in any
case to review and superseding action by the Board of Directors.
Section 5.9 The Secretary. The Secretary shall, when requested, attend
meetings of the Board of Directors and the stockholders and shall record all
votes and the minutes of all proceedings in a book to be kept for that purpose
and shall, when requested, perform like duties for all Committees of the Board
of Directors. He shall attend to the giving of notice of all meetings of the
stockholders and special meetings of the Board of Directors and Committees
thereof; he shall have custody of the corporate seal and, when authorized by the
Board of Directors, shall have authority to affix the same to any instrument
and, when so affixed, it shall be attested by his signature or by the signature
of the Treasurer or an Assistant Secretary or an Assistant Treasurer. He shall
keep and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent is properly accountable. He
shall have authority to sign stock certificates and shall generally perform all
the duties appertaining to the office of Secretary of a corporation. In the
absence of the Secretary, any
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Assistant Secretary or, if there be no Assistant Secretary or if such Assistant
Secretary is not available, such person as shall be designated by the President
shall perform the duties of the Secretary.
Section 5.10 The Treasurer. The Treasurer shall be Chief Financial Officer
of the Corporation and shall have the duties, responsibilities and authority
pertaining thereto, including all financial, accounting and budgetary affairs.
He shall also have the care and custody of all the corporate funds and other
valuable effects of the Corporation and shall deposit the same in such banks or
other depositories as the President or the Board of Directors shall, from time
to time, direct or approve. He shall keep a full and accurate account of all
moneys received and paid on account of the Corporation and shall render a
statement of his accounts whenever the Board of Directors shall require. He
shall perform all other necessary acts and duties in connection with the
administration of the financial affairs of the Corporation and shall generally
perform all the duties usually appertaining to the office of Treasurer of a
corporation. In addition, the Treasurer shall be the Chief Accounting Officer of
the Corporation and shall have active control of, and shall be responsible for,
all matters pertaining to the accounts of the Corporation. He shall: supervise
the auditing of all payrolls and vouchers of the Corporation and shall direct
the manner of certifying the same; supervise the manner of keeping all vouchers
for payments by the Corporation and all other documents relating to such
payments; receive, audit and consolidate all operating and financial statements
of the Corporation, its various departments, divisions and subsidiaries;
supervise the books of account of the Corporation, their arrangement and
classification; and supervise the accounting and auditing practices of the
Corporation and its subsidiaries. In the absence of the Treasurer, the Assistant
Treasurer or, if there shall be more than one, the Assistant Treasurers in the
order determined by the Board of Directors, or if there be no Assistant
Treasurer or if such Assistant Treasurer is not available, such person as shall
be designated by the President shall perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
Section 5.11 Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors of the Corporation. Any officer of the Corporation
shall not be prevented from receiving compensation by reason of the fact that he
is also a director of the Corporation.
Section 5.12 Shares of Other Corporations. Whenever the Corporation is the
holder of shares of any other corporation, any right or power of the Corporation
as such stockholder (including the attendance, acting and voting at
stockholders' meetings and execution of waivers, consents, proxies or other
instruments) may be exercised on behalf of the Corporation by the President, any
Vice President or such other person as the Board of Directors may authorize.
ARTICLE VI
SHARE CERTIFICATES
Section 6.1 Form; Signature. The shares of the Corporation shall be
represented by certificates in such form or forms as shall be approved by the
Board of Directors and shall be
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signed by the President or a Vice President and the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a Transfer Agent or registered
by a Registrar other than the Corporation or its employees. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue. No certificate representing shares of stock of the
Corporation shall be issued until the full amount of consideration therefor has
been paid.
Section 6.2 Regulations; Appointment of Transfer Agents and Registrars.
The Board of Directors may make all such rules and regulations, not inconsistent
with these By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. The Board
of Directors may, in its discretion, appoint one or more banks or trust
companies in the State of New York or in such other city or cities as the Board
of Directors may deem advisable, from time to time, to act as Transfer Agents
and Registrars of the shares of the Corporation; and upon such appointments
being made, no certificate representing shares of the Corporation shall be valid
until countersigned by one of such Transfer Agents and registered by one of such
Registrars.
Section 6.3 Record of Stockholders. There shall be kept at the office of
the Corporation in the State of New York or at the office of its Transfer Agent
in said state, a record containing the names and addresses of all stockholders
of the Corporation, the number and class of shares held by each and the dates
when they respectively became the owners of record thereof. Duplicate lists may
be kept in such other state or states as may, from time to time, be determined
by the Board of Directors of the Corporation.
Section 6.4 Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the books of the Corporation only upon
authorization by the registered holder thereof or by his duly authorized
attorney, and on surrender and cancellation of a certificate or certificates for
a like number of shares of the same class properly endorsed or accompanied by a
duly executed stock transfer power and payment of all taxes thereon, with such
proof of authenticity of the signatures as the Corporation or its Transfer Agent
may reasonably require.
Section 6.5 Registered Stockholders. The Corporation shall be entitled to
recognize the person in whose name shares of its stock shall stand on its record
of stockholders as the exclusive owner thereof for all purposes and shall not,
except as otherwise expressly provided by law, be bound to recognize any
equitable or other claim to, or interest in, such shares on the part of any
other person, whether or not it shall have express or other notice.
Section 6.6 Lost, Stolen, Destroyed or Mutilated Certificates. If the
holder of any certificate representing shares of stock of the Corporation shall
notify the Corporation that such certificate has been lost, stolen, destroyed or
mutilated, the Board of Directors, or any officer or officers duly authorized by
the Board of Directors, may authorize the issuance of a substitute certificate
in place of the certificate so alleged to have been lost, stolen, destroyed or
mutilated and may cause or authorize such substitute certificate to be
countersigned by the appropriate
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Transfer Agent and registered by the appropriate Registrar. In each such case,
the Board may, in its discretion, require such owner or his legal representative
to furnish to the Corporation and to such of its Transfer Agents and Registrars
as may require the same, evidence to their satisfaction, in their discretion, of
the loss, theft, destruction or mutilation of such certificate and of the
ownership thereof, and to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties as the Board in its
absolute discretion shall determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged loss, theft,
destruction or mutilation of any such certificate, or the issuance of such new
certificate. A new certificate may be issued without requiring any such evidence
or bond when, in the judgment of the Board of Directors, it is proper so to do.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate except pursuant to
legal proceedings under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS
Section 7.1 Declaration. Subject to applicable law, dividends may be
declared and paid out of any funds available therefor, as often, in such
amounts, and at such time or times as the Board of Directors may determine.
ARTICLE VIII
FISCAL YEAR
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of January and end on the last day in December in each year except
as may otherwise be provided by resolution of the Board of Directors of the
Corporation.
ARTICLE IX
CORPORATE SEAL
Section 9.1 Corporate Seal. The corporate seal of the Corporation shall
have inscribed thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal, Delaware" and shall be in such form as shall be
approved from time to time by the Board of Directors. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
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ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification. The Corporation shall indemnify its
directors and officers, and may indemnify its employees and agents, in
accordance with and to the full extent permitted by the laws of the State of
Delaware as in effect from time to time, if any such person (and the heirs and
legal representatives of such person) is made or 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, as the case may be, a director, officer, employee or
agent of the Corporation or any constituent corporation absorbed in a
consolidation or merger or serves or served as such with another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Corporation or any such constituent corporation.
Section 10.2 Insurance. The Corporation shall have the right to purchase
and maintain insurance on behalf of any person who is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or other entity, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under applicable provisions of law.
ARTICLE XI
AMENDMENTS
Section 11.1 Amendments. Subject to the provisions of the Certificate of
Incorporation of the Corporation and of applicable law, these By-Laws may be
amended or repealed or new by-laws not inconsistent with the laws of the State
of Delaware or any provision of the Certificate of Incorporation of the
Corporation may be made, either by the affirmative vote of a majority of the
whole Board of Directors at any regular or special meeting of such Board, or by
the affirmative vote of the holders of record of a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote in respect
thereof, given at an annual meeting or at any special meeting at which a quorum
shall be present, provided that in each case notice of the proposed alteration,
amendment or repeal or the proposed new by-laws be included in the notice of the
meeting of the Board of Directors or the stockholders, or the form of consent
thereof, as the case may be.
Section 11.2 Amendment Affecting Election of Directors; Notice. If any
By-Law regulating an impending election of directors is adopted, amended or
repealed by the Board of Directors, there shall be set forth in the notice of
the next meeting of stockholders for the election of directors the By-Laws so
adopted, amended or repealed, together with a concise statement of the changes
made.
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ARTICLE XII
GENERAL
Section 12.1 Gender. Wherever in these By-Laws a masculine pronoun is
used, it shall be deemed where appropriate to mean or to also include the
feminine.
Section 12.2 Board. Wherever in these By-Laws the term "Board" is used by
itself, it shall mean the Board of Directors of the Corporation.
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HOMETOWN AUTO RETAILERS, INC.
STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and retain
qualified personnel for positions of substantial responsibility, to provide
additional incentive to the Employees of the Company or its Subsidiaries, if any
(as defined in Section 2 below), as well as other individuals who perform
services for the Company or its Subsidiaries, and to promote the success of the
Company's business.
Options granted hereunder may be either "incentive stock options", as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options", at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean the Common Stock of the Company (par value
$.001 per share.)
(c) "Company" shall mean Hometown Auto Retailers, Inc., a New York
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Incentive Stock Option" shall mean a stock option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not intended to
qualify as an Incentive Stock Option.
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(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an Option.
(l) "Optionee" shall mean an Employee or other person who receives an
Option.
(m) "Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 425(e) of the Internal Revenue Code of 1986, as
amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of shares which may be optioned and sold under the Plan is 480,000 shares
of Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a Committee to
administer the Plan. The Committee shall consist of not less than three members
of the Board of Directors who shall administer the Plan on behalf of the Board
of Directors, subject to such terms and conditions as the Board of Directors may
prescribe. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors. From time to time the Board of Directors may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause), and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted Options
or has been eligible at any time within the preceding year, a Committee must be
appointed to administer the Plan. The Committee must consist of not less than
three members of the Board of Directors, all of whom are "disinterested persons"
as defined in Rule 16b-3 of the General Rules and Regulations promulgated under
the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board,
or the Committee shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, in accordance with Section 422A of the Internal Revenue
Code of 1986, as amended, or to grant Non-qualified Stock Options; (ii) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value
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<PAGE>
of the Common Stock; (iii) to determine the exercise price per share of Options
to be granted which exercise price shall be determined in accordance with
Section 8(a) of the Plan; (iv) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical) and,
with the consent of the holder thereof, modify or amend each Option; (viii) to
accelerate or defer (with the consent of the Optionee) the exercise date of any
Option; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Board; and (x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option may
be granted to an Employee if, as the result of such grant, the aggregate fair
market value (determined at the time each option was granted) of the Shares with
respect to which such Incentive Stock Options are exercisable for the first time
by such Employee during any calendar year (under all such plans of the Company
and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000).
6. TERM OF THE PLAN. The Plan shall become effective upon the earlier to
occur of (i) its adoption by the Board of Directors, or (ii) its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan. The Plan shall continue in effect
until December 31, 2008 unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from
the date of grant hereof or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the day of grant
thereof or such shorter time as may be provided in the instrument evidencing the
Option.
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8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant to
the exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, immediately before the grant
of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the fair
market value per Share on the date of grant, as the case may
be;
(B) granted to an Employee not subject to the provisions of
Section 8(a)(i)(A), the per Share exercise price shall be no
less than one hundred percent (100%) of the fair market value
per Share on the date of grant.
(ii) In the case of a Non-qualified Stock Option, the per Share
exercise price shall be no less than one hundred percent (100%) of
the fair market value per Share on the date of grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued upon exercise
of an Option or in payment of any withholding taxes thereon, including the
method of payment, shall be determined by the Board and may consist entirely of
(i) cash; (ii) other Shares of Common Stock owned by the Employee for at least
six (6) months having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) an assignment by the Employee of the net proceeds to be
received from a registered broker upon the sale of the Shares or the proceeds of
a loan from such broker in such amount; or (iv) any combination of such methods
of payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under Delaware Law and the rules and
regulations of the SEC for plans meeting the requirements of Section 16(b)(3) of
the Exchange Act and authorized from time to time by the Board.
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9. PROCEDURES AND LIMITATIONS ON EXERCISE OF OPTIONS.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and subject to such conditions as
may be determined by the Board, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissable under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms
of the instrument evidencing the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of
payment allowable under Section 8(c) of the Plan; it being understood that
the Company shall take such action as may be reasonably required to permit
use of an approved payment method. Until the issuance, which in no event
will be delayed more than thirty (30) days from the date of the exercise
of the Option, (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as
provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to serve
as an Employee, he may, but only within thirty (30) days (or such other period
of time not exceeding three (3) months as is determined by the Board) after the
date he ceases to be an Employee of the Company, exercise his Option to the
extent that he was entitled to exercise it as of the date of such termination.
To the extent that he was not entitled to exercise the Option at the date of
such termination, or if he does not exercise such Option (which he was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of an Employee. Notwithstanding the provisions of Section
9(b) above, in the event an Employee is unable to continue his employment with
the Company as a result of his total and permanent disability (as defined in
Section 105(d)(4) of the Internal Revenue Code of 1986, as amended), he may, but
only within three (3) months (or such other period of time not exceeding twelve
(12) months as is determined by the Board) from the date of disability, exercise
his Option to the extent he was entitled to exercise it at the date of such
disability. To the extent that he was not entitled to exercise the Option at the
date of disability, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death an
Employee of the Company and who shall have been in Continuous Status
as an Employee
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<PAGE>
since the date of grant of the Option, the Option may be exercised,
at any time within twelve (12) months following the date of death,
by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living one (1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not exceeding
three (3) months as is determined by the Board) after the
termination of Continuous Status as an Employee, the Option may be
exercised, at any time within three (3) months following the date of
death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of
termination.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, or
in the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided, only
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to an Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
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12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for all
purposes, be the date on which the Board makes the determination granting such
Option. Notice of the determination shall be given to each person to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) General. The Board may amend or terminate the Plan from time to time
in such respects as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan, other than
in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons eligible to be
granted options; or
(iii) any material increase in the benefits accruing to participants under
the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder approval
under Section 13(a) of the Plan is made, such stockholder approval shall be
solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or termination
of the Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by, or appropriate
under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability
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in respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in
such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to approval
by the stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted. If such stockholder approval is obtained at a duly
held stockholders' meeting, it may be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such stockholders of
the Company shall be (1) solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished.
If such stockholder approval is obtained by written consent in the absence
of a Stockholders' Meeting, it must be obtained by the written consent of all
stockholders of the Company who would have been entitled to cast the minimum
number of votes which would be necessary to authorize such action at a meeting
at which all stockholders entitled to vote thereon were present and voting.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan shall
contain such other provisions, including, without limitation, restrictions upon
the exercise of the Option, as the Board of Directors of the Company's shall
deem advisable. Any Incentive Stock Option Agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Option as
shall be necessary in order that such option will be an Incentive Stock Option
as defined in Section 422 of the Internal Revenue Code of 1986, as amended.
19. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties,
provided that within sixty (60) days after institution of any such action, suit
or proceeding a Board member shall, in writing, offer the Company the
opportunity, as its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
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21. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons subject to
Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board.
22. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.
23. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections hereof
are inserted for convenience and reference; they constitute no part of the Plan.
9
EXCHANGE AGREEMENT
AGREEMENT, dated as of the 1st day of July, 1997, by and among HOMETOWN
AUTO RETAILERS, INC. ("Hometown"), a Delaware corporation having an address at
831 Straits Turnpike, Watertown, CT 06795, on the one hand; and, respectively:
the shareholders of E R R Enterprises, Inc. ("ERR Corp."), a Connecticut
corporation, whose names and addresses are set forth on Exhibit A-1 hereto (the
"Shaker Stockholders"); the shareholders of William Chevrolet, Inc. ("OldChev"),
a Pennsylvania corporation, and Muller Chevrolet, Oldsmobile, Isuzu, Inc.
("MullerChev") and Muller Automotive Group Inc. ("MullerToy"), each a New Jersey
corporation, whose names and addresses are set forth on Exhibit A-2 hereto (the
"Muller Stockholders"); and the shareholders of Westwood Lincoln-Mercury Sales,
Inc. ("Westwood") and Limousine Sales of Westwood, Inc. ("LimWest"), each a New
Jersey corporation, whose names and addresses are set forth on Exhibit A-3
hereto (the "Westwood Stockholders"), on the other hand, relating to an exchange
of Hometown shares for all the issued and outstanding shares of ERR Corp.,
MullerChev, MullerToy and Westwood pursuant to Section 351 of the Internal
Revenue Code of 1986, as amended.
W I T N E S S E T H
WHEREAS, the Shaker Stockholders own all of the issued and outstanding
stock of ERR Corp.; and
WHEREAS, the Muller Stockholders own all of the issued and outstanding
stock of each of OldChev, MullerChev and MullerToy; and
WHEREAS, the Westwood Stockholders own all the issued and outstanding
stock of Westwood and LimWest; and
WHEREAS, Hometown was formed for the purpose of acquiring, owning and
operating automobile dealerships and automobile service centers to be initially
located primarily in New Jersey and New England; and
WHEREAS, the Shaker Subsidiaries (as hereinafter defined), MullerChev,
MullerToy and Westwood own and operate automobile dealerships, automobile rental
or factory approved service facilities holding factory agreements from the
manufacturer of the respective automobiles sold and serviced by them (the
"Factory Agreements"); and
WHEREAS, immediately after the Exchange ERR Corp., OldChev, MullerChev,
MullerToy, Westwood and LimWest will survive as wholly-owned subsidiaries of
Hometown; and
WHEREAS, as a result of the transactions described herein, the Shaker
Stockholders, the Muller Stockholders and the Westwood Stockholders will own, in
the aggregate, in excess of 80%
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of: (a) the total combined voting power of all classes of voting stock of
Hometown; and (b) the total number of outstanding shares of all classes of stock
of Hometown.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
representations, warranties and covenants set forth below and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Basic Transactions.
(a) Each of the Shaker Stockholders shall transfer all of their respective
right, title and interest in and to ERR Corp., representing, in the aggregate,
all of the issued and outstanding shares of ERR Corp., in exchange for One
Million Eight Hundred Eighty Thousand (1,880,000) shares of Class B Common
Stock, par value $0.001 per share of Hometown (the "Hometown Shares"), which
said Hometown Shares shall be registered in the individual names of the Shaker
Stockholders in proportion to their respective ownership of ERR Corp., and ERR
Corp. shall thereupon automatically become a wholly-owned subsidiary of Hometown
and, shall, itself, continue to be the direct parent corporation of Shaker's,
Inc., Family Ford, Inc., Family Rental, Inc. and Shaker's Lincoln-Mercury
Autocare, Inc., each of the four said subsidiaries of ERR Corp. (the "Shaker
Subsidiaries"), a Connecticut corporation (ERR Corp. and the Shaker Subsidiaries
sometimes hereinafter referred to as the "Shaker Companies" and, individually,
as a "Shaker Company");
(b) Each of the Muller Stockholders shall transfer all of their right,
title and interest in and to MullerToy, representing, in the aggregate, all of
the issued and outstanding shares of MullerToy, in exchange, in the aggregate,
for Nine Hundred Thirty-Three Thousand Two Hundred and Thirty-Two (933,232)
Shares, which said Hometown Shares shall be registered in the individual names
of the Muller Stockholders in proportion to their respective ownership of
MullerToy, and MullerToy shall thereupon automatically become a wholly-owned
subsidiary of Hometown;
(c) Each of the Muller Stockholders shall transfer all of their right,
title and interest in and to MullerChev, representing, in the aggregate, all of
the issued and outstanding shares of MullerChev, in exchange, in the aggregate,
for Six Thousand Seven Hundred (6,700) Shares, which said Hometown Shares shall
be registered in the individual names of the Muller Stockholders in proportion
to their respective ownership of MullerChev, and MullerChev shall thereupon
automatically become a wholly-owned subsidiary of Hometown;
(d) Each of the Muller Stockholders shall transfer all of their right,
title and interest in and to OldChev, representing, in the aggregate, all of the
issued and outstanding shares of OldChev, in exchange, in the aggregate, for
Sixty-Eight (68) Shares, which said Hometown Shares shall be registered in the
individual names of the Muller Stockholders in proportion to their respective
ownership of OldChev, and OldChev shall thereupon automatically become a
wholly-owned subsidiary of Hometown;
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(e) Each of the Westwood Stockholders shall transfer all of their
respective right, title and interest in and to Westwood and LimWest,
representing, in the aggregate, all of the issued and outstanding shares of
Westwood and LimWest, respectively, in exchange for Nine Hundred Forty Thousand
(940,000) Shares, which said Hometown Shares shall be registered in the
individual names of the Westwood Stockholders in proportion to their respective
ownership of Westwood, and Westwood and LimWest shall each thereupon
automatically become a wholly-owned subsidiary of Hometown.
2. Tax Considerations.
It is the intent of the parties hereto that the transactions described in
Section 1 of this Agreement constitute and qualify as a tax free exchange
pursuant to Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code"). In such connection, the respective parties hereto shall report the
transactions described in Section 1 hereof applicable to each such party for
federal, state and local income tax purposes in a manner wholly consistent with
the provisions of this Section 2 and shall timely file all such returns, forms,
statements and agreements as may be required by the Internal Revenue Service on
such basis. The provisions of this Section 2 shall survive the closing of the
transactions described herein, including the initial public offering referred to
in Section 5(a)(iii)(B) hereof.
3. Representations and Warranties.
(a) Each of the Shaker Stockholders named on Exhibit A-1 hereto,
jointly and severally (except with respect to matters set forth in (a)(i),
(a)(ii) and (a)(x) below as to which each of the Shaker Stockholders on his, her
or its own behalf and not on behalf of any other Shaker Stockholder), represents
and warrants to Hometown, each of which representations and warranties shall be
deemed material and the basis for reliance by Hometown and each of which shall
be true, correct and complete both as of the date hereof and, unless Hometown
shall otherwise expressly agree in writing or unless otherwise expressly
contemplated by this Agreement, as of the date of consummation of the
transactions contemplated in this Agreement, as follows:
(i) Each of the Shaker Stockholders is the legal and equitable owner
of his, her or its respective shares of stock in ERR Corp. and such
shares of stock, on the date the transactions described in Section 1
hereof are consummated, will be owned free and clear of all
mortgages, liens, pledges, other security interests and any other
rights of any other person or entity to make claim upon the same for
any reason whatsoever.
(ii) Each of the Shaker Stockholders has the full power and
authority to execute and deliver this Agreement and to perform his,
her or its obligations hereunder and has duly executed and delivered
this Agreement. This Agreement constitutes a valid and legally
binding obligation as to each such Shaker Stockholder, enforceable
in accordance with its terms.
3
<PAGE>
(iii) The Shaker Stockholders named and/or described on Exhibit A-1
hereto constitute all the holders of the issued and outstanding
stock of all classes of ERR Corp. and, accordingly, the shares of
stock of ERR Corp. owned, in the aggregate, by the Shaker
Stockholders constitute all of the issued and outstanding stock of
every class and series. There are no options, warrants, calls,
subscriptions, convertible securities or other rights or other
agreements or commitments of any character whatsoever obligating ERR
Corp. to issue, transfer or sell any of its shares of stock or any
securities convertible into or exchangeable or exercisable for, or
otherwise evidencing a right to acquire any shares of stock or other
securities of any kind of ERR Corp. The capitalization of ERR Corp.
is as set forth on Exhibit A-1 hereto.
(iv) ERR Corp. is the legal and equitable owner of all the
outstanding shares of stock of every class in each Shaker Subsidiary
(which constitute the only subsidiaries of ERR Corp.) and such
shares of stock, on the date the transactions described in Section 1
hereof are consummated, will be owned free and clear of all
mortgages, liens, pledges, other security interests and any other
rights of any other person or entity to make claim upon the same for
any reason whatsoever. There are no options, warrants, calls,
subscriptions, convertible securities or other rights or other
agreements or commitments of any character whatsoever obligating any
Shaker Subsidiary to issue, transfer or sell any of its shares of
stock or any securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire any
shares of stock or other securities of any kind of such corporation.
Except as set forth on Exhibit A-1, none of the Shaker Subsidiaries
have any subsidiaries. The name of each Shaker Subsidiary is as set
forth on Exhibit A-1 hereto.
(v) Each Shaker Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Connecticut and each such corporation has the requisite corporate
power to carry on its business as it is now being conducted. Copies
of the Certificate of Incorporation and By-Laws of each Shaker
Company heretofore delivered to Hometown are accurate and complete
as of the date hereof.
(vi) Each Shaker Company has obtained all licenses, permits and
agreements necessary for the operation of its business as currently
conducted and all of such licenses, permits and agreements,
including without limitation by similarity or otherwise, all
franchise agreements with manufacturers whose new car vehicles such
Company sells (the "Shaker Factory Agreements") and all of such
agreements, including the Shaker Factory Agreements are in full
force and effect with no violation which could result in forfeiture
thereof and all of the same will remain in full force and effect
following the consummation of all the transactions contemplated by
this Agreement.
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<PAGE>
(vii) Each Shaker Company either owns or has a valid lease for all
premises currently occupied by it for the conduct of its business.
All of such properties are zoned for the businesses now being
conducted thereon.
(viii) All material equipment used in the conduct of the business of
each Shaker Company is either owned by or under a valid lease with a
Shaker Company and is in good working condition.
(ix) Each Shaker Company operates its business, uses its assets and
occupies its properties in compliance with all applicable laws,
ordinances, rules and regulations and none of the Shaker
Stockholders has received any notice of violation of any of the
foregoing.
(x) Neither the execution and the delivery of this Agreement by any
of the Shaker Stockholders, nor the consummation of the transactions
contemplated hereby by any of the Shaker Stockholders, will: (A)
violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency or court to which such Shaker
Stockholder is subject; or (B) conflict with, result in a breach of
or constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, cancel, or
require any notice under any contract, agreement, instrument of
indebtedness, security interest or other arrangement to which such
Shaker Stockholder may be a party or by which such Shaker
Stockholder is bound or to which any of the assets of such Shaker
Stockholder is subject.
(xi) Neither the execution and the delivery of this Agreement by the
Shaker Stockholders, nor the consummation of the transactions
contemplated hereby, will (A) cause any Shaker Company to violate,
or result in the violation by any Shaker Company of, any statute,
regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government, governmental agency
or court to which any Shaker Company is subject or any provision of
its charter or By-Laws or (B) conflict with, result in a breach of
or 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 contract, lease, sublease, license,
sublicense, franchise, permit, indenture or agreement or mortgage
for borrowed money, instrument of indebtedness, security interest or
other arrangement to which any Shaker Company may be a party or by
which any Shaker Company or any of its assets may be bound or to
which any of the assets of any Shaker Company is subject (including
without limitation by similarity or otherwise any "change of
control" provisions in any agreement to which any Shaker Company is
a party or by which it may be bound).
(xii) Each Shaker Company has filed all required federal, state and
local income tax returns and there is no liability for past income
taxes.
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<PAGE>
(xiii) The Shaker Stockholders have delivered to Business Services,
Inc. ("BSI") on behalf of Hometown unaudited financial statements
for the years ended December 31, 1994, 1995 and 1996 and for the six
months ended June 30, 1977 (the "Shaker Financial Statements"), each
of which fairly presents the results of operations and the financial
position of the Shaker Companies as at and for the periods therein
presented in accordance with generally accepted accounting
principles, consistently applied. Since the date of the Shaker
Financial Statements, each Shaker Company has conducted its business
only in the ordinary course and there has not been any material
adverse change in its business, assets, properties, results of
operations, financial condition or prospects.
(xiv) As of the year-end and interim period dates set forth in the
Shaker Financial Statements, none of the Shaker Companies had any
liabilities or obligations, absolute or contingent, not reflected or
disclosed in the Shaker Financial Statements which were required to
be reflected or disclosed therein in accordance with generally
accepted accounting principles and no liabilities or obligations,
absolute or contingent, have been incurred since such dates which
are either out of the ordinary course of business or, in the
aggregate for each such Shaker Company, material in amount.
(xv) There are no hazardous environmental conditions which could
adversely affect the normal day-to-day business operations of any
Shaker Company, including after the consummation of all the
transactions contemplated by this Agreement, or require any
environmental clean-up of any of the premises on which any business
of any Shaker Company is conducted or result in any expense after
the consummation of the transactions contemplated by this Agreement.
(xvi) There is no action or proceeding or investigation pending or,
to the best knowledge of each of the Shaker Stockholders, threatened
against or involving any Shaker Company or any of its properties or
rights, which if adversely determined would, individually or in the
aggregate, have a material adverse effect on the business, assets,
properties, results of operations, financial condition or prospects
of any Shaker Company, nor is any Shaker Company subject to any
order, writ, injunction or decree which would have such effect.
(xvii) A summary of each bonus, incentive, deferred compensation,
profit sharing, pension, retirement, disability, hospitalization,
life insurance, health benefit, medical reimbursement, vacation,
sick pay, severance pay or other plan, program, arrangement or
Agreement (whether written or oral) (the "Employee Plans") providing
benefits to any of the employees of any Shaker Company (the "Shaker
Employee Plans") is set forth on Exhibit A-1 hereto. All amounts
required by the provisions of any Shaker Employee Plan and
applicable law to be contributed to any Shaker Employee Plan have
been, or will be, contributed to
6
<PAGE>
such Shaker Employee Plan through the date of closing of the
transactions contemplated by this Agreement, no contribution being
disproportionately large compared to any prior contribution.
(xviii) No consent, authorization or approval of, exemption by, or
filing with, any domestic governmental or administrative authority,
or any court, or any party to any agreement to which any of the
Shaker Stockholders or any Shaker Company is a party is required to
be obtained or made by any of the Shaker Stockholders or by any
Shaker Company in connection with the execution, delivery and
performance of this Agreement by the Shaker Stockholders or the
consummation of the transactions contemplated hereby by the Shaker
Stockholders except: (a) the approvals required to be obtained from
manufacturer of new car vehicles who are parties to any of the
Shaker Factory Agreements; and (b) such other consents, approvals,
orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or
in the aggregate (i) impair in any material respect the ability of
any of the Shaker Stockholders to perform its obligations under this
Agreement or (ii) prevent or impede the consummation of the
transactions contemplated by this Agreement or (iii) prevent or
impede the right of any Shaker Company to continue the conduct of
its business following the consummation of the transactions
contemplated by this Agreement in the same manner as the same is
being conducted to day.
(xix) At the closing of the transactions described in Section 1
hereof, the cash and cash equivalents, working capital and net worth
of each of the Shaker Companies as of such date shall, after giving
effect to: (A) all dividends declared prior thereto, including
dividends payable by such Companies subsequent to such closing and
(B) to all borrowings by such Companies between the date hereof and
such closing date, be not less than the amounts set forth on Exhibit
A-1 hereto.
(xx) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with
any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of any of the Shaker Stockholders
or by any Shaker Company.
(b) Each of the Muller Stockholders named on Exhibit A-2 hereto,
jointly and severally (except with respect to matters set forth in (b)(i),
(b)(ii) and (b)(ix) below as to which each of the Muller Stockholders on his,
her or its own behalf and not on behalf of any other of the Muller
Stockholders), represents and warrants to Hometown, each of which
representations and warranties shall be deemed material and the basis for
reliance by Hometown and each of which shall be true, correct and complete both
as of the date hereof and, unless Hometown shall otherwise expressly agree in
writing or unless otherwise expressly contemplated by this Agreement, as of the
date of consummation of the transactions contemplated in this Agreement, as
follows:
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(i) Each of the Muller Stockholders is the legal and equitable owner
of his, her or its respective shares of stock in OldChev, MullerChev
and MullerToy (the "Muller Companies" and, individually, a "Muller
Company") and such shares of stock, on the date the transactions
described in Section 1 hereof are consummated, will be owned free
and clear of all mortgages, liens, pledges, other security interests
and any other rights of any other person or entity to make claim
upon the same for any reason whatsoever.
(ii) Each of the Muller Stockholders has the full power and
authority to execute and deliver this Agreement and to perform his,
her or its obligations hereunder and has duly executed and delivered
this Agreement. This Agreement constitutes a valid and legally
binding obligation as to each such Muller Stockholder, enforceable
in accordance with its terms.
(iii) The Muller Stockholders named and/or described on Exhibit A-2
hereto constitute all the holders of the issued and outstanding
stock of all classes of the Muller Companies and, accordingly, the
shares of stock of each Muller Company owned, in the aggregate, by
the Muller Stockholders constitute all of the issued and outstanding
stock of every class and series. There are no options, warrants,
calls, subscriptions, convertible securities or other rights or
other agreements or commitments of any character whatsoever
obligating either Muller Company to issue, transfer or sell any of
its shares of stock or any securities convertible into or
exchangeable or exercisable for, or otherwise evidencing a right to
acquire any shares of stock or other securities of any kind of a
Muller Company. The capitalization of each Muller Company is as set
forth on Exhibit A-2 hereto.
(iv) Each Muller Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New
Jersey and each such corporation has the requisite corporate power
to carry on its business as it is now being conducted. None of the
Muller Companies have any subsidiaries. Copies of the Certificate of
Incorporation and By-Laws of each Muller Company heretofore
delivered to Hometown are accurate and complete as of the date
hereof.
(v) Each Muller Company (other than OldChev which is not an
operating company) has obtained all licenses, permits and agreements
necessary for the operation of its business as currently conducted
and all of such licenses, permits and agreements, including without
limitation by similarity or otherwise, all franchise agreements with
manufacturers whose new car vehicles such Company sells (the "Muller
Factory Agreements") and all of such agreements, including the
Muller Factory Agreements are in full force and effect with no
violation which could result in forfeiture thereof and all of the
same will remain in full force and effect following the consummation
of all the transactions contemplated by this Agreement.
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<PAGE>
(vi) Each Muller Company (other than OldChev which is not an
operating company) either owns or has a valid lease for all premises
currently occupied by it for the conduct of its business. All of
such properties are zoned for the businesses now being conducted
thereon.
(vii) All material equipment used in the conduct of the business of
each Muller Company (other than OldChev which is not an operating
company) is either owned by or under a valid lease with a Muller
Company and is in good working condition.
(viii) Each Muller Company (other than OldChev which is not an
operating company) operates its business, uses its assets and
occupies its properties in compliance with all applicable laws,
ordinances, rules and regulations and none of the Muller
Stockholders has received any notice of violation of any of the
foregoing.
(ix) Neither the execution and the delivery of this Agreement by any
of the Muller Stockholders, nor the consummation of the transactions
contemplated hereby by any of the Muller Stockholders, will: (A)
violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any
government, governmental agency or court to which such Muller
Stockholder is subject; or (B) conflict with, result in a breach of
or constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, cancel, or
require any notice under any contract, agreement, instrument of
indebtedness, security interest or other arrangement to which such
Muller Stockholder may be a party or by which such Muller
Stockholder is bound or to which any of the assets of such Muller
Stockholder is subject.
(x) Neither the execution and the delivery of this Agreement by the
Muller Stockholders, nor the consummation of the transactions
contemplated hereby, will (A) cause either Muller Company to
violate, or result in the violation by either Muller Company of, any
statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government,
governmental agency or court to which either Muller Company is
subject or any provision of its charter or By-Laws or (B) conflict
with, result in a breach of or 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
contract, lease, sublease, license, sublicense, franchise, permit,
indenture or agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which either
Muller Company may be a party or by which either Muller Company or
any of its assets may be bound or to which any of the assets of
either Muller Company is subject (including without limitation by
similarity or otherwise any "change of control" provisions in any
agreement to which either Muller Company is a party or by which it
may be bound).
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(xi) Each Muller Company has filed all required federal, state and
local income tax returns and there is no liability for past income
taxes.
(xii) The Muller Stockholders have delivered to BSI unaudited
financial statements for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1977 (the "Muller
Financial Statements"), each of which fairly presents the results of
operations and the financial position of the Muller Companies as at
and for the periods therein presented in accordance with generally
accepted accounting principles, consistently applied. Since the date
of the Muller Financial Statements, each Muller Company has
conducted its business only in the ordinary course and there has not
been any material adverse change in its business, assets,
properties, results of operations, financial condition or prospects.
(xiii) As of the year-end and interim period dates set forth in the
Muller Financial Statements, none of the Muller Companies had any
liabilities or obligations, absolute or contingent, not reflected or
disclosed in the Muller Financial Statements which were required to
be reflected or disclosed therein in accordance with generally
accepted accounting principles and no liabilities or obligations,
absolute or contingent, have been incurred since such dates which
are either out of the ordinary course of business or, in the
aggregate for each such Muller Company, material in amount.
(xiv) There are no hazardous environmental conditions which could
adversely affect the normal day-to-day business operations of either
Muller Company, including after the consummation of all the
transactions contemplated by this Agreement, or require any
environmental clean-up of any of the premises on which any business
of any Muller Company is conducted or result in any expense after
the consummation of the transactions contemplated by this Agreement.
(xv) There is no action or proceeding or investigation pending or,
to the best knowledge of each Muller Stockholder, threatened against
or involving either Muller Company or any of its properties or
rights, which if adversely determined would, individually or in the
aggregate, have a material adverse effect on the business, assets,
properties, results of operations, financial condition or prospects
of either Muller Company, nor is any Muller Company subject to any
order, writ, injunction or decree which would have such effect.
(xvi) A summary of each Employee Plan providing benefits to any of
the employees of either Muller Company (the "Muller Employee Plans")
is set forth on Exhibit A-2 hereto. All amounts required by the
provisions of any Muller Employee Plan and applicable law to be
contributed to any Muller Employee Plan have been, or will be,
contributed to such Muller Employee Plan through the date
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of closing of the transactions contemplated by this Agreement, no
contribution being disproportionately large compared to any prior
contribution.
(xvii) No consent, authorization or approval of, exemption by, or
filing with, any domestic governmental or administrative authority,
or any court, or any party to any agreement to which any Muller
Stockholder or any Muller Company is a party is required to be
obtained or made by any Muller Stockholder or by any Muller Company
in connection with the execution, delivery and performance of this
Agreement by the Muller Stockholders or the consummation of the
transactions contemplated hereby by the Muller Stockholders except:
(a) the approvals required to be obtained from manufacturer of new
car vehicles who are parties to any of the Muller Company Factory
Agreements; and (b) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure
of which to be obtained or made would not, individually or in the
aggregate (i) impair in any material respect the ability of any
Muller Stockholder to perform its obligations under this Agreement
or (ii) prevent or impede the consummation of the transactions
contemplated by this Agreement or (iii) prevent or impede the right
of any Muller Company to continue the conduct of its business
following the consummation of the transactions contemplated by this
Agreement in the same manner as the same is being conducted to day.
(xviii) At the closing of the transactions described in Section 1
hereof, the cash and cash equivalents, working capital and net worth
of each of the Muller Companies as of such date shall, after giving
effect to: (A) all dividends declared prior thereto, including
dividends payable by such Companies subsequent to such closing and
(B) to all borrowings by such Companies between the date hereof and
such closing date, be not less than the amounts set forth on Exhibit
A-2 hereto.
(xix) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with
any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of any Muller Stockholder or by
either Muller Company.
(c) Each of the Westwood Stockholders named on Exhibit A-3 hereto,
jointly and severally (except with respect to matters set forth in (c)(i),
(c)(ii) and (c)(ix) below as to which each of the Westwood Stockholders on his,
her or its own behalf and not on behalf of any other Westwood Stockholders),
represents and warrants to Hometown, each of which representations and
warranties shall be deemed material and the basis for reliance by Hometown and
each of which shall be true, correct and complete both as of the date hereof
and, unless Hometown shall otherwise expressly agree in writing or unless
otherwise expressly contemplated by this Agreement, as of the date of
consummation of the transactions contemplated in this Agreement, as follows:
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(i) Each of the Westwood Stockholders is the legal and equitable
owner of his, her or its respective shares of stock in Westwood and
LimWest and such shares of stock, on the date the transactions
described in Section 1 hereof are consummated, will be owned free
and clear of all mortgages, liens, pledges, other security interests
and any other rights of any other person or entity to make claim
upon the same for any reason whatsoever.
(ii) Each of the Westwood Stockholders has the full power and
authority to execute and deliver this Agreement and to perform his,
her or its obligations hereunder and has duly executed and delivered
this Agreement. This Agreement constitutes a valid and legally
binding obligation as to such Westwood Stockholder, enforceable in
accordance with its terms.
(iii) The Westwood Stockholders named and/or described on Exhibit
A-3 hereto constitute all the holders of the issued and outstanding
stock of all classes of Westwood and LimWest and, accordingly, the
shares of stock of Westwood and of LimWest owned, in the aggregate,
by the Westwood Stockholders constitute all of the issued and
outstanding stock of every class and series of each such
corporation. There are no options, warrants, calls, subscriptions,
convertible securities or other rights or other agreements or
commitments of any character whatsoever obligating Westwood or
LimWest to issue, transfer or sell any of its shares of stock or any
securities convertible into or exchangeable or exercisable for, or
otherwise evidencing a right to acquire any shares of stock or other
securities of any kind of Westwood or LimWest, as the case may be.
The capitalization of Westwood and of LimWest is as set forth on
Exhibit A-3 hereto.
(iv) Westwood and LimWest is each a corporation duly organized,
validly existing and in good standing under the laws of the State of
New Jersey. Westwood has the requisite corporate power to carry on
its business as it is now being conducted; LimWest is not an
operating company. Westwood does not have any subsidiaries. Copies
of the Certificate of Incorporation and By-Laws of Westwood and of
LimWest heretofore delivered to Hometown are accurate and complete
as of the date hereof.
(v) Westwood has obtained all licenses, permits and agreements
necessary for the operation of its business as currently conducted
and all of such licenses, permits and agreements, including without
limitation by similarity or otherwise, all franchise agreements with
manufacturers whose new car vehicles are sold by Westwood (the
"Westwood Factory Agreements") and all of such agreements, including
the Westwood Factory Agreements are in full force and effect with no
violation which could result in forfeiture thereof and all of the
same will remain in full force and effect following the consummation
of all the transactions contemplated by this Agreement.
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(vi) Westwood either owns or has a valid lease for all premises
currently occupied by it for the conduct of its business. All of
such properties are zoned for the businesses now being conducted
thereon.
(vii) All material equipment used in the conduct of the business of
Westwood is either owned by or under a valid lease with Westwood and
is in good working condition.
(viii) Westwood operates its business, uses its assets and occupies
its properties in compliance with all applicable laws, ordinances,
rules and regulations and none of the Westwood Stockholders has
received any notice of violation of any of the foregoing.
(ix) Neither the execution and the delivery of this Agreement by any
of the Westwood Stockholders, nor the consummation of the
transactions contemplated hereby by any of the Westwood
Stockholders, will: (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency or court to which
such Westwood Stockholder is subject; or (B) conflict with, result
in a breach of or constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, cancel, or require any notice under any contract,
agreement, instrument of indebtedness, security interest or other
arrangement to which such Westwood Stockholder may be a party or by
which such Westwood Stockholder is bound or to which any of the
assets of such Westwood Stockholder is subject.
(x) Neither the execution and the delivery of this Agreement by the
Westwood Stockholders, nor the consummation of the transactions
contemplated hereby, will (A) cause Westwood or LimWest to violate,
or result in the violation by Westwood of, any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or
other restriction of any government, governmental agency or court to
which Westwood or LimWest, as the case may be, is subject or any
provision of its charter or By-Laws or (B) conflict with, result in
a breach of or 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
contract, lease, sublease, license, sublicense, franchise, permit,
indenture or agreement or mortgage for borrowed money, instrument of
indebtedness, security interest or other arrangement to which either
such corporation may be a party or by which either such corporation
or any of its assets may be bound or to which any of the assets of
either such corporation is subject (including without limitation by
similarity or otherwise any "change of control" provisions in any
agreement to which either such corporation is a party or by which it
may be bound).
(xi) Westwood and LimWest has each filed all required federal, state
and local income tax returns and there is no liability for past
income taxes.
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<PAGE>
(xii) The Westwood Stockholders have delivered to BSI unaudited
financial statements for the years ended December 31, 1994, 1995 and
1996 and for the six months ended June 30, 1977 (the "Westwood
Financial Statements"), each of which fairly presents the results of
operations and the financial position of Westwood as at and for the
periods therein presented in accordance with generally accepted
accounting principles, consistently applied. Since the date of the
Westwood Financial Statements: (A) Westwood has conducted its
business only in the ordinary course and there has not been any
material adverse change in its business, assets, properties, results
of operations, financial condition or prospects; and (B) LimWest has
not conducted any operations or engaged in any transactions.
(xiii) As of the year-end and interim period dates set forth in the
Westwood Financial Statements of Westwood delivered to BSI, neither
Westwood nor LimWest had any liabilities or obligations, absolute or
contingent, not reflected or disclosed in the Westwood Financial
Statements which were required to be reflected or disclosed therein
in accordance with generally accepted accounting principles and no
liabilities or obligations, absolute or contingent, have been
incurred since such dates which are either out of the ordinary
course of business or, in the aggregate, material in amount.
(xiv) There are no hazardous environmental conditions which could
adversely affect the normal day-to-day business operations of
Westwood, including after the consummation of all the transactions
contemplated by this Agreement, or require any environmental
clean-up of any of the premises on which any business of Westwood is
conducted or result in any expense after the consummation of the
transactions contemplated by this Agreement.
(xv) There is no action or proceeding or investigation pending or,
to the best knowledge of each of the Westwood Stockholders,
threatened against or involving Westwood or LimWest or any of their
properties or rights, which if adversely determined would,
individually or in the aggregate, have a material adverse effect on
the business, assets, properties, results of operations, financial
condition or prospects of Westwood, nor is Westwood subject to any
order, writ, injunction or decree which would have such effect.
(xvi) A summary of each Employee Plan providing benefits to any of
the employees of Westwood (the "Westwood Employee Plans") is set
forth on Exhibit A-3 hereto. All amounts required by the provisions
of any Westwood Employee Plan and applicable law to be contributed
to any Westwood Employee Plan have been, or will be, contributed to
such Westwood Employee Plan through the date of closing of the
transactions contemplated by this Agreement, no contribution being
disproportionately large compared to any prior contribution.
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<PAGE>
(xvii) No consent, authorization or approval of, exemption by, or
filing with, any domestic governmental or administrative authority,
or any court, or any party to any agreement to which any of the
Westwood Stockholders or to which Westwood or LimWest is a party is
required to be obtained or made by any of the Westwood Stockholders
or by Westwood or LimWest in connection with the execution, delivery
and performance of this Agreement by the Westwood Stockholders or
the consummation of the transactions contemplated hereby by the
Westwood Stockholders except: (a) the approvals required to be
obtained from manufacturer of new car vehicles who are parties to
any of the Westwood Factory Agreements; and (b) such other consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not,
individually or in the aggregate (i) impair in any material respect
the ability of any of the Westwood Stockholders to perform its
obligations under this Agreement or (ii) prevent or impede the
consummation of the transactions contemplated by this Agreement or
(iii) prevent or impede the right of Westwood to continue the
conduct of its business following the consummation of the
transactions contemplated by this Agreement in the same manner as
the same is being conducted to day.
(xviii) At the closing of the transactions described in Section 1
hereof, the cash and cash equivalents, working capital and net worth
of Westwood as of such date shall, after giving effect to: (A) all
dividends declared prior thereto, including dividends payable by
such Companies subsequent to such closing and (B) to all borrowings
by such Companies between the date hereof and such closing date, be
not less than the amounts set forth on Exhibit A-3 hereto.
(xix) No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with
any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of any of the Westwood
Stockholders or by Westwood.
4. Conduct of Business Pending the Closing of Transactions. Each of the Shaker
Stockholders jointly and severally covenants with respect to the Shaker
Companies, each of the Muller Stockholders jointly and severally covenants with
respect to the Muller Companies and each of the Westwood Stockholders jointly
and severally covenants with respect to Westwood (for purposes of this Section
4, each of the Shaker Companies, Muller Companies and Westwood shall each be
referred to as a "Corporation") that, unless Hometown shall expressly agree in
writing:
(a) To the extent commercially reasonable, the business of the Corporation
(other than OldChev and LimWest which are not operating companies) shall be
conducted only in the ordinary course of business and consistent with past
practices, and each of the Stockholders shall cause every Corporation owned,
directly or indirectly, by such Stockholder to use its best efforts
15
<PAGE>
to maintain and preserve its business organization, assets, prospects, employees
and advantageous business relationships;
(b) Each such Corporation shall not directly or indirectly do any of the
following: (i) whether or not in the ordinary course of business, sell or
dispose of any asset which is material to the Corporation; (ii) amend its
charter or by-laws or similar organizational documents; (iii) split, combine or
reclassify any of its shares of stock; (iv) declare, set aside or pay any
dividend or distribution, payable in cash, stock, property or otherwise, with
respect to its shares of stock except as set forth on Exhibit B hereto; (v)
redeem, purchase or otherwise acquire or offer to redeem, purchase or otherwise
acquire any of its shares of stock; (vi) enter into any new compensation
arrangements or pay any out-of-the-ordinary bonuses or other forms of
compensation; or (vii) authorize or propose any of the foregoing, or enter into
any contract, agreement, commitment, or arrangement to do any of the foregoing;
(c) The Corporation shall not, directly or indirectly: (i) issue, sell,
pledge or dispose of, or authorize, propose or agree to the issuance, sale,
pledge or disposition of, any of its shares of stock, or any options, warrants
or rights of any kind to acquire any of its shares of stock; (ii) acquire (by
merger, consolidation, or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof, or make any
material investment either by purchase of stock or securities, contribution to
capital, property transfer, or, except in the ordinary course, purchase of any
property or assets of any other individual or entity;
(d) The Corporation (other than OldChev and LimWest which are not
operating companies) shall use its best efforts to obtain, as soon as possible
following the execution of this Agreement, unconditional approvals from every
manufacturer of new car vehicles with whom it has any Factory Agreement to the
consummation of all transactions contemplated by this Agreement, including the
consolidation of all of the Corporations in a single group owned, operated and
controlled by Hometown, as well as any public offerings of Hometown Common Stock
or other equity securities at any time following the consummation of the
transactions described in Section 1 of this Agreement and shall promptly advise
Hometown of the receipt of each such approval and of any other communication.
(e) The Corporation shall not declare or pay any dividend which would
reduce its cash and cash equivalents, working capital and net worth as of the
closing date to less than the amounts set forth, as applicable, on Exhibits A-1,
A-2 and A-3 hereto and without the prior approval by Hometown, it being
understood that such approval shall not in any way derogate from the
responsibility of the respective shareholders to comply with the obligations
herein set forth.
(f) Each of the Shaker Stockholders with respect to the Shaker Companies,
each of the Muller Stockholders with respect to the Muller Companies and the
each of the Westwood Stockholders with respect to Westwood shall afford to
Hometown and its representatives free and full access during regular business
hours to all of the books, records, contracts, documents, key personnel and
properties of such Corporations and will cause the key employees, accountants,
attorneys and other representatives of each such Corporation to cooperate fully
with Hometown
16
<PAGE>
and to make full disclosure to Hometown of all material facts affecting the
business properties and operations of such Corporations.
(g) The Corporation shall not take any action or agree, in writing or
otherwise, to take any of the actions prohibited by this Section 4 or any action
which would make any representations or warranty in Section 3 hereof untrue or
incorrect in any material respect.
5. Conditions and Obligations to Closing.
(a) The obligation of Hometown to consummate the transactions to be
performed by it under this Agreement is subject to the following conditions:
(i) The representations and warranties set forth in Section 3 above
made by the parties hereto other than Hometown shall be true,
correct and complete in all material respects at and as of the date
the transactions described in Section 1 hereof are consummated; and
(ii) 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 wherein an unfavorable
judgment, order, decree, stipulation, injunction or charge would:
(A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation or (C) have an
adverse effect on the right of Hometown to own, operate and control
every Shaker Company, every Muller Company and Westwood.
(iii) Each Shaker Company, each Muller Company (other than OldChev
which is not an operating company) and Westwood shall have received
factory consents from all automobile manufacturers whose franchises
they hold: (A) to the transactions contemplated by this Agreement,
including the consolidation of all of such companies in a single
group owned, operated and controlled by Hometown, as described in
Section 1 of this Agreement; and (B) to any public offerings of
Hometown Common Stock or other equity securities at any time
following the consummation of the transactions described in Section
1 of this Agreement.
(iv) Employment agreements shall have been entered into on the terms
set forth on Exhibit C hereto, including appropriate non-competition
covenants, between Hometown and each of Corey Shaker, Joseph Shaker,
Steven Shaker, Salvatore Vergopia, Edward Vergopia, William Muller
and James Christ.
(v) The leases between any of: (A) the Shaker Stockholders and any
Shaker Company, (B) the Muller Stockholders and any Muller Company,
and (C) the Westwood Stockholders and Westwood applicable to the
premises occupied by
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each Shaker Company, Muller Company and Westwood Company shall, in
each instance, be amended to provide for the lease terms set forth
on Exhibit D hereto.
(vi) All the transactions contemplated by this Agreement, as well as
an initial public offering of not less than 4,000,000 shares of
Hometown Class A Common Stock at a price of not less than $10 per
share, shall be consummated at the same closing.
Hometown may waive any condition specified in this Section 5(a) if it executes a
writing so stating at or prior to the closing of the transactions described in
Section 1 hereof.
(b) The respective obligations of the Shaker Stockholders, the Muller
Stockholders and the Westwood Stockholders to consummate the transactions to be
performed by such Stockholders under this Agreement is subject to the following
conditions:
(i) The representations and warranties set forth in Section 3 above
made by the parties hereto other than by such Stockholders shall be
true and correct in all material respects at and as of the date the
transactions described in Section 1 hereof are consummated; and
(ii) 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 wherein an unfavorable
judgment, order, decree, stipulation, injunction or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation or (C) have an
adverse effect on the right of any such Stockholders to own or
control the shares of Hometown Common Stock issued pursuant to this
Agreement.
(iii) Each Shaker Company, each Muller Company (other than OldChev
which is not an operating company) and Westwood shall have received
factory consents from all automobile manufacturers whose franchises
they hold: (A) to the transactions contemplated by this Agreement,
including the consolidation of all of such companies in a single
group owned, operated and controlled by Hometown, as described in
Section 1 of this Agreement; and (B) to any public offerings of
Hometown Common Stock or other equity securities at any time
following the consummation of the transactions described in Section
1 of this Agreement.
(iv) Hometown shall have offered to enter into employment agreements
on the terms set forth on Exhibit C hereto, including appropriate
non-competition covenants, between Hometown and each of Corey
Shaker, Joseph Shaker, Steven Shaker, Salvatore Vergopia, Edward
Vergopia, William Muller and James Christ.
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The Shaker Stockholders, Muller Stockholders and/or Westwood Stockholders,
respectively, may waive any condition specified in this Section 5(b) if all
stockholders in such group execute a writing so stating at or prior to the
closing of the transactions described in Section 1 hereof.
6. Closing. The closing of all the transactions described in Section 1 hereof
shall be held at the offices of Morse Zelnick Rose & Lander, LLP, 450 Park
Avenue, New York, NY 10022 on a mutually convenient date as soon as practicable
following receipt of all factory consents described in Section 5(a)(iii) hereof
or, failing such mutual agreement, on the third business day following such
receipt.
7. No Competing Discussions. None of the Shaker Stockholders, Muller
Stockholders or Westwood Stockholders shall, or shall permit, respectively, any
Shaker Company, Muller Company or Westwood to, directly or indirectly, solicit,
initiate or engage in any discussions with any person (other than Hometown)
relating to the sale of the stock or substantially all the assets or all or any
part of the business of any such Corporation.
8. Miscellaneous
(a) This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted assigns.
(b) This Agreement (including the documents referred to herein)
constitutes the entire agreement among the parties with respect to the matters
set forth herein, and supersedes any prior understandings, agreements, or
representations by or among the parties, written or oral, that may have related
in any way to the subject matter hereof.
(c) 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, her or its rights,
interests, or obligations hereunder without the prior written approval of the
other parties hereto.
(d) 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.
(e) A facsimile, telecopy or other reproduction of this Agreement may be
executed by one or more parties hereto, and an executed copy of this Agreement
may be delivered by one or more parties hereto by facsimile or similar
instantaneous electronic transmission device pursuant to which the signature of
or on behalf of such party can be seen, and such execution and delivery shall be
considered valid, binding and effective for all purposes. At the request of any
party hereto, all parties hereto agree to execute an original of this Agreement
as well as any facsimile, telecopy or other reproduction hereof.
(f) 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.
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(g) 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 at the
address set forth following the name of such person in the preamble of this
Agreement. Any party may give any notice, request, demand, claim or other
communication hereunder 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 individual and/or entity for whom it is intended.
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) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Connecticut.
(i) No Amendment of any provisions of this Agreement shall be valid unless
the same shall be in writing and signed by the parties hereto. 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.
[balance of this page intentionally left blank]
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(j) Each party 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 party hereto hereby 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
HOMETOWN AUTO RETAILERS, INC.
By: /s/ Stephen A. Zelnick
-------------------------------------
Name: Stephen A. Zelnick
Title: Vice President
Shaker Stockholders
/s/ Joseph Shaker
-------------------------------------------
Joseph Shaker
/s/ Steven Shaker
-------------------------------------------
Steven Shaker
/s/ Edward D. Shaker
-------------------------------------------
Edward D. Shaker
Edward Shaker Voting Trust
By: /s/ Corey Shaker
----------------------------------------
Corey Shaker, Authorized Trustee
/s/ Richard Shaker
-------------------------------------------
Richard Shaker
----------------------------------------
Richard Shaker Voting Trust
By: /s/ Joseph Shaker
-------------------------------------
Joseph Shaker, Authorized Trustee
/s/ Sadie Nejaime
-------------------------------------------
Sadie Nejaime
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/s/ Corey Shaker
-------------------------------------------
Corey Shaker
/s/ Janet Shaker
-------------------------------------------
Janet Shaker
/s/ Edward Shaker
-------------------------------------------
Edward Shaker
/s/ Paul Shaker
-------------------------------------------
Paul Shaker
/s/ Rose Shaker
-------------------------------------------
Rose Shaker
Muller Stockholders
-------------------------------------------
William Muller Sr.
-------------------------------------------
William Muller Jr.
-------------------------------------------
James Christ
Westwood Stockholders
-------------------------------------------
Salvatore A. Vergopia
-------------------------------------------
Edward A. Vergopia
-------------------------------------------
Janet Vergopia
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-------------------------------------------
Corey Shaker
-------------------------------------------
Janet Shaker
-------------------------------------------
Edward Shaker
-------------------------------------------
Paul Shaker
-------------------------------------------
Rose Shaker
Muller Stockholders
/s/ William Muller Sr.
-------------------------------------------
William Muller Sr.
/s/ William Muller Jr.
-------------------------------------------
William Muller Jr.
/s/ James Christ
-------------------------------------------
James Christ
Westwood Stockholders
-------------------------------------------
Salvatore A. Vergopia
-------------------------------------------
Edward A. Vergopia
-------------------------------------------
Janet Vergopia
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-------------------------------------------
Corey Shaker
-------------------------------------------
Janet Shaker
-------------------------------------------
Edward Shaker
-------------------------------------------
Paul Shaker
-------------------------------------------
Rose Shaker
Muller Stockholders
-------------------------------------------
William Muller Sr.
-------------------------------------------
William Muller Jr.
-------------------------------------------
James Christ
Westwood Stockholders
/s/ Salvatore A. Vergopia
-------------------------------------------
Salvatore A. Vergopia
/s/ Edward A. Vergopia
-------------------------------------------
Edward A. Vergopia
/s/ Janet Vergopia
-------------------------------------------
Janet Vergopia
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EXHIBIT A-1
Disclosure Statement Relating to the Shaker Stockholders and the Shaker
Companies
o Name and address of every Shaker Stockholder (Introductory Paragraph; Section
3(a); Section 3(a)(iii)):
The following are all the stockholders in ERR Enterprises, Inc., the parent of
all Shaker Companies. There are two classes of Common Stock: Class A Voting and
Class B Non-Voting.
Joseph Shaker 600 shares Class A and 2,177 shares Class B
107 Doral Lane
Southington, CT 06489
Steven Shaker 600 shares Class A and 2,175 shares Class B
593 Thomaston Road
Watertown, CT 06795
Edward D. Shaker 600 shares Class A and 2,176 shares Class B
593 Thomaston Road
Watertown, CT 06795
Edward Shaker Voting Trust 214 shares Class A
210 Munson Road
Middlebury, CT 06762
Richard Shaker 2,356 shares Class A
172 Bateswood Road
Waterbury, CT 06706
Richard Shaker Voting Trust 214 shares Class A
172 Bateswood Road
Waterbury, CT 06706
Sadie Shaker Nejaime 200 shares Class A and 2,175 shares Class B
45 Mandalay Road
Lee, MA 02138
Corey Shaker 3,347 shares Class B
1280 Main Street North
Woodbury, CT 06798
Janet Shaker 3,060 shares Class B
228 Harwood Road
Waterbury, CT 06706
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EXHIBIT A-1
Disclosure Statement Relating to the Shaker Stockholders and the Shaker
Companies
(Page 2)
o Name and address of every Shaker Stockholders (cont'd)
Edward Shaker 2,356 shares Class A
210 Munson Road
Middlebury, CT 06762
Paul Shaker 2,935 shares Class B
210 Munson Road
Middlebury, CT 06762
Rose Shaker 78 shares Class A
121 Harwood Road
Waterbury, CT 06706
o Capitalization of ERR Corp. (Section 3(a)(iii))
Class A Common Stock: no par voting shares
- authorized: 10,000 shares
- outstanding: 7,218 shares
Class B Common Stock: no par non-voting shares
- authorized: 20,000 shares
- outstanding: 18,045 shares
o Name of Every Shaker Subsidiary (Section 3(a)(iv))
Shaker's Inc.
Family Ford, Inc.
Family Rental, Incorporated
Shaker's Lincoln-Mercury Autocare, Inc.
- wholly-owned subsidiary of Shaker's, Inc.
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EXHIBIT A-1
Disclosure Statement Relating to the Shaker Stockholders and the Shaker
Companies
(Page 3)
o Summary of Shaker Employee Plans (Section 3(a)(xvii))
ERR Corp. -- 401(k) Profit Sharing Plan;
- Eligibility: age 21 and 12 months of service;
- Elective Salary Reduction Contribution: Up to 15%;
- Optional match by ERR Corp.;
- Vesting in Employer contributions: 20% per year starting with fourth
year.
ERR Corp. does not have any other non-health related Employee Plans and none of
the other Shaker Companies have any Employee Plans.
o Minimum cash and cash equivalents, working capital and net worth required to
be available to Hometown with respect to Shaker Companies (Section 3(a)(xix) and
4(e)):
- ERR Corp. (consolidated)
cash and cash equivalents: $ 950,000
working capital: $ 2,250,000
net worth: $ 2,750,000
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EXHIBIT A-2
Disclosure Statement Relating to the Muller Stockholders and the Muller
Companies
o Name and address of every Muller Stockholder (Introductory Paragraph; Section
3(b); Section 3(b)(iii))
OldChev MullerToy MullerChev
--------- ----------
William Muller Jr. 190 50 37.5
20 Schick Road
Milford, NJ 08848
William Muller Sr. --- 40 37.5
630 N. Broadway
Yonkers, NY 10701
James Christ --- 10 ---
8 Bankers Drive
Washington Crossing,
PA 18977
o Capitalization of every Muller Company (Section 3(b)(iii))
OldChev
Common Stock: no par value
authorized: 1,000 shares
outstanding: 190 shares
Muller Chevrolet, Inc.
Common Stock: no par value
authorized: 75 shares
outstanding: 75 shares
Automotive Group Inc.
Common Stock: no par value
authorized: 100 shares
outstanding: 100 shares
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Disclosure Statement Relating to the Muller Stockholders and the Muller
Companies
(Page 2)
o Summary of Muller Employee Plans (Section 3(b)(xvi))
- only "cafeteria" health plan offered
o Minimum cash and cash equivalents, working capital and net worth required to
be available to Hometown with respect to Muller Companies (Section 3(b)(xviii)
and 4(e)):
- Muller (consolidated)
cash and cash equivalents: $ 800,000
working capital: $1,900,000
net worth: $2,300,000
27
<PAGE>
EXHIBIT A-3
Disclosure Statement Relating to the Westwood Stockholders and Westwood
o Name and address of the Westwood Stockholders (Introductory Paragraph; Section
3(c); Section 3(c)(iii))
Westwood LimWest
-------- -------
Salvatore A. Vergopia 51 shares 51 shares
20 Bayberry Drive
Saddle River, NJ 07458
Janet Vergopia 24 shares 24 shares
20 Bayberry Drive
Saddle River, NJ 07458
Edward A. Vergopia 25 shares 25 shares
100 Winston Drive
North Tower
Cliffside Park, NJ 07010
o Capitalization of Westwood Lincoln-Mercury Sales, Inc. (Section 3(c)(iii)):
Common Stock: no par value
authorized: 1,000 shares
issued: 100 shares
28
<PAGE>
EXHIBIT A-3
Disclosure Statement Relating to the Westwood Stockholders and Westwood
(Page 2)
o Summary of Westwood Employee Plans (Section 3(c)(xvi))
ss.401(k) Plan
- -Created as of March 12, 1997
Trustee: Robert C. Grieve
Investments: Hancock Funds
Eligibility: six months of service
Employer Contribution: discretionary; for Plan Year ending December 31, 1997,
matching contribution of 25% of the first 5% contributed by employee
Employee Contribution: percentage of compensation not exceeding, for 1997,
$9,500
Vesting: 20% per year, cumulatively, from years 3 through 7; except 100% vested
in contributed salary reductions and upon Normal Retirement Age (65)
Other than health benefit plans, the above described 401(k) plan is the only
Westwood Employee Plan.
o Minimum cash and cash equivalents, working capital and net worth of Westwood
required to be available to Hometown (Section 3(c)(xviii) and 4(e)):
cash and cash equivalents: $ 575,000
working capital: $1,750,000
net worth: $2,150,000
29
<PAGE>
EXHIBIT B
Permissible Pre-Closing Dividends
(Pursuant to Section 4(b))
None of the Shaker Companies, Muller Companies or Westwood shall declare or pay
a dividend which will reduce its cash and cash equivalents, working capital and
net worth below the limits specified in Exhibits A-1, A-2 and A-3, respectively.
30
<PAGE>
EXHIBIT C
Individualized Terms of Respective Employment Agreements
(Pursuant to Section 5(a)(iv) and 5(b)(iv))
o Salvatore A. Vergopia
- - Title: Chairman and Chief Executive Officer and Director
- - Salary: $200,000
o Joseph Shaker
- - Title: President and Chief Operating Officer and Director
- - Salary: $200,000
o William C. Muller Jr.
- - Title: Vice President - New Jersey Operations and Director
- - Salary: $200,000
o Corey Shaker
- - Title: Vice President - Connecticut Operations and Director
- - Salary: $200,000
o Edward A. Vergopia
- - Title: Vice President - Fleet Operations and Director
- - Salary: $200,000
o James Christ
- - Title: Vice President - General Manager - Muller Toyota and
Director
- - Salary: $150,000 and Bonus equal to 5% of pre-tax profits
of Muller Toyota
o Steven Shaker
- - Title: Vice President - Parts and Servicing
- - Salary: $100,000
31
<PAGE>
EXHIBIT D
Terms of Respective Lease Agreements
(Pursuant to Section 5(a)(v)
The leases between any of: (A) the Shaker Stockholders and any Shaker Company,
(B) the Muller Stockholders and any Muller Company, and (C) the Westwood
Stockholders and Westwood applicable to the premises occupied by each Shaker
Company, Muller Company and Westwood Company shall, in each instance, be amended
to provide for the following lease terms:
Term: 15 years
Rental: triple net (except Landlord responsible for environmental problems)
Annual Rent (subject, in each instance to CPI increases in 2003 and 2007)
Shaker Stockholder Leases:
- - Shaker's Lincoln Mercury, Inc. $240,000
- - Family Ford, Inc. $240,000
- - Shaker's Jeep/Eagle $ 72,000
Muller Stockholder Leases:
- - Muller Toyota $324,000
- - Muller Chevrolet, Oldsmobile,
Isuzu, Inc. $360,000
Westwood Stockholder Leases:
- - Westwood Lincoln Mercury $360,000
32
HOMETOWN AUTO RETAILERS, INC.
c/o MORSE, ZELNICK, ROSE & LANDER, LLP
450 Park Avenue
New York, NY 10022
July 2, 1997
Brattleboro Chrysler Plymouth Dodge, Inc.
P.O. Box 8068
North Brattleboro, VT 05304
Attention: Philip Price, President
Gentlemen:
This will set forth the agreement under which Dealerco, Inc.,
("Purchaser") will purchase, or obtain rights to use, substantially all of the
business and assets owned or used by Brattleboro Chrysler Plymouth Dodge, Inc.
("Seller") in the conduct of its business (the "Business"), other than cash,
receivables and inventories of used vehicles (the "Acquired Assets").
1. The Acquired Assets shall include, without limitation, (a) all
equipment, tools, supplies, inventories, (except used vehicles), software,
manuals, product brochures, business methods and procedures, trade names,
vehicle franchises and furniture and fixtures, (b) the customer list of the
Business, and (c) all of Seller's rights under contracts wherein Seller has
agreed to provide to any third party products or services or under which any
third party provides products, services, financing or equipment to Seller,
including each vehicle manufacturer whose new vehicles were sold or leased by
Seller and any existing equipment leases (the "Assumed Contracts").
2. The purchase price for the Acquired Assets, payable at Closing, shall
be $2.6 million, including $100,000 for fixtures, equipment and acquired
inventories, other than the parts inventory, plus an amount equal to the
manufacturer's current catalog price for the parts inventory, excluding any
parts which are obsolete, damaged or not usable in the ordinary course of
business within 12 months.
3. The Purchaser shall assume all liabilities and obligations of Seller
under the Assumed Contracts arising from and after the closing of the
transaction contemplated hereby (the "Closing") including Seller's obligations
under its "floor planning" finance agreements with respect to all new vehicles
in inventory at the Closing and Seller shall assign to Purchaser all refunds or
rebates from the manufacturers with respect to such vehicles. Purchaser may
elect to assume any unpaid liabilities prior to the closing and adjust same
against the purchase price payable at Closing. Purchaser shall also assume all
continuing obligations of Seller to those employees of the business hired by
purchaser; provided that all compensation, fees or commissions, the cost of any
applicable employee benefit plans and accrued sick leave and vacation pay shall
be adjusted at Closing.
<PAGE>
4. Thomas E. Cosenzi ("Cosenzi") shall, at or prior to the Closing, enter
into an employment agreement with Purchaser at an annual base salary of $150,000
plus a bonus payable monthly, equal to 5% of the income before income taxes of
the Business and any other business managed by Cosenzi during the term thereof
up to $800,000 and 10% of the pre-tax income in excess of $800,000. It shall
provide that he shall be permitted to provide services to certain specified
dealerships so long as such other services do not prevent him from meeting his
responsibilities as executive in charge of the Business and such other
dealerships for which he accepts responsibility. The employment term shall
commence on Closing and end on the fifth anniversary thereof. The employment
agreement shall also provide that Cosenzi will be granted an incentive stock
option to purchase such number of Purchaser's Common Shares as have an aggregate
value of $500,000, at the per share initial public offering price (the "IPO
Price"). The per share option exercised price will be the IPO price. The option
will be exercisable during a six-year term, but will be first exercisable for
not more than 1/5 of the covered shares at the end of each year. However, the
option will become exercisable in full on any breach by Purchaser of the
employment agreement or failure of the Purchaser to continue to offer employment
to Cosenzi following the expiration of the employment term, except in case of
termination of the employment agreement by Purchaser for cause.
5. The employment agreement shall provide for appropriate non-competition
covenants from Cosenzi for the longer of five years from the closing or one year
from the expiration of the employment term; provided that Cosenzi will not be
restricted from continuing present permitted employment arrangements at other
specified dealerships.
6. Purchaser and the landlord (an entity controlled by Seller's
Shareholders) will enter into a new lease for a five-year term commencing on the
Closing, at a monthly rental of $20,000. The lease will provide that purchaser
shall have a renewal option for an additional five-year term at the same rental
and an option to purchase the premises, at any time, for cash, at the then fair
market value of the property as determined through independent appraisals but
not less than $1.5 million, all as specified in the lease. The lease shall be a
triple net lease and shall provide that Purchaser shall bear all ordinary and
necessary repair and maintenance expenses and all taxes on the premises, except
that structural repairs, capital additions and replacement of the roof if
required, shall remain the responsibility of the landlord.
7. Seller and its Shareholders (who have signed this agreement at the foot
hereof) represent and warrant that Seller at the date hereof and at the Closing
(i) has duly authorized the transaction contemplated hereby; (ii) operates its
business, uses its assets and occupies its properties in compliance with all
material applicable laws, ordinances, rules or regulations, and that Seller has
received no notice of violation of any of the foregoing; (iii) has obtained all
necessary licenses and permits, which will be available to Purchaser upon the
consummation of the transaction; (iv) has filed all required federal and state
income tax returns and that there is no material liability for past income taxes
and (v) has delivered to Purchaser unaudited financial statements for the years
ended December 31, 1995 and 1996 and the four months ended April 30, 1997 which
fairly present the results of operation and the financial position of Seller as
at and for the periods therein presented in accordance with generally accepted
accounting principles, consistently applied. The representations and warranties
contained herein shall survive the Closing.
8. The obligations of each party at Closing are subject to (a) the closing
of an initial public offering (the "IPO") by Purchaser (b) the receipt of all
third party consents required to transfer assets, assign leases or otherwise
consummate the transaction, including consents from each manufacturer
2
<PAGE>
whose vehicles are being offered for sale or lease by Seller now or at the
Closing and (c) the performance by the other party of all obligations to be
performed at or prior to Closing. Each of us will use our best efforts to obtain
all material third-party consents
The obligations of Purchaser are also subject to (a) a review of Seller's
business and prospects confirming that there has been no material adverse change
to Seller's business or business prospects. (b) the execution by Cosenzi of the
employment agreement and the landlord of the lease for the Business' premises
contemplated hereby; (c) a review of audited financial statements for Seller
showing income before income taxes for l996 of at least $1.5 million, after
adjustment to add back any salary or bonuses to Cosenzi exceeding $300,000 and
(d) compliance with bulk sales laws or other assurance that Purchaser has no
liability for Seller's obligations other than those specifically assumed
hereunder.
9. The Closing shall be held simultaneously with the closing of the IPO.
Pending the Closing the business of Seller shall be operated only in the
ordinary course and Seller shall make or enter into no extraordinary
transactions nor dispose of any material assets, except as contemplated herein
or take any other steps that are not in the ordinary course of business and
consistent with past practices without the advance written approval of
Purchaser. At its option either party may terminate this agreement if the
Closing has not occurred by December 31, l997.
10. Until Closing the Seller and Purchaser will make available to the
other all information which may be reasonably requested in connection with the
transaction.
11. Until Closing Seller will not, directly or indirectly, solicit,
initiate or engage in any discussions with any person (other than the Purchaser)
relating to the sale of all or any part of the Business.
12. Each of the parties shall be responsible for its own counsel,
accounting and professional fees and expenses incurred in connection with this
agreement and the transactions contemplated hereby, except that the costs of
preparing audited financial statements for Seller, as required under the rules
of the Securities and Exchange Commission, shall be borne by Purchaser. Seller
and its Shareholder shall cooperate with Purchaser and its auditors in the
preparation of such financial statements.
13. At its option Purchaser may purchase the Acquired Assets through a
wholly-owned subsidiary and may effect the transaction through the merger of
Seller into such subsidiary following the transfer of all assets not included in
the Acquired Assets. If a subsidiary is used, then all of its obligations are
hereby guaranteed by Purchaser.
Hometown Auto Retailers, Inc.
by: /s/ Joseph Lauria, Vice President
-------------------------------------
Joseph Lauria, Vice President
Accepted and agreed to
this 2nd day of July, 1997
Brattleboro Chrysler Plymouth Dodge, Inc.
by:
---------------------------------------
Philip Price, President
3
<PAGE>
whose vehicles are being offered for sale or lease by Seller now or at the
Closing and (c) the performance by the other party of all obligations to be
performed at or prior to Closing. Each of us will use our best efforts to obtain
all material third-party consents
The obligations of Purchaser are also subject to (a) a review of Seller's
business and prospects confirming that there has been no material adverse change
to Seller's business or business prospects. (b) the execution by Cosenzi of the
employment agreement and the landlord of the lease for the Business' premises
contemplated hereby; (c) a review of audited financial statements for Seller
showing income before income taxes for l996 of at least $1.5 million, after
adjustment to add back any salary or bonuses to Cosenzi exceeding $300,000 and
(d) compliance with bulk sales laws or other assurance that Purchaser has no
liability for Seller's obligations other than those specifically assumed
hereunder.
9. The Closing shall be held simultaneously with the closing of the IPO.
Pending the Closing the business of Seller shall be operated only in the
ordinary course and Seller shall make or enter into no extraordinary
transactions nor dispose of any material assets, except as contemplated herein
or take any other steps that are not in the ordinary course of business and
consistent with past practices without the advance written approval of
Purchaser. At its option either party may terminate this agreement if the
Closing has not occurred by December 31, l997.
10. Until Closing the Seller and Purchaser will make available to the
other all information which may be reasonably requested in connection with the
transaction.
11. Until Closing Seller will not, directly or indirectly, solicit,
initiate or engage in any discussions with any person (other than the Purchaser)
relating to the sale of all or any part of the Business.
12. Each of the parties shall be responsible for its own counsel,
accounting and professional fees and expenses incurred in connection with this
agreement and the transactions contemplated hereby, except that the costs of
preparing audited financial statements for Seller, as required under the rules
of the Securities and Exchange Commission, shall be borne by Purchaser. Seller
and its Shareholder shall cooperate with Purchaser and its auditors in the
preparation of such financial statements.
13. At its option Purchaser may purchase the Acquired Assets through a
wholly-owned subsidiary and may effect the transaction through the merger of
Seller into such subsidiary following the transfer of all assets not included in
the Acquired Assets. If a subsidiary is used, then all of its obligations are
hereby guaranteed by Purchaser.
Hometown Auto Retailers, Inc.
by:
-------------------------------------
Accepted and agreed to
this 2nd day of July, 1997
Brattleboro Chrysler Plymouth Dodge, Inc.
by: /s/ Philip Price
---------------------------------------
Philip Price, President
3
<PAGE>
Hometown Auto Retailers, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, N.Y. 10022
(212) 838-1177
November 11, 1997
Brattleboro Chrysler Plymouth Dodge, Inc.
P.O. Box 8068
North Brattleboro, VT 05304
Attention: Philip Price, President
Gentlemen:
Hometown Auto Retailers, Inc. ("Purchaser") is party to an acquisition
agreement with Brattleboro Chrysler Plymouth Dodge, Inc. ("Seller") dated July
2, 1997 (the "Agreement"). Except as otherwise herein provided, the terms herein
shall be defined as under the Agreement.
The Agreement is hereby amended as follows:
The last sentence of Section 9 of the Agreement is modified by deleting
the date "December 31, 1997" and substituting in its place "May 31, 1998".
The Agreement, as modified by this amendment, is hereby ratified and
reaffirmed.
Very truly yours,
Hometown Auto Retailers, Inc.
by: /s/ Stephen A. Zelnick
-----------------------------
Stephen A. Zelnick
Vice President
Accepted and Agreed to this
11th day of November, 1997
Brattleboro Chrysler Plymouth Dodge, Inc.
by: /s/ Philip Price
-----------------------------
Philip Price, President
Shareholders Consent:
/s/ Philip Price
- ---------------------------------
Philip Price
<PAGE>
SHAREHOLDER CONSENT
Philip Price, being the holder of all of Seller's outstanding shares,
hereby consents to the transaction with Purchaser provided for herein and joins
in the representation and warranties set forth in Section 7 above.
/s/ Philip Price
- ----------------------------------------
Philip Price
4
<PAGE>
Hometown Auto Retailers, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, N.Y. 10022
(212) 838-1177
April 14, 1998
Brattleboro Chrysler Plymouth Dodge, Inc.
P.O. Box 8068
North Brattleboro, VT 05304
Attention: Philip Price, President
Gentlemen:
Hometown Auto Retailers, Inc. ("Purchaser") is party to an acquisition
agreement with Brattleboro Chrysler Plymouth Dodge, Inc. ("Seller") dated July
2, 1997 (the "Agreement"). By an amendment dated November 11, 1997, the last
sentence of Section 9 of the Agreement was modified by deleting the date
"December 31, 1997" and substituting in its place "May 31, 1998".
Except as otherwise herein provided, the terms herein shall be defined as under
the Agreement.
The Agreement is hereby amended as follows:
The last sentence of Section 9 of the Agreement is modified by deleting
the date "May 31, 1998" and substituting in its place "July 31, 1998".
The Agreement, as modified by this amendment, is hereby ratified and
reaffirmed.
Very truly yours,
Hometown Auto Retailers, Inc.
by:
--------------------------
Stephen A. Zelnick
Vice President
Accepted and Agreed to this
14th day of April, 1998
Brattleboro Chrysler Plymouth Dodge, Inc.
by:
--------------------------------
Philip Price, President
Shareholders Consent:
--------------------------------
Philip Price
HOMETOWN AUTO RETAILERS, INC.
c/o MORSE, ZELNICK, ROSE & LANDER, LLP
450 Park Avenue
New York, NY 10022
August 14,1997
Bay State Lincoln Mercury
571 Worcester Road
Framingham, MA 01701
Attention: James Langway, President
Gentlemen:
This will set forth the agreement under which Hometown Auto Retailers,
Inc., ("Purchaser") will purchase, or obtain rights to use, substantially all of
the business and assets owned or used by Leominster Lincoln Mercury, Inc.
("Seller") in the conduct of its dealership business (the "Business"), other
than cash, receivables and inventories of used vehicles (the "Acquired Assets").
1. The Acquired Assets shall include, without limitation, (a) all
equipment, tools, signage, supplies, inventories, (except used vehicles),
software, manuals, product brochures, business methods and procedures, trade
names, vehicle franchises and furniture and fixtures, (b) the customer list of
the Business, and (c) all of Seller's rights under contracts wherein Seller has
agreed to provide to any third party products or services or under which any
third party provides products, services, financing or equipment to Seller,
including each vehicle manufacturer whose new vehicles are, or at the closing
will be, sold or leased by Seller (the "Assumed Contracts").
2. The purchase price for the Acquired Assets, payable in cash at Closing,
shall be $3.0 million.
3. The Purchaser shall assume all liabilities and obligations of Seller
under the Assumed Contracts arising from and after the closing of the
transaction contemplated hereby (the "Closing") including Seller's obligations
under its "floor planning" finance agreements with respect to all new vehicles
in inventory at the Closing and Seller shall assign to Purchaser all refunds or
rebates from the manufacturers with respect to such vehicles. Purchaser may
elect to assume any unpaid liabilities prior to the closing and adjust same
against the purchase price payable at Closing. Purchaser shall also assume all
continuing obligations of Seller to those employees of the business hired by
purchaser; provided that all compensation, fees or commissions, the cost of any
applicable employee benefit plans and accrued sick leave and vacation pay shall
be adjusted at Closing.
4. Purchaser and the landlord (an entity controlled by Seller's
Shareholders) will enter into a new lease for a five-year term commencing on the
Closing, at a monthly rental of $30,000. The lease will provide that purchaser
shall have two renewal options each for an additional five-year term at a rental
of $35,000 per year. The lease shall also provide that, in the event of a
default by tenant in the payment of rent, not cured for a period of 60 days
after notice from the landlord, landlord shall have
<PAGE>
the right to elect to reacquire the franchise from Purchaser for the sum of
$1.00 in lieu of other remedies and damages provided for in the lease or under
applicable law.
5. Seller and its Shareholders (who have signed this agreement at the foot
hereof) represent and warrant that Seller at the date hereof and at the Closing
(i) has duly authorized the transaction contemplated hereby; (ii) operates its
business, uses its assets and occupies its properties in compliance with all
material applicable laws, ordinances, rules or regulations, and that Seller has
received no notice of violation of any of the foregoing; (iii) has obtained all
necessary licenses and permits, which will be available to Purchaser upon the
consummation of the transaction; (iv) has filed all required federal and state
income tax returns and that there is no material liability for past income taxes
and (v) has delivered to Purchaser unaudited financial statements for the years
ended December 31, and 1996 and the six months ended June 30, 1997 which fairly
present the results of operation and the financial position of Seller as at and
for the periods therein presented in accordance with generally accepted
accounting principles, consistently applied. The representations and warranties
contained herein shall survive the Closing.
6. The obligations of each party at Closing are subject to (a) the closing
of an initial public offering (the "IPO") by Purchaser (b) the receipt of all
third party consents required to transfer assets, assign leases or otherwise
consummate the transaction, including consents from each manufacturer whose
vehicles are being offered for sale or lease by Seller now or at the Closing and
(c) the performance by the other party of all obligations to be performed at or
prior to Closing. Each of us will use our best efforts to obtain all material
third-party consents
The obligations of Purchaser are also subject to (a) a review of Seller's
business and prospects confirming that there has been no material adverse change
to Seller's business or business prospects. (b) the execution by the landlord of
the lease for the Business' premises contemplated hereby; (c) a review of
audited financial statements for Seller showing income before income taxes for
l996 of at least $1.3 million, after adjustment to add back any salary or
bonuses to Langway exceeding $300,000 and (d) compliance with bulk sales laws or
other assurance that Purchaser has no liability for Seller's obligations other
than those specifically assumed hereunder.
7. The Closing shall be held simultaneously with the closing of the IPO.
Pending the Closing the business of Seller shall be operated only in the
ordinary course and Seller shall make or enter into no extraordinary
transactions nor dispose of any material assets, except as contemplated herein
or take any other steps that are not in the ordinary course of business and
consistent with past practices without the advance written approval of
Purchaser. At its option either party may terminate this agreement if the
Closing has not occurred by December 31, l997.
8. Until Closing the Seller and Purchaser will make available to the other
all information which may be reasonably requested in connection with the
transaction.
9. Until Closing Seller will not, directly or indirectly, solicit,
initiate or engage in any discussions with any person (other than the Purchaser)
relating to the sale of all or any part of the Business.
10. Each of the parties shall be responsible for its own counsel,
accounting and professional fees and expenses incurred in connection with this
agreement and the transactions contemplated hereby, except that the costs of
preparing audited financial statements for Seller, as required under the rules
of
2
<PAGE>
the Securities and Exchange Commission, shall be borne by Purchaser. Seller and
its Shareholder shall cooperate with Purchaser and its auditors in the
preparation of such financial statements.
11. At its option Purchaser may purchase the Acquired Assets through a
wholly-owned subsidiary and may effect the transaction through the merger of
such subsidiary with Seller following the transfer of all assets not included in
the Acquired Assets. If a subsidiary is used, then all of its obligations are
hereby guaranteed by Purchaser.
Hometown Auto Retailers, Inc.
by: /s/ Stephen A. Zelnick
--------------------------------------
Stephen A. Zelnick, V.P.
Accepted and agreed to
this 14th day of August, 1997
Bay State Lincoln Mercury, Inc.
by: /s/ James Langway, President
-------------------------------
James Langway, President
3
<PAGE>
SHAREHOLDERS CONSENT
The undersigned,, being the holders of all of Seller's outstanding shares,
hereby consent to the transaction with Purchaser provided for herein and joins
in the representation and warranties set forth in Section 5 above.
/s/ James Langway
-----------------------------
James Langway
/s/ Arthur S. McCarthy
-----------------------------
Arthur S. McCarthy
-----------------------------
4
<PAGE>
Hometown Auto Retailers, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, N.Y. 10022
(212) 838-1177
October 31, 1997
Leominster Lincoln Mercury, Inc.
571 Worcester Road
Framingham, MA 01701
Attention: James Langway, President
Gentlemen:
Hometown Auto Retailers, Inc. ("Purchaser") is party to an acquisition
agreement with Leominster Lincoln Mercury, Inc. ("Seller") dated August 14, 1997
(the "Agreement"). Except as otherwise herein provided, the terms herein shall
be defined as under the Agreement.
The Agreement is hereby amended as follows:
2. The last sentence of Section 7 of the Agreement is modified by deleting
the date "December 31, 1997" and substituting in its place "May 31, 1998".
In consideration hereof, the Purchaser agrees to advance to the Seller the
sum of $50,000 within 10 days after Purchaser receives a copy of this amendment
signed by the Seller
<PAGE>
and Seller's shareholders. This advance will be non-refundable but will be
credited against the purchase price for the Acquired Assets payable at Closing.
The Agreement, as modified by this amendment, is hereby ratified and
reaffirmed.
Very truly yours,
Hometown Auto Retailers, Inc.
By: /s/ Howard L. Morse
-----------------------------
Howard L. Morse,
Vice President
Accepted and Agreed to this
1st day of November, 1997
Leominster Lincoln Mercury, Inc.
By: /s/ James F. Langway Pres.
-------------------------------
James Langway, President
Shareholders Consent:
/s/ James F. Langway
- ----------------------------------
James Langway
/s/ Arthur McCarthy
- ----------------------------------
Arthur McCarthy
2
<PAGE>
Hometown Auto Retailers, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, N.Y. 10022
(212) 838-1177
April 14, 1998
Leominster Lincoln Mercury, Inc.
571 Worcester Road
Framingham, MA 01701
Attention: James Langway, President
Gentlemen:
Hometown Auto Retailers, Inc. ("Purchaser") is party to an acquisition
agreement with Leominster Lincoln Mercury, Inc. ("Seller") dated August 14, 1997
(the "Agreement"). By an amendment dated October 31, 1997, the last sentence of
Section 7 of the Agreement was modified by deleting the date "December 31, 1997"
and substituting in its place "May 31, 1998".
Except as otherwise herein provided, the terms herein shall be defined as
under the Agreement.
The Agreement is hereby amended as follows:
1. The last sentence of Section 7 of the Agreement is modified by
deleting the date "May 31, 1998" and substituting in its place "July 15, 1998".
The Agreement, as modified by this amendment, is hereby ratified and
reaffirmed.
Very truly yours,
Hometown Auto Retailers, Inc.
By: /s/ Stephen A. Zelnick
-----------------------------
Stephen A. Zelnick,
Vice President
Accepted and Agreed to this
27 day of April, 1998
Leominster Lincoln Mercury, Inc.
By: /s/ James F. Langway
------------------------------
James Langway, President
Shareholders Consent:
/s/ James F. Langway
- ---------------------------------
James Langway
/s/ Arthur McCarthy
- ---------------------------------
Arthur McCarthy
STOCKHOLDERS AGREEMENT
AGREEMENT, dated as of the 16th day of February, 1998, among the Shaker
Stockholders, the Muller Stockholders and the Westwood Stockholders who are
defined and whose names and addresses are set forth on Exhibit A hereto,
collectively, the "Stockholders" and HOMETOWN AUTO RETAILERS, INC. (the
"Company").
WITNESSETH
WHEREAS, the Stockholders, in the aggregate, will own, upon the
consummation of a combination transaction among certain automobile dealerships
controlled by them, all of the outstanding shares of Class B Common Stock (the
"Shares") of the Company (as used herein the term "Shares" shall include all
securities of any kind or class issued with respect to the Shares as a result of
stock dividends, stock splits, mergers, acquisitions, exchanges, liquidating
distributions or other capital changes); and
WHEREAS, the Stockholders seek to provide for the election of directors of
the Company and related management matters.
NOW, THEREFORE, it is agreed as follows:
1. Effective upon the consummation of the proposed public offering of
Class A Common Stock of the Company (the "Closing Date"), the Stockholders
shall, in every instance, unless five of the six Directors (as hereinafter
defined) shall otherwise agree, vote all of their Shares: (a) for the election,
as directors of the Company, of six directors (such directors and their
respective successors pursuant to this Agreement being hereinafter referred to
as the "Directors"), two of whom shall be designated by each of the three
Stockholder groups who are parties hereto; and (b) on all other matters in the
manner determined by a majority (i.e., no less than four) of such Directors. The
initial six Directors designated by each of the respective Stockholder groups
shall be as follows: (x) Shaker Stockholders: Joseph Shaker and Corey Shaker;
(y) Muller Stockholders: William C. Muller Jr. and James Christ; and (z)
Westwood Stockholders: Salvatore A. Vergopia and Edward A. Vergopia. In the
event of the death, incapacity or other inability to serve of any Director, the
Stockholder group which designated such Director shall have the exclusive right
to designate a successor nominee for director. In connection with the foregoing,
each of the Stockholders hereby agrees, on behalf of himself/herself and his/her
heirs, administrators, successors and assigns, that he/she shall execute such
other documents as may be necessary or appropriate to effectuate the elections
of Directors as aforesaid and all actions approved by the Board of Directors. In
the event of the death or legal incompetency of any Stockholder, the term
Stockholder shall thereafter include the executor or administrator of such
Stockholder or, following any distribution of the shares owned by such
Stockholder, the designee of a majority of such shares held by all distributees,
heirs or other persons taking by the laws of descent and distribution and any
remaining shares held by any such executor, administrator or the estate of such
Stockholder.
<PAGE>
2. Each of the Stockholders agrees that he/she will not sell, transfer,
pledge or otherwise dispose of any of his/her Shares unless the transferee
agrees, in a writing satisfactory to counsel for the Company, to be bound by
this Agreement and the voting provisions hereunder, provided, however, that
these provisions shall not apply to a public sale on a stock exchange or in the
over-the-counter market pursuant to an exemption from registration under the
Securities Act of 1933, as amended, or a sale pursuant to an effective
registration statement under such Act.
3. This Agreement shall be for a term of five (5) years commencing on the
date hereof.
4. To facilitate the enforcement of the voting provisions hereof, each of
the Stockholders does, by this Agreement, hereby appoint the person then holding
the office of Secretary of the Company or his/her designee, with full power of
substitution, the attorney and proxy of such Stockholder to attend all meetings
of the Stockholders of the Company and to sign all consents of Stockholders of
the Company and to vote his/her Stock in accordance with the provisions hereof.
In addition, each of the Stockholders does hereby bind his/her heirs,
administrators, successors and assigns to be bound by this proxy and, if
necessary, to execute a counterpart of this Agreement. THIS PROXY SHALL BE
IRREVOCABLE FOR THE TERM OF THIS AGREEMENT.
5. In the event of the death or incompetency of any of the Stockholders,
this Agreement shall be binding upon his executors or other administrators and
upon all persons who succeed to his shares by will or the laws of intestate
successors; provided however, that such persons shall be allowed to act under
this Agreement only by a vote of a majority of the shares held by such group and
only after all of the members of such group have executed a document
satisfactory to the Company and its counsel agreeing to be bound by the
provisions hereof.
6. All of the Stockholders who are or who may hereafter become parties to
this Agreement shall submit their stock certificates to the Company which shall
imprint, or cause to have imprinted, thereon the following legend:
"The shares of stock represented by this certificate are
subject to certain restrictions and obligations set forth in an
Agreement dated as of the 16th day of February, 1998 between the
Company, the Registered Holder of this certificate and certain other
stockholders of the Company. Such shares may be voted only as
authorized pursuant to an irrevocable proxy which has been granted
pursuant to and subject to the terms of the Agreement and may be
transferred only as authorized pursuant to such Agreement. A copy of
the Agreement is on file in the office of the Secretary of the
Company.
2
<PAGE>
7. Each party hereto, on behalf of himself/herself and his/her heirs,
administrators, successors and assigns, agrees to provide notice of any death or
incapacity of a Director, any successor designee for director, and any
Stockholder.
8. This Agreement shall be governed by the General Corporation Law of the
State of Delaware and shall be construed under New York Law.
9. Notices shall be sent, delivery prepaid, by certified mail, return
receipt requested, or by overnight courier to the addresses set forth under each
signature line unless any signatory or successor to a signatory shall provide a
different address to every party hereto by notice similarly served.
10. This Agreement cannot be changed, modified or terminated except in
writing signed by the parties hereto.
11. This Agreement shall be binding upon the parties hereto and their
heirs, successors and assigns.
IN WITNESS WHEREOF, this Agreement has been signed as of the date first
above written.
HOMETOWN AUTO RETAILERS, INC.
By:
-----------------------------------
Name:
Title:
Shaker Stockholders
--------------------------------------
Joseph Shaker
107 Doral Lane
Southington, CT 06489
---------------------------------------
Steven Shaker
593 Thomaston Road
Watertown, CT 06795
----------------------------------------
Edward D. Shaker
593 Thomaston Road
Watertown, CT 06795
3
<PAGE>
Edward Shaker Voting Trust
210 Munson Road
Middlebury, CT 06762
By:
-------------------------------------
Corey Shaker, Authorized Trustee
1280 Main Street North
Woodbury, CT 06798
----------------------------------------
Richard Shaker
172 Bateswood Road
Waterbury, CT 06706
----------------------------------------
Richard Shaker Voting Trust
172 Bateswood Road
Waterbury, CT 06762
By:
-------------------------------------
Joseph Shaker, Authorized Trustee
Sadie Nejaime
45 Mandalay Road
Lee, MA 02138
----------------------------------------
Corey Shaker
1280 Main Street North
Woodbury, CT 06706
----------------------------------------
Janet Shaker
228 Harwood Road
Waterbury, CT 06706
----------------------------------------
Edward Shaker
210 Munson Road
Middlebury, CT 06762
----------------------------------------
Paul Shaker
210 Munson Road
Middlebury, CT 06762
4
<PAGE>
----------------------------------------
Rose Shaker
121 Harwood Road
Waterbury, CT 06706
Muller Stockholders
--------------------------------------
William C. Muller Sr.
630 N. Broadway
Yonkers, NY 10701
---------------------------------------
William C. Muller Jr.
20 Schick Road
Milford, NJ 08848
----------------------------------------
James Christ
8 Bankers Drive
Washington Crossing, PA 18977
Westwood Stockholders
--------------------------------------
Salvatore A. Vergopia
20 Bayberry Drive
Saddle River, NJ 07468
--------------------------------------
Edward A. Vergopia
100 Winston Drive
North Tower
Cliffside Park, NJ 07010
---------------------------------------
Janet Vergopia
20 Bayberry Drive
Saddle River, NJ 07468
5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
SALVATORE A. VERGOPIA ("Executive"), residing at 20 Bayberry Drive, Saddle
River, New Jersey 07458.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Chairman of the Board and Chief
Executive Officer of the Company during the Employment Period. The Executive
shall
<PAGE>
report to and be subject to the direction of the Board of Directors of the
Company (the "Board") and shall render such executive and administrative
services as the Board may from time to time assign to him, provided they are
consistent with his status as Chairman of the Board and Chief Executive Officer.
During the Employment Period, the Executive shall devote his full time, energy,
skill and attention to the businesses of the Company and shall perform his
duties in a diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$200,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 3,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
Salvatore A. Vergopia
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
JOSEPH SHAKER ("Executive"), residing at 107 Doral Lane, Southington, CT 06489.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as President and Chief Operating
Officer of the Company during the Employment Period. The Executive shall report
to and be
<PAGE>
subject to the direction of the Board of Directors of the Company (the "Board")
and shall render such executive and administrative services as the Board may
from time to time assign to him, provided they are consistent with his status as
President and Chief Operating Officer. During the Employment Period, the
Executive shall devote his full time, energy, skill and attention to the
businesses of the Company and shall perform his duties in a diligent,
trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$200,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 36,500 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
----------------------------------
Salvatore A. Vergopia
Chairman of the Board and
Chief Executive Officer
-------------------------------------
Joseph Shaker
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
WILLIAM C. MULLER JR. ("Executive"), residing at 20 Schick Road, Milford, NJ
08848.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--New Jersey
Operations of the Company during the Employment Period. The Executive shall
report to and be
<PAGE>
subject to the direction of the President and Chief Operating Officer of the
Company and shall render such executive and administrative services as the Board
may from time to time assign to him, provided they are consistent with his
status as Vice President--New Jersey Operations. During the Employment Period,
the Executive shall devote his full time, energy, skill and attention to the
businesses of the Company and shall perform his duties in a diligent,
trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$200,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 20,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
William C. Muller Jr.
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
COREY SHAKER ("Executive"), residing at 1280 Main Street North, Woodbury, CT
06798.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--Connecticut
Operations of the Company during the Employment Period. The Executive shall
report to and be
<PAGE>
subject to the direction of the Chief Operating Officer of the Company and shall
render such executive and administrative services as the Board of Directors of
the Company may from time to time assign to him, provided they are consistent
with his status as Vice President--Connecticut Operations. During the Employment
Period, the Executive shall devote his full time, energy, skill and attention to
the businesses of the Company and shall perform his duties in a diligent,
trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$200,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 36,500 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
Corey Shaker
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
EDWARD A. VERGOPIA ("Executive"), residing at 100 Winston Drive, North Tower,
Cliffside Park, NJ 07010.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--Fleet Operations
of the Company during the Employment Period. The Executive shall report to and
be subject to
<PAGE>
the direction of the President and Chief Operating Officer of the Company and
shall render such executive and administrative services as the Board of
Directors of the Company may from time to time assign to him, provided they are
consistent with his status as Vice President--Fleet Operations. During the
Employment Period, the Executive shall devote his full time, energy, skill and
attention to the businesses of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$200,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 37,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
Edward A. Vergopia
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
JAMES CHRIST ("Executive"), residing at 8 Bankers Drive, Washington Crossing, PA
18977.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--General
Manager--Muller Toyota during the Employment Period. The Executive shall report
to and be subject to the direction of the President and Chief Operating Officer
of the Company and
<PAGE>
shall render such executive and administrative services as the Board of
Directors of the Company may from time to time assign to him, provided they are
consistent with his status as Vice President--General Manager--Muller Toyota.
During the Employment Period, the Executive shall devote his full time, energy,
skill and attention to the businesses of the Company and shall perform his
duties in a diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$150,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, plus a bonus equal to 5% of the pre-tax
profits of Muller Toyota, as determined by the Company's Chief Financial Officer
prior to giving effect to such bonus, less, in each instance, applicable
withholding for income and employment taxes as required by law and other
deductions as to which the Executive shall agree. Such base compensation shall
be subject to increases as and when determined by the Board in its sole
discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 20,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
James Christ
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
MATTHEW J. VISCONTI JR. ("Executive"), residing at 657 Daniel Court, Wyckoff, NJ
07481.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--Mergers and
Acquisitions of the Company during the Employment Period. The Executive shall
report
<PAGE>
to and be subject to the direction of the President and Chief Operating Officer
of the Company and shall render such executive and administrative services as
the Board of Directors may from time to time assign to him, provided they are
consistent with his status as Vice President--Mergers and Acquisitions. During
the Employment Period, the Executive shall devote his full time, energy, skill
and attention to the businesses of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$150,000 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
2
<PAGE>
(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 14,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
3
<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
4
<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
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<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
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from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
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14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
Matthew J. Visconti Jr.
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 20th day of April, 1998 between
HOMETOWN AUTO RETAILERS, INC., a Delaware corporation (the "Company"), with its
principal place of business at 831 Straits Turnpike, Watertown, CT 06795 and
STEVEN SHAKER ("Executive"), residing at 593 Thomaston Road, Watertown, CT
06795.
1. Term.
(a) Subject to the terms and conditions hereof, the term of employment of
the Executive under this Agreement shall be for the five year period (the
"Employment Period") commencing (the "Commencement Date") on the closing date of
the initial public offering of the Common Stock of the Company (the "Offering")
and expiring on the fifth anniversary thereof, unless sooner terminated as
provided in any of Sections 5, 6 or 7 hereof (the "Termination Date").
(b) The parties agree to use their reasonable best efforts to commence
discussions beginning on the fourth anniversary of the Commencement Date with
respect to the status of the Executive's employment after the Termination Date.
2. Duties and Responsibilities. The Company shall employ the Executive,
and the Executive accepts such employment, as Vice President--Parts and
Servicing of the Company during the Employment Period. The Executive shall
report to and be
<PAGE>
subject to the direction of the President and Chief Operating Officer of the
Company and shall render such executive and administrative services as the Board
of Directors of the Company may from time to time assign to him, provided they
are consistent with his status as Vice President--Parts and Servicing. During
the Employment Period, the Executive shall devote his full time, energy, skill
and attention to the businesses of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits. During the Employment Term:
(a) The Executive's base compensation shall be at the rate of
$100,000.00 per year, payable in regular installments in accordance with the
Company's practice for its executives, less applicable withholding for income
and employment taxes as required by law and other deductions as to which the
Executive shall agree. Such base compensation shall be subject to increases as
and when determined by the Board in its sole discretion.
(b) Except as otherwise herein provided, the Executive shall be
entitled to participate, to the extent he qualifies, in any bonus or other
incentive compensation, profit-sharing or retirement plans, life or health
insurance plans or other benefit plans maintained by the Company, upon such
terms and conditions as are generally made available to executives of the
Company.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred by him in
the course of his duties and upon compliance with the Company's procedures.
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(d) The Executive shall be entitled to paid vacation during each
calendar year in accordance with the policies and procedures of the Company in
effect from time to time.
4. Stock Options. The Company's present intention is to adopt a Stock
Option Plan (the "Stock Option Plan"). Promptly following its adoption of the
Stock Option Plan, the Company shall grant to the Executive options (the "Stock
Options") to acquire 10,000 shares of Class A Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at a price equal to the per share
price to the public in the Offering and upon such other terms and conditions as
are set forth therein. Such Stock Options are intended to constitute Incentive
Stock Options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") to the maximum extent permitted under the Code. Such Stock
Options may be exercised at such time and in such manner as provided in the
Stock Option Agreement; provided, however, that one-third of such Stock Options
shall vest and become exercisable on each anniversary of the Commencement Date
during the Employment Period. In the event that the Executive's employment is
terminated for any reason other than death or Disability (as defined in Section
5 hereof) any nonvested Incentive Stock Options shall immediately be cancelled
without any further action being required to be taken by the Company.
5. Termination in Case of Disability; Death. In case of a Disability
which, for purposes of this Agreement only, shall mean that as a result of
illness or injury, the Executive is unable substantially to perform his duties
hereunder for a period of at least 180 consecutive days, or a total of at least
270 days in any period of 365 consecutive days, the Company may terminate the
Executive's employment hereunder upon giving
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<PAGE>
the Executive at least thirty (30) days' written notice of termination. In
addition, this Agreement shall automatically terminate upon the death of the
Executive.
6. Termination by the Company for Cause.
(a) The Company may terminate the Executive's employment for Cause
(as defined in paragraph (b) below). Upon such termination, the Company shall
have no further obligations to the Executive on account of his employment by the
Company.
(b) "Cause" shall mean (i) a material breach by the Executive of any
of the terms, covenants, agreements or representations set forth herein, or (ii)
the Executive's engaging in misconduct which is materially injurious to the
Company, monetarily or otherwise, including, but not limited to, engaging in any
conduct which constitutes a crime under federal, state or local laws (other than
minor traffic violations).
7. Termination by the Executive for Good Reason. The Executive may
terminate his employment for "Good Reason" if: (i) he is assigned, without his
express written consent, any duties inconsistent with his positions, duties,
responsibilities, authority and status with the Company as of the date hereof,
or any adverse change in his reporting responsibilities or titles as in effect
as of the date hereof except in connection with the termination of his
employment by him without Good Reason; or (ii) his compensation is reduced other
than in connection with a Company-wide reduction of executive compensation. Upon
such termination, the Company's sole obligation to the Executive, in addition to
paying any amounts owed to the Executive through the date of termination, shall
be to continue paying the base compensation provided for herein, subject to any
reduction permitted by applicable law in connection with the Executive's
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<PAGE>
duty to mitigate such damages. The Executive hereby agrees that he shall not
have any other claims or rights against the Company.
8. Date and Terms of Termination. "Date of Termination" shall mean the
date on which a notice of termination is given. In the event of termination
under paragraph 5, 6 or 7, the Executive or his estate, as the case may be,
shall be entitled to salary and benefits accrued to the Date of Termination, as
well as the right to convert benefits such as health, disability and life
insurance to his own name and continue the same at his own expense. In the event
of termination by the Executive pursuant to paragraph 7, there shall be no duty
on the part of the Executive to mitigate damages which may be suffered by the
Company on account of such termination.
9. Certain Employee Covenants.
9.1 Confidentiality. The Executive agrees that during the term hereof, or
at any time thereafter, he will not, directly or indirectly, use for his own
benefit or for the benefit of any third party, or reveal or cause to be revealed
to any person, firm, entity or corporation, any Confidential Information (as
defined herein) which relates to the Company or any Affiliate of the Company or
any of their customers and that upon termination of his employment he will
deliver all lists of customers, notes, records and all other property belonging
to the Company or any Affiliate of the Company or relating to its or their
business or customers. "Confidential Information" shall include, but not be
limited to, trade secrets, supplier lists, customer lists, intellectual property
and any other information, whether or not proprietary, which relates to the
business of the Company or any Affiliate of the Company and which otherwise is
not considered to be public information. Confidential Information shall not
include general information regarding
5
<PAGE>
the automotive industry which is generally known to those involved in the
operation of an automotive dealership.
9.2 Non-Compete. The Executive further agrees that during the term of this
Agreement and for a period of two (2) years after the termination of this
Agreement, he will not, directly or indirectly, in any manner: (i) engage in any
other business in which the Company or any Affiliate of the Company is engaged
on the Date of Termination within a 20-mile radius of any business then
conducted by the Company or any Affiliate of the Company, and will not, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with any corporation, firm, entity, or business that is so engaged
unless duly authorized by written consent of the Company; provided, however,
that nothing herein shall prohibit the Executive from owning not more than three
(3%) percent of the outstanding stock of any publicly held corporation, (ii)
persuade or attempt to persuade any employee of the Company or of any Affiliate
of the Company to leave the employ of the Company or of such Affiliate or to
become employed by any other entity, (iii) persuade or attempt to persuade any
current client or former client to reduce the amount of business it does or
intends or anticipates doing with the Company or with any Affiliate of the
Company or (iv) take any action which might divert from the Company or any
Affiliate of the Company any opportunity of which he became aware during his
employment with the Company or with any Affiliate of the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company or any Affiliate of the Company.
6
<PAGE>
9.3 General Provisions.
(a) The Executive acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company or any
Affiliate of the Company and that the Company, including any Affiliate of the
Company, will be entitled, in addition to any other rights and remedies it may
have, to injunctive relief; provided, however, that nothing contained herein
constitutes a waiver by the Executive of his rights to contest the existence of
any such violation of such covenants.
(b) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(c) As used herein, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(d) In the event that this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Executive Representations. The Executive hereby represents and
warrants to the Company that he is not a party to any other agreement or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him
7
<PAGE>
from undertaking or performing the duties and obligations provided for herein in
accordance with the terms and conditions of this Agreement.
11. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amount would still
be payable to him hereunder had he continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there be no such
designee, to his estate.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement (except that
all notices to the Company shall be directed to the attention of a senior
officer of the Company other than the Executive, with a copy to the Secretary of
the Company) or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Connecticut
applicable to agreements made and to be performed in Connecticut, and may not be
changed or terminated orally.
8
<PAGE>
14. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
Hometown Auto Retailers, Inc.
By:
-----------------------------------------
Joseph Shaker
President and Chief Operating Officer
--------------------------------------------
Steven Shaker
9
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
1
<PAGE>
(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
2
<PAGE>
index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
-------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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<PAGE>
5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
[balance of this page intentionally left blank]
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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<PAGE>
shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation.
ARTICLE 22 - Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
Its:
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SCHEDULE A
Premises: 831 Straits Turnpike
Watertown, CT 06795
Initial Base Annual Rent: $240,000
Base Rent Monthly Installment: $20,000
Commencement Date: effective date of initial public
offering of Tenant's common stock
Expiration Date: December 31, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Shaker Enterprises
Landlord's Address: 172 Bateswood Road
Waterbury, CT 06706
Purchase Option: None
(if applicable)
16
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
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(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
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index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
-------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation. ARTICLE 22 -
Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
Its:
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SCHEDULE A
Premises: 1200 Wolcott Street
Waterbury, CT 06705
Initial Base Annual Rent: $240,000
Base Rent Monthly Installment: $20,000
Commencement Date: effective date of initial
public offering of
Tenant's common stock
Expiration Date: December 31, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Joseph Shaker Realty Company
Landlord's Address: 121 Harwood Road
Waterbury, CT 06706
Purchase Option: None
(if applicable)
16
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
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(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
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index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
-------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation. ARTICLE 22 -
Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
Its:
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SCHEDULE A
Premises: 1311 South Main Street
Waterbury, CT 06706
Initial Base Annual Rent: $72,000
Base Rent Monthly Installment: $6,000
Commencement Date: effective date of initial
public offering of Tenant's
common stock
Expiration Date: December 31, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Joseph Shaker Realty Company
Landlord's Address: 121 Harwood Road
Waterbury, CT 06706
Purchase Option: None
(if applicable)
16
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
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(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
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index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
---------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation. ARTICLE 22 -
Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
Its:
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SCHEDULE A
Premises: Route 31 & Van Sickles Road
Clinton, NJ 08809
Initial Base Annual Rent: $360,000
Base Rent Monthly Installment: $30,000
Commencement Date: effective date of initial public
offering of Tenant's common stock
Expiration Date: December 31, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Rellum Realty Company
Landlord's Address: 20 Schick Road
Milford, NJ 08848
Purchase Option: None
(if applicable)
16
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
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(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
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index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
--------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation. ARTICLE 22 -
Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
Its:
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SCHEDULE A
Premises: Route 173 & Vorhees Road
Stewartsville, NJ 08865
Initial Base Annual Rent: $396,000
Base Rent Monthly Installment: $33,000
Commencement Date: effective date of initial
public offering of
Tenant's common stock
Expiration Date: December 31, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Rellum Realty Company
Landlord's Address: 20 Schick Road
Milford, NJ 08848
Purchase Option: None
(if applicable)
16
LEASE
THIS LEASE, made as of April 20, 1998, between the Landlord identified on
Schedule A ("Landlord") and HOMETOWN AUTO RETAILERS, INC., a Delaware
corporation, having its principal office at 831 Straits Turnpike, Watertown,
Connecticut 06795 ("Tenant").
W I T N E S S E T H:
ARTICLE 1 - Certain Basic Terms
1.1 Schedule A hereto contains certain basic terms of this Lease,
including the Premises, Commencement Date, Expiration Date, Base Rent and, if
applicable, Lease Extension Option and Premises Purchase Option. Certain
capitalized terms used herein shall have the meanings set forth in Schedule A.
ARTICLE 2 - Demise and Term
2.1 Upon and subject to the terms and conditions set forth herein,
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the
Premises. Each party hereby expressly covenants and agrees to observe and
perform all of the obligations herein contained on its part to be observed and
performed.
2.2 The term of this Lease (the "Term") shall commence on the
"Commencement Date" and, unless this Lease is sooner terminated as provided
herein, shall continue to and end at midnight on the "Expiration Date," such
terms as defined in Schedule A hereto.
2.3 If Schedule A specifically so provides and provided no default
has occurred and is continuing beyond any applicable grace period, Tenant shall
have the option to extend the term of this Lease (the "Extension Term"), on the
same terms and conditions contained in this Lease, except that the annual Base
Rent during the Extension Term shall be as set forth in Schedule A. If
applicable, Tenant may exercise such extension option by giving notice to
Landlord of its intention to extend the Term on or before the date that is six
months before the Expiration Date of the initial Term of this Lease. If so
extended, the word "Term" shall include the Extension Term as if the same were
originally included in the initial Term of this Lease.
ARTICLE 3 - Base Rent
3.1 Tenant shall pay to Landlord, at Landlord's address shown above,
or at such other address as Landlord may from time to time designate in writing,
an annual rental
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(the "Base Rent") set forth in Schedule A. Such rent shall be payable without
notice or demand and without deduction or abatement or set off.
3.2 The Base Rent shall be payable in consecutive monthly
installments in advance on the first day of each calendar month during the Term.
If the Commencement Date or the Expiration Date does not fall on the first day
of a calendar month, then the first and last payments shall be for only the
portion of the month attributable to the Term prorated on a daily basis.
3.3 It is the purpose and intent of Landlord and Tenant that, except
as provided in Sections 8.1 (structural repairs and replacements) and 17
(environmental matters), the Base Rent shall be absolutely net to Landlord, so
that this Lease shall yield, except as otherwise provided in Sections 8.1 and
17, net, to Landlord, the Base Rent specified in Schedule A hereof, in each year
during the term hereof and that all costs, expenses and obligations of every
kind and nature whatsoever relating to the Premises (except the taxes of
Landlord referred to in Section 5.3 hereof) which may arise or become due during
the term hereof shall be paid by Tenant. Landlord's obligations with respect to
structural and environmental matters shall be referred to hereinafter as
"Landlord's Obligations".
3.4 Tenant shall also pay without notice, except as may be required
in this Lease, and without abatement, deduction or set-off as additional rent,
all sums, "Impositions" (as defined in Section 5.1 hereof), costs, expenses and
other payments which Tenant in any of the provisions of this Lease assumes or
agrees to pay, and, in the event of any non-payment thereof, Landlord shall have
(in addition to all other rights and remedies) all the rights and remedies
provided for herein or by law in the case of non-payment of the Base Rent.
ARTICLE 4 - CPI Adjustment
4.1 At the expiration of the initial period thereafter ending
December 31, 2003 and each five year period during the Term, the Base Rent shall
be subject to CPI adjustment as follows:
At the expiration of the initial period ending December 31, 2003 and
each five year period thereafter, the annual rent for the succeeding five year
period shall be determined by multiplying the annual Base Rent in effect for the
immediately preceding five year period times the "CPI Factor" (as hereinafter
defined), provided, however, that the CPI Factor shall never be less than 1.00.
As used herein, the "CPI Factor" which shall be determined at the
expiration of each five year period during the Term, shall be determined as
follows:
(A) The United States Bureau of Labor Statistics "Consumer Price
Index for Urban Consumers All Items-U.S. City Average" (commonly referred
to as "CPI-U"), as the same may from time to time be revised, updated or
replaced, hereinafter referred to as the "index" (if said index is no
longer published, Landlord will use a comparable
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index) shall be used to determine the CPI Factor set forth in subsection
(B) immediately below;
(B) The index value in effect for December 1997, December 2003 and
each subsequent December at the end of a five-year period shall be the
"Old CPI"; the index value for December 2003 and each subsequent December
at the end of a five year period shall be the "New CPI"; and the CPI
Factor shall be determined by the following formula:
Base Rent as adjusted by CPI = 1 + (New CPI - Old CPI)
---------------------
Old CPI
4.2 For example: If the CPI for December of 1997 were 354.4 ("Old
CPI") and the CPI for December 2003 were 379.2 ("New CPI"), the CPI factor would
be 1.0699. If the previous annual Base Rent were $30,000, then the new annual
Base Rent for the period commencing January 2004 would be $32,097.
ARTICLE 5 - Real Estate Taxes
5.1 Tenant shall pay, as additional rent, all Real Estate Taxes
(including personal property taxes, if any), assessments, water and sewer rent
rates and charges, charges for public utilities, excise levies, license and
permit fees and other governmental charges, general and specified, of any kind
whatsoever (collectively "Impositions") assessed against the Premises with
respect to the Term, but not income, franchise or other taxes assessed against
Landlord's income or profits. Such payments shall be made within thirty (30)
days after receipt of a bill therefor from Landlord, which bill shall contain a
copy of the municipal or other taxing authority tax bill. Tenant shall be
entitled to the benefit of any statute or ordinance permitting Real Estate Taxes
to be paid in installments and, upon such election, Tenant's payments hereunder
shall be made in such installments. Landlord shall bill Tenant for the
applicable installment at least thirty (30) days before the installment may be
paid to the taxing authority without interest or penalty, and Tenant shall not
be responsible for any such interest or penalty resulting from Landlord's delay
in payment of such amounts to the taxing authority.
5.2 Tenant shall have the right to contest the amount or validity,
in whole or in part, of any Real Estate Tax, or to seek a reduction in the
valuation of the Premises, or any part thereof, as assessed for Real Estate Tax
purposes, by appropriate proceedings diligently conducted in good faith.
Landlord shall cooperate with any such tax reduction proceeding. If Landlord
receives notice of an increase in the Real Estate Tax assessment for the
Premises and fails to notify Tenant of such increase at least 30 days before the
last day for filing an objection to such increase, then Tenant shall not be
responsible for paying any Real Estate Taxes to the extent they result from such
increased assessment. Any refund of Real Estate taxes with respect to the Term
shall promptly be paid to and be the property of Tenant.
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5.3 Real Estate Taxes shall be apportioned between Landlord and
Tenant as of the beginning and the expiration or sooner termination of the Term,
so that Tenant shall pay only the portion of the Real Estate Taxes allocable to
the Term; provided, however, that Landlord need not make any apportionment in
favor of Tenant if this Lease shall have been terminated by reason of an Event
of Default.
ARTICLE 6 - Use and Compliance
6.1 Tenant may use and occupy the Premises as an automotive
dealership which shall include the purchase, sale, trade, storage, repair and
servicing of new and used motor vehicles and related tools and equipment and for
any other legal purpose related to the conduct of such business. Landlord
warrants that said permitted use complies with the existing zoning of the
Premises. In the event of any change in zoning laws or regulations that would
restrict Tenant's use as aforesaid, Tenant shall have the right to terminate
this Lease without any further obligation except with respect to any amounts
owing for use by Tenant prior to such termination.
6.2 Tenant shall, at its expense, substantially comply or cause
compliance with all laws, statutes, ordinances, orders, rules, regulations and
requirements of all governmental units applicable to the Premises ("Legal
Requirements") and all requirements of insurance rating organization applicable
to the Premises ("Insurance Requirements"), foreseen or unforeseen, ordinary as
well as extraordinary, whether or not the same shall presently be within the
contemplation of the parties hereto, which are related to Tenant's particular
use of the Premises, except that Landlord shall, at its expense, promptly comply
with any Legal Requirements or Insurance Requirements which have been or are
being violated as of the date hereof.
6.3 Tenant shall have the right, after notice to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any Legal Requirement or Insurance Requirement
and Landlord shall cooperate in such proceedings.
6.4 Landlord shall, at its expense, procure and maintain at all
times during the Term a certificate of occupancy for the Premises permitting the
use described in Section 6.1.
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ARTICLE 7 - Insurance
7.1 Tenant shall at all times during the Term, at its expense keep
the Premises insured for the mutual benefit of Landlord and Tenant against loss
or damage by fire and against such other risks as would be covered by an
extended coverage endorsement to a fire insurance policy in an amount not less
than one hundred percent (100%) of the full replacement value of the buildings,
improvements and fixtures then a part of the Premises if such one hundred
percent (100%) coverage is available from any insurance company of recognized
responsibility licensed to do business in the state where the Premises are
located. If such insurance is not available, the Tenant shall take out insurance
in an amount not less than the amount sufficient to avoid the effect of the
co-insurer provisions of the applicable policy or policies.
7.2 Tenant shall, at its own expense, but for the mutual benefit and
protection of Landlord and Tenant, maintain:
(a) general public and garage liability insurance against claims for
bodily injury or death or property damage occurring upon, in or about the
Premises and on, in or about the adjoining roads, ways, sidewalks, and
passageways, such insurance to afford protection to the limit of not less than
three million dollars ($3,000,000) in respect of any one occurrence;
(b) automobile liability insurance to the limit of not less than one
million dollars ($1,000,000);
(c) fire and extended coverage (including water damage and malicious
vandalism) insurance for property of tenant and bailors in an amount equal to
the full replacement cost; and
(d) such other insurance, insuring loss, damage or injury occurring
to or on the Premises as is usual and customary for the protection of leased
premises of this character or as may be deemed from time to time prudent and
reasonable in view of new risks or changed conditions.
7.3 Within fifteen days (15) from the execution of this Lease and
thereafter not less than fifteen days (15) prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, certificates
of insurance issued by the respective insurers shall be delivered by Tenant to
Landlord.
7.4 All policies of insurance relating to the Premises procured by
Tenant shall name Landlord and Tenant as the insured as their respective
interests may appear. All such policies, or certificates therefor, issued by the
respective insurers shall cover any increased risks as a result of construction,
repairs, alterations and additions to the Premises and shall contain an
agreement by such insurers that such policies shall not be cancelled without at
least ten (10) days' prior written notice to Tenant and Landlord. All such
policies of insurance
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shall provide that any proceeds from any insured loss shall be payable to
Landlord, subject to any prior right of any mortgagee notwithstanding any act of
negligence of Tenant which might otherwise result in forfeiture of said
insurance. Landlord shall have the right to negotiate, to adjust and settle with
the insurers on behalf of Landlord and Tenant.
7.5 Tenant, as its option, may keep all equipment and personalty on
the Premises insured with the insurer of its choice and for the benefit of
Tenant.
ARTICLE 8 - Repairs and Maintenance of Premises
8.1 Tenant shall maintain the Premises, including buildings,
improvements, parking areas, walks and paved areas, and keep the same in good
order and condition throughout the Term of this Lease, provided, however, that
Tenant shall have no obligation to make any structural repairs or improvements.
In addition, Tenant shall have the right to make such nonstructural changes,
alterations, repairs and improvements in or upon the Premises, including in or
upon the interior of any building or other improvement located thereon, during
the term hereof as it may desire. Tenant may install awnings, advertisements, or
signs on any part of the Premises. Except as provided in Section 11.1 with
respect to Landlord's obligations following a casualty and in Section 12.2 with
respect to Landlord's obligations following the Taking of a "material portion of
the Premises" (as defined in Section 12.1), all non-structural changes and
repairs shall be performed at Tenant's sole cost and expense. Tenant shall not
make any structural changes to the Premises except upon the consent of the
Landlord which shall not be unreasonably withheld or delayed.
8.2 Landlord, at its sole cost and expense, shall, in addition to
its obligations under Articles 11 and 12 of this Lease, make all structural
changes, alterations and repairs to the Premises, including any building or
improvements located thereon, upon prior notice to Tenant at mutually agreeable
times which will not interfere with the conduct of Tenant's business on the
Premises as normally conducted to the extent such changes are necessary for the
repair, replacement or restoration of the building or improvements on the
Premises.
8.3 The party performing the changes, alterations, improvements
and/or repairs contemplated by Sections 8.1 and 8.2 hereby agrees that it shall
indemnify the other party hereto and hold such party harmless from any cost,
expenses, damages and/or liability arising out of the performance of such work
in accordance with Article 16.
8.4 All trade fixtures, appliances and other equipment and property
placed or installed in or on the Premises by Tenant shall remain the property of
Tenant and, unless the parties hereto otherwise agree, Tenant shall remove the
same at the expiration of this Lease and restore the Premises to their original
condition after such removal.
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8.5 (a) No change or alteration of the Building shall be undertaken
until any necessary governmental permits and authorizations are obtained and
Landlord and Tenant each agrees to join, at the expense of the party seeking to
make such change, alteration, repair and/or improvement, in the application for
such permits or authorizations whenever such action is necessary.
(b) No change or alteration shall be undertaken by Tenant
until plans and specifications and cost estimates therefor prepared by an
architect or engineer reasonably satisfactory to Landlord, shall have been
approved by Landlord, which approval shall not be unreasonably withheld or
delayed.
(c) Each change or alteration shall, when completed, be of
such a character as not adversely to affect the value of the Premises for use of
the type described in Section 6.1 hereof immediately before such change or
alteration.
(d) All work done in connection with any change or alteration
shall be done promptly and in a good and workmanlike manner and in compliance
with all Legal Requirements; the cost of any such change or alteration shall be
timely paid so that the Premises shall at all times be free of liens for labor
and materials supplied or claimed to have been supplied to the Premises; the
work of any change or alteration shall be prosecuted with reasonable dispatch,
unavoidable delays excepted.
(e) Tenant shall not construct additional structures nor add
to the present structures without the written consent of the Landlord. Such
consent by the Landlord shall be within the sole discretion of the Landlord.
ARTICLE 9 - Utilities and Services
9.1 Landlord shall provide at the Commencement Date the normal and
customary utility service connections in and to the Premises for use in
accordance with Section 6.1 hereof, including water, sewer, gas and electricity
service. Tenant shall promptly pay when due directly to the appropriate utility
all amounts and charges for, the providing of heat, ventilation,
air-conditioning, cleaning service, hot and chilled water and any other water,
sewer, electricity, light, power, telephone or other communication service, and
any other utility or service required, used, rendered or supplied in or to the
Premises during the Term.
ARTICLE 10 - Mechanics' and Other Liens
10.1 Neither Landlord nor Tenant shall suffer or permit any
mechanics' or other liens to be recorded or filed against the Premises or any
part thereof or against the interests therein of Landlord or Tenant as a result
of any work performed by or on behalf of Tenant. If any such lien shall at any
time be recorded or filed against the Premises or any such interest therein, the
party whose work in or about the Premises was responsible therefor shall cause
the same to be discharged of record within ninety (90) days after such party
receives notice of the recording or filing of the same, by either payment,
deposit or bond.
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Notwithstanding the foregoing, either party shall have the right, after notice
to the other, to contest by appropriate legal proceedings, diligently conducted
in good faith, the amount or validity of any such mechanics' or other lien filed
against the Premises.
ARTICLE 11 - Damage or Destruction
11.1 If any building or other improvements located on the Premises
should be damaged by fire or other casualty, Tenant shall promptly notify
Landlord of such casualty and Landlord shall within thirty (30) days after such
fire or other casualty, commence, and thereafter diligently proceed, to repair
or reconstruct (both structural and non-structural) such building or other
improvements as nearly as may be possible to their condition immediately prior
to such casualty.
11.2 In the event of a casualty, Landlord shall make all insurance
proceeds received by it available for repair and restoration of the Premises,
provided however, that Landlord's time to repair and restore the Premises, as
provided in Section 11.1, shall not be extended on account of the non-receipt by
Landlord of any insurance proceeds. If the net amount of any insurance proceeds
on account of such damage or destruction shall be insufficient to pay the entire
cost of such work, Landlord shall pay and be responsible for the deficiency. If
any of such insurance proceeds shall remain after the full completion of such
repairs, restoration, replacements or rebuilding, the excess shall be retained
by or paid over to Landlord.
11.3 In the event of fire or other casualty rendering the Premises
either partially or totally untenantable, Base Rent and any additional rent
shall abate as herein provided from the date of such casualty until the date
that is ten (10) days after Landlord notifies Tenant that the Premises have
again been rendered fully tenantable and a certificate of occupancy for the
restored Premises has been obtained. In the event that, and for so long as, the
Premises are not usable by Tenant substantially in the manner used by Tenant
immediately prior to the casualty, the entire amount of Base Rent and any
additional rent shall be abated. In the event that there has been damage to a
"material portion" of the Premises (as defined in subparagraphs (a) through (d)
in the second sentence of Section 12.1), Tenant shall have the right to
terminate this Lease unless Landlord shall, promptly following the occurrence of
such casualty, commit to restore the Premises, and shall actually complete such
restoration, within ninety (90) days from the date on which the casualty occurs.
If this Lease is not terminated in accordance with the immediately preceding
sentence, then, pending completion of restoration of the Premises, the Base Rent
and any additional rent payable by Tenant shall be abated in proportion to the
amount of the Premises which Tenant is unable to use for the continuation of its
business. The term "material portion" shall have the same meaning with respect
to a casualty as that set forth in Section 12.1 with respect to a Taking.
ARTICLE 12 - Condemnation
12.1 If all or a "material portion" of the Premises shall be
appropriated or condemned by any public or quasi public authority in the
exercise of its right of condemnation
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or eminent domain (the "Taking"), this Lease shall terminate as of the time when
possession shall be required by such public or quasi public authority. The term
"material portion" as used in the preceding sentence shall mean a Taking of: (a)
at least one-third (ILLEGIBLE) of the Premises; or (b) the Building or any part
thereof; or (c) shall result in cutting off direct access to and from the
Premises to any adjacent public street or highway; or (d) such portion of the
Premises as shall otherwise substantially alter Tenant's ability to use the same
in the manner used by Tenant immediately prior to the Taking. Notwithstanding
the termination of this Lease, both Landlord and Tenant shall have the right to
prosecute their claims for an award and/or to share in the proceeds of any award
based upon their respective interests. If the interests of Landlord and Tenant
are both compensated in a single award, then Tenant shall be entitled to that
portion of the award necessary to compensate it for its leasehold improvements
and moving expenses and Landlord shall be entitled to the remainder of the
award.
12.2 In the event of a Taking of less than a material portion of the
Premises (as defined in Section 12.1) during the Term, this Lease shall continue
unaffected except that the Base Rent shall be reduced as of the date of vesting
of title under such Taking to the Base Rent in effect immediately before the
Taking multiplied by a fraction, the numerator of which shall be the value of
the untaken portion of the Premises (valued after the Taking, giving effect to
any completed restoration) and the denominator of which shall be the value of
the Premises immediately prior to the Taking.
12.3 In the event of a Taking of less than a material portion of the
Premises which results in a continuation of this Lease, then the net award or
payment, if any, after reimbursement out of such amounts for any costs and
expenses (including reasonable attorneys' fees for obtaining same) (herein
called the "Net Restoration Fund") shall be received and held by Landlord and
shall be applied to the cost of restoration (whether structural or
non-structural) of the Premises as nearly as may be practicable to its
condition, character and value immediately prior to such Taking. Except as
expressly provided to the contrary in this Article, all of the provisions
contained in Article 11 for repair, restoration replacement or rebuilding after
any damage or destruction, by fire or other cause shall apply to restoration
necessitated by a Taking. For such purposes any reference in Article 11 to
insurance proceeds shall be construed to refer to the Net Restoration Fund. If
any of the Net Restoration Fund shall remain after the full completion of such
restoration, the excess shall be paid over to Landlord. If the Net Restoration
Fund shall be insufficient to pay the entire cost of such restoration, Landlord
shall pay and be responsible for the deficiency. Notwithstanding the foregoing,
Landlord shall commence and diligently proceed to completion of all restoration
necessitated by a Taking of a material portion of the Premises within thirty
(30) days after such material portion is not available for use by Tenant in
accordance with this Lease whether or not the Net Restoration Fund has then been
received by Landlord.
12.4 In the event that ingress to and/or egress from the Premises
are in any way blocked or partially blocked as a result of any road construction
or other improvements, Landlord agrees to waive all of Tenant's obligations
hereunder during such period of construction or improvement.
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ARTICLE 13 - Default by Tenant
13. If at any time during the Term any one or more of the following
events (each of which being herein called an "Event of Default") shall occur, to
wit:
(a) if Tenant shall fail to pay any installment of Base Rent
on the date that same is due and such failure shall continue for a period of ten
(10) days after receipt by Tenant of written notice from Landlord of such
failure;
(b) if Tenant shall make an assignment of all or substantially
all of its property for the benefit of its creditors; or
(c) if any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States or of any
state, in any bankruptcy, reorganization, composition, extension, arrangement or
insolvency proceeding, and if any such proceeding shall not be dismissed within
one hundred and twenty (120) days after the institution of the same, or if any
such petition shall be so filed by Tenant; or
(d) if, in any proceeding, a receiver or trustee shall be
appointed for all or substantially all of Tenant's property, and such
receivership or trusteeship shall not be vacated or set aside within 120 days
after the appointment of such receiver or trustee, or if any such appointment is
consented to by Tenant; or
(e) if Tenant shall fail to substantially perform or observe
any other requirement of this Lease (not hereinbefore in this Section
specifically referred to) on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after notice thereof from
Landlord to Tenant, except that if such failure cannot be cured within such
thirty (30)-day period, and if Tenant shall commence the curing of such failure
promptly after notice thereof from Landlord and shall thereafter proceed with
reasonable diligence to complete the curing of such failure, it being the
intention hereof that in connection with any such failure which is not
susceptible of being cured with due diligence within said thirty (30)-day
period, that the time to cure such failure shall be extended for such period as
may be necessary to complete such cure with reasonable diligence;
then, upon the occurrence of any such Event of Default, Landlord shall have the
option to terminate this Lease upon ten (10) days' prior written notice to
Tenant, to re-enter the Premises, to evict Tenant and to remove Tenant's
possessions, both without being liable for trespass, and relet the Premises and
receive rent therefor. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord by reason of the violation of any of the terms,
conditions and covenants herein contained.
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ARTICLE 14 - Surrender of Premises
14.1 Tenant shall, upon the expiration of the Term for any reason
whatsoever, surrender to Landlord the Premises, broom clean and in good order,
condition and repair, except for reasonable wear and tear and damage from fire
or other casualty.
14.2 Title to all personal property and fixtures of Tenant shall
remain in Tenant and Tenant may remove such personal property and fixtures upon
or prior to the expiration of the Term.
ARTICLE 15 - Assignment and Subletting
15.1 Tenant shall not, without Landlord's prior written consent,
assign this Lease or sublet the Premises or any part thereof, which consent
Landlord will not unreasonably withhold or delay; provided, however, that Tenant
may, without Landlord's consent, assign this Lease or sublet the Premises or any
part thereof to any firm or corporation directly or indirectly controlled by, in
control of, or under common control with, Tenant.
ARTICLE 16 - Indemnity
16.1 Tenant shall indemnify and hold Landlord harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a)
Tenant's possession of the Premises and any claims arising from its management
of, or from any work or thing whatsoever done by Tenant in and on the Premises,
(b) any default by Tenant hereunder beyond the expiration of any applicable
grace period, (c) any misrepresentation by Tenant herein, or (d) any negligent
act or omission or willful misconduct of Tenant or its agents, contractors or
invitees in connection with the use or occupancy of the Premises.
16.2 Landlord shall indemnify and hold Tenant harmless from and
against any loss, cost, damage, claim, liability and expense (including, without
limitation, reasonable attorneys' fees and disbursements) arising from (a) any
default by Landlord hereunder beyond the expiration of any applicable grace
period, (b) any misrepresentation by Landlord herein, or (c) any negligent act
or omission or willful misconduct of Landlord or its agents, contractors or
invitees in connection with the use or occupancy of the Premises, (c) any
conditions, including environmental, existing at the time of the execution of
this Lease, or (d) Landlord's failure to timely make repairs or restorations
required by the terms of this Lease.
ARTICLE 17 - Environmental Matters
17.1 Tenant, at its expense, shall substantially comply with all
environmental laws and regulations affecting or relating to its particular use
of the Premises. Tenant shall pay all costs, exist, fines and penalties imposed
upon Landlord or the Premises by reason of Tenant's failure to comply with the
provisions of this Section 17.1.
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17.2 Landlord represents and warrants to Tenant that as of the
Commencement Date (a) there were no hazardous waste or material located on or
under the Premises, (b) there were no asbestos containing materials in the
Premises, and (c) there were no underground storage tanks or transformers
containing PCB's located on or under the Premises. Landlord shall indemnify and
hold Tenant harmless from and against any loss, cost, damage or expense incurred
by Tenant as a result of the inaccuracy of the foregoing representation and
warranty.
ARTICLE 18 - Invalidity - Particular Provisions
18.1 If any provision of this Lease or the application thereof to
any person or circumstance shall be to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not bc affected thereby, and each provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
ARTICLE 19 - Subordination
19.1 This Lease shall be subject and subordinate to any mortgage
which may now or hereafter be an encumbrance on the Premises and to all
renewals, modifications, consolidations, replacements, extensions or
refinancings thereof, all of which are collectively called the "mortgage",
provided the same shall meet the requirements and comply with the conditions
hereinafter in this Section set forth. The subordination provided for in this
section shall be self-operative but Tenant covenants, on demand, to execute,
acknowledge and deliver to Landlord such instruments as may be reasonably
necessary and proper to effect such subordination. It is covenanted, and the
foregoing subordination of this Lease to a mortgage is conditioned upon,
however, that so long as Tenant is not in default in the payment of Base Rent or
additional rent hereunder and otherwise performs and complies with the terms and
conditions of this Lease on its part to be performed within the applicable grace
period, Tenant will not be named or joined in any action or proceeding to
foreclose any mortgage affecting the Premises, that any such action or
proceeding will not result in a cancellation or termination of this Lease and
that this Lease shall continue in full force and effect upon all of the terms,
covenants and conditions herein contained. If Landlord shall default under any
mortgage covering the Premises, Tenant shall have the right, but not the
obligation, to cure such default and the next installment (s) of Base Rent and
any additional rent hereunder shall be abated by an amount equal to the cost of
such cure.
ARTICLE 20 - Notices
20.1 All notices, consents, approvals, demands and requests
(collectively "notices") which are required or desired to be given by either
party to the other hereunder shall be in writing and shall be sent by United
States registered or certified mail and deposited in a United States post
office, return receipt requested, postage prepaid. Notices which are served upon
Landlord or Tenant in the manner provided herein shall be deemed to have been
given or served for all purposes hereunder on the date accepted or refused at
the address to
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which it was sent. Notices which are given by either party may be given by the
attorney for such party without the signature of such party.
20.2 All notices given to Landlord or Tenant shall be addressed to
such party at its address set forth below or at such other place as such party
may from time to time designate in a written notice to the other party:
(a) If to Landlord, at the address set forth on Schedule A hereto.
(b) If to Tenant:
Hometown Auto Retailers, Inc.
831 Straits Turnpike
Watertown, Connecticut 06795
ARTICLE 21 - Quiet Enjoyment
21.1 Landlord hereby covenants and agrees that if Tenant shall
perform all the covenants and agreements herein stipulated to be performed by
Tenant, Tenant shall, at all times during the Term of this Lease, have peaceable
and quiet enjoyment and possession of the Premises without any manner of
hindrance from Landlord or any other person, firm or corporation. ARTICLE 22 -
Authority
22.1 Landlord and Tenant each represents and warrants to the other
that it has full right, power and authority to enter into and perform all its
obligations under this Lease, without the consent or approval of any other
entity or person, and to make these representations knowing that the other party
will rely thereon.
22.2 The respective signatory on behalf of Landlord and Tenant
further represent and warrant that they have full right, power and authority to
act for and on behalf of Landlord and Tenant, respectively, in entering into
this Lease.
ARTICLE 23 - Miscellaneous Provisions
23.1 The term "Landlord" shall mean only the owner of the Premises
at the time in question and, in the event of a sale or transfer of the Premises,
the transferor shall be and hereby is automatically and entirely released and
discharged, from and after the date of such sale or transfer, of all liability
in respect of the performance of any of the terms of this Lease on the part of
Landlord thereafter to be performed, provided that the purchaser or transferee
shall agree in writing to be bound by all of the terms of this Lease on the part
of landlord to be performed during its period of ownership. Nothing contained in
this Section shall in any way release Landlord from any actions, omissions, or
failure of performance attributable to any period prior to Landlord's sale or
transfer of its interest in the Premises.
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23.2 This Lease constitutes thc entire agreement between the parties
with respect to the subject matter hereof; prior leases, if any, between either
party hereto or the predecessors of either party are automatically terminated on
the Commencement Date set forth or described in Schedule A. Any modification,
amendment or waiver of this Lease or any provision hereof must be in writing and
executed by the party against whom enforcement of such modification, amendment
or waiver is sought.
23.3 The parties acknowledge that each has had an opportunity to
review and negotiate this Lease. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease or any part hereof to be drafted.
23.4 The table of contents and the captions of this Lease are for
convenience of reference only, and shall in no way be construed to define, limit
or describe the scope or intent of this Lease or the intent of any provision
hereof and same shall not in any way affect the provisions of this Lease.
23.5 Tenant shall have the right to record a memorandum of this
Lease provided it pays all costs in connection with such recording. Landlord
will cooperate with Tenant in connection therewith.
23.6 This Lease shall be governed by, and construed and enforced in
accordance with, the laws of the state in which the Premises are located.
23.7 Each party hereby waives all right to trial by jury in a
summary or other action, proceeding or counterclaim out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, the Premises
and the use and occupancy thereof, and any claim of injury or damages relating
thereto.
23.8 All terms and words used in this Lease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number, and any other gender as the context may require. The word "persons" as
used in this Lease shall mean a natural person or persons, a partnership,
corporation, limited liability company, and any other form of business or legal
association or entity as the context may require.
23.9 This Lease shall become binding and effective only upon the
execution and delivery of this Lease by both Landlord and Tenant.
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23.10 This Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
2 IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the date first above written.
LANDLORD: __________________________
By:____________________________________
TENANT:
HOMETOWN AUTO RETAILERS, INC.
By:_______________________________
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SCHEDULE A
Premises: 55 Kinderkamack Road
Emerson, New Jersey 08865
Initial Base Annual Rent: $360,000
Base Rent Monthly Installment: $30,000
Commencement Date: effective date of initial public
offering of Tenant's common stock
Expiration Date: December 13, 2013
Lease Extension Option: None
(if applicable):
Landlord's Name: Salvatore Vergopia and Janet Vergopia
Landlord's Address: 20 Bayberry Drive
Saddle River, NJ 07458
Purchase Option: None
(if applicable)
16
INVENTORY LOAN
AND SECURITY
AGREEMENT
TOYOTA MOTOR CREDIT CORPORATION
<PAGE>
INVENTORY LOAN AND SECURITY AGREEMENT
This AGREEMENT, between TOYOTA MOTOR CREDIT CORPORATION ("TMCC"), located
at 1515 W. 190th Street, P.O. Box 2958, Torrance, California 90509-2958, and the
undersigned motor vehicle dealer whose name and address are set forth
hereinbelow ("Dealer"), sets forth the terms under which TMCC may make loans (as
hereinafter defined) to Dealer and the rights and obligations between TMCC and
Dealer with regard to such loans.
1. Security Interest.
Dealer hereby grants to TMCC, as security for the payment of all
liabilities and obligations of Dealer to TMCC of every kind and nature, whether
or not under this Agreement and whether now existing or hereafter arising
("Liabilities"), a continuing lien on the collateral ("Collateral") as follows:
(a) all new Toyota-manufactured motor vehicles, all other new motor
vehicles, all used motor vehicles, all trucks, van conversions and
recreational vehicles, all additions and accessories, all parts,
accessories, furnishings and supplies, and inventory property of like kind
or type including replacements, substitutions, additions and returns,
whether now owned, in transit, or hereafter acquired; and
(b) all new and used machinery, equipment, tools, appliances, office
furniture and fixtures, office equipment and supplies, and goods of like
kind or type including replacements, substitutions or additions, whether
now owned or hereafter acquired; and
(c) all accounts receivable, documents, instruments, chattel paper,
security agreements, contract rights, policies and certificates of
insurance, advance warranty payments, incentive payments, rebates or
refunds, whether now owned or hereafter acquired; and
(d) all general intangibles, including, but not limited to, tax refunds,
license rights, franchise rights, copyrights, patent rights, trademarks,
service marks, trade names and goodwill, whether now owned or hereafter
acquired; and
(e) all cash and non-cash proceeds from the sale or disposition of the
foregoing, including proceeds of any insurance on any of the foregoing.
Dealer agrees to execute and deliver upon request such documents,
including, without limitation, agreements, certificates of title and financing
statements, as TMCC may consider necessary to maintain or perfect TMCC's
security interest in such Collateral.
2. Loans.
(a) Loans on Motor Vehicles to be Acquired by Dealer. Once TMCC has
established a credit line in favor of Dealer, TMCC shall notify each
manufacturer or distributor of motor vehicles, which is specified by
Dealer and acceptable to TMCC (a "Seller"), that such Seller may ship
motor vehicles to Dealer and that payment for such vehicles will be made
by the payment by TMCC of drafts drawn by such Seller on TMCC, or by the
honoring of other payment instructions issued to TMCC, for the account of
Dealer; provided, however, that TMCC shall have no obligation to make any
payments, and Dealer shall not seek any loans, (i) in respect of any motor
vehicle, in an amount in excess of the sum of the invoice dealer cost of
such motor vehicle plus the cost of any option, which is offered to the
purchaser thereof for installation at the factory where the vehicle is
manufactured or the U.S. port facility through which the vehicle is
imported and (ii) in an aggregate amount outstanding at any time in excess
of the credit line so established. The amount of each and every such draft
or other payment instruction honored shall constitute a loan to Dealer
under this Agreement. TMCC shall have no responsibility for the validity,
sufficiency or genuineness of any such draft or other payment instruction.
TMCC may require that any bills of lading, certificates of origin, vehicle
invoices or documents of title be presented or delivered to TMCC as a
condition of payment of any such draft or other payment instruction.
(b) Loans on Other Motor Vehicles. TMCC may, at its option, make loans to
dealer from time to time, upon receipt of a schedule, certified as correct
by an authorized representative of Dealer, showing a description of one or
more motor vehicles (not previously financed under paragraph (a) of this
Section) as to which Dealer requests a loan at that time, together with
such other information and documents as TMCC may require. The making of
any loan by TMCC under this Section shall not obligate TMCC to make any
future or additional loans to Dealer.
3. Dealer Loan Account.
Each loan made under this Agreement shall be entered by TMCC as a debit in
an accounting record to be maintained by TMCC in respect of Dealer (the "Dealer
Loan Account"). TMCC shall credit all payments made by Dealer on account of
indebtedness evidenced by the Dealer Loan Account and all cash proceeds of
Collateral and debit all other charges, expenses and other items properly
chargeable to Dealer. All credits shall be subject to receipt or final
collection of cash by TMCC. TMCC shall mail or deliver to Dealer periodically a
statement of account for the Dealer Loan Account reflecting all debits, credits
and other activity during the preceding period, including, without limitation,
payments made by Dealer in respect of motor vehicles financed hereunder ("Motor
Vehicles") which were sold during such preceding period. Dealer agrees that if
at any time the debit balance of the Dealer Loan Account exceeds the amount of
the credit line extended by TMCC to Dealer hereunder, Dealer shall, upon receipt
of a request by TMCC, remit to TMCC payment in such amount as may be necessary
to eliminate such excess.
4. Payments.
(a) Continuing Obligations, Dealer hereby promises to make the following
payments to TMCC
(i) upon receipt of each billing statement described below, the
interest shown to be due on such billing statement, which interest shall
be computed, at the interest rate designated by TMCC from time to time, on
the daily debit balance in the Dealer Loan Account together with any per
diem charges expressed as a flat fee in connection with Motor Vehicles
actually financed by TMCC, including Motor Vehicles designated as
Demonstrators;
(ii) upon occurrence of either (A) the delivery by Dealer of any
Motor Vehicles to a purchaser or lessee thereof or (B) the receipt by
Dealer of payment for such Motor Vehicle, an amount substantially equal to
the outstanding principal balance of the loan made by TMCC to Dealer with
respect to such Motor Vehicle; and
(iii) on a monthly basis, all Demonstrator Payments then payable in
accordance with the provisions of Section 8 hereof, if any;
provided, however, that, notwithstanding anything to the contrary set
forth herein, within 12 months following the making by TMCC to Dealer of
each loan hereunder, Dealer shall repay in full the entire principal
balance of such loan, regardless of whether or not the Motor Vehicles in
respect of which such loan has been made shall have been sold by Dealer
and regardless of whether or not such Motor Vehicles have been designated
Demonstrators.
(b) Billing and Payment. TMCC shall mail or deliver to Dealer periodically
a billing statement (which may, at the option of TMCC, be included as part
of the statement of account referred to in Paragraph 3 hereof) setting
forth all payments then due from Dealer pursuant to this Agreement. Dealer
shall send payment due under this Agreement in the manner, and to the
address, specified by TMCC and in accordance with such procedures as TMCC
may establish from time to time.
5. Information Concerning Dealer.
Dealer hereby authorizes TMCC to obtain from any affiliate of TMCC and any
Seller, and hereby consents to the delivery by any such affiliate or Seller to
TMCC of, all such information concerning Dealer as TMCC may, from time to time,
request. Dealer hereby agrees to provide TMCC with such information concerning
Dealer and its financial condition as TMCC may, from time to time, request.
<PAGE>
6. Insurance.
Dealer shall at all time have and maintain, with respect to all
Collateral, insurance with such companies and in such amounts as are
satisfactory to TMCC. Such insurance shall include coverage against the risks of
fire (including so-called extended coverage) and theft and against such other
risks as are usually insured against by owners of similar businesses and
properties or as TMCC may otherwise require and, in the case of Motor Vehicles,
against the risk of collision. With respect to Motor Vehicles, the amount of
fire, theft and other risk insurance shall equal or exceed, at all times, the
debit balance in the Dealer Loan Account. With regard to new Motor Vehicles
actually financed by TMCC, including Motor Vehicles designated or defined as
Demonstrators under paragraph 8, TMCC agrees to provide the required
comprehensive insurance. With respect to each Motor Vehicle, said insurance
shall be provided by TMCC as long as such Motor Vehicle remains part of Dealer
inventory and has not been paid for in full.
As to all such insurance: (I) TMCC shall be named as a loss payee, (ii)
Dealer shall cause to be delivered to TMCC or its designee copies of the
insurance policies, together with the insurance certificates naming TMCC as a
loss payee and (iii) TMCC or its designee shall be listed as the person to which
insurance renewals and/or cancellations should be mailed by the insurance
company with respect to each policy on which TMCC is named as a loss payee. If
Dealer changes any insurance carrier or carriers, it shall promptly notify TMCC
or its designee and shall cause to be delivered to TMCC or its designee copies
of the new insurance policy, and a certificate of insurance naming TMCC as a
loss payee. Dealer hereby authorizes TMCC to obtain insurance and to debit the
Dealer Loan Account with the cost thereof (plus interest at the interest rate
referred to in Section 4(a)(i) hereof until reimbursement by Dealer, in the
event of dealer's failure to obtain such insurance, as herein provided, or to
pay any premiums on existing policies.
7. Inspection.
Dealer shall keep all Motor Vehicles (other than Demonstrators, as
hereinafter defined) at an approved Dealer location and shall not remove them
except upon TMCC's written consent. Dealer shall allow TMCC to conduct an
unannounced inspection of the Collateral (including all Demonstrators) wherever
located and an examination of all Dealer's books and records pertaining to the
Collateral at such times as TMCC shall require. Dealer shall make all
Demonstrators available for inspection by TMCC, at an approved Dealer location,
when and as requested by TMCC. Dealer shall cause an authorized representative
of Dealer to acknowledge by signature each report prepared by a TMCC inspector.
8. Authority to Sell Motor Vehicles; Demonstrators.
(a) Provided Dealer is not in default in the performance of any of its
obligations under this agreement, Dealer shall have the right to store,
display for purposes of retail sale and sell or lease Motor Vehicles in
the ordinary course of its business. In addition, Dealer shall have the
right to use for demonstration purposes such Motor Vehicles as may be
approved in writing by TMCC ("Demonstrators").
(b) Demonstrator Payments shall mean, for each Motor Vehicle (whether or
not designated a Demonstrator), a monthly payment in an amount equal to
2.0% of the original principal balance of the loan made by TMCC in respect
of such Motor Vehicle. Demonstrator Payments shall commence in respect of
any Motor Vehicle within 30 days after the first to occur of (i) the date,
if any, on which such Motor Vehicle is designated a Demonstrator by Dealer
or (ii) the date on which the odometer reading in such Motor Vehicle
exceeds 500 miles.
9. Exchanges of Motor Vehicles Between Dealers.
Dealer may sell or exchange any Motor Vehicle of a new motor vehicle of
another dealer. For purposes of Section 4(a)(ii) hereof, each such sale or
exchange shall constitute the delivery of the Motor Vehicle so sold or exchanged
to a purchaser thereof. If Dealer requests that TMCC finance a new motor vehicle
acquired by Dealer in a purchase or exchange from or with another dealer, TMCC
may, at its option, advance to Dealer, upon receipt of documentation
satisfactory to TMCC and provided that such loan complies with all of the terms
and conditions hereof, a loan hereunder in an amount equal to the invoice total
dealer cost of such motor vehicle and debit the Dealer Loan Account therefor.
10. Representations and Warranties.
Dealer represents and warrants to TMCC that, as of the date of this
Agreement and, as of each occasion on which Dealer requests a loan pursuant to
this Agreement from TMCC or permits funds to be paid by TMCC to or for the
account of Dealer pursuant to this Agreement:
(a) Dealer is (and will be) principally engaged in the retail sale of
motor vehicles and holds (and will hold) a valid franchise to sell motor
vehicles from the manufacturer or a distributor of all motor vehicles
which are offered for sale in new condition by Dealer. Dealer has (and
will have) all necessary licenses, permits, qualifications, franchise and
other approvals necessary lawfully to conduct its business.
(b) Except for the security interests granted by this Agreement, Dealer is
(and, as to Collateral to be acquired after the date hereof, will be) the
owner of the Collateral, free from any lien, security interest or
encumbrance.
(c) Except as otherwise disclosed in any exhibit to this Agreement, all
Collateral presently owned by Dealer, and all of Dealer's records
concerning sales, accounts and contract rights, are (and will be) kept at
the principal office of Dealer, the address of which is set forth below
and Dealer has (and will have) no other places of business.
(d) All information furnished to TMCC concerning the Collateral, or
otherwise for the purpose of obtaining loans or an extension of credit, is
and will be at the time the same is furnished, correct and complete in all
respects.
(e) Dealer has the power and authority to enter into this Agreement. The
execution and delivery of this Agreement, the borrowing of funds under
this Agreement, and consummation of all other transactions contemplated by
this Agreement have been duly authorized by all necessary action of
Dealer. This Agreement has been duly executed and delivered by Dealer and
constitutes the legal, biding and enforceable obligation of Dealer.
(f) Dealer shall only forward contracts, financing statements, security
agreements, and/or other materials and documents to TMCC which have been
executed by Dealer or its authorized representative.
11. Covenants of Dealer.
(a) Dealer shall keep the Collateral in good condition and shall not
damage or destroy the Collateral or permit the same to occur. Dealer shall
not use the Collateral in violation of an statute, ordinance or
governmental rule or regulation. Dealer shall at all times keep accurate
and complete records of the Collateral and its status.
(b) Dealer shall submit to TMCC, within 15 days following the end of each
month and within 120 days following the end of each fiscal year,
respectively, monthly and fiscal year-end financial statements in form
satisfactory to TMCC as certified by an authorized representative of
Dealer.
(c) Dealer shall keep the Collateral free from any adverse lien, security
interest or encumbrance (other than any such lien, security interest or
encumbrance which is disclosed in this Agreement) and shall defend the
Collateral against all claims and demands of all persons at any time
claiming any interest therein (other than any such lien, security interest
or encumbrance which is disclosed in this Agreement). Dealer shall
promptly pay when due all taxes and assessments upon the Collateral. If
TMCC discharges any such taxes, liens, security interests or encumbrances,
Dealer agrees to reimburse TMCC on demand for any such payment.
12. Events of Default; Acceleration.
Any or all Liabilities shall, at TMCC's option, become immediately due and
payable, without notice or demand (which are hereby waived by Dealer), upon the
occurrence of any of the following events of default: (i) default in the payment
of any amount due and payable under this Agreement
<PAGE>
or default in the payment, when due, of any of the Liabilities; (ii) default in
the performance of any obligation or covenant contained or referred to in this
Agreement; (iii) any warranty, representation or statement made or furnished to
TMCC by or on behalf of Dealer having been breached, false or incomplete in any
material respect when made or furnished; (iv) the loss, theft, damage or
destruction (unless, in any such case, fully covered by insurance), or the
unauthorized sale or encumbrance of, any of the Collateral or any levy, seizure
or attachment thereof; (v) the commencement by or against Dealer of any
bankruptcy, receivership or insolvency proceeding, the suspension of business or
an assignment for the benefit of creditors by Dealer, or the issuance of an
attachment, injunction or execution of the filing of a lien against Dealer or
Dealer's property; or (vi) any change in the condition or affairs of Dealer or
of any endorser, guarantor or surety for any of the liabilities which, in the
opinion of TMCC, impairs TMCC's security or increases its risk.
13. Rights and Remedies on Default.
Upon the occurrence of any such event of default and at any time
thereafter, TMCC may take any action it deems necessary to enforce this
Agreement, including, without limitation, the remedies of a secured party under
the Uniform Commercial Code and the remedies provided in this Agreement or in
any other document executed by Dealer. Dealer shall, if TMCC so requests,
assemble the Collateral and make it available to TMCC at a place to be
designated by TMCC. TMCC shall have the right to enter upon the premises where
the Collateral is located and remove it. Dealer shall pay all expenses and
reimburse TMCC for any expenditures, including reasonable attorneys' fees and
legal expenses, in connection with TMCC's exercise of any of its rights and
remedies under this Agreement.
14. Indemnification.
Dealer agrees to indemnify, defend and hold harmless TMCC and all of its
affiliates (and each of the respective officers, directors, representatives,
agents and employees of TMCC and such affiliates) from and against any
liabilities, damages, costs or expenses, of any nature whatsoever, which any of
them may suffer or incur as a result of, or arising from or in connection with,
any act or omission, on the part of Dealer in respect of any matter referred to
in, contemplated by, or otherwise relating to, this Agreement.
15. Failure to Exercise Remedies.
The exercise of any right or remedy available to TMCC shall not operate as
a waiver of any other right or remedy. The failure of TMCC to exercise or a
delay by TMCC in exercising any right or remedy shall not operate as a waiver of
such right or any other right. All of TMCC's rights and remedies shall be
cumulative and may be exercised singularly or concurrently.
16. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of the
parties to this Agreement and their respective successors and assigns; provided,
however, that this Agreement and all rights and obligations under this Agreement
may not be assigned or transferred by Dealer without TMCC's prior written
consent and any purported assignment or transfer without such consent shall be
void and without effect. For purposes of the foregoing, any change in control of
the Dealer (whether by means of the transfer of stock or a partnership interest
or otherwise) shall be deemed to constitute an assignment or transfer of this
Agreement. Any obligation of TMCC, or any function to be performed by TMCC,
under this Agreement may, at the sole option of TMCC, be delegated to, and
performed by, any agent of TMCC, which agent shall have such power and authority
as TMCC shall delegate to it.
17. Termination.
Whenever there are no outstanding Liabilities and no commitment on the
part of TMCC under any agreement which might give rise to any obligation of
Dealer, Dealer may terminate this Agreement upon written notice to TMCC. TMCC
may terminate this Agreement at any time upon written notice to Dealer. Any
termination of this Agreement shall not affect any obligation of TMCC or Dealer
which may exist prior to such termination.
18. Validity; Complete Agreement; Amendments.
Any invalidity, in whole or in part, of any provision of this Agreement
shall not affect the validity of any other provision hereof. This Agreement
constitutes the complete understanding between the parties hereto with respect
to the subject matter hereof and no alteration, amendment or proclamation of any
of the terms and provisions hereof shall be valid unless made pursuant to an
instrument in writing signed by both of said parties.
19. Governing Law.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California.
20. Notice.
Except as otherwise provided in this Agreement, all notices and other
communications hereunder shall be in writing and shall be deemed duly given if
and when personally delivered or mailed by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows: (a) if to TMCC, to the
address shown at the beginning of this Agreement; (b) if to Dealer, to the
address shown below. Either party may change the address to which each such
notice shall be sent by giving notice or communication of such address in the
manner provided herein to the other party.
21. Gender; Number; Paragraph Headings.
Unless the context of this Agreement otherwise requires, the masculine,
feminine or neuter gender each shall include the other genders, and the singular
shall include the plural. The paragraph headings contained in this Agreement are
for convenience of reference only and shall not limit or define the next hereof.
TOYOTA MOTOR CREDIT CORPORATION Muller Toyota, Inc.
---------------------------------------
DEALER
DATE: 5/20/92 By: /s/ Gerry Schuckman DATE: 5/20/92 By: /s/ William Muller
-------------------- --------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
/S/ GERRY SCHUCKMAN /S/ William Muller Jr. President
- ---------------------------------- ---------------------------------------
PRINTED NAME AND TITLE PRINTED NAME AND TITLE
Rt. 31 P.O. Box J
---------------------------------------
STREET ADDRESS OF DEALER
Clinton, N.J. 08809
---------------------------------------
CITY AND STATE
89-TMC-208 TMCC 1005 REV. 5/89
PREVIOUS EDITIONS MAY NOT BE USED
<PAGE>
- ---------- -------------- ------------------------ ----------------------
Muller Chevrolet, Olds- Terry L. Berean, V.P.
New Floorplan mobile, Geo, Isuzu, Inc. /s/ Terry L. Berean
- ---------- -------------- ------------------------ ----------------------
LIC NO. LOAN NO. BORROWER APPROVAL SIGNATURE
- --------------------------------------------------------------------------------
COMMERCIAL PROMISSORY NOTE [LOGO]
CoreStates
$5,000,000.00 January 20, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to pay
to the order of CORESTATES BANK, N.A.*, a national banking association (the
"Bank"), at any of its banking offices in Pennsylvania, the principal amount of
Five Million and 00/100************* DOLLARS, in lawful money of the United
States, plus interest, to be paid as follows:
The principal of this Note and all interest accrued thereon, shall be payable in
full before MAY 31, 1998 ("Maturity Date") unless such date is otherwise
extended by Bank. Prior to the Maturity Date, the principal of this Note shall
be repaid in accordance with the terms and conditions of a certain Business Loan
and Security Agreement - Motor Vehicle Floorplan Financing Agreement, dated
February 28, 1995, as amended ("Agreement") together with interest on the
outstanding principal balance hereof payable monthly, as billed, at 1% above the
Bank's Prime Rate, such rate to change each time the Prime Rate changes,
effective on and as of the date of the change.
The principal balance due hereunder plus all accrued interest due hereon at any
time and from time to time shall be that amount shown on the Bank's books and
records and the statements submitted to Debtor by Bank in accordance with the
Agreement, which shall, if no timely objection is made, be conclusive and
irrefutable evidence of the amount of principal and interest due Bank. This Note
is one of the Notes referred to in and is issued in conjunction with and under
and subject to the terms and conditions of the Agreement, and is secured by the
Collateral, as that term is defined in the Agreement. Upon the happening of an
Event of Default, bank will be entitled to all of Bank's Rights Upon Default as
specified herein and in the Agreement.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply to
this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and shall
be charged for the actual number of days elapsed. Accrued interest shall be
payable monthly. Accrued interest shall also be payable when the entire
principal balance of this Note becomes due and payable (whether by demand,
stated maturity or acceleration), or, if earlier, when such principal balance is
actually paid to Bank. If the rate at which interest accrues is based on the
"Prime Rate", that term is defined as the rate of interest for loans established
by Bank from time to time at its prime rate. Said per annum rate of interest
shall change each time Bank's prime rate shall change, effective on and as of
the date of the change. Interest shall accrue on each disbursement hereunder
from the date such disbursement is made by Bank, provided, however, that to the
extent this Note represents a replacement, substitution, renewal or refinancing
of existing indebtedness, interest shall accrue from the date hereof. Interest
shall accrue on the unpaid balance hereof at the rate provided for in this Note
until the entire unpaid balance has been paid in full, notwithstanding the entry
of any judgment against Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and no
floor or minimum rate is specified, Borrower may prepay all or any portion of
the principal balance of this Note at any time, without premium or penalty. If
not permitted under the preceding sentence, any prepayment of principal
(including any principal repayment as a result of acceleration by Bank of this
Note) shall require immediate payment to Bank of a prepayment fee equal t the
amount, if any, by which the aggregate present value of scheduled principal and
interest payments eliminated by the prepayment exceeds the principal amount
being prepaid. Said present value shall be calculated by application of a
discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities having a
maturity which most closely approximates the final maturity date of the
principal balance then outstanding. Whether or not a prepayment fee is required
hereunder, prepayments shall be applied to scheduled installments of principal
in the inverse order of their maturity, shall be accompanied by payment of
accrued interest on the principal amount being prepaid and, unless this Note has
been accelerated by Bank, shall not be permitted in an amount less than the
scheduled principal installment immediately prior to final maturity of the
outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter incurred
by Borrower, under this Note or otherwise, Borrower grants Bank a lien upon and
security interest in any securities, instruments or other personal property of
Borrower now or hereafter in Bank's possession and in any deposit balances now
or hereafter held by Bank for Borrower's account, and in all proceeds of any
such personal property or deposit balances. Such liens and security interest
shall be independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security interest
evidenced by a writing (whether now existing or hereafter executed) which
contains a provision to the effect that such lien or security interest is
intended to secure (a) this Note or indebtedness evidenced hereby or (b) any
category of liabilities, obligations or indebtedness of Borrower to Bank which
includes this Note or the indebtedness evidenced hereby, and all property
subject to any such lien or security interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note or
under any obligation or indebtedness to Bank of Borrower or any person liable,
either absolutely or contingently, for payment of any indebtedness evidenced
hereby, including endorsers, guarantors and sureties (each such person is
referred to as an "Obligor"); (b) if Borrower or any Obligor has failed to
observe or perform any other existing or future agreement with Bank of any
nature whatsoever; (c) if any representation, warranty, certificate, financial
statement or other information made or given by Borrower or any Obligor to Bank
is materially incorrect or misleading; (d) if Borrower or any Obligor shall
become insolvent or make an assignment for the benefit of creditors or if any
petition shall be filed by or against Borrower or any Obligor under any
bankruptcy or insolvency law; (e) the entry of any judgment against Borrower or
any Obligor which remains unsatisfied for 15 days or the issuance of any
attachment, tax lien, levy or garnishment against any property of material value
in which Borrower or any Obligor has an interest; (f) if any attachment, levy,
garnishment or similar legal process is served upon Bank as a result of any
claim against Borrower or any Obligor or against any property of Borrower or any
Obligor; (g) the dissolution, merger, consolidation or change in control (as
control is defined in rule 12b-2 under the Securities Exchange Act of 1934), of
any Borrower which is a corporation or partnership, or the sale or transfer of
any substantial portion of any of Borrower's assets, or if any agreement for
such dissolution, merger, or consolidation, change in control, sale or transfer
is entered into by Borrower, without the written consent of Bank; (h) the death
of any Borrower or Obligor who is a natural person; (i) if Bank determines
reasonably and in good faith that an event has occurred or a condition exists
which has had, or is likely to have, a material adverse effect on the financial
condition or creditworthiness of Borrower or any Obligor, or on the ability of
Borrower or any Obligor to perform its obligation evidenced by this note; (j) if
Borrower shall fail to remit promptly when due to the appropriate government
agency or authorized depository, any amount collected or withheld from any
employee of Borrower for payroll taxes, Social Security payments or similar
payroll deductions; (k) if any Obligor shall attempt to terminate or disclaim
such Obligor's liability for the indebtedness evidenced by this Note; (l) if
Bank shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay when
due any material indebtedness for borrowed money other than to Bank; or (n) if
Borrower shall be notified of the failure of Borrower or any Obligor to provide
financial and other information promptly when reasonably requested by Bank. If
this note is payable on demand, Bank's right to demand payment hereof shall not
be restricted or impaired by the absence, non-occurrence or waiver of an Event
of Default, and it is understood that if this Note is payable on demand, Bank
may demand payment at any time.
- --------------------------------------------------------------------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank.
8979-C 10/93
<PAGE>
(including, if this Note is Payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded), unless
Bank elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to Borrower or any
Obligor, and Bank may, immediately or at any time thereafter, exercise any or
all of its rights and remedies hereunder or under any agreement or otherwise
under applicable law against Borrower, any Obligor and any collateral. Bank may
exercise its rights and remedies in any order and may, at its option, delay in
or refrain from exercising some or all of its rights and remedies without
prejudice thereto. Upon the occurrence of any such Event of Default or at any
time thereafter, Bank may, at its option, and upon five days' written notice to
Borrower, begin accruing interest on this Note, at a rate not to exceed five
percent (5%) per annum in excess of the greater of (a) the rate of interest
provided for above, or (b) the Prime Rate in effect from time to time on the
unpaid principal balance hereof; provided, however, that no interest shall
accrue hereunder in excess of the maximum rate permitted by law. All such
additional interest shall be payable on demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each Obligor
when addressed to Borrower and deposited in the mail, postage prepaid, for
delivery by first class mail at Borrower's mailing address as it appears on
Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion thereof,
may be credited by Bank to the deposit account of Borrower, or disbursed in any
other manner requested by Borrower and approved by Bank. If Borrower so
requests, Bank may, at its option, disburse the proceeds of this Note in more
than one disbursement on the same or different dates, but except as otherwise
agreed by Bank in writing, no action taken by Bank in response to any such
request shall be deemed to create or shall imply the existence of any commitment
or obligation to pay or credit the undisbursed portion of this Note. All
payments due under this Note are to be made in immediately available funds. If
Bank accepts payment in any other form, such payment shall not be deemed to have
been made until the funds comprising such payment have actually been received by
or made available to Bank. If Borrower is not an individual, Borrower authorizes
Bank (but Bank shall have no obligation) to charge any deposit account in
Borrower's name for any and all payments of principal, interest, or any other
amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest payable hereunder,
Borrower agrees to pay Bank, on demand, all costs and expenses (including
reasonable attorneys' fees and disbursements) which may be incurred by Bank in
the collection of this Note or the enforcement of Bank's rights and remedies
hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this Note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance by Borrower of this Note have been
duly authorized and are not in conflict with any provision of Borrower's
partnership agreement or certificate of limited partnership. Borrower further
represents and warrants that this Note has been validly executed and is
enforceable in accordance with its terms, that the execution, delivery and
performance by Borrower of this Note are not in contravention of law and do not
conflict with any indenture, agreement or undertaking to which Borrower is a
party or is otherwise bound, and that no consent or [ILLEGIBLE] the execution,
delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor waive presentment, dishonor, notice of
dishonor, protest and notice of protest. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver or modification thereof. No consent, waiver or
modification of the terms of this Note shall be effective unless set forth in a
writing signed by Bank. All rights and remedies of Bank are cumulative and
concurrent and no single or partial exercise of any power or privilege shall
preclude any other or further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest or
against which it has a right of setoff or against any particular Obligor. All
representations, warranties and agreements herein are made jointly and severally
by each Borrower. If any provision of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness, the indebtedness represented by such pre-existing note or other
evidence of indebtedness, the indebtedness represented by such pre-existing note
or other instrument shall not be deemed to have been extinguished hereby. In the
event that any due date specified or otherwise provided for in this Note shall
fall on a day on which Bank is not open for business, such due date shall be
postponed until the next banking day, and interest and any fees or similar
charges shall continue to accrue during such period of postponement. This Note
has been delivered in and shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania without regard to the law of
conflicts. This Note shall be binding upon each Borrower and each Obligor and
upon their personal representatives, heirs, successors and assigns, and shall
benefit Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGND PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETER SOUNDING IN TORT, CONTRACT
OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.
- --------------------------------------------------------------------------------
Name of Corporation
or Partnership Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
- --------------------------------------------------------------------------------
By: /s/ William Muller By: /s/ William C. Muller
- -------------------------------- ----------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William C. Muller, Jr. President William Charles Muller, Secretary
- -------------------------------- -----------------------------------
(Print or Type Name and Title of (Print or Type Name and Title of
Signer Above) Signer Above)
INDIVIDUALS SIGN BELOW
- -------------------------------- -----------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------- -----------------------------------(Seal)
(Print or Type Name of Above (Print or Type Name of Borrower Signing
Witness) Above)
- -------------------------------- -----------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------- -----------------------------------(Seal)
(Print or Type Name of Above (Print or Type Name of Borrower Signing
Witness) Above)
<PAGE>
- ---------- --------------- ------------------------ ----------------------
Muller Chevrolet, Olds- Terry L. Berean, V.P.
Used Floorplan mobile, Geo, Isuzu, Inc. /s/ Terry L. Berean
- ---------- --------------- ------------------------ ----------------------
LIC NO. LOAN NO. BORROWER APPROVAL SIGNATURE
- --------------------------------------------------------------------------------
COMMERCIAL PROMISSORY NOTE [LOGO]
CoreStates
$600,000.00 January 20, 1998
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more
than one (hereinafter collectively referred to as "Borrower"), promises to pay
to the order of CORESTATES BANK, N.A.*, a national banking association (the
"Bank"), at any of its banking offices in Pennsylvania, the principal amount of
Six Hundred Thousand and 00/100************* DOLLARS, in lawful money of the
United States, plus interest, to be paid as follows:
The principal of this Note and all interest accrued thereon, shall be payable in
full before MAY 31, 1998 ("Maturity Date") unless such date is otherwise
extended by Bank. Prior to the Maturity Date, the principal of this Note shall
be repaid in accordance with the terms and conditions of a certain Business Loan
and Security Agreement - Motor Vehicle Floorplan Financing Agreement, dated May
30, 1995, as amended ("Agreement") together with interest on the outstanding
principal balance hereof payable monthly, as billed, at 1.5% above the Bank's
Prime Rate, such rate to change each time the Prime Rate changes, effective on
and as of the date of the change.
The principal balance due hereunder plus all accrued interest due hereon at any
time and from time to time shall be that amount shown on the Bank's books and
records and the statements submitted to Debtor by Bank in accordance with the
Agreement, which shall, if no timely objection is made, be conclusive and
irrefutable evidence of the amount of principal and interest due Bank. This note
is one of the Notes referred to in and is issued in conjunction with and under
and subject to the terms and conditions of the Agreement, and is secured by the
Collateral, as that term is defined in the Agreement. Upon the happening of an
Event of Default, bank will be entitled to all of Bank's Rights Upon Default as
specified herein and in the Agreement.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply to
this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and shall
be charged for the actual number of days elapsed. Accrued interest shall be
payable monthly. Accrued interest shall also be payable when the entire
principal balance of this Note becomes due and payable (whether by demand,
stated maturity or acceleration), or, if earlier, when such principal balance is
actually paid to Bank. If the rate at which interest accrues is based on the
"Prime Rate", that term is defined as the rate of interest for loans established
by Bank from time to time at its prime rate. Said per annum rate of interest
shall change each time Bank's prime rate shall change, effective on and as of
the date of the change. Interest shall accrue on each disbursement hereunder
from the date such disbursement is made by Bank, provided, however, that to the
extent this Note represents a replacement, substitution, renewal or refinancing
of existing indebtedness, interest shall accrue from the date hereof. Interest
shall accrue on the unpaid balance hereof at the rate provided for in this Note
until the entire unpaid balance has been paid in full, notwithstanding the entry
of any judgment against Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and no
floor or minimum rate is specified, Borrower may prepay all or any portion of
the principal balance of this Note at any time, without premium or penalty. If
not permitted under the preceding sentence, any prepayment of principal
(including any principal repayment as a result of acceleration by Bank of this
Note) shall require immediate payment to Bank of a prepayment fee equal to the
amount, if any, by which the aggregate present value of scheduled principal and
interest payments eliminated by the prepayment exceeds the principal amount
being prepaid. Said present value shall be calculated by application of a
discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities having a
maturity which most closely approximates the final maturity date of the
principal balance then outstanding. Whether or not a prepayment fee is required
hereunder, prepayments shall be applied to scheduled installments of principal
in the inverse order of their maturity, shall be accompanied by payment of
accrued interest on the principal amount being prepaid and, unless this Note has
been accelerated by Bank, shall not be permitted in an amount less than the
scheduled principal installment immediately prior to final maturity of the
outstanding principal balance.
COLLATERAL - As security for all indebtedness to Bank now or hereafter incurred
by Borrower, under this Note or otherwise, Borrower grants Bank a lien upon and
security interest in any securities, instruments or other personal property of
Borrower now or hereafter in Bank's possession and in any deposit balances now
or hereafter held by Bank for Borrower's account, and in all proceeds of any
such personal property or deposit balances. Such liens and security interest
shall be independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security interest
evidenced by a writing (whether now existing or hereafter executed) which
contains a provision to the effect that such lien or security interest is
intended to secure (a) this Note or indebtedness evidenced hereby or (b) any
category of liabilities, obligations or indebtedness of Borrower to Bank which
includes this Note or the indebtedness evidenced hereby, and all property
subject to any such lien or security interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note or
under any obligation or indebtedness to Bank of Borrower or any person liable,
either absolutely or contingently, for payment of any indebtedness evidenced
hereby, including endorsers, guarantors and sureties (each such person is
referred to as an "Obligor"); (b) if Borrower or any Obligor has failed to
observe or perform any other existing or future agreement with Bank of any
nature whatsoever; (c) if any representation, warranty, certificate, financial
statement or other information made or given by Borrower or any Obligor to Bank
is materially incorrect or misleading; (d) if Borrower or any Obligor shall
become insolvent or make an assignment for the benefit of creditors or if any
petition shall be filed by or against Borrower or any Obligor under any
bankruptcy or insolvency law; (e) the entry of any judgment against Borrower or
any Obligor which remains unsatisfied for 15 days or the issuance of any
attachment, tax lien, levy or garnishment against any property of material value
in which Borrower or any Obligor has an interest; (f) if any attachment, levy,
garnishment or similar legal process is served upon Bank as a result of any
claim against Borrower or any Obligor or against any property of Borrower or any
Obligor; (g) the dissolution, merger, consolidation or change in control (as
control is defined in rule 12b-2 under the Securities Exchange Act of 1934), of
any Borrower which is a corporation or partnership, or the sale or transfer of
any substantial portion of any of Borrower's assets, or if any agreement for
such dissolution, merger, or consolidation, change in control, sale or transfer
is entered into by Borrower, without the written consent of Bank; (h) the death
of any Borrower or Obligor who is a natural person; (i) if Bank determines
reasonably and in good faith that an event has occurred or a condition exists
which has had, or is likely to have, a material adverse effect on the financial
condition or creditworthiness of Borrower or any Obligor, or on the ability of
Borrower or any Obligor to perform its obligation evidenced by this note; (j) if
Borrower shall fail to remit promptly when due to the appropriate government
agency or authorized depository, any amount collected or withheld from any
employee of Borrower for payroll taxes, Social Security payments or similar
payroll deductions; (k) if any Obligor shall attempt to terminate or disclaim
such Obligor's liability for the indebtedness evidenced by this Note; (l) if
Bank shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay when
due any material indebtedness for borrowed money other than to Bank; or (n) if
Borrower shall be notified of the failure of Borrower or any Obligor to provide
financial and other information promptly when reasonably requested by Bank. If
this note is payable on demand, Bank's right to demand payment hereof shall not
be restricted or impaired by the absence, non-occurrence or waiver of an Event
of Default, and it is understood that if this Note is payable on demand, Bank
may demand payment at any time.
- --------------------------------------------------------------------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank.
8979-C 10/93
<PAGE>
(including, if this Note is payable on demand, any Event of Default resulting
from [ILLEGIBLE] Borrower's failure to make any payment hereunder when
demanded), unless Bank elects otherwise, the entire unpaid balance of this Note
and all accrued interest shall be immediately due and payable without notice to
Borrower or any Obligor, and Bank may, immediately or at any time thereafter,
exercise any or all of its rights and remedies hereunder or under any agreement
or otherwise under applicable law against Borrower, any Obligor and any
collateral. Bank may exercise its rights and remedies in any order and may, at
its option, delay in or refrain from exercising some or all of its rights and
remedies without prejudice thereto. Upon the occurrence of any such Event of
default or at any time thereafter, Bank may, at its option, and upon five days'
written notice to Borrower, begin accruing interest on this Note, at a rate not
to exceed five percent (5%) per annum in excess of the greater of (a) the rate
of interest provided for above, or (b) the Prime Rate in effect from time to
time on the unpaid principal balance hereof; provided, however, that no interest
shall accrue hereunder in excess of the maximum rate permitted by law. All such
additional interest shall be payable on demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each Obligor
when addressed to Borrower and deposited in the mail, postage prepaid, for
delivery by first class mail at Borrower's mailing address as it appears on
Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion thereof,
may be credited by Bank to the deposit account of Borrower, or disbursed in any
other manner requested by Borrower and approved by Bank. If Borrower so
requests, Bank may, at its option, disburse the proceeds of this Note in more
than one disbursement on the same or different dates, but except as otherwise
agreed by Bank in writing, no action taken by Bank in response to any such
request shall be deemed to create or shall imply the existence of any commitment
or obligation to pay or credit the undisbursed portion of this Note. All
payments due under this Note are to be made in immediately available funds. If
Bank accepts payment in any other form, such payment shall not be deemed to have
been made until the funds comprising such payment have actually been received by
or made available to Bank. If Borrower is not an individual, Borrower authorizes
Bank (but Bank shall have no obligation) to charge any deposit account in
Borrower's name for any and all payments of principal, interest, or any other
amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest payable hereunder,
Borrower agrees to pay Bank, on demand, all costs and expenses (including
reasonable attorneys' fees and disbursements) which may be incurred by Bank in
the collection of this Note or the enforcement of Bank's rights and remedies
hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this Note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance by Borrower of this Note have been
duly authorized and are not in conflict with any provision of Borrower's
partnership agreement or certificate of limited partnership. Borrower further
represents and warrants that this Note has been validly executed and is
enforceable in accordance with its terms, that the execution, delivery and
performance by Borrower of this Note are not in contravention of law and do not
conflict with any indenture, agreement or undertaking to which Borrower is a
party or is otherwise bound, and that no consent or [ILLEGIBLE] the execution,
delivery and performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor waive presentment, dishonor, notice of
dishonor, protest and notice of protest. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver or modification thereof. No consent, waiver or
modification of the terms of this Note shall be effective unless set forth in a
writing signed by Bank. All rights and remedies of Bank are cumulative and
concurrent and no single or partial exercise of any power or privilege shall
preclude any other or further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest or
against which it has a right of setoff or against any particular Obligor. All
representations, warranties and agreements herein are made jointly and severally
by each Borrower. If any provision of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness, the indebtedness represented by such pre-existing note or other
evidence of indebtedness, the indebtedness represented by such pre-existing note
or other instrument shall not be deemed to have been extinguished hereby. In the
event that any due date specified or otherwise provided for in this Note shall
fall on a day on which Bank is not open for business, such due date shall be
postponed until the next banking day, and interest and any fees or similar
charges shall continue to accrue during such period of postponement. This Note
has been delivered in and shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania without regard to the law of
conflicts. This Note shall be binding upon each Borrower and each Obligor and
upon their personal representatives, heirs, successors and assigns, and shall
benefit Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGND PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETER SOUNDING IN TORT, CONTRACT
OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.
- --------------------------------------------------------------------------------
Name of Corporation
or Partnership Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
- --------------------------------------------------------------------------------
By: /s/ William Muller By: /s/ William C. Muller
- -------------------------------- ----------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
William C. Muller, Jr. President William Charles Muller, Secretary
- -------------------------------- -----------------------------------
(Print or Type Name and Title of (Print or Type Name and Title of
Signer Above) Signer Above)
INDIVIDUALS SIGN BELOW
- -------------------------------- -----------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------- -----------------------------------(Seal)
(Print or Type Name of Above (Print or Type Name of Borrower Signing
Witness) Above)
- -------------------------------- -----------------------------------(Seal)
(Signature of Witness) (Signature of Individual Borrower)
- -------------------------------- -----------------------------------(Seal)
(Print or Type Name of Above (Print or Type Name of Borrower Signing
Witness) Above)
<PAGE>
DEALER FLOOR PLAN AGREEMENT
This Floor Plan Agreement is an extension and modification of a certain
Business Loan and Security Agreement-Motor Vehicle Floor Plan Financing
Agreement dated February 28, 1995 and Business Loan and Security Agreement-Motor
Vehicle Floor Plan Financing Agreement dated May 30, 1995.
Floor Plan Agreement ("Agreement") made this 20th day of January, 1998, by
and between Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc., a New Jersey
corporation with a principal place of business located at Route 173 & Voorhees
Road, P.O. Box 311, Phillipsburg, New Jersey, (hereafter, and if more than one,
jointly, severally, referred to and obligated as, "Dealer"), and CORESTATES
BANK, N.A., a national banking association with a place of business located at
747 Dresher Road, Suite 102, Hersham, Pennsylvania 19044 ("Bank").
Dealer has requested that Bank establish a Floor Plan Line of Credit
("Line") pursuant to which Bank may make loans and advances to finance Dealer's
purchase of motor vehicle Inventory (as hereinafter defined); and Bank is
willing to do so under the terms and subject to the conditions set forth in this
Agreement and in all related instruments, agreements, and documents ("Loan
Documents").
The parties, intending to be legally bound, covenant and agrees as
follows:
ARTICLE I
LINE LIMIT
Section 1.01
a) Line Limit. Under the terms and subject to the conditions set forth in
this Agreement and Bank's continuing satisfaction with the financial and
business operations of Dealer, Bank will establish the Line for the benefit of
Dealer under which Bank, in its sole and absolute discretion, may make loans,
advances, and other extensions of credit to or for the benefit of Dealer
(collectively the "Loans" and individually referred to as a "Loan") from time to
time upon the request of the Dealer submitted in the manner hereinafter defined,
to finance Dealer's purchase of motor vehicle Inventory acceptable to Bank or to
refinance amounts previously advanced by Bank to Dealer to finance Inventory
purchases, provided, however, that the aggregate principal amount outstanding
for all such Loans shall not, at any one time, exceed the maximum amount
established between Dealer and Bank. This limit may also be subject to
sub-limits for new vehicles and "program cars," or for used vehicles. Any
amounts stated herein or in any Loan Documents shall mean lawful money of the
United States.
(1)
<PAGE>
b) Credit Limit. Bank may, from time to time, based upon the financial or
other conditions of Dealer raise or lower the Line Limit. Upon such notice the
Agreement shall be deemed to be revised to reflect the new limit. Bank expressly
reserves, in its commercially reasonable discretion, the right to decline to
make any Loan(s) requested by Dealer hereunder.
Section 1.02 Termination. The Line shall terminate upon Bank's demand for
payment therefor. Upon demand all amounts due under this Agreement or the Note
representing the obligations hereunder are immediately due and payable.
Compliance with Bank lending policies does not negate the Bank's right to demand
payment.
ARTICLE II
GENERAL TERMS
Section 2.01 Loans. Each request for a Loan under the Line will be made on such
form or in such manner as may be approved by Bank from time to time. Each
request for a Loan shall be deemed, as of the date thereof, a reaffirmation by
Dealer of the representations and warranties set forth in the Loan Documents.
All Loans shall be evidenced by, and repaid in accordance with the Note.
Section 2.02 Financing Terms. Certain financing terms and policies, including,
but not limited to the percentage of Dealer's acquisition price of any item (as
hereinafter defined) to be advanced pursuant to this Agreement will be
established or modified by Bank from time to time by prior written notice to
Dealer ("Financing Terms").
Section 2.03 Inventory. For purposes of this Agreement, "Inventory" means any
new, program or used inventory as that term is defined in the Uniform Commercial
Code of the jurisdiction designated below, as amended, whether now or hereafter
owned, acquired, or possessed by Dealer, including without limitation, all
tangible personal property: (i) held by Dealer or an consignee of Dealer for
sale or lease; (ii) returned or repossessed following a sale thereof by the
Dealer, including, but not limited to automobiles, or other motor vehicles,
including all demonstrator units, parts, and accessories, together with all
materials, additions, equipment, accessions, related, attached or added thereto
and all substitutions and replacements thereof. An item of Inventory financed
hereunder is an "Item".
Section 2.04 Security for the Loans. As security for the Loans and for all
amounts payable hereunder and under the Note, as well as for all other existing
and future liabilities, whether absolute or contingent, due or to become due, of
the Dealer to Bank, the Bank shall have a valid, perfected first lien on and
security interest in the following collateral ("Collateral"):
a) All of the Dealer's accounts receivable, new & used vehicle inventory,
documents of title, contract rights, contracts, documents; all deposits of
Dealer held by Bank in any account; all books and records of Dealer wherever
maintained and any cash and non-cash proceeds.
(2)
<PAGE>
b) A mortgage lien on the Dealer's real property located at N/A
Section 2.05 Power of Attorney. Dealer hereby appoints any attorney, employee,
officer, agent or representative of Bank as Dealer's true and lawful
attorney-fin-fact, with power.
a) To endorse the name of Dealer upon: (1) any promissory notes, security
agreements, UCC statements and continuations thereof, and any other documents
required by Bank; (2) any and all other notes, checks, drafts, money orders or
other instruments of payment; (3) any instruments arising out of the sale or
other disposition of any Collateral, including releases and satisfactions; and
(4) any check which may be payable to Dealer for returned or unearned premiums
or the proceeds of insurance.
b) To sign and endorse the name of Dealer upon drafts drawn on person
liable, directly or indirectly, on any account, and on assignments,
verifications, notices, invoices, freight or express bills, bills of lading,
storage or warehouse receipts and similar items.
c) To give written notices (1) to account debtors in connection with
accounts; and (2) upon the occurrence of any event of default hereunder, to give
written notice to the United States Postal Service to effect changes of address
so that all mail addressed to Dealer may be delivered directly to Bank (Bank
will promptly return to Dealer all mail not related to the liabilities or the
Collateral), and to open all mail.
Granting unto said attorney full power to do any and all things necessary
to be done with respect to the above as fully and effectively as Dealer might or
could do, with full power of substitution, and hereby ratifying and confirming
all its said attorney or its substitutes shall lawfully do or cause to be done
by virtue hereof. This power of attorney, being coupled with an interest, shall
be irrevocable until all amounts or obligations hereunder are paid and performed
in full, and shall survive an dissolution or liquidation of Dealer.
Section 2.06 Downpayment and Assignment of Title. Dealer agrees that on or
before accepting delivery of any Item it will pay or cause to be paid the
supplier thereof, in cash and not by credit (whether extended by the supplier or
any other person or entity), the full amount(s) required pursuant to the
Financing Terms. Dealer hereby authorizes Bank, at its option, to pay the
proceeds of the Loans directly to the supplier, which Bank may pay against any
invoice/draft or other evidence of the shipment of Inventory to Dealer, without
any duty to inquire as to its truthfulness or correctedness. Dealer acknowledges
that it is unconditionally liable to repay such Loans with interest, even if
such Inventory is not shipped to or received by Dealer. Dealer further
acknowledges that is acquires each item subject to Bank's lien and security
interest therein and Dealer hereby irrevocably authorizes the supplier to
deliver to Bank, upon Bank's written request, a certificate of origin, title
certificate, or other evidence of ownership, evidencing a first perfected
security interest in favor of Bank in, or unencumbered title to, each Item, and
all other documents and certificates necessary to evidence the same, and that
Dealer shall hold in trust for Bank, any certificate of origin, title
certificate or other instrument evidencing title to an Item until requested to
be delivered to Bank.
(3)
<PAGE>
Section 2.07 Inventory Risks. Dealer shall not be relieved of any of the
liabilities because any Item fails to conform to the manufacturer's, supplier's,
or dealer's warranties or because any Item may be lost, stolen, destroyed or
damaged.
Section 2.08 Indemnification. Dealer agrees to comply with all requirements of
all applicable state, federal and local laws, regulations and ordinances
regulating the sale or leasing of goods and/or motor vehicles, and/or the
performance of services by Dealer, and at all times to carry on its business in
a lawful manner. Dealer hereby agrees to indemnify, defend and hold harmless the
Bank from and against all liability and claims, including all interest, counsel
fees, and costs expended by Bank in connection with the foregoing, asserted
against Bank by any person in connection with any proceeding, action, or
arbitration, related to any breach by Dealer of this Agreement or the other Loan
Documents, or of any contract, warrant, law or regulation regarding the use,
sale, lease or other disposition of any Collateral. The foregoing
indemnification shall survive termination of the Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Dealer represents and warrants to the Bank that:
Section 3.01 Incorporation, Good Standing, and Due Qualifications. To the extent
that Dealer, each of its subsidiaries, and any guarantor is a corporation, it is
duly incorporated, validly existing, and in good standing under the laws of
jurisdiction of its incorporation or any jurisdiction where qualification is
required, has the corporate power and authority to own its assets to transact
the business in which it is now engaged or proposed to be engaged.
Section 3.02 Corporate Power. The execution, delivery, and performance by the
Dealer of the documents have been duly authorized by all necessary corporate
action and are legal, valid, and binding obligations of the Dealer.
Section 3.03 Financial Statements. All financial statements now or hereafter
furnished to Bank, are complete and correct, in accordance with GAAP
consistently applied (subject to year-end adjustments in the case of interim
financial statements), and there has been no material adverse change in the
condition or operations of the Dealer or any subsidiary.
Section 3.04 Litigation. There is no pending or threatened action, proceeding,
order or judgment against or affecting the Dealer before any court, governmental
agency, or arbitrator or any agreement to which it is a party, which may
materially adversely affect Dealer's financial condition, operations, or ability
to perform obligations under the Loan Documents.
(4)
<PAGE>
Section 3.05 Ownership and Liens. The Dealer and each subsidiary has title to,
or valid leasehold interests in, all of its properties and assets, real and
personal. Dealer will not sell, transfer, lease or otherwise dispose of all or
(except in the ordinary course of business) any material part of its assets.
Dealer will not mortgage, pledge, grant or permit to exist a security interest
in or lien on any of its assets of any kind, real or personal, tangible or
intangible, now-owned or hereafter acquired, except in favor of the Bank.
Section 3.06 ERISA. The Dealer and each subsidiary are in compliance in all
material respects with all applicable provisions of ERISA.
Section 3.07 Operation of Business. The Dealer and its subsidiaries and any
guarantor possess all franchises, licenses, permits, patents, copyrights,
trademarks, and trade names, or rights thereto, to conduct their respective
businesses substantially as now conducted, and are not in violation thereof.
Section 3.08 Taxes. The Dealer and each of its subsidiaries and any guarantor
have filed all tax returns (federal, state and local) required to be filed and
have paid all taxes, assessments, and governmental charges thereon to be due,
including interest and penalties.
Section 3.09 Debt. The Dealer is not indebted under any credit agreement,
indenture, guaranty, capital lease, or other agreement except as disclosed in
the Dealer's financial statements or as otherwise previously disclosed to the
Bank in writing. Dealer will not hereafter become liable, directly or
indirectly, as guarantor, surety, endorser or otherwise for any debt, liability
or obligation of any other person or entity, except for endorsement of
commercial paper for deposit or collection in the ordinary course of business,
and except such as maybe in favor of Bank.
Section 3.10 Environmental Matters. To the best of Dealer's knowledge, no real
property owned or leased by the Dealer or any subsidiary or any guarantor is in
violation of any Environmental Laws ("Environmental Laws" shall mean the
Comprehensive Environmental Response, Comprehensive and Liability Act, as
amended, and any other presently existing or hereafter enacted or decided
federal, state or local statutory or common laws relating to pollution or
protection of the environment and any regulations or rules promulgated
thereunder); any hazardous materials present on said real property are
appropriately stored and handled; and neither the Dealer nor any subsidiary nor
any guarantor has been identified in any litigation, administrative proceedings
or investigations as a responsible party for any liability under any
Environmental Laws.
Section 3.11 Maintenance of Insurance. Dealer maintains, and causes each
subsidiary to maintain, insurance with financially sound and reputable insurance
companies in such amounts and covering such risks as are usually carried by
companies, in the same business, which insurance may provide for reasonable
deductibility from coverage thereof.
(5)
<PAGE>
Section 3.12 Right of Inspection. At any reasonable time and from time to time,
permit the Bank or any agent or representative thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, and to discuss the affairs, finances, and accounts of the Dealer
and any subsidiary with any of their respective officers, directors and
accountants.
Section 3.13 Bank's Lending Policies. Dealer agrees to strictly adhere to Bank's
Lending Policies as set forth on the attached Schedule A; However, adherence
shall not deny the Bank the right to demand payment.
Section 3.14 Facsimile Authorization. Dealer agrees and authorizes Bank to
transact business with Dealer on the basis of instructions, agreements or
documentation provided by facsimile transmission all in accordance with the Fax
Authorization provided as Schedule B.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Notices, Etc. All notices and other communications provided for
under this Agreement and the Loan Documents shall be in writing (including
telegraphic, telex, and facsimile transmissions) and mailed or transmitted or
delivered to the parties at the addresses shown above, or at such other address
as shall be designated in a written notice to the other party. Notices to the
Bank pursuant to the provisions of the Agreement shall be effective when
received by the Bank. Other notices shall be effective upon deposit in the mail.
Section 4.02 No Waiver. No failure on the part of the Bank to exercise, and no
delay in exercising, any right, power, or remedy under any Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise thereof,
or the exercise thereof or the exercise of any other right.
Section 4.03 Successors and Assigns. This Agreement shall be binding upon the
Dealer and the Bank and their respective successors and assigns, except that the
Dealer may not assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Bank.
Section 4.04 Costs, Expenses, and Taxes. The Dealer agrees to pay on demand all
costs and expenses in connection with the preparation, execution, delivery,
filing, recording, administration and enforcement of any of the Loan Documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank.
Section 4.05 Governing Law. This Agreement and the Note shall be governed by,
and construed in accordance with, the laws of New Jersey.
(6)
<PAGE>
Section 4.06 Severability of Provisions. If any provision of any Loan Document
is prohibited or held to be unenforceable, such unenforceability shall not
effect the validity or enforceability of any other provision.
Section 4.07 Survival of Agreement. All terms of the Agreement shall continue in
full force and effect so long as the Note or any amounts due hereunder are
outstanding and unpaid.
Section 4.08 Headings. Headings are included for reference only and not for any
other purpose.
Section 4.09 CONSENT TO JURISDICTION AND VENUE. IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE NOTE OR THE RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED
PARTY HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED IN ANY COUNTY IN New Jersey WHERE BANK MAINTAINS AN
OFFICE, AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR THE LAYING
OR MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH
UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE
DULY EFFECTIVE UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE
PREPAID, TO EACH UNDERSIGNED PARTY.
Section 4.10 WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY HEREBY WAIVES, AND
BANK BY ITS ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL
PROCEEDING INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE
OR THE RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers, duly authorized, as of the date first above written.
CoreStates Bank, N.A. Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
By: /s/ [Terry L. Berean] By: /s/ [William C. Muller, Jr.]
- ------------------------- ----------------------------------------------
Terry L. Berean, V.P. William C. Muller, Jr., President
By: /s/ [William C. Muller]
----------------------------------------------
William Charles Muller, Secretary
(7)
<PAGE>
GUARANTY
The undersigned hereby grants the prompt payment and performance of all Dealer's
Loans when due, with the intent to be legally bound.
Attest/Witness:
By: /s/ [Terry L. Berean] By: /s/ [William C. Muller, Jr.]
- ------------------------- ----------------------------------------------
Terry L. Berean William C. Muller, Jr.
By: /s/ [Terry L. Berean] By: /s/ [Michele Muller]
- ------------------------- ----------------------------------------------
Terry L. Berean Michele Muller
By: By: /s/ [William C. Muller]
- ------------------------- ----------------------------------------------
Terry L. Berean William Charles Muller
Rellum Realty
By: /s/ [Terry L. Berean] By: /s/ [William C. Muller, Jr.]
- ------------------------- ----------------------------------------------
Terry L. Berean William C. Muller, Jr., Partner
By: /s/ [William C. Muller, Jr.]
----------------------------------------------
William C. Muller, Partner
Muller Automotive Group
By: /s/ [Terry L. Berean] By: /s/ [William C. Muller, Jr.]
- ------------------------- ----------------------------------------------
Terry L. Berean William C. Muller, Jr., President
By: /s/ [William C. Muller]
----------------------------------------------
William Charles Muller, Secretary
(8)
<PAGE>
Schedule A to Dealer Floor Plan Agreement
Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
Schedule A
Bank's Lending Policies
1. New Vehicle Floor Plan Line
Eligible Items: New vehicle inventory, consisting of current year new vehicles
held for resale. Items financed by the floor plan line are
limited to items for which Dealer has a franchise.
Advance Rate: Advances will be limited to manufacturers' draft amount or
100% of invoice amount if acquired through another dealer
through purchase or dealer trade. No amounts, in addition to
original cost, will be advanced for modifications/conversions
that would exclude the item from the repurchase agreement from
the manufacturer.
Demonstrators: -Definition: New vehicles financed on the floor plan line for
the purpose of allowing customers to test drive current model
items or for the use of full-time dealership employees or
immediate family members of the dealership's owner.
-Any out of state demonstrator is limited to the owner or
his/her immediate family.
-Total number of demonstrators will not exceed two (2) items.
-Demonstrators will be taken out of service at 6000 miles.
Curtailment
Requirements: -New vehicle leftovers will be curtailed at 5% per month,
beginning July 1 of the year subsequent to the model year
until the unit is paid in full.
-Demonstrators, shop loaners and driver training vehicles will
be curtailed 2% per month beginning on the month they enter
service.
-New vehicles with mileage in excess of 6000 miles will be
curtailed 10% of the original principal balance per month
until paid in full.
2. Used Vehicle Floor Plan Line
Eligible Items: Used vehicle inventory, consisting of vehicles held for
resale. Eligible items can be no older than five model years.
Advance Rate: Advances will be limited to 80% of NADA wholesale valuation or
auction price supported by a copy of the bill of sale. Mileage
information will be provided on all used items.
Curtailment
Requirements: Used vehicles must be paid in full within 6 months.
1
<PAGE>
Schedule A to Dealer Floor Plan Agreement
Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
Page 2
General Terms and Conditions
A. Dealer must submit payment on sold units immediately upon receipt of the
money from the funding source. In no event may units remain unpaid after 5
business days if being retail financed or 10 business days if being lease
financed. Failure to comply will result in a $250.00 fee per audit performed.
B. The Bank will conduct periodic audits of the items on the floor plan. Dealer
agrees to cooperate with the audit staff in their inspection. Dealer will make
available for inspection vehicle titles, certificates of origin and associated
documents upon request.
C. All inventory, vehicle titles and certificates of origin will be kept at
Dealer's principal place of business.
D. Dealer will maintain its main operating accounts with Bank.
E. Dealer agrees to provide the following financial information to Bank:
1. Within 15 days of each month end, company prepared factory financial
statements.
2. Within 90 days of each fiscal year ended, financial statements
prepared by a Certified Public Accounting firm. The statements will
have no less than a Review opinion.
3. Annually, Personal Financial Statements, on CoreStates forms, on all
Guarantors.
F. Dealer will maintain sufficient comprehensive insurance coverage, including
adequate fire, hazard, liability, theft and collision coverage on all vehicle
inventory, and all other Dealer's assets. Insurance coverage will be evidenced
by a policy issued by an insurer acceptable to the Bank and naming Bank as loss
payee. The amount of insurance coverage will at all times be sufficient to cover
all balances on the floor plan line.
G. Dealer will report immediately to Bank any material damage occurring to an
item on floor plan. Any item damaged in excess of 25% of cost will be curtailed
in full.
H. Dealer will provide the manufacturer's repurchase agreements, in favor of the
Bank, on all new inventory.
I. Dealer agrees that there will be no additional borrowings without prior Bank
approval.
Muller Chevrolet, Oldsmobile, Geo, Isuzu, Inc.
By: /s/ [William C. Muller, Jr.]
-------------------------------------------
William C. Muller, Jr., President
2
[LOGO] FORD MOTOR COMPANY
AUTOMOTIVE WHOLESALE INSTALLMENT
SALE AND SECURITY AGREEMENT
To: Ford Motor Company (hereinafter called "Ford") Date: 11/28/90
The undersigned Shakers, Inc. (hereafter
---------------------------------------------
(DEALER'S EXACT BUSINESS NAME)
called "Dealer") of 1355 SOUTH MAIN STREET WATERBURY CT 06706
------------------------------------------------------
(STREET AND NUMBER) (CITY) (STATE) (ZIP CODE)
proposes to buy certain merchandise (hereinafter called "Merchandise" from Ford
on an installment basis subject to the following provisions of this Agreement:
1. Installment Sales
Sales shall be made pursuant to the terms of an Installment Sale Contract
(hereinafter called the "Contract"), a copy of which is attached hereto. Subject
to the provisions of the Sales and Services Agreement (hereinafter called the
Sales Agreement) between Dealer and Ford, Ford may change the terms of the
Contract by giving reasonable notice to Dealer of the change and stating an
effective date for the implementation of the new contract. Notwithstanding the
provisions of the Sales Agreement, any sale of Merchandise made by Ford to
Dealer pursuant to this Agreement will be on an installment basis rather than
for cash. The invoice covering any item of Merchandise sold by Ford to Dealer on
an installment basis shall be subject to the provisions of this Agreement and
the provisions of the Contract furnished to Dealer covering such item of
Merchandise.
Ford at all times shall have the right in its sole discretion to determine the
extent to which it will sell Merchandise to Dealer under Contracts. Ford shall
provide notice to Dealer of the effective date on and after which the sale of
Merchandise to Dealer will be made on an installment basis pursuant to the
provisions of this Agreement. Ford may terminate the sale of Merchandise to
Dealer on an installment basis by giving notice to Dealer stating an effective
date for such termination.
The Purchase Date set forth in the Contract with respect to each item of
Merchandise sold on an installment basis to the Dealer shall be as of the
delivery date of the Merchandise to the carrier or to the Dealer, whichever
occurs first.
2. Installment Sale Contracts
Ford shall furnish copies of Contracts to Dealer. Dealer shall review the same
promptly upon receipt and advise Ford in writing of any discrepancy therein. If
Dealer shall fail to advise Ford of any discrepancy in any such Contract within
ten calendar days following the receipt thereof by Dealer, such Contract shall
be deemed to be conclusive evidence of sale made on the Purchase Date by Ford
pursuant hereto unless Dealer or Ford establishes by a preponderance of evidence
that such installment sale was not made or was made in different amounts than as
set forth in such Contract.
3. Interest and Service and Insurance Flat Charges
All Contracts shall bear interest from the delivery date of the Merchandise to
the carrier or to the Dealer, whichever occurs first, to the date of repayment
in good funds by Dealer at the rates established by Ford or its assignee from
time to time for Dealer, except that any amount not paid when due hereunder
shall bear interest at a rate that is four percentage points higher than the
current pre-default rate up to the maximum contract rate permitted by law of the
state where the Dealer maintains his business as set out above. In addition to
interest, the installment sale of Merchandise pursuant hereto shall be subject
to service and insurance flat charges established by Ford or its assignee from
time to time for Dealer.
Dealer shall be advised in writing from time to time of any change in the
interest rate and service and insurance flat charges applicable to Dealer and
the effective date of such change. Such change shall not become effective,
however, if Dealer elects to terminate this Agreement and pay the full unpaid
balance outstanding under Contracts and all other amounts due or to become due
hereunder in good funds within ten calendar days after the receipt of such
notice by Dealer.
4. Payments by Dealer
The aggregate amount outstanding from time to time of all Contracts and all
other amounts outstanding to Ford and its assignee with respect to wholesale
financing of merchandise shall constitute a single obligation of Dealer,
notwithstanding that installment sales or advances are made from time to time.
5. Ford's Security Interest
As security for all Contracts or other advances now or hereafter made by Ford
and its assignee, and for the observance and performance of all other
obligations of Dealer to Ford or its assignee in connection with the wholesale
financing of merchandise for Dealer, Dealer hereby grants to Ford and its
assignee a security interest in the Merchandise now owned or hereafter acquired
by Dealer and in the proceeds, in whatever form, of any sale or other
disposition thereof; and Dealer hereby assigns to Ford and grants to Ford a
security interest in, all amounts that may now or hereafter be payable to Dealer
by the manufacturer, distributor or seller of any of the Merchandise by way of
rebate or refund of all or any portion of the purchase price thereof.
6. Dealer's Possession and Sale of Merchandise
Dealer's possession of the Merchandise shall be for the sole purpose of storing
and exhibiting the same for sale or lease in the ordinary course of Dealer's
business. Dealer shall keep the Merchandise brand new and subject to inspection
by Ford and free from all taxes, liens and encumbrances, and any sum of money
that may be paid by Ford in release or discharge of any taxes, liens or
encumbrances on the Merchandise or on any documents executed in connection
therewith shall be paid by Dealer to Ford upon demand. Except as may be
necessary to remove or transport the same from a freight depot to Dealer's place
of business, Dealer shall not use or operate, or permit the use or operation of,
the Merchandise for demonstration, hire or otherwise without the express prior
written consent of Ford in each case, and shall not in any event use the
merchandise illegally or improperly. Dealer shall not mortgage, pledge or loan
any of the Merchandise, and shall not transfer or otherwise dispose of the same
except by sale or lease in the ordinary course of Dealer's business. Any and all
proceeds of any sale, lease or other disposition of the Merchandise by Dealer
shall be fully, faithfully and promptly accounted for and remitted by Dealer to
Ford to the extent of Dealer's obligation to Ford with respect to the
Merchandise. As used in this paragraph 6, (a) "sale in the ordinary course of
Dealer's business" shall include only (i) bona fide retail sale to a purchaser
for his own use at the fair market value of the Merchandise sold and (ii) an
occasional sale of such Merchandise to another dealer at a price not less than
Dealer's cost of the Merchandise sold, unless such sale is a part of a plan or
scheme to liquidate all or any portion of Dealer's business, and (b) "lease in
the ordinary course of Dealer's business" shall include only a bona fide lease
to a lessee for his own use at a fair rental value of the Merchandise leased.
7. Risk of Loss and Insurance Requirements
The Merchandise shall be at Dealer's sole risk of any loss or damage to the
same, except to the extent of any insurance proceeds actually received by Ford
with respect thereto under insurance obtained by Ford. Dealer shall indemnify
Ford against all claims for injury or damage to persons or property caused by
the use, operation or holding of the Merchandise, and, if requested to do so by
Ford maintain at its own expense liability insurance in connection therewith in
such form and amounts as Ford may reasonably require from time to time. In
addition, Dealer shall insure each item of the Merchandise that is or may be
used for demonstration or operated for any other purpose against loss due to
collision, subject in each case to the deductible amounts and limitations
specified by Ford.
If Dealer fails to furnish acceptable evidence of any insurance required
hereunder, Ford may, but shall not be required to, obtain such insurance at
Dealer's expense.
8. Credits
All funds or other property belonging to Ford and received by Dealer shall be
remitted to Ford pursuant hereto. Ford, at all times, shall have a right to
offset and apply any and all credits, monies or properties of Dealer in Ford's
possession or control against any obligation of Dealer to Ford.
9. Information Concerning Dealer
To induce Ford to sell merchandise on an installment basis, Dealer has submitted
information concerning its business organization and financial condition, and
certifies that the same is complete, true and correct in all respects and that
the financial information contained therein and any that may be furnished to
Ford from time to time hereafter does and shall fairly present the financial
condition of Dealer in accordance with generally accepted accounting principles
applied on a consistent basis. Dealer agrees to notify Ford promptly of any
material change in its business organization or financial condition or in any
information relating thereto previously furnished to Ford. Dealer acknowledges
and intends that Ford shall rely, and shall have the right to rely, on such
information in extending and continuing to extend financing accommodations to
Dealer. Dealer hereby authorizes Ford from time to time and at all reasonable
times to examine, appraise and verify the existence and condition of all
Merchandise, documents, commercial or other paper and other property in which
Ford has or has had any title, title retention, lien, security or other
interest, and all of Dealer's books and records in any way relating to its
business.
<PAGE>
10. Default
The following shall constitute an Event of Default hereunder:
(a) Dealer shall fail to promptly pay any amount now or hereafter owning to Ford
or its assignee hereunder or under any other agreement as and when the same
shall become due and payable, or
(b) Dealer shall fairly to duly observe or perform any other obligation secured
hereby, or
(c) any representation made by Dealer to Ford shall prove to have been false or
misleading in any material respect as of the date on which the same was made, or
(d) a proceeding in bankruptcy, insolvency or receivership shall be instituted
by or against Dealer or Dealer's property.
Upon the occurrence of an Event of Default Ford may accelerate, and declare
immediately due and payable, all or any part of the unpaid balance of all
Contracts made hereunder together with accrued interest and flat charges,
without notice to anyone. In addition, Ford may take immediate possession of all
property in which it has a security interest hereunder, without demand or other
notice and without legal process. For this purpose and in furtherance thereof if
Ford so requests, Dealer shall assemble such property and make it available to
Ford at a reasonably convenient place designated by Ford, and Ford shall have
the right, and Dealer hereby authorizes and empowers Ford, its agents or
representatives, to enter upon the premises wherever such property may be and
remove same. In the event Ford acquires possession of such property or any
portion thereof, as hereinbefore provided, Ford may, in its sole discretion (i)
sell the same, or any portion thereof, after five days' written notice, at
public or private sale for the account of Dealer, (ii) declare this agreement,
all wholesale transactions and Dealer's obligations in connection therewith to
be terminated and cancelled and retain any sums of money that may have been paid
by dealer in connection therewith, and (iii) enforce any other remedy that Ford
may have under applicable law. Dealer agrees that the sale of any new and unused
repossessed property to the manufacturer, distributor or seller thereof, or to
any person designated by such manufacturer, distributor or seller, at the
invoice cost thereof to Dealer less any credits granted to Dealer with respect
thereto and reasonable costs of transportation and reconditioning, shall be
deemed to be a commercially reasonable means of disposing of the same. Dealer
further agrees that if Ford shall solicit bids from three or more other dealers
in the type of property repossessed by Ford hereunder, any sale by Ford of such
property in bulk or in parcels to the bidder submitting the highest cash bid
therefor also shall be deemed to be a commercially reasonable means of disposing
of the same. Dealer understands and agrees, however, that such means of disposal
shall not be exclusive and that Ford shall have the right to dispose of any
property repossessed hereunder by any commercially reasonable means. Dealer
agrees to pay reasonable attorneys' fees and legal expenses incurred by Ford in
connection with the repossession and sale of any such property. Ford's remedies
hereunder are cumulative and may be enforced successively or concurrently.
11. General
Dealer waives the benefit of all homestead and exemption laws and agrees that
the acceptance by Ford of any payment after it may have become due or the waiver
by Ford of any other default shall not be deemed to alter or affect Dealer's
obligations or Ford's right with respect to any subsequent payment or default.
Neither this agreement, nor any other agreement between Dealer and Ford nor any
funds payable by Ford to Dealer, shall be assigned by Dealer without the express
prior written consent of Ford in each case.
Any provision hereof prohibited by any applicable law shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof. Except as herein provided, no modification hereof may be made except by
a written instrument duly executed by, or pursuant to the express written
authority of, an exclusive officer of Ford.
Dealer shall execute and deliver to Ford promissory notes or other evidences of
Dealer's indebtedness hereunder, security agreements, trust receipts, chattel
mortgages or other security instruments and any other documents which Ford may
reasonably request to confirm Dealer's obligations to Ford and to confirm Ford's
security interest in the Merchandise covered by Contracts or in any other
property as provided hereunder, and in such event the terms and conditions
hereof shall be deemed to be incorporated therein. Ford's security or other
interest in any Merchandise shall not be impaired by the delivery to Dealer of
Merchandise or of bills of lading, certificates of origin, invoices or other
documents pertaining thereto or by the payment by Dealer of any curtailment,
security or other deposit or portion of the amount financed. The execution by
Dealer or on Dealer's behalf of any document for the amount of any credit
extended shall be deemed evidence of Dealer's obligation and not payment
thereof. Ford may, for and in the name of Dealer, endorse and assign any
obligation transferred to Ford by Dealer and any check or other medium of
payment intended to apply upon such obligation. Ford may complete any blank
space and fill in omitted information on any document or paper furnished to it
by Dealer.
Unless the context otherwise clearly requires, the terms used herein shall be
given the same meaning as ascribed to them under the provisions of the Uniform
Commercial Code. Section headings are inserted for convenience only and shall
not affect any construction or interpretation of this agreement.
It is Ford's intention to assign Contracts from time to time to the person
designated as the assignee in such Contract. Upon the assignment of Contract by
Ford, the assignee shall have all of the rights of Ford hereunder with respect
to such Contract and the Merchandise covered thereby.
This agreement shall be interpreted in accordance with the laws of the state of
the Dealer's place of business set out above.
12. Acceptance and Termination
Dealer waives notice of Ford's acceptance of this Agreement and agrees that it
shall be deemed accepted by Ford at the time Ford shall first sell Merchandise
to Dealer on an installment basis. This agreement shall be binding on Dealer and
Ford and their respective successors and assignees from the date thereof until
terminated by receipt of a written notice by either party from the other, except
that any such termination shall not relieve either party from any obligation
incurred prior to the effective date thereof.
Witness or Attest: SHAKERS, INC.
-----------------------------------
(DEALER'S EXACT BUSINESS NAME)
Secretary /s/ [Rose Shaker] By: /s/ [Signature] Title President
- ------------------------------- ------------------- -----------
<PAGE>
POWER OF ATTORNEY FOR WHOLESALE INSTALLMENT SALE CONTRACT
KNOW ALL MEN BY THESE PRESENTS: That the undersigned dealer does hereby make,
constitute and appoint James A. Courter, David N. McCammon, and Alexander J.
Trotman, all of Dearborn, Michigan and each of them and any other officer or
employee of Ford Motor Company, a Delaware corporation in Dearborn, Michigan,
its true and lawful attorneys with full power of substitution, for and in its
name, stead and behalf, to prepare, make, execute, acknowledge and deliver to
Ford Motor Company from time to time installment sale contracts and other title
retention or security instruments necessary or appropriate in connection with
the installment sale by Ford Motor Company of merchandise to the undersigned
dealer and generally to perform all acts and to do all things necessary or
appropriate in discharge of the power hereby conferred, including the making of
affidavits and the acknowledging of instruments, as fully done by the
undersigned dealer, and each of the said attorneys hereby is further authorized
and empowered in the discharge of the power hereby conferred to execute any
instruments by means of either a manual, imprinted or other facsimile signature
or by completing a printed form to which an imprinted or other facsimile
signature is then affixed.
This Power of Attorney is executed by the undersigned dealer to induce Ford
Motor Company to sell on an installment basis merchandise to be acquired by the
undersigned dealer and recognizes that documents evidencing such sales are
produced at places other than the undersigned dealer's place of business, and
that it is impractical for the undersigned dealer to execute the installment
sale contract and other title retention or security instruments necessary or
appropriate in connection with such sales without unduly delaying the delivery
of such merchandise to the undersigned dealer. Accordingly, this Power of
Attorney may be revoked by the undersigned dealer only by notice in writing
addressed to Ford Motor Company, Dearborn, Michigan by registered mail, return
receipt requested, stating an effective date on or after the receipt thereof by
Ford Motor Company.
Dated this 28 day of November, 1990
Witness or Attest: SHAKERS, INC.
-----------------------------------
(DEALER'S EXACT BUSINESS NAME)
Secretary /s/ [Rose Shaker] By: /s/ [Signature] Title President
- ------------------------------- ------------------- -----------
State of Connecticut
ss.
County of New Haven
On this 28 day of November, 1990, before me, the undersigned Notary Public,
personally appeared Edward Shaker (PERSON SIGNING FOR DEALER) who acknowledged
himself to be the President (TITLE) of Shakers, Inc. (DEALER'S NAME), the
grantor of the foregoing Power of Attorney, and that he, being authorized so to
do, executed the foregoing Power of Attorney for the purposes therein contained,
by signing the name of the said grantor by himself in the capacity indicated.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ [Richard Shaker]
- ----------------------------------
NOTARY PUBLIC
NOTARY'S
My commission expires March 31, 1991 SEAL
CERTIFIED COPY OF RESOLUTION OF BOARD OF DIRECTORS
The undersigned hereby certifies that he is the Secretary of SHAKERS, INC.
(DEALER'S EXACT CORPORATE NAME) of 135 SOUTH MAIN STREET WATERBURY, CT. 06706
(DEALER'S ADDRESS) and that the following is a true, correct and complete copy
of resolutions adopted by the board of directors of the said corporation at a
meeting duly called and held on [ILLEGIBLE], 19[ILLEGIBLE], at which a quorum
was present and voting, and that said resolutions are unchanged and are now in
full force and effect.
RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to execute and deliver on behalf of this corporation
the Wholesale Installment Sale and Security Agreement to Ford Motor Company of
Dearborn, Michigan in such form and upon such terms and conditions as the said
Ford Motor Company may require, and to execute and deliver from time to time
Installment Sale Contracts, promissory notes or other evidences of indebtedness,
bearing such rate of interest as the said Ford Motor Company or its assignee may
require from time to time, and trust receipts, chattel mortgages and other title
retention or security instrumentS as, and in such form as, the said Ford Motor
Company or its assignee may require, evidencing any financing extended by the
said Ford Motor Company or its assignee to this corporation under the terms of
the Installment Sale Contract.
FURTHER RESOLVED, That James A. Courter, David N. McCammon, and Alexander J.
Trotman, all of Dearborn, Michigan, and each of them and any other officer or
employee of the said Ford Motor Company be and each of them hereby is
constituted and appointed an attorney-in-fact of this corporation for the
purposes set forth in the Power of Attorney presented to this board of directors
this date, with full power of substitution, and the officers of this corporation
are, and each of them hereby is, authorized and empowered to execute a formal
Power of Attorney in such form.
FURTHER RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to do all other things and to execute all other
instruments and documents necessary or appropriate in the premises.
IN WITNESS WHEREOF I have hereunto set my hand and affixed the corporate seal of
the said corporation this 20th day of November, 19__.
Secretary /s/ [Rose Shaker]
- ------------------------------------
SECRETARY CORPORATE
SEAL
<PAGE>
[LOGO] FORD
AUTOMOTIVE
INSTALLMENT SALE CONTRACT
The Dealer identified below ("Dealer") hereby purchases the merchandise
described below (the "Merchandise") from Ford Motor Company ("Ford"), as of the
purchase date set forth below (the "Purchase Date"), on a deferred payment basis
for the purchase price set forth below (the "Purchase Price"), subject to the
terms and conditions set forth HEREIN.
1. Ford shall have a purchase money security interest in each item of the
Merchandise and in the proceeds, in whatever form, of any sale or other
disposition thereof, until the Purchase Price, together with all interest
and other charges relating to the financing of the Merchandise, have been
fully paid.
2. Dealer promises to pay the Purchase Price for each item of the Merchandise
to Ford in two installments of principal, as follows:
(a) the first installment of principal shall be in an amount equal
to 90% of the Purchase Price and shall be payable on the first
day of the third month following the month of the Purchase
Date for the item of the Merchandise; and
(b) the second installment of principal shall be in an amount
equal to 10% of the Purchase Price and shall be payable on the
first day of the fifth month following the month of the
Purchase Date for the item of the Merchandise.
Notwithstanding the foregoing, the first installment shall be payable no
later than the date on which such item is sold, leased or placed in use by
Dealer and the second installment of principal shall be payable no later
than the first day of the second month following the month in which such
sale, lease or use date occurs.
3. Dealer also promises to pay, upon demand, interest on the unpaid balance
of the Purchase Price and service and insurance flat charges with respect
to the Merchandise at the rates and charges, respectively, established by
Ford or its assignee hereof from time to time for Dealer.
4. Ford, in its sole discretion, may extend the first installment of
principal due hereunder with respect to any item of the Merchandise on a
month-to-month basis, and the failure of Ford to demand the same when due
shall be deemed to be a one month extension of such installment. Any
extension of the first installment of principal to the first day of a
succeeding month shall automatically extend the due date for the second
installment to the first day of the second month following the extended
due date for the first installment. Any such extension, however, shall not
obligate Ford to grant an extension in the future or waive its right to
demand payment when due, and nothing herein shall be deemed a waiver of
Dealer's obligation, hereby confirmed, to pay the first installment of
principal on the date on which the item of the Merchandise is sold, leased
or placed in use by Dealer and the second installment of principal on the
first day of the second month following the month in which the item of the
Merchandise is sold, leased or placed in use by Dealer notwithstanding
that demand therefore has not been made.
5. Dealer and Ford agree that all the provisions of the "Wholesale
Installment Sales and Security Agreement" between Dealer and Ford are
incorporated herein by reference.
6. Ford may assign this Installment Sale Contract. If a financial institution
is identified below as the "Assignee of Contract", Ford, for value
received, hereby sells, assigns and transfers such financial institution,
without recourse, all of Ford's right, title and interest in and to this
Contract and the Merchandise covered hereby.
- -----------------------------------------------------------------------------
VEHICLE IDENTIFICATION NUMBER YEAR MAKE SERIES BODY PURCHASE PURCHASE
STYLE PRICE DATE
(1) (2) (3) (4) (5) (6) (7)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Ford Motor Company
By: By:
--------------------------- -----------------------------
ATTORNEY-IN-FACT
Assignee of Contract:
-----------------------------------------------------
[LOGO] FORD MOTOR COMPANY
AUTOMOTIVE WHOLESALE PLAN
APPLICATION FOR WHOLESALE FINANCING
AND SECURITY AGREEMENT
Date: August 2nd, 1984
To: Ford Motor Credit Company (hereinafter called "Ford Credit")
The undersigned Family Ford, Inc. (hereafter
-------------------------------------------------
(DEALER'S EXACT BUSINESS NAME)
called "Dealer") of 1200 Wolcott Street Waterbury, Connecticut 06705
--------------------------------------------------------
(STREET AND NUMBER) (CITY) (STATE) (ZIP CODE)
hereby requests Ford Credit to establish and maintain for Dealer a wholesale
line of credit to finance new and used automobiles, trucks, truck-tractors,
trailers, semi-trailers, buses, mobile homes, motor homes, other vehicles and
other merchandise (hereinafter called the "Merchandise") for Dealer under the
terms of the Ford Credit Wholesale Plan as set forth in the April, 1979 edition
of the Ford Credit Dealer Manual entitled "Automotive Finance Plans for Ford
Motor Company Dealers" or any subsequent edition thereof (hereinafter called the
"Plan") and in connection therewith to make advances to or on behalf of Dealer,
purchase installment sale contracts evidencing the sale of Merchandise to Dealer
by the manufacturer, distributor or other seller thereof, or otherwise extend
credit to Dealer. In consideration thereof Dealer hereby agrees as follows:
1. Advances by Ford Credit
Ford Credit at all times shall have the right in its sole discretion to
determine the extent to which, the terms and conditions on which, and the period
for which it will make such advances, purchase such contracts or otherwise
extend credit to Dealer (hereinafter called an "Advance" (individually) or
"Advances" (collectively)), under the Plan or otherwise. Ford Credit may, at any
time and from time to time, in its sole discretion, establish, rescind or change
limits or the extent to which financing accommodations under the Plan will be
made available to Dealer. In connection with the purchase of any such contract
and/or other extension of credit, Ford Credit may pay to any manufacturer,
distributor or other seller of the Merchandise the invoice or contract amount
therefor and be fully protected in relying in good faith upon any invoice,
contract or other advice from such manufacturer, distributor or seller that the
Merchandise described therein has been ordered or shipped to Dealer and that the
amount therefor is correctly stated. Any such payment made by Ford Credit to
such manufacturer, distributor or seller, and any loan or other extension of
credit made by Ford Credit directly to Dealer with respect to Merchandise of any
type held by Dealer for sale, shall be an Advance made by Ford Credit hereunder
and, except with respect to any Advance that is a purchase of an installment
sale contract, shall be repayable by Dealer in accordance with the terms hereof.
All rights of Ford Credit and obligations of Dealer with respect to Advances
hereunder that constitute the purchase by Ford Credit of an installment sale
contract shall be pursuant to the provisions of such contract.
From time to time Ford Credit shall furnish statements to Dealer of Advances
made by Ford Credit hereunder. Dealer shall review the same promptly upon
receipt and advise Ford Credit in writing of any discrepancy therein. If Dealer
shall fail to advise Ford Credit of any discrepancy in any such statement within
ten calendar days following the receipt thereof by Dealer, such statement shall
be deemed to be conclusive evidence of Advances made by Ford Credit hereunder
unless Dealer or Ford Credit establishes by a preponderance of evidence that
such Advances were not made or were made in different amounts than as set forth
in such statement.
2. Interest and Service and Insurance Flat Charges
Each Advance made by Ford Credit hereunder shall bear interest at the rates
established by Ford Credit from time to time for Dealer, except that any amount
not paid when due hereunder shall bear interest at a rate that is 4 percentage
points higher than the current pre-default rate up to the maximum contract rate
permitted by the law of the state where Dealer maintains its business as set out
above. In addition to interest, the financing of Merchandise under the Plan
shall be subject to service and insurance flat charges established by Ford
Credit from time to time for Dealer.
Ford Credit shall advise Dealer in writing from time to time of any change in
the interest rate and service and insurance flat charges applicable to Dealer
and the effective date of such change. Such change shall not become effective,
however, if Dealer elects to terminate this Agreement and pay to Ford Credit the
full unpaid balance outstanding under Dealer's wholesale line of credit and all
other amounts due or to become due hereunder in good funds within ten calendar
days after the receipt of such notice by Dealer.
3. Payments by Dealer
The aggregate amount outstanding from time to time of all Advances made by Ford
Credit hereunder shall constitute a single obligation of Dealer, notwithstanding
Advances are made from time to time. Unless otherwise provided in the promissory
note, installment sale contract, security agreement or other instrument
evidencing the same from time to time, Dealer shall pay to Ford Credit, upon
demand, the unpaid balance (or so much thereof as may be demanded) of all
Advances plus Ford Credit's interest and flat charges with respect thereto, and
in any event, without demand, the unpaid balance of the Advance made by Ford
Credit hereunder with respect to an item of the Merchandise at or before the
date on which the same is sold, leased or placed in use by Dealer. Dealer also
shall pay to Ford Credit, upon demand, the full amount of any rebate, refund or
other credit received by Dealer with respect to the Merchandise.
If the promissory note, instalment sale contract, security agreement or other
instrument evidencing an Advance or Advances is payable in one or more
instalments, Ford Credit may from time to time in its sole discretion, extend
any instalment due thereunder on a month-to-month basis, and, except as provided
below or in any instalment sale contract. Ford Credit's failure to demand any
such instalment when due shall be deemed to be a one month extension of the
same. Any such extension, however, shall not obligate Ford Credit to grant an
extension in the future or waive Ford Credit's right to demand payment when due.
Following the sale, lease or use date of an item of the Merchandise, no
instalment shall be deemed extended without Ford Credit's specific written
consent, and Dealer agrees to pay the same, as required, without demand.
4. Ford Credit's Security Interest
As security for all Advances now or hereafter made by Ford Credit hereunder, and
for the observance and performance of all other obligations of Dealer to Ford
Credit in connection with the wholesale financing of Merchandise for Dealer,
Dealer hereby grants to Ford Credit a security interest in the Merchandise now
owned or hereafter acquired by Dealer and in the proceeds, in whatever form, of
any sale or other disposition thereof; and Dealer hereby assigns to Ford Credit,
and grants to Ford Credit a security interest in, all amounts that may now or
hereafter be payable to Dealer by the manufacturer, distributor or seller of any
of the Merchandise by way of rebate or refund of all or any portion of the
purchase price thereof.
5. Dealer's Possession and Sale of Merchandise
Dealer's possession of the Merchandise shall be for the sole purpose of storing
and exhibiting the same for sale or lease in the ordinary course of Dealer's
business. Dealer shall keep the Merchandise brand new and subject to inspection
by Ford Credit and free from all taxes, liens and encumbrances, and any sum of
money that may be paid by Ford Credit in release or discharge of any taxes,
liens or encumbrances on the Merchandise or on any documents executed in
connection therewith shall be paid by Dealer to Ford Credit upon demand. Except
as may be necessary to remove or transport the same from a freight depot to
Dealer's place of business, Dealer shall not use or operate, or permit the use
or operation of, the Merchandise for demonstration, hire or otherwise without
the express prior written consent of Ford Credit in each case, and shall not in
any event use the Merchandise illegally or improperly. Dealer shall not
mortgage, pledge or loan any of the Merchandise, and shall not transfer or
otherwise dispose of the same except by sale or lease in the ordinary course of
Dealer's business. Any and all proceeds of any sale, lease or other disposition
of the Merchandise by Dealer shall be received and held by Dealer in trust for
Ford Credit and shall be fully, faithfully and promptly accounted for and
remitted by Dealer to Ford Credit to the extent of Dealer's obligation to Ford
Credit with respect to the Merchandise. As used in this paragraph 5, (a) "sale
in the ordinary course of Dealer's business" shall include only (i) a bona fide
<PAGE>
retail sale to a purchaser for his own use at the fair market value of the
Merchandise sold and (ii) an occasional sale of such Merchandise to another
dealer at a price not less than Dealer's cost of the Merchandise sold, unless
such sale is a part of a plan or scheme to liquidate all or any portion of
Dealer's business, and (b) "lease in the ordinary course of Dealer's business"
shall include only a bona fide lease to a lessee for his own use at a fair
rental value of the Merchandise leased.
6. Risk of Loss and Insurance Requirements
The Merchandise shall be at Dealer's sole risk of any loss or damage to the
same, except to the extent of any insurance proceeds actually received by Ford
Credit with respect thereto under insurance obtained by Ford Credit pursuant to
the Plan. Dealer shall indemnify Ford Credit against all claims for injury or
damage to persons or property caused by the use, operation or holding of the
Merchandise and, if requested to do so by Ford Credit, maintain at its own
expense liability insurance in connection therewith in such form and amounts as
Ford Credit may reasonably require from time to time. In addition, Dealer shall
insure each item of Merchandise that is or may be used for demonstration or
operated for any other purpose against loss due to collision, subject in each
case to the deductible amounts and limitations set forth in the Plan.
7. Credits
All funds or other property belonging to Ford Credit and received by Dealer
shall be received by Dealer in trust for Ford Credit and shall be remitted to
Ford Credit forthwith. Ford Credit, at all times, shall have a right to offset
and apply any and all credits, monies or properties of Dealer in Ford Credit's
possession or control against any obligation of Dealer to Ford Credit.
8. Information Concerning Dealer
To induce Ford Credit to extend financing accommodations hereunder, Dealer has
submitted information concerning its business organization and financial
condition, and certifies that the same is complete, true and correct in all
respects and that the financial information contained therein and any that may
be furnished to Ford Credit from time to time hereafter does and shall fairly
present the financial condition of Dealer in accordance with generally accepted
accounting principles applied on a consistent basis. Dealer agrees to notify
Ford Credit promptly of any material change in its business organization or
financial condition or in any information relating thereto previously furnished
to Ford Credit. Dealer acknowledges and intends that Ford Credit shall rely, and
shall have the right to rely, on such information in extending and continuing to
extend financing accommodations to Dealer. Dealer hereby authorizes Ford Credit
from time to time and at all reasonable times to examine, appraise and verify
the existence and condition of all Merchandise, documents, commercial or other
paper and other property in which Ford Credit has or has had any title, title
retention, lien, security or other interest, and all of Dealer's books and
records in any way relating to its business.
9. Default
The following shall constitute an Event of Default hereunder:
(a) Dealer shall fail to promptly pay any amount now or hereafter owing to Ford
Credit as and when the same shall become due and payable, or
(b) Dealer shall fail to duly observe or perform any other obligation secured
hereby, or
(c) any representation made by Dealer to Ford Credit shall prove to have been
false or misleading in any material respect as of the date on which the same was
made, or
(d) a proceeding in bankruptcy, insolvency or receivership shall be instituted
by or against Dealer or Dealer's property.
Upon the occurrence of an Event of Default Ford Credit may accelerate, and
declare immediately due and payable, all or any part of the unpaid balance of
all Advances made hereunder together with accrued interest and flat charges,
without notice to anyone. In addition, Ford Credit may take immediate possession
of all property in which it has a security interest hereunder, without demand or
other notice and without legal process. For this purpose and in furtherance
thereof if Ford Credit so requests, Dealer shall assemble such property and make
it available to Ford Credit at a reasonably convenient place designated by Ford
Credit, and Ford Credit shall have the right, and Dealer hereby authorizes and
empowers Ford Credit, its agents or representatives, to enter upon the premises
wherever such property may be and remove same. In the event Ford Credit acquires
possession of such property or any portion thereof, as hereinbefore provided,
Ford Credit may, in its sole discretion (i) sell the same, or any portion
thereof, after five days' written notice, at public or private sale for the
account of Dealer, (ii) declare this agreement, all wholesale transactions and
Dealer's obligations in connection therewith to be terminated and cancelled and
retain any sums of money that may have been paid by Dealer in connection
therewith, and (iii) enforce any other remedy that Ford Credit may have under
applicable law. Dealer agrees that the sale by Ford Credit of any new and unused
property repossessed by Ford Credit to the manufacturer, distributor or seller
thereof, or to any person designated by such manufacturer, distributor or
seller, at the invoice cost thereof to Dealer less any credits granted to Dealer
with respect thereto and reasonable costs of transportation and reconditioning,
shall be deemed to be a commercially reasonable means of disposing of the same.
Dealer further agrees that if Ford Credit shall solicit bids from three or more
other dealers in the type of property repossessed by Ford Credit hereunder, any
sale by Ford Credit of such property in bulk or in parcels to the bidder
submitting the highest cash bid therefor also shall be deemed to be a
commercially reasonable means of disposing of the same. Dealer understands and
agrees, however that such means of disposal shall not be exclusive and that Ford
Credit shall have the right to dispose of any property repossessed hereunder by
any commercially reasonable means. Dealer agrees to pay reasonable attorneys'
fees and legal expenses incurred by Ford Credit in connection with the
repossession and sale of any such property. Ford Credit's remedies hereunder are
cumulative and may be enforced successively or concurrently.
10. General
Dealer waives the benefit of all homestead and exemption laws and agrees that
the acceptance by Ford Credit of any payment after it may have become due or the
waiver by Ford Credit of any other default shall not be deemed to alter or
affect Dealer's obligations or Ford Credit's right with respect to any
subsequent payment or default.
Neither this agreement, nor any other agreement between Dealer and Ford Credit,
or between Dealer and any manufacturer, distributor or seller that has been
assigned to Ford Credit, nor any funds payable by Ford Credit to Dealer, shall
be assigned by Dealer without the express prior written consent of Ford Credit
in each case.
Any provision hereof prohibited by any applicable law shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof. Except as herein provided, no modification hereof may be made except by
a written instrument duly executed by, or pursuant to the express written
authority of an executive officer of Ford Credit.
Dealer shall execute and deliver to Ford Credit promissory notes or other
evidences of Dealer's indebtedness hereunder, security agreements, trust
receipts, chattel mortgages or other security instruments and any other
documents which Ford Credit may reasonably request to confirm Dealer's
obligations to Ford Credit and to confirm Ford Credit's security interest in the
Merchandise financed by Ford Credit under the Plan or in any other property as
provided hereunder, and in such event the terms and conditions hereof shall be
deemed to be incorporated therein. Ford Credit's security or other interest in
any Merchandise shall not be impaired by the delivery to Dealer of Merchandise
or of bills of lading, certificates of origin, invoices or other documents
pertaining thereto or by the payment by Dealer of any curtailment, security or
other deposit or portion of the amount financed. The execution by Dealer or on
Dealer's behalf of any document for the amount of any credit extended shall be
deemed evidence of Dealer's obligation and not payment thereof. Ford Credit may,
for and in the name of Dealer, endorse and assign any obligation transferred to
Ford Credit by Dealer and any check or other medium of payment intended to apply
upon such obligation. Ford Credit may complete any blank space and fill in
omitted information on any document or paper furnished to it by Dealer.
Unless the context otherwise clearly requires, the terms used herein shall be
given the same meaning as ascribed to them under the provisions of the Uniform
Commercial Code. Section headings are inserted for convenience only and shall
not affect any construction or interpretation of this agreement.
This agreement shall be interpreted in accordance with the laws of the state of
the Dealer's place of business set out above.
11. Acceptance and Termination
Dealer waives notice of Ford Credit's acceptance of this agreement and agrees
that it shall be deemed accepted by Ford Credit at the time Ford Credit shall
first extend credit to Dealer under the Plan. This agreement shall be binding on
Dealer and Ford Credit and their respective successors and assigns from the date
thereof until terminated by receipt of a written notice by either party from the
other, except that any such termination shall not relieve either party from any
obligation incurred prior to the effective date thereof.
Witness or Attest: Family Ford, Inc.
-----------------------------------
(DEALER'S EXACT BUSINESS NAME)
/S/ Grace Perkins By /s/ Edward Shaker Title President
- ---------------------------- -------------------- ---------
<PAGE>
POWER OF ATTORNEY FOR WHOLESALE
KNOW ALL MEN BY THESE PRESENTS: That the undersigned dealer does hereby make,
constitute and appoint S.L. Owens, J.M. Walsh and F.H. Mason, all of Dearborn,
Michigan and each of them and any other officer or employee of Ford Motor Credit
Company, a Delaware corporation in Dearborn, Michigan, its true and lawful
attorneys with full power of substitution, for and in its name, stead and
behalf, to prepare, make, execute, acknowledge and deliver to Ford Motor Credit
Company from time to time promissory notes or other evidences of indebtedness,
bearing such rate of interest as Ford Motor Credit Company may require from time
to time, and trust receipts, chattel mortgages and other title retention or
security instruments necessary or appropriate in connection with the wholesale
financing sale by Ford Motor Credit Company of merchandise to the undersigned
dealer under the terms of the Ford Motor Credit Company Automotive Wholesale
Plan, and generally to perform all acts and to do all things necessary or
appropriate in discharge of the power hereby conferred, including the making of
affidavits and the acknowledging of instruments, as if fully done by the
undersigned dealer, and each of the said attorneys hereby is further authorized
and empowered in the discharge of the power hereby conferred to execute any
instruments by means of either a manual, imprinted or other facsimile signature
or by completing a printed form to which an imprinted or other facsimile
signature is then affixed.
This Power of Attorney is executed by the undersigned dealer to induce Ford
Motor Credit Company to make advances for merchandise to be acquired by the
undersigned dealer and recognizes that advances are made to manufacturers,
distributors and other sellers of such Merchandise at places other than the
undersigned dealer's place of business, and that it is impractical for the
undersigned dealer to execute the promissory notes, trust receipts, chattel
mortgages and other title retention or security instruments necessary or
appropriate in connection with such sales without unduly delaying the delivery
of such merchandise to the undersigned dealer. Accordingly, this Power of
Attorney maybe revoked by the undersigned dealer only by notice in writing
addressed to Ford Motor Credit Company, Dearborn, Michigan by registered mail,
return receipt requested, stating an effective date on or after the receipt
thereof by Ford Motor Credit Company.
Dated this 2nd day of August, 1984
Witness or Attest: Family Ford, Inc.
-----------------------------------
(DEALER'S EXACT BUSINESS NAME)
/s/ Theresa Farina By: /s/ Edward Shaker Title President
- ------------------------------- ---------------------- ---------------
State of Connecticut
ss.
County of New Haven
On this 2nd day of August, 1984, before me, the undersigned Notary Public,
personally appeared Edward Shaker who acknowledged himself to be the President
(TITLE) of Edward Shaker (DEALER'S NAME), the grantor of the foregoing Power of
Attorney, and that he, being authorized so to do, executed the foregoing Power
of Attorney for the purposes therein contained, by signing the name of the said
grantor by himself in the capacity indicated.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ Theresa Farina
- ----------------------------------
NOTARY PUBLIC
(NOTARY'S
My commission expires March 31, 1987 SEAL)
CERTIFIED COPY OF RESOLUTION OF BOARD OF DIRECTORS
The undersigned hereby certifies that he is the Secretary of Family Ford, Inc.
(DEALER'S EXACT CORPORATE NAME) of 1200 Wolcott Street, Waterbury, Connecticut
06705 (DEALER'S ADDRESS) and that the following is a true, correct and complete
copy of resolutions adopted by the board of directors of the said corporation at
a meeting duly called and held on August 2, 1984 at which a quorum was present
and voting, and that said resolutions are unchanged and are now in full force
and effect:
RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to execute and deliver on behalf of this corporation an
Application for Wholesale Financing to Ford Motor Credit Company of Dearborn,
Michigan in such form and upon such terms and conditions as the said Ford Motor
Credit Company may require, and to execute and deliver from time to time
promissory notes or other evidences of indebtedness, bearing such rate of
interest as the said Ford Motor Credit Company may require from time to time,
and trust receipts, chattel mortgages and other title retention or security
instrument as, and in such form as, the said Ford Motor Credit Company may
require, evidencing any financing extended by the said Ford Motor Credit Company
to this corporation under the terms of the Ford Motor Credit Company Automotive
Wholesale Plan.
FURTHER RESOLVED, That S.L. Owens, J.M. Walsh and F.H. Mason, all of Dearborn,
Michigan, and each of them and any other officer or employee of the said Ford
Motor Credit Company be and each of them hereby is constituted and appointed an
attorney-in-fact of this corporation for the purposes set forth in the Power of
Attorney presented to this board of directors this date, with full power of
substitution, and the officers of this corporation are, and each of them hereby
is, authorized and empowered to execute a formal Power of Attorney in such form.
FURTHER RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to do all other things and to execute all other
instruments and documents necessary or appropriate in the premises.
IN WITNESS WHEREOF I have hereunto set my hand and affixed the corporate seal of
the said corporation this 2nd day of August, 1984.
/s/ Rose Shaker (CORPORATE
- ------------------------------------ SEAL)
SECRETARY
[LOGO] CHRYSLER
FINANCIAL
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 26th day of August, 1996; and effective September
1, 1984 or the date hereof, whichever is later, is by and between Shaker's,
Inc., having its principal place of business at 1355 So. Main St. Waterbury, CT
06706 (hereinafter called "Debtor"), and Chrysler Financial Corporation, a
Michigan corporation, having offices located at 27777 Franklin Road, Southfield,
Michigan 48034-8286 (hereinafter called "Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of Chrysler
Corporation and desires Secured Party to finance the acquisition by Debtor in
the ordinary course of its business of new and unused vehicles sold and
distributed by Chrysler Corporation and/or other authorized sellers and of used
vehicles (all such unused and used vehicles being hereinafter collectively
called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor (1) by agreeing with Chrysler
Corporation to purchase from Chrysler Corporation receivables evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, and (2) by making loans or
advances to Debtor to finance the acquisition by Debtor of Vehicles from other
sellers.
NOW, THEREFORE, in consideration of the mutual promises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of vehicle is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing
as follows:
(a) to purchase receivables from Chrysler Corporation evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, at 100% of the
face amount of such receivables; or
(b) by making loans or advances to Debtor to finance the acquisition by
Debtor of Vehicles from sellers thereof, on the terms and conditions
set forth in Paragraph 2.1 herein or as set forth in the Vehicle
financing terms and conditions as they may be made available to
Debtor from time to time by Secured Party.
For the purposes of this Agreement, amounts applied by Secured Party to
acquire Debtor's receivables from Chrysler Corporation as contemplated by
clause (a) are herein called "Receivable Purchase Advances", and loans or
advances provided by Secured Party directly to either Debtor or to the
seller of Vehicles to Debtor as contemplated by clause (b) are herein
called "Direct Loan Advances", and all such amounts, loans and advances
provided by Secured Party contemplated by clause (a) and clause (b) are
herein collectively called "Advances". Debtor acknowledges that (x) the
maximum amount of Advances which will be made by Secured Party hereunder
will be established from time to time by Secured Party in its sole
discretion and (y) all such Advances shall be made on and shall be subject
to the terms and conditions of this Agreement. It is understood and agreed
that the making of any Advance hereunder shall be at the option of Secured
Party and shall not be obligatory, and that the right of Debtor to request
that Secured Party make Advances may be terminated at any time by Secured
Party at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Receivable Purchase Advance
shall be evidenced by and made against a Credit Sales Agreement of
Chrysler Corporation delivered to Secured Party, and Secured Party shall
be entitled to make Receivable Purchase Advances against such Credit Sale
Agreement appropriately completed and executed on behalf of Debtor by
Chrysler Corporation by facsimile signature or otherwise under Power of
Attorney given by Debtor, without any duty to inquire as to the continued
effectiveness of such power or to verify with Debtor the amount of, or
Vehicles listed upon such Credit Sale Agreement and each such Credit Sale
Agreement shall evidence the valid and binding payment obligation of
Debtor. Each Direct Loan Advance shall be made at such time as Debtor
shall request in accordance with the then-effective Vehicle financing
terms and conditions referred to above. Debtor will execute and deliver to
Secured Party from time to time its demand promissory notes in aggregate
principal amount equal to that amount agreed to by Debtor and Secured
Party from time to time, such demand promissory notes (the "Promissory
Notes") to evidence the liability of Debtor to Secured Party on account of
all Direct Loan Advances and to constitute additional evidence of Debtor's
obligation in respect of the receivables underlying the Receivable
Purchase Advances. The maximum liability of Debtor under this Agreement
shall at any time be equal to the aggregate principal amount of all
Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time
to time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time
to time.
Notwithstanding any inconsistent terms of any agreement between Debtor and
Chrysler Corporation in respect of Debtor's liability under any Credit
Sale Agreement, in consideration of Secured Party's making of Receivable
Purchase Advances and Direct Loan Advances. Debtor will pay to Secured
Party interest at the rate(s) per annum designated by Secured Party from
time to time on the amount of each Advance made by Secured Party hereunder
from the date of such Advance until the date of repayment to Secured Party
of the full amount thereof. For the purposes of the preceding sentence,
each Receivable Purchase Advance shall be deemed to have been made by
Secured Party on the date on which payment shall have been made by Secured
Party to Chrysler Corporation for the related receivable of Debtor
purchased by Secured Party from Chrysler Corporation. Secured Party will
give notice to Debtor of the interest rate(s) established by it from time
to time under the terms hereof, and each such notice shall constitute an
agreement between Debtor and Secure interest rate(s) established by it
from time to time under the terms hereof, and each such notice shall
constitute an agreement between Debtor and Secured Party as to the
applicability to the Advances of the interest rate(s) contained therein,
to be applicable from the dates stated in such notice until such interest
rate(s) are changed by subsequent notice given by Secured Party pursuant
to this sentence. All interest accrued on the Advances shall be payable
monthly by Debtor, and shall be due upon receipt by Debtor of the
Statement of Secured Party setting forth the amount of such accrued
interest.
<PAGE>
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party. Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when Received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior
security interest in and to each and every Vehicle financed hereunder,
whether now owned or hereafter acquired by way of replacement
substitution, addition or otherwise, together with all additions and
accessions thereto and all proceeds thereof subject only to any prior
security interest in a Vehicle financed by a Receivable Purchase Advance
which has been granted by Debtor to Chrysler Corporation and assigned by
Chrysler Corporation to Secured Party in connection with the making of
such Receivable Purchase Advance. Further, Debtor also hereby grants the
Secured Party a security interest in and to all Chattel Paper. Accounts
whether or not earned by performance and including without limitation all
amounts due from the manufacturer or distributor of the Vehicles or any of
its subsidiaries or affiliates. Contract Rights, Documents, Instruments,
General Intangible Consumer Goods, Inventory of Automotive Parts,
Accessories and Supplies, Equipment, Furniture, Fixtures, Machinery,
Tools, and Leasehold improvements whether now owned or hereafter acquired
by way of replacement, substitution, addition or otherwise, together with
all additions and accessions thereto and proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor as set
forth herein. The security interest hereby granted shall secure the
prompt, timely and full payment of (1) all Advances, (2) all interest
accrued thereon in accordance with the terms of this Agreement and the
Promissory Notes, (3) all other indebtedness and obligations of Debtor
under the Promissory Notes, (4) all costs and expenses incurred by Secured
Party in the collection or enforcement of the Promissory Notes or of the
receivable underlying any Receivable Purchase Advance or of the
obligations of the Debtor under this Agreement, (5) all monies advanced by
Secured Party on behalf of Debtor for taxes, levies, insurance and repairs
to and maintenance of any Vehicle or other collateral, and (6) each and
every other indebtedness or obligation now or hereafter owning by Debtor
to Secured Party including any collection, enforcement costs and expenses
or monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations. Nothing in this Agreement shall require
Debtor, in respect of any receivable Purchase Advance, to proceed first
under the security interest created by this Agreement or [ILLEGIBLE] under
the security interest granted by Debtor to Chrysler Corporation to secure
the receivable underlying such Receivable Purchase Advance and assigned by
Chrysler Corporation to Secured Party and the remedies of Secured Party
under each security interests shall be cumulative.
3.1 All said security set forth in Paragraph 3.0 above shall hereinafter
collectively be called "Collateral". Debtor hereby expressly agrees that
the term "proceeds" as used in Paragraph 3.0 above shall include without
limitation all insurance proceeds on the Collateral, money, chattel paper,
goods received in trade including without limitation vehicles received in
trade, contract rights, instruments, documents, accounts whether or not
earned by performance, general intangibles, claims and tort recoveries
relating to the Collateral. Notwithstanding that Advances hereunder are
made from time to time with respect to specific Vehicles, each Vehicle and
the proceeds thereof and all other Collateral hereunder shall constitute
security for all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party a security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever
form, of a disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance policies evidencing such insurance
shall be [ILLEGIBLE] such companies, in such amount and such form as shall
be satisfactory to Secured Party. If so requested by Secured Party, any or
all such policies or insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest [ILLEGIBLE] appear, and a certificate of insurance
evidencing such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now
is and shall always be kept free of all taxes, liens and encumbrances,
except as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demand whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in relation to or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional
part of the obligation secured hereunder. Debtor hereby agrees not to
mortgage, pledge or loan (except for designated demonstrators as agreed to
in advance by Secured Party in writing) the Vehicles and shall not
license, title use, transfer or otherwise dispose of them except as
provided in this Agreement. Debtor agrees that it will execute in favor of
Secured Party a form of document which may be required to evidence further
Advances by Secured Party hereunder, and shall execute such additional
documents as Secured Party may at any time request in order to conform or
perfect Debtor's title to or Secured Party's security interest in the
Vehicles. Execution by Debtor of notes, [ILLEGIBLE] or other instruments
for the amount advanced shall be deemed evidence of Debtor's obligation
and not payment therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
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PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
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<PAGE>
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization
of even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may, at its option and
notwithstanding any inconsistent terms in any agreement between Debtor and
Chrysler Corporation and/or Secured Party with respect to the receivable
underlying any Receivable Purchase Advance by Secured Party, terminate
this Agreement, refuse to advance funds hereunder, convert outstanding
installment payment obligations to payment on Vehicle sale obligations,
and declare the aggregate of all Advances outstanding hereunder
immediately due and payable upon the occurrence of any of the following
events (each hereinafter called an "Event of Default"), and that Debtor's
liabilities under this sentence shall constitute additional obligations of
Debtor secured under this Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon
or any other payment due hereunder, when and as due in accordance
with the terms of this Agreement or with any demand permitted to be
made by Secured Party under this Agreement or any Promissory Note,
or shall fail to pay when due any other amount owing to Secured
Party under any other agreement between Secured Party and Debtor, or
shall fail in the due performance or compliance with any other term
of condition hereof or thereof, or shall be in default in the
payment of any liabilities constituting indebtedness for money
borrowed or the deferred payment of the purchase price of property
or a rental payment with respect to property material to the conduct
of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of
the Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of
misuse, loss, seizure or confiscation or other disposition not
authorized by this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals to or permit persons designated by Secured
Party to examine Debtor's books or records and to make periodic
inspections of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course
of Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his
business, or all or substantially all of the assets thereof, shall
enter into any merger or consolidation, if a corporation, or shall
make any substantial disbursements or use of funds of Debtor's
business, except as may be done in the ordinary course of Debtor's
business, or assign this Agreement in whole or in part or any
obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the
Uniform Commercial Code or under any other statute or at common law or in
equity or under this Agreement. Such rights and remedies shall be
cumulative. Debtor hereby agrees that it shall pay all expenses and
reimburse Secured Party for any expenditures, including reasonable
attorneys' fees and legal expenses, in connection with Secured Party's
exercise of any of its rights and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood by and
between Debtor and Secured Party that Secured Party shall have the right
of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the
removal of the Vehicles or books and records during the pendency of this
Agreement except in the ordinary course of business and as authorized by
Secured Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and
statements of profit and loss for each month with respect to Debtor's
business in such detail and at such times as Secured Party may require
from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
<PAGE>
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision
hereof or any other document in connection herewith to the contrary,
Debtor shall not pay nor will Secured Party accept payment of any such
excessive interest, which excessive interest is hereby cancelled, and
Secured Party shall be entitled at its option to refund any such interest
erroneously paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party or Debtor, Secured Party and Chrysler
Corporation or Debtor and Chrysler Corporation with respect to the
Receivable underlying any Receivable Purchase Advance by Secured Party
should be construed together as one agreement; provided, however, in the
event of any conflict, the terms and provisions of this Agreement shall
govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power preclude any other or
further exercise thereof or the exercise of any other right or power
hereunder. The remedies herein are in addition to those available in law
or equity, and Secured Party need not pursue any rights it might have as a
Secured Party before pursuing payment and performance by Debtor or any
guarantor or surety.
8.7 This Agreement may not be assigned by Debtor.
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid,
addressed to the party to be charged with such notice at the respective
address set forth below.
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TO DEBTOR TO SECURED PARTY
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Shaker's Inc. Chrysler Financial Corporation
1355 So. Main St. 980 Washington Street
Waterbury, CT 06706 Dedham, MA 02026
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Shakers, Inc.
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(DEBTOR)
/s/ [Signature] By: /s/ Richard Shaker
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(WITNESS)
Title Vice President
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(WITNESS)
CHRYSLER FINANCIAL CORPORATION
By /s/ Betty Williams
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Title Dealer Credit Dept.
