<PAGE>
As Filed with the Securities and Exchange Commission on April 8, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HDA PARTS SYSTEM, INC.
(exact name of registrant as specified in its charter)
----------------
See Table of Additional Registrants
----------------
<TABLE>
<S> <C> <C>
Alabama 5013 63-068-1070
(State or other jurisdiction
of (Primary standard industrial (IRS Employer
incorporation or organization) classification code number) Identification Number)
</TABLE>
520 Lake Cook Road
Deerfield, Illinois 60015
(847) 444-1095
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive office)
With Copies To:
<TABLE>
<S> <C>
JOHN P. MILLER ELIZABETH A. BLENDELL, ESQ.
Chief Financial Officer RANDALL C. BASSETT, ESQ.
HDA Parts System, Inc. Latham & Watkins
520 Lake Cook Road 633 West Fifth Street, Suite 4000
Deerfield, Illinois 60015 Los Angeles, California 90071
(847) 444-1095 (213) 485-1234
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of Agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration number 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 statement number of the earlier, effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Note(1) Offering Price(1) Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12% Senior Subordinated Notes due 2005.. $100,000,000 100% $100,000,000 $27,800
- ----------------------------------------------------------------------------------------------------------
Guarantees of Senior Subordinated Notes(2).. -- -- -- (3)
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Each of the entities listed on the Table of Additional Registrants has
guaranteed the notes being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the notes being registered.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until 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 or until this registration statement shall become effective
on such date as the SEC, acting pursuant to said Section 8(a), may determine.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
State
Exact Name of Registrant as Specified in its or Other Jurisdiction of
Charter Incorporation or Organization
- -------------------------------------------- -----------------------------
<S> <C>
City Truck Holdings, Inc. Delaware
City Truck and Trailer Parts of Alabama, Inc. Alabama
City Truck and Trailer Parts of Alabama, L.L.C. Alabama
City Truck and Trailer Parts of Tennessee, Inc. Tennessee
City Friction, Inc. Alabama
Truck & Trailer Parts, Inc. Georgia
Truckparts, Inc. Connecticut
Associated Brake Supply, Inc. California
Associated Truck Center, Inc. California
Onyx Distribution, Inc. California
Associated Truck Parts of Nevada, Inc. Nevada
Freeway Truck Parts of Washington, Inc. Washington
Tisco, Inc. California
Tisco of Redding, Inc. California
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 8, 1999
PROSPECTUS
, 1999
HDA PARTS SYSTEM, INC.
OFFER TO EXCHANGE
12% Senior Subordinated Notes due 2005
which have been registered under the Securities Act
for any and all outstanding
12% Senior Subordinated Notes due 2005
Material Terms of the Exchange Offer
. The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
. We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of a new series of notes
which are registered under the Securities Act.
. The exchange offer is not subject to any conditions other than that it not
violate applicable law or any applicable interpretation of the staff of the
SEC.
.You may withdraw tenders of outstanding notes at any time before the exchange
offer expires.
. The exchange of notes
will not be a taxable
event for U.S. federal
income tax purposes.
. We will not receive any
proceeds from the
exchange offer.
. The terms of the new
series of notes are
substantially identical
to the outstanding
notes, except for
transfer restrictions
and registration rights
relating to the
outstanding notes.
. You may tender
outstanding notes only
in denominations of
$1,000 and multiples of
$1,000.
. Our affiliates may not
participate in the
exchange offer.
Please refer to "Risk Factors" beginning on page 9 of this document for
a description of the risks you should consider when evaluating this investment.
We are not making this exchange offer in any state where it is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Information in this prospectus is not complete and may be changed. We may not
sell these securities until the time the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not
an offer to sell the securities and we are not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted or
would be unlawful prior to registration or qualification under the securities
laws of any such state.
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the "Summary," "Unaudited Pro Forma Condensed
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections, contains "forward-looking
statements" which are identifiable by the use of forward-looking terms, such as
"may," "intend," "will," "expect," "anticipate," "estimate," "continue" or
similar phrases. In particular, any statement concerning future opportunities,
future operating results or the ability to generate revenues, income or cash
flow are forward-looking statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, our expectations
may not prove to be correct.
----------------
We based the market data included in this prospectus, including information
relating to our relative position in the industry, on independent industry
publications, other publicly available information or the good faith belief of
our management. Although we believe that these sources are reliable, we cannot
guarantee the accuracy and completeness of the information, and we have not
independently verified the information.
----------------
Throughout this prospectus we use the words "company," "we," "our," "ours,"
and "us" to refer to HDA Parts System, Inc. and its subsidiaries. References to
"Holdings" refer to City Truck Holdings, Inc., our parent company. Unless the
context otherwise requires, all references to the following entities are before
or after giving effect to the acquisitions, as appropriate: (1) "City Truck"
means City Truck and Trailer Parts, Inc., (2) "Stone" means the assets and
business of Stone Heavy Duty, Inc., (3) "Truck & Trailer Parts" means Truck &
Trailer Parts, Inc., including DHP Leasing, Inc., (4) "Truckparts" means
Truckparts, Inc., (5) "Tampa Brake" means the assets and business of Tampa
Brake & Supply Co., Inc., (6) "Connecticut Driveshaft" means the assets and
business of Connecticut Driveshaft, Inc., (7) "Associated" means Associated
Brake Supply, Inc. and its subsidiaries and (8) "Tisco" means Tisco, Inc.,
including Tisco of Redding, Inc. References to "HDA Parts System" mean City
Truck, Stone, Truck & Trailer Parts, Truckparts, Tampa Brake, Connecticut
Driveshaft, Associated and Tisco after the acquisitions, and also refers to the
historical performance or operations of those entities, taken as a whole. The
data referenced in this prospectus includes information with respect to the two
companies with whom we have signed non-binding letters of intent to acquire.
These two companies are Vantage Parts, a division of CNF Transportation, Inc.,
and Active Gear, L.L.C. and are referred to as "Vantage Parts" and "Active
Gear," respectively. References to "Brentwood" means Brentwood Associates
Buyout Fund II, L.P., together with its affiliates, including BABF City Corp.,
a company formed and wholly owned by Brentwood.
<PAGE>
SUMMARY
The following summary contains basic information about this offering. It does
not contain all the information that may be important to you. For a more
complete understanding of this offering, we encourage you to read this entire
prospectus and the documents we have referred you to.
The Company
We are one of the largest and fastest growing independent distributors in the
highly fragmented $17 billion heavy duty vehicle parts and repair industry. We
distribute parts to over 25,000 customers through 92 branch locations across 21
states. Based on both sales and number of branch locations, we are one of the
two largest independent distributors in the nation and the leading distributor
in each of the southeastern, western and New England regions of the United
States. Heavy duty vehicles include Class VI through Class VIII commercial
vehicles such as tractor-trailers, waste disposal trucks and large off-road
vehicles used in the mining, construction and agricultural industries. We have
a broad base of customers including national and regional fleets operated by
companies such as Waste Management, Inc., Browning-Ferris Industries, Inc.,
Dole Food, Inc. and Tyson Foods, Inc., and common carrier and rental fleets,
including United Parcel Service of America, Inc., Consolidated Freightways
Corporation, Con-Way Transportation Services, Ryder System, Inc., Roadway
Package System, Inc. and Penske Leasing, Inc. A substantial part of our
business consists of sales of heavy duty vehicle parts to local fleets,
independent repair shops, heavy duty vehicle dealerships and government
entities.
We are currently pursuing a strategy to become the largest independent
distributor of heavy duty vehicle parts, with a focus on building a nationwide
system of branch locations, primarily through acquisitions. In June 1998, we
combined City Truck and Stone, two leading heavy duty vehicle parts
distributors in the southeast with 35 locations. Since then, we have purchased
six distributors and signed letters of intent to acquire two other distributors
in order to strengthen our leading position in the southeast and expand into
other regions. The completed and pending acquisitions are described below:
<TABLE>
<CAPTION>
Number
of Branch
Company Acquisition Date Region Locations
------- ---------------- ------ ---------
<S> <C> <C> <C>
Truck & Trailer Parts September 1998 Southeast 7
Tampa Brake October 1998 Southeast 5
Connecticut Driveshaft November 1998 New England 6
Truckparts December 1998 New England 4
Associated January 1999 West 22
Tisco January 1999 West 4
Active Gear Pending West 2
Vantage Parts Pending National 7
</TABLE>
As a result of these acquisitions, we have leading market positions and
highly experienced operating management and have achieved significant economies
of scale and scope. We believe we are well positioned for growth both through
acquisitions and new store openings.
Our principal executive offices are located at 520 Lake Cook Road, Deerfield,
Illinois 60015, and our telephone number is (847) 444-1095.
1
<PAGE>
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
.Expanding fleet of heavy duty vehicles;
.Increased life expectancy of fleet vehicles;
.Increased total truck miles driven annually; and
.Increased outsourcing of parts inventory management by fleet operators.
Competitive Strengths
We benefit from the following competitive strengths:
.Ability to successfully execute our acquisition strategy;
.Proven ability to grow revenue and profits;
.Purchasing leverage;
.Established customer relationships;
.Superior inventory availability;
.Outstanding customer service; and
.Experienced management team.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth opportunities in the heavy duty vehicle
parts and repair industry. Our business strategy is to:
.Become the largest national distributor of heavy duty vehicle parts;
.Further reduce cost of products sold;
.Develop distribution and operating efficiencies;
.Achieve benefits from combining complementary operations; and
.Expand relationships with national and regional fleet operators.
2
<PAGE>
The Exchange Offer
The Exchange Offer..........
We are offering to exchange our exchange notes
for our outstanding private notes properly
tendered and accepted. You may tender outstanding
notes only in denominations of $1,000 and
multiples of $1,000. We will issue the exchange
notes on or promptly after the exchange offer
expires. As of the date of this prospectus,
$100,000,000 principal amount of private notes is
outstanding.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless
extended, in which case the expiration date will
mean the latest date and time to which we extend
the exchange offer.
Conditions to the Exchange
Offer....................... The exchange offer is not subject to any
conditions other than that it not violate
applicable law or any applicable interpretation
of the staff of the SEC. The exchange offer is
not conditioned upon any minimum principal amount
of private notes being tendered for exchange.
Procedures for Tendering
Private Notes.............. If you wish to tender your private notes for
exchange notes pursuant to the exchange offer you
must transmit to the U.S. Trust Company of
California, N.A., as exchange agent, on or before
the expiration date, either:
. a computer generated message transmitted
through The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming
a part of a confirmation of book-entry
transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
. a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with your
private notes and any other required
documentation, to the exchange agent at its
address listed in this prospectus and on
the front cover of the letter of
transmittal.
If you cannot satisfy either of these procedures
on a timely basis, then you should comply with
the guaranteed delivery procedures described
below. By executing the letter of transmittal,
you will make the representations to us
described under "The Exchange Offer--Procedures
for Tendering."
3
<PAGE>
Special Procedures for
Beneficial Owners..........
If you are a beneficial owner whose private notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your private notes in the
exchange offer, you should contact the registered
holder promptly and instruct the registered
holder to tender on your behalf. If you wish to
tender on your own behalf, you must either (1)
make appropriate arrangements to register
ownership of the private notes in your name or
(2) obtain a properly completed bond power from
the registered holder, before completing and
executing the letter of transmittal and
delivering your private notes.
Guaranteed Delivery If you wish to tender your private notes and time
Procedures.................. will not permit the documents required by the
letter of transmittal to reach the exchange agent
before the expiration date, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your private notes
according to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Private Notes
and Delivery of Exchange Subject to the satisfaction or waiver of the
Notes...................... conditions to the exchange offer, we will accept
for exchange any and all private notes which are
validly tendered in the exchange offer and not
withdrawn before 5:00 p.m., New York City time,
on the expiration date.
Withdrawal Rights...........
You may withdraw the tender of your private notes
at any time before 5:00 p.m., New York City time,
on the expiration date, by complying with the
procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer--Withdrawal of Tenders."
Material United States
Federal Income Tax The exchange of notes will not be a taxable event
Consequences............... for United States federal income tax purposes.
For a discussion of the material federal income
tax consequences relating to the exchange of
notes, see "Material United States Federal Income
Tax Consequences for United States Holders."
Exchange Agent.............. U.S. Trust Company of California, N.A., the
trustee under the indenture governing the private
notes, is serving as the exchange agent.
4
<PAGE>
Consequences of Failure to
Exchange Notes.............
If you do not exchange your private notes for
exchange notes, you will continue to be subject
to the restrictions on transfer provided in the
private notes and in the indenture governing the
private notes. In general, the private notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. We do not currently plan to
register the private notes under the Securities
Act.
Registration Rights You are entitled to exchange your private notes
Agreement................... for exchange notes with substantially identical
terms. The exchange offer satisfies this right.
After the exchange offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your private
notes. Under the circumstances described in the
registration rights agreement, you may require us
to file a shelf registration statement under the
Securities Act.
We explain the exchange offer in greater detail beginning on page 16.
5
<PAGE>
The Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of the private notes, except that the exchange notes will be registered under
the Securities Act and, therefore, the exchange notes will not be subject to
the transfer restrictions, registration rights and provisions providing for an
increase in the interest rate applicable to the private notes. The exchange
notes will evidence the same debt as the private notes and both the private
notes and the exchange notes, collectively, the "notes", are governed by the
same indenture.
Securities Offered.......... $100.0 million principal amount of 12% Senior
Subordinated Notes due 2005.
Issuer...................... HDA Parts System, Inc.
Maturity Date...............
August 1, 2005.
Interest.................... The exchange notes will bear interest at the rate
of 12% per year, payable every six months on
February 1 and August 1, beginning August 1,
1999.
Optional Redemption......... We may redeem the exchange notes, in whole or in
part, on or after August 1, 2002 at the
redemption prices set forth in this prospectus,
plus accrued and unpaid interest and liquidated
damages.
In addition, at any time before August 1, 2001,
we may redeem up to $35.0 million of notes
originally issued at 112% of their principal
amount, plus accrued and unpaid interest, with
the net cash proceeds of one or more public
offerings of equity of our company; provided
however, that at least $65.0 million of notes
remain outstanding after the redemption.
Guarantees.................. If we cannot make payments on the notes when due,
our guarantors must make them instead. The
guarantors will consist of our parent company and
all of our current and future domestic
subsidiaries.
Ranking..................... The exchange notes will rank behind all of our
existing and future senior debt, including
borrowings under the revolving credit facility.
The guarantees will rank behind all of the
guarantors' existing and future senior debt,
including guarantees under the revolving credit
facility. The indenture permits us to incur
additional debt, including senior debt.
As of December 31, 1998 on a pro forma basis, we
had approximately $71.5 million of senior debt
outstanding, excluding unused commitments of
$13.5 million under the revolving credit
facility. The guarantors had approximately
6
<PAGE>
$71.5 million of guarantor senior debt
outstanding, consisting solely of guarantees
under the revolving credit facility but excluding
guarantees of unused commitments under the
revolving credit facility.
Change of Control........... Upon a change of control of our company, we must
offer to repurchase your exchange notes at 101%
of their principal amount, plus accrued and
unpaid interest. If a change of control occurs,
we may not have sufficient funds to repurchase
all exchange notes tendered.
Certain Covenants........... The indenture contains covenants that, among
other things, limit our ability and the ability
of the guarantors to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
In addition, we may be required to offer to
purchase exchange notes at 100% of their
principal amount, plus accrued and unpaid
interest, with the proceeds of asset sales.
Form of Exchange Notes......
The exchange notes will be represented by one or
more permanent global certificates, in fully
registered form, deposited with a custodian for,
and registered in the name of a nominee of, The
Depository Trust Company, as depositary. You will
not receive exchange notes in certificated form
unless one of the events described under the
heading "Book-Entry; Delivery; Form and
Transfer--Transfers of Interests in Global Notes
for Certificated Notes" occurs. Instead,
beneficial interests in the exchange notes will
be shown on, and transfers of these notes will be
effected only through, records maintained in
book-entry form by The Depository Trust Company
and its participants.
Use of Proceeds............. We will not receive any cash proceeds in the
exchange offer.
We explain the exchange notes in greater detail beginning on page 60.
7
<PAGE>
Summary Pro Forma Financial Data
The following summary pro forma financial data were derived in part from, and
should be read in conjunction with, the more detailed consolidated financial
statements of Holdings, and its subsidiaries and the Unaudited Pro Forma
Condensed Financial Data, including in each case, the related notes, included
elsewhere in this prospectus. The summary pro forma financial data give effect
to the acquisitions, including the equity contributions and the offering of the
private notes, as if each transaction had occurred as of January 1, 1998 with
respect to income statement, other and credit data and as of December 31, 1998
with respect to balance sheet data. The summary pro forma financial data may
not be indicative of our operating results or financial position that would
have been achieved had the events described above been consummated and should
not be construed as representative of future operating results or financial
position.
<TABLE>
<CAPTION>
Pro Forma
for the Year Ended
December 31, 1998
------------------
(In thousands,
except ratio data)
<S> <C>
Income Statement Data:
Sales.................................................. $321,649
Gross profit........................................... 102,852
Selling, general and administrative expenses........... 79,782
Operating income....................................... 23,070
Net income............................................. 3,362
Other Data:
EBITDA(1).............................................. $ 31,142
Depreciation and amortization.......................... 7,981
Capital expenditures................................... 3,546
Credit Data:
EBITDA to interest ratio(2)............................ 1.77x
Ratio of net debt to EBITDA(3)......................... 5.05
</TABLE>
<TABLE>
<CAPTION>
Pro Forma at
December 31, 1998
-----------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 14,382
Net working capital(4).................................. 63,845
Total assets............................................ 288,263
Total debt (including current maturities)............... 171,661
Stockholders' equity.................................... 75,724
</TABLE>
- --------
(1) EBITDA represents net income, plus depreciation and amortization, interest
expense and income taxes. EBITDA should not be construed as an alternative
to (1) net income, as defined by generally accepted accounting principles,
as an indicator of our operating performance or (2) cash flow from
operations, as defined by generally accepted accounting principles, as a
measure of our liquidity. EBITDA is included in the prospectus as it is a
basis upon which we assess our financial performance, and certain covenants
in our borrowing arrangements will be tied to similar measures. EBITDA, as
presented, represents a useful measure of assessing our ongoing operating
activities without the impact of financing activity. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in
method of calculation.
(2) EBITDA to interest ratio represents EBITDA divided by total interest
expense for the year.
(3) Ratio of net debt to EBITDA is calculated by dividing net debt by EBITDA.
Net debt is total debt (including current maturities) less cash and cash
equivalents.
(4) Net working capital equals current assets, excluding cash, less current
liabilities, excluding the current portion of long-term debt.
8
<PAGE>
RISK FACTORS
Before you invest in these exchange notes, you should consider carefully the
following risk factors, as well as other information contained in this
prospectus.
Our substantial debt restricts our operating activities and limits our
flexibility.
We have a substantial amount of debt outstanding. As of December 31, 1998,
our pro forma indebtedness, consisting principally of obligations under the
revolving credit facility and the private notes, was $171.7 million, and our
pro forma capitalization was $247.4 million. The following chart shows other
important pro forma credit statistics:
<TABLE>
<CAPTION>
Pro Forma
At December 31, 1998
--------------------
<S> <C>
Total indebtedness.................................. $171.7
Stockholders' equity................................ 75.7
<CAPTION>
Pro Forma
For the Year Ended
December 31, 1998
--------------------
<S> <C>
Ratio of earnings to fixed charges.................. 1.39x
</TABLE>
Our substantial amount of debt could:
. limit our ability to obtain financing for acquisitions, working capital,
capital expenditures and general corporate purposes, or limit our ability
to obtain financing on terms favorable to us;
. require us to dedicate a substantial portion of our cash flow from
operations to pay our interest expense, and under certain conditions, to
repay debt, thereby reducing the availability of our cash flow to fund
operations and future business opportunities; and
. limit our flexibility in reacting to changes in our operating environment
or economic conditions, increasing our vulnerability to a downturn in our
business or the economy generally.
We may be unable to service our debt.
Our ability to repay or refinance our debt will depend on our ability to
generate cash in the future, which will be affected by general economic
conditions and financial, business and other factors, some of which are beyond
our control. Our future cash flow and borrowings under the revolving credit
facility may not be sufficient to meet our obligations. We may need to
refinance some or all of our debt, including these notes, on or before
maturity, sell material assets or operations or raise additional debt or equity
capital. These alternatives may not be available to us on favorable terms or at
all.
Your claims are subordinated.
If we or our guarantors' file bankruptcy, liquidate or reorganize or undergo
a similar proceeding, we must use our assets to pay our senior debt in full
before paying you. Because of this obligation to pay the senior debt first, we
may not have sufficient assets to pay any of the amounts due on the notes.
9
<PAGE>
The terms of our debt restrict our operations.
The covenants in the indenture limit our ability to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
Our revolving credit facility also contains restrictive covenants. In
addition to covenants similar to those contained in the indenture, this
facility restricts acquisitions, sale/leaseback transactions and capital
expenditures. This facility also requires us to maintain specified financial
ratios and satisfy specified financial tests. Our ability to meet these
financial ratios and financial tests will depend upon our financial performance
and may be affected by events beyond our control, including prevailing
economic, financial and industry conditions. Our breach of any of these
covenants could result in a default under the indenture or the revolving credit
facility, which would permit the senior lenders or you to declare all amounts
borrowed under the revolving credit facility to be due and payable, and the
senior lenders could terminate their commitments to make further loans under
the revolving credit facility. If we were unable to repay our debt to our
senior lenders, the senior lenders could proceed against the collateral
securing that debt.
We face risks related to our acquisition strategy.
Our growth depends principally on our ability to acquire and successfully
integrate heavy duty vehicle parts businesses. We may not be able to identify
additional businesses for acquisition in the future, or these businesses may
not be available at reasonable prices. If we fail to integrate the acquired
businesses successfully or to acquire additional heavy duty vehicle parts
businesses or if we pay increased prices for these businesses, our growth
prospects, financial condition and results of operations could be materially
adversely impacted.
In addition, our acquisition strategy subjects us to the following risks:
. we may require additional personnel, assets and capital, and we may not
be able to expand successfully and operate the acquired companies
profitably;
. we may not anticipate or respond effectively to all of the changing
demands that our expanding operations will have on our management
information and operating systems, and we may experience delays,
disruptions and unanticipated expenses in connection with our acquisition
strategy. If we fail to meet the challenges of our expansion, it could
have a material adverse effect on our results of operations and financial
condition;
. if we do not have sufficient cash resources to finance the implementation
of our acquisition strategy, our growth could be limited unless we are
able to obtain additional capital through debt or equity financings. We
may not be able to obtain the additional financing we may need for our
acquisition program on favorable terms, or at all; and
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. our growth strategy also includes expanding relationships with national
and regional fleet operators, further reducing cost of products sold,
developing distribution and operating efficiencies and achieving benefits
from combining complementary operations. We may not be able to achieve
any of these results.
If we fail to attain any or all of these strategies, it could have a material
adverse effect on our results of operations and financial condition.
We may not be able to manage effectively the growth of our operations.
We will encounter various risks pursuing an acquisition growth strategy,
including:
. our future growth will require our management team to manage our
expanding operations while evaluating, completing and integrating new
businesses; and
. our acquisition strategy will continue to place significant demands on
our management to improve our operational, financial and management
information systems, to develop further the management skills of our
managers and supervisors, and to continue to retain, train, motivate and
effectively manage our employees.
We may not be able to manage effectively the expansion of our operations. If
we fail to manage our prior or future growth effectively, it could have a
material adverse effect on our results of operations and financial condition.
We face significant competition.
We operate in a highly competitive environment. We compete against local,
regional and national companies in the heavy duty parts and repair industry,
including other independent distributors, original equipment manufacturers
("OEMs"), OEM-authorized dealerships and independent repair shops. Our
competition risks include the following:
. current and potential competitors may have financial, personnel and other
resources substantially greater than ours to finance acquisition and
development opportunities;
. our competitors may have lower overhead cost structures and may be able
to provide their parts and services at lower rates than us;
. OEMs are in a position to offer incentives to heavy duty vehicle owners
to return to OEM-authorized dealerships for heavy duty vehicle parts and
repair services, which could adversely affect our ability to compete; and
. some owners of leased fleets may have sufficient leverage to purchase
replacement parts directly from component manufacturers or to negotiate
higher volume discounts from us.
We depend on our executive officers, key employees and a well trained sales
force.
Our performance depends upon the efforts of our key employees, especially our
executive officers and operating management. The loss of any of our executive
officers, operating management or other key employees could have a material
adverse effect on our business, financial condition or results of operations.
In addition, the successful implementation and management of our growth and
expansion strategies will depend on our ability to continue to attract and
retain qualified personnel. We may not be able to continue to attract that
personnel or to retain key personnel in companies we acquire.
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Heavy duty vehicle parts are specialized, and we depend on a knowledgeable
and experienced sales force to select and sell the proper parts to our
customers. Our ability to grow our business will partially depend upon hiring,
training, motivating and retaining a skilled work force.
Economic and industry fluctuations outside of our control may affect our sales.
We sell many of our products to customers in industries that experience
fluctuations in demand based on economic conditions, energy prices, consumer
demand and other factors. The trucking industry has historically been highly
cyclical as a result of various economic factors such as:
. excess capacity in the industry;
. competition from other forms of transportation;
. the availability of qualified drivers;
. changes in fuel prices and the supply of fuel;
. increases in fuel or energy taxes;
. interest rate fluctuations;
. insurance costs;
. fluctuations in the resale value of equipment;
. economic recession; and
. downturns in customers' business cycles and shipping requirements.
We have little or no control over these economic or industry specific factors.
We may not be able to increase or maintain our level of sales in periods of
economic stagnation or downturn.
The improvement in parts quality may reduce demand for our products.
Improvement in the quality of parts manufactured for heavy duty vehicles and
equipment may extend the useful lives and warranties of those parts and may
reduce demand for our products and services by decreasing the frequency of
replacement or refurbishment of those parts. A reduction in demand for our
products and services could have a material adverse effect on our business,
financial condition and results of operations.
We may not be able to obtain an adequate supply of heavy duty vehicle parts.
We purchase heavy duty vehicle parts from a number of component
manufacturers. We have not entered into any franchise agreements or supply
contracts that would assure us a continued supply of parts to sell in the
future. A key component of our business strategy is to maintain a wide
selection of parts. Therefore, our inability to obtain access to parts in
sufficient volumes for our branch locations could impair our strategy. Even
though there are many component manufacturers in the marketplace, we may not be
able to obtain an adequate supply of heavy duty vehicle replacement parts. If
we fail to obtain an adequate supply of heavy duty vehicle replacement parts,
it could have a material adverse effect on our business, financial condition
and results of operations. We also remanufacture used parts for resale to our
customers. The used parts we need for remanufacturing may not be available to
us in sufficient quantities in the future. If we cannot obtain an adequate
supply of used parts, the resulting loss of sales could have a material adverse
effect on our profitability. See "Business--Suppliers."
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We are subject to environmental regulation.
Our operations are subject to various federal, state and local environmental
laws, regulations and ordinances. If we fail to comply, or our predecessors
failed to comply, with these environmental laws, we may be subject to civil or
criminal liability. In particular, stringent environmental laws govern the
handling and disposal of chemicals and substances, such as solvents and
lubricants, we commonly use in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. If the substances described
above are released into the environment at our facilities or at facilities
where we have arranged for disposal of these substances, we may be subject to
liability for cleaning up contamination which results from those releases.
We may not remain in compliance with applicable environmental laws, and it is
possible that:
. we may incur clean-up costs in the future;
. environmental laws may be revised or amended to our detriment; or
. changes to current environmental laws or enactment of new environmental
laws affecting our business and operations may require further capital
investments or make certain of our operations unprofitable.
We conduct environmental diligence in connection with acquisitions and obtain
indemnities from prior owners, which in some cases are limited by time and
dollar amounts. As a result, we may inherit environmental liabilities not fully
covered by indemnification.
We could be adversely affected by the Year 2000 issue.
We are currently addressing potential Year 2000 issues associated with our
systems and our suppliers' systems. The ability of third parties with whom we
transact business to address adequately their Year 2000 issues is outside of
our control. Failure by us or our suppliers to address adequately our
respective Year 2000 issues may have a material adverse effect on our business,
financial condition, cash flows and results of operations. For a more detailed
discussion of our Year 2000 issues, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Issue."
Through exercise of its voting control, Brentwood could control our operations.
Brentwood beneficially owns 68.7% of Holdings' equity. As a result, Brentwood
is able to exercise significant voting control over us through its ability to
determine the outcome of stockholders' votes regarding, among other things, the
election of all of our directors and the approval of significant transactions.
Brentwood is party to a stockholders' agreement which, among other things,
allows it to elect a majority of the board of directors. See "Certain
Relationships and Transactions--Stockholders' Agreement."
The notes are subject to review for fraudulent transfer considerations.
Our obligations under the notes may be subject to review under state or
federal fraudulent transfer laws if we go bankrupt or face other financial
difficulty. Under those laws, a court could void the notes or subordinate the
notes to the obligations due other creditors if the court were to find that
when we issued the notes, we:
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. received less than fair consideration or reasonably equivalent value
therefor and were or were rendered insolvent; or
. were engaged in a business or transaction for which our remaining
unencumbered assets constituted unreasonably small capital; or
. intended to incur or believed or reasonably should have believed that we
would incur debts beyond our ability to pay as those debts matured.
In addition, the court could direct the return of any amounts paid under the
notes to us or to a fund for the benefit of our creditors. Moreover, regardless
of the factors identified above, the court could avoid the notes and direct
repayment or subordination if it found that we issued the notes with actual
intent to hinder, delay or defraud our creditors.
A court will likely find that we did not receive fair consideration or
reasonably equivalent value for issuing the notes to the extent that we used
the proceeds to repay obligations incurred when Brentwood acquired its interest
in City Truck, including debt under the revolving credit facility and the
Bridge Securities described on page 38, or otherwise did not directly benefit
from the notes' proceeds. We incurred approximately $42.0 million in
obligations under the revolving credit facility and the Bridge Securities when
we acquired City Truck.
In addition, a guarantor's obligations under its guarantee of the notes may
be subject to review under the same laws if a guarantor files bankruptcy or
faces other financial difficulty. In that event, the analysis above would
generally apply. The court could avoid the guarantee and direct the repayment
of amounts paid under the guarantee or subordinate the guarantee to the
obligations due other creditors of the guarantor.
A court will likely find that a guarantor did not receive fair consideration
or reasonably equivalent value to the extent that it did not directly benefit
from the notes' proceeds.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if:
. the sum of its debts, including contingent or unliquidated debts, is
greater than all of its property at a fair valuation, or
. if the present fair salable value of its assets is less than the amount
that will be required to pay its probable liability on its existing debts
as they become absolute and matured.
However, a court may disagree with our conclusions in this regard.
We may not be able to repurchase the notes upon a change of control.
If a change of control occurs, the indenture requires us to offer to
repurchase all exchange notes. The events involving a change of control may
also constitute a default under the revolving credit facility. If we default
under the revolving credit facility, the lenders could require us to repay the
debt under the revolving credit facility in full before we repurchase the
exchange notes. We may not have sufficient funds to repurchase the exchange
notes if the lenders accelerate the debt under the revolving credit facility if
a change of control occurs. Our inability to repurchase all of the tendered
exchange notes would constitute an event of default under the indenture.
Moreover, the terms of future debt may contain cross-default provisions based
upon change of control or other defaults under the debt instruments.
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No public market exists for the notes.
Before this exchange offer, there was no public market for the exchange
notes. We do not intend to apply for listing of the exchange notes on any
securities exchange, although we expect the exchange notes to be eligible for
trading in PORTAL. Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Securities, the initial purchasers of the private notes, have
advised us that they intend to make a market in the exchange notes. However,
they are not obligated to do so and may discontinue any market-making activity
at any time without notice. Liquid markets may not develop for the exchange
notes and you may not be able to resell your notes at all or at prices you
consider reasonable. Future trading prices of the exchange notes also will
depend on many factors, including prevailing interest rates, our operating
results and the market for similar securities.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
We issued the private notes on July 31, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Securities, the initial purchasers,
pursuant to a purchase agreement. The initial purchasers subsequently sold the
private notes to "qualified institutional buyers," as defined in Rule 144A
under the Securities Act, in reliance on Rule 144A, and outside the United
States under Regulation S of the Securities Act. As a condition to the sale of
the private notes, we entered into a registration rights agreement with the
initial purchasers on July 31, 1998. Pursuant to the registration rights
agreement, we agreed that we would (1) file a registration statement with the
SEC with respect to the exchange notes on or before December 28, 1998, (2) use
our best efforts to cause the registration statement to be declared effective
by the SEC on or before March 13, 1999, (3) use our best efforts to keep the
registration statement effective until the closing of the exchange offer, (4)
use our best efforts to keep the exchange offer open for a period of not less
than 20 business days, and (5) use our best efforts to cause the exchange offer
to be completed no later than the 30th business day after it is declared
effective by the SEC.
Upon the effectiveness of the registration statement, we will offer the
exchange notes in exchange for the private notes. We filed a copy of the
registration rights agreement as an exhibit to the registration statement. The
registration statement satisfies some of our obligations under the registration
rights agreement; however, we did not comply with our obligations to file and
have the registration statement declared effective as described in items (1)
and (2) above and are currently paying you liquidated damages pursuant to the
registration rights agreement. See "--Liquidated Damages."
Resale of the Exchange Notes
Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange private notes
for exchange notes in the ordinary course of business. You will be allowed to
resell exchange notes to the public without further registration under the
Securities Act and without delivering to purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act
so long as you do not participate, do not intend to participate, and have no
arrangement with any person to participate, in a distribution of the exchange
notes. However, the foregoing does not apply to you if you are: (1) a broker-
dealer who purchases the exchange notes directly from us to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (2) you
are an "affiliate" of ours within the meaning of Rule 405 under the Securities
Act. In addition, if (1) you are a broker-dealer or (2) you acquire exchange
notes in the exchange offer for the purpose of distributing or participating in
the distribution of the exchange notes, you cannot rely on the position of the
staff of the SEC contained in the no-action letters mentioned above and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available.
Each broker-dealer that receives exchange notes for its own account in
exchange for private notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus, as it may be amended or
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supplemented from time to time, in connection with resales of exchange notes
received in exchange for private notes which the broker-dealer acquired as a
result of market-making or other trading activities. See "Plan of
Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus and
in the letter of transmittal, we will accept any and all private notes validly
tendered and not withdrawn before the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding private notes surrendered pursuant to the exchange offer. You
may tender private notes only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the private notes except that (1) we will register the exchange notes under
the Securities Act and, therefore, the exchange notes will not bear legends
restricting their transfer and (2) holders of the exchange notes will not be
entitled to any of the rights of holders of private notes under the
registration rights agreement, which rights will terminate upon the completion
of the exchange offer. The exchange notes will evidence the same debt as the
private notes and will be issued under the same indenture, so the exchange
notes and the private notes will be treated as a single class of debt
securities under the indenture.
As of the date of this prospectus, $100,000,000 in aggregate principal amount
of the private notes are outstanding and registered in the name of Cede & Co.,
as nominee for The Depository Trust Company. Only registered holders of the
private notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indenture may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the private notes entitled to participate in the exchange offer.
You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered private notes when, as
and if we had given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the
exchange notes from us.
If you tender private notes in the exchange offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of private notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than the applicable taxes described below, in connection with the exchange
offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term expiration date will mean 5:00 p.m., New York City time on ,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term expiration date will mean the latest date and time to which we
extend the exchange offer.
To extend the exchange offer, we will (1) notify the exchange agent of any
extension orally or in writing and (2) mail to each registered holder an
announcement that will include disclosure of the
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approximate number of private notes deposited to date, each before 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
We reserve the right, in our reasonable discretion, (1) to delay accepting
any private notes, (2) to extend the exchange offer or (3) if any conditions
listed below under "--Conditions" are not satisfied, to terminate the exchange
offer by giving oral or written notice of the delay, extension or termination
to the exchange agent. We will follow any delay in acceptance, extension or
termination as promptly as practicable by oral or written notice to the
registered holders. If we amend the exchange offer in a manner we determine
constitutes a material change, we will promptly disclose the amendment in a
prospectus supplement that we will distribute to the registered holders. We
will also extend the exchange offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure,
if the exchange offer would otherwise expire during the five to ten business
day period.
Interest on the Exchange Notes
The exchange notes will bear interest at the same rate and on the same terms
as the private notes. Consequently, the exchange notes will bear interest at a
rate equal to 12% per annum. Interest will be payable semi-annually in arrears
on February 1 and August 1, commencing August 1, 1999. You will receive
interest on August 1, 1999 from February 1, 1999. We will deem the right to
receive any interest accrued on the private notes waived by you if we accept
your private notes for exchange.
Procedures for Tendering
You may tender private notes in the exchange offer only if you are a
registered holder of private notes. To tender in the exchange offer, you must
(1) complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal, (2) have the signatures guaranteed if required by the
letter of transmittal, and (3) mail or otherwise deliver the letter of
transmittal or the facsimile to the exchange agent at the address listed below
under "--Exchange Agent" for receipt before the expiration date. In addition,
either (1) the exchange agent must receive certificates for the private notes
along with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before the
expiration date, (2) the exchange agent must receive a timely confirmation of a
book-entry transfer of the private notes, if the procedure is available, into
its account at the depositary pursuant to the procedure for book-entry transfer
described below before the expiration date, or (3) you must comply with the
guaranteed delivery procedures described below.
Your tender, if not withdrawn before the expiration date, will constitute an
agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of private notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or private notes to us. You may request
your respective brokers, dealers, commercial banks, trust companies or nominees
to effect the transactions described above for you.
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If you are a beneficial owner of private notes whose private notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the private notes you must
either (1) make appropriate arrangements to register ownership of the private
notes in your name or (2) obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Unless the private notes are tendered (1) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" on the letter of transmittal or (2) for the
account of:
. a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
. a commercial bank or trust company having an office or correspondent in
the United States or
. an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal
(each of which is an "Eligible Institution"), an Eligible Institution must
guarantee the signatures on a letter of transmittal or a notice of withdrawal
described below under "--Withdrawal of Tenders."
If the letter of transmittal is signed by a person other than the registered
holder, the private notes must be endorsed or accompanied by a properly
completed bond power, signed by the registered holder as the registered
holder's name appears on the private notes.
If the letter of transmittal or any private notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
they should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered private notes, which determination will be final and binding. We
reserve the absolute right to reject any and all private notes not properly
tendered or any private notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, you must cure any defects or irregularities in
connection with tenders of private notes within the time we determine. Although
we intend to notify you of defects or irregularities with respect to tenders of
private notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give you that notification. Unless waived, we will
not deem tenders of private notes to have been made until you cure the defects
or irregularities.
While we have no present plan to acquire any private notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any private notes that are not
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tendered in the exchange offer, we reserve the right in our sole discretion to
purchase or make offers for any private notes that remain outstanding after the
expiration date. We also reserve the right to terminate the exchange offer, as
described below under "--Conditions," and, to the extent permitted by
applicable law, purchase private notes in the open market, in privately
negotiated transactions or otherwise. The terms of any of those purchases or
offers could differ from the terms of the exchange offer.
If you wish to tender private notes in exchange for exchange notes in the
exchange offer, we will require you to represent that (1) you are not an
affiliate of ours, (2) you will acquire any exchange notes in the ordinary
course of your business and (3) at the time of completion of the exchange
offer, you have no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange notes.
In addition, in connection with the resale of exchange notes, any participating
broker-dealer who acquired the private notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the exchange notes, other than a resale of an unsold allotment
from the original sale of the notes, with the prospectus contained in the
registration statement.
Return of Notes
If we do not accept any tendered private notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw or submit
private notes for a greater principal amount than you desire to exchange, we
will return the unaccepted, withdrawn or non-exchanged notes without expense to
you as promptly as practicable. In the case of private notes tendered by book-
entry transfer into the exchange agent's account at the depositary pursuant to
the book-entry transfer procedures described below, we will credit the private
notes to an account maintained with the depositary as promptly as practicable.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the private notes at the depositary for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make book-
entry delivery of private notes by causing the depositary to transfer the
private notes into the exchange agent's account at the depositary in accordance
with the depositary's procedures for transfer. However, although delivery of
private notes may be effected through book-entry transfer at the depositary,
you must transmit and the exchange agent must receive, the letter of
transmittal or a facsimile of the letter of transmittal, with any required
signature guarantees and any other required documents, at the address below
under "--Exchange Agent" on or before the expiration date or pursuant to the
guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If you wish to tender your private notes and (1) the notes are not
immediately available or (2) you cannot deliver the private notes, the letter
of transmittal or any other required documents to the exchange agent before the
expiration date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
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(b) before the expiration date, the exchange agent receives from the
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by us, that:
. states your name and address, the certificate number(s) of the
private notes and the principal amount of private notes tendered,
. states that the tender is being made by that notice of guaranteed
delivery, and
. guarantees that, within three New York Stock Exchange trading days
after the expiration date, the Eligible Institution will deposit with
the exchange agent the letter of transmittal, together with the
certificate(s) representing the private notes in proper form for
transfer or a confirmation of a book-entry transfer, as the case may
be, and any other documents required by the letter of transmittal;
and
(c) within five New York Stock Exchange trading days after the expiration
date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificate(s) representing all tendered
private notes in proper form for transfer and all other documents required
by the letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your notes according to the guaranteed delivery
procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders of
private notes at any time before 5:00 p.m. on the expiration date.
To withdraw a tender of private notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must (1) specify the name of the person who deposited the private
notes to be withdrawn, (2) identify the private notes to be withdrawn,
including the certificate number(s) and principal amount of the private notes,
and (3) be signed in the same manner as the original signature on the letter of
transmittal by which the private notes were tendered, including any required
signature guarantees. We will determine in our sole discretion all questions as
to the validity, form and eligibility of the notices, and our determination
will be final and binding on all parties. We will not deem any properly
withdrawn private notes to have been validly tendered for purposes of the
exchange offer, and we will not issue exchange notes with respect to those
private notes, unless you validly retender the withdrawn private notes. You may
retender properly withdrawn private notes by following one of the procedures
described above under "The Exchange Offer -- Procedures for Tendering" at any
time before the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be required
to accept for exchange, or exchange the exchange notes for, any private notes,
and may terminate the exchange offer as provided in this prospectus before the
acceptance of the private notes, if, in our reasonable judgment, the exchange
offer violates applicable law, rules or regulations or an applicable
interpretation of the staff of the SEC.
If we determine in our reasonable discretion that any of these conditions are
not satisfied, we may (1) refuse to accept any private notes and return all
tendered private notes to you, (2) extend the
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exchange offer and retain all private notes tendered before the exchange offer
expires, subject, however, to your rights to withdraw the private notes (see
"--Withdrawal of Tenders") or (3) waive the unsatisfied conditions with respect
to the exchange offer and accept all properly tendered private notes that have
not been withdrawn. If the waiver constitutes a material change to the exchange
offer, we will promptly disclose the waiver by means of a prospectus supplement
that we will distribute to the registered holders of the private notes, and we
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the exchange offer would otherwise expire during the
five to ten business day period.
Termination of Certain Rights
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer except with respect to our continuing
obligations (1) to indemnify you and certain parties related to you against
[certain] liabilities, including liabilities under the Securities Act, and
(2) to provide, upon your request, the information required by Rule 144A(d)(4)
under the Securities Act to permit resales of the notes pursuant to Rule 144A.
Shelf Registration
If (1) applicable law or SEC policy does not permit the exchange offer or (2)
you notify us before the 20th business day following the completion of the
exchange offer that:
. you are prohibited by law or SEC policy from participating in the
exchange offer;
. you may not resell the exchange notes acquired by you in the exchange
offer to the public without delivering a prospectus, and the prospectus
contained in the registration statement is not appropriate or available
for resales by you; or
. you are a broker-dealer and hold notes acquired directly from us,
we will file with the SEC a shelf registration statement to register for public
resale the transfer restricted securities held by you if you provide us with
[certain] information for inclusion in the shelf registration statement.
For the purposes of the registration rights agreement, "transfer restricted
securities" means each private note until the earliest date on which (1) the
private note is exchanged in the exchange offer and entitled to be resold to
the public without complying with the prospectus delivery requirements of the
Securities Act, (2) the private note is disposed of in accordance with the
shelf registration statement, (3) the private note is disposed of by a broker-
dealer pursuant to the "Plan of Distribution" contemplated by the registration
statement or (4) the private note is distributed to the public pursuant to Rule
144 under the Securities Act.
Liquidated Damages
If (1) we do not file the registration statement with the SEC on or before
December 28, 1998, (2) the SEC does not declare the registration statement
effective on or before March 13, 1999, (3) we do not complete the exchange
offer on or before the 30th business day after the SEC declares the
registration statement effective, (4) if we are obligated to file the shelf
registration statement, we fail to file the shelf registration statement with
the SEC on or before the 30th business day after the filing obligation arises,
(5) if we are obligated to file a shelf registration statement, the SEC does
not declare
22
<PAGE>
the shelf registration statement effective on or before the 90th day after the
obligation to file a shelf registration statement arises, or (6) if the
registration statement or the shelf registration statement, as the case may be,
is declared effective but thereafter ceases to be effective or useable in
connection with resales of the transfer restricted securities, for the time of
non-effectiveness or non-usability (each, a "registration default"), we agree
to pay you liquidated damages in an amount equal to $0.05 per week per $1,000
in principal amount of transfer restricted securities held by you for each week
or portion of a week that the registration default continues for the first 90-
day period immediately following the occurrence of the registration default.
The amount of the liquidated damages will increase by an additional $0.05 per
week per $1,000 in principal amount of transfer restricted securities at the
beginning of and for each subsequent 90-day period until all registration
defaults have been cured, up to a maximum amount of liquidated damages of $0.50
per week per $1,000 in principal amount of transfer restricted securities. We
will not be required to pay liquidated damages for more than one registration
default at any given time. Following the cure of all registration defaults, the
accrual of liquidated damages will cease.
We did not comply with our obligation to file and have the registration
statement declared effective as described in items (1) and (2) above and are
currently paying you liquidated damages pursuant to the registration rights
agreement. We will pay all accrued liquidated damages in the same manner and on
the same dates as the interest payments on the notes.
Exchange Agent
We have appointed U.S. Trust Company of California, N.A. as exchange agent
for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
By Registered or Certified Mail or Hand or Overnight Delivery:
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention:
By Facsimile:
(213) 488-1370
Confirm by Telephone:
(213) 861-5066
Delivery to an address other than the one stated above or transmission via a
facsimile number other than the one stated above will not constitute a valid
delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail; however, our and our affiliates' officers and regular
employees may make additional solicitations by telegraph, telephone or in
person.
23
<PAGE>
We have not retained any dealer manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange offer
which we estimate to be approximately $ . These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the private notes pursuant to the exchange
offer, then you must pay the amount of the transfer taxes. If you do not submit
satisfactory evidence of payment of the taxes or exemption from payment with
the letter of transmittal, we will bill the amount of the transfer taxes
directly to you.
Consequence of Failures to Exchange
Participation in the exchange offer is voluntary. We urge you to consult your
financial and tax advisors in making your decisions on what action to take.
Private notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those private
notes may be resold only (1) to a person whom the seller reasonably believes is
a qualified institutional buyer in a transaction meeting the requirements of
Rule 144A, (2) in a transaction meeting the requirements of Rule 144 under the
Securities Act, (3) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 903 or 904 of Regulation S under
the Securities Act, (4) in accordance with another exemption from the
registration requirements of the Securities Act and based upon an opinion of
counsel if we so request, (5) to us or (6) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction.
24
<PAGE>
USE OF PROCEEDS
The exchange offer satisfies an obligation under the registration rights
agreement. We will not receive any cash proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth as of December 31, 1998 (1) our actual
capitalization and (2) our pro forma capitalization after giving effect to the
Associated, Tisco, Vantage Parts and Active Gear acquisitions and the related
$10.5 million equity infusion completed in January 1999 and the $42.0 million
additional equity infusion completed in April 1999 in connection with the
Vantage Parts and Active Gear acquisitions. You should read this table in
conjunction with the "Unaudited Pro Forma Condensed Financial Data" and related
notes and the "Selected Historical Financial and Operating Data" and related
notes included elsewhere in this prospectus. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
As of December 31, 1998
-------------------------
Actual Pro Forma
----------- -------------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 8,328 $ 14,382
=========== ===========
Debt:
Note payable......................................... $ 161 $ 161
Revolving credit facility(1) ........................ 18,200 71,500
12% senior subordinated notes ....................... 100,000 100,000
----------- -----------
Total debt ........................................ 118,361 171,661
Stockholders' equity................................... 16,474 75,724
----------- -----------
Total capitalization............................... $ 134,835 $ 247,385
=========== ===========
</TABLE>
- ---------------------
(1) The revolving credit facility provides for up to $85.0 million of borrowing
availability, if we comply with the covenants in the revolving credit
facility. See "Description of Revolving Credit Facility."
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Holdings' historical financial statements are identical to our financial
statements except with respect to the accounts which comprise the stockholders'
equity section of the balance sheets and thus our separate pro forma financial
statements are not presented. Holdings is our parent company and has no
separate operations, assets except its investment in us or liabilities except
for its guarantee of our debt.
We derived the following unaudited pro forma condensed financial data by
applying pro forma consolidated adjustments to Holdings' historical financial
statements, after giving effect to:
(1) the recapitalization of City Truck;
(2) the acquisitions of Stone, Truck & Trailer Parts, Tampa Brake,
Connecticut Driveshaft; Truckparts, Tisco, Associated, Active Gear and
Vantage Parts;
(3) the effect of refinancing the revolving credit facility and the issuance
of the notes; and
(4) the June 1998 private equity offering and the January 1999 private equity
offering which was fully funded in April 1999.
These pro forma consolidated adjustments give effect to the above transactions
as if these transactions had occurred on January 1, 1998 for the condensed pro
forma income statement data, and as if these transactions had occurred on
December 31, 1998 for the condensed pro forma balance sheet data, except that
the acquisitions we completed prior to December 31, 1998 are included in the
December 31, 1998 balance sheet. We describe the pro forma adjustments in the
accompanying notes.
The pro forma financial data are subject to numerous assumptions and
estimates which are subject to change and, in many cases, are beyond our
control. The pro forma financial data may not be indicative of the operating
results or financial position we would have achieved had we consummated the
events described above. You should not construe this data as representative of
our future operating results or financial position. You should read the pro
forma financial data in conjunction with the historical financial statements of
Holdings, Stone, Truck & Trailer Parts, Connecticut Driveshaft, Truckparts,
Tisco, Associated and Vantage Parts and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
26
<PAGE>
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Post 12/31/98
Post 12/31/98 Probable
Acquisitions Acquisitions
-------------------- --------------------
(1) (2) (3) (4) (5)
Actual Actual Pro Forma Actual Pro Forma Pro Forma
12/31/98 12/31/98 Adjustments 12/31/98 Adjustments 12/31/98
-------- -------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 8,328 $ 179 $ 2,190 (a) $ 435 $ 3,250 (m) $ 14,382
Accounts receivable, net....... 18,105 6,893 -- 5,901 -- 30,899
Inventories, net............... 41,453 12,946 -- 12,617 -- 67,016
Prepaid expenses and other
current assets................ 55 3,468 (2,200)(b) 788 -- 2,111
Deferred tax asset............. 2,588 -- -- -- -- 2,588
Current portion of notes and
patronage dividend receivable.. 2,108 1 -- -- -- 2,109
-------- ------- ------- ------- -------- --------
Total current assets.......... 72,637 23,487 (10) 19,741 3,250 119,105
Property, plant and equipment,
net............................ 13,613 2,590 -- 1,649 -- 17,852
Deferred tax asset.............. 12,516 -- -- -- -- 12,516
Other assets.................... 4,238 1,874 (1,727)(c) 1,406 -- 5,791
Deferred financing fees......... 5,424 -- -- -- -- 5,424
Goodwill and other intangibles.. 55,496 -- 50,119 (d) -- 21,960 (n) 127,575
-------- ------- ------- ------- -------- --------
Total assets.................. $163,924 $27,951 $48,382 $22,796 $25,210 $288,263
======== ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Bank overdraft................. $ -- $ 3,060 $(3,060)(e) -- -- --
Notes payable.................. 161 4,498 (4,498)(f) $ 1,989 $ (1,989)(o) $ 161
Current portion of long-term
debt.......................... -- 1,716 (1,716)(g) -- -- --
Accounts payable............... 14,105 3,728 -- 3,553 -- 21,386
Accrued liabilities............ 14,984 1,627 1,428 (h) 669 784 (p) 19,492
-------- ------- ------- ------- -------- --------
Total current liabilities..... 29,250 14,629 (7,846) 6,211 (1,205) 41,039
Revolving credit facility....... 18,200 4,453 48,847 (i) -- -- 71,500
12% senior subordinated notes... 100,000 2,084 (2,084)(j) -- -- 100,000
-------- ------- ------- ------- -------- --------
Total liabilities............. 147,450 21,166 38,917 6,211 (1,205) 212,539
Stockholders' equity:
Series A preferred stock....... 43,575 -- 13,291 (k) -- 30,934 (q) 87,800
Common stock................... 1 78 (48)(k) -- 71 (q) 102
Additional paid-in capital..... 14,325 10 2,919 (k) 20 11,975 (q) 29,249
Retained earnings.............. (41,427) 6,697 (6,697)(l) 16,565 (16,565)(r) (41,427)
-------- ------- ------- ------- -------- --------
Total stockholders' equity.... 16,474 6,785 9,465 16,585 26,415 75,724
-------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity........... $163,924 $27,951 $48,382 $22,796 $ 25,210 $288,263
======== ======= ======= ======= ======== ========
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(in thousands)
(1) "Actual 12/31/98" represents actual historical December 31, 1998 balances
for Holdings, including acquisitions completed in 1998.
(2) "Post 12/31/98 Acquisitions--Actual 12/31/98" represents the actual
historical December 31, 1998 balances for companies acquired after December
31, 1998 (Associated and Tisco).
(3) "Post 12/31/98 Acquisitions--Pro Forma Adjustments" represents the pro
forma adjustments to the historical financial statements of the companies
acquired after December 31, 1998 as if the acquisitions and associated
refinancings of debt and equity had been completed on December 31, 1998.
The items below indicate the changes made to the historical financial
statements.
(a) Reflects borrowings on the revolving credit facility of $53,300 and
additional cash equity contributions of $10,500 less the total cash
consideration paid in the acquisitions of Associated and Tisco of
$61,610.
(b) Reflects the elimination of receivables from related parties of
Associated ($2,200) not acquired as part of the acquisitions.
(c) Reflects the elimination of notes receivable from related parties of
Associated ($1,727) not acquired as part of the acquisitions.
(d) Reflects the recognition of goodwill and other intangibles for
Associated ($45,970) and Tisco ($4,149).
(e) Reflects the elimination of a bank overdraft at Associated of $3,060
not assumed as part of the acquisition.
(f) Reflects the elimination of notes payable of Associated ($4,000) and
Tisco ($498) not assumed as part of the acquisitions.
(g) Reflects the elimination of the current portion of long-term debt of
Associated ($1,716) not assumed as part of the acquisition.
(h) Reflects certain liabilities recorded in connection with vendor
consolidations, the closure of duplicate facilities and other activities
that will be phased out in 1999 at Associated ($1,105) and Tisco ($323).
(i) Includes an increase of $53,300 in borrowings from the revolving credit
facility for debt related to acquisitions completed after December 31,
1998 offset by the elimination of $4,453 of debt not acquired as part of
the acquisitions.
(j) Reflects the elimination of deferred credits of Associated of $2,084
not acquired as part of the acquisition.
(k) Reflects the issuance of stock in the amount of $16,250 ($10,500 for
cash and $5,750 issued as acquisition consideration) and the elimination
of $88 of paid-in equity of acquired companies.
(l) Reflects the elimination of retained earnings prior to the acquisitions
for Associated ($3,802) and Tisco ($2,895).
(4) "Post 12/31/98 Probable Acquisitions--Actual 12/31/98" represents the
actual historical December 31, 1998 balances for companies which we have
signed non-binding letters of intent to acquire and consummation of the
acquisition is probable (Vantage Parts and Active Gear).
(5) "Post 12/31/98 Probable Acquisitions--Pro Forma Adjustments" represents pro
forma adjustments to the historical financial statements of the probable
acquisitions as if the acquisitions and associated refinancings of debt and
equity had been completed on December 31, 1998. The items below indicate
the changes made to the historical financial statements:
(m) Reflects the proceeds expected from additional equity contributions of
$42,000 less the cash consideration of $38,750 to be paid in the
acquisitions of Vantage Parts and Active Gear.
28
<PAGE>
(n) Reflects the recognition of goodwill and other intangibles for Vantage
Parts ($17,220) and Active Gear ($4,740).
(o) Reflects the elimination of notes payable for Active Gear of $1,989 for
debt not assumed as part of the acquisition.
(p) Reflects certain liabilities recorded in connection with vendor
consolidations, the closure of duplicate facilities and other activities
that will be phased out in 1999 at Vantage Parts ($589) and Active Gear
($195).
(q) Reflects additional equity commitments of $43,000 (consisting of
$42,000 in cash and $1,000 as acquisition consideration) which will be
used to fund the acquisitions of Vantage Parts and Active Gear and the
elimination of $20 of paid-in equity of acquired companies.
(r) Reflects the elimination of retained earnings prior to the acquisitions
for Vantage Parts ($15,369) and Active Gear ($1,196).
29
<PAGE>
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
<TABLE>
<CAPTION>
(4)
(2) (3) Post
(1) Pro Post 12/31/98 Pro
Actual Forma Subtotal 12/31/98 Probable Forma
1998 Effect 1998 Acquisitions Acquisitions 1998
-------- ------- -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $103,295 $89,555 $192,850 $65,916 $62,883 $321,649
Cost of sales........... 65,855 61,367 127,222 42,619 48,956 218,797
-------- ------- -------- ------- ------- --------
Gross profit............ 37,440 28,188 65,628 23,297 13,927 102,852
Selling, general and
administrative
expenses............... 31,030 19,593 50,623 18,840 10,319 79,782
-------- ------- -------- ------- ------- --------
Operating income........ 6,410 8,595 15,005 4,457 3,608 23,070
Interest expense........ 6,519 6,901 13,420 4,157 -- 17,577
Interest (income)....... (624) 624 -- -- -- --
Other (income) expense.. (86) (5) (91) 11 (11) (91)
-------- ------- -------- ------- ------- --------
Income before tax....... 601 1,075 1,676 289 3,619 5,584
Taxes................... (687) 1,354 667 115 1,440 2,222
-------- ------- -------- ------- ------- --------
Net income.............. $ 1,288 $ (279) $ 1,009 $ 174 $ 2,179 $ 3,362
======== ======= ======== ======= ======= ========
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
(1) "Actual 1998" represents our actual historical 1998 results, including the
results of acquisitions completed in 1998 from the date of acquisition.
(2) "Pro Forma Effect" represents the actual historical 1998 results prior to
the date of acquisition for companies acquired in 1998 and the application
of certain pro forma adjustments to the historical financial statements of
the companies owned as of December 31, 1998 as if the acquisitions and
associated refinancings of debt and equity had been completed on January 1,
1998. The table below summarizes the historical results prior to
acquisition and the effects of the pro forma adjustments.
<TABLE>
<CAPTION>
Results Pro
Prior to Pro Forma Forma
Acquisition Adjustments Effect
----------- ----------- -------
<S> <C> <C> <C>
Sales................................. $89,555 -- $89,555
Cost of sales......................... 61,254 $ 113 (b) 61,367
------- ------- -------
Gross profit.......................... 28,301 (113) 28,188
Selling, general and administrative
expenses............................. 22,720 (3,127)(c) 19,593
------- ------- -------
Operating income...................... 5,581 3,014 8,595
Interest expense...................... 323 6,578 (d) 6,901
Interest income....................... (21) 645 (e) 624
Other (income) expense................ (5) -- (5)
------- ------- -------
Income before taxes................... 5,284 (4,209) 1,075
Taxes................................. 408 946 (f) 1,354
------- ------- -------
Net income............................ $ 4,876 (a) $(5,155) $ (279)
======= ======= =======
</TABLE>
- ---------------------
<TABLE>
<C> <S> <C> <C>
(a) The components of net income <loss> of acquired
companies prior to acquisition are Stone ($1,929),
Truck & Trailer Parts ($1,636), Connecticut Driveshaft
($<159>), Tampa Brake ($1,100) and Truckparts ($370)... $4,876
(b) To eliminate vendor rebates earned in prior periods. .. (113)
(c) The pro forma adjustments to selling, general and
administrative expenses include:
--Expense related to the revision of certain lease
agreements, shortening the lease period and increasing
amortization expense related to leasehold improvements
...................................................... $(50)
--Elimination of excess compensation, fringe benefits
and related expenses of existing employees based upon
salaried amounts in employment contracts entered into
at the times of the acquisitions and recapitalization
of City Truck......................................... 2,008
--Elimination of rent and related expenses for certain
leased property owned by stockholders which is no
longer being leased to Holdings, net of a contractual
increase in lease expense ............................ 300
--To reflect the change in depreciation due to
conversion to a straight-line accounting policy....... 112
--Elimination of the net costs included in the combined
financial statements of City Truck from the operation
of equipment which was not acquired as part of the
acquisitions, net of related outsourcing costs........ 219
--Elimination of salaries and related benefits due to
the reduction of staff and related cost of benefits as
a result of the acquisitions.......................... 1,537
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
<TABLE>
<C> <S> <C> <C>
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions..... 111
--Annualization of amortization related to goodwill
and intangibles...................................... (702)
--Annualization of amortization related to deferred
financing fees....................................... (408)
-------
Total selling, general and administrative
adjustments................................... 3,127
Reflects the pro forma adjustments to interest
(d) expense
--Interest on $100,000 notes at 12% ................. (12,000)
--Interest expense related to borrowing under the
revolving credit facility at 7.8%................... (1,420)
--Elimination of previously recognized interest
expense and amortization............................. 6,519
--Elimination of historical interest expense
recognized prior to acquisition...................... 323
-------
Total interest expense adjustments............ (6,578)
Represents the elimination of previously recognized
(e) interest income...................................... (645)
(f) Represents the net effect of adjusting income taxes
to an assumed effective tax rate of 39.8%............ (946)
------
Total pro forma net income effect............. $ (279)
------
</TABLE>
(3) "Post 12/31/98 Acquisitions" represent the actual historical 1998 results
for companies acquired after December 31, 1998 and the application of
certain pro forma adjustments as if the acquisitions had been completed as
of January 1, 1998. The table below summarizes the actual results and the
effects of the pro forma adjustments.
<TABLE>
<CAPTION>
Actual Pro Forma As
1998 Adjustments Adjusted
------- ----------- --------
<S> <C> <C> <C>
Sales................................... $65,916 -- $65,916
Cost of sales........................... 42,619 -- 42,619
------- ------- -------
Gross profit............................ 23,297 -- 23,297
Selling, general and administrative
expenses............................... 18,441 $ 399 (b) 18,840
------- ------- -------
Operating income........................ 4,856 (399) 4,457
Interest expense........................ 817 3,340 (c) 4,157
Interest income......................... (41) 41 (d) --
Other (income) expense.................. 11 -- 11
------- ------- -------
Income before taxes..................... 4,069 (3,780) 289
Taxes................................... 2 113 (e) 115
------- ------- -------
Net income.............................. $ 4,067 (a) $(3,893) $ 174
======= ======= =======
</TABLE>
- ---------------------
<TABLE>
<C> <S> <C> <C>
(a) The components of net income of acquired entities are
Associated Brake ($3,317) and Tisco ($750)................. $4,067
(b) The pro forma adjustments to selling, general and
administrative expenses include:
--Elimination of excess compensation, fringe benefits and
related expenses of existing employees based upon salaried
amounts in employment contracts entered into at the time of
the acquisitions........................................... $607
</TABLE>
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT
(in thousands)
<TABLE>
<C> <S> <C> <C>
--Elimination of salaries and related benefits due to
the reduction of staff and related cost of benefits
as a result of the acquisitions ..................... 184
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions...... 178
--Reflects annual amortization related to goodwill.... (1,368)
------
Total selling, general and administrative
adjustments.................................... (399)
(c) Reflects the pro forma adjustments to interest expense
--Interest expense related to borrowing under the
revolving credit facility at 7.8% to fund the
acquisitions of Associated and Tisco................. (4,157)
--Elimination of historical interest expense.......... 817
------
Total interest expense adjustments............. (3,340)
(d) Represents the elimination of previously recognized
interest income....................................... (41)
(e) Represents the net effect of adjusting income taxes to
an assumed effective tax rate of 39.8%................ (113)
------
Total pro forma net income effect.............. $ 174
------
</TABLE>
(4) "Post 12/31/98 Probable Acquisitions" represent the actual historical 1998
results for companies for which we have signed non-binding letters of
intent to acquire and consummation of the acquisition is probable and the
application of certain pro forma adjustments as if the acquisitions had
been completed as of January 1, 1998. The table below summarizes the actual
results and the effects of the pro forma adjustments.
<TABLE>
<CAPTION>
Actual Pro Forma As
1998 Adjustments Adjusted
------- ----------- --------
<S> <C> <C> <C>
Sales.................................... $62,883 -- $62,883
Cost of sales............................ 48,956 -- 48,956
------- ----- -------
Gross profit............................. 13,927 -- 13,927
Selling, general and administrative
expenses................................ 10,452 $(133)(b) 10,319
------- ----- -------
Operating income......................... 3,475 133 3,608
Interest expense......................... 776 (776)(c) --
Interest income.......................... -- -- --
Other (income) expense................... (11) -- (11)
------- ----- -------
Income before taxes...................... 2,710 909 3,619
Taxes.................................... 825 615 (d) 1,440
------- ----- -------
Net income............................... $ 1,885 (a) $(294) $ 2,179
======= ===== =======
</TABLE>
- ---------------------
<TABLE>
<C> <S> <C> <C>
(a) The components of net income of acquired companies are
Vantage Parts ($1,262) and Active Gear ($623)........... $1,885
(b) The pro forma adjustments to selling, general and
administrative expenses include:
--Elimination of excess compensation, fringe benefits
and related expenses of existing employees based upon
salaried amounts in employment contracts which will be
entered into at the time of the Active Gear
acquisition............................................ 63
--Elimination of management fees previously charged to
Vantage Parts by its prior parent company which will
not be incurred after the acquisition.................. 801
--Expense related to the revision of certain lease
agreements............................................. (89)
--Elimination of accounting, legal and other fees no
longer required as a result of the acquisitions........ 12
--Reflects annual amortization related to goodwill...... (654)
----
Total general, selling and administrative
adjustments...................................... 133
(c) Reflects the pro forma adjustment to eliminate
historical interest expense............................. 776
(d) Represents the net effect of adjusting income taxes to
an assumed effective tax rate of 39.8%.................. (615)
------
Total pro forma net income effect................ $2,179
------
</TABLE>
33
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The selected audited financial data of Holdings and its subsidiaries for the
years ended December 31, 1996, 1997 and 1998 set forth below are derived in
part from the more detailed financial statements and related notes of Holdings
and its subsidiaries included elsewhere in this prospectus. The unaudited
financial data of Holdings and subsidiaries for the years ended December 31,
1994 and 1995 are derived from unaudited financial statements of Holdings and
its subsidiaries, which are prepared on the same basis as the audited financial
statements and, in the opinion of management, reflect all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of data. In addition, Holdings and its subsidiaries operated
throughout the periods presented as independent, privately owned entities,
which influenced the historical level of owners' compensation and other
expenses. Accordingly, the historical results of operations include (1)
historical compensation expenses in excess of the current compensation levels
to the former owners of Holdings and its subsidiaries, (2) certain other
private company expenses and (3) no accrual for federal income taxes before May
29, 1998. Therefore, the historical results discussed below do not represent
our results had Holdings and its subsidiaries been combined and operated under
common ownership during that period. The comparative financial data for 1994,
1995, 1996 and 1997 include only the combined operations of City Truck and its
subsidiaries and affiliated companies. The 1998 financial data also includes
the operations of Stone, Truck & Trailer Parts, Connecticut Driveshaft,
Truckparts and Tampa Brake from their dates of acquisition. The financial data
set forth below should be read in conjunction with the financial statements and
related notes, and "Managements's Discussion and Analysis of Financial
Condition and Results of Operations," all appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- --------
(in thousands, except location data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales........................... $44,751 $50,063 $52,609 $57,837 $103,295
Cost of sales................... 28,706 31,981 33,283 36,611 65,855
------- ------- ------- ------- --------
Gross profit.................... 16,045 18,082 19,326 21,226 37,440
Selling, general and
administrative expenses........ 12,009 13,592 14,390 16,143 31,030
------- ------- ------- ------- --------
Income from operations.......... 4,036 4,490 4,936 5,083 6,410
Interest expense, net........... 31 31 628 776 5,895
Other (income) expense.......... (24) 4 (40) (58) (86)
Income tax expense
(benefit)(1)................... 29 37 53 93 (687)
------- ------- ------- ------- --------
Net income...................... $ 4,000 $ 4,418 $ 4,295 $ 4,272 $ 1,288
======= ======= ======= ======= ========
Supplemental pro forma income
data:
Pro forma income taxes.......... $ 1,604 $ 1,773 $ 1,731 $ 1,737 $ 239
Pro forma net income............ 2,425 2,682 2,617 2,628 362
Other Data:
Capital expenditures(2)......... $ 829 $ 1,234 $ 4,301 $ 1,627 $ 1,668
Number of locations (end of
period)........................ 12 15 16 17 57
Balance Sheet Data:
Cash and cash equivalents....... $ 2,985 $ 227 $ 152 $ 191 $ 8,328
Net working capital(3).......... 12,185 13,023 12,986 14,770 35,220
Total assets.................... 22,433 26,145 28,915 33,203 163,924
Total debt (including current
maturities).................... 3,095 11,898 13,184 13,056 118,361
Stockholders' equity............ 15,169 7,580 9,593 12,018 16,474
</TABLE>
- --------
(1) Holdings and its subsidiaries were comprised solely of sub-chapter "S'
corporations prior to the recapitalization in 1998.
(2) Capital expenditures for 1996 includes $3.7 million related to the
construction of City Truck's new corporate offices and distribution center
in Birmingham, Alabama.
(3) Net working capital equals current assets, excluding cash, less current
liabilities, excluding the current portion of long-term debt.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Historical Financial and Operating Data" and our financial statements
and related notes included elsewhere in this prospectus. Certain statements
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute forward-looking statements. See "Disclosure
Regarding Forward-Looking Statements."
See "Risk Factors" for information concerning the factors that affect our
markets, our products, our profitability, our liquidity, restrictions on us
imposed by our debt agreements and other factors that may affect us in the
future.
General
Holdings is our parent company and has no separate operations, assets except
its investment in us or liabilities, except for its guarantee of our debt.
Holdings' historical financial statements are identical to ours except with
respect to the accounts which comprise the stockholders' equity section of the
balance sheet.
Our historical financial data prior to 1998 reflect only City Truck's
financial results. During 1998, our financial data includes City Truck's
results for the full year and the following from the dates of acquisition:
<TABLE>
<CAPTION>
Date of
Company Acquisition
------- -----------
<S> <C>
Stone.................................................. June 19, 1998
Truck & Trailer Parts.................................. September 30, 1998
Tampa Brake............................................ October 31, 1998
Connecticut Driveshaft................................. November 4, 1998
Truckparts............................................. December 17, 1998
</TABLE>
Accordingly, our historical financial results are not comparable for any
period that includes periods after June 30, 1998. Our historical financial
statements do not include the results of Associated and Tisco which we acquired
after December 31, 1998, nor the results of Vantage Parts and Active Gear for
which we have signed letters of intent to acquire.
City Truck, prior to June 1, 1998, and the other acquired businesses, prior
to their acquisitions, operated as family owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include historical compensation expenses in
excess of the current compensation levels to the former owners and certain
other private company expenses. In addition, we believe the combined companies
will benefit from (1) increased access to capital, (2) the support of
experienced and professional management, (3) centrally coordinated purchasing,
(4) the elimination of certain duplicative distribution and operating costs,
(5) cross-selling opportunities and (6) the enhanced capacity to service large
national and regional accounts. The historical results discussed below do not
represent our results had all of the acquired entities been combined and
operated under common ownership during that period. See "Business--The Company"
for a general description of our business
Our sales consist primarily of parts sales (including remanufactured parts)
and installation and repair income. Parts sales include the sales of parts,
supplies, accessories and equipment for heavy
35
<PAGE>
duty vehicles and equipment, including braking, steering and suspension
systems, transmissions, drivelines, axles, wheels and rims, hydraulic systems
and engines. Remanufacturing revenues are derived from the sales of brake
shoes, drivelines, hydraulic systems, transmissions and rear axles which have
been remanufactured. Service revenues are derived from providing repair service
to vehicles and equipment and installing parts, supplies and equipment. Same
location sales are calculated to include a new location after a full calendar
year of operations.
Our cost of sales consist of the cost (including incoming freight) of parts,
supplies and equipment sold and direct labor costs incurred to provide
remanufacturing and service, partially offset by volume-related rebates
received from component manufacturers and buying cooperatives.
Our selling, general and administrative expenses include the cost of
personnel conducting sales, warehousing, delivery and administrative activities
(including commissions and other forms of incentive compensation), advertising
and marketing expenses, depreciation and amortization expenses, rent, delivery
expenses, repairs, utilities, maintenance costs, professional fees, property
taxes and other costs not included in cost of sales that are attributable to
operations.
Results of Operations
The following table summarizes our historical results of operations for the
fiscal years ended December 31, 1996, 1997 and 1998 ($ in millions):
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1996 1997 1998
----------- ----------- -------------
$ % $ % $ %
----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales............................... $52.6 100.0% $57.8 100.0% $103.3 100.0%
Gross profit........................ 19.3 36.7 21.2 36.7 37.4 36.2
SG&A expenses....................... 14.4 27.4 16.1 27.9 31.0 30.0
Income from operations.............. 4.9 9.3 5.1 8.8 6.4 6.2
Interest expense, net............... 0.6 1.1 0.8 1.4 5.9 5.7
Other income (expense).............. 0.1 0.2 0.1 0.2 (0.1) 0.1
Income tax expense (benefit)........ 0.1 0.2 0.1 0.2 (0.7) 0.7
Net income.......................... 4.3 8.2 4.3 7.4 1.3 1.3
</TABLE>
Comparison of Results of Operations
Fiscal Year 1998 Compared to Fiscal Year 1997
Sales. Sales increased to $103.3 million in 1998 from $57.8 million in 1997,
an increase of 78.7%. The overall sales growth is attributable to the
acquisitions of Stone, Truck & Trailer, Tampa Brake, Connecticut Driveshaft and
Truckparts, which combined contributed $39.7 million to 1998 sales. Excluding
acquisitions, the sales increase was 10.0% which is attributable to the full
year impact of the location opened in Jackson, Mississippi in May 1997 and an
increase in sales at the Mobile, Alabama and Monroeville, Alabama locations due
to targeted sales initiatives. Same location sales growth, only at City Truck
was 7.8% in 1998.
Gross profit. Gross profit increased to $37.4 million in 1998 from $21.2
million in 1997, an increase of 76.4%. Excluding acquisitions, gross profit
increased by 12.7% to $23.9. As a percentage of sales, the Company's gross
profit decreased to 36.2% in 1998 from 36.7% in 1997 reflecting the impact of
revenue from acquired businesses with lower margins. Excluding acquisitions,
margins increased to 37.6% due to higher vendor rebates.
36
<PAGE>
SG&A expenses. SG&A expenses increased to $31.0 million in 1998 from $16.1
million in 1997, an increase of 92.5%. As a percentage of sales, SG&A expenses
increased to 30.0% in 1998 from 27.9% in 1997. The increase in SG&A expenses as
a percentage of sales is primarily the result of acquisition related
amortization expense, primarily goodwill and incremental overhead resulting
from establishing a corporate staff and corporate office. We expect to incur
increased SG&A expenses in 1999 resulting from having a corporate staff and
corporate office for the full year. Excluding acquired amortization and
corporate expenses, SG&A as a percent of sales decreased to 27.2% due to an
increase in sales without a similar increase in SG&A which includes overhead
and other fixed expenses.
Income from operations. Income from operations increased to $6.4 million in
1998 from $5.1 million in 1997, an increase of 25.5%. As a percentage of sales,
income from operations decreased to 6.2% from 8.8%. The decrease in income from
operations as a percentage of sales is due primarily to the factors discussed
above. Excluding amortization and corporate expenses, income from operations as
a percentage of sales increased to 9.0%.
Interest expense. Interest expense increased to $5.9 million in 1998 from
$0.8 million in 1997, due to the $100.0 million of senior subordinated notes we
issued and increased borrowing under our revolving credit facility, primarily
to finance acquisitions completed in 1998.
Income tax expense (benefit). We recorded an income tax benefit of $0.7
million in 1998 compared to an expense of $0.1 million in 1997. Prior to June
1, 1998, we were taxed as an S corporation and as a result of the change to C
corporation status, a net deferred tax asset of $15.1 million was created, of
which $887 has been credited to the income statement, creating the income tax
benefit. The remainder, $14.2 million, has been credited to paid-in capital.
Net Income. Net income decreased to $1.3 million in 1998 from $4.3 million in
1997, a decrease of 69.8%. The decrease is due primarily to the factors
discussed above.
Fiscal Year 1997 Compared to Fiscal Year 1996
Sales. Sales increased to $57.8 million in 1997 from $52.6 million in 1996,
an increase of 9.9%. The sales growth is primarily attributable to the opening
of a new location in Jackson, Mississippi in May 1997, the full year impact of
the location opened in Monroeville, Alabama in September 1996 and an increase
in sales at the Mobile, Alabama location due to targeted sales initiatives.
Same location sales growth was 7.2% in 1997.
Gross profit. Gross profit increased to $21.2 million in 1997 from $19.3
million in 1996, an increase of 9.8%. As a percentage of sales, the Company's
gross profit remained constant between the corresponding periods at 36.7%.
SG&A expenses. SG&A expenses increased to $16.1 million in 1997 from $14.4
million in 1996, an increase of 11.8%. As a percentage of sales, SG&A expenses
increased to 27.9% in 1997 from 27.4% in 1996. The increase in SG&A expenses as
a percentage of sales is primarily the result of the incremental overhead
resulting from the relocation of City Truck's corporate offices and
distribution center to a larger facility in Birmingham, Alabama in October
1996.
Income from operations. Income from operations increased to $5.1 million in
1997 from $4.9 million in 1996, an increase of 4.1%. As a percentage of sales,
income from operations decreased to 8.8% from 9.3%. The decrease in income from
operations as a percentage of sales is due primarily to the factors discussed
above.
37
<PAGE>
Interest expense. Interest expense increased to $0.8 million in 1997 from
$0.6 million in 1996 due to marginally higher average borrowings in 1997.
Income tax expense. Income tax expense was $0.1 million for 1997 and 1996.
During 1997 and 1996, we were taxed as an S corporation and paid taxes to only
those states that do not permit businesses to be taxed as S corporations.
Net Income. Net income remained relatively unchanged from 1997 to 1996.
Liquidity and Capital Resources
City Truck historically used internal cash flow from operations to fund its
working capital requirements and capital expenditures and new branch locations.
We historically have had relatively low capital expenditure requirements since
we lease all but six of our 92 facilities. In 1998, we spent on a pro forma
combined basis $3.5 million on capital expenditures. We also historically have
paid dividends and distributions to stockholders. However, we do not anticipate
that we will pay dividends for the foreseeable future. In 1998, we funded our
substantial acquisition program with the proceeds from equity offerings and
long-term borrowings.
We financed the recapitalization of City Truck, the acquisition of Stone and
the refinancing of the existing indebtedness of City Truck and Stone with (1)
$52.0 million of borrowings under the revolving credit facility, (2) $6.0
million of interim financing provided through the purchase of securities by
Brentwood (the "Bridge Securities"), and (3) the purchase by Brentwood and
other investors of $10.2 million of our series B preferred stock and common
stock. In addition, Brentwood purchased outstanding common stock of City Truck
for $20 million in connection with the recapitalization.
On July 31, 1998, we issued our $100.0 million senior subordinated notes. We
used the net proceeds from the sale of these notes, which totaled approximately
$96.0 million, as follows: (1) approximately $52.0 million to repay outstanding
indebtedness under the revolving credit facility and (2) approximately $6.0
million to redeem the Bridge Securities, leaving approximately $38.0 million
for general corporate purposes. After July 31, 1998, we spent $50 million for
the acquisitions of Truck & Trailer Parts, Tampa Brake, Connecticut Driveshaft
and Truckparts. We borrowed an additional $18.2 million under the revolving
credit facility to complete these acquisitions.
In January 1999, we secured $52.5 million of commitments for a private equity
offering consisting of series A preferred stock and common stock of Holdings.
Brentwood committed $15.0 million and other investors committed $37.5 million.
In January 1999, we received $10.5 million of the equity to partially finance
the acquisitions of Associated and Tisco and borrowed $49.3 million under the
revolving credit facility to finance the balance and an additional $4.0 million
for working capital. We anticipate that we will use the remaining equity
commitments of $42.0 million to finance the Vantage Parts and Active Gear
acquisitions and for general corporate purposes. In April 1999, we received the
additional equity.
Our $85.0 million revolving credit facility had undrawn availability of $66.8
million at December 31, 1998 and $13.5 million of undrawn availability at
January 31, 1999. After giving effect to the Vantage Parts and Active Gear
acquisitions and the application of the additional $42.0 million in equity, the
undrawn availability would have been $13.5 million at January 31, 1999 and we
would have had a $3.3 million increase in cash. See "Description of Revolving
Credit Facility."
38
<PAGE>
We intend to continue to pursue a strategy to become the largest independent
distributor of heavy duty vehicle parts, with a focus on building a national
system of branch locations primarily through acquisitions. We expect to fund
our working capital needs, capital expenditures and future acquisitions through
availability under our revolving credit facility, future issuances of debt or
equity securities and cash flow generated from operations. However, our ability
to execute our growth strategy and to make scheduled payments of interest or
principal or to refinance our indebtedness will depend upon our future
operating performance, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors beyond our
control. See "Risk Factors--The terms of our debt restrict our operations" and
"Description of Revolving Credit Facility."
Effect of Inflation; Seasonality
Inflation has not had a significant effect on our results of operations in
recent years. Our selling, general and administrative expenses, such as
salaries, employee benefits, and facilities costs are subject to normal
inflationary pressures.
Many of our customers have a reduced number of working days in the fourth
quarter resulting from public holidays. As a result, we have lower sales in
that quarter than in the other quarters. With the exception of the fourth
quarter, our operations are generally not affected by seasonal fluctuations.
Year 2000 Issue
The Year 2000 issue relates to the inability of certain computer programs and
business equipment to properly process dates after December 31, 1999 and
certain other date combinations which have or once had special meaning in data
file processing. As a result, businesses may be at risk for miscalculations and
system failures.
In response to the Year 2000 issue, we initiated a series of projects to
identify, evaluate and implement necessary changes to our computerized business
systems, including our branch operating systems, and business equipment. We
have completed a review of all of our systems and equipment including vehicles,
manufacturing equipment and security, telephone and other systems. We examined
the importance of each category, the remediation necessary to make the category
complaint (either modification or replacement), the resources necessary to
complete the remediation and a time frame for completion.
We are addressing our software, hardware, and equipment issues primarily by
installing a Year 2000 compliant product at all of our operating locations. In
a limited number of cases, we will replace business equipment with Year 2000
compliant hardware. We have completed 75% of our hardware and equipment
remediation or replacement, and 60% of our software remediation or replacement.
The remediation and replacement process is proceeding as planned and we expect
to be fully compliant by September 30, 1999. We do not believe that any of our
systems or business equipment have critical dates prior to that time.
We estimate the cost of the project to be less than $400,000, and we have not
made any material expenditures due solely to Year 2000 issues. Year 2000
compliance is an element of our strategic systems plan. We have planned all
systems implementations to enhance our business and address Year 2000 issues as
a matter of course.
39
<PAGE>
Notwithstanding the above projects, our greatest risk and most reasonably
likely worst case scenario is with our branch operating application systems. If
the branch systems experience problems, it could disrupt our basic distribution
operations until we resolve the issue. To address this risk, we will be closed
for business Saturday, January 1, 2000 and Sunday, January 2, 2000. We will
test all material systems in production operation during this time with on site
support from, and in cooperation with, the software vendor. On December 31,
1999, without disrupting our normal business, we will print out all customer
orders scheduled to be shipped through January 13, 2000. We will also print a
price list which will enable us to manually conduct our business through
January 13, 2000. In addition, we are able to distribute software updates to
all of our processing centers and branch locations within a few hours.
If modifications and conversions by us and by those with whom we conduct
business are not completed in a timely manner, the Year 2000 issue may have a
material adverse effect on our business, financial condition and results of
operations. While we have endeavored to obtain assurances from our product
suppliers that they are adequately addressing the Year 2000 issue, we may
experience minimal interruptions in replenishment from some suppliers.
Our contingency plans include (1) retaining alternate software suppliers in
the event that our primary system fails the Year 2000 testing we currently have
in progress, despite written assurances from the vendor that the system is Year
2000 compliant, (2) identifying alternate sources of supply for selected
merchandise and (3) selectively increasing inventory for highly sensitive
items.
40
<PAGE>
BUSINESS
The Company
We are one of the largest and fastest growing independent distributors in the
highly fragmented $17 billion heavy duty vehicle parts and repair industry. We
distribute parts to over 25,000 customers through 92 branch locations across 21
states. Based on both sales and number of branch locations, we are one of the
two largest independent distributors in the nation and the leading distributor
in each of the southeastern, western and New England regions of the United
States.
We purchase replacement parts for heavy duty vehicles from component
manufacturers, inventory a broad selection of these parts and deliver them
directly to customer locations from our branches or sell them "over-the-
counter" to customers who visit our branches. Our 92 branch locations consist
primarily of warehouse and service space, with a small retail selling space. A
typical location averages 10,000 square feet. Our breadth of product inventory
generally enables us to provide delivery customers with parts within 24 hours
and to provide over-the-counter customers with parts immediately. We maintain a
fleet of delivery vehicles that makes daily scheduled deliveries to customers,
picks up used parts for remanufacture or repair and makes other delivery stops
for special orders. By offering reliable and timely availability of a wide
range of heavy duty vehicle parts, we allow our customers to reduce their
investment in inventories and minimize lost productivity and other costs
associated with vehicle and equipment downtime.
We carry a comprehensive selection of heavy duty vehicle parts including
braking, steering and suspension systems, transmissions, drivelines, axles,
wheels and rims, hydraulic systems and engine components. Our customers use
these parts for regular preventative maintenance, such as replacement of worn
brake shoes and air and oil filters, and for repairs of damaged parts. To
complement our parts distribution business, we provide our customers with
value-added services, such as extensive remanufacturing capabilities and
machine shop services. Our remanufacturing facilities allow us to offer our
customers a timely and reliable source of high quality parts. We operate ten
facilities which reline brake shoes and 15 facilities which rebuild
transmissions, rear axles and other components.
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
. Expanding fleet of heavy duty vehicles. The population of heavy duty
vehicles increased from approximately 6.6 million in 1992 to
approximately 7.7 million in 1997, a 15.9% increase, and is projected to
reach 8.6 million by 2002.
. Increased life expectancy of fleet vehicles. The life expectancy of the
average fleet vehicle has grown 62% from 451,000 miles in 1978 to
approximately 730,000 miles in recent years. In addition, the expanding
population of trucks in prime repair age, 5 to 13 years old, is expected
to increase from 32.6 million in 1996 to 39.2 million by 2001, an
increase of over 20%, leading to an expected increase in demand for
replacement parts and service.
41
<PAGE>
. Increased total truck miles driven annually. Annual truck miles driven
steadily increased from 2.0 billion in 1988 to 2.5 billion in 1997, a
24.9% increase. Over this period, the number of annual truck miles driven
never declined year over year.
. Increased outsourcing of parts inventory management by fleet
operators. We believe that heavy duty vehicle fleet operators are
increasingly outsourcing parts inventory management and service work and
concentrating supplier relationships in favor of a limited number of
integrated single-source suppliers. We believe that full service
independent distributors with a broad network of branch locations are
well positioned to capitalize on this outsourcing trend.
The independent heavy duty vehicle parts and repair industry is highly
fragmented, and we believe it is in the early stages of consolidation. Most of
the approximately 2,000 independent distributors and thousands of repair shops
in the industry are small, owner-operated businesses with limited access to the
capital required to develop and maintain a large volume and wide selection of
inventory, provide a full line of product offerings, implement advanced
management information systems and service national and regional accounts. We
believe that the five largest heavy duty vehicle parts distributors currently
account for less than 10% of all revenues generated in the heavy duty vehicle
parts and repair industry.
Competitive Strengths
We benefit from the following competitive strengths:
Ability to successfully execute our acquisition strategy. Since the
combination of City Truck and Stone in June 1998, we have successfully
identified, acquired and integrated six companies with 48 locations, forming
the largest distributor of heavy duty vehicle parts in each of the
southeastern, western and New England regions based on both sales in the region
and number of branch locations. The completed acquisitions have permitted us to
eliminate duplicative costs and reduce overhead, expand product offerings and
integrate regional sales activities.
Proven ability to grow revenue and profits. On a combined basis, we and our
predecessors have experienced strong same location sales growth averaging
approximately 5% annually over the past four years and approximately 7%
annually over the past two years. We have a strong record of successfully
opening or acquiring 37 branch locations since 1993. These locations generated
$87.7 million of 1998 sales.
Purchasing leverage. We are a leading customer of virtually all major heavy
duty vehicle replacement parts manufacturers. As a result of our purchasing
volume, we believe that we purchase parts at a discount to industry averages.
We are achieving cost savings by standardizing purchase prices at the lowest
cost among the acquired companies.
Established customer relationships. By emphasizing superior customer service,
we have developed long-standing relationships with many of our customers. We
are the leading distributor of heavy duty vehicle parts to local, regional and
national fleet operators such as United Parcel Service of America, Inc.,
Consolidated Freightways Corporation, Con-Way Transportation Services and
Penske Leasing, Inc. Our fleet customers depend on us for the timely
availability of high quality heavy duty parts. As evidence of the strength of
our customer relationships, we have served our top 10 customers for an average
of 14 years.
Superior inventory availability. Because of the significant costs associated
with vehicle downtime, we believe that the availability of parts on a timely
basis is the key component of quality
42
<PAGE>
service. We maintain a broad selection of inventory with over 20,000 SKUs. In
order to achieve high fill rates, we actively manage and track our inventory on
a real-time basis through advanced information systems. We believe that we are
more likely than our competitors to have parts in stock when requested by our
customers.
Outstanding customer service. We believe that we have a leading reputation
for providing high quality service based on more than 40 years of operations.
We are committed to attracting new customers and retaining existing customers
by:
. offering numerous branch locations conveniently located near our major
customers;
. providing a knowledgeable and responsive sales staff;
. ensuring timely delivery of products to our customers; and
. providing a hassle-free warranty policy for all of the products we sell.
Experienced management team. Our operating management has an average of 23
years of experience in the heavy duty vehicle parts and repair industry. Our
management and sales staff have extensive knowledge of our markets and long-
standing relationships with a broad range of customers and suppliers. We
developed our management team by retaining key operating managers from our
acquired companies and by recruiting our senior executives from outside the
heavy duty vehicle parts industry. Management owns approximately 23% of
Holdings' outstanding equity.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth and consolidation opportunities in the
heavy duty vehicle parts and repair industry. Our business strategy is to:
Become the largest national distributor of heavy duty vehicle parts. We
intend to build a nationwide system of branch locations through acquisitions as
well as the opening of new stores. As our customer base continues to
consolidate, we believe that it is increasingly important to establish a
national presence to serve our customers effectively. Smaller independent
distributors may be unable to adequately supply larger fleets because they lack
a broad network of branch locations to satisfy customer expectations for rapid
delivery times, availability of a broad selection of parts, consistent pricing
and a uniform warranty policy.
Further reduce cost of products sold. We expect to further reduce our cost of
products sold by:
. passing on our favorable vendor terms to acquired companies;
. negotiating more favorable pricing and terms from our suppliers as our
total volume of purchases increases through acquisitions and internal
growth; and
. sourcing remanufactured components from our facilities and thereby
reducing purchases from outside remanufacturers.
Develop distribution and operating efficiencies. We believe that we will be
able to achieve distribution and operating efficiencies as we continue to add
locations, including:
. improved operating efficiency through regional management of individual
branch locations and the closing of overlapping branch locations;
. improved inventory management and enhanced customer service through the
integration of newly acquired businesses into our information and
logistics systems; and
. reduced overhead costs by consolidating administrative functions such as
marketing, insurance, employee benefits, accounting and risk management.
43
<PAGE>
Achieve benefits from combining complementary operations. We believe that we
can obtain significant synergies from combining the operations of recently
acquired businesses and future acquisitions, including:
. sharing customer bases and broadening product offerings including cross-
selling of parts not previously offered at many of our locations;
. enhancing the efficiency of our remanufacturing operations by increasing
capacity utilization and consolidating overlapping facilities; and
. sharing "best practices" and operational expertise throughout our
company.
We expect our completed and pending acquisitions to generate a number of these
benefits. For example, the acquisitions of Truck & Trailer Parts and the
pending Vantage Parts acquisition allows us to offer a broad selection of
trailer parts throughout our system. In addition, the pending acquisition of
Active Gear provides additional remanufacturing expertise and the opportunity
to take advantage of facility consolidation opportunities in the Pacific
Northwest.
Expand relationships with national and regional fleet operators. We believe
there are significant opportunities to expand our sales to national and
regional fleet operators who are increasingly seeking to outsource their parts
inventory management and service work to integrated single-source providers.
With our broad network of branch locations we believe we are one of the only
distributors capable of effectively serving large national and regional fleets
operating in the southeastern, western and New England regions of the United
States.
Operations and Services
Our 92 branch locations, which consist primarily of warehouse and service
space with a small retail selling space, offer well-known national brand name
and private label heavy duty vehicle replacement parts. If we do not have a
specific part in stock at a particular location, our sales employee can utilize
our information system at many of our locations to attempt to locate the
requested product from another location. Our information system allows the
sales employee to record the sale, reserve the part and request delivery. As a
result of our inventory management programs, we believe we provide broad
product availability on a timely basis which enhances customer satisfaction and
loyalty.
We also provide commercial vehicle parts installation and repair services in
several locations. We employ mechanics and other technicians who repair
vehicles using parts maintained in inventory. In addition, at 57 of our
facilities we offer machine shop services to rebuild and repair damaged or used
heavy duty vehicle parts for our customers, including some or all of: axles,
transmissions, power steering and hydraulic and driveline components. We also
operate ten brake shoe remanufacturing facilities where approximately 125,000
brake shoes are remanufactured monthly. In addition, we remanufacture
drivelines, hydraulic systems, transmissions and rear axles. We resell these
parts, remanufactured to meet original specifications or specifications
acceptable to the customer, at a lower price than new parts.
Products
We distribute replacement parts for substantially all heavy duty vehicle
makes and models in service in the United States, including imported vehicles.
Our extensive product line includes a wide
44
<PAGE>
selection of parts for braking, steering and suspension systems, transmissions,
drivelines, axles, wheels and rims, hydraulic systems and engine components.
The useful lives of parts range from those of high-mortality items such as
brake shoes and drums, clutches, bearings, belts and hoses, which are generally
replaced frequently, to those of transmissions, engines and drivelines, which
generally have significantly longer useful lives. In addition to replacement
parts, we distribute ancillary supply items such as oil, antifreeze,
transmission, brake and power steering fluids, engine additives, protectants
and waxes. We believe approximately 35% of our parts sales are attributable to
the regular preventative maintenance of heavy duty vehicles as opposed to "as
needed" repairs. We inventory over 150 component brands. We also offer
remanufactured components, including remanufactured brake shoes under our own
brand, which provide customers with a timely and reliable source of high
quality parts. We offer customers a hassle-free, uniform warranty policy across
our extensive network of locations. In addition, we offer "pass through"
warranties from the OEM.
Customers
We believe that our commitment to high quality customer service, consistent
availability of parts and hassle-free warranty policy are the key elements to
maintaining and continuing to build our diverse base of over 25,000 customers.
Generally, our customers are located within 25 miles of a branch location. We
service a large variety of local and regional government entities and
businesses. Our customers include (1) the local operations of companies with
national and regional fleets, such as Waste Management, Inc., Browning-Ferris
Industries, Inc., Dole Food, Inc., and Tyson Foods, Inc., (2) companies with
common carrier and rental fleets, including United Parcel Service of America,
Inc. and Consolidated Freightways Corporation and (3) government entities and
utilities, including the North Carolina Department of Transportation and
Alabama Power. Most of the vehicles in an average customer's fleet operate on
local stop-and-go routes which subject parts to significant wear, resulting in
more frequent replacement. We also distribute parts to independent repair
shops, OEM-authorized heavy duty vehicle dealerships and other heavy duty
vehicle owners and operators. No single customer accounted for more than 5% of
our pro forma sales in 1998, and our top ten customers accounted for
approximately 15% of our 1998 pro forma sales.
Suppliers
We purchase heavy duty vehicle parts from over 150 component manufacturers.
Our five largest principal parts suppliers, Meritor/Euclid, Federal Mogul, Dana
Corporation, Webb Wheel Products, Inc. and Bendix Friction Materials Division
of AlliedSignal Inc., represented less than 25% of our purchases in 1998. We
frequently purchase comparable parts from multiple manufacturers to enable us
to offer a broader selection of products to our customers. To maximize
efficient distribution of our products, we strive to have suppliers deliver
shipments directly to each of our branch locations. When that arrangement is
not possible, we receive parts at our central warehouses and utilize our fleet
of delivery vehicles to distribute the parts to each of the branch locations.
We are not dependent on any one supplier and do not have a purchasing contract
with any suppliers.
We receive rebates on all parts we purchase directly from vendors and through
Heavy Duty America, our primary purchasing cooperative. Heavy Duty America, the
largest industry purchasing cooperative in the United States, obtains the
largest volume discounts relative to the other industry purchasing groups. We
believe that we will be able to obtain additional volume discounts from
component manufacturers on both parts purchased through Heavy Duty America and
those purchased directly from the component manufacturers. We believe this
purchasing advantage will improve as we add volume through internal growth and
acquisitions.
45
<PAGE>
Sales and Marketing
We believe that our superior customer service and our consistent availability
and quality of parts are critical elements in the sales process. Based on these
factors, among others, we have been able to establish and maintain long-term
relationships with existing customers as well as expand our market share
through our sales and marketing efforts. Management constantly monitors sales
activity according to customer type, product line, product group and location
to identify trends and ensure that our market share is maintained or increased.
Management also frequently reviews sales by territory and continually revises
marketing strategies to maximize productivity and sales. We receive advertising
and marketing allowances from component manufacturers which are based on our
volume of purchases. In addition, we actively cooperate with our suppliers to
design and implement effective marketing programs to promote our products.
We employ 522 persons in sales and marketing functions. Our sales force is
two-tiered: "inside" salespeople are responsible for maintaining customer
relationships, receiving and soliciting individual over-the-counter orders at
branch locations and responding to service and other inquiries by customers,
while "outside" salespeople are primarily responsible for identifying new
customers and soliciting new business. Our sales personnel are highly
specialized with expertise in manufacturers' specifications and customers'
needs. We believe that our experienced sales force has enabled us to maintain
one of the largest customer bases in the heavy duty vehicle replacement parts
industry in the United States.
46
<PAGE>
Facilities and Vehicles
We own six facilities located in Milford and South Windsor, Connecticut,
Fresno, California, Phoenix, Arizona, Las Vegas, Nevada and Atlanta, Georgia,
and lease 86 facilities throughout the United States. Leases for 18, 8, 11, 2
and 2 facilities expire in 1999, 2000, 2001, 2002 and 2003, respectively, and
13 of these leases have renewal options. The remaining 45 leases expire on
various dates through 2013 and 24 of them have renewal options. The average
total warehouse and service space is approximately 10,000 square feet per
location, which consists primarily of warehouse and service space, with a small
retail selling space. Our facilities are used for sales, services, warehousing
and administration. Our facilities are listed below:
<TABLE>
<CAPTION>
Total Sq. Machine Shop
City State Footage Services Provided *
- ---- ----- --------- -------------------
<S> <C> <C> <C>
Albertville AL 8,400 FW
Birmingham AL 103,000 D, T, BS
Cullman AL 10,500 --
Decatur AL 12,000 D, FW
Dothan AL 19,125 D, FW
Huntsville AL 10,000 FW
Mobile AL 10,080 D, FW
Monroeville AL 5,600 --
Montgomery AL 16,400 D, FW
Tuscaloosa AL 8,000 FW
Tuscumbia AL 12,500 --
Phoenix AZ 18,000 FW
Anaheim CA 11,000 FW, D
Arcata CA 6,300 --
Bakersfield CA 7,500 FW, D
Burbank CA 6,000 FW
Escondido CA 5,800 FW, D
Fontana CA 20,000 D, T, FW, S
Fontana-FRS CA 15,000+ --
Fortuna CA 1,691 --
Fresno CA 11,500 FW, T
Gardena CA 60,000+ BS, D, T, FW, S
Hayward CA 9,800 T, FW, D
Huntington Park CA 4,500 FW
Modesto CA 7,000 --
Ontario CA 34,402 BS
Redding CA 10,250 --
San Diego CA 8,500 FW, D, T
Ukiah CA 9,600 --
Victorville CA 5,000 --
W. Sacramento CA 11,000 FW
Whittier CA 15,000 D, FW, T, S
Wilmington CA 4,000 --
Denver CO 18,029 --
Danbury CT 5,807 D
Hartford CT 11,762 --
Milford CT 40,600 BS, D, FW
NorthHaven CT 33,900 --
Norwich CT 6,400 --
South Windsor CT 17,500 D
Stamford CT 8,000 --
Waterbury CT 5,006 D
Clearwater FL 9,500 D, FW
Jacksonville FL 10,968 --
Lakeland FL 14,147 D, FW
Orlando FL 15,251 D, FW
</TABLE>
<TABLE>
<CAPTION>
Total Sq. Machine Shop
City State Footage Services Provided *
- ---- ----- --------- -------------------
<S> <C> <C> <C>
Sarasota FL 17,500 D, FW
Tampa FL 24,740+ D, BS, T, FW, H
Atlanta GA 25,000 BS
Conley GA 46,400 --
Dalton GA 10,200 D, FW
Dalton GA 8,500 --
Savannah GA 6,250 --
Chicago IL 31,222 --
Bowling Green KY 13,600 D, FW
Newton MA 6,700 --
W. Springfield MA 5,950 D
Kansas City MO 24,279 BS
Jackson MS 10,000 --
Asheville NC 10,000 D, T, FW
Charlotte NC 10,080 --
Charlotte NC 14,000 D, SG, FW
Durham NC 3,000 --
Garner NC 75,000 BS, T, SG
Goldsboro NC 10,000 D
Greensboro NC 35,500+ D, T
Hickory NC 10,000 D, FW
Kenansville NC 9,000 --
Raleigh NC 38,000+ D, FW, S
Wilmington NC 8,000 D, H
Las Vegas NV 6,000 --
Reno NV 17,724 --
Portland OR 32,840 BS
Charleston SC 10,000 --
Columbia SC 10,000 D, H
Greenville SC 8,500 --
Greenville SC 7,500 D, T, FW
Chattanooga TN 18,000 D, FW
Johnson City TN 10,000 D
Memphis TN 18,000 D, FW
Nashville TN 18,000 D, FW
Dallas TX 19,289 --
Norfolk VA 11,500 D, FW
Richmond VA 10,000 D, FW
Roanoke VA 5,000 --
Auburn WA 20,000 FW, D, BS
Kirkland WA 5,400 --
Seattle WA 22,860 T, SG
Seattle WA 5,000 --
Seattle WA 9,615 --
Tacoma WA 11,420 T, SG
Charleston WV 28,704+ D, H, FW, T
</TABLE>
- ---------------------
+Includes drive-in service facilities.
* BS =brake shoes, D =drive train, FW =fly wheel, H =hydraulic, S =spring
repair, SG =steering gear, T =transmission
Our corporate office is located in 7,000 square feet of office space in
Deerfield, Illinois. In addition, we lease 3,500 square feet of office space in
Portland, Oregon and we own the land on which the Gardena, California facility
is located and property in Huntington Park, California which we lease to an
unrelated third party.
47
<PAGE>
We operate over 450 vehicles, including five leased tractor-trailers and 441
delivery trucks and vans. Approximately 95% of our fleet is dedicated to
delivery services. Our six drive-in service facilities are comprised of
approximately 23 service bays and, as of December 31, 1998 on a pro forma
basis, we employed 36 full-time mechanics at these service facilities.
Competition
We operate in a highly fragmented and competitive industry. Competition is
based primarily on service, availability and quality of parts, geographic
proximity and price. We compete with other heavy duty vehicle parts
distributors, OEM-authorized dealerships, independent repair shops and
component manufacturers on a regional and local level. The heavy duty vehicle
parts and repair industry has experienced consolidation, and we compete with
other companies which may pursue a consolidation strategy. In addition, the
members of the National Auto Parts Association comprise an affiliated network
of locations that compete with us primarily for over-the-counter parts sales.
We also compete with dealerships authorized by OEMs, such as Freightliner
Corporation, Mack Trucks, Inc., Navistar International Corporation and Paccar
Inc. These OEM-authorized dealerships sell replacement parts to customers who
purchased vehicles from their dealerships as well as to other heavy duty
vehicle owners and operators who purchase replacement parts in the aftermarket.
We believe that our market leadership, significant purchasing leverage,
superior customer service, parts availability and delivery capabilities provide
us with a competitive advantage over other companies in the heavy duty vehicle
parts and repair industry.
Government Regulations and Environmental Matters
We are subject to a number of environmental laws. We are also subject to
federal, state and local laws and regulations relating to workplace health and
safety. In particular, our operations are subject to environmental laws
governing waste disposal, air and water emissions, the handling of hazardous
substances, workplace exposure and other matters. Stringent environmental laws
govern the handling and disposal of chemicals and substances, such as solvents
and lubricants, commonly used in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. We conduct environmental
diligence in connection with our acquisition program and obtained indemnities
from sellers of the businesses we have acquired, which in some cases are
limited by time and dollar amounts. If we fail, or our predecessors failed, to
comply with environmental laws, we may be liable for administrative, civil or
criminal penalties assessed or asserted by government agencies or other
parties. We may not be fully indemnified with respect to the actions of our
predecessors. If we release the substances described above into the
environment, whether at facilities we operate or at facilities where we have
arranged for disposal of the substances, we may also be liable for cleaning up
contamination which results from the releases. Currently, we are not party to
any legal proceedings pursuant to applicable environmental laws and believe we
are in material compliance with all applicable environmental laws. We endeavor
to evaluate properties owned or leased by potential acquisition candidates to
assess environmental conditions at the properties before any acquisition.
Management Information Systems; Year 2000 Issue
Each of the acquired companies operates advanced management information
systems. We use these systems to purchase, monitor and allocate inventory on a
real-time basis throughout our branch system and central warehouses. The
systems enable us to effectively manage inventory costs and turnover rates. The
systems include computerized order entry, sales analysis, inventory status,
invoicing and payment. We employ systems to determine optimum branch location
inventory levels based on usage rates, production statistics, technological
advances and other factors. We intend to
48
<PAGE>
install a common management information system among all acquired businesses
supported by Karmak, Inc., the leading designer of information systems
specifically for the heavy duty vehicle replacement parts industry. We believe
that our management information systems will be Year 2000 compliant by
September 30, 1999. For a more detailed discussion of our Year 2000 issue, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue."
Employees
As of December 31, 1998, on a pro forma basis, we employed 1,541 persons. Of
these employees, approximately 311 serve in management and administration
functions, 522 serve in sales and marketing functions, 489 serve in warehousing
functions and 219 serve in repair and service functions. To market heavy duty
vehicle parts effectively, salespeople must have significant expertise
regarding the various manufacturers and specifications of vehicle parts. We
believe we maintain a competitive advantage over other parts distributors due
to the high level of expertise of our sales force. None of our employees are
party to collective bargaining agreements, and we benefit from good employee
relations.
To maximize performance from certain of our employees, including branch
managers and the sales force, we have implemented incentive-based compensation
programs based on both sales growth and profitability. We believe that we will
be able to attract and retain employees based on our incentive-based
compensation programs, opportunities for career advancement within the company
and a strong benefits program.
Recruiting, Training and Safety
We believe that recruiting and training high quality personnel is a major
component of a successful operation. We have implemented a number of training
programs and incentives to encourage the development of technical expertise by
our sales and service personnel, which enables them to advise customers when
vehicles need regular scheduled maintenance, recommend the appropriate products
and instruct customers on parts use and installation.
We seek to hire employees from universities, community colleges, vocational
schools, other educational institutions, competitors and other companies in the
trucking industry. In addition, we provide on-the-job training, attractive
benefits packages, steady employment and opportunities for advancement. We
currently have a variety of safety programs in place, including training with
respect to operation of certain equipment, such as fork-lifts, and a bonus
system based on an employee's or an employee team's safety record. We are in
the process of establishing "best practices" throughout our operations to
ensure that all employees comply with the safety standards established by us,
our insurance carriers and federal, state and local laws and regulations.
Risk Management and Insurance
The primary risks in our business are bodily injury, property damage and
injured workers' compensation. We maintain liability insurance for bodily
injury and third-party property damage and workers' compensation coverage that
is standard for the industry and that we consider sufficient to insure against
these risks. We self-insure certain risks and obtain stop loss and catastrophic
coverage from insurance companies.
Legal Proceedings
In the ordinary course of business we are involved in legal proceedings
relating to claims arising out of our operations. We do not believe that there
are any pending or threatened legal proceedings that are reasonably likely to
have a material adverse effect on us.
49
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following sets forth information regarding our executive officers and
directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
John J. Greisch......... 43 President, Chief Executive Officer and Director
Vice President, Chief Financial Officer and
John P. Miller.......... 41 Secretary
Anthony W. Cavalle...... 43 Vice President Operations
Gene L. Curtin.......... 51 Vice President and Chief Information Officer
Frederick J. Warren..... 59 Chairman of the Board of Directors
W. Louis Bissette III... 30 Director
W. Larry Clayton........ 51 Regional General Manager and Director
Christopher A.
Laurence............... 31 Director
Martin R. Reid.......... 56 Director
David S. Seewack........ 39 Regional General Manager and Director
James T. Stone.......... 49 Regional General Manager and Director
</TABLE>
John J. Greisch, President, Chief Executive Officer and Director. Mr. Greisch
has served as our President, Chief Executive Officer and as a director since
joining us in June 1998. From May 1986 to December 1997, Mr. Greisch served in
various positions at The Interlake Corporation, a global industrial equipment
manufacturer with approximately $800 million in 1997 sales. Most recently, Mr.
Greisch served as President of the Material Handling Group, Interlake's largest
operating unit with approximately $475 million in 1997 sales, and before that
he served as Vice President of Finance, Chief Financial Officer. Mr. Greisch is
a Certified Public Accountant.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller has served as our Vice President, Chief Financial Officer and Secretary
since joining us in June 1998. From 1997 to June 1998, Mr. Miller served as
Chief Financial Officer of Peapod, Inc., an internet-based grocery shopping
service. From 1985 to 1997, Mr. Miller served in various positions at
Interlake. Mr. Miller last served as Controller for Interlake, and before that
he served as Vice President Finance for Interlake's Material Handling Group.
Mr. Miller is a Certified Public Accountant.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle has served as Vice
President Operations since joining us in October 1998. From 1997 to October
1998, Mr. Cavalle served as Executive Vice President Operations of Carstar, a
franchiser and consolidator of collision service centers with approximately
$250 million in 1998 sales. From 1981 to 1997, Mr. Cavalle served in various
positions at Chief Auto Parts, an auto parts retailer and distributor with
approximately $500 million in 1997 sales. Mr. Cavalle's most recent position at
Chief Auto Parts was as Vice President Commercial and International Business
and before that he served as Vice President Marketing.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin has
served as Vice President and Chief Information Officer since joining us in
February 1999. From 1992 to January 1999, Mr. Curtin served as Vice President
and Chief Information Officer of Wickes, Inc., a distributor of building
supplies for professional contractors with approximately $910 million in 1998
sales.
50
<PAGE>
Frederick J. Warren, Chairman of the Board of Directors. Mr. Warren has
served as a director since June 1998. Mr. Warren has been with Brentwood since
co-founding it in 1972 and is presently a general partner of Brentwood Buyout
Management Partners, L.P. and Brentwood Buyout Partners, L.P., a managing
member of Brentwood Private Equity, L.L.C. and Brentwood Private Equity
Management, L.L.C. Mr. Warren is also a director of PulsePoint Communications.
W. Louis Bissette III, Director. Mr. Bissette has served as a director since
June 1998. Mr. Bissette joined Brentwood in 1993 and is presently a principal
of Brentwood Private Equity, L.L.C. and Brentwood Private Equity Management,
L.L.C. Before joining Brentwood, Mr. Bissette was in the Corporate Finance
Department of Morgan Stanley & Co. Incorporated.
W. Larry Clayton, Regional General Manager and Director. Mr. Clayton has
served as a Regional General Manager and as a director since our inception in
June 1998. Mr. Clayton is the founder of City Truck, and served as President of
City Truck from its inception in 1975. Mr. Clayton is currently a member of the
HDA Marketing Committee.
Christopher A. Laurence, Director. Mr. Laurence has served as a director
since June 1998. Mr. Laurence joined Brentwood in 1991 and is presently a
managing member of Brentwood Private Equity, L.L.C. and Brentwood Private
Equity Management, L.L.C. Mr. Laurence is also a director of Rental Service
Corporation, Aspen Marketing Group, Inc., Silver Cinemas International, Inc.
and World Point Logistics.
Martin R. Reid, Director. Mr. Reid has served as a director since June 1998.
Mr. Reid is the Chief Executive Officer and Chairman of the Board of Directors
of Rental Service Corporation. Mr. Reid served as Chief Executive Officer of
Tuboscope Vetco International Corporation from May 1991 to October 1993. From
September 1986 to June 1990, Mr. Reid was Chief Executive Officer of Eastman
Christensen Co. Mr. Reid is a director of Aspen Marketing, Inc.
David S. Seewack, Regional General Manager and Director. Mr. Seewack became a
Regional General Manager and a director upon our acquisition of Associated in
January 1999. From 1985 to January 1999, Mr. Seewack was the President of
Associated.
James T. Stone, Regional General Manager and Director. Mr. Stone became a
Regional General Manager and a director upon our acquisition of Stone in June
1998. From 1970 to June 1998, Mr. Stone served in various positions at Stone,
most recently as the President of Stone. Mr. Stone has served as Chairman of
the Automotive Service Industry Association Heavy Duty Division and on the
board of HDA and NC Trucking Association. He has served on numerous distributor
advisory councils of suppliers to Stone. Mr. Stone is currently a member of the
HDA Marketing Committee.
51
<PAGE>
Executive Compensation
The following table sets forth information with respect to the compensation
we paid for services rendered during the year ended December 31, 1998 to our
Chief Executive Officer and to each of our three other most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
------------------ ----------------
Salary Restricted Stock
Name and Principal Position ($) Bonus ($) Award(s) ($)
- --------------------------- -------- --------- ----------------
<S> <C> <C> <C>
John J. Greisch (a)....................... $166,147 $82,106 --
President and Chief Executive Officer
John P. Miller (b)........................ $ 86,841 $69,255 $99,761
Vice President, Chief Financial Officer
and Secretary
Anthony W. Cavalle (c).................... $ 50,377 $16,285 --
Vice President Operations
Gene L. Curtin (d)........................ -- -- --
Vice President and Chief Information
Officer
</TABLE>
- --------
(a) Mr. Greisch became our President and Chief Executive Officer on June 1,
1998. His annualized salary from January 1, 1998 would have been $275,000.
(b) Mr. Miller became our Vice President, Chief Financial Officer and Secretary
on June 29, 1998. His annualized salary from January 1, 1998 would have
been $165,000. Mr. Miller's restricted stock awards represent the
difference between the purchase price and the fair market value of shares
of Holdings' preferred stock Mr. Miller acquired in July 1998. See "Certain
Relationships and Transactions."
(c) Mr. Cavalle became our Vice President Operations on October 6, 1998. His
annualized salary from January 1, 1998 would have been $175,000.
(d) Mr. Curtin became our Vice President and Chief Information Officer on
February 1, 1999 at an annual salary of $170,000.
Stock Options
On February 1, 1999, Holdings granted Mr. Curtin options to purchase 750
shares of Holdings common stock with an exercise price of $170 per share,
expiring on January 31, 2009, and vesting over eight years from the date of
grant. Vesting may accelerate in certain events.
Compensation of Directors
The members of our board of directors do not receive any compensation for
their services as directors. They do receive reimbursement for travel and other
expenses incurred in their capacity as directors.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
We are a wholly-owned subsidiary of our parent company, Holdings, which has
guaranteed the notes. Holdings has two classes of voting securities, common
stock and preferred stock designated as voting series A preferred stock. The
common stock and series A preferred stock vote together as a single class. The
following table sets forth, as of December 31, 1998 on a pro forma basis, as
adjusted for the $52.5 million equity commitments, the ownership of Holdings'
common stock and the ownership of its series A preferred stock by each
stockholder who is known by us to own beneficially more than five percent of
the outstanding common stock or series A preferred stock, respectively, by each
director, by each executive officer listed in the table below, and by all
directors and officers as a group.
<TABLE>
<CAPTION>
Series A
Common Stock Preferred Stock
Amount and Amount and
Nature of Nature of Percent of
Beneficial Percent of Beneficial Percent of all Voting
Name and Address Ownership Class Ownership Class Securities
---------------- ------------ ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Brentwood(1)............ 139,754 66.0% 609,134 69.3% 68.7%
Frederick J.
Warren(1)(2)........... -- -- -- -- --
Christopher A.
Laurence(1)(2)......... -- -- -- -- --
W. Louis Bissette
III(1)................. -- -- -- -- --
John J. Greisch(3)...... 6,602 3.1 6,983 * 1.2
John P. Miller(3)....... 1,729 * 998 * *
Anthony W. Cavalle(3)... 1,229 * 998 * *
W. Larry Clayton(4)..... 8,600 4.1 37,486 4.3 4.2
James T. Stone(5)....... 4,259 2.0 18,563 2.1 2.1
Martin R. Reid(1)....... 858 * 1,995 * *
David S. Seewack(6)..... 5,723 2.7 24,943 2.8 2.8
All directors and
officers as a group
(ten persons).......... 29,000 13.7% 91,966 10.5% 11.1%
</TABLE>
- ---------------------
* Less than one percent.
(1) The address for Brentwood and Messrs. Warren, Laurence, Bissette and Reid
is c/o Brentwood Associates, 11150 Santa Monica Boulevard, Suite 1200,
Los Angeles, California 90025. BABF City Corp., wholly owned by Brentwood
Associates Buyout Fund II, L.P., is the owner of record of 57,227 shares of
common stock and 249,428 shares of preferred stock and HDA Partners I,
L.P., of which Brentwood is the general partner, is the owner of record of
82,527 shares of common stock and 359,706 shares of preferred stock,
indicated as owned by Brentwood.
(2) Messrs. Warren and Laurence are managing members of the general partner of
Brentwood Associates Buyout Fund II, L.P., and in that capacity share
voting and dispositive power with respect to the shares owned by Brentwood
Associates Buyout Fund II, L.P. and may be deemed to be beneficial owners
of those shares but disclaim beneficial ownership of those shares.
(3) The address for Messrs. Greisch, Miller and Cavalle is c/o HDA Parts
System, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
(4) The address for Mr. Clayton is c/o City Truck and Trailer Parts, 2912 3rd
Avenue North, Birmingham, Alabama 35202.
(5) The address for Mr. Stone is c/o Stone Heavy Duty, P.O. Box 25518, Raleigh,
North Carolina 27611.
(6) The address for Mr. Seewack is c/o Associated Brake Supply, Inc. 17010 S.
Main Street, Gardena, California 90248.
53
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationship with Brentwood
Pursuant to a Corporate Development and Administrative Services Agreement,
dated as of May 29, 1998, between Brentwood Private Equity, L.L.C., an
affiliate of Brentwood, and us (the "Administrative Services Agreement"),
Brentwood Private Equity has agreed to assist in our corporate development
activities by providing services to us, including (1) assistance in analyzing,
structuring and negotiating the terms of investments and acquisitions, (2)
researching, identifying, contacting, meeting and negotiating with prospective
sources of debt and equity financing, (3) preparing, coordinating and
conducting presentations to prospective sources of debt and equity financing,
(4) assistance in structuring and establishing the terms of debt and equity
financing and (5) assistance and advice in connection with the preparation of
our financial and operating plans. Pursuant to the Administrative Services
Agreement, Brentwood Private Equity is entitled to receive: (1) financial
advisory fees equal to 1.5% of the acquisition cost of our completed
acquisitions; (2) upon the occurrence of specified events, monitoring fees
equal to 1.0% of the aggregate amount of investment by Brentwood in us; and (3)
reimbursement of its reasonable fees and expenses incurred from time to time
(a) in performing the services rendered under the Administrative Services
Agreement and (b) in connection with any investment in, financing of, or sale,
distribution or transfer of any interest in us by Brentwood Private Equity or
any person or entity associated with Brentwood Private Equity. In connection
with the acquisitions, we have paid Brentwood Private Equity $2.2 million
pursuant to the Administrative Services Agreement.
Stockholders' Agreement
On September 30, 1998, Holdings and each of Holdings' stockholders at that
time entered into a stockholders' agreement which restricts the transfer of
shares of common stock and preferred stock held by those stockholders. The
stockholders' agreement also entitles those stockholders to certain rights
regarding the transfer of their shares and the election of directors.
The stockholders' agreement provides a "right of first refusal" to Holdings
and each of its original stockholders. The stockholders' agreement also
provides stockholders with "tag-along rights." If Brentwood or any of its
affiliates proposes to transfer any shares, each of the other stockholders may
require the proposed purchaser to purchase a pro rata portion of its shares,
and Brentwood would have to make a corresponding reduction in the number of its
shares to be purchased. In addition, the stockholders' agreement provides
stockholders with "drag-along rights." If Brentwood desires to sell all of its
shares to an unaffiliated third-party who has offered to acquire all of
Holdings' outstanding shares, then Brentwood may require each of the other
stockholders to sell all of their shares in the same transaction and upon the
same terms and conditions.
The right of first refusal, tag-along rights and drag-along rights terminate
on the earlier to occur of (1) an underwritten public offering of Holdings'
common stock; or (2) any transfer of Holdings' equity securities in connection
with a merger, consolidation, sale of assets or sale or exchange of Holdings'
stock representing 100% of the voting power of Holdings' stock.
The stockholders' agreement provides the parties with rights to have their
shares registered for sale under the Securities Act.
The stockholders' agreement provides that Brentwood has the right to nominate
a majority of our directors so long as it owns as many of the shares of common
stock as it owned upon the
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execution of the stockholders' agreement. The stockholders' agreement also
provides that Larry Clayton, or in the event of his death or incapacity to
perform his duties as director, Delton Clayton (together, the "Clayton
Director"), and James T. Stone shall each be entitled to be a director as long
as (1) in the case of the Clayton Director, Larry Clayton and his affiliates
own at least 5,150 shares of common stock, and (2) in the case of Stone, Stone
and his affiliates own 3,090 shares of common stock.
Stock Purchase Agreements
Several of our executive officers, senior managers and a director acquired
equity interests in Holdings consisting of common stock and series A preferred
stock pursuant to the stock purchase agreements summarized below.
John J. Greisch, President and Chief Executive Officer. Mr. Greisch purchased
6,602 shares of our common stock for $1.00 per share and 6,983.976 shares of
our series B preferred stock for $100 per share pursuant to his stock purchase
agreement, dated as of July 1, 1998. In connection with a stock contribution
agreement, dated as of August 27, 1998 between Holdings and the stockholders
listed therein, Mr. Greisch exchanged his shares of our common stock and series
B preferred stock for an equal number of shares of common stock and series A
preferred stock of Holdings.
Of the common stock purchased by Mr. Greisch, 5,000 of the shares vest over
eight years so long as he is employed by us, with one-half of the shares
eligible for accelerated vesting if we meet specified EBITDA targets. We were
deemed to meet the EBITDA targets for 1998 regardless of our actual results.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested common shares will become immediately vested, and additional shares
may also vest if we meet specified EBITDA targets. Holdings may purchase any or
all of the remaining unvested shares for $1.00 per share.
Mr. Greisch also purchased 2,000 shares of Holdings' common stock for $170
per share pursuant to his stock purchase agreement dated as of March 5, 1999.
These shares vest over four years so long as he is employed by us. Of the
$340,000 purchase price for the shares, Mr. Greisch paid $3,400 in cash and
signed a promissory note for the remaining $336,000. The promissory note
matures on March 4, 2004, bears interest at 5.3% per year and requires payments
from time to time. The note is collateralized by these shares.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested shares will become immediately vested. Holdings may purchase any or
all of the remaining unvested shares for $170 per share. If Mr. Greisch's
employment is terminated prior to an initial public offering of common stock,
Holdings may purchase any and all of the vested common shares at fair market
value.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, all of the common shares will vest
immediately before the acquisition.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller purchased 1,729 shares of our common stock for $1.00 per share and
997.710 shares of our series B preferred stock for $.01 per share pursuant to
his stock purchase agreement, dated as of July 10, 1998. In connection with the
stock contribution agreement, Mr. Miller exchanged his shares of our common
stock and series B preferred stock for an equal number of shares of common
stock and series A preferred stock of Holdings.
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Of the common stock purchased by Mr. Miller, 1,500 of the shares are subject
to the same vesting conditions as Mr. Greisch's. The remaining 229 shares of
common stock and the preferred stock (the "Additional Equity") purchased by Mr.
Miller vest over three years.
If Mr. Miller's employment is terminated for any reason, his shares are
subject to the same vesting conditions as Mr. Greisch's, except that if Mr.
Miller's employment is terminated before an initial public offering of common
stock, Holdings may purchase any and all of the vested common shares at fair
market value.
If Mr. Miller is involuntarily terminated, all of the shares of Additional
Equity become immediately vested. If Mr. Miller voluntarily terminates his
employment before full vesting of the Additional Equity, Holdings may purchase,
and Mr. Miller may require Holdings to purchase, any or all of his unvested
Additional Equity at the purchase price for the shares.
Mr. Miller also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Miller paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Miller's common shares are
subject to the same conditions as Mr. Greisch's.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle purchased 1,229
shares of Holdings' common stock for $1.00 per share and 997.711 shares of
Holdings' series A preferred stock for $100 per share pursuant to his stock
purchase agreement, dated as of October 19, 1998.
Of the common stock purchased by Mr. Cavalle, 1,000 of the shares vest over
eight years, with one-half of the shares eligible for accelerated vesting if we
meet specified EBITDA targets. If we do not meet our EBITDA target in a given
year but exceed our target in the immediately following year, a portion of the
shares scheduled to vest in the prior year may qualify for accelerated vesting
in the subsequent year. All unvested shares will immediately vest upon Mr.
Cavalle's death or total physical disability.
If Mr. Cavalle's employment is involuntarily terminated before December 31,
2002, Holdings may purchase 1,000 of his common shares, whether vested or
unvested, for $1.00 per share and he will be released from his covenant not to
compete. If Mr. Cavalle's employment is terminated for any other reason, he has
the option to (1) allow Holdings to purchase 1,000 of his common shares,
whether vested or unvested, for $1.00 per share and be released from his
covenant not to compete or (2) keep his vested shares and not be subject to the
covenant not to compete, but Holdings may purchase the unvested shares for
$1.00 per share.
Mr. Cavalle also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Cavalle paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
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If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Cavalle's common shares will be
subject to substantially the same conditions as Messrs. Greisch and Miller,
except that Holdings may purchase for $1.00 per share all shares eligible for
accelerated vesting which did not vest in the year before the year the
acquisition closed.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin
purchased 174 shares of Holdings' common stock for $170 per share and 758.261
shares of Holdings Series A preferred stock for $100 per share pursuant to his
stock purchase agreement dated as of February 1, 1999. None of these shares are
subject to vesting conditions.
Other Non-executive Officer Managers. During 1998 certain of our other
managers acquired Holdings' common pursuant to a stock purchase, vesting and
repurchase agreement summarized below.
The managers purchased the common stock for $1.00 per share and all of the
shares vest over eight years, with one-half of the shares eligible for
accelerated vesting if we meet specified EBITDA targets. If we do not meet our
EBITDA target in a given year but exceed our target in the immediately
following year, a portion of the shares scheduled to vest in the prior year may
qualify for accelerated vesting in the subsequent year. All unvested shares
will immediately vest upon the manager's death or total physical disability.
If the manager's employment is involuntarily terminated before December 31,
2002, the manager's common shares are subject to the same conditions as Mr.
Cavalle's.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, the manager's common shares are
subject to the same conditions as Mr. Cavalle's.
Martin R. Reid, Director. Mr. Reid purchased 858 shares of Holdings' common
stock for $1.00 per share and 1995.422 shares of Holdings' series A preferred
stock for $100 per share pursuant to his stock purchase agreement, dated as of
September 30, 1998.
Of the common stock purchased by Mr. Reid, 400 of the shares vest over five
years so long as Mr. Reid serves continuously as a director of Holdings. If Mr.
Reid's directorship is terminated for any reason, a portion of the vested
common shares will become immediately vested. Holdings may purchase any or all
of the remaining unvested common shares for $1.00 per share.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
On June 1, 1998, we entered into a revolving credit facility with Bank of
America National Trust and Savings Association, as administrative agent and
syndication agent, and The Industrial Bank of Japan, Limited, New York Branch,
as documentation agent. BancAmerica Robertson Stephens serves as arranger under
the revolving credit facility for a syndicate of financial institutions. On
December 30, 1998 we amended the revolving credit facility. The The following
is a summary description of the principal terms of the revolving credit
facility and the related loan documents. For a complete description, please
refer to the revolving credit facility which we have filed as an exhibit to the
registration statement. Our obligations under the revolving credit facility
will constitute senior debt and designated senior debt with respect to the
notes.
Structure; Maturity. The lenders have committed, subject to compliance with
conditions customary for facilities of this nature, to provide us with an $85.0
million six-year reducing revolving credit facility.
We repaid all of the then outstanding borrowings under the revolving credit
facility with the proceeds from the issuance of the private notes. Thereafter,
we have been utilizing the revolving credit facility to fund acquisitions and
for general corporate purposes.
Loans and letters of credit under the revolving credit facility will be
available at any time during its six-year term subject to the fulfillment of
customary conditions precedent, including the absence of a default under the
revolving credit facility. The revolving credit facility will remain at
$85.0 million until September 30, 2001. Beginning on that date, the commitment
will be reduced by $3.0 million each quarter, with the balance of $52.0 million
due at maturity. Mandatory commitment reductions will result from 100% of the
net proceeds of certain asset sales not reinvested in the business, 50% of net
proceeds of public equity issued after July 1, 2001, and, beginning in year
four, 50% of excess cash flow (as defined in the revolving credit facility).
Security; Guaranty. The revolving credit facility is secured by a perfected
first priority security interest in substantially all of our and our
subsidiaries' assets including: (1) all real property owned by us; (2) all
accounts receivable, inventory, intangibles and other personal property; and
(3) 100% of our and any domestic subsidiaries' capital stock and 65% of any
foreign subsidiaries' capital stock. Any future domestic subsidiary will be
required to enter into a guaranty of the revolving credit facility.
Interest. Borrowings under the revolving credit facility will bear interest
at a rate per annum equal, at our option, to: (1) the greater of (x) the rate
of interest publicly announced by Bank of America as its reference rate and (y)
the Federal Funds Effective Rate (as defined in the revolving credit facility)
in effect from time to time plus 0.50%, plus an initial applicable margin equal
to 1.50%, or (2) the Eurodollar Rate (as defined in the revolving credit
facility), plus an initial applicable margin equal to 2.50%. Thereafter, the
applicable margins will be subject to reductions pursuant to a grid based on
our Consolidated Leverage Ratio (as defined in the revolving credit facility).
Fees. We are required to pay, on a quarterly basis, a commitment fee on the
undrawn portion of the revolving credit facility at a rate equal to 0.50%. We
are also obligated to pay (1) a per annum letter of credit fee on the aggregate
amount of outstanding letters of credit; (2) a fronting bank fee for the letter
of credit issuing bank; and (3) customary agent, arrangement and other similar
fees.
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Covenants. The revolving credit facility contains covenants that, among other
things, restrict our and our subsidiaries' ability to dispose of assets, incur
additional debt, prepay other debt or amend debt instruments (including the
indenture), pay dividends or redeem stock, create liens on assets, enter into
sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
change the business conducted by us or our subsidiaries or engage in
transactions with affiliates and otherwise restrict some of our corporate
activities. In addition, under the revolving credit facility, we are required
to maintain specified financial ratios and satisfy specified financial tests,
including a maximum leverage ratio and minimum interest coverage ratio and
minimum EBITDA.
Events of Default. The revolving credit facility contains events of default
customary for facilities of this nature, including (1) nonpayment of principal,
interest or fees; (2) breach of covenants, representations or warranties; (3)
cross-default to certain other debt; (4) bankruptcy or insolvency; (5) material
judgments against us and our subsidiaries; (6) invalidity of any guarantee or
security interest; (7) certain events under the Employee Retirement Income
Security Act of 1974; and (8) a change of control of the company in certain
circumstances as described in the revolving credit facility.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to HDA Parts System, Inc. and not to any of its subsidiaries.
The Company will issue the notes under an indenture among itself, the
Guarantors and U.S. Trust Company of California, N.A., as trustee. The terms of
the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed copies of the indenture and the
registration rights agreement as exhibits to the registration statement which
includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These notes:
.are general, unsecured obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Debt of the Company;
. are senior or pari passu in right of payment to any future subordinated
Indebtedness of the Company; and
.are unconditionally guaranteed by the Guarantors.
The Guarantees
These notes are guaranteed by the following subsidiaries of the Company:
City Truck and Trailer Parts of Alabama, Inc.
City Truck and Trailer Parts of Alabama, L.L.C.
City Truck and Trailer Parts of Alabama of Tennessee, Inc.
City Friction, Inc.
Truck & Trailer Parts, Inc.
Truckparts, Inc.
Associated Brake Supply, Inc.
Associated Truck Center, Inc.
Onyx Distribution, Inc.
Associated Truck Parts of Nevada, Inc.
Freeway Truck Parts of Washington, Inc.
Tisco, Inc.
Tisco of Redding, Inc.
These notes are also guaranteed by the Company's parent, City Truck Holdings,
Inc.
The Guarantees of these notes:
. are general, unsecured obligations of each Guarantor;
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. are subordinated in right of payment to all existing and future Senior
Debt of each Guarantor; and
. are senior or pari passu in right of payment to any future subordinated
Indebtedness of each Guarantor.
As of December 31,1998, the Company and the Guarantors had total Senior Debt
of approximately $18.2 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the notes and under the
Guarantees will be subordinated to the payment of Senior Debt. The indenture
will permit us and the Guarantors to incur additional Senior Debt.
As of the date of the prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture. Unrestricted Subsidiaries
will not guarantee these notes.
Principal, Maturity and Interest
The Company will issue notes with a maximum aggregate principal amount of
$100.0 million. The Company will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on August 1, 2005.
Interest on these notes will accrue at the rate of 12% per annum and will be
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on August 1, 1999. The Company will make each interest payment to
the holders of record of these notes on the immediately preceding January 15
and July 15.
Interest on these notes will accrue from February 1, 1999. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
Principal of, premium, if any, and interest on the notes will be payable at
the office or agency of the Company maintained for that purpose within the City
and State of New York, unless the Company elects to make interest payments by
check mailed to the holders of notes at their address set forth in the register
of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. The Company may
change the paying agent or registrar without prior notice to the holders of the
notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
The Company is not required to transfer or exchange any note selected
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for redemption. Also, the Company is not required to transfer or exchange any
note for a period of 15 days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Subsidiary and Parent Guarantees
The Guarantors will jointly and severally guarantee the Company's obligations
under these notes. Each Subsidiary Guarantee will be subordinated to the prior
payment in full of all Senior Debt of that Guarantor. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited as necessary to
prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. See "Risk Factors--The notes are subject to review for
fraudulent transfer considerations."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into another Person, whether
or not that Guarantor is the surviving Person, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists;
(2) either:
(a) the Person acquiring the property in that sale or disposition or the
Person formed by or surviving that consolidation or merger assumes all the
obligations of that Guarantor pursuant to a supplemental indenture
satisfactory to the trustee; or
(b) the Net Proceeds of that sale or other disposition are applied in
accordance with the applicable provisions of the indenture; and
(2) immediately after giving effect to that transaction on a pro forma basis,
the consolidated resulting, surviving or transferee entity would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the first paragraph of the
covenant in the indenture under the caption "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor, including by way of merger or
consolidation, if the Company applies the Net Proceeds of that sale or other
disposition, in accordance with the applicable provisions of the indenture; or
(2) in connection with any sale of all of the capital stock of a Guarantor,
if the Company applies the Net Proceeds of that sale in accordance with the
applicable provisions of the indenture; or
(3) if the Company designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary.
See "Repurchase at the Option of Holders--Asset Sales."
Subordination
The payment of principal, premium and interest, if any, on these notes will
be subordinated to the prior payment in full of all Senior Debt of the Company.
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The holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt, including interest after the
commencement of any bankruptcy or insolvency proceeding at the rate specified
in the applicable Senior Debt, before the holders of notes will be entitled to
receive any payment with respect to the notes (except that holders of notes may
receive and retain Junior Securities and payments made from the trust described
under "--Legal Defeasance and Covenant Defeasance"), in the event of any
distribution to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the notes, except in
Junior Securities or from the trust described under "--Legal Defeasance and
Covenant Defeasance", if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity and
the trustee receives a notice of that default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which that
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless that default shall have been
cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of the Company, holders of these
notes may recover less ratably than creditors of the Company who are holders of
Senior Debt. See "Risk Factors--Your claims are subordinated."
Optional Redemption
Until August 1, 2001, the Company may redeem up to 35% of the aggregate
principal amount of the notes issued pursuant to the indenture with cash from
the Net Cash Proceeds of a Public Equity Offering of common stock of the
Company (or of the Parent provided that Net Cash Proceeds sufficient to make
the redemption are contributed to the Company by the Parent as a Capital
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Contribution), at a redemption price equal to 112% of principal (subject to the
right of holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together
with accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, provided that
(1) immediately following that redemption not less than 65% of the
aggregate principal amount of the notes issued pursuant to the indenture
(without giving effect to the cancellation of Initial Securities in
connection with the issuance of Exchange Securities) remain outstanding,
and
(2) the redemption must occur within 90 days of that Public Equity
Offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at the Company's option prior to August 1, 2002.
On or after August 1, 2002, the Company may redeem all or a part of these
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on these notes to the applicable
redemption date, if redeemed during the twelve-month period beginning on August
1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002.......................................................... 106.000%
2003.......................................................... 103.000%
2004 and thereafter........................................... 100.000%
</TABLE>
In the case of a partial redemption, the trustee shall select the notes or
portions of the notes for redemption on a pro rata basis or by lot. The notes
may be redeemed in part in multiples of $1,000 only.
The notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the holder
of each note to be redeemed to that holder's last address as then shown upon
the registry books of the registrar. Any notice which relates to a note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion of that note and must state that on and after the date
of redemption, upon surrender of that note, a new note or notes in a principal
amount equal to the unredeemed portion of that note will be issued. On and
after the date of redemption, interest will cease to accrue on the notes or
portions of the notes called for redemption, unless the Company defaults in the
payment of the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a Change
of Control Purchase Price in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of
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purchase. Within 20 Business Days following any Change of Control, the Company
will mail a notice to each holder of notes describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the Change of Control Purchase Date specified in the notice, pursuant
to the procedures required by the indenture and described in the notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent those
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control.
On the Change of Control Purchase Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Purchase Price in respect of all notes or portions of notes properly tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal amount
of notes or portions of the notes being purchased by the Company.
The paying agent will promptly mail to each holder of notes properly tendered
the Change of Control Purchase Price for those notes, together with accrued and
unpaid interest thereon, and the trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 20 Business Days following a Change of
Control, the Company will either repay in full and terminate all commitments
under all Indebtedness under the Credit Agreement, offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
repay the Indebtedness owed to each lender which has accepted the offer in
full, or obtain the requisite consents under the Credit Agreement to permit the
repurchase of notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Company's outstanding Senior Debt currently prohibits the Company from
purchasing any notes, and also provides that certain change of control events
with respect to the Company would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party may contain
similar restrictions and provisions. If a Change of Control occurs at a time
when the Company is prohibited from purchasing notes, the Company could seek
the consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain that prohibition. If the Company does not
obtain that consent or repay those borrowings, the Company will remain
prohibited from purchasing notes. In that case, the Company's failure to
purchase tendered notes would constitute an
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Event of Default under the indenture which would, in turn, constitute a default
under that Senior Debt. In those circumstances, the subordination provisions in
the indenture would likely restrict payments to the holders of notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Company and purchases all notes validly tendered and not withdrawn under the
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company or Parent, as the case may be. Although there is a
limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require the Company to
repurchase those notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company or Parent, as
the case may be, to another Person or group may be uncertain.
Asset Sales
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, consummate an Asset Sale unless:
(1) the Board of Directors of the Company determines in good faith that the
Company (or such Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value for such Asset
Sale;
(2) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect, on a pro forma basis, to, such
Asset Sale; and
(3) at least 75% of the consideration therefor received by the Company or
such Subsidiary is in the form of cash. For purposes of this provision, each of
the following shall be deemed to be cash:
(a) Purchase Money Indebtedness secured solely by the assets sold and
assumed by a transferee; and
(b) property that within 30 days of such Asset Sale is converted into
cash or Cash Equivalents; provided, that, such cash and Cash Equivalents
shall be treated as Net Cash Proceeds attributable to the original Asset
Sale for which such property was received.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds at its option to the repurchase of the
notes and such other Indebtedness on a parity with the notes and with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from asset sales pursuant to a cash offer (subject only to
conditions required by applicable law, if any) (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") at a purchase price of
100% of principal amount (or accreted value in the case of Indebtedness issued
with an original issue discount) (the "Asset Sale Offer Price") together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
payment, made within 330 days of such Asset Sale.
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Within 330 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply such Net Proceeds at its option:
(1) to redeem the notes in accordance with the terms of the indenture and
other Indebtedness of the Company ranking on a parity with the notes and with
similar provisions requiring the Company to redeem such Indebtedness with the
proceeds for asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the notes and such other Indebtedness then outstanding;
(2) to invest in assets and property or other Permitted Investments pursuant
to clause (d) of the definition of Permitted Investments below, which in the
good faith reasonable judgment of the Board will immediately constitute or be a
part of a Related Business of the Company or such Subsidiary (if it continues
to be a Subsidiary) immediately following such transaction; or
(3) to retire Purchase Money Indebtedness or Senior Debt and to permanently
reduce (in the case of Senior Debt that is not Purchase Money Indebtedness) the
amount of such Indebtedness outstanding on the Issue Date or permitted pursuant
to paragraph (b) or (c) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
so permanently reduced by such amount).
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will make
an Asset Sale Offer to all holders of notes, and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets, to purchase the maximum principal amount
of notes and such other pari passu Indebtedness that may be purchased out of
the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount (or accreted value in the case of Indebtedness issued
with an original issue discount) plus accrued and unpaid interest to the date
of purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and such other pari passu Indebtedness tendered in
such Asset Sale Offer exceeds the amount of Excess Proceeds, the notes and such
other pari passu Indebtedness will be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding, and without complying with, the provisions of this Asset
Sales covenant,
(1) the Company and its Subsidiaries may, in the ordinary course of business,
(a) convey, sell, transfer, assign or otherwise dispose of inventory and
other assets acquired and held for resale in the ordinary course of
business and
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(b) liquidate Cash Equivalents;
(2) the Company and its Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the covenant
"Limitation on Merger, Sale or Consolidation";
(3) the Company and its Subsidiaries may sell or dispose of damaged, worn out
or other obsolete property in the ordinary course of business so long as such
property is no longer necessary for the proper conduct of the business of the
Company or such Subsidiary, as applicable;
(4) the Company and the Guarantors may convey, sell, transfer, assign or
otherwise dispose of assets to the Company or any of the Guarantors;
(5) the Company and its Subsidiaries, in the ordinary course of business, may
convey, sell transfer, assign, or otherwise dispose of assets (or related
assets in related transactions) with a fair market value of less than $250,000;
(6) the Company and each of its Subsidiaries may surrender or waive contract
rights or settle, release or surrender of contract, tort or other claims of any
kind or grant Liens not prohibited by the indenture; and
(7) the Company may sell accounts receivable and related assets of the type
specified in the definition of Qualified Receivables Transaction to a
Receivables Subsidiary for the fair market value thereof, but in any case
including cash in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, and a Receivables Subsidiary may transfer
accounts receivable and related assets of the type specified in the definition
of Qualified Receivables Transaction (or a fractional undivided interest
therein) in a Qualified Receivables Transaction.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption on a pro rata basis or by lot.
Notes in denominations of $1,000 shall only be redeemed in whole. The notes
may be redeemed in part in multiples of $1,000 only. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the unredeemed portion of the principal
amount. A new note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of that note upon
surrender of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption, unless the Company
defaults in the payment of the notes.
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Certain Covenants
Restricted Payments
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly (all such payments and other
actions set forth in clauses (1) through (4) below collectively referred to as
"Restricted Payments"):
(1) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of the Guarantors', or any of their respective
Restricted Subsidiaries', Equity Interests (other than dividends or
distributions payable in Qualified Capital Stock of the Company, the
Guarantors, or their respective Subsidiaries);
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any of the Guarantors, or any of their respective
Subsidiaries, or any Subsidiary or parent of the Company or any of the
Guarantors, or any of their respective Subsidiaries (other than any such Equity
Interests owned by the Company, the Guarantors, or their respective
Subsidiaries);
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness, make any payment on or in respect
of any amendment of the terms of or any defeasance of, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Indebtedness,
directly or indirectly, by the Company or any of the Guarantors, or any of
their respective Subsidiaries, or a parent or Subsidiary of the Company or any
of the Guarantors, or any of their respective Subsidiaries, prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness; or
(4) make any Restricted Investment,
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Incurrence of Additional Indebtedness and Disqualified
Capital Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by clauses
(2) and (3) of the next succeeding paragraph), is less than the sum, without
duplication, of
(a) 50% of the aggregate Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the indenture to and including
the last day of the Company's most recently ended fiscal quarter ended
immediately prior to the date of each such calculation (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company from
the sale of its Qualified Capital Stock (other than to a Subsidiary and to
the extent applied in connection with a Qualified Exchange), plus
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(c) to the extent not included in Consolidated Net Income, 100% of any
dividends or other distributions received by the Company or a Subsidiary of
the Company after the date of the indenture from an Unrestricted Subsidiary
of the Company, plus
(d) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (ii) the
initial amount of such Restricted Investment, plus
(e) 100% of the aggregate net Cash Equivalent proceeds received by the
Company (other than from its Subsidiaries) from Capital Contributions after
the date of the indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) to the extent such payments would constitute a Restricted Payment, the
payments of amounts to Brentwood in accordance with the Administrative Services
Agreement;
(2) repurchases of Capital Stock from employees of the Company, a Parent or
their Subsidiaries upon the death, disability or termination of employment in
an aggregate amount to all employees not to exceed $1.0 million per year or
$3.0 million in the aggregate on and after the date of the indenture;
(3) any dividend, distribution or other payments by any Subsidiary of the
Company on its Equity Interests that is paid pro rata to all holders of such
Equity Interests;
(4) a Qualified Exchange;
(5) the payment of any dividend on Qualified Capital Stock within 60 days
after the date of its declaration if such payment would have complied with the
provisions of the indenture; or
(6) Permitted Payments to Parent.
The amount of any Restricted Payment (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or any of the
Guarantors, or their respective Subsidiaries, as the case may be, pursuant to
the Restricted Payment. The fair market value of any assets or securities that
are required to be valued by this covenant shall be determined in the good
faith reasonable judgment of the Board of Directors of the Company.
Additionally, within 5 days of each Restricted Payment in excess of
$1.0 million, the Company shall deliver an Officers' Certificate to the trustee
describing in reasonable detail the nature of such Restricted Payment, stating
the amount of such Restricted Payment, stating in reasonable detail the
provisions of the indenture pursuant to which such Restricted Payment was made
and certifying that such Restricted Payment was made in compliance with the
terms of the indenture.
Incurrence of Additional Indebtedness and Disqualified Capital Stock
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly, issue, assume, guaranty,
incur, become directly or indirectly liable with respect to (including as a
result of an Acquisition), or otherwise become responsible for, contingently or
otherwise (collectively, "incur") any Indebtedness or any Disqualified Capital
Stock
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(including Acquired Indebtedness), other than Permitted Indebtedness.
Notwithstanding the foregoing, if
(1) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness or Disqualified Capital Stock and
(2) on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of the Company for the Reference Period immediately preceding
the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of such Indebtedness or Disqualified Capital Stock and, to the
extent set forth in the definition of Consolidated Coverage Ratio, the use of
proceeds thereof, would be at least 2 to l (the "Debt Incurrence Ratio"),
then the Company and the Guarantors may incur such Indebtedness or Disqualified
Capital Stock.
In addition, the foregoing limitations will not apply to:
(1) the incurrence by the Company or any of its Subsidiaries of Purchase
Money Indebtedness, provided that:
(a) the aggregate amount of such Indebtedness incurred and outstanding at
any time pursuant to this paragraph (1) (plus any Indebtedness issued to
retire, defease, refinance, replace or refund such Indebtedness) shall not
exceed $10.0 million, and
(b) in each case, such Indebtedness shall not constitute more than 100%
of the cost (determined in accordance with GAAP) to the Company or such
Subsidiary, as applicable, of the property so purchased or leased.
(2) if no Event of Default shall be continuing after application of the
proceeds from such incurrence, the incurrence by the Company or any Guarantor
of Indebtedness in an aggregate amount incurred and outstanding at any time
pursuant to this paragraph (b) (plus any Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $10.0
million; and
(3) the incurrence by the Company or any Guarantor of Indebtedness pursuant
to the Credit Agreement in an aggregate amount incurred and outstanding at any
time pursuant to this paragraph (c) (plus any Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $75.0
million, minus the amount of any such Indebtedness (i) retired with the Net
Cash Proceeds from any Asset Sale applied to permanently reduce the outstanding
amounts or the commitments with respect to such Indebtedness pursuant to clause
(3) of the third paragraph under the "Asset Sales" covenant described above or
(ii) assumed by a transferee in an Asset Sale; provided, however, that neither
the Company nor any Guarantor may incur Indebtedness pursuant to this clause
(3) the proceeds of which are used to finance one or more Acquisitions
(including the repayment of any Acquired Indebtedness substantially
concurrently with such Acquisition) unless the Consolidated Coverage Ratio for
the Reference Period immediately preceding the Incurrence Date, after giving
effect on a pro forma basis to such incurrence of Indebtedness, would be
greater than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Coverage
Reference Period ending Ratio
----------------------- ------------
<S> <C>
Prior to June 30, 1999.......................................... 1.50 to 1.00
June 30, 1999-June 29, 2000..................................... 1.75 to 1.00
June 30, 2000-June 29, 2001..................................... 1.90 to 1.00
June 30, 2001-June 29, 2002..................................... 2.00 to 1.00
June 30, 2002-and thereafter.................................... 2.25 to 1.00
</TABLE>
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For purposes of this clause (3) only, Consolidated EBITDA as used to determine
the Consolidated Coverage Ratio shall be calculated after giving pro forma
effect to (A) any Acquisition (including the Stone Acquisition and the City
Recapitalization) occurring during the Reference Period as if such Acquisition
occurred at the beginning of the Reference Period and (B) any Approved Cost
Savings anticipated to be realized over the next four fiscal quarters in
connection with an Acquisition (including the Stone Acquisition and the City
Recapitalization) occurring during the Reference Period. For each full fiscal
quarter completed after consummation of an Acquisition occurring during the
Reference Period, 25% of the Approved Cost Savings associated with such
Acquisition shall be excluded from the calculation of Consolidated EBITDA (and
comparable pro rata exclusions shall be made for post-Acquisition periods of
less than a full fiscal quarter). Such aggregate Approved Cost Savings shall
not exceed 25% of Consolidated EBITDA for any Reference Period.
Indebtedness or Disqualified Capital Stock of any Person which is outstanding
at the time such Person becomes a Subsidiary of the Company (including upon
designation of any subsidiary or other person as a Subsidiary) or is merged
with or into or consolidated with the Company or a Subsidiary of the Company
shall be deemed to have been incurred at the time such Person becomes such a
Subsidiary of the Company or is merged with or into or consolidated with the
Company or a Subsidiary of the Company, as applicable.
Upon each incurrence, the Company may designate pursuant to which provision
of this covenant such Indebtedness or Disqualified Capital Stock is being
incurred and such Indebtedness or Disqualified Capital Stock shall not be
deemed to have been incurred or outstanding under any other provision of this
covenant, except as stated otherwise in any such provision or applicable
definition.
No Senior Subordinated Debt
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any other Indebtedness of the Company and senior in any respect in
right of payment to the notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any other Indebtedness of such Guarantor and
senior in any respect in right of payment to such Guarantor's Subsidiary
Guarantee.
Liens
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, create, incur, assume or suffer to exist any Lien
(other than Permitted Liens) on any asset now owned or acquired on or after the
date of the indenture or on any income or profits therefrom securing any
Indebtedness of the Company or any Guarantor unless all payments due under the
notes (and the Guarantees, as applicable) are secured on an equal and ratable
basis with the Obligations so secured, provided, that, if such Indebtedness is
Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness
shall be subordinate and junior to the Lien securing the notes with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company and the Guarantors will not, and will not permit any of their
respective Subsidiaries to, directly or indirectly, create or permit to exist
or become effective any consensual restriction on the ability of any Subsidiary
of the Company to:
(1) pay dividends or make any other distributions to or on behalf of the
Company or any Subsidiary of the Company;
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(2) pay any obligation to or on behalf of the Company or any Subsidiary of
the Company;
(3) make or pay loans or advances to or on behalf of the Company or any
Subsidiary of the Company; or
(4) transfer any assets or property to or on behalf of the Company or any
Subsidiary of the Company.
However, the preceding restrictions will not apply to restrictions existing
under or by reason of:
(1) the indenture and the notes or by other indebtedness of the Company
(which may also be guaranteed by the Guarantors) ranking senior or pari passu
with the notes or the guarantees, as applicable, provided, such restrictions
taken as a whole are no more restrictive than those imposed by the indenture
and the notes;
(2) applicable law;
(3) Indebtedness outstanding on the date of the indenture, including pursuant
to the Credit Agreement;
(4) any Acquired Indebtedness not incurred in violation of the indenture or
any agreement relating to any property, asset, or business acquired by the
Company or any of its Subsidiaries, which restrictions in each case existed at
the time of acquisition, were not put in place in connection with or in
anticipation of such acquisition and are not applicable to any person, other
than the person acquired, or to any property, asset or business, other than the
property, assets and business so acquired;
(5) Indebtedness incurred under the Credit Agreement pursuant to clause (3)
of the covenant described herein "Incurrence of Additional Indebtedness and
Disqualified Capital Stock," provided, in each case, such restriction or
requirement is no more restrictive taken as a whole than that imposed by the
Credit Agreement as of the date of the indenture;
(6) any binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of a
Subsidiary of the Company, provided, such restrictions apply solely to the
Equity Interests or assets of such Subsidiary which are being sold;
(7) Purchase Money Indebtedness incurred pursuant to clause (1) of the second
paragraph of the "Incurrence of Additional Indebtedness and Disqualified
Capital Stock" covenant described above, provided, such restrictions relate
only to the transfer of the property acquired with the proceeds of such
Purchase Money Indebtedness;
(8) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(9) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such permitted Refinancings are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced; and
(10) customary provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business, consistent with industry
practice.
Notwithstanding the foregoing, any asset subject to a Lien which is not
prohibited to exist with respect to that asset pursuant to the terms of the
indenture may be subject to restrictions on the transfer or disposition thereof
in accordance with any such Liens.
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Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person; or (2) sell, convey or transfer all or substantially all
of its assets, in one or more related transactions, to another Person or group
of affiliated Persons, unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
resulting, surviving or transferee entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of the
Company in connection with the notes and the indenture;
(2) immediately after such transaction no Default or Event of Default exists;
and
(3) the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company) will, on the date of such transaction
after giving pro forma effect thereto and any related financing transactions as
if the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Transactions with Affiliates
The Company and its Subsidiaries will not enter into or suffer to exist any
contract, agreement, arrangement or transaction with any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are fair and reasonable to
the Company and no less favorable to the Company than could have been obtained
in an arm's length transaction with a non-Affiliate; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a written favorable opinion as to the fairness to the Company of
such Affiliate Transaction from a financial point of view issued by an
independent accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) customary employee compensation arrangements approved by a majority of
independent (as to such transactions) members of the Board of Directors of the
Company;
(2) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments."
(3) transactions between or among the Company and any of its Wholly-Owned
Consolidated Subsidiaries or solely among Wholly-Owned Consolidated
Subsidiaries of the Company;
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(4) the Administrative Services Agreement;
(5) leases entered into concurrently with the closing of the acquisition by
BABF City Corp. of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998;
(6) leases entered into concurrently with the closing of the acquisition of
substantially all of the assets of Stone Heavy Duty, Inc. on June 19, 1998;
(7) Permitted Investments; and
(8) Capital Contributions from Parent to the Company or any Guarantor;
Additional Subsidiary Guarantees
If the Company acquires or creates other Subsidiaries after the date of the
indenture, then each such newly acquired or created Subsidiary (other than
Receivables Subsidiaries and Foreign Subsidiaries) must become a Guarantor and
execute a supplemental indenture satisfactory to the trustee and deliver an
Opinion of Counsel to the trustee within 5 Business Days of the date on which
it was acquired or created. If the Company acquires or creates any Foreign
Subsidiaries after the date of the indenture, then each such newly acquired or
created Foreign Subsidiary (a) which guarantees or otherwise becomes liable for
Indebtedness of the Company or any Guarantor or (b) more than 65% of the
capital stock of which becomes pledged to secure any Indebtedness of the
Company or any Guarantor, must become a Guarantor and execute a supplemental
indenture satisfactory to the trustee and deliver an Opinion of Counsel to the
trustee within 5 Business Days of the date on which it was acquired or created.
Release of Guarantors
The Guarantors will not consolidate or merge with or into (whether or not
such Guarantor or the Parent is the surviving person) another person unless:
(1) (a) the person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such Guarantor
pursuant to a supplemental indenture reasonably satisfactory to the trustee and
unconditionally guarantees, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's guarantee on the terms set forth
in the indenture and (b) immediately before and immediately after giving effect
to such transaction on a pro forma basis, no Default or Event of Default
exists; or
(2) the other person is another Guarantor or the Company.
On the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of a Guarantor or all of its assets to an entity which is not a
Guarantor, or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the indenture
(including, without limitation, the provisions of the covenant "Limitations on
Sale of Assets and Subsidiary Stock"), such Guarantor will be released from its
obligations under its Guarantee of the notes; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Guarantor under all of its guarantees of, and under all of its pledges of
assets or other security interests which secure, any Indebtedness of the
Company or any other Subsidiary of the Company will also terminate upon such
release, sale or transfer.
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Business Activities
The Company and its Subsidiaries (other than Receivables Subsidiaries) will
not directly or indirectly engage to any substantial extent in any business
other than that which, in the reasonable good faith judgment of the Board of
Directors of the Company, is a Related Business.
Status as Investment Company
The Company and its Subsidiaries will not become required to register as an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, the Company and the Parent will furnish to the trustee and to
holders of notes, within 15 days after the time periods specified in the
Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report on the annual financial
statements by the Company's and the Parent's certified independent accountants;
and
(2) all other reports that would be required to be filed with the Commission,
including on Form 8-K, if the Company were required to file such reports.
The Company and the Parent are not required to furnish separate financial
results of their Subsidiaries unless otherwise required to do so by the
Commission. Whether or not required by the Commission, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within 15 days after the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing).
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the indenture;
(2) default in payment when due of the principal of or premium, if any, on
the notes, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price on notes validly tendered pursuant
to a Change of Control Offer or Asset Sale Offer, as applicable, or otherwise,
whether or not prohibited by the subordination provisions of the indenture;
(3) failure by the Company or any Subsidiary of the Company to observe or
perform any other covenant or agreement contained in the notes or the indenture
and the continuance of such failure for a period of 30 days after written
notice is given to the Company by the trustee or to the Company and the trustee
by the holders of at least 25% in aggregate principal amount of the notes
outstanding, subject to certain exceptions;
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(4) certain events of bankruptcy, insolvency or reorganization in respect of
the Company or any of its Significant Subsidiaries;
(5) default on Indebtedness of the Company or any of its Subsidiaries with an
aggregate principal amount in excess of $5.0 million if that default:
(a) is caused by a failure to pay principal at maturity, or
(b) results in the acceleration of such Indebtedness prior to its stated
maturity;
(6) any of the Guarantees ceases to be in full force and effect or any of the
Guarantees is declared to be null and void and unenforceable or any of the
Guarantees is found to be invalid or any of the Guarantors or Parent denies its
liability under its Guarantee (other than by reason of release of a Guarantor
in accordance with the terms of the indenture); and
(7) failure by the Company or any of its Subsidiaries to pay final
unsatisfied judgments not covered by insurance aggregating in excess of $5.0
million, which judgments are not stayed, bonded or discharged within 60 days.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, all principal and accrued interest
on outstanding notes will become due and payable immediately without further
action or notice. The holders of a majority in aggregate principal amount of
notes generally are authorized to rescind such acceleration if all existing
Events of Default, other than the non-payment of the principal of, premium, if
any, and interest on the notes which have become due solely by such
acceleration and except on default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and have been cured or waived.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all principal, determined as set forth below, and accrued interest on
the notes to be due and payable immediately; provided, however, that if any
Senior Debt is outstanding pursuant to the Credit Agreement, upon a declaration
of such acceleration, such principal and interest shall be due and payable upon
the earlier of:
(a) the fifth Business Day after the sending to the Company and the
Representative under the Credit Agreement of such written notice, unless
such Event of Default is cured or waived prior to such date; and
(b) the date of acceleration of any Indebtedness under the Credit
Agreement.
In the event a declaration of acceleration resulting from an Event of Default
described in clause (5) above has occurred and is continuing, such declaration
of acceleration shall be automatically annulled if within 15 days of the
declaration:
(1) such default is cured or waived or the holders of the Indebtedness which
is the subject of such default have rescinded their declaration of acceleration
in respect of such Indebtedness;
(2) the trustee has received written notice or such cure, waiver or
rescission;
(3) the annulment of the acceleration of the notes would not conflict with
any judgment or decree of a court of competent jurisdiction; and
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(4) all existing Events of Default (except nonpayment of principal or
interest on the notes that became due solely because of the acceleration of the
notes) have been cured or waived and no other Event of Default described in
clause (5) above has occurred that has not been cured or waived within 15 days
of the declaration of such acceleration in respect of such Indebtedness.
Prior to the declaration of acceleration of the maturity of the notes, the
holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the notes not yet cured or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the holder of each outstanding note affected.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable security or
indemnity. Subject to all provisions of the indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee.
No Personal Liability of Directors, Officers, Employees and Stockholders
No direct or indirect stockholder, employee, officer or director, as such,
past, present or future of the Parent, the Company, the Guarantors or any
successor entity shall have any personal liability for any obligations of the
Company or the Guarantors under the indenture or the notes solely by reason of
his or its status as such stockholder, employee, officer or director, except
that this provision shall in no way limit the obligation of the Parent or any
Guarantor pursuant to any guarantee of the notes. Each holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations
and the obligations of the Guarantors and the Parent discharged with respect to
the outstanding notes ("Legal Defeasance") except for:
(1) the rights of holders to receive payments in respect of the principal of,
premium, if any, and interest, and Liquidated Damages, if any, on those notes
when such payments are due from the trust funds;
(2) the Company's obligations with respect to those notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
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In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company, the Parent and the Guarantors released with
respect to certain covenants that are described in the indenture ("Covenant
Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
guarantees, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the notes on the
stated date for payment of the notes or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
notes, and the holders of notes must have a valid, perfected, exclusive
security interest in such trust;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that (a) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (b) since the date of
the indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of those notes will not recognize
income, gain or loss for federal income tax purposes as a result of the Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the trustee an opinion of counsel in the United States reasonably acceptable to
the trustee confirming that the holders of the notes will not recognize income,
gain or loss for federal income tax purposes as a result of the Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound;
(6) the Company shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the notes over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; and
(7) the Company shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that the conditions precedent provided
for in, in the case of the Officers'
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Certificate, (1) through (6) and, in the case of the opinion of counsel,
clauses (1), (with respect to the validity and perfection of the security
interest) (2), (3) and (5) of this paragraph have been complied with and the
Company shall have delivered to the trustee an Officers' Certificate (subject
to such qualifications and exceptions as the trustee deems appropriate) to the
effect that, assuming no holder of the notes is an insider of the Company, the
trust funds will not be subject to the effect of any applicable Federal
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
If the funds deposited with the trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the notes when due, then the obligations of the Company, the
Parent and the Guarantors under the indenture will be revived and no such
defeasance will be deemed to have occurred.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, with the consent of
the holders of not less than a majority in aggregate principal amount of the
notes at the time outstanding, the Company, the Parent, the Guarantors and the
trustee are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders.
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
(1) change the Stated Maturity on any note, or reduce the principal amount of
any note or the rate (or extend the time for payment) of interest thereon or
any premium payable upon the redemption at the option of the Company of the
notes, or change the place of payment where, or the coin or currency in which,
any note or any premium or the interest on the notes is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Stated Maturity of the notes (or, in the case of redemption at the option of
the Company, on or after the Redemption Date), or reduce the Change of Control
Purchase Price or the Asset Sale Offer Price (after the occurrence of an event
giving rise to a Change of Control Offer or an Asset Sale Offer, respectively)
or alter the provisions (including the defined terms used therein) regarding
the right of the Company to redeem the notes as a right, or at the option of
the Company in a manner adverse to the holders;
(2) reduce the percentage in principal amount of the outstanding notes, the
consent of whose holders is required for any such amendment, supplemental
indenture or waiver provided for in the indenture; or
(3) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the indenture cannot
be modified or waived without the consent of the holder of each outstanding
note affected thereby.
Notwithstanding the preceding, without the consent of holders of at least 66
2/3% in aggregate principal amount of notes at the time outstanding, an
amendment or supplement or waiver may not modify the provisions (including the
defined terms used therein) of the covenant "Repurchase of Notes at the Option
of Holders--Change of Control" in a manner adverse to the holders.
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Notwithstanding the preceding, without the consent of any holder of notes,
the Company and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to holders of
notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal rights
under the indenture of any such holder;
(5) to comply with the procedures of the Depositary or the trustee with
respect to the provisions of the indenture and the notes relating to transfers
of notes; or
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Discharge of Indenture
The Company may terminate certain of its obligations and the obligations of
the Parent and the Guarantors with respect to the outstanding notes and the
indenture. Certain provisions of the indenture will survive such termination,
including, without limitation:
(1) rights of holders to receive payments in respect of the principal of,
premium, if any, and interest on the notes when such payments are due;
(2) the Company's obligations with respect to such notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the compensation, indemnification and replacement of the trustee, and the
Company's obligations in connection therewith; and
(4) the repayment to the Company of any funds from the trust, in certain
circumstances.
In order to effect such termination:
(1) the Company shall have given irrevocable and unconditional notice to the
trustee and mailed a notice of such redemption to each holder and the trustee
for the redemption of all notes;
(2) the Company must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such notes on the
stated date for payment of the notes or on the redemption date of such
principal or installment of principal of, premium, if any, or interest on such
notes, as the case may be;
(3) the Company shall have paid all other sums payable by it under the
indenture and the notes; and
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(4) the Company shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel in the United States reasonably acceptable to the
trustee, each stating that the conditions precedent with respect to termination
of the Company's obligations as described herein provided for under the
indenture and the notes have been complied with.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with
the Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or all or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Administrative Services Agreement" means that certain Corporate Development
and Administrative Services Agreement between the Company and Brentwood dated
as of May 29, 1998.
"Affiliate" means any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company. For purposes of
this definition, the term "control" means the power to direct the management
and policies of a person, directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or otherwise,
provided, that, with respect to ownership interest in the Company and its
Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees,
as applicable, shall for such purposes be deemed to constitute control.
"Approved Cost Savings" means with respect to cost savings associated with
any Acquisition (other than the Stone Acquisition and the City
Recapitalization), those cost savings that result from elimination of any of
the following items:
(1) accounting policy-related charges;
(2) private company expenses;
(3) excess officer or owner compensation;
(4) expenses not required to operate the acquired business on an ongoing
basis; and
(5) business-related charges.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing
(1) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by
(2) the sum of all such principal (or redemption) payments.
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"Beneficial Owner" or "beneficial owner" for purposes of the definitions of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Brentwood" means Brentwood Private Equity, L.L.C. and Brentwood Associates
Buyout Fund II, L.P. together with any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
Brentwood Private Equity, L.L.C. and Brentwood Associates Buyout Fund II, L.P.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Change of Control" means
(1) prior to consummation of an Initial Public Equity Offering the Excluded
Persons shall cease to own beneficially and of record at least 51% of the
ordinary Voting Power represented by the Equity Interests of the Company unless
a Parent is formed after the date hereof and the Excluded Persons own
beneficially and of record at least 51% of the ordinary Voting Power of the
Parent and the Parent beneficially and of record owns 100% of the ordinary
Voting Power of the Company or
(2) following the consummation of an Initial Public Equity Offering,
(a) any merger or consolidation of the Company or Parent, as the case may
be, with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
the Company or Parent, as the case may be, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after
giving effect to such transaction(s),
(b) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers,
or trustees, as applicable, of the transferee(s) or surviving entity or
entities, any "person" or "group" (as terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate of all classes of Capital Stock of the Company or Parent, as the
case may be, then outstanding normally entitled to vote in elections of
directors,
(c) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company or Parent, as the case may be,
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company or
Parent, as the case may be, was approved by a vote of a majority of the
directors then still in office who were
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either directors at the beginning of such period or whose election or
nomination for election was previously so approved including new directors
designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company or Parent, as the case may
be, if such agreement was approved by a vote of such majority of directors)
cease for any reason to constitute a majority of the Board of Directors of
the Company or Parent, as the case may be, then in office or
(d) the Company or Parent, as the case may be, adopts a plan of
liquidation.
"Capital Contribution" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration
other than the issuance of common stock with no redemption rights and no
special preferences, privileges or voting rights is given.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of, or interests (however designated) in,
stock issued by that corporation.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalent" means
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); or
(2) time deposits and certificates of deposit and commercial paper issued by
the parent corporation of any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million; or
(3) commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc.,
and in the case of each of (1), (2), and (3) maturing within one year after the
date of acquisition.
"City Recapitalization" means the purchase by BABF City Corp., a company
formed by Brentwood, of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998.
"Consolidation" means, with respect to the Company, the consolidation of the
accounts of the Subsidiaries with those of the Company, all in accordance with
GAAP; provided, that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any person on any date of determination (the
"Transaction Date") means the ratio, on a pro forma basis, of
(1) the aggregate amount of Consolidated EBITDA of such person attributable
to continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to
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(2) the aggregate Consolidated Fixed Charges of such person (exclusive of
amounts attributable to operations and businesses permanently discontinued or
disposed of, but only to the extent that the obligations giving rise to such
Consolidated Fixed Charges would no longer be obligations contributing to such
person's Consolidated Fixed Charges subsequent to the Transaction Date) during
the Reference Period;
provided, that for purposes of such calculation,
(1) Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of the Reference Period;
(2) transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
(3) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of the Reference Period; and
(4) the Consolidated Fixed Charges of such person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless
such Person or any of its Subsidiaries is a party to an Interest Swap or
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of
(1) Consolidated income tax expense;
(2) Consolidated depreciation and amortization expense;
(3) Consolidated Fixed Charges; and
(4) other non-recurring, non-cash charges of such person and its consolidated
subsidiaries,
less the amount of all cash payments made by such person or any of its
Subsidiaries during such period to the extent such payments relate to non-
recurring, non-cash charges that were added back in determining Consolidated
EBITDA for such period or any prior period, less any non-cash items increasing
Consolidated Net Income for such period.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of
(1) interest expensed or capitalized, paid, accrued, or scheduled to be paid
or accrued (including, in accordance with the following sentence, interest
attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including
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(a) original issue discount and non-cash interest payments or accruals on
any Indebtedness,
(b) the interest portion of all deferred payment obligations,
(c) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the
extent attributable to such period, and
(d) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person or of any Restricted Subsidiary of such
Person (other than dividends paid in Qualified Capital Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current effective consolidated federal, state and local tax rate of
such Person, expressed as a decimal, and
(2) the amount of dividends accrued or payable (or guaranteed) by such person
or any of its Consolidated Subsidiaries in respect of Preferred Stock (other
than by Subsidiaries of such person to such person or such person's Wholly-
Owned Subsidiaries).
For purposes of this definition, (x) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or
a Subsidiary of such person of an obligation of another person shall be deemed
to be the interest expense of such other person attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication):
(1) all gains (but not losses) which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring (including any
gain from the sale or other disposition of assets outside the ordinary course
of business or from the issuance or sale of any capital stock),
(2) the net income, if positive, of any person, other than a Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries has an
interest, except to the extent of the amount of any dividends or distributions
actually paid in cash to such person or a Consolidated Subsidiary of such
person during such period, but in any case not in excess of such person's pro
rata share of such person's net income for such period,
(3) the net income or loss of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition, and
(4) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Consolidated
Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
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"Credit Agreement" means the Revolving Credit Facility, including any related
notes, guarantees, collateral documents, instruments and agreements executed by
the Company or any of its Subsidiaries or other Affiliates in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, provided, that on the date such Indebtedness is
incurred it would not be prohibited by the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock" or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Designated Senior Debt" means
(1) Senior Debt originating under the Credit Agreement and
(2) any other Senior Debt in an aggregate outstanding principal amount in
excess of $25 million which is designated as Designated Senior Debt by the
Board of Directors.
"Disqualified Capital Stock" means
(1) except as set forth in (2), with respect to any person, Equity Interests
of such person that, by its terms or by the terms of any security into which it
is convertible, exercisable or exchangeable, is, or upon the happening of an
event or the passage of time or both would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated
Maturity of the notes and
(2) with respect to any Subsidiary of such person (including with respect to
any Subsidiary of the Company), any Equity Interests other than any common
equity with no preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
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"Event of Loss" means, with respect to any property or asset, any
(1) loss, destruction or damage of such property or asset or
(2) any condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such property or asset, or confiscation or requisition
of the use of such property or asset.
"Excluded Persons" means Brentwood, Larry Clayton and James Stone and
(1) any controlling stockholder, general partner, majority owned Subsidiary,
or spouse or immediate family member (in the case of an individual) of such
Person or
(2) (a) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
80% or more of the Voting Stock of which consist of such Person and/or such
other Persons referred to in the immediately preceding clause (1) or (b) any
partnership the sole general partner of which is such Person or one of the
Persons referred to in clause (1).
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
incorporated in a jurisdiction other than the United States of America and all
or substantially all of the sales, earnings or assets of which are located in,
generated from or derived from operations located in jurisdictions outside the
United States of America.
"GAAP" means United States generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Guarantor" means all existing and future Subsidiaries of the Company other
than Receivables Subsidiaries and Foreign Subsidiaries; provided that any
Foreign Subsidiary that, pursuant to the terms of the indenture, guarantees the
obligations of the Company under the Securities and the indenture shall be
deemed to be a Guarantor.
"Incurrence Date" means the date on which a person directly or indirectly,
issues, assumes, guarantees, incurs, becomes directly or indirectly liable with
respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (collectively, "incur") any
Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness).
"Indebtedness" of any person means, without duplication,
(1) all liabilities and obligations, contingent or otherwise, of such person,
to the extent such liabilities and obligations would appear as a liability upon
the consolidated balance sheet of such person in accordance with GAAP,
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof),
(b) evidenced by bonds, notes, debentures or similar instruments,
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(c) representing the balance deferred and unpaid of the purchase price of
any property or services, except (other than accounts payable or other
obligations to trade creditors which have remained unpaid for greater than
60 days past their original due date) those incurred in the ordinary course
of its business that would constitute ordinarily a trade payable to trade
creditors;
(2) all liabilities and obligations, contingent or otherwise, of such person
(a) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks,
(b) relating to any Capitalized Lease Obligation, or
(c) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit;
(3) all net obligations of such person under Interest Swap and Hedging
Obligations;
(4) all liabilities and obligations of others of the kind described in the
preceding clause (1), (2) or (3) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person;
(5) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding clauses (1),
(2), (3) or (4), or this clause (5), whether or not between or among the same
parties; and
(6) all Disqualified Capital Stock of such Person and its Subsidiaries
(measured at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Initial Public Equity Offering" means an initial underwritten offering of
common stock of the Company or the Parent for cash pursuant to an effective
registration statement under the Securities Act following which the common
stock of the Company or the Parent is listed on a national securities exchange
or quoted on the national market system of the Nasdaq stock market.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
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(1) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition;
(2) the making by such person of any deposit with, or advance, loan or other
extension of credit to, such other person (including the purchase of property
from another person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other person) or any commitment to
make any such advance, loan or extension (but excluding accounts receivable,
endorsements for collection or deposits arising in the ordinary course of
business);
(3) other than guarantees of Indebtedness of the Company or any Guarantor to
the extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," the entering into by such person
of any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other person;
(4) the making of any capital contribution by such person to such other
person; and
(5) the designation by the Board of Directors of the Company of any person to
be an Unrestricted Subsidiary.
The Company shall be deemed to make an Investment in an amount equal to the
fair market value of the net assets of any subsidiary (or, if neither the
Company nor any of its Subsidiaries has previously made an Investment in such
subsidiary, in an amount equal to the Investments being made), at the time that
such subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of
the Company shall be deemed an Investment valued at its fair market value at
the time of such transfer.
"Issue Date" means the date of first issuance of the notes under the
indenture.
"Junior Security" means any Qualified Capital Stock and any Indebtedness of
the Company or a Guarantor, as applicable, that is subordinated in right of
payment to Senior Debt at least to the same extent as the notes or the
Guarantee, as applicable, and has no scheduled installment of principal due, by
redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the notes; provided, that, in the case of subordination in respect
of Senior Debt under the Credit Agreement, "Junior Security" shall mean any
Qualified Capital Stock and any Indebtedness of the Company or the Guarantor,
as applicable, that
(1) is unsecured,
(2) is not entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such Junior Securities than those in effect with
respect to the notes on the date hereof (or the Senior Debt under the Credit
Agreement, including after giving effect to any plan of reorganization or
readjustment),
(3) shall not provide for amortization (including sinking fund and mandatory
prepayment or redemption provisions) commencing prior to the date that is six
months following the final scheduled maturity date of the Senior Debt under the
Credit Agreement (as modified by any plan of reorganization or readjustment),
(4) if a new corporation or other entity results from any reorganization or
readjustment, such corporation or other entity assumes such Senior Debt,
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(5) the rights of the holders of Senior Debt under the Credit Agreement are
not, without the consent of such holders, materially altered by any such
reorganization or readjustment, including without limitation, such rights
being materially impaired within the meaning of Section 1124 of Title 11 of
the United States Code or any material impairment of the right to receive
interest accruing during the pendency of a bankruptcy or insolvency
proceeding, including proceedings under Title 11 of the United States Code,
and
(6) by their terms or by law are subordinated to Senior Debt outstanding
under the Credit Agreement on the date of issuance of such Qualified Capital
Stock or Indebtedness at least to the same extent as the notes or the
Guarantee, as applicable.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or Capital Contribution in
respect of Qualified Capital Stock and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and (in the
case of Asset Sales, reasonable and customary) expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such Asset Sale or sale or Capital
Contribution in respect of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any of its respective Subsidiaries in connection
with such Asset Sale in the taxable year that such sale is consummated or in
the immediately succeeding taxable year, the computation of which shall take
into account the reduction in tax liability resulting from any available
operating losses and net operating loss carry-overs, tax credits and tax
credit carry-forwards, and similar tax attributes.
"Non-Recourse Indebtedness" means Indebtedness
(1) as to which neither the Company nor any of its Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
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"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, due by the Company, the Parent or any Guarantor under the
terms of the notes or the indenture, including any liquidated damages due
pursuant to the terms of the Registration Rights Agreement.
"Offering Memorandum" means the final Offering Memorandum of the Company
dated July 28, 1998, relating to the offering of the Initial Securities in a
transaction exempt from the requirements of Section 5 of the Securities Act.
"Parent" means any Person, other than any Excluded Person, of which the
Company is a Subsidiary.
"Permitted Indebtedness" means that:
(1) the Company and the Guarantors may incur Indebtedness evidenced by the
notes and the Guarantees and represented by the indenture up to the $100.0
million issued on the Issue Date less any amounts refinanced, redeemed or
retired pursuant to clause (2) below;
(2) the Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clause (1) of this definition or incurred under the
Debt Incurrence Ratio test of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," or which is
outstanding on the Issue Date (after giving effect to the repayment of
indebtedness as described under the heading "Use of Proceeds" in the Offering
Memorandum), provided, that, in each case such Refinancing Indebtedness is
secured only by the assets, if any, that secured the Indebtedness so
refinanced;
(3) the Company and its Subsidiaries may incur Indebtedness solely in respect
of bankers acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the ordinary
course of business in accordance with customary industry practices, in amounts
and for the purposes customary in the Company's industry in order to provide
security for workers' compensation, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(4) the Company may incur Indebtedness to any Guarantor, and any Guarantor
may incur Indebtedness to any Guarantor or to the Company; provided, that, in
the case of Indebtedness of the Company, such obligations shall be unsecured
and subordinated in all respects to the Company's obligations pursuant to the
notes and any event that causes such Guarantor which loaned such Indebtedness
no longer to be a Guarantor shall be deemed to be a new incurrence subject to
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Stock;"
(5) any Guarantor may guaranty any Indebtedness of the Company or another
Guarantor that was permitted to be incurred pursuant to the indenture,
substantially concurrently with such incurrence or at the time such person
becomes a Guarantor of the notes;
(6) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(7) a Receivables Subsidiary may incur Indebtedness in a Qualified
Receivables Transaction that is without recourse to the Company or to any
Subsidiary of the Company or their assets (other
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than such Receivables Subsidiary and its assets), and is not guaranteed by any
such person and is not otherwise such person's legal liability;
(8) Interest Swap and Hedging Obligations of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and Interest
Swap and Hedging Obligations of any Restricted Subsidiary of the Company
covering Indebtedness of such Restricted Subsidiary, provided, however, that
such Interest Swap and Hedging Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the indenture to the extent the
notional principal amount of such Interest Swap and Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap and
Hedging Obligation relates; and
(9) Any Foreign Subsidiary may incur Indebtedness to any other Foreign
Subsidiary; provided, that any event that causes the Foreign Subsidiary which
loaned such Indebtedness no longer to be a Subsidiary shall be deemed to be a
new incurrence subject to the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Stock."
"Permitted Investment" means Investments in
(1) any of the notes and the Guarantees;
(2) Cash Equivalents;
(3) intercompany notes to the extent permitted under clauses (4) and (9) of
the definition of "Permitted Indebtedness" provided, however, that any event
that causes the obligee on such inter-company notes no longer to be a
Subsidiary shall be deemed a new Investment subject to the covenant entitled
"Limitation on Restricted Payments";
(4) Investment by the Company or any Guarantor in a Person in a Related
Business if as a result of such Investment such Person immediately becomes a
Wholly-Owned Subsidiary Guarantor or such Person is immediately merged with or
into the Company or a Wholly-Owned Subsidiary Guarantor;
(5) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction;
(6) any Investment by the Company or any Guarantor in a Receivables
Subsidiary or any Investment by a Receivables Subsidiary in any other person in
connection with a Qualified Receivables Transaction; provided, that the
foregoing Investment is in the form of a note that the Receivables Subsidiary
or other person is required to repay as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
contractual arrangements with entities that are not Affiliates entered into as
part of a Qualified Receivables Transaction;
(7) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $1.5 million at any one time outstanding;
(8) Currency Agreements and Interest Swap and Hedging Obligations entered
into in the ordinary course of the Company's or its Subsidiaries' businesses
and otherwise in compliance with the indenture;
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(9) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(10) Investments made by the Company or its Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Sale of Assets and Subsidiary Stock" covenant;
(11) Investments by the Company or any Guarantor in a Foreign Subsidiary in
the aggregate not in excess of $5.0 million plus to the extent that any
Investment (other than an Investment which when made was not deducted in this
clause (11)) that was made after the Issue Date is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the
lesser of
(a) the cash or Cash Equivalents return of capital with respect to such
Investment (less the cost of disposition, if any) and
(b) the initial amount of such Investment; and
(12) any Investment in the Company or in a Wholly-Owned Subsidiary Guarantor.
"Permitted Lien" means
(1) Liens existing on the Issue Date;
(2) Liens imposed by governmental authorities for taxes, assessments or other
charges not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
(3) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided, that,
(a) the underlying obligations are not overdue for a period of more than 30
days, or
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on
the books of the Company in accordance with GAAP;
(4) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(5) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as
such property is used by the Company or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(6) Liens arising by operation of law in connection with judgments, only to
the extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(7) pledges or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security legislation;
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(8) Liens securing the notes;
(9) Liens securing Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or is merged with or into the Company or a Subsidiary or
Liens securing Indebtedness incurred in connection with an Acquisition,
provided, that such Liens
(a) were in existence prior to the date of such acquisition, merger or
consolidation,
(b) were not incurred in anticipation thereof, and
(c) do not extend to any other assets;
(10) Liens arising from Purchase Money Indebtedness permitted to be incurred
pursuant to clause (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" provided, such Liens relate solely
to the property which is subject to such Purchase Money Indebtedness;
(11) leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary;
(12) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or any
of its Subsidiaries in the ordinary course of business;
(13) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
holders of the notes than the terms of the Liens securing such refinanced
Indebtedness, and provided, that the Indebtedness secured is not increased and
the lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced;
(14) Liens securing Senior Debt incurred in accordance with the terms of the
indenture; and
(15) Liens on assets of a Receivables Subsidiary incurred in connection with
a Qualified Receivables Transaction.
"Permitted Payments to Parent" means without duplication as to amounts,
(1) payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary accounting, legal and administrative expenses of the
Parent, not in excess of $350,000 in the aggregate during any consecutive 12-
month period and
(2) payment to Parent to enable Parent to pay foreign, federal, state or
local tax liabilities ("Tax Payment"), not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its Subsidiaries
and Unrestricted Subsidiaries to the appropriate taxing authorities if each of
the Company, such Subsidiaries and Unrestricted Subsidiaries filed a separate
tax return, to the extent that Parent has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
Subsidiaries and Unrestricted Subsidiaries;
provided however, that
(1) notwithstanding the foregoing, in the case of determining the amount of a
Tax Payment that is permitted to be paid by Company and any of its United
States Subsidiaries in respect of their
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Federal income tax liability, such payment shall be determined assuming that
Company is the parent company of an affiliated group (the "Company Affiliated
Group") filing a consolidated Federal income tax return and that Parent and
each such United States subsidiary is a member of the Company Affiliated Group
and
(2) any Tax Payments shall either be used by Parent to pay such tax
liabilities within 90 days of Parent's receipt of such payment or refunded to
the payee.
"Public Equity Offering" means an underwritten offering of common stock of
the Company for cash pursuant to an effective registration statement under the
Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any
after-acquired real or personal tangible property which, in the reasonable good
faith judgment of the Board of Directors of the Company, is directly related to
a Related Business of the Company and which is incurred concurrently with such
acquisition and is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
on or after the Issue Date with the Net Cash Proceeds received by the Company
from the substantially concurrent sale of Qualified Capital Stock or a Capital
Contribution or any exchange of Qualified Capital Stock for any Capital Stock
or Indebtedness of the Company or Capital Stock of the Parent on or after the
Issue Date.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company, any Guarantor or any
Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of,
(1) a Receivables Subsidiary (in the case of a transfer or encumbrancing by
the Company or any Guarantor) and
(2) any other person (solely in the case of a transfer or encumbrancing by a
Receivables Subsidiary),
solely accounts receivable (whether now existing or arising in the future) of
the Company or any Guarantor which arose in the ordinary course of business of
the Company or any Guarantor, and any assets related thereto, including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly-Owned Subsidiary of the Company which
engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary
(1) no portion of any Indebtedness or any other obligations (contingent or
otherwise) of which, directly or indirectly, contingently or otherwise,
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(a) is guaranteed by the Company or any other Subsidiary of the Company
(excluding guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction),
(b) is recourse to or obligates the Company or any other Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, or
(c) subjects any property or asset of the Company or any other Subsidiary
of the Company to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction,
(2) with which neither the Company nor any other Subsidiary of the Company
has any material contract, agreement, arrangement or understanding other than
those customarily entered into in connection with Qualified Receivables
Transactions, and
(3) with which neither the Company nor any other Subsidiaries of the Company
has any obligation, directly or indirectly, contingently or otherwise, to
maintain or preserve such Subsidiary's financial condition or cause such
Subsidiary to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the notes or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing plus the amount of any premium paid in
connection with such Refinancing in accordance with the terms of the documents
governing the Indebtedness refinanced without giving effect to any modification
thereof made in connection with or in contemplation of such refinancing) the
lesser of
(1) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and
(2) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing;
provided, that,
(1) such Refinancing Indebtedness shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such person issuing such
Refinancing Indebtedness,
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(2) such Refinancing Indebtedness shall (x) not have an Average Life shorter
than the Indebtedness or Disqualified Capital Stock to be so refinanced at the
time of such Refinancing and (y) in all respects, be no less subordinated or
junior, if applicable, to the rights of holders of the notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced,
(3) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated maturity or
redemption date, as applicable, of the Indebtedness or Disqualified Capital
Stock to be so refinanced, and
(4) such Refinancing Indebtedness shall be secured (if secured) in a manner
no more adverse to the holders of the notes than the terms of the Liens (if
any) securing such refinanced Indebtedness, including, without limitation, the
amount of Indebtedness secured shall not be increased.
"Related Business" means the business conducted (or proposed to be conducted)
by the Company and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of the
Company are reasonably related businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than other Permitted Investments.
"Restricted Payment" means, with respect to any person,
(1) the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such person or any parent or Subsidiary of such
person,
(2) any payment on account of the purchase, redemption or other acquisition
or retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person,
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly
or indirectly, by such person or a parent or Subsidiary of such person prior to
the scheduled maturity, any scheduled repayment of principal, or scheduled
sinking fund payment, as the case may be, of such Indebtedness and
(4) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include
(1) any dividend, distribution or other payment on or with respect to Equity
Interests of an issuer to the extent payable solely in shares of Qualified
Capital Stock of such issuer;
(2) any dividend, distribution or other payment to the Company, or to any of
its Subsidiary Guarantors, by the Company or any of its Subsidiaries; or
(3) Permitted Investments.
"Senior Debt" of the Company or any Guarantor means
(1) Indebtedness (including any interest, whether or not allowable, accruing
on Indebtedness incurred pursuant to the Credit Agreement after the filing of a
petition initiating any proceeding under any bankruptcy, insolvency or similar
law) of the Company or such Guarantor arising under
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the Credit Agreement or that, by the terms of the instrument creating or
evidencing such Indebtedness, is not expressly designated Subordinated
Indebtedness or pari passu Indebtedness with the notes and made subordinated or
pari passu in right of payment to the notes or the applicable Guarantee and
(2) all other amounts due on or in connection with such Indebtedness,
including all interest, premiums, reimbursement obligations, charges, fees,
indemnities and expenses (including fees and expenses of counsel);
provided, that in no event shall Senior Debt include:
(1) Indebtedness to any Subsidiary of the Company or any officer, director or
employee of the Company or any Subsidiary of the Company,
(2) Indebtedness incurred in violation of the terms of the indenture,
(3) Indebtedness to trade creditors,
(4) Disqualified Capital Stock,
(5) Capitalized Lease Obligations, and
(6) any liability for taxes owed or owing by the Company or such Guarantor.
"Significant Subsidiary" shall have the meaning provided under Regulation S-X
of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any note, means August 1, 2005.
"Stone Acquisition" means the acquisition by City Truck and Trailer Parts,
Inc. of substantially all of the assets of Stone Heavy Duty, Inc. on June 19,
1998.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the notes or such Guarantee, as
applicable, in any respect or has a stated maturity on (except for the notes)
or after the Stated Maturity.
"Subsidiary," with respect to any person, means
(1) a corporation a majority of whose Equity Interests with voting power,
under ordinary circumstances, to elect directors is at the time, directly or
indirectly, owned by such person, by such person and one or more Subsidiaries
of such person or by one or more Subsidiaries of such person,
(2) any other person (other than a corporation) in which such person, one or
more Subsidiaries of such person, or such person and one or more Subsidiaries
of such person, directly or indirectly, at the date of determination thereof
has at least majority ownership interest, or
(3) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner and in which such person, directly or indirectly,
at the date of determination thereof has at least a majority ownership
interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary includes, without limitation, each
direct and indirect Subsidiary of the Company.
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"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Subsidiaries.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Subsidiary, provided, that,
(1) no Default or Event of Default is existing or will occur as a consequence
thereof and
(2) immediately after giving effect to such designation, on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness pursuant to the
Debt Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Each such designation shall be evidenced by filing with the trustee a certified
copy of the resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Power" with respect to any Person means the power of all classes of
Capital Stock of such Person then outstanding normally entitled to vote in
elections of directors.
"Wholly-Owned Subsidiary" means a Subsidiary at least 99% of the Equity
Interests of which are owned by the Company or one or more Wholly-Owned
Subsidiaries of the Company.
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Book-Entry; Delivery; Form and Transfer
The notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global notes without interest coupons
(collectively, the "U.S. Global Notes"). On issuance, the U.S. Global Notes
will be deposited with the trustee, as custodian for DTC in New York, New York,
and registered in the name of DTC or its nominee for credit to the accounts of
DTC's Direct and Indirect Participants (as defined below). The notes offered
and sold in offshore transactions in reliance on Regulation S, if any,
initially will be in the form of one or more temporary, registered, global
book-entry notes without interest coupons (the "Reg S Temporary Global Notes").
The Reg S Temporary Global Notes will be deposited with the trustee, as
custodian for DTC, in New York, New York, and registered in the name of a
nominee of DTC (a "Nominee") for credit to the accounts of Indirect
Participants participating in DTC through the Euroclear System ("Euroclear")
and Cedel Bank, societe anonyme ("CEDEL"). During the 40-day period commencing
on the day after the later of the offering date and the original issue date of
the notes (the "Distribution Compliance Period"), beneficial interests in the
Reg S Temporary Global Notes may be held only through Euroclear or CEDEL, and,
pursuant to DTC's procedures, Indirect Participants that hold a beneficial
interest in the Reg S Temporary Global Notes will not be able to transfer that
interest to a person that takes delivery in the form of an interest in the U.S.
Global Notes. Within a reasonable time after the expiration of the Distribution
Compliance Period, the Reg S Temporary Global Notes will be exchanged for one
or more permanent global notes (the "Reg S Permanent Global Notes",
collectively with the Reg S Temporary Global Notes, the "Reg S Global Notes")
upon delivery to DTC of certification of compliance with the transfer
restrictions applicable to the notes and pursuant to Regulation S as provided
in the indenture. After the Distribution Compliance Period, (1) beneficial
interests in the Reg S Permanent Global Notes may be transferred to a person
that takes delivery in the form of an interest in the U.S. Global Notes and (2)
beneficial interests in the U.S. Global Notes may be transferred to a person
that takes delivery in the form of an interest in the Reg S Permanent Global
Notes, provided, in each case, that the certification requirements described
below are complied with. See "Transfers of Interests in One Global Note for
Interests in Another Global Note." All registered global notes are referred to
in this prospectus collectively as "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described in section 2.6(g) of the indenture.
In addition, transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or
Indirect Participants (including, if applicable, those of Euroclear and CEDEL),
which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for notes in certificated form in certain limited circumstances.
See "Transfer of Interests in Global Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate
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the clearance and settlement of transactions in those securities between Direct
Participants through electronic book-entry changes in accounts of Participants.
The Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and CEDEL. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship
with a Direct Participant (collectively, the "Indirect Participants").
DTC has also advised the Company that, pursuant to DTC's procedures,
(1) upon deposit of the Global Notes, DTC will credit the accounts of the
Direct Participants designated by the initial purchasers with portions of the
principal amount of the Global Notes that have been allocated to them by the
initial purchasers, and
(2) DTC will maintain records of the ownership interests of those Direct
Participants in the Global Notes and the transfer of ownership interests by and
between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer
of ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests in those Notes
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests in those Notes directly
through Euroclear or CEDEL or indirectly through organizations that are
participants in Euroclear or CEDEL. After the expiration of the Distribution
Compliance Period (but not earlier), investors may hold interests in the Reg S
Global Notes through organizations other than Euroclear and CEDEL that are
Direct Participants in the DTC system. Morgan Guaranty Trust Company of New
York, Brussels office, is the operator and depository of Euroclear and
Citibank, N.A. is the operator and depository of CEDEL (each a "Nominee" of
Euroclear and CEDEL, respectively). Therefore, they will each be recorded on
DTC's records as the holders of all ownership interests held by them on behalf
of Euroclear and CEDEL, respectively. Euroclear and CEDEL must maintain on
their own records the ownership interests, and transfers of ownership interests
of, by and between their own customers' securities accounts. DTC will not
maintain those records. All ownership interests in any Global Notes, including
those of customers' securities accounts held through Euroclear or CEDEL, may be
subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that
they own. This may limit or curtail the ability to transfer beneficial
interests in a Global Note to those persons. Because DTC can act only on behalf
of Direct Participants, which in turn act on behalf of Indirect Participants
and others, the ability of a person having a beneficial interest in a Global
Note to pledge that interest to persons or entities that are not Direct
Participants in DTC, or to otherwise take actions in respect of those
interests, may be affected by the lack of physical certificates evidencing
those interests. For certain other restrictions on the transferability of the
notes, see "Reg S Temporary and Reg S Permanent Global Notes" and "--Transfers
of Interests in Global Notes for Certificated Notes."
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will
not have notes registered in their names,
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will not receive physical delivery of notes in certificated form and will not
be considered the registered owners or holders of the notes under the indenture
for any purpose.
Under the terms of the indenture, the Company, the Guarantors and the trustee
will treat the persons in whose names the notes are registered (including notes
represented by Global Notes) as the owners of those Notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Notes registered in the name of DTC or its nominee will be payable by
the trustee to DTC or its nominee as the registered holder under the indenture.
Consequently, neither the Company, the trustee nor any agent of the Company or
the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Note or
(2) any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with that
payment on the payment date in amounts proportionate to those Direct
Participants' respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee, the Company or the Guarantors. Neither the Company, the Guarantors nor
the trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the notes, and
the Company and the trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect
Participants that hold an interest in the notes through Euroclear or CEDEL)
that hold an interest through a Direct Participant will be effected in
accordance with the procedures of that Direct Participant but generally will
settle in immediately available funds. Transfers between and among Indirect
Participants that hold interests in the notes through Euroclear and CEDEL will
be effected in the ordinary way in accordance with their respective rules and
operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes,
cross-market transfers between Direct Participants in DTC, on the one hand, and
Indirect Participants that hold interests in the notes through Euroclear or
CEDEL, on the other hand, will be effected by Euroclear's or CEDEL's respective
Nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
CEDEL; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants that hold interest in the notes
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through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant that holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to Euroclear or CEDEL
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in Reg S Permanent Global Note to a DTC Participant until the European
business day for Euroclear or CEDEL immediately following DTC's settlement
date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of that portion of the aggregate principal amount of the notes
as to which that Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC may,
without the direction of one or more of its Direct Participants, exchange
Global Notes for legended notes in certificated form, and to distribute those
certificated forms of notes to its Direct Participants. See "Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S Global Notes and in the U.S.
Global Notes among Direct Participants, including Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform those procedures, and
those procedures may be discontinued at any time. None of the Company, the
Guarantors, the initial purchasers or the trustee shall have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective Direct and
Indirect Participants of their respective obligations under the rules and
procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and their
book-entry systems has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
Reg S Temporary and Reg S Permanent Global Notes
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the indenture certifying
that those Indirect Participant is either not a U.S. Person (as defined below)
or has purchased such interests in a transaction that is exempt from the
registration requirements under the Securities Act, and Euroclear or CEDEL, as
the case may be, must provide to the trustee (or the paying agent, if other
than the trustee) a certificate in the form required by the indenture prior to
any exchange of those beneficial interests for beneficial interests in Reg S
Permanent Global Notes.
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"U.S. Person" means:
(1) any individual resident in the United States;
(2) any partnership or corporation organized or incorporated under the laws
of the United States;
(3) any estate of which an executor or administrator is a U.S. person (other
than an estate governed by foreign law and of which at least one executor or
administrator is a non-U.S. Person who has sole or shared investment discretion
with respect to its assets);
(4) any trust of which any trustee is a U.S. Person (other than a trust of
which at least one trustee is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the
trust (and no settler, if the trust is revocable) is a U.S. Person);
(5) any agency or branch of a foreign entity located in the United States;
(6) any non-discretionary or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S.
person;
(7) any discretionary or similar account (other than an estate or trust) held
by a dealer or other fiduciary organized, incorporated or (if an individual)
resident in the United States (other than such an account held for the benefit
or account of a non-U.S. Person); or
(8) any partnership or corporation organized or incorporated under the laws
of a foreign jurisdiction and formed by a U.S. person principally for the
purpose of investing in securities not registered under the Securities Act
(unless it is organized or incorporated and owned by "accredited investors"
within the meaning of Rule 501(a) under the Securities Act who are not natural
persons, estates or trusts);
provided, however, that the, "U.S. Person" shall not include:
(1) a branch or agency of a U.S. Person that is located and operating outside
the United States for valid business purposes as a locally regulated branch or
agency engaged in the banking or insurance business;
(2) any employee benefit plan established and administered in accordance with
the law, customary practices and documentation of a foreign country; and
(3) the international organizations set forth in Section 902(o)(7) of
Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
Transfers of Interests in One Global Note for Interests in Another Global Note
Prior to the expiration of the Distribution Compliance Period, an Indirect
Participant that holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes.
After the expiration of the Distribution Compliance Period, an Indirect
Participant that holds an interest in Reg S Global Notes will be permitted to
transfer its interest to a U.S. Person who takes delivery in the form of an
interest in U.S. Global Notes only upon receipt by the trustee of a written
certification from the transferor to the effect that the transfer is being made
in accordance with the restrictions on transfer set forth in section 2.6(g) of
the indenture and set forth in the legend printed on the Reg S Permanent Global
Notes.
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Prior to the expiration of the Distribution Compliance Period, a Direct or
Indirect Participant that holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery in the
form of an interest in the Reg S Temporary Global Notes. After the expiration
of the Distribution Compliance Period, a Direct or Indirect Participant that
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the trustee of a written certification from the transferor
to the effect that the transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection
with such transfer, appropriate adjustments will be made to reflect a decrease
in the principal amount of the one Global Note and a corresponding increase in
the principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if:
(1) DTC (x) notifies the Company that it is unwilling or unable to continue
as depository for the Global Notes and the Company thereupon fails to appoint a
successor depository within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act;
(2) the Company, at its option, notifies the trustee in writing that it
elects to cause the issuance of Certificated Notes; or
(3) upon the request of the trustee or holders of a majority of the
outstanding principal amount of notes, there shall have occurred and be
continuing a Default or an Event of Default with respect to the notes;
provided that in no event shall the Reg S Temporary Global Security be
exchanged by the Company for Certificated Notes prior to (x) the expiration of
the Distribution Compliance Period and (y) the receipt by the registrar of any
certificates identified by the Company or its counsel to be required pursuant
to Rule 903 or Rule 904 under the Securities Act. In any such case, the Company
will notify the trustee in writing that, upon surrender by the Direct and
Indirect Participants of their interest in such Global Note, Certificated Notes
will be issued to each person that such Direct and Indirect Participants and
DTC identify as being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
that Direct Participant (for itself or on behalf of an Indirect Participant),
or to the trustee in accordance with customary DTC procedures. Certificated
Notes delivered in exchange for any beneficial interest in any Global Notes
will be registered in the names, and issued in any approved denominations,
requested by DTC on behalf of such Direct or Indirect Participant, in
accordance with DTC's customary procedures.
106
<PAGE>
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in section 2.6(g) of the indenture unless the
Company determines otherwise in compliance with applicable law.
Neither the Company, the Guarantors nor the trustee will be liable for any
delay by the holder of the Global Notes or DTC in identifying the beneficial
owners of notes, and the Company and the trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global
Note or DTC for all purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated Notes may be transferred only if the transferor first delivers
to the trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with the transfer, it has complied
with the restrictions on transfer described in section 2.6(g) of the indenture.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holders of interests in those Global
Notes. With respect to Certificated Notes, the Company will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders of those Notes or, if no such account is specified, by mailing a
check to each such holder's registered address. The Company expects that
secondary trading in the Certificated Notes will also be settled in immediately
available funds.
107
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
FOR UNITED STATES HOLDERS
The following discussion is the opinion of Latham & Watkins, our counsel, as
to the material federal income tax income consequences expected to result to
you if you exchange your private notes for exchange notes in the exchange
offer. This opinion is based on:
. the facts described in the registration statement of which this
prospectus is a part,
. the Internal Revenue Code of 1986, as amended,
. current, temporary and proposed treasury regulations promulgated under
the Internal Revenue Code,
. the legislative history of the Internal Revenue Code,
. current administrative interpretations and practices of the Internal
Revenue Service, and
. court decisions,
all as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings that are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received those rulings. Future legislation,
treasury regulations, administrative interpretations and practices and/or court
decisions may adversely affect, perhaps retroactively, the tax considerations
contained in this discussion. Any change could apply retroactively to
transactions preceding the date of the change. The tax considerations contained
in this discussion may be challenged by the Internal Revenue Service and may
not be sustained by a court if challenged by the Internal Revenue Service, and
we have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning the tax treatment of the exchange of
private notes for the exchange notes.
Certain holders may be subject to special rules not discussed below,
including, without limitation:
. insurance companies;
. financial institutions or broker-dealers;
. tax-exempt organizations;
. stockholders holding securities as part of a conversion transaction, or a
hedge or hedging transaction or as a position in a straddle for tax
purposes;
. foreign corporations or partnerships; and
. persons who are not citizens or residents of the United States.
You should consult your tax advisor as to the particular tax consequences of
exchanging private notes for exchange notes, including the applicability and
effect of any state, local or foreign laws.
The exchange of private notes for exchange notes will be treated as a "non-
event" for federal income tax purposes, because the exchange notes will not be
considered to differ materially in kind or extent from the private notes.
Therefore, no material federal income tax consequences will result to you from
exchanging private notes for exchange notes.
108
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for private
notes where the broker-dealer acquired the private notes as a result of market-
making activities or other trading activities. We have agreed that for a period
of up to one year after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer that requests it in the
letter of transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers or any other persons. Broker-dealers may sell exchange notes received
by broker-dealers for their own account pursuant to the exchange offer from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell exchange notes directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
exchange notes. Any broker-dealer that resells exchange notes that were
received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of the exchange notes may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on any resale of exchange notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
(including any broker-dealers), and certain parties related to you, against
certain liabilities, including liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requires the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that my have a material adverse
effect on us (which notice we agree to deliver promptly to the broker-dealer),
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
LEGAL MATTERS
Latham & Watkins, Los Angeles, California, will pass upon certain legal
matters for us. Certain partners of Latham & Watkins, members of their
families, related persons and others have an indirect interest in, through a
limited partnership, less than 1% of Holdings' common stock and series A
preferred stock. Those persons do not have the power to vote or dispose of the
shares.
109
<PAGE>
INDEPENDENT AUDITORS
The financial statements included in this registration statement have been
audited by various independent accountants. The companies and periods covered
by these audits are indicated in the individual accountants' reports. These
financial statements have been so included in reliance on the reports of the
various independent accountants given on the authority of those firms in
auditing and accounting.
AVAILABLE INFORMATION
We are not currently subject to the periodic reporting and other information
requirements of the Exchange Act. We will become subject to the requirements
upon the effectiveness of the registration statement. Pursuant to the
indenture, we have agreed that for so long as the notes remain outstanding, we
will furnish to you (1) annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the SEC if we were subject to Section 13 or 15(d) of the Exchange
Act and (2) any other information, documents and other reports that we would be
required to filed with the SEC if we were subject to Section 13 or 15(d) of the
Exchange Act. In addition, whether or not required by the rules and regulations
of the SEC, we will also agree to file a copy of all such information and
reports with the SEC for public availability (unless the SEC will not accept
the filing) and make the information available to securities analysts and
prospective investors upon request.
This prospectus constitutes part of a registration statement on Form S-4
filed under the Securities Act with respect to the exchange notes to be issued
in the exchange offer. As permitted by the SEC rules, this prospectus omits
some of the information, exhibits and undertakings included in the registration
statement. You may read and copy the information omitted from this prospectus
but contained in the registration statement, as well as the periodic reports
and other information we file with the SEC, at the public reference facilities
maintained by the SEC in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference facilities. You may also access filed documents at the SEC's
web site at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance we refer you
to the copy of the contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
City Truck Holdings, Inc. and Subsidiaries
Report of Independent Accountants........................................ F-3
Consolidated Balance Sheets at December 31, 1997 and 1998................ F-4
Consolidated Statements of Income for the Years Ended December 31, 1996,
1997 and 1998........................................................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998........................................ F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997, and 1998.................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Stone Heavy Duty, Inc.
Report of Independent Accountants........................................ F-22
Combined Balance Sheets at December 31, 1996, 1997 and at June 19, 1998.. F-23
Combined Statements of Income and Retained Earnings for the Years Ended
December 31, 1996, 1997 and for the period from January 1, 1998 through
June 19, 1998........................................................... F-24
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997, and for the period from January 1, 1998 through June 19, 1998..... F-25
Notes to Combined Financial Statements................................... F-26
Associated Brake Supply, Inc. and Affiliate
Report of Independent Accountants........................................ F-31
Consolidated Balance Sheets at December 26, 1997 and at December 31,
1998.................................................................... F-32
Consolidated Statements of Income for the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998................................. F-33
Consolidated Statements of Stockholders' Equity for the Years Ended
December 27, 1996, December 26, 1997 and December 31, 1998.............. F-34
Consolidated Statements of Cash Flows for the Years Ended December 27,
1996, December 26, 1997 and December 31, 1998........................... F-35
Notes to Consolidated Financial Statements............................... F-36
Vantage Parts
Combined Balance Sheets at December 31, 1997 and 1998 (Unaudited)........ F-43
Combined Statements of Income for the Years Ended December 31, 1996, 1997
and 1998 (Unaudited).................................................... F-44
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997, and 1998 (Unaudited).............................................. F-45
Notes to Combined Financial Statements (Unaudited)....................... F-46
Truck and Trailer Parts, Inc. and Affiliate
Report of Independent Accountants........................................ F-51
Combined Balance Sheets at December 31, 1996, 1997, and at September 30,
1998.................................................................... F-52
Combined Statements of Income and Stockholders' Equity for the Years
Ended December 31, 1996, 1997 and for the nine month period ended
September 30, 1998...................................................... F-53
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and for the nine month period ended September 30, 1998............. F-54
Notes to Combined Financial Statements................................... F-55
Connecticut Driveshaft, Inc.
Independent Auditor's Report............................................. F-60
Balance Sheet at September 30, 1998...................................... F-61
Statement of Income for the nine months ended September 30, 1998......... F-62
Statement of Retained Earnings for the nine months ended September 30,
1998.................................................................... F-62
Statement of Cash Flows for the nine months ended September 30, 1998..... F-63
Notes to the Financial Statements........................................ F-64
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Truckparts, Inc.
Independent Auditor's Report............................................. F-67
Balance Sheets at September 30, 1997 and 1998............................ F-68
Statements of Income for the Years Ended September 30, 1997 and 1998..... F-69
Statements of Retained Earnings for the Years Ended September 30, 1997
and 1998................................................................ F-69
Statements of Cash Flows for the Years Ended September 30, 1997 and
1998.................................................................... F-70
Notes to the Financial Statements........................................ F-71
Tisco, Inc. and Tisco of Redding, Inc.
Independent Auditor's Report............................................. F-76
Combined Balance Sheet at September 30, 1998............................. F-77
Combined Statement of Income for the Year Ended September 30, 1998....... F-78
Combined Statement of Stockholders' Equity for the Year Ended September
30, 1998................................................................ F-79
Combined Statement of Cash Flows for the Year Ended September 30, 1998... F-80
Notes to the Combined Financial Statements............................... F-81
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
City Truck Holdings, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of City Truck
Holdings, Inc. and Subsidiaries (the "Company") at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in Item 21 of this Form S-4, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These consolidated
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 31, 1999
Chicago, IL
F-3
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 31, 1997 and 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 191 $ 8,328
Trade accounts receivable, less allowance for doubtful
accounts of $13 and $1,149 in 1997 and 1998............. 5,146 18,099
Inventories, net......................................... 15,476 41,453
Prepaid expenses......................................... 254 55
Deferred tax asset....................................... -- 2,588
Current portion of patronage dividend receivable......... 1,751 2,108
Advances to shareholders and employees................... 271 6
-------- --------
Total current assets................................... 23,089 72,637
Property, plant and equipment, net....................... 9,030 13,613
Deferred financing fees.................................. -- 5,424
Goodwill and other intangibles, net...................... 99 55,496
Deferred tax asset....................................... -- 12,516
Other assets............................................. 985 4,238
-------- --------
Total assets........................................... $ 33,203 $163,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings.................................... $ 2,839 $ --
Line of credit........................................... 677 --
Note payable............................................. 150 161
Current portion of long-term debt........................ 261 --
Accounts payable......................................... 4,694 14,105
Accrued interest......................................... -- 5,217
Accrued liabilities relating to the acquisitions......... -- 2,279
Other accrued liabilities................................ 596 7,488
-------- --------
Total current liabilities.............................. 9,217 29,250
Long-term debt............................................. 3,213 100,000
Line of credit............................................. -- 18,200
Subordinated debt--related parties......................... 8,755 --
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock, par value $.01 per share
Outstanding: none in 1997 and 435,750 shares in 1998.... -- 43,575
Common Stock, par value $1.00 and $.01 per share,
respectively
Outstanding: 938 shares in 1997 and 108,834 in 1998..... 2 1
Additional paid-in capital............................... 518 14,325
Treasury shares.......................................... (810) --
Retained earnings (deficit).............................. 12,308 (41,427)
-------- --------
Total stockholders' equity............................. 12,018 16,474
-------- --------
Total liabilities and stockholders' equity............. $ 33,203 $163,924
======== ========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-4
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net sales........................................... $52,609 $57,837 $103,295
Cost of sales....................................... 33,283 36,611 65,855
------- ------- --------
Gross profit........................................ 19,326 21,226 37,440
Selling, general, and administrative expenses....... 14,390 16,143 31,030
------- ------- --------
Operating income................................ 4,936 5,083 6,410
Other income (expenses):
Interest expense.................................. (722) (841) (6,519)
Interest income................................... 94 65 624
Other income...................................... 40 58 86
------- ------- --------
Income before income taxes.......................... 4,348 4,365 601
Income tax expense (benefit)........................ 53 93 (687)
------- ------- --------
Net income and comprehensive income................. $ 4,295 $ 4,272 $ 1,288
======= ======= ========
Supplemental pro forma income data:
Pro forma income taxes............................ $ 1,731 $ 1,737 $ 239
------- ------- --------
Pro forma net income.............................. $ 2,617 $ 2,628 $ 362
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
HDA Parts City Truck
City Truck HDA Parts System, Inc. City Truck Holdings,
and Trailer System, Inc. HDA Parts Series B Holdings, Inc. Series A
Parts, Inc. Bridge System, Inc. Preferred Inc. Common Preferred City Truck
Common Stock Securities Common Stock Stock Stock Stock and Trailer
-------------- ------------- -------------- -------------- ------------- ------------- Parts, Inc.
Par Paid In Par Paid in Par Paid In Par Paid In Par Paid In Par Paid in Treasury
Value Capital Value Capital Value Capital Value Capital Value Capital Value Capital Stock
----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1996............ $ 2 $493 $-- $ -- $-- $ -- $-- $ -- $-- $ -- $-- $ -- $ (810)
Net Income and
Comprehensive
Income..........
Distribution to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1996............ 2 493 -- -- -- -- -- -- -- -- -- -- (810)
Net Income and
Comprehensive
Income..........
Capital
Contribution.... 25
Distributions to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1997............ 2 518 -- -- -- -- -- -- -- -- -- -- (810)
Distribution to
Owners..........
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (2) (518) 1 56 3 24,940 26,631
Recapitalization
Fees and Other..
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... -- 6,000
Repayment of
Bridge
Securities...... -- (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... -- 7 -- 2,993
Issuance of HDA
stock........... -- 30 1 10,300
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... (1) (14,310) (4) (38,233) 1 14,310 4 38,233
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... -- 7 -- 2,993
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... -- 5 -- 1,995
Issuance of City
Truck Holdings,
Inc. stock...... -- 3 -- 350
Net Income and
Comprehensive
Income..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1998............ $-- $-- $-- $ -- $-- $ -- $-- $ -- $ 1 $14,325 $ 4 $43,571 $ --
==== ==== ==== ====== ==== ======= ==== ======= ==== ======= ==== ======= ========
<CAPTION>
Retained Total
Earnings Shareholders'
(Deficit) Equity
--------- -------------
<S> <C> <C>
Balance at
January 1,
1996............ $ 7,896 $ 7,581
Net Income and
Comprehensive
Income.......... 4,295 4,295
Distribution to
Owners.......... (2,283) (2,283)
--------- -------------
Balance at
December 31,
1996............ 9,908 9,593
Net Income and
Comprehensive
Income.......... 4,272 4,272
Capital
Contribution.... -- 25
Distributions to
Owners.......... (1,872) (1,872)
--------- -------------
Balance at
December 31,
1997............ 12,308 12,018
Distribution to
Owners.......... (1,390) (1,390)
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (51,111) --
Recapitalization
Fees and Other.. (2,522) (2,522)
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... 6,000
Repayment of
Bridge
Securities...... (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... 3,000
Issuance of HDA
stock........... 10,331
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... --
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... 3,000
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... 2,000
Issuance of City
Truck Holdings,
Inc. stock...... 353
Net Income and
Comprehensive
Income.......... 1,288 1,288
--------- -------------
Balance at
December 31,
1998............ $(41,427) $16,474
========= =============
</TABLE>
F-6
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income...................................... $ 4,295 $ 4,272 $ 1,288
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 877 1,187 1,752
Amortization.................................. 59 54 863
Gain on sale of property and equipment........ (40) (58) (86)
Changes in operating assets and liabilities
net of effect of acquisitions:
Accounts receivable......................... 278 (910) 40
Patronage dividend receivable............... (375) (387) (868)
Inventories................................. 770 (2,285) (1,366)
Prepaid expenses............................ (139) (89) 299
Advances to shareholders and employees...... (11) (259) 265
Other assets................................ (17) 28 (721)
Accounts payable............................ (349) (499) (1,634)
Accrued liabilities......................... 54 77 7,113
------- -------- --------
Net cash provided by operating activities.. 5,402 1,131 6,945
Investing activities:
Acquisition of property and equipment........... (4,301) (1,627) (1,668)
Proceeds from sale of property and equipment.... 54 98 116
Acquisitions, net of cash acquired.............. -- -- (74,527)
------- -------- --------
Net cash used by investing activities...... (4,247) (1,529) (76,079)
Financing activities:
Short term borrowings........................... (233) 2,412 (4,716)
Proceeds of short term revolving line of
credit......................................... 1,300 10,680 --
Payments of short term revolving line of
credit......................................... (1,600) (10,503) (677)
Proceeds on long term revolving line of credit
(net of fees).................................. -- -- 68,481
Payments on long term revolving line of credit.. -- -- (51,993)
Principal payment of long term debt............. (775) (455) (10,802)
Proceeds from issuance of long term debt (net of
fees).......................................... 2,361 150 95,931
Payments for stock repurchase................... -- -- (25,821)
Payments of recapitalization fees............... -- -- (2,522)
Proceeds from issuance of Preferred Stock....... -- -- 10,651
Proceeds from issuance of Common Stock.......... -- -- 33
Distribution to owners.......................... (2,283) (1,872) (1,294)
Contribution to stockholders' equity............ -- 25 --
------- -------- --------
Net cash used by financing activities...... (1,230) 437 77,271
------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... (75) 39 8,137
Cash and cash equivalents at beginning of year... 227 152 191
------- -------- --------
Cash and cash equivalents at end of year......... $ 152 $ 191 $ 8,328
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 620 $ 841 $ 1,214
Cash paid for income taxes...................... 42 77 273
Details of Acquisitions
Fair value of assets and liabilities acquired... $ -- $ -- $ 83,226
Less equity payments............................ -- -- 8,000
------- -------- --------
Cash paid....................................... -- -- 75,226
Less cash acquired.............................. -- -- 699
------- -------- --------
Net cash paid for acquisitions................ $ -- $ -- $ 74,527
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on the basis of
accounting principles that are generally accepted in the United States. All
professional standards that are effective as of December 31, 1998 have been
taken into consideration in preparing the financial statements. On June 1,
1998, BABF City Corp. purchased 80% of the outstanding capital stock of City
Truck and Trailer Parts, Inc. At December 31, 1998, this interest had reduced
to 53% as a result of various capital transactions.
Description of the Companies
As of May 29, 1998, City Truck and Trailer Parts of Tennessee, Inc., City
Truck and Trailer Parts of Alabama, Inc., City Truck and Trailer Parts of
Alabama LLC, and City Friction, Inc. were merged into City Truck and Trailer
Parts, Inc., an Alabama Corporation. All of these companies were under common
control. The stockholders of City Truck and Trailer Parts of Tennessee, Inc.,
City Truck and Trailer Parts of Alabama, Inc. and City Friction, Inc. converted
their shares into 498 shares of City Truck and Trailer Parts, Inc., such that
these three companies became wholly owned subsidiaries of City Truck and
Trailer Parts, Inc. The members of City Truck and Trailer Parts of Alabama LLC
contributed all of their equity interest to City Truck and Trailer Parts, Inc.
in exchange for 30 shares of common stock in City Truck and Trailer Parts, Inc.
and as a result became a wholly owned subsidiary. The merger has been accounted
for in a manner similar to a pooling of interests under Accounting Principles
Board Opinion No. 16. Accordingly, all prior period consolidated and combined
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of these companies as
though they had always been a part of City Truck and Trailer Parts, Inc. These
companies previously followed consistent accounting policies and there were no
adjustments to the book value of their assets and liabilities.
City Transportation, Inc., at net book value $94, a wholly owned subsidiary
of City Truck and Trailer Parts, Inc. was retained by the prior owners. This
has been accounted for as a dividend distribution at net book value on the
statement of stockholders' equity as a distribution to owners.
On June 19, 1998, City Truck and Trailer Parts, Inc. converted its 457 shares
of existing $1 par common stock into 57,227 shares of $0.01 par value common
stock ("HDA stock") and 249,427 shares of $0.01 par 6% preferred stock ("Series
B Preferred Stock").
On July 8, 1998, City Truck and Trailer Parts, Inc. was renamed HDA Parts
System Inc.
On September 30, 1998, City Truck Holdings, Inc., a Delaware corporation, was
formed by the share for share exchange of stock in HDA Parts System, Inc. for
stock in City Truck Holdings, Inc. City Truck Holdings, Inc. is a holding
company which has no operations or debt, except for its guarantee of HDA Parts
System, Inc.
On June 1, 1998, City Truck and Trailer Parts, Inc. issued $6,000 of
redeemable, non-convertible, non-voting preferred stock (the "Bridge
Securities"). In July, 1998, the Bridge Securities were redeemed.
F-8
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 31, 1998, the consolidated financial statements for City Truck
Holdings, Inc. include its wholly owned subsidiary HDA Parts System, Inc. whose
operations include Stone Heavy Duty, Inc., Truck and Trailer Parts, Inc.,
Connecticut Driveshaft, Inc., Truckparts, Inc., and Tampa Brake and Supply Co.,
Inc. since their dates of acquisition.
Nature of Operations
City Truck and Trailer Parts, Inc. is a Birmingham, Alabama based operator of
17 branch locations, including 13 which provide machine shop services, in
Alabama, Georgia, Kentucky, Mississippi, and Tennessee. City Truck also
operates a remanufacturing business for brake shoes, drivelines, transmissions
and rear axles.
Stone Heavy Duty, Inc., based in Raleigh, North Carolina operates 18 branch
locations, including three which provide drive-in service facilities and 14
which provide machine shop services in North Carolina, South Carolina,
Tennessee, Virginia and West Virginia. Stone also operates a remanufacturing
business for brake shoes, drivelines, hydraulic systems, transmissions and rear
axles.
Truck and Trailer Parts, Inc. is an Atlanta-based heavy duty vehicle parts
distributor which operates seven branch locations in Florida, Georgia, North
Carolina, South Carolina and Texas.
Connecticut Drive Shaft, Inc. is a distributor of heavy duty vehicle parts
which repairs and rebuilds driveshafts, brake shoes, and brake drums. The
Company operates six locations in Connecticut and Massachusetts.
Truckparts, Inc. is a distributor of heavy duty vehicle parts which operates
four locations in Connecticut.
Tampa Brake and Supply Co., Inc. operates five branches in Florida. Tampa
Brake and Supply Co., Inc. is a distributor of heavy duty vehicle parts and a
provider of brake related services for medium and heavy duty trucks.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
all subsidiary companies. All material intercompany transactions have been
eliminated in consolidation.
Segment Information
In June 1997, the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for fiscal years beginning after December 15, 1997,
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Based on this criteria, the Company has determined that it operates
in one business segment, that being the distribution of heavy duty vehicle
F-9
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
parts in the United States. Thus, all information required by SFAS No. 131 is
included in the Company's financial statements. No single customer represented
more than 10% of the Company's total sales in 1998, 1997 and 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using either the first-in, first-out (FIFO) or average-costs basis.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization of property and equipment using the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
Classification Depreciation Lives
-------------- ------------------
<S> <C>
Buildings and building improvements........ 40 years or the life of the lease
Furniture and fixtures..................... 7 years
Vehicles................................... 6 years
Machinery and equipment.................... 3-8 years
</TABLE>
When assets are retired or otherwise disposed of, the assets and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in income.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in a business and is presented net of accumulated
amortization. Amortization of goodwill is recorded on a straight line basis
over 40 years. Other intangibles are amortized over the useful lives of these
assets which range from 5 to 9 years. When facts and circumstances indicate
impairment, the Company reviews goodwill and other intangibles to assess
recoverability from estimated future results of operations and cash flows.
F-10
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Preopening Expense
Expenses associated with the opening of new branch locations are expensed in
the period such costs are incurred.
Income Taxes
Prior to the recapitalization on May 29, 1998, with the exception of
Truckparts, Inc. all of the companies included within these financial
statements, with the consent of its shareholders and members, had elected under
the Internal Revenue Code to be taxed as an S Corporation or a limited
liability company. In lieu of corporate income taxes, the stockholders of an S
corporation and the members of a limited liability company are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes had been included in the financial
statements for 1996 and 1997.
Concurrent with the recapitalization, the Company elected to be taxed as a C
corporation and is subject to income taxes on its profits in 1998. The Company
then set up a deferred tax asset of $15,104, increasing paid in capital by
$14,217 and recognized $887 net income. The Company applies an asset and
liability approach to accounting for income taxes. Deferred tax liabilities and
assets are recognized for the expected future tax consequences of temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Supplemental pro-forma net income included
on the income statement is calculated by applying an income tax rate of 39.8%
to the historical income before taxes.
Deferred Financing Costs
In connection with establishing a revolving credit facility in June, 1998 and
the private placement of debt in July, 1998 the Company incurred various
financing costs which have been deferred on the Company's balance sheet and are
being amortized over the terms of the agreements.
Stock Based Compensation
The Company has elected to follow the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" only and continues to account
for stock based compensation under the basis of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". During 1998, shares
of common stock and shares of preferred stock were issued to certain employees
who purchased the stock at the fair market value at the date of the issue. No
stock options have been authorized or issued during 1998.
F-11
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Reclassifications
Certain amounts for the years ended December 31, 1996 and 1997 were
reclassified to conform to the current year presentation.
Note 2--Inventories
At December 31, inventories consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Parts inventory.............................................. $14,290 $35,959
Cores........................................................ 1,186 5,494
------- -------
$15,476 $41,453
======= =======
</TABLE>
Note 3--Property, Plant and Equipment
Property, plant and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Land....................................................... $ -- $ 20
Buildings and building improvements........................ 4,668 7,732
Furniture and fixtures..................................... 713 920
Vehicles................................................... 3,796 3,862
Machinery and equipment.................................... 5,694 7,907
Construction in progress................................... 18 --
Less: accumulated depreciation............................. (5,859) (6,828)
------- -------
Net property, plant and equipment.......................... $ 9,030 $13,613
======= =======
</TABLE>
Note 4--Goodwill and Other Intangibles
At December 31, goodwill and other intangibles consists of:
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Goodwill..................................................... $ 24 $54,313
Other intangibles............................................ 252 1,865
Less: accumulated amortization............................... (177) (682)
----- -------
Net goodwill and other intangibles........................... $ 99 $55,496
===== =======
</TABLE>
Goodwill represents the cost in excess of the fair value of the net assets of
companies acquired in purchase transactions. Other intangibles assets have been
recognized for covenants not to compete and a specific beneficial customer
agreement arising from purchase transactions. The Company has charged $44, $44
and $505 in 1996, 1997 and 1998, respectively, for amortization of goodwill and
other intangibles.
F-12
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 5--Borrowings
Revolving Line of Credit
The Company had a maximum availability of $5.0 million at December 31, 1997
on a line of credit from a bank with interest payable at the 90-day LIBOR
(London Interbank Offered Rate) plus 1.5%. The interest rate at December 31,
1997, was 7.2 %. The Company had pledged as collateral accounts receivable and
inventory. The Company's outstanding balance at December 31, 1997 was $677.
At December 30, 1998, the Company increased its maximum availability to $85.0
million on a revolving line of credit from a bank with interest based on the
LIBOR rate plus applicable margin, at 2.3% or, at the Company's option, several
other common indices. The interest rate at December 31, 1998, was 7.8%. The
Company has pledged all of the Company's assets as collateral. The Company's
outstanding balance at December 31, 1998 was $18.2 million. The revolving line
of credit expires in 2004. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1997 and 1998 are 7.2% and 7.8%,
respectively.
Senior Subordinated Notes
On July 31, 1998, the Company issued $100.0 million of 12% Senior
subordinated notes (the "Senior Subordinated Notes") due 2005 and received
approximately $96.0 million of proceeds after discounts, commissions and fees.
Interest on these notes is paid semi-annually on February 1, and August 1
commencing February 1, 1999. The Senior Subordinated Notes may be redeemed at
the option of the Company, in whole or in part, at any time on or after August
1, 2002 at the redemption prices set forth in the Indenture, plus accrued and
unpaid interest and liquidated damages, if any, to the date of redemption. In
addition, at any time prior to August 1, 2001, the Company may redeem up to 35%
of the aggregate principal amount of notes originally issued at a redemption
price equal to 112% of the aggregate principal amount thereof, plus accrued and
unpaid interest out of the proceeds of public equity offerings.
In connection with the issuance of the Senior Subordinated Notes, the Company
entered into a registration rights agreement that required it to file a
registration statement by December 28, 1998 and to use its best efforts to
cause the registration to become effective by March 13, 1999. The Company did
not comply with the obligations to file and have a registration statement
declared effective as set forth above. The Company is currently paying the
holders of the notes liquidated damages as set forth in the registration rights
agreements which are not material to the consolidated financial statements.
Notes Payable
The Company had a note payable for $1,654 at December 31, 1997 to a finance
company. The interest rate was 5% until 1999, and at prime thereafter. Interest
was payable semi-annually until its maturity in 2005. This note was
collateralized by the Company's equipment. This note was repaid on May 29,
1998, concurrent with the recapitalization.
F-13
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 31, 1997, the Company had certain subordinated notes payable to
stockholders. The interest rate at the applicable federal borrowing rate was
5.5% at December 31, 1997. These notes were collateralized by accounts
receivable and inventory. The principal balances due on these notes were $8,755
on December 31, 1997. This note was repaid on May 29, 1998, concurrent with the
recapitalization.
The Company had a note payable for $1,820 at December 31, 1997 with a bank.
The interest was at LIBOR plus 1.5% (7.18% at December 31, 1997). Interest was
due monthly until its maturity in 2002. This rate was collateralized by
accounts receivable, inventory and leasehold improvements. This note was repaid
on May 29, 1998, concurrent with the recapitalization.
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company to: (i) pay dividends or make certain other
restricted payments; (ii) incur additional Debt; (iii) encumber or sell assets;
(iv) enter into certain guarantees of Debt; (v) enter into transactions with
affiliates; and (vi) merge or consolidate with any other entity or transfer or
lease all or substantially all of their assets. In addition, under certain
circumstances, the Company will be required to offer to purchase the Senior
Subordinated Notes at a price of 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase with the proceeds of
certain assets sales.
Note 6--Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of these
items.
The carrying amounts of the debt issued pursuant to the Company's revolving
line of credit agreement approximates fair value because the interest rates
change with market interest rates.
The 12% Senior Subordinated Notes are not actively traded however, the most
recent trade of the Senior Notes prior to December 31, 1998 was at a price of
$90. Using this price of $90, the fair value of these notes at December 31,
1998 would be $90.0 million.
There are no quoted market prices for the 6% Series A Preferred Stock. Each
share of the 6% Series A Preferred Stock has a liquidation value of $100 per
share, plus accrued and unpaid dividends. The total liquidation value of the
Series A Preferred Stock would be $44.9 million at December 31, 1998.
These fair value estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
Note 7--Acquisitions
The Company has made the following acquisitions during 1998. They have all
been accounted for as a purchase, with the purchase price being allocated to
the fair value of the identified assets and liabilities of the Company with the
excess recorded as goodwill.
F-14
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
On June 19, 1998, City Truck and Trailer Parts, Inc. acquired substantially
all of the assets of Stone Heavy Duty, Inc. for approximately $24.5 million in
cash and $3.0 million in common and preferred stock. The Company has allocated
$12.1 million of the purchase price to the identified assets and liabilities.
The acquisition was accounted for as a purchase and the consolidated financial
statements for the Company include income since the date of acquisition.
On September 30, 1998, the Company acquired all of the capital stock of Truck
and Trailer Parts, Inc. for approximately $18.7 million in cash and $3.0
million in common and preferred stock. The Company has allocated $7.1 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On October 30, 1998, the Company acquired substantially all of the assets of
Tampa Brake and Supply Co., Inc. for approximately $9.9 million in cash. The
Company has allocated $4.1 million of the purchase price to the identified
assets and liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On November 4, 1998, the Company acquired substantially all of the assets of
Connecticut Drive Shaft for approximately $9.9 million in cash. The Company has
allocated $5.1 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On December 17, 1998, the Company acquired all of the capital stock of
Truckparts, Inc. for approximately $12.1 million in cash and $2.0 million in
common and preferred stock. The Company recorded approximately $10.8 million in
goodwill. The Company has allocated $3.3 million of the purchase price to the
identified assets and liabilities. The acquisition was accounted for as a
purchase and the consolidated financial statements for the Company include
income since the date of acquisition.
In connection with these acquisitions the Company has recorded aggregate
goodwill of $54.3 million and certain liabilities totaling $3.3 million in
connection with vendor consolidations, the closure of duplicate facilities, and
other activities that will be phased out during 1999.
The following unaudited pro forma financial information combines the results
of operations of City Truck and Trailer Parts, Inc., Stone Heavy Duty Inc.,
Truck and Trailer Parts Inc., Connecticut Drive Shaft Inc., Truckparts, Inc.
and Tampa Brake and Supply Co. Inc., as if the acquisitions had taken place on
January 1, 1997, after giving effect to certain adjustments including:
amortization of goodwill, interest expense and a normal charge for income taxes
assuming all of the companies had operated as "C" corporations for 1997 and
1998.
<TABLE>
<CAPTION>
1997 1998
------------------ -------------------
Actual Proforma Actual Proforma
------- ---------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales......................... $57,837 $176,064 $103,295 $192,850
Net income and comprehensive
income (loss).................... 4,272 (2,779) 1,288 (1,614)
</TABLE>
F-15
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
In addition, the Company's subsidiaries, operated throughout the periods
presented as independent, privately owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include (i) historical compensation expenses
in excess of the current compensation levels to the former owners of City Truck
Holdings, Inc. and its subsidiaries; and (ii) certain other private company
expenses.
Note 8--Common Stock
The following are the number of shares outstanding for each of the Company's
classes of common stock as of December 31:
<TABLE>
<CAPTION>
City Truck and HDA Parts City Truck
Trailer, Parts, Inc. Bridge Systems, Inc. Holdings, Inc.
Common Stock Securities Common Stock Common Stock
(Par value $1) (Par value $.01) (Par value $.01) (Par value $.01)
-------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1997................... 938
Stock Repurchase........ (481)
Recapitalization........ (457) 57,227
Issuance of Bridge
Security............... 30,000
Repayment of Bridge
Security............... (30,000)
Issuance for acquisition
of Stone
Heavy Duty, Inc........ 6,867
Issuance to employees
and others............. 30,135
Formation of City Truck
Holdings, Inc.......... (94,229) 94,229
Issuance for acquisition
of Truck and
Trailer Parts, Inc..... 6,867
Issuance for acquisition
of Truckparts, Inc..... 4,578
Issuance to employees... 3,160
---- ------- ------- -------
Balance at December 31,
1998................... 0 0 0 108,834
==== ======= ======= =======
</TABLE>
The common stock of City Truck and Trailer Parts, Inc. had a par value of $1
per share, of which 2,000 were authorized, and 1,538 were issued at December
31, 1996 and 1997.
The common stock of City Truck Holdings, Inc. has a par value of $.01 per
share, of which 250,000 are authorized, and 108,834 are issued and outstanding
at December 31, 1998.
F-16
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 9--Preferred Stock
The following are the number of shares issued for each of the Company's
classes of preferred stock as of December 31:
<TABLE>
<CAPTION>
HDA Parts City Truck
System, Inc. Holding, Inc.
Series B Series A
Preferred Stock Preferred Stock
(Par value $.01) (Par value $.01)
---------------- ----------------
<S> <C> <C>
Balance at January 1, 1996.................. 0 0
-------- -------
Balance at December 31, 1996................ 0 0
-------- -------
Balance at December 31, 1997................ 0 0
Recapitalization............................ 249,428
Issuance for acquisition of Stone Heavy
Duty, Inc.................................. 29,931
Issuance to employees and others............ 103,013
Formation of City Truck Holdings, Inc....... (382,372) 382,372
Issuance for acquisition of Truck and
Trailer Parts, Inc......................... 29,931
Issuance for acquisition of Truckparts,
Inc........................................ 19,954
Issuance to employees and others............ 3,493
-------- -------
Balance at December 31, 1998................ 0 435,750
======== =======
</TABLE>
The Series A Preferred Stock has a par value of $.01 per share, of which
850,000 are authorized, and 435,750 were issued at December 31, 1998. Each
share of Series A Preferred stock is entitled to one vote per share on all
matters. These shares earn dividends at a rate of 6.0% per annum, payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1998. Dividends not paid will cumulate whether or not
earned or declared with additional dividends thereon, compounded quarterly at
the rate of 6% per annum. At December 31, 1998, the Company had $1,320
cumulated dividends on these shares.
The Company has no right to redeem any shares of its Series A Preferred Stock
and the holders of the Company's Series A Preferred Stock do not have a right
to require the Company to redeem any of the shares.
Upon liquidation, holders of Series A Preferred Stock are entitled to $100
per share plus accrued and unpaid dividends.
Note 10--HDA Parts System, Inc. Summarized Financial Information.
HDA Parts System, Inc. is a wholly owned subsidiary of City Truck Holdings,
Inc. During September 1998, the shares of common stock of HDA Parts System,
Inc. were exchanged for shares
F-17
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
of common stock in City Truck Holdings, Inc. Specific summarized financial
information of HDA Parts System, Inc. and its guarantor subsidiaries is listed
below:
<TABLE>
<CAPTION>
Consolidated
HDA Parts
Systems, Inc.
HDA Parts Subsidiaries and
System, Inc. Acquired in 1998 Eliminations Subsidiaries
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
At December 31, 1998:
Current assets........ 59,074 13,563 -- 72,637
Noncurrent assets..... 100,065 26,780 (35,558) 91,287
Current liabilities... 24,219 5,031 -- 29,250
Noncurrent
liabilities.......... 118,200 -- -- 118,200
Preferred stock....... 38,237 -- -- 38,237
For the year ended
December 31, 1998:
Net sales............. 95,089 8,206 -- 103,295
Gross profit.......... 35,399 2,041 -- 37,440
Income from continuing
operations........... 779 509 -- 1,288
Net income and
comprehensive
income............... 779 509 -- 1,288
</TABLE>
These subsidiaries were purchased by HDA Parts System, Inc. using, in part,
shares of common stock of City Truck Holdings, Inc. These shares so acquired
were subsequently contributed to HDA Parts Systems, Inc. and recorded as an
increase to paid-in capital. As the only assets and operations of City Truck
Holdings, Inc. relate to its ownership of the shares of common and preferred
stock in HDA Parts System, Inc., the financial position and results of
operations of City Truck Holdings, Inc. are identical to HDA Parts System, Inc.
Note 11--Employee Benefit Plans
The Company sponsors a number of defined contribution 401(k) plans covering
substantially all of its full-time employees. Employees may contribute up to
15% of their salary to the plan while the company may make discretionary
contributions to it. Total expenses under these plans were $111, $130 and $248
for the years ended December 31 1996, 1997 and 1998, respectively.
Note 12--Operating Leases
The Company leases office and warehouse space from related parties and third
parties. Rental expense to related parties was $751, $750 and $1,136 in 1996,
1997 and 1998, respectively. The Company also leases office, warehouse space
and transportation equipment from unrelated parties. Rental expense to third
parties was $365, $381 and $494 in 1996, 1997 and 1998, respectively. Minimum
future rental payments under these leases for each of the next five years and
thereafter, and in the aggregate are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1999............................................................ $ 1,589
2000............................................................ 2,733
2001............................................................ 2,531
2002............................................................ 2,035
2003............................................................ 2,276
Thereafter...................................................... 7,981
--------
$ 19,145
========
</TABLE>
F-18
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 13--Related Party Transactions
In addition to the transactions described in the above footnotes, the
following related parties existed at December 31, 1998.
The Company has entered into a Corporate Development and Administrative
Services Agreement with Brentwood Private Equity L.L.C., ("BPE"), an affiliate
of the Company's majority shareholder, Brentwood. Under the terms of the
agreement, BPE has agreed to assist the Company with corporate development
services for a predetermined percentage of certain transactions. In 1998, the
Company incurred $2,208 under the terms of this agreement in connection with
acquisitions made by the Company.
Note 14--Income Taxes
The income tax expense (benefit) for the years ended December 31, consists of
the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -----
<S> <C> <C> <C>
Current tax expense (benefit)
Fed...................................................... $-- $-- $ --
State.................................................... 53 93 200
Deferred tax expense (benefit)
Fed...................................................... -- -- (751)
State.................................................... -- -- (136)
---- ---- -----
$ 53 $ 93 $(687)
==== ==== =====
</TABLE>
The provisions for income tax differs from the statutory tax expense computed
by applying the federal corporate tax rate of 34% for the years ended December
31 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -------
<S> <C> <C> <C>
Taxes computed at statutory rate........................ $ 53 $ 93 $ 204
State tax expense, net of federal benefit............... -- -- 42
Income earned while an S corporation.................... -- -- (1,017)
Goodwill amortization and other non-deductible
expenses............................................... -- -- 84
---- ---- -------
Total income tax expense (benefit)...................... $ 53 $ 93 $ (687)
==== ==== =======
</TABLE>
F-19
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The approximate tax effects of the temporary differences between the tax
basis of assets and liabilities and their financial reporting amounts that give
rise to a significant portion of the deferred tax asset and deferred tax
liability are as follows, as of December 31:
<TABLE>
<CAPTION>
1997 1998
------ -------
Tax Tax
Effect Effect
------ -------
<S> <C> <C>
Inventories.................................................. $ -- $ 619
Accrued liabilities.......................................... -- 167
Recapitalization............................................. -- 14,217
Net operating loss carryforwards............................. -- 301
----- -------
Total deferred tax asset..................................... -- 15,304
Goodwill and other intangibles liabilities................... -- (200)
----- -------
Total defered tax liability.................................. -- --
----- -------
Net deferred tax asset $ -- $15,104
===== =======
</TABLE>
The acquisition of the Company's stock by BABF City Corp. resulted in a step-
up in the tax basis of the Company's net assets of $37,413. This amount will be
amortized over 15 years for tax purposes, resulting in a deferred tax asset of
$14,217. Pursuant to SFAS 109, the Company's contributed capital has been
increased by the amount of this tax benefit.
Net operating loss carryforwards for tax purposes of $2,109 at December 31,
1998, will begin expiring in 2018.
Note 15--Stock Plans
During 1998, the Company had two types of employee stock plans. Under the
terms of these plans, certain members of the Company's management purchased
10,150 shares of common stock at a value of $1.00 per share with forfeiture
restrictions expiring after eight years. As all common stock shares were
purchased by the Company's management at fair value and management paid for
these shares in cash, no compensation expense was recorded.
Note 16--Subsequent Events
On January 11, 1999, the Company acquired all of the capital stock of
Associated Truck Parts, Inc. for approximately $55 million in cash and $5
million in common and preferred stock. The acquisition will be accounted for as
a purchase.
On January 12, 1999, the Company acquired all of the capital stock of Tisco,
Inc. for approximately $6.5 million in cash and $0.8 million in common and
preferred stock. The acquisition will be accounted for as a purchase.
In connection with the acquisitions the Company intends to record certain
liabilities totaling $1.4 million in connection with vendor consolidations, the
closure of duplicate facilities, and other activities that will be phased out
during 1999 and 2000.
F-20
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
On February 5, 1999 and January 25, 1999, the Company signed non-binding
letters of intent to acquire Vantage Parts and Active Gear LLC, respectively.
Vantage Parts is based in Portland, Oregon and Active Gear LLC is based in
Seattle, Washington. These companies have a total of nine locations in
California, Georgia, Illinois, Missouri, Nevada, Oregon and Washington.
On January 11, 1999, the Company completed an additional issuance of common
and preferred stock. The Company issued 17,332 shares of common stock and
received proceeds of $2.9 million net of offering costs. The Company also
issued 75,538 shares of Series A Preferred Stock and received proceeds of $7.6
million. In addition, the Company obtained unconditional commitments for
further common and preferred shares, valued at $42.0 million, which will be
used to complete the acquisitions of Vantage Parts and Active Gear LLC.
The Company anticipates filing a registration statement with the Securities
and Exchange Commission. The Company expects to exchange the $100 million 12%
Senior Subordinated Notes due 2005 for exchange notes of the same form and
terms as the private notes, except that the exchange notes will be registered
under the Securities Act, and, therefore, the exchange notes will not be
subject to certain transfer restrictions, registration rights and certain
provisions providing for an increase in the interest rate of the private notes
under certain circumstances relating to the registration of the exchange notes.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of
Stone Heavy Duty, Inc.
In our opinion, the accompanying combined balance sheets and related combined
statements of income and retained earnings and cash flows present fairly, in
all material respects, the combined financial position of Stone Heavy Duty,
Inc. and Ashland Automotive Parts, Inc. (together "the Company") at December
31, 1996 and 1997 and at June 19, 1998 and the results of their operations and
their cash flows for the two years ended December 31, 1997 and for the period
from January 1, 1998 through June 19, 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, IL
F-22
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and June 19, 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
June
December 31, 19,
--------------- -------
1996 1997 1998
------- ------- -------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 2,697 $ 168 $ 239
Accounts receivable, less allowance for doubtful
accounts of $40....................................... 3,701 4,094 5,144
Inventory.............................................. 7,857 9,374 10,305
Prepaid expenses and other current assets.............. 212 112 168
Current portion of rebate receivable................... 605 756 493
------- ------- -------
Total current assets............................... 15,072 14,504 16,349
Property and equipment, net............................ 1,650 1,764 1,960
Long-term portion of receivables and other assets...... 1,081 1,337 1,828
------- ------- -------
Total assets....................................... $17,803 $17,605 $20,137
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Bank overdraft......................................... $ 1,887 $ 402 $ 1,877
Current portion of long-term debt...................... 140 43 --
Accounts payable....................................... 3,083 3,514 3,886
Accrued liabilities.................................... 2,114 1,947 1,509
------- ------- -------
Total current liabilities.......................... 7,224 5,906 7,272
Long-term debt........................................... -- 12 --
------- ------- -------
Total liabilities.................................. 7,224 5,918 7,272
------- ------- -------
Stockholders' equity:
Common stock of Stone Heavy Duty, Inc. $1 par value:
Voting, 200,000 shares authorized, 24,999 shares issued
and outstanding....................................... 25 25 25
Non-voting, 100,000 shares authorized, 15,000 shares
issued and outstanding................................ 15 15 15
Common stock of Ashland Automotive Parts, Inc., $1 par
value; 265,300 voting shares authorized, 265,300
shares issued and outstanding......................... 265 265 265
Additional paid-in capital........................... 1,633 1,633 1,633
Retained earnings.................................... 8,641 9,749 10,927
------- ------- -------
Total stockholders' equity......................... 10,579 11,687 12,865
------- ------- -------
Total liabilities and stockholders' equity......... $17,803 $17,605 $20,137
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1996 and 1997 and for the
Period From January 1, 1998 Through June 19, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Net sales....................................... $41,386 $44,019 $24,819
Cost of sales................................... 25,477 27,126 15,657
------- ------- -------
Gross profit................................ 15,909 16,893 9,162
Selling, general and administrative expenses.... 13,195 14,087 7,195
------- ------- -------
Operating income............................ 2,714 2,806 1,967
Other income.................................... 16 35 6
------- ------- -------
Net income and comprehensive income......... 2,730 2,841 1,973
Retained earnings, beginning of year............ 7,032 8,641 9,749
Dividends paid.................................. (1,121) (1,733) (795)
------- ------- -------
Retained earnings, end of year.................. $ 8,641 $ 9,749 $10,927
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Period from January 1, 1998 through June 19, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Operating activities
Net income and comprehensive income........... $ 2,730 $ 2,841 $ 1,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 485 541 305
Gain on sale of equipment, net.............. (16) (35) (6)
Changes in operating assets and liabilities:
Accounts receivable, net.................. 42 (393) (1,050)
Inventory................................. 679 (1,517) (931)
Prepaid expenses and other current
assets................................... 35 100 (56)
Other assets.............................. 363 (407) (229)
Accounts payable.......................... (778) 431 372
Accrued liabilities....................... (379) (167) (437)
------- ------- -------
Net cash provided by (used in) operating
activities............................. 3,161 1,394 (59)
------- ------- -------
Investing activities
Acquisitions of property and equipment........ (782) (655) (501)
Proceeds from sale of property and equipment.. 16 35 6
Acquisitions, net of cash acquired............ (265) -- --
------- ------- -------
Net cash used in investing activities... (1,031) (620) (495)
Financing activities
Bank overdraft................................ 103 (1,485) 1,475
Principal payments of long-term debt.......... 3 (85) (55)
Payment of dividends.......................... (1,121) (1,733) (795)
------- ------- -------
Net cash provided (used) in financing
activities............................. (1,015) (3,303) 625
------- ------- -------
Net increase (decrease) in cash......... 1,115 (2,529) 71
Cash at beginning of year..................... 1,582 2,697 168
------- ------- -------
Cash at end of year........................... $ 2,697 168 $ 239
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during year for interest............ $ 17 $ 41 $ 38
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Basis of Presentation
Stone Heavy Duty, Inc. ("Stone") and Ashland Automotive Parts, Inc.
("Ashland") collectively (the "Company") are under common ownership and engage
in the sale of heavy duty truck parts and servicing of medium and heavy duty
vehicles. Effective January 13, 1997, the Company acquired the net assets of
A&B Truck Parts, Inc., a Virginia corporation with its principal business in
Roanoke, Virginia for $352 plus $12 in noncompete agreements. The acquisition
was accounted for under the purchase method of accounting. The combined results
of operations of the Company include the results of A&B Truck Parts, Inc. from
the date of acquisition.
The Company is headquartered in Raleigh, North Carolina and operates
seventeen branches in North Carolina, South Carolina, Virginia, West Virginia
and Tennessee.
Note 2--Summary of Significant Accounting Policies
Principles of Combination
The combined financial statements include all the accounts of the Company as
of June 19, 1998. All intercompany balances have been eliminated in
combination.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
amortization and depreciation. Depreciation is calculated using primarily
accelerated methods and is charged to operations over the estimated useful
lives of the assets which range from five to fifteen years as follows:
<TABLE>
<CAPTION>
Method Useful Life
------ -----------
<S> <C> <C>
Furniture and fixtures.................... MACRS Double Declining 5-7 years
Equipment................................. MACRS Double Declining 5-7 years
Computer Equipment........................ MACRS Double Declining 5 years
Automobiles and trucks.................... MACRS Double Declining 5 years
Leasehold improvements.................... Straight-line 15 years
</TABLE>
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts,
F -26
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
may be exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Income Taxes
The Company has elected "S" corporation status for federal and state income
tax reporting purposes. Accordingly, all federal and state income tax
liabilities pass through to the stockholders. Ashland has elected to be treated
as a "C" corporation which is subject to income taxes. Ashland has adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", ("SFAS 109") however, the impact does not have a material impact on the
combined financial statements.
Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventory
The inventory balances at December 31, 1996 and 1997 and for the period
ending June 19, 1998 consist of the following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Parts................................................. $6,101 $7,177 $ 8,057
Cores................................................. 1,756 2,197 2,248
------ ------ -------
Total inventory..................................... $7,857 $9,374 $10,305
====== ====== =======
</TABLE>
Note 4--Other Assets
Other assets at December 31, 1996 and 1997 and June 19, 1998 consist of the
following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Rebate receivable..................................... $ 438 $ 574 $1,268
Patronage dividend receivable......................... 1,179 1,450 984
Other................................................. 69 69 69
------ ------ ------
1,686 2,093 2,321
Less: current portion of dividend receivable.......... 605 756 493
------ ------ ------
$1,081 $1,337 $1,828
====== ====== ======
</TABLE>
F-27
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The Company is a member of a buying cooperative that makes annual patronage
dividends to its members. These annual patronage dividends are paid by the
buying cooperative in two equal installments, one sixty days and the other
three years after year end.
Note 5--Property, Plant and Equipment
Property, plant and equipment are recorded at cost. At December 31, 1996 and
1997 and June 19, 1998 property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Furniture and fixtures................................ $ 226 $ 297 $ 372
Equipment............................................. 3,003 3,133 3,206
Computer equipment.................................... 612 704 772
Automobiles and trucks................................ 1,563 1,791 2,014
Leasehold improvements................................ 700 834 896
------ ------ ------
6,104 6,759 7,260
Less accumulated depreciation......................... 4,454 4,995 5,300
------ ------ ------
$1,650 $1,764 $1,960
====== ====== ======
</TABLE>
Note 6--Line of Credit
At June 19, 1998 the Company had an unsecured line of credit with a
commercial bank in the amount of $1,500. Amounts borrowed under the line of
credit are payable on demand and the interest rate was at the bank's 90-day
adjusted certificate of deposit rate plus 1%. The line of credit expires May
31, 1998. At June 19, 1998, there were no amounts outstanding under this line
of credit.
Note 7--Long-term Debt
Long-term debt at December 31, 1996 and 1997 and June 19, 1998 consists of
the following:
<TABLE>
<CAPTION>
December 31, June 19,
-------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
8.25% unsecured notes payable to former
shareholders of A&B Truck Parts, Inc., payable in
quarterly installments of $12 through January
1999.............................................. $ -- $ 55 $ --
7.71% unsecured note payable to an irrevocable
trust in annual installments of $14, including
interest, through January 1996, with a final
payment of $140 in January 1997................... 140 -- --
------ ----- ----
140 55
Less--current portion.............................. (140) (43) --
------ ----- ----
$ -- $ 12 $ --
====== ===== ====
</TABLE>
F-28
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 8--Accrued Liabilities
At December 31, 1996 and 1997 and June 19, 1998 accrued expenses include the
following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Accrued payroll...................................... $1,496 $1,199 $ 996
Accrued benefits..................................... 435 498 336
Other accruals....................................... 183 250 177
------ ------ ------
Total accrued expenses............................. $2,114 $1,947 $1,509
====== ====== ======
</TABLE>
Note 9--Retirement Savings Plan
The Company has a defined contribution retirement savings plan which covers
substantially all full-time employees. Eligible employees may contribute up to
6% of their annual compensation. The Company may match all or a portion of
these contributions. Retirement plan expenses were $233, $272 and $62 for the
years ending December 31, 1996 and 1997 and for the period ending June 19,
1998, respectively.
Note 10--Related Party Transactions
The Company leases seven branch facilities under noncancelable operating
leases with directors, officers and stockholders that extend through 2001.
Certain of these leases have renewal options. The following is a schedule of
future minimum lease payments under these leases as of June 19, 1998:
<TABLE>
<S> <C>
1998.................................................................. $ 300
1999.................................................................. 565
2000.................................................................. 360
2001.................................................................. 282
2002 and thereafter................................................... 19
------
Total............................................................... $1,526
======
</TABLE>
Aggregate payments of approximately $539, $1,057 and $923 were made to these
directors, officers and stockholders under these leases during 1996 and 1997
and for the period ending June 19, 1998, respectively.
The Company owns a minority interest in the stock of HD America, Inc., a
cooperative. For the years ended December 31, 1996 and 1997 and for the period
ending June 19, 1998, the Company purchased approximately 56%, 56% and 60% of
its goods through this cooperative and accrued a patronage dividend of $1,179,
$1,450 and $985, which was allocated between cost of sales and inventory.
F-29
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 11--Operating Leases
The Company leases certain branch facilities under operating leases with
third-parties with terms extending through 2001. Certain of these leases have
renewal options. At June 19, 1998, the future minimum rental payments required
under these noncancelable leases are as follows:
<TABLE>
<S> <C>
1998.................................................................... $187
1999.................................................................... 260
2000.................................................................... 70
2001.................................................................... 25
2002 and thereafter..................................................... --
----
Total................................................................. $542
====
</TABLE>
Rent expense for third-party operating leases was approximately $313, $359
and $180 during the years ended 1996 and 1997 and for the period ending June
19, 1998, respectively.
Note 12--Commitments and Contingencies
The Company has a Stock Purchase Agreement (the "Agreement") whereby, upon a
shareholder's death or disability, the Company can be required to purchase the
individual's outstanding shares of stock. The purchase price stipulated in the
Agreement is the fair market value of the stock, as determined by the
stockholders. The Company is also the beneficiary under certain shareholder
life insurance policies from which the proceeds may be used to purchase the
shares.
The Company is self-insured for employee medical and dental benefits, general
liability, automobile and workers' compensation claims with various levels of
stop-loss coverage. The Company has two unsecured letters of credit with a bank
related to medical and dental insurance.
The Company also has two unsecured letters of credit with banks of
approximately $448 as required by the buying cooperative. These letters expire
on December 31, 1998.
Note 13--Subsequent Event
On June 19, 1998, the Company was acquired by HDA Parts System, Inc. The
financial statements have not been effected by this transaction.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Associated Brake Supply, Inc. and Affiliate
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Associated
Brake Supply, Inc. and Affiliate (the "Company") at December 26, 1997 and
December 31, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit include examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, IL
F-31
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
At December 26, 1997 and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Trade accounts receivable, net of allowance for doubtful
accounts of $65 and $83 .................................... $ 5,403 $ 5,904
Inventories ................................................. 10,945 10,695
Prepaid expenses and other current assets ................... 782 673
Receivables from related parties ............................ 1,936 2,200
------- -------
Total current assets ...................................... 19,066 19,472
Property and equipment, net of accumulated depreciation........ 2,435 2,461
Other assets:
Notes receivables from related parties, net of current
portion..................................................... 1,409 1,727
Deposits and other........................................... 164 108
------- -------
Total assets............................................... $23,074 $23,768
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Bank overdraft............................................... $ 2,192 $ 3,060
Line of credit............................................... 4,000 4,000
Indebtedness to related parties.............................. 909 1,140
Current portion of long-term debt............................ 538 576
Accounts payable............................................. 3,471 3,270
Accrued expenses............................................. 771 1,128
Other current liabilities.................................... 362 239
------- -------
Total current liabilities.................................. 12,243 13,413
Long-term debt:
Long-term debt to related parties, net of current portion.... 3,179 3,145
Long-term debt, net of current portion....................... 1,557 1,308
Capital lease obligations, net of current portion............ 8 --
Deferred credit, net........................................... 2,151 2,084
Stockholders' equity:
Common stock................................................. 6 6
Additional paid-in capital................................... 10 10
Retained earnings............................................ 3,920 3,802
------- -------
Total stockholders' equity................................. 3,936 3,818
------- -------
Total liabilities and stockholders' equity................. $23,074 $23,768
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales, net........................................... $44,320 $50,508 $57,039
Cost of sales........................................ 27,212 31,539 35,960
------- ------- -------
Gross profit..................................... 17,108 18,969 21,079
------- ------- -------
Operating expenses:
Selling expenses................................... 9,636 10,670 11,668
General and administrative......................... 3,743 3,984 4,561
Depreciation and amortization...................... 477 375 738
------- ------- -------
13,856 15,029 16,967
------- ------- -------
Income from operations............................... 3,252 3,940 4,112
------- ------- -------
Other income (expense):
Interest expense, net.............................. (475) (552) (781)
Other income (expense), net........................ 13 (1) (12)
------- ------- -------
(462) (553) (793)
------- ------- -------
Income before income taxes....................... 2,790 3,387 3,319
Income tax (benefit) expense......................... (30) 199 2
------- ------- -------
Net income and comprehensive income.............. $ 2,820 $ 3,188 $ 3,317
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance, December 29, 1995.................. $ 6 $10 $ 2,343 $ 2,359
Distributions............................. (1,706) (1,706)
Net income and comprehensive income....... 2,820 2,820
--- --- ------- -------
Balance, December 27, 1996.................. 6 10 3,457 3,473
Distributions............................. (2,725) (2,725)
Net income and comprehensive income....... 3,188 3,188
--- --- ------- -------
Balance, December 26, 1997.................. 6 10 3,920 3,936
Distributions............................. (3,435) (3,435)
Net income and comprehensive income....... 3,317 3,317
--- --- ------- -------
Balance, December 31, 1998.................. $ 6 $10 $ 3,802 $ 3,818
=== === ======= =======
</TABLE>
F-34
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income............. $ 2,820 $ 3,188 $ 3,317
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization.................. 477 375 738
Provision for bad debts........................ 67 103 82
Loss (gain) on disposition of assets, net...... (13) 1 12
Deferred income taxes.......................... (137) 150 --
(Increase) decrease in:
Trade accounts receivable...................... 198 (874) (583)
Inventories.................................... 1,012 (1,861) 250
Prepaid expenses and other..................... (10) (61)
Notes receivable from related parties.......... 169 (552) (372)
Employee advances.............................. 27 (40) (60)
Advances to stockholders, net.................. 142 (2,030) 85
Prepaid income taxes........................... 91 -- --
Income tax refund receivable................... -- (202) 170
Deposits and other............................. (78) (36) 56
Increase (decrease) in:
Accounts payable............................... (834) 1,363 (201)
Accrued expenses............................... 631 86 356
Sales tax payable.............................. (26) 51 2
Income taxes payable........................... 10 (668) --
------- -------- --------
Net cash provided (used) in operating
activities.................................. 4,546 (1,007) 3,852
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (422) (412) (588)
Proceeds from sales of property and equipment... 35 31 30
------- -------- --------
Net cash used in investing activities........ (387) (381) (558)
------- -------- --------
Cash flows from financing activities:
Increase (decrease) in bank overdraft........... (253) 623 868
Principal payments on notes payable............. (1,200) (465) (630)
Principal payments on capital lease
obligations.................................... -- (29) (32)
Principal payments on subordinated notes
payable........................................ -- (16) (65)
Proceeds from line of credit.................... 2,150 17,050 16,919
Principal payments on line of credit............ (3,150) (13,050) (16,919)
Distributions to stockholders................... (1,706) (2,725) (3,435)
------- -------- --------
Net cash provided (used) in financing
activities.................................. (4,159) 1,388 (3,294)
------- -------- --------
Net change in cash................................ 0 0 0
Cash, beginning of year........................... 0 0 0
------- -------- --------
Cash, end of year................................. $ 0 $ 0 $ 0
======= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 789 $ 537 $ 475
Taxes.......................................... 32 818 99
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
Notes to Consolidated Financial Statements
(amounts in thousands, except for share data)
Note 1. Basis of Presentation and Description of Business
Basis of Presentation
For each of three fiscal years ending December 31, 1998, the consolidated
financial statements of Associated Brake Supply, Inc. and Affiliates (the
"Company") include the results of Associated Brake Supply, Inc., Freeway Truck
Parts of Washington, Inc., Onyx Distribution, Inc., Associated Truck Parts of
Nevada, Inc., Associated Auto Parts, Inc., Freeway Truck Parts, Inc. and ATPM,
Inc. All of these companies operate in the same business and have been under
common control and ownership for the three year period ended December 31, 1998.
Note 2. Summary of Significant Accounting Policies
Method of Consolidation
The consolidation of these companies has been accounted for in a manner
similar to a pooling of interest under Accounting Principles Board Opinion No.
16. Accordingly, all prior period financial statements have been restated to
include the combined results of operations, financial position and cash flows
of these companies, as if they had always been a part of the Company. All
material intercompany transactions have been eliminated.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value.
Inventories
Inventories consist of truck parts and are valued at the lower of cost or
market. Cost is determined on the average cost method.
F-36
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using straight-line and accelerated
methods over the estimated useful lives of the assets. Maintenance and repairs
are charged to operations.
Methods of depreciation and useful lives for property and equipment are as
follows:
<TABLE>
<CAPTION>
Useful
Method life
---------------- ---------
<S> <C> <C>
Buildings and improvements Straight line 39 years
Computer equipment Double declining 5 years
Machinery, equipment, furniture & fixtures Double declining 5-7 years
Vehicles Double declining 5 years
</TABLE>
Note 3. Inventories
Inventories consist of the following at:
<TABLE>
<CAPTION>
December 26, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Parts.............................................. $ 9,404 $ 9,094
Cores.............................................. 1,541 1,601
-------- --------
$ 10,945 $ 10,695
======== ========
</TABLE>
Note 4. Property and equipment
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
December 26, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Land............................................... $ 382 $ 382
Buildings and improvements......................... 1,205 1,482
Computer equipment................................. 337 525
Machinery, equipment, furniture & fixtures......... 2,387 2,399
Vehicles........................................... 305 260
------ ------
4,616 5,048
Less accumulated depreciation...................... 2,181 2,587
------ ------
$2,435 $2,461
====== ======
</TABLE>
Note 5. Borrowings
Line of Credit
At December 31, 1998, the Company had a line of credit with a bank which
expires on December 31, 1999, and is collaterized by the Company's accounts
receivable, inventory and property and equipment. The maximum borrowing on the
line of credit is the sum of 80% of eligible accounts receivable and the lessor
of $5,400 or 35% of the value of eligible inventory, up to 60% of
F-37
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
the amount of outstanding principal under the line. At December 26, 1997, the
maximum borrowing on the line of credit was $6,000. The line of credit provides
for cash advances, letters of credit up to $750, and financing overdrafts up to
$500. The interest rate on the line of credit was at the bank's reference rate
or an optional interest rate. At December 31, 1998 and December 26, 1997,
optional interest rates consist of (1) the short-term fixed rate plus 0.0% and
2.0%, respectively, (2) the offshore rate and the Cayman rate plus 2.0%,
respectively, or (3) the LIBOR rate 2.0%. The Company has the option to finance
a portion or all of the amount outstanding on the line of credit at the
different interest options above. At December 31, 1998, the Company has $4,000
outstanding on the line of credit at the bank's reference rate. At December 31,
1998, the bank's reference rate is 7.75%. The line of credit is guaranteed by
the Company's subsidiaries and subordinated to the Company's indebtedness to a
trust.
Notes Payable
At December 31, 1998, the Company has a note payable with a bank in which the
principle and interest are due August 2003, and is collaterized by accounts
receivable, inventory and property and equipment. The maximum borrowing limit
on this note is $1,250. The interest rate was at the bank's reference rate or
an optional interest rate. Interest is payable in monthly principal
installments of $4. At December 31, 1998, the outstanding note payable was
$388.
At December 31, 1998, the Company has a note payable with a bank in which the
principle and interest are due December 2001, and is collaterized by accounts
receivable, inventory and property and equipment. The interest rate was at the
bank's reference rate or an optional interest rate. Interest is payable in
monthly installments of $40. At December 31, 1998, the Company had $1,405
outstanding at the bank's prime rate and $0 at the LIBOR rate.
At December 31, 1998, the Company has a note payable with a bank in which the
principal and the interest are due January 2001, and is collaterized by
accounts receivable, inventory and property and equipment. The note bears
interest at 1.5% over the bank's reference rate. Interest is payable in monthly
principal installments of $4, plus interest. At December 31, 1998, the
outstanding note payable was $91.
<TABLE>
<CAPTION>
December 27, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Line of credit..................................... $ 4,000 $ 4,000
Note payable, bank................................. 30 388
Note payable, bank................................. 1,927 1,405
Note payable, bank................................. 138 91
Less current portion............................... (4,538) (4,576)
------- -------
Long-term debt..................................... $ 1,557 $ 1,308
======= =======
</TABLE>
F-38
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The aggregate maturities of debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year ending in December,
<S> <C>
1999............................................................ $4,576
2000............................................................ --
2001............................................................ 968
2002............................................................ --
2003............................................................ 340
Thereafter...................................................... --
------
$5,884
======
</TABLE>
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company and the Guarantors to: (i) make any loans to
or make any payments on loans to any of the Company's stockholders or ex-
stockholders, if any default occurs; (ii) incur additional Debt; (iii) extend
loans to subsidiaries or affiliates in excess of $750,000 outstanding at any
one time; (iv) enter into certain guarantees of Debt; (v) extend loans or
extensions of credit to any individual or entity; (vi) make investments in, or
give capital contributions to any individual or entity; (vii) encumber or sell
assets; (viii) merge or consolidate with any other entity or transfer or lease
all or substantially all of their assets.
Note 6. Operating leases and capital lease obligations and commitments
The Company leased equipment under agreements which are accounted for under
capital leases. The net balance of property and equipment at December 31, 1997
and 1998 under the capital leases is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Gross amount under capital leases.............................. $89 $89
Less accumulated depreciation.................................. 39 53
--- ---
$50 $36
=== ===
</TABLE>
The Company leases automobiles and its facilities under non-cancelable
operating leases expiring through May 2001, that have an initial or remaining
lease terms in excess of one year as of December 31, 1998. The facilities'
leases have varying renewal options and a varying escalation clause based on
minimal increases and/or the consumer price index. Total rental expense for the
operating leases is approximately $707, $812, and $917 for the years ended
December 27, 1996, December 26, 1997 and December 31, 1998.
F-39
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Future minimum lease payments for non-cancelable operating leases and capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
Year ending in December 31, ------- ---------
<S> <C> <C>
1999..................................................... $ 9 $1,421
2000..................................................... -- 1,327
2001..................................................... -- 928
2002..................................................... -- 698
2003..................................................... -- 547
Thereafter............................................... -- 2,201
--- ------
Total minimum lease payments............................. 9 $7,122
--- ======
Less amounts representing interest ........................ 1
---
Present value of minimum lease payments.................... $ 8
===
</TABLE>
Note 7. Commitments and Contingencies
At December 27, 1997 and December 31, 1998 the Company has open stand-by
letters of credit totaling $490 and $448, respectively.
Note 8. Deferred credit
The deferred credit consists of the excess of net assets acquired over the
cost of Freeway Truck Parts, Inc., by ATPM, Inc. in 1988. The Company merged
with ATPM, Inc. under a method similar to a pooling of interest as of October
1, 1997 and carried over assets and liabilities at historical cost. The
deferred credit is being amortized over 40 years, and for each of the three
years ended December 31, 1998, amortization income recognized was $70.
Note 9. Retirement plan
The Company has a 401(k) profit sharing plan covering all eligible employees.
Under the provisions of the agreement, employees are allowed to make deferrals
to which the Company can elect to match at a rate of 25% of employee
contributions, up to a maximum of 15% of the participants' compensation. For
each of the three years ended December 31, 1998, the Company expensed
contributions of approximately $95, $98 and $108, respectively.
Note 10. Related party transactions
The Company leases facilities under operating leases from an ex-stockholder
and employee of the Company. Rent expense on the leases totaled $31 and for
each of the three years ended December 31, 1998.
At December 26, 1997 and December 31, 1998, the Company has advanced the
stockholders $1,206 and $1,417, respectively. The advances are non-interest
bearing and are due on demand. At December 31, 1998, the Company has an amount
due to the shareholders in the amount of $295.
F-40
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 26, 1997 and December 31, 1998, the Company had long-term notes
receivable from certain stockholders of $2,139 and $2,510, respectively. The
current portion of these notes was $730 and $782 on December 26, 1997 and
December 31, 1998, respectively.
For the years ended December 26, 1997 and December 31, 1998, the Company has
a note payable to a trust, subordinated to the line of credit and each of the
note payables, bank. The subordinated note payable originally in the amount of
$3,260, is collaterized by the Company's Stock. The subordinated note payable
is due in monthly principal and interest installments of $24 maturing October
2019, bearing interest at 7.0% per annum. At December 26, 1997 and December 31,
1998, $3,244 and $3,178, respectively, is outstanding on the note payable, of
which $65 and $70, respectively, is current.
At December 26, 1997 and December 31, 1998, the Company had long-term notes
payable to certain stockholders of $844 and $812, respectively. The current
portion of these notes was $844 and $775 on December 26, 1997 and December 31,
1998, respectively.
Note 11. Income taxes
The Company and its affiliate have elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under the provisions, the Company
and affiliate does not pay federal corporate income taxes, but are subject to a
1.5% California corporate income tax. The stockholders of the Company and
affiliate report the Company's taxable income on their individual income tax
return.
Prior to the merger, ATPM, Inc. elected to be taxed as a "C" corporation and
after the merger elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under the provisions, the Company does not pay Federal
corporate income taxes, but is subject to a 1.5% California corporate income
tax.
For each of three years ended December 31, 1998, income tax expenses is
composed of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ------------------- -------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current income tax
expense (benefit)...... $ 25 $ 82 $107 $ 4 $45 $ 49 $-- $ 2 $ 2
Change in deferred tax
assets for ATPM, Inc... (99) (38) (137) 116 21 137 -- -- --
Provision for deferred
taxes.................. -- 13 13 -- -- --
---- ---- ---- ---- --- ---- --- --- ---
Total income tax expense
(benefit):............. $(74) $ 44 $(30) $120 $79 $199 $-- $ 2 $ 2
==== ==== ==== ==== === ==== === === ===
</TABLE>
Deferred income taxes are provided for the net tax effects of temporary
differences in the reporting of income for financial statement and income tax
reporting purposes. They arise principally from timing differences related to
the reporting of patronage dividends, and the capitalization of various
expenses required for taxation under Section 263A of the Internal Revenue Code.
F-41
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 27, 1996, December 26, 1997 and December 31, 1998, the Company
has recorded deferred tax assets of approximately $543, $16 and $14, reflecting
the future deductibility of certain amounts not currently deductible.
Note 12. Common stock
Common stock of the Company includes the following: 10,000 shares of no par
Common Stock for Associated Brake Supply, Inc. in which 400 shares were issued
and authorized (valued at $4) on December 27, 1997 and December 31, 1998, and
10,000 shares of no par Common Stock for Onyx Distribution, Inc. in which 200
shares were issued and authorized (valued at $2) on December 27, 1997 and
December 31, 1998.
Note 13. Subsequent events
On January 11, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The financial statements have not been effected by
this transaction.
F-42
<PAGE>
VANTAGE PARTS
COMBINED BALANCE SHEETS
(Unaudited)
At December 31, 1997 and 1998
(amount in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Cash......................................................... $ 275 $ 407
Accounts receivable, less allowance for doubtful accounts of
$444 and $371, respectively ................................ 5,632 5,157
Inventories.................................................. 7,594 9,848
Deferred income taxes........................................ 437 463
Other current assets......................................... 56 320
------- -------
Total current assets....................................... 13,994 16,195
------- -------
Property and equipment, net.................................. 1,335 1,304
Other assets................................................. 79 93
Goodwill, net of accumulated amortization of $11 and $105,
respectively................................................ 1,406 1,312
------- -------
Total assets............................................... $16,814 $18,904
======= =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 4,058 $ 3,015
Accrued liabilities.......................................... 535 470
------- -------
Total current liabilities.................................. 4,593 3,485
------- -------
Deferred taxes................................................. 17 50
Commitments and contingencies
Company equity:
Investments by and advances from CNF......................... 12,204 15,369
------- -------
Total liabilities and company equity....................... $16,814 $18,904
======= =======
</TABLE>
See Notes to Financial Statements.
F-43
<PAGE>
VANTAGE PARTS
COMBINED STATEMENTS OF INCOME
(Unaudited)
For the three years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Trade sales.......................................... $27,032 $30,250 $45,156
Affiliate sales...................................... 6,239 7,622 9,856
------- ------- -------
Total sales...................................... 33,271 37,872 55,012
------- ------- -------
Operating expenses:
Cost of sales...................................... 26,506 30,552 43,820
General and administrative......................... 5,400 6,017 8,260
Depreciation....................................... 193 228 271
------- ------- -------
Total operating expenses......................... 32,099 36,797 52,351
------- ------- -------
Income from operations............................... 1,172 1,075 2,661
Interest (expense)................................... (435) (374) (585)
Other income......................................... 3 -- 11
------- ------- -------
Income before income taxes........................... 740 701 2,087
------- ------- -------
Income taxes......................................... 297 282 825
------- ------- -------
Net income and comprehensive income.................. $ 443 $ 419 $ 1,262
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-44
<PAGE>
VANTAGE PARTS
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income................. $ 443 $ 419 $ 1,262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 219 251 377
Gain on disposal of property and equipment........ (3) -- (11)
Change in operating assets and liabilities net of
effect of acquisitions:
Accounts receivable, net......................... (664) (1,094) 475
Other current assets............................. 28 17 (264)
Inventory........................................ 233 (916) (2,254)
Provision for deferred taxes..................... (132) (92) 7
Other assets..................................... 5 (50) (26)
Accounts payable................................. 1,442 2,373 (1,043)
Accrued and other liabilities.................... 94 (1,963) (65)
------ ------- -------
Net cash provided by (used in) operating
activities..................................... 1,665 (1,055) (1,542)
------ ------- -------
Cash flows from investing activities:
Purchases of property and equipment................. (386) (295) (240)
Proceeds from sale of property and equipment........ 5 -- 11
Acquisition of parts distributorships............... -- (1,652) --
------ ------- -------
Net cash used in investing activities........... (381) (1,947) (229)
------ ------- -------
Cash flows from financing activities:
(Decrease) increase in investment and advances from
CNF................................................ (1,450) 3,124 1,903
------ ------- -------
Net cash (used for) provided by financing
activities..................................... (1,450) 3,124 1,903
------ ------- -------
Net change in cash.................................. (166) 122 132
------ ------- -------
Cash at beginning of year........................... 319 153 275
------ ------- -------
Cash at end of year.................................. $ 153 $ 275 407
====== ======= =======
Supplemental information to cash flows:
Detail of acquisitions:
Fair value of assets................................ $ -- $ 2,425 $ --
Fair value of liabilities........................... -- 2,190 --
------ ------- -------
Net fair value of assets and liabilities............. -- 235 --
Goodwill recorded................................... -- 1,417 --
------ ------- -------
Net cash paid for acquisitions....................... $ -- $ 1,652 $ --
====== ======= =======
</TABLE>
See Notes to Financial Statements.
F-45
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
(amounts in thousands)
1. Summary of Significant Accounting Policies:
Description of Business
Vantage Parts ("the Company") is owned by CNF Transportation Inc. ("CNF").
The Company is comprised of the assets of CNF's wholly owned Vantage Parts
division and Vantage Parts of Illinois, a wholly owned subsidiary of CNF.
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts throughout the United States. The company is headquartered in Portland,
Oregon and has stores throughout the United States.
The accompanying financial statements have been prepared at the direction of
HDA Parts System, Inc. and reflect the "carve-out" financial position, results
of operations and cash flows of the Company for the periods presented. Certain
corporate general and administrative expenses of CNF have been allocated to the
Company (Note 4) on various bases which, in the opinion of management, are
reasonable. However, such expenses are not necessarily indicative of, and it is
not practicable for management to estimate, the nature and level of expenses
which might have been incurred had the Company operated as a stand-alone
Company.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Inventories
Inventories consist of truck parts, and are valued at the lower of cost or
market. Cost is determined on the average cost method.
Property and equipment
Purchase of property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the assets, are capitalized at cost and
depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Building and improvements........................................ 10-25 years
Equipment and furniture.......................................... 3-10 years
</TABLE>
F-46
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Goodwill
Goodwill consists of the acquisition cost in excess of the fair value of the
net assets acquired in 1996 (see Note 3). Goodwill is amortized on a straight-
line basis over fifteen years.
Income Taxes
The Company is included as part of the consolidated U.S. federal income tax
return of CNF. The provision for income taxes is computed on the taxable income
of the Company on a stand-alone basis.
The Company accounts for income taxes based on the asset and liability
approach in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the financial reporting and
the tax bases of assets and liabilities.
The liability for the current portion of the tax provision is transferred to
the Investments by and advances from CNF account at the end of each year. The
net asset or liability for deferred income taxes has been included in the
accompanying balance sheets.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are either
returned to the vendor for credit or remanufactured.
2. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Land.......................................................... $ 145 $ 145
Building and improvements..................................... 781 803
Equipment and furniture....................................... 1,612 1,779
Construction-in-progress...................................... -- 13
------ ------
2,538 2,740
Less accumulated depreciation................................. 1,203 1,436
------ ------
Property and equipment, net................................... $1,335 $1,304
====== ======
</TABLE>
F-47
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
3. Acquisition:
On November 17, 1997, the Company, through CNF, acquired the net assets of
Commercial Trailer Parts and Supply Company ("CTPS"), and Consolidated Spring
and Alignment Company ("CSA"), parts distributorships with a facility in
Willowbrook, Illinois, for cash of $1,652. This acquisition was accounted for
in accordance with the purchase method of accounting, and accordingly the
results of operations of CTPS and CSA were included in the accompanying
statements of income from the acquisition date. The net assets of CTPS and CSA
were included in the accompanying balance sheets at values representing the
allocation of the purchase cost to such net assets. At acquisition, the fair
value of tangible assets and liabilities totaled $2,425 and $2,190,
respectively. The excess of purchase cost over the valuation of the net
tangible assets of $1,417 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years.
The following summary presents unaudited pro forma financial information as
if the CTPS and CSA were acquired at the beginning of each year, rather than
from the date of acquisition, after giving effect to certain adjustments
including amortization of goodwill, interest expense and a normal charge for
income taxes. The pro forma financial summary is for information purposes only,
based on historical information, and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined.
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
Actual Proforma Actual Proforma
------- ----------- ------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales.......................... $33,271 $46,878 $37,872 $51,239
Net income and comprehensive
income............................ 443 931 419 951
</TABLE>
4. Related Party Transactions:
The Company has entered into sales transactions with CNF and its affiliates.
Revenues from these sales totaled $6,239, $7,622 and $9,856 for the years ended
December 31, 1996, 1997 and 1998, respectively. The Company's sales to CNF were
primarily at market prices as periodically determined by CNF.
CNF provides the Company certain management, data processing, human
resources, purchasing, credit, accounting and tax services. An allocation of
the estimated costs of these services is charged directly to the Company each
month by CNF using varying allocation bases (primarily number of transactions
processed or number of employees covered). The allocation process is consistent
with the methodology used by CNF to allocate costs of similar services provided
to its other business units. The allocated costs of these services, which
aggregated $456, $513 and $842 for the years ended December 31, 1996, 1997 and
1998, respectively, were reflected in general and administrative expenses in
the accompanying statements of operations.
CNF also provides certain employee benefits and insurance coverage to the
Company, including workers' compensation, health and welfare, pension and auto
liability. An allocation of the estimated costs of these services is charged
directly to the Company each month by CNF based on actual costs and using
various allocation methods. The allocation process is consistent with the
methodology used
F-48
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
by CNF to allocate costs of similar services provided to its other business
units. The allocated costs of these services, which aggregated $514, $757 and
$763 for the years ended December 31, 1996, 1997 and 1998, respectively, were
reflected in cost of sales in the accompanying statements of operations.
The Company is dependent on CNF for financing. CNF maintains a centralized
cash management system and substantially all cash receipts and disbursements
are recorded at the corporate level. The Company is charged or credited for the
net of cash receipts and disbursements each month. The Company incurs a monthly
charge for interest expense from CNF based on a formula which takes into
consideration the Company's rolling twelve month average balance in its
investments by and advances from CNF account, excluding the current year and
cumulative earnings amounts, multiplied by an interest rate. The Company
incurred a charge for interest expense from CNF of $435, $374 and $585 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The following table sets forth the activity in the Company Equity account for
the years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year........................ $ 9,668 $ 8,661 $12,204
Net income and comprehensive income............... 443 419 1,262
Investments by and advances from (distributions
to) CNF.......................................... (1,450) 3,124 1,903
------- ------- -------
Balance, end of year.............................. $ 8,661 $12,204 $15,369
======= ======= =======
</TABLE>
5. Income Taxes:
The provision for income taxes for the years ended December 31, 1996, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal.................................................... $133 $153 $672
State...................................................... 32 37 160
Deferred income taxes........................................ 132 92 (7)
---- ---- ----
$297 $282 $825
==== ==== ====
</TABLE>
The provision for income taxes differed from the United States statutory rate
for the years ended December 31, 1996, 1997 and 1998 for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate........................................... $251 $238 $710
State and local taxes, net of federal benefit................ 38 36 105
Non-deductible expenses...................................... 8 8 10
---- ---- ----
$297 $282 $825
==== ==== ====
</TABLE>
F-49
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)--(Continued)
(amounts in thousands)
Deferred tax assets (liabilities) were comprised of the following at December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Gross deferred tax assets:
Employee benefits.............................................. $ 57 $ 64
Inventories.................................................... 204 246
Accounts receivable............................................ 173 145
Other.......................................................... 3 8
---- ----
437 463
Gross deferred tax liabilities:
Property and equipment......................................... (17) (50)
---- ----
Net deferred tax asset........................................... $420 $413
==== ====
</TABLE>
6. Operating Leases:
The Company leases manufacturing, warehouse and office facilities, cars and
certain equipment. Future minimum lease payments required under operating
leases having initial or remaining noncancelable lease terms in excess of one
year are set forth below:
<TABLE>
<S> <C>
1999.................................................................. $ 513
2000.................................................................. 385
2001.................................................................. 266
2002.................................................................. 155
2003.................................................................. 148
Thereafter............................................................ 148
------
$1,615
======
</TABLE>
Rental expense under operating leases amounted to $433, $484 and $507 for the
years ended December 31, 1996, 1997 and 1998, respectively.
7. Commitments and Contingencies:
The Company is involved in litigation from time to time incidental to the
conduct of its business; however, the Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
the Company.
8. Subsequent Event:
On February 5, 1999, CNF entered into a letter of intent agreement with HDA
Parts System, Inc. ("HDA") whereby HDA will acquire the Company.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Truck and Trailer Parts, Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and stockholders' equity and cash flows present
fairly, in all material respects, the combined financial position of Truck and
Trailer Parts, Inc. and Affiliate (the "Companies") at December 31, 1996 and
1997 and September 30, 1998, and the combined results of their operations and
their cash flows for the years ended December 31, 1996 and 1997 and the nine-
month period ended September 30, 1998 in conformity with generally accepted
accounting principles. These combined financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these combined financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
December 30, 1998
Atlanta, Georgia
F-51
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and at September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1996 1997 1998
------ ------ -------------
ASSETS
------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents......................... $ 60 $ 18 $ 127
Accounts receivables.............................. 2,021 2,493 3,151
Notes receivable from related parties............. 22 237 --
Inventories....................................... 2,890 4,676 5,281
Prepaid expenses.................................. 72 19 102
Advances to shareholders and employees............ 2 2 2
------ ------ ------
Total current assets............................ 5,067 7,445 8,663
------ ------ ------
Property and equipment
Transportation equipment.......................... 544 646 607
Machinery and equipment........................... 324 404 455
Computer equipment................................ 202 307 309
Office furniture and equipment.................... 137 185 196
Leasehold improvements............................ 16 18 18
------ ------ ------
1,223 1,560 1,585
Less accumulated depreciation..................... 710 916 1,093
------ ------ ------
513 644 492
------ ------ ------
Other assets
Intangible assets, net............................ 48 45 43
Deposits.......................................... 11 17 17
------ ------ ------
59 62 60
------ ------ ------
Total assets.................................... $5,639 $8,151 $9,215
====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Line of credit.................................... $ 943 $1,095 $2,725
Current portion of long-term debt................. 89 70 47
Accounts payable.................................. 1,281 2,401 2,416
Accrued liabilities............................... 447 324 268
------ ------ ------
Total current liabilities....................... 2,760 3,890 5,456
Long-term liabilities
Long-term debt.................................... 323 315 265
Notes payable to related parties.................. 132 129 80
------ ------ ------
455 444 345
Stockholders' equity................................ 2,424 3,817 3,414
------ ------ ------
Total liabilities and stockholders' equity...... $5,639 $8,151 $9,215
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997 and
for the Nine Month Period Ended September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31 September 30,
---------------- -------------
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Sales.......................................... $19,963 $24,011 $22,925
Cost of sales.................................. 16,223 19,697 18,702
------- ------- -------
Gross profit............................... 3,740 4,314 4,223
Selling, general and administrative expenses... 2,537 2,838 2,485
------- ------- -------
Income from operations..................... 1,203 1,476 1,738
Other income (expense)
Interest expense............................. (126) (85) (119)
Gain (loss) on disposal of fixed assets...... 12 10 (8)
Other income (expense)....................... 12 10 (8)
------- ------- -------
Income before income taxes................. 1,101 1,411 1,603
Income tax expense............................. 411 18 --
------- ------- -------
Net income and comprehensive income........ 690 1,393 1,603
Stockholders' equity--beginning of year........ 1,734 2,424 3,817
Distributions to stockholders.................. -- -- (2,006)
------- ------- -------
Stockholders' equity--end of period............ $ 2,424 $ 3,817 $ 3,414
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Year Ended Nine Month
December 31, Period Ended,
---------------- September 30,
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income and comprehensive income.......... $ 690 $ 1,393 $ 1,603
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
Depreciation............................... 227 265 215
Amortization of intangibles................ 2 3 2
(Gain) loss on disposal of fixed assets.... (12) (10) 8
Changes in operating assets and liabilities
Accounts receivable...................... (14) (472) (658)
Notes receivable......................... 40 (215) 237
Inventories.............................. 594 (1,786) (605)
Prepaid expenses......................... 13 53 (83)
Other assets............................. (10) (6) --
Accounts payable......................... (176) 1,120 15
Accrued liabilities...................... 135 (123) (56)
------- ------- -------
Net cash provided by operating
activities............................ 1,489 222 678
------- ------- -------
Cash flows provided by (used for) investing
activities
Acquisition of property and equipment........ (315) (431) (86)
Purchase of a business....................... (619) -- --
Proceeds from sale of property and
equipment................................... 84 45 15
------- ------- -------
Net cash used for investing
activities............................ (850) (386) (71)
------- ------- -------
Cash flows provided by (used for) financing
activities
Principal payments of long-term debt......... (229) (110) (122)
Proceeds fom short term line of credit....... 7,154 7,755 8,463
Payments of short term line of credit........ (7,533) (7,603) (6,833)
Proceeds from issuance of long-term debt..... 18 80 --
Distribution to stockholders................. -- -- (2,006)
------- ------- -------
Net cash provided by (used for)
financing activities.................. (590) 122 (498)
------- ------- -------
Increase (decrease) in cash and cash
equivalents................................... 49 (42) 109
Cash and cash equivalents at beginning of
year.......................................... 11 60 18
------- ------- -------
Cash and cash equivalents at end of period..... $ 60 $ 18 $ 127
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
Note 1--Basis of Presentation
The accompanying combined financial statements include Truck and Trailer
Parts, Inc. (TTPI) and DHP Leasing, Inc. (the "Companies") which are under
common ownership. TTPI engages in the sale of replacement parts for heavy duty
trucks and trailers in the southeastern United States. DHP Leasing, Inc. leases
certain office and warehouse equipment to TTPI. The combined financial
statements include the accounts of the Companies as of December 31, 1996 and
1997 and September 30, 1998, and for each of the two years ended December 31,
1996 and 1997 and for the nine-month period ended September 30, 1998. All
material intercompany balances have been eliminated.
Effective September 30, 1998 the Companies were acquired by HDA Parts System,
Inc. These financial statements represent the Companies' financial position
prior to any effect of the acquisition.
Note 2--Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from date of purchase.
Accounts receivable
Substantially all of the accounts receivable are pledged as collateral for
the bank line of credit (See Note 4). Bad debts charged to operations amounted
to $77 and $106 for 1996 and 1997 and $27 for the nine-month period ended
September 30, 1998, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost basis (See Note 3).
Property and equipment
Property and equipment is carried at cost less accumulated depreciation.
Improvements, which are capitalized, extend the useful life of the underlying
assets. Expenditures for maintenance and repairs are charged to expense as
incurred. The Companies provide for depreciation of property and equipment
using accelerated methods over estimated useful lives of five to seven years.
Other assets
Included in other assets are goodwill and noncompete agreements totaling $48,
$45, and $43 at December 31, 1996 and 1997 and September 30, 1998,
respectively. These assets are being
F-55
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
amortized over their estimated useful life of 15 years. Accumulated
amortization amounted to $2, $5 and $7 at December 31, 1996 and 1997 and
September 30, 1998, respectively.
Revenue recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are returned to
the vendor for credit.
Income taxes
On January 1, 1997 and future years TTPI, with the consent of its
stockholders, elected under the Internal Revenue Code to be taxed as an S
corporation. DHP Leasing, Inc., from its inception in 1995, elected to be taxed
as an S corporation. In lieu of corporate income taxes, the stockholders of an
S corporation are taxed on their proportionate share of the Companies' taxable
income. Therefore, no provision or liability for federal income taxes has been
included in the financial statements for 1997. Prior to 1997, deferred income
tax assets and liabilities were recognized for the expected future tax
consequences of temporary differences between the income tax and financial
reporting carrying amounts of assets and liabilities (See Note 7).
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventories
At December 31, 1996 and 1997 and September 30, 1998, inventories consist of
the following:
<TABLE>
<CAPTION>
September 30,
1996 1997 1998
------ ------ -------------
<S> <C> <C> <C>
Parts Inventory.................................. $2,643 $4,488 $4,955
Core Inventory................................... 247 188 326
------ ------ ------
$2,890 $4,676 $5,281
====== ====== ======
</TABLE>
F-56
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 4--Long-Term Debt
At December 31, 1996 and 1997 and September 30, 1998 long-term debt consists
of the following:
<TABLE>
<CAPTION>
September 30,
1996 1997 1998
---- ---- -------------
<S> <C> <C> <C>
8% unsecured note payable in monthly installments
of $4, including interest to 2006................ $322 $299 $282
8% note payable, secured by property and
equipment, payable in monthly installments of $2,
including interest to 2000....................... -- 63 30
7% note payable, secured by computer equipment
with a carrying value of $55 in 1996 and $44 in
1997............................................. 61 21 --
6.5% note payable, secured by a truck, payable in
monthly installments of $1, including interest in
1998............................................. 8 2 --
Other............................................. 21 -- --
---- ---- ----
Less current portion.............................. (89) (70) (47)
---- ---- ----
$323 $315 $265
==== ==== ====
</TABLE>
The Companies had a maximum availability of $3,000 in 1996, 1997 and 1998 on
a line of credit from a bank with interest payable at the 30 day LIBOR (London
Interbank Offered Rate) plus 2 percent. The line is secured by accounts
receivable and inventories. The Companies' outstanding balance at December 31,
1996 and 1997 and September 30, 1998, was, $943, $1,095 and $2,725
respectively. The Companies paid $126, $85, and $119 interest during 1996,
1997, and 1998, respectively.
Note 5--Combined Stockholders' Equity
At December 31, 1996 and 1997 and September 30, 1998, combined stockholders'
equity consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------ -------------
<S> <C> <C> <C>
Truck and Trailer Parts, Inc.
Common stock, $0 par value, 10,000 shares
authorized, 1,069 shares issued and
outstanding................................ $ -- $ -- $ --
Additional paid-in capital.................. 55 55 55
Retained earnings........................... 2,371 3,728 3,297
------ ------ ------
2,426 3,783 3,352
DHP Leasing, Inc.
Common stock, voting, $0 par value, 150,000
shares authorized, 1,000 shares issued and
outstanding................................ -- -- --
Additional paid-in capital.................. 5 5 5
Retained earnings (deficit)................. (7) 29 57
------ ------ ------
Stockholders' equity.......................... $2,424 $3,817 $3,414
====== ====== ======
</TABLE>
F-57
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 6--Employee Benefit Plans
The Companies have a contributory employee benefit plan which is qualified
under Section 401(k) of the Internal Revenue Code. Substantially all employees
are eligible for participation in the plan. An employee may have up to 15% of
his/her salary withheld. The Companies may contribute for each participant a
matching contribution equal to a percentage of the participant's contribution.
The Companies' total expenses for contributions to the plan was $106, $179, and
$88, in 1996, 1997 and 1998, respectively.
Note 7--Commitments
The Companies lease office and warehouse space from related parties. Rent
expense to related parties was $133, $179, and $163 in 1996, 1997, and 1998,
respectively. The Companies also lease office and warehouse space from
unrelated parties. Rent expense to third-parties was $145, $125, and $122 in
1996, 1997, and 1998, respectively. Minimum future rental payments under these
leases for each of the next five years, and thereafter, and in the aggregate,
are as follows:
<TABLE>
<CAPTION>
Related
Parties Other Total
------- ----- ------
<S> <C> <C> <C>
1999.................................................... $224 $ 94 $ 318
2000.................................................... 224 86 311
2001.................................................... 144 82 225
2002.................................................... -- 83 83
2003 and thereafter..................................... -- 463 463
---- ---- ------
Total................................................. $592 $808 $1,400
==== ==== ======
</TABLE>
Note 8--Related Party Transactions
Unsecured notes payable, on demand to related parties amounted to $132, $129,
and $80 at December 31, 1996 and 1997 and September 30, 1998, respectively.
Interest on these notes amounted to $10, $8, and $6 in 1996, 1997, and 1998,
respectively. Interest is payable at 1% above the prime rate.
Notes receivable from related parties amounted to $22 and $237 at December
31, 1996 and 1997, respectively. The interest rate was prime plus 2%.
F-58
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 9--Income Taxes
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
Year
ended
December Nine-Month
31, Period Ended
---------- September 30,
1996 1997 1998
---- ---- -------------
<S> <C> <C> <C>
Current expense
Federal.......................................... $366 $-- $ --
State............................................ 65 -- --
---- --- ----
Total current.................................... 431 -- --
Deferred expense (benefit)
Federal.......................................... $(17) $15 $ --
State............................................ (3) 3 --
---- --- ----
Total deferred................................... $411 $18 $ --
==== === ====
</TABLE>
Income taxes in the amount of $356 and $38 were paid in 1996 and 1997,
respectively. In conjunction with the election on January 1, 1997 to be taxed
as an S corporation, Truck & Trailer Parts, Inc. (TTPI) recognized an expense
of $18 resulting from the transfer of TTPI's deferred tax assets to its
stockholders as explained in Note 1.
At December 31, 1997, significant components of TTPI's deferred tax assets
were as follows:
<TABLE>
<S> <C>
Deferred tax assets
Uniform capitalization................................................ $16
Capital loss carryforwards............................................ 2
---
$18
===
</TABLE>
As described in Note 1, TTPI filed a Subchapter S election effective January
1, 1997. Therefore, there is no current income tax provision for the periods
ended December 31, 1997 and September 30, 1998. The amount included in the 1997
income statement for income tax expense reflects the write-off of the deferred
tax asset.
Note 10--Subsequent Event
Effective September 30, 1998, the Companies were sold to HDA Parts System,
Inc. The financial statements have not been effected by this transaction. As a
result of this transaction, the Companies' operating facilities in Greenville,
SC, and Dalton, GA, have been transferred to other companies held by HDA Parts
System, Inc.
F-59
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of Connecticut Driveshaft,
Inc. as of September 30, 1998, and the related statements of income, retained
earnings, and cash flows for the nine months ended September 30, 1998. The
financial statements are the responsibility of Connecticut Driveshaft, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Connecticut Driveshaft, Inc.
as of September 30, 1998, and the results of its operations and its cash flows
for the nine months ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
November 4, 1998
F-60
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
BALANCE SHEET
September 30, 1998
(In thousands, except share data)
<TABLE>
<S> <C>
ASSETS
------
Current Assets
Cash and cash equivalents............................................. $ 3
Receivables:..........................................................
Trade, less allowance for doubtful accounts of $268................. 1,824
Vendor.............................................................. 236
Inventories........................................................... 4,863
Other assets.......................................................... 31
------
Total current assets.............................................. 6,957
------
Equipment and Leasehold Improvements, at cost (Note 2)
Machinery and equipment............................................... 1,026
Vehicles.............................................................. 952
Furniture and fixtures................................................ 686
Leasehold improvements................................................ 202
------
2,866
Less accumulated depreciation......................................... 2,552
------
314
------
Cash Value of Life Insurance............................................ 247
------
Security Deposits....................................................... 14
------
$7,532
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank note payable (Note 2)............................................ $1,713
Current maturities of long-term debt (Note 2)......................... 56
Accounts payable...................................................... 1,802
Accrued expenses...................................................... 376
Income taxes payable.................................................. 138
------
Total current liabilities......................................... 4,085
------
Long-Term Debt, less current maturities (Note 2)........................ 5
------
Commitments and Contingencies (Notes 4 and 5)...........................
Stockholders' Equity
Common stock, no par value; authorized 5,000 shares; issued and
outstanding 1,000 shares............................................. 1
Retained earnings..................................................... 3,441
------
3,442
------
$7,532
======
</TABLE>
See Notes to Financial Statements.
F-61
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
STATEMENT OF INCOME
Nine Months Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $14,860
Cost of goods sold..................................................... 11,038
-------
Gross profit....................................................... 3,822
Operating expenses (Note 3)............................................ 3,497
-------
Operating income................................................... 325
-------
Nonoperating income (expense):
Interest income...................................................... 7
Interest expense..................................................... (126)
-------
(119)
-------
Income before income taxes......................................... 206
Provision for state income taxes....................................... (32)
-------
Net income......................................................... $ 174
=======
</TABLE>
STATEMENT OF RETAINED EARNINGS
Nine Months Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Balance, beginning (Note 6)............................................. $3,267
Net income............................................................ 174
------
Balance, ending......................................................... $3,441
======
</TABLE>
See Notes to Financial Statements.
F-62
<PAGE>
CONNECTICUT DRIVESHAFT
STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income............................................................ $ 174
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation........................................................ 131
Changes in assets and liabilities:
Trade receivables................................................. (80)
Vendor receivables................................................ (50)
Inventories....................................................... (241)
Other assets...................................................... 3
Accounts payable.................................................. (99)
Accrued expenses.................................................. 68
Income taxes payable.............................................. 20
-----
Net cash used in operating activities........................... (74)
-----
Cash Flows From Investing Activities
Increase in cash value of life insurance.............................. (16)
Purchase of equipment................................................. (22)
-----
Net cash used in investing activities........................... (38)
-----
Cash Flows From Financing Activities
Net borrowings on bank note payable................................... 171
Principal payments on long-term debt.................................. (63)
-----
Net cash provided by financing activities....................... 108
-----
Decrease in cash and cash equivalents........................... (4)
Cash and Cash Equivalents
Beginning............................................................. 7
-----
Ending................................................................ $ 3
=====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest............................................ $ 125
Cash payments for income taxes........................................ 2
=====
</TABLE>
See Notes to Financial Statements.
F-63
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts and
repairs and rebuilds driveshafts, brake shoes, and brake drums. The Company
operates out of six locations in Connecticut and Massachusetts. The Company
sells its products primarily to customers in the United States on credit terms
that the Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased and finished goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Machinery............................................................. 3-10
Vehicles.............................................................. 3-5
Furniture and fixtures................................................ 3-7
Leasehold improvements................................................ 10-40
</TABLE>
Income taxes: The Company, with the consent of its stockholders, has elected
to be taxed under sections of federal income tax law, which provide that, in
lieu of corporation income taxes, the stockholders separately account for their
pro rata shares of the Company's items of income, deductions, losses, and
credits. As a result of this election, no federal income taxes have been
recognized in the accompanying financial statements. For state income tax
purposes, the Company is required to pay corporate income taxes, and
accordingly, these taxes have been reflected in the accompanying financial
statements.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-64
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
The Company has a $2,000 line of credit available with a financial
institution. Borrowings under the line are limited to 75 percent of eligible
accounts receivable plus the lesser of 25 percent of inventory or $600. The
borrowings bear interest at the prime rate (8.25 percent at September 30, 1998)
and are secured by substantially all of the Company's assets and the guarantee
of the Company's majority shareholder and a related Company. The agreement
expires in November 1998. Borrowings under the line of credit at September 30,
1998, were $1,713. Subsequent to September 30, 1998, pursuant to the terms of
the Asset Purchase Agreement (see Note 5), the line of credit was paid in full.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
<TABLE>
<S> <C>
Bank note payable, bearing interest at 8.07%, due in monthly
payments of $4 plus interest, through July 1999, secured by
substantially all assets of the Company and the guarantee of the
Company's majority shareholder and a related Company. Subsequent to
September 30, 1998, pursuant to the terms of the Asset Purchase
Agreement, the note was paid in full............................... $ 42
Note payable to officer, paid in full subsequent to September 30,
1998. Interest expense on this note was $1 during the nine months
ended September 30, 1998........................................... 5
9.9% Capital leases, due in monthly payments of $1, including
interest, through April 2000, secured by vehicles.................. 14
----
61
Less current portion................................................ (56)
----
$ 5
====
</TABLE>
Note 3. Leasing Arrangements
The Company leases land and property on a month-to-month basis from related
parties, under five operating leases, requiring various monthly payments.
Subsequent to September 30, 1998, these operating leases were terminated
pursuant to the terms of the Asset Purchase Agreement noted in Note 5.
F-65
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The Company also leases land, property, and vehicles from unrelated parties,
under operating leases, requiring various monthly payments. The leases expire
at various dates through June 2001. Certain of these leases include an
additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments to unrelated
parties at September 30, 1998, are as follows:
<TABLE>
<S> <C>
Fiscal years ending:
1999.................................................................. $140
2000.................................................................. 58
2001.................................................................. 38
----
$236
====
</TABLE>
Rent expense was approximately $365 during the nine months ended September
30, 1998, including approximately $241 to related parties.
Note 4. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
18 percent of their salary to the plan, not to exceed the maximum allowed by
the IRS. The Company can make discretionary matching contributions. The Company
made matching contributions of $19 to the plan during the nine months ended
September 30, 1998.
Litigation: The Company is a defendant in various lawsuits. In the opinion of
management, these suits are without substantial merit and should not result in
judgments, which in the aggregate, would have a material adverse effect on the
Company's financial statements.
Note 5. Asset Purchase Agreement
On November 4, 1998, the stockholders of Connecticut Driveshaft, Inc. entered
into an asset purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell substantially all of the assets of the Company in exchange for
the assumption of certain liabilities of the Company for a purchase price of
$7,300 cash. The acquisition cost includes the assignment of the purchase of
land and buildings from the owners.
In connection with the Agreement, HDA entered into employment agreements with
two shareholders of the Company. These employment agreements can be terminated
by either party at any time. In addition, HDA entered into three-year
noncompete agreements with two shareholders of the Company.
Note 6. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1997, was approximately $909.
The effect on retained earnings at October 1, 1997, net of tax, was
approximately $791.
F-66
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of Truckparts, Inc. as of
September 30, 1997 and 1998, and the related statements of income, retained
earnings, and cash flows for the years then ended. The financial statements are
the responsibility of Truckparts, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Truckparts, Inc. as of
September 30, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
December 18, 1998
F-67
<PAGE>
TRUCKPARTS, INC.
BALANCE SHEETS
September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
ASSETS
------
Current Assets
Cash and cash equivalents....................................... $ 134 $ 580
Receivables:
Trade, less allowance for doubtful accounts of $97 (Note 7)... 1,531 1,638
Vendor........................................................ 436 414
Inventories..................................................... 3,237 3,585
Deferred taxes (Note 4)......................................... -- 78
Other assets.................................................... 53 53
------ ------
Total current assets........................................ 5,391 6,348
------ ------
Equipment and Leasehold Improvements, at cost
Transportation equipment (Note 2)............................... 562 623
Leasehold improvements.......................................... 143 143
Furniture and fixtures.......................................... 206 281
------ ------
911 1,047
Less accumulated depreciation................................... 541 611
------ ------
370 436
------ ------
$5,761 $6,784
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes payable to related parties (Note 3)....................... $ 497 $ 555
Current maturities of long-term debt............................ 101 84
Accounts payable................................................ 2,167 2,451
Accrued expenses................................................ 205 380
Deferred taxes (Note 4)......................................... 100 --
Income taxes payable............................................ 588 1,015
------ ------
Total current liabilities..................................... 3,658 4,485
------ ------
Long-Term Debt, less current maturities (Note 2).................. 56 69
------ ------
Deferred Taxes (Note 4)........................................... 10 13
------ ------
Commitments and Contingencies (Notes 5 and 8)
Stockholders' Equity (Note 6)
Preferred stock................................................. 295 295
Class A common stock............................................ 1 1
Class B common stock............................................ 10 10
Retained earnings............................................... 1,731 1,911
------ ------
2,037 2,217
------ ------
$5,761 $6,784
====== ======
</TABLE>
See Notes to Financial Statements.
F-68
<PAGE>
TRUCKPARTS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Net sales (Note 7)............................................ $13,204 $13,460
Cost of goods sold............................................ 9,455 9,093
------- -------
Gross profit.............................................. 3,749 4,367
Operating expenses (Note 3)................................... 3,324 3,703
------- -------
Operating income.......................................... 425 664
------- -------
Nonoperating income (expense):
Interest income............................................. 14 17
Gain on sale of equipment................................... 5 7
Interest expense (Note 3)................................... (48) (62)
------- -------
(29) (38)
------- -------
Income before income taxes................................ 396 626
------- -------
Provision for income taxes (Note 4):
Currently payable........................................... 178 621
Deferred.................................................... (13) (175)
------- -------
165 446
------- -------
Net income................................................ $ 231 $ 180
======= =======
</TABLE>
STATEMENTS OF RETAINED EARNINGS
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Balance, beginning (Note 9)...................................... $1,500 $1,731
Net income..................................................... 231 180
------ ------
Balance, ending.................................................. $1,731 $1,911
====== ======
</TABLE>
See Notes to Financial Statements.
F-69
<PAGE>
TRUCKPARTS, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Cash Flows From Operating Activities
Net income..................................................... $ 231 $ 180
Adjustments to reconcile net income to net cash provided by
(used in)
operating activities:
Gain on sale of equipment.................................... (5) (7)
Depreciation................................................. 94 121
Deferred taxes............................................... (13) (175)
Changes in assets and liabilities:
Trade receivables.......................................... (155) (107)
Vendor receivables......................................... (111) 22
Inventories................................................ (271) (348)
Other assets............................................... 13 --
Accounts payable........................................... 13 284
Accrued expenses........................................... 16 175
Income taxes payable....................................... 73 427
----- -----
Net cash provided by (used in) operating activities...... (115) 572
----- -----
Cash Flows From Investing Activities
Purchase of equipment.......................................... (154) (195)
Proceeds from disposal of equipment............................ 22 15
----- -----
Net cash used in investing activities.................... (132) (180)
----- -----
Cash Flows From Financing Activities
Principal payments on long-term debt........................... (97) (123)
Borrowings on long-term debt................................... 421 177
----- -----
Net cash provided by financing activities................ 324 54
----- -----
Increase in cash and cash equivalents.................... 77 446
Cash and Cash Equivalents
Beginning...................................................... 57 134
----- -----
Ending......................................................... $ 134 $ 580
===== =====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest..................................... $ 48 $ 62
Cash payments for income taxes................................. 108 208
===== =====
</TABLE>
See Notes to Financial Statements.
F-70
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts. The
Company operates out of four locations in Connecticut. The Company sells its
products primarily to customers in the United States on credit terms that the
Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements. In connection
with these receivables, the Company is required to have a letter of credit in
the amount of the receivable.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Transportation equipment............................................... 3-5
Furniture and fixtures................................................. 3-7
Leasehold improvements................................................. 8-10
</TABLE>
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-71
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Long-Term Debt
Long-term debt: Long-term debt consists of several capitalized leases with
various monthly installments and interest rates ranging from 4.8 to 11.0
percent. The leases mature at various dates through September 2001, and are
secured by transportation equipment.
Aggregate maturities on capital lease obligations at September 30, 1998, are
as follows:
<TABLE>
<CAPTION>
Capital Leases
-------------------------------------------
Total Minimum Less Amount Present Value of
Lease Representing Net Minimum
Payments Interest Lease Payments
------------- ------------ ----------------
<S> <C> <C> <C>
Years ending September 30:
1999......................... $ 91 $ 7 $ 84
2000......................... 55 2 52
2001......................... 17 1 17
---- --- ----
$163 $10 $153
==== === ====
</TABLE>
Subsequent to September 30, 1998, approximately $73 of these leases were paid
in full.
Note 3. Related-Party Transactions and Leasing Arrangements
The Company has two notes payable with related parties which were paid in
full subsequent to year end. Interest expense relating to these notes payable
was $29 and $48 the years ended September 30, 1997 and 1998, respectively.
One note was unsecured and accrued interest at 10 percent. The other note was
secured by computer equipment and accrued interest at 8.75 percent.
F-72
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
The Company leases vehicles, buildings, and property from related and
unrelated parties, under operating leases, requiring various monthly payments.
The leases expire at various dates through September 2008. Certain of these
leases include an additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments at September 30,
1998, are as follows:
<TABLE>
<CAPTION>
Related Unrelated
Parties Parties Total
------- --------- ------
<S> <C> <C> <C>
1999................................................ $ 250 $110 $ 360
2000................................................ 250 92 342
2001................................................ 253 43 296
2002................................................ 275 -- 275
2003................................................ 277 -- 277
Thereafter.......................................... 1,090 -- 1,090
------ ---- ------
$2,395 $245 $2,640
====== ==== ======
</TABLE>
Rent expense was approximately $273 and $297 in 1997 and 1998, respectively,
including $197 and $212, respectively, to related parties.
Note 4. Income Taxes
The components of income tax expense charged to operations for the years
ended September 30, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Current tax expense:
Federal....................................................... $132 $ 477
State......................................................... 46 144
Deferred tax benefit............................................ (13) (175)
---- -----
$165 $ 446
==== =====
</TABLE>
The Company's income tax expense varies from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
the years ended September 30, 1997 and 1998, due to the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Computed "expected" tax expense.................................. $134 $213
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit..................... 32 50
Nontaxable items............................................... 4 7
Nondeductible interest and underpayment penalties.............. (5) 176
---- ----
$165 $446
==== ====
</TABLE>
F-73
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
Net deferred tax assets consisted of the following components as of September
30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 19 $ 20
Accrued compensation and other............................... 21 95
Inventory reserve............................................ 42 123
----- -----
82 238
----- -----
Deferred tax liabilities:
Depreciation................................................. (10) (13)
Rebates receivable........................................... (182) (160)
----- -----
(192) (173)
----- -----
$(110) $ 65
===== =====
</TABLE>
The Company's deferred tax amounts have been classified in the accompanying
financial statements as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current assets................................................. $ 82 $ 238
Current liabilities............................................ (182) (160)
----- -----
Net current asset (liability).................................. (100) 78
Noncurrent liabilities......................................... (10) (13)
----- -----
$(110) $ 65
===== =====
</TABLE>
Note 5. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
the maximum allowed by the IRS. The Company can make discretionary matching
contributions. No discretionary contributions were made to the plan during 1997
or 1998.
Pension plan: The Company maintains a defined contribution pension plan for
eligible employees. Under the terms of the plan, employees may contribute up to
10 percent of their compensation. The Company can make discretionary
contributions to the plan. Company contributions to the plan for the years
ended September 30, 1997 and 1998, were $117 and $143, respectively.
Note 6. Components of Stockholders' Equity
The Company has authorized the issuance of 2,000 shares of 6 percent
noncumulative, nonparticipating, nonvoting preferred stock, with a par value of
$500 per share. The Company has issued 590 shares of preferred stock, which is
entitled to dividends of $30 per share before any dividends are paid on the
Class A common stock of the Company. The preferred stock is callable at
F-74
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
the option of the Company at $500 per share and is preferred in liquidation
over all share of Class A common stock and Class B common stock.
The Company has authorized the issuance of 2,000 shares of Class A voting
common stock, with a par value of $1 per share. The Company has issued 1,000
shares of Class A common stock which, after the dividend preference of the
preferred stock and the Class B common stock, can participate in dividends as
described below.
In addition, the Company has authorized the issuance of 1,000 shares of Class
B voting common stock, with a par value of $100 per share. The Company has
issued 100 shares of Class B common stock, which is entitled to dividends of
$50 per share before any dividends are paid on preferred stock or Class A
common stock. After dividends are paid on the Class B common stock and
preferred stock, the Class B common stock can participate in further dividends
jointly with the Class A common stock in proportion with their respective par
values.
The Class B common stock and Class A common stock shall participate in
liquidation in accordance with their respective par values after the
liquidation preference of the preferred stock.
Note 7. Major Customers
Trade receivables and sales as of and for the years ended September 30, 1997
and 1998, included amounts to a major customer. Sales to this customer were
approximately 17 and 10 percent of total sales in 1997 and 1998, respectively.
Accounts receivable from this customer as of September 30, 1998, were
approximately $25.
Note 8. Stock Purchase Agreement
On December 17, 1998, the shareholders of Truckparts, Inc. entered into a
stock purchase agreement (the Agreement) with HDA Parts System, Inc. (HDA) to
sell all of the outstanding stock of the Company for a purchase price of
$11,700, less the outstanding balance of the related-party note payable
outstanding at the date of closing, plus certain shares of common and preferred
stock of an entity controlled by HDA. Under the terms of the Agreement, the
notes payable to related parties (see Note 3) were paid in full.
In connection with the Agreement, HDA also entered into three-year employment
agreements and five-year noncompete agreements with two shareholders of
Truckparts, Inc. In addition, HDA entered into a consulting agreement whereby
the consultant will be paid $56 per year for two years.
Note 9. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1996, and net income for the
year ended September 30, 1997, was approximately $1,240. The effect on retained
earnings at October 1, 1996, and net income for 1997, net of tax, was
approximately $617.
F-75
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying combined balance sheet of Tisco, Inc. and
Tisco of Redding, Inc. as of September 30, 1998, and the related combined
statements of income, stockholders' equity, and cash flows for the year then
ended. The financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Tisco,
Inc. and Tisco of Redding, Inc. as of September 30, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
December 12, 1998
F-76
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED BALANCE SHEET
September 30, 1998
(In thousands)
<TABLE>
<S> <C>
ASSETS (Note 2)
---------------
Current Assets
Cash.................................................................. $ 355
Receivables:
Trade accounts, less allowance for doubtful accounts of $31......... 976
Vendor rebates (Note 1)............................................. 324
Inventories........................................................... 2,300
Prepaid expenses...................................................... 11
------
Total current assets.............................................. 3,966
------
Other Assets............................................................ 89
------
Property and Equipment
Transportation equipment.............................................. 258
Equipment............................................................. 201
Furnitures and fixtures............................................... 88
Leasehold improvements................................................ 5
------
552
Less accumulated depreciation......................................... 423
------
129
------
$4,184
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 2)......................... $ 49
Accounts payable...................................................... 879
Accrued expenses:
Compensation and employee benefits.................................. 44
Profit sharing contribution (Note 4)................................ 47
Sales tax........................................................... 55
Other............................................................... 68
------
Total current liabilities......................................... 1,142
------
Long-Term Debt, less current maturities (Note 2)........................ 262
------
Commitments and Contingencies (Notes 2, 3, and 6)
Stockholders' Equity
Common stock (Note 5)............................................... 109
Unearned compensation............................................... (37)
Retained earnings................................................... 2,708
------
2,780
------
$4,184
======
</TABLE>
See Notes to Combined Financial Statements.
F-77
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF INCOME
Year Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Net sales............................................................... $8,641
Cost of sales........................................................... 6,146
------
Gross profit........................................................ 2,495
Operating expenses...................................................... 1,492
------
Operating income.................................................... 1,003
Nonoperating income (expense):
Interest expense (Note 2)............................................. (17)
Gain on sale of property and equipment................................ 1
------
Income before income taxes.......................................... 987
Provision for state income taxes........................................ 21
------
Net income.......................................................... $ 966
======
</TABLE>
See Notes to Combined Financial Statements.
F-78
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Common Unearned Retained
Stock Compensation Earnings Total
------ ------------ -------- ------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 $109 $ (50) $2,064 $2,123
Net income............................... -- -- 966 966
Amortization of unearned compensation.... -- 13 -- 13
Distributions to stockholders............ -- -- (322) (322)
---- ----- ------ ------
Balance, September 30, 1998 $109 $ (37) $2,708 $2,780
==== ===== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-79
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF CASH FLOWS
Year Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income............................................................ $ 966
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 67
Deferred compensation............................................... 13
Gain on sale of property and equipment.............................. (1)
Changes in current assets and liabilities:
Receivables....................................................... (400)
Inventories....................................................... (731)
Prepaid expenses and other assets................................. 14
Accounts payable.................................................. 240
Accrued expenses.................................................. 99
-----
Net cash provided by operating activities....................... 267
-----
Cash Flows From Investing Activities
Purchases of property and equipment................................... (28)
Proceeds from sale of equipment....................................... 2
-----
Net cash used in investing activities........................... (26)
-----
Cash Flows From Financing Activities
Proceeds from long-term borrowings.................................... 250
Principal payments on long-term borrowings............................ (55)
Distributions to stockholders......................................... (323)
-----
Net cash used in financing activities........................... (128)
-----
Net increase in cash............................................ 113
Cash
Beginning............................................................. 242
-----
Ending................................................................ $ 355
-----
Supplemental Disclosure of Cash Flow Information
Cash payments for interest............................................ $ 13
Cash payments for state income taxes.................................. 4
=====
Supplemental Schedule of Noncash Investing and Financing Activities
Assets acquired under capital lease obligations....................... $ 26
=====
</TABLE>
See Notes to Combined Financial Statements.
F-80
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Tisco, Inc. and Tisco of Redding, Inc. (together referred
to herein as the Companies) are distributors of motor vehicle parts and operate
out of four locations in northern California. The Companies sell their products
primarily to customers in the United States on credit terms established for its
customers on an individual and industry practice basis.
A summary of the Companies' significant accounting policies follows:
Principles of combination: The accompanying combined financial statements
include the accounts of Tisco, Inc. and Tisco of Redding, Inc., which are
related through common ownership. Management has elected to reflect these
financial statements as combined for the period presented. All material,
intercompany balances and transactions have been eliminated in combination.
Cash: The Companies maintain cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.
Vendor rebates receivables: The vendor rebate receivables consist primarily
of rebates to be received from vendors for meeting certain purchase levels. The
receivable represents management's estimate of rebates to be received based on
purchasing activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased parts.
Property and equipment: Property and equipment are recorded at cost.
Depreciation is computed over the estimated useful lives of the respective
assets using straight-line and accelerated methods. The estimated useful lives
by class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Transportation equipment............................................... 5-7
Equipment, furniture and fixtures...................................... 5-7
Leasehold improvements................................................. 39
</TABLE>
Income taxes: The Companies have elected to be taxed for federal and state
income tax purposes as an S Corporation. Under these provisions, the
stockholders' share in the net income of the Companies is reportable on their
individual tax returns. Therefore, these statements do not include any
provision for federal corporation income taxes and as the section of the
California tax law requires, the state income taxes are at a reduced rate. The
Companies intend to make distributions to the stockholders in amounts that will
at least allow them to pay the personal income taxes on the taxable income of
the Companies.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
F-81
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Segment information: In June 1998, the FASB issued SFAS Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for fiscal years beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Based on this criteria, the Company has determined that
it operates in one business segment, that being the distribution of heavy duty
vehicle parts in the United States. Thus, all information required by SFAS No.
131 is included in the Company's financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
Line of credit: The Companies combined have a $400 working capital agreement
with a financial institution. The borrowings bear interest at the prime rate
plus 1 percent (9.5 percent at September 30, 1998) and are secured by
substantially all of the Companies' assets and the guarantee of the Companies'
majority shareholder. The agreement expires in January 1999. There were no
outstanding borrowings under the line of credit at September 30, 1998.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
<TABLE>
<CAPTION>
Tisco of
Tisco, Inc. Redding, Inc. Total
----------- ------------- -----
<S> <C> <C> <C>
Note payable, bearing interest at 7%, due
in monthly payments of $3, including
interest, through March, 2008, guaranteed
by the Companies' majority stockholder and
secured by certain assets of the
stockholder............................... $246 $-- $246
Capital leases, finance company, bearing
interest of 7.9% to 10.0%, due in varying
monthly payments, including interest,
through January 2002, secured by
transportation equipment.................. 39 20 59
Other...................................... 4 2 6
---- ---- ----
289 22 311
Less current portion....................... (42) (7) (49)
---- ---- ----
$247 $ 15 $262
==== ==== ====
</TABLE>
F-82
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
The approximate aggregate annual maturities are as follows:
<TABLE>
<S> <C>
Years ending September 30:
1999................................................................ $ 49
2000................................................................ 40
2001................................................................ 35
2002................................................................ 30
2003................................................................ 27
Thereafter.......................................................... 130
----
$311
====
</TABLE>
Minimum future lease obligations under these leases at September 30, 1998,
are as follows:
<TABLE>
<S> <C>
Years ending September 30:
1999.................................................................. $25
2000.................................................................. 22
2001.................................................................. 14
2002.................................................................. 6
---
Total minimum lease payments............................................ 67
Less amounts represent interest......................................... (8)
---
$59
===
</TABLE>
Note 3. Related-Party Transactions and Leasing Arrangements
Debt guarantee: The Companies have guaranteed payment of a stockholder note
payable with a financial institution. The outstanding balance of the note at
September 30, 1998, was approximately $44. All payments are current.
Property leases: The Companies lease space on a month-to-month basis pursuant
to four operating leases, requiring various monthly payments. Three leases are
with related parties. Rent expense was approximately $100 in 1998, including
$75 to related parties.
Note 4. Profit Sharing and Money Purchase Plan
The Companies maintain a profit sharing plan and a money purchase plan for
eligible employees. Under the terms of the profit sharing plan the Companies
can make discretionary contributions. The money purchase plan requires a
minimum contribution equal to 6 percent of each participant's total
compensation plus 5.7 percent of each participant's compensation for the plan
year in excess of the 100 percent of the taxable wage base in effect on the
first day of the plan year. No employee contributions are allowed under the
plans. The Companies' contributions to the plans for the year ended September
30, 1998, were $47.
F-83
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Note 5. Stockholders' Equity
Common stock: Common stock consists of the following at September 30, 1998:
<TABLE>
<CAPTION>
Common
Stock
------
<S> <C>
Tisco, Inc. 100,000 shares authorized; no par value; 25,000 shares
issued and outstanding; stated at ........................... $ 9
Tisco of Redding, Inc. 500,000 shares authorized; no par value; 127
shares issued and outstanding, stated at .................... 100
----
$109
====
</TABLE>
Stock bonus plan: One of the Companies adopted a stock bonus plan on January
1, 1995. Under this plan, a restricted stock award of common stock was made to
an employee. The fair market value of these shares was determined to be $84.
The stock award is vesting over seven years, as long as the employee
continues employment with the Company. The resulting amortization of unearned
compensation recognized for the year ended September 30, 1998, was $12.
Note 6. Stock Purchase Agreement
Subsequent to September 30, 1998, the shareholders of the Companies entered
into a stock purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell all of the outstanding stock of the Companies. Terms of the
Agreement provide, in part, the following:
. Stock purchase price of $5,750 in cash plus common and preferred stock
of City Holdings, Inc., an HDA-controlled entity.
. Three (3) year noncompete agreements with the two officer/shareholders
of the Companies.
. The guaranteed note payable (Note 3) will be paid in full and the
unearned compensation of $37 relating to the 1995 stock bonus plan (Note
5) will be fully vested.
F-84
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything to you other than the information contained
in this prospectus. You must not rely on unauthorized information or
representations.
This prospectus does not offer to sell or ask for offers to buy any of the
securities in any jurisdiction where it is unlawful, where the person making
the offer is not qualified to do so, or to any person who cannot legally be
offered the securities.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this prospectus, we do not represent that our affairs are the same as
described or that the information in this prospectus is correct--nor do we
imply those things by delivering this prospectus or selling securities to you.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Disclosure regarding forward-looking statements........................ inside
cover
Summary................................................................ 1
Risk factors........................................................... 9
The exchange offer..................................................... 16
Use of proceeds........................................................ 25
Capitalization ........................................................ 25
Unaudited pro forma condensed financial data........................... 26
Selected historical financial and operating data....................... 34
Management's discussion and analysis of financial condition and results
of operations......................................................... 35
Business............................................................... 41
Management............................................................. 50
Principal stockholders................................................. 53
Certain relationships and transactions................................. 54
Description of revolving credit facility............................... 58
Description of notes................................................... 60
Material United States federal income tax consequences for United
States holders........................................................ 108
Plan of distribution................................................... 109
Legal matters.......................................................... 109
Independent auditors................................................... 110
Available information.................................................. 110
Index to financial statements.......................................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------
PROSPECTUS
---------------
HDA PARTS SYSTEM, INC.
Offer to Exchange its
12% Senior Subordinated
Notes due 2005
which have been registered
under the Securities Act of
1933, for its outstanding
12% Senior Subordinated Notes due 2005
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification Of Directors And Officers.
The Alabama Business Corporation Act gives Alabama corporations broad powers
to indemnify their present and former directors and officers against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers. In general, the Business
Corporation Act requires indemnification of such directors and officers who
successfully defend actions and permits indemnification in most other
situations at the option of the corporation, if certain statutory standards are
met. The Business Corporation Act also authorizes Alabama corporations to buy
directors' and officers' liability insurance.
Subject to some exceptions and deductions, we insure our and our
subsidiaries' directors and officers against liabilities which they may incur
in their capacity as directors and officers under liability insurance policies
carried by us.
In general, the Business Corporation Act will allow indemnification if the
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Our Amended and Restated Articles of Incorporation further
require a finding by the disinterested members of the board of directors, or by
special legal counsel selected by the disinterested members of the board of
directors, that the director or officer met the standards of conduct discussed
above before indemnification is allowed, unless the director or officer has
been successful in defending the proceeding. The Business Corporation Act and
our Articles of Incorporation provide that, if the officer or director is
successful in defending the proceeding, indemnification is mandatory without
reference to any standard of conduct. On the other hand, indemnification is not
permitted with respect to litigation brought by or in the right of the
corporation in which the officer or director is adjudged liable to the
corporation or in connection with any proceeding in which the officer or
director is adjudged liable on the basis that personal benefit was improperly
received by him. Under the Business Corporation Act, this restriction does not
apply, however, to the extent that the court in which the action is brought
determines that the officer or director is entitled to indemnity for particular
expenses.
Our Articles of Incorporation limit a director's liability to the corporation
or its stockholders for money damages to the full extent permitted by the
Business Corporation Act, provided that the director's liability will not be
limited with regard to: (1) any financial benefit received by a director to
which he is not entitled; (2) an intentional infliction of harm on the
corporation or the stockholders; (3) unlawful payments of dividends; (4) an
intentional violation of criminal law or (5) a breach of the director's duty of
loyalty.
In addition, our Articles of Incorporation provide that we may indemnify our
employees or agents who are not officers or directors, at the option of the
board of directors, to the extent authorized by the Business Corporation Act.
The Business Corporation Act, generally, provides that employees and agents may
be indemnified to the same extent as officers and directors.
II-1
<PAGE>
Item 21. Exhibits And Financial Statement Schedules.
(a) Exhibits
A list of exhibits filed with this registration statement on Form S-4 is set
forth on the Exhibit Index and is incorporated in this Item 21 by reference.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for the years ended December
31, 1996, 1997 and 1998 is filed with this registration statement.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrants
pursuant to the provisions, described under Item 15 above, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities 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 registrants 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
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(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
II-2
<PAGE>
that which was registered) and any deviation from the low or high end
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 a 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;
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
HDA PARTS SYSTEM, INC.
CITY TRUCK HOLDINGS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
/s/ Frederick J. Warren Chairman of the Board of Directors
____________________________________
Frederick J. Warren
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
/s/ W. Larry Clayton Director
____________________________________
W. Larry Clayton
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Martin R. Reid Director
____________________________________
Martin R. Reid
/s/ James T. Stone Director
____________________________________
James T. Stone
/s/ David S. Seewack Director
____________________________________
David S. Seewack
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
PARTS OF CITY TRUCK AND TRAILER
ALABAMA, INC.
PARTS OF CITY TRUCK AND TRAILER
TENNESSEE, INC.
CITY FRICTION, INC.
TRUCK & TRAILER PARTS, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title: Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ W. Larry Clayton President & Secretary (Principal
____________________________________ Executive Officer) and Director
W. Larry Clayton
/s/ John P. Miller Vice President (Principal Financial and
____________________________________ Accounting Officer)
John P. Miller
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, L.L.C.
By: HDA Parts System, Inc., its sole
member
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
/s/ Frederick J. Warren Chairman of the Board of Directors
____________________________________
Frederick J. Warren
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
/s/ W. Larry Clayton Director
____________________________________
W. Larry Clayton
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Martin R. Reid Director
____________________________________
Martin R. Reid
/s/ James T. Stone Director
____________________________________
James T. Stone
/s/ David S. Seewack Director
____________________________________
David S. Seewack
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TRUCK & TRAILER PARTS, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title: Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Robert L. Pope President (Principal Executive Officer)
____________________________________ and Director
Robert L. Pope
/s/ John P. Miller Secretary (Principal Financial and
____________________________________ Accounting Officer) and Director
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ W. Louis Bissette III Director
____________________________________
W. Louis Bissette III
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TRUCKPARTS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch Chief Executive Officer (Principal
____________________________________ Executive Officer) and Director
John J. Greisch
/s/ John P. Miller Vice President of Finance (Principal
____________________________________ Financial and Accounting Officer) and
John P. Miller Director
/s/ Anthony N. Vingiano Director
____________________________________
Anthony N. Vingiano
/s/ James T. Stone Director
____________________________________
James T. Stone
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
ASSOCIATED BRAKE SUPPLY, INC.
ASSOCIATED TRUCK CENTER, INC.
ONYX DISTRIBUTION, INC.
ASSOCIATED TRUCK PARTS OF NEVADA,
INC.
FREEWAY TRUCK PARTS OF WASHINGTON,
INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ David S. Seewack President (Principal Executive Officer)
____________________________________ and Director
David S. Seewack
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
/s/ Scott Spiwak Director
____________________________________
Scott Spiwak
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deerfield, State of
Illinois, on April 8, 1999.
TISCO, INC.
TISCO OF REDDING, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on April 8, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Gregory D. Mathis President (Principal Executive Officer)
____________________________________ and Director
Gregory D. Mathis
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
/s/ John J. Greisch Director
____________________________________
John J. Greisch
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
/s/ Frederick J. Warren Director
____________________________________
Frederick J. Warren
</TABLE>
II-12
<PAGE>
SCHEDULE II
CITY TRUCK HOLDINGS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Description beginning of period costs and expenses other accounts Deductions end of period
----------- ------------------- ------------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
For the year ended
December 31, 1996.... $ 13 $132 $ 132 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $ 13 $121 $ 121 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $ 13 $134 $1,002(1) $ -- $1,149
==== ==== ====== ===== ======
Inventory valuation
allowance:
For the year ended
December 31, 1996.... $350 $108 $ 108 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $350 $150 $ 150 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $350 $440 $2,682(1) $ 123 $3,349
==== ==== ====== ===== ======
</TABLE>
- ---------------------
(1) These additions relate to businesses acquired during the year.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of HDA Parts System,
Inc.
3.2 Bylaws of HDA Parts System, Inc.
4.1 Indenture, dated as of July 31, 1998, by and among HDA Parts System,
Inc., the guarantors identified therein and U.S. Trust Company of
California, N.A., as trustee.
4.1.1 First Supplemental Indenture, dated as of September 30, 1998 among
Truck & Trailer Parts, Inc., City Truck Holdings, Inc., the Company,
any other Guarantors party thereto, and Parent party thereto and U.S.
Trust Company, National Association, as trustee
4.1.2 Second Supplemental Indenture, dated as of December 21, 1998 among
Truckparts, Inc., the Company, any other Guarantors party to the
Indenture referred to therein and U.S. Trust Company, National
Association, as trustee
4.1.3 Third Supplemental Indenture, dated as of January 14, 1999 among
Associated Brake Supply, Inc., Associated Truck Center, Inc., Onyx
Distribution, Inc., Associated Truck Parts of Nevada, Inc., Freeway
Truck Parts of Washington, Inc., Tisco, Inc. and Tisco of Redding,
Inc. the Company, any other Guarantors party to the Indenture
referred to therein and U.S. Trust Company, National Association, as
trustee
4.2 A/B Exchange Registration Rights Agreement, dated as of July 31, 1998,
by and among HDA Parts System, Inc. the guarantors identified therein
and Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Robertson Stephens.
5 Opinion of Latham & Watkins
10.1 Revolving Credit Facility, dated as of June 1, 1998, by and among Bank
of America National Trust & Savings Association, as administrative
agent and syndication agent, and The Industrial Bank of Japan,
Limited, New York Branch, as documentation agent.
10.1.1 First Amendment and Consent, dated as of December 30, 1998, to the
Credit Agreement, dated as of June 1, 1998, among HDA Parts System,
Inc., the several banks and other financial institutions or entities
from time to time parties to the Credit Agreement, the Syndication
Agent, the Documentation Agent and Arranger named therein and Bank of
America National Trust and Savings Association,, as Administrative
Agent.
10.2 Stock Purchase Agreement, dated as of May 29, 1998, by and among BABF
City Corp., City Truck and Trailer Parts, Inc. and its Affiliates and
Merger Subsidiaries named therein and the Shareholders and Members of
City Truck and Trailer Parts, Inc. and its Affiliates and Merger
Subsidiaries
10.3 Asset Contribution Agreement, dated as of June 19, 1998, by and among
City Truck and Trailer Parts, Inc. and Stone Heavy Duty, Inc.,
Ashland Automotive Parts, Inc., Fred A. Stone, Jr., James T. Stone
and Thomas D. Stone.
10.4 Contribution and Purchase Agreement, dated as of September 30, 1998,
by and among City Truck Holdings, Inc., HDA Parts System, Inc. and
Truck & Trailer Parts, Inc., DHP Leasing, Inc., the Shareholders of
Truck & Trailer Parts, Inc. and DHP Leasing, Inc.
10.5 Asset Purchase Agreement, dated as of October 31, 1998, by and among
HDA Parts System, Inc. and Tampa Brake & Supply Co., Inc. and the
Shareholders of Tampa Brake & Supply Co., Inc.
10.6 Asset Purchase Agreement, dated as of November 4, 1998, by and among
HDA Parts System, Inc. and Connecticut Driveshaft, Inc. and the
Shareholders of Connecticut Driveshaft, Inc.
10.7 Stock Purchase Agreement, dated as of December 17, 1998, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Truckparts,
Inc., and the Shareholders of Truckparts, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.8 Stock Purchase Agreement, dated as of January 11, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Associated
Brake Supply, Inc. and the Shareholders of Associated Brake Supply,
Inc.
10.9 Stock Purchase Agreement, dated as of January 12, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and the
Shareholders of Tisco, Inc. and Tisco of Redding, Inc.
10.10 Trademark License Agreement, dated as of July 6, 1998, by and between
HD America, Inc. and City Truck & Trailer Parts, Inc.
10.11 Corporate Development and Administrative Services Agreement, dated as
of May 29, 1998, by and between Brentwood Private Equity, L.L.C. and
City Truck & Trailer Parts, Inc.
10.12 Stock Contribution Agreement, dated as of August 27, 1998, by and
among the parties identified on the signature page thereto and City
Truck Holdings, Inc.
10.13 Stockholders' Agreement, dated as of September 30, 1998, by and among
the parties listed on the signature pages attached thereto and City
Truck Holdings, Inc.
10.14 Stock Purchase Agreement, dated as of July 1, 1998, by and between
City Truck & Trailer Parts, Inc. and John J. Greisch.
10.15 Stock Purchase Agreement, dated as of July 10, 1998, by and between
HDA Parts System, Inc. and John P. Miller
10.16 Stock Purchase, Vesting and Repurchase Agreement, dated as of October
19, 1998, between City Truck Holdings, Inc. and A. William Cavalle
10.17 Form of Stock Purchase, Vesting and Repurchase Agreement
10.18 Stock Purchase Agreement, dated as of September 30, 1998, by and
between City Truck Holdings, Inc. and Martin R. Reid
10.19 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John J. Greisch
10.20 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John P. Miller
10.21 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and Anthony William Cavaile
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of HDA Parts System, Inc.
23.1 Consent of Latham & Watkins (included in Exhibit 5)
23.2 Consent of PriceWaterhouseCoopers LLP
23.3 Consent of McGladrey & Pullen, LLP
24 Powers of Attorney (included on the signature pages of this
registration statement)
25* Statement of Eligibility and Qualification on Form T-1 of U.S. Trust
Company of California, N.A., as trustee
99.1* Letter of Transmittal with respect to the Exchange Offer
99.2* Notice of Guaranteed Delivery with respect of the Exchange Offer
</TABLE>
- ---------------------
*To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CITY TRUCK & TRAILER PARTS, INC.
TO THE JUDGE OF PROBATE
JEFFERSON COUNTY, ALABAMA:
Pursuant to the provisions of Ala. Code, (S)(S) 10-2B-10.06 and 10-2B-10.07
(1994), City Truck & Trailer Parts, Inc., an Alabama corporation (the
"Corporation") hereby adopts the following Amended and Restated Articles of
Incorporation:
FIRST: The name of the Corporation is:
- -----
CITY TRUCK & TRAILER PARTS, INC.
SECOND: The text of the Amended and Restated Articles of Incorporation is as
- ------
follows:
The undersigned, for the purpose of forming a corporation pursuant to the
provisions of the Alabama Business Corporation Act and any amendment thereto
or supplement thereof (hereinafter referred to as the "Act"), does hereby
certify as follows:
1. NAME. The name of the corporation is HDA PARTS SYSTEM, INC. (hereinafter
----
called the "Corporation").
2. PURPOSES.
--------
(a) GENERAL PURPOSES. The purposes for which the Corporation is organized
----------------
are to engage in any lawful business, act or activity for which a corporation
may be organized under the Act, it being the purpose and intent of this Article
to invest the Corporation with the broadest purposes, objects and powers
lawfully permitted a corporation formed under the Act; and to carry on any and
all aspects, ordinary or extraordinary, of any lawful business and to enter into
and carry out any transaction, ordinary or extraordinary, permitted by law,
having and exercising in connection herewith all powers given to corporations by
the Act and all other applicable laws of the State of Alabama.
(b) SPECIFIC PURPOSES. Without limiting the scope and generality of the
-----------------
foregoing, the Corporation shall have the following purposes, objects and
powers:
(1) To own, buy, sell, lease, rent and generally to engage in the
business of buying, selling and distributing truck and automobile parts and
related accessories.
1
<PAGE>
(2) To manufacture, purchase or otherwise acquire, and to hold, own,
mortgage, pledge, sell, assign and transfer, exchange or otherwise dispose of,
and invest, trade and deal in and with goods, wares and merchandise and personal
property of every class and description, wherever situated, whether or not the
same specifically pertain to the classes of business specified in this Article;
and to own and operate mines, plants, factories, mills, warehouses, yards,
merchandise stores, commissaries and all other installations or establishments
of whatever character or description, together with the equipment, rolling stock
and other facilities used or useful in connection with or incidental thereto.
(3) To engage in the business of exploiting natural resources, to
search, prospect and explore for useful or valuable substances, to acquire and
extract such substances, to sell and dispose of such substances, and to refine
such substances and manufacture and sell and dispose of products and by-products
derived therefrom.
(4) To purchase or otherwise acquire, hold, use, sell, assign, lease,
mortgage or in any manner dispose of, and to take, exchange and grant licenses,
or other rights therein, in respect of letters patent of the United States or
any foreign country, patent rights, licenses and privileges, inventions,
improvements, processes, formulae, methods, copyrights, trademarks and trade
names, know how, and trade secrets, relating to or useful in connection with any
business, objects or purposes of the Corporation.
(5) To acquire, by purchase, subscription or otherwise, and to own,
hold, sell and dispose of, exchange, deal in and with stocks, bonds, debentures,
obligations, evidences of indebtedness, promissory notes, mortgages and
securities executed by any individual or by any corporation in Alabama or any
other state or foreign countries, whether public or private, government or
municipality or otherwise, and to issue and exchange for all such stocks, bonds,
debentures, obligations, evidences of indebtedness, promissory notes, mortgages
or securities, the stock, bonds, debentures or other evidences of indebtedness
of the Corporation, and the Corporation shall have express power to hold, sell,
assign, transfer, mortgage, pledge or otherwise dispose of the shares of capital
stock, bonds, debentures, promissory notes, mortgages and securities so acquired
by it and, while the owner thereof, to exercise all the rights, privileges and
powers of ownership, including the right to vote thereon, to the same extent as
a natural person may do, subject to the limitations, if any, on such rights now
or hereafter provided by the laws of Alabama.
(6) To endorse, lend its credit to, or otherwise guarantee, or become
a surety with respect to, or obligate itself for, or pledge or mortgage all or
any part of its properties to secure the payment of the principal and interest,
or either, on any bonds, debentures, notes, scrip, coupons, or other obligations
or evidences of indebtedness (including the obligations of others for whom it
can make guarantees, whether or not a guarantee is made), or the performance of
any contract, lease, mortgage, or obligation, of any subsidiary, affiliated or
related corporation or any other corporation or association, domestic or
foreign, or of any person, firm, partnership or joint venture. Without limiting
the generality of the foregoing, the Corporation may: (i) make contracts of
guarantee and
2
<PAGE>
suretyship and indemnity agreements that are necessary or convenient to the
conduct, promotion or attainment of the business of the Corporation; and (ii)
make contracts of guarantee and suretyship and indemnity agreements that are
necessary or convenient to the conduct, promotion or attainment of the business
of (1) an entity that is wholly owned, directly or indirectly, by the
Corporation; (2) a person that owns, directly or indirectly, all of the
outstanding capital stock of the Corporation; or (3) an entity that is wholly
owned, directly or indirectly, by a person that owns, directly or indirectly,
all of the outstanding capital stock of the Corporation.
(7) To enter into, make and perform contracts of every kind for any
lawful purpose without limit as to amount, with any person, firm, association,
partnership, limited partnership, corporation, municipality, county, state,
territory, government, governmental subdivision, or body politic.
(8) To acquire the good will, rights, assets and properties, and to
undertake the whole or any part of the liabilities of any person, firm,
association or corporation; to pay for the same in cash, the stock or other
securities of the Corporation, or otherwise; to hold, or in any manner dispose
of, the whole or part of the property so acquired; to conduct in any lawful
manner the whole or any part of the business so acquired and to exercise all the
powers necessary or convenient in and about the conduct and management of any
such business.
(9) To borrow and lend money, without security, or upon the giving or
receipt of such security as the Board of Directors of the Corporation may deem
advisable by way of mortgage, pledge, transfer, assignment, or otherwise, of
real and personal property of every nature and description, or by way of
guaranty, or otherwise, and to enter into revolving credit agreements or other
loan agreements of any kind with banks or other financial or institutional
investors.
(10) To draw, make, accept, endorse, discount, execute and issue
promissory notes, drafts, bills of exchange, warrants, debentures and other
negotiable or transferable instruments.
(11) To issue bonds, debentures or other securities or obligations
and to secure the same by mortgage, pledge, deed of trust, or otherwise.
(12) To act as agent, jobber, broker or attorney-in-fact in buying,
selling and dealing in real and personal property of every nature and
description and leases respecting the same and estates and interests therein and
mortgages and securities thereon, in making and obtaining loans, whether secured
by such property or not, and in supervising, managing and protecting such
property and loans and all interests in and claims affecting the same.
(13) To purchase, take, receive, redeem, exchange, or otherwise
acquire, hold, own, pledge, transfer or otherwise dispose of the Corporation's
own shares of common or other stock, whether or not redeemable (so far as may be
permitted by law),
3
<PAGE>
and its bonds, debentures, notes, scrip or other securities or evidences of
indebtedness, and to hold, sell, transfer or reissue the same.
(14) To enter into any plan or project for the assistance and welfare
of its employees, to lend money and use its credit to assist its employees, and
to pay pensions and establish pension plans, pension trusts, profit sharing
plans, stock bonus plans, stock option plans, employee stock ownership plans and
other incentive or welfare plans for any or all of the Corporation's directors,
officers and employees.
(15) To enter into any lawful arrangements for sharing of profits,
union of interest, reciprocal concession, or cooperation, as partner (general or
limited), joint venturer, or otherwise, with any person, partnership,
corporation, association, combination, organization, entity or other body
whatsoever, domestic or foreign, carrying on or proposing to carry on any
business which the Corporation is authorized to carry on, or any business or
transaction deemed necessary, convenient or incidental to the carrying out of
any of the purposes of the Corporation.
(16) To have one or more offices to carry on all of the Corporation's
operations and business without restriction or limit as to amount, in any of the
states, districts, territories or possessions of the United States, and in any
and all foreign countries, subject to the laws of such state, district,
territory, possession, or country.
(17) To do any and all of the things herein set out and such other
things as are incidental or conducive to the attainment of the objects and
purposes of the Corporation, to the same extent as natural persons might or
could do and in any part of the world, as principal, factor, agent, contractor,
or otherwise, either alone or in conjunction with any person, firm, association,
partnership, corporation or any entity of whatsoever kind, and to do any and all
such acts and things and to have and exercise any and all such powers to the
full extent authorized or permitted to a corporation under any laws that may now
or hereafter be applicable or available to the Corporation.
(c) CONSTRUCTION. The foregoing clauses, and each phrase thereof, shall
------------
be construed, in their broadest sense, not only as purposes and objects for
which the Corporation has been organized, but also as powers of the Corporation
in addition to those powers specifically conferred upon the Corporation by law,
and it is hereby expressly provided that the foregoing specific enumeration of
such purposes, objects and powers shall not be held to limit or restrict in any
manner the powers of the Corporation otherwise granted by law. All words,
phrases and provisions in this Article are used in their broadest sense, are not
limited by reference to, or inference from, any other words, phrases or
provisions and shall be so construed. For purposes of these Articles of
Incorporation, the term "person" means and includes any individual or entity.
3. SHARES.
------
The Board of Directors of the Corporation deems it to be desirable and in
the best interests of the Corporation to further amend and restate the
Corporation's Amended and
4
<PAGE>
Restated Articles of Incorporation to increase the authorized capital stock of
the Corporation and to effect a reverse stock split of the shares of Series B
Preferred Stock, par value $.01 per share. Upon these Amended and Restated
Articles of Incorporation becoming effective in accordance with the Alabama
Business Corporation Act, every issued and outstanding share of Series B
Preferred Stock shall be changed into 1/100th of a validly issued, fully paid
and nonassessable share of Series B Preferred Stock, par value $.01 per share.
Fractional shares resulting from such reverse split will be issued, and no cash
will be paid in lieu thereof.
(a) AUTHORIZED SHARES. The total number of shares of all classes of stock
-----------------
which the Corporation shall have authority to issue is 1,100,000, consisting of
250,000 shares of Common Stock, par value $.01 per share (the "Common Stock"),
and 850,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"). The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. Except as otherwise provided below with
respect to the Series A Preferred Stock and Series B Preferred Stock, the Board
of Directors is authorized to determine and alter the preferences, limitations
and relative rights (including, without limitation, voting rights and powers)
and restrictions granted to and imposed upon the Preferred Stock or any series
thereof with respect to any wholly unissued class or series of Preferred Stock,
and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of any series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
(b) DESIGNATION OF COMMON STOCK. The following is a statement of the
---------------------------
designations and powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of the Common Stock:
(1) Dividends. Subject to the preferential rights, if any, of the
---------
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of Common Stock.
(2) Voting Rights. Except as otherwise required by law or as
-------------
otherwise provided in this Article, at every annual or special meeting of
shareholders of the Corporation, every holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock standing in
his name on the books of the Corporation.
(3) Liquidation, Dissolution or Winding-Up. In the event of any
--------------------------------------
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, after payment or provision for payment of the debts and
other liabilities of the
5
<PAGE>
Corporation and of the preferential amounts, if any, to which the holders of
Preferred Stock shall be entitled, the holders of all outstanding shares of
Common Stock shall be entitled to share ratably in the remaining net assets of
the Corporation.
(c) DESIGNATION OF SERIES A PREFERRED STOCK. The following is a statement
---------------------------------------
of the designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of the Series A
Preferred Stock:
(1) Designation. A series of the Preferred Stock of the Corporation
-----------
is hereby designated as "Series A Preferred Stock" (hereinafter called the
"Series A Preferred Stock") consisting initially of 40,000 shares. Shares of
the Series A Preferred Stock shall rank prior to the Corporation's Common Stock
with respect to the payment of dividends and upon liquidation, dissolution,
winding-up or otherwise. Unless specifically designated as junior to the Series
A Preferred Stock with respect to the payment of dividends or upon liquidation,
dissolution, winding-up or otherwise, all other series of Preferred Stock and
other classes of preferred stock of the Corporation shall rank on parity with
the Series A Preferred Stock with respect thereto.
(2) Dividends.
---------
(i) Each holder of shares of Series A Preferred Stock will be
entitled to receive dividends on each such share, at the rate of ten and
one-half percent (10 1/2%) per annum (computed on the basis of $200.00 per
share), if, as and when declared by the Board of Directors of the
Corporation, out of funds legally available for the payment of dividends,
in respect of the period from and including the date of the original
issuance of each such share of Series A Preferred Stock, to and including
June 30, 1998 (the "Initial Dividend Period"), and for each quarterly
dividend period thereafter ("Quarterly Dividend Period") which Quarterly
Dividend Periods shall commence on July 1, October 1, January 1 and April 1
in each year and shall end on and include the day immediately preceding the
first day of the next Quarterly Dividend Period. Dividends on the shares of
Series A Preferred Stock shall be payable on June 30, September 30,
December 31 and March 31 of each year (a "Dividend Payment Date"),
commencing June 30, 1998. Each such dividend shall be paid to the holders
of record of the Series A Preferred Stock as they shall appear on the stock
register of the Corporation on such record date, not exceeding 45 days nor
less than 10 days preceding such Dividend Payment Date, as shall be fixed
by the Board of Directors of the Corporation or a duly authorized committee
thereof. Such dividends shall be payable in cash up to June 1, 1999, but
shall thereafter only accrue and compound as provided below.
If, on any Dividend Payment Date, the holders of the Series A
Preferred Stock shall not have received the full dividends provided for in
cash, then such dividends shall cumulate, whether or not earned or
declared, with additional dividends thereon, compounded quarterly, at the
dividend rate of six percent (6%)
6
<PAGE>
per annum (computed on the basis of $200.00 per share), for each succeeding
full Quarterly Dividend Period during which such dividends shall remain
unpaid.
(ii) The amount of any dividends accrued on any share of the
Series A Preferred Stock on any Dividend Payment Date shall be deemed to be
the amount of any unpaid dividends accumulated thereon, to and including
such Dividend Payment Date, whether or not earned or declared. The amount
of dividends accrued on any share of the Series A Preferred Stock on any
date other then a Dividend Payment Date shall be deemed to be the sum of
(i) the amount of any unpaid dividends accumulated thereon, to and
including the last preceding Dividend Payment Date, whether or not earned
or declared, (ii) an amount determined by. multiplying (a) $200.00 by (b)
the result (the "Multiplier") of multiplying two and five-eighths percent
(2 5/8%) by a fraction, the numerator of which shall be the number of days
from the last preceding Dividend Payment Date, to and including the date on
which such calculation is made, and the denominator of which shall be the
full number of days in such Quarterly Dividend Period, and (iii) an amount
determined by multiplying the amount set forth in clause (i) above by the
Multiplier.
(iii) Declaration Prior to Redemption or Liquidation.
----------------------------------------------
Immediately prior to authorizing or making any distribution in redemption
or liquidation with respect to the Series A Preferred Stock (other than a
purchase or acquisition of Series A Preferred Stock pursuant to a purchase
or exchange offer made on the same terms to (holders of all outstanding
Series A Preferred Stock), the Board of Directors shall, to the extent of
any funds legally available therefor, declare a dividend in cash on the
Series A Preferred Stock, payable on the distribution date in the amount
equal to any accrued and unpaid dividends on the Series A Preferred Stock
as of such date.
(3) Redemption.
----------
(i) Optional Redemption. Prior to June 1, 1999, the Series A
-------------------
Preferred Stock may be redeemed, in whole or in part, at any time at the
election of the Corporation by resolution of its Board of Directors, on
notice as set forth in subsection 3(iii), below, at the redemption price of
$200.00 per share of Series A Preferred Stock, plus an amount equal to
accrued and unpaid dividends to the redemption date (the "Redemption
Price").
In the event that at any time less than all of the Series A
Preferred Stock outstanding is to be redeemed, the shares to be redeemed
will be redeemed pro rata. Notwithstanding anything to the contrary, the
Corporation may not redeem less than all of the Series A Preferred Stock
outstanding unless all accrued and unpaid dividends have been paid on all
then outstanding shares of Series A Preferred Stock.
7
<PAGE>
(ii) Mandatory Redemption. Upon the first to occur of (i) an
--------------------
initial public offering of the Common Stock of the Corporation, (ii) the
sale of all or substantially all of the assets of the Corporation or (iii)
any sale, transfer or issuance or series of sales, transfers or issuances
of the Corporation's capital stock by the Corporation or any holders
thereof which results in any person, entity or group of persons (as such
term "group" is used under the Securities Exchange Act of 1934, as amended)
(other than the holders of Common Stock as of the date of the closing of
the transactions pursuant to that certain Stock Purchase Agreement dated as
of May 29, 1998 by and among the Corporation and certain other parties
named therein), owning more than 50% of the stock of the Corporation
possessing the voting power (under ordinary circumstances) to elect a
majority of the Corporation's Board of Directors, the Corporation, shall
redeem all remaining outstanding shares of Series A Preferred Stock at a
redemption price per share equal to the Redemption Price.
(iii) Notice of Redemption. Notice of any redemption pursuant
--------------------
to this Section shall be mailed, postage prepaid, at least 15 days but not
more than 60 days prior to said redemption date to each holder of record of
the Series A Preferred Stock to be redeemed at its address as the same
shall appear on the stock register of the Corporation. Each such notice
shall state: (1) the date fixed for such redemption, (2) the place or
places where certificates for such shares of Series A Preferred Stock are
to be surrendered for payment, (3) the Redemption Price, and (4) that
unless the Corporation defaults in making the redemption payment, dividends
on the shares of Series A Preferred Stock called for redemption shall cease
to accrue on and after the date of redemption. If less than all the shares
of the Series A Preferred Stock owned by such holder are then to be
redeemed, such notice shall also specify the number of shares thereof which
are to be redeemed and the numbers of the certificates representing such
shares.
If such notice of redemption shall have been so mailed and if
prior to the date of redemption specified in such notice, all said funds
necessary for such redemption shall have been irrevocably deposited in
trust, for the account of the holders of the shares of the Series A
Preferred Stock to be redeemed (and so as to be and continue to be
available therefor), with a bank or trust company named in such notice
doing business in Los Angeles, California and having capital surplus and
undivided profits of at least $50,000,000, thereupon, and without awaiting
the redemption date, all shares of the Series A Preferred Stock with
respect to which such notice shall have been so mailed and such deposit
shall have been so made, shall, notwithstanding that any certificate for
shares of Series A Preferred Stock shall not have been surrendered for
cancellation, be deemed to be no longer outstanding and all rights with
respect to such shares of the Series A Preferred Stock shall forthwith upon
such deposit in trust cease and terminate, except for the right of the
holders thereof on or after the redemption date to receive from such
deposit the amount payable upon the redemption, but without interest. In
case the holders of shares of the Series A Preferred Stock which shall have
been called for
8
<PAGE>
redemption shall not within two years (or any longer period if required by
law) after the redemption date claim any amount so deposited in trust for
the redemption of such shares, such bank or trust company shall, if
permitted by applicable law, pay over to the Corporation any such unclaimed
amount so deposited with it, and shall thereupon be relieved of all
responsibility in respect, thereof, and thereafter the holders of such
shares shall, subject to applicable escheat laws, look only to the
Corporation for payment of the redemption price thereof, but without
interest.
(iv) Status of Shares. Shares of Series A Preferred Stock
----------------
redeemed, purchased or otherwise acquired by the Corporation shall, after
such acquisition, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as
shares of any series of Preferred Stock, other than shares of Series A
Preferred Stock.
(4) Priority.
--------
(i) Priority as to Dividends. Subject to subsection (ii) below,
------------------------
no dividends (other than dividends payable in Common Stock or in another
stock ranking, with respect to the payment of dividends and upon
liquidation, dissolution, winding-up or otherwise, junior to, or on a
parity with, the Series A Preferred Stock) shall be declared or paid or set
apart for payment on the Preferred Stock of any series, or stock of any
other class which, in either case, ranks, as to dividends and upon
liquidation, dissolution, winding up or otherwise, (x) junior to the Series
A Preferred Stock ("Junior Stock") or (y) on a parity with the Series A
Preferred Stock ("Parity Stock") for any period unless at the time of such
declaration or payment or setting apart for payment (i) full cumulative
dividends have been or contemporaneously are declared and paid (or declared
and a sum sufficient for the payment thereof set apart for such payment) on
the Series A Preferred Stock for the Initial Dividend Period and all
Quarterly Dividend Periods terminating on or prior to the date of payment
of such dividends on Junior Stock or Parity Stock, (ii) the Corporation
shall not be in default with respect to any obligation to redeem shares of
Series A Preferred Stock, and (iii) an amount equal to the dividends
accrued on the Series A Preferred Stock from the last Dividend Payment Date
to the date of payment of such dividends on Junior Stock or Parity Stock
has been declared and set apart in cash for payment on the Series A
Preferred Stock.
(ii) Notwithstanding anything to the contrary in subsection (i)
hereof, cumulative dividends on any Parity Stock may be paid if cumulative
dividends shall be declared upon shares of Series A Preferred Stock and
such Parity Stock on a pro rata basis so that in all cases the amount of
dividends declared per share on the Series A Preferred Stock and such
Parity Stock shall bear to each other the same ratio that accrued dividends
per share on the shares of Series A Preferred Stock and on such Parity
Stock bear to each other.
9
<PAGE>
(iii) Priority on Redemption. The Corporation shall not,
----------------------
directly or indirectly, redeem or purchase or otherwise acquire for value
any Junior Stock or Parity Stock unless, at the time of making such
redemption, purchase or other acquisition the Corporation shall have
redeemed, or shall contemporaneously redeem, all of the then outstanding
shares of Series A Preferred Stock at the applicable redemption price (or
shall have irrevocably committed to redeem all of the then outstanding
shares of Series A Preferred Stock and have set aside a sum sufficient for
the payment thereof at the applicable Redemption Price on the date of such
subsequent redemption).
(5) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of shares of the Series A Preferred Stock shall be
entitled to receive for each share of Series A Preferred Stock then held,
out of the assets of the Corporation, whether such assets are capital or
surplus and whether or not any dividends as such are declared, an amount
equal to the applicable Redemption Price on the date fixed for
distribution, and no more, before any distribution shall be made to the
holders of the Common Stock or Junior Stock with respect to the
distribution of assets.
If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the assets of the Corporation distributable
among the holders of all outstanding shares of the Series A Preferred Stock
and of any Parity Stock shall be insufficient to permit the payment in full
to such holders of the preferential amounts to which they are entitled,
then the entire assets of the Corporation remaining after the payment or
provision for payment of the debts and other liabilities of the Corporation
shall be distributed among the holders of the Series A Preferred Stock and
of any Parity Stock ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
(ii) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a
payment date and the place where the distributive amounts shall be payable,
shall be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to the holders of record of the Series A
Preferred Stock at their respective addresses as the same shall appear on
the books of the Corporation.
(iii) No payment on account of such liquidation, dissolution or
winding up of the affairs of the Corporation shall be made to the holders
of any Parity Stock, unless there shall likewise be paid at the same time
to the holders, of the Series A Preferred Stock like proportionate
distributive amounts, ratably, in
10
<PAGE>
proportion to the full distributive amounts to which they and the holders
of such Parity Stock are respectively entitled with respect to such
preferential distribution.
(6) Voting Rights. The holders of the Series A Preferred Stock shall
-------------
not be entitled to vote on any matter.
(d) DESIGNATION OF SERIES B PREFERRED STOCK. The following is a statement
---------------------------------------
of the designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of the Series B
Preferred Stock:
(1) Designation. A series of the Preferred Stock of the Corporation
-----------
is hereby designated as "Series B Preferred Stock" (hereinafter called the
"Series B Preferred Stock") consisting initially of 810,000 shares. Shares of
the Series B Preferred Stock shall rank prior to the Corporation's Common Stock
with respect to the payment of dividends and upon liquidation, dissolution,
winding-up or otherwise. Unless specifically designated as junior to the Series
B Preferred Stock with respect to the payment of dividends or upon liquidation,
dissolution, winding-up or otherwise, all other series of Preferred Stock and
other classes of preferred stock of the Corporation shall rank on parity with
the Series B Preferred Stock with respect thereto.
(2) Dividends.
---------
(i) Each holder of shares of Series B Preferred Stock will be
entitled to receive dividends on each such share, at the rate of six
percent (6%) per annum (computed on the basis of $100.00 per share), if, as
and when declared by the Board of Directors of the Corporation, out of
funds legally available for the payment of dividends, in respect of the
period from and including the date of the original issuance of each such
share of Series B Preferred Stock, to and including June 30, 1998 (the
"Initial Dividend Period"), and for each quarterly dividend period
thereafter ("Quarterly Dividend Period") which Quarterly Dividend Periods
shall commence on July 1, October 1, January 1 and April 1 in each year and
shall end on and include the day immediately preceding the first day of the
next Quarterly Dividend Period. Dividends on the shares of Series B
Preferred Stock shall be payable on June 30, September 30, December 31 and
March 31 of each year (a "Dividend Payment Date"), commencing June 30,
1998. Each such dividend shall be paid to the holders of record of the
Series B Preferred Stock as they shall appear on the stock register of the
Corporation on such record date, not exceeding 45 days nor less than 10
days preceding such Dividend Payment Date, as shall be fixed by the Board
of Directors of the Corporation or a duly authorized committee thereof.
If, on any Dividend Payment Date, the holders of the Series B
Preferred Stock shall not have received the full dividends provided for in
this Section 3 in cash, then such dividends shall cumulate, whether or not
earned or declared, with additional dividends thereon, compounded
quarterly, at the dividend
11
<PAGE>
rate of six percent (6%) per annum, for each succeeding full Quarterly
Dividend Period during which such dividends shall remain unpaid.
(ii) The amount of any dividends accrued on any share of the
Series B Preferred Stock on any Dividend Payment Date shall be deemed to be
the amount of any unpaid dividends accumulated thereon, to and including
such Dividend Payment Date, whether or not earned or declared. The amount
of dividends accrued on any share of the Series B Preferred Stock on any
date other then a Dividend Payment Date shall be deemed to be the sum of
(i) the amount of any unpaid dividends accumulated thereon, to and
including the last preceding Dividend Payment Date, whether or not earned
or declared, (ii) an amount determined by multiplying (a) $100.00 by (b)
the result (the "Multiplier") of multiplying one and one-half percent (1
1/2%) by a fraction, the numerator of which shall be the number of days
from the last preceding Dividend Payment Date, to and including the date on
which such calculation is made, and the denominator of which shall be the
full number of days in such Quarterly Dividend Period, and (iii) an amount
determined by multiplying the amount set forth in clause (i) above by the
Multiplier.
(iii) Declaration Prior to Liquidation. Immediately prior to
--------------------------------
authorizing or making any distribution in liquidation with respect to the
Series B Preferred Stock (other than a purchase or acquisition of Series B
Preferred Stock pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Series B Preferred Stock), the Board of
Directors shall, to the extent of any funds legally available therefor,
declare a dividend in cash on the Series B Preferred Stock payable on the
distribution date in the amount equal to any accrued and unpaid dividends
on the Series B Preferred Stock as of such date.
(3) Prohibition on Redemption. The Company has no right to redeem any
--------------------------
shares of Series B Preferred Stock and no holder of shares of Series B Preferred
Stock has any right to require the Company to redeem such holder's shares of
Series B Preferred Stock.
(4) Priority.
--------
(i) Priority as to Dividends. Subject to subsection (ii) below,
-------------------------
no dividends (other than dividends payable in Common Stock or in another
stock ranking, with respect to the payment of dividends and upon
liquidation, dissolution, winding-up or otherwise, junior to, or on a
parity with, the Series B Preferred Stock) shall be declared or paid or set
apart for payment on the Preferred Stock of any series, or stock of any
other class which, in either case, ranks, as to dividends and upon
liquidation, dissolution, winding up or otherwise, (x) junior to the Series
B Preferred Stock ("Junior Stock") or (y) on a parity with the Series B
Preferred Stock ("Parity Stock") for any period unless at the time of such
declaration or payment or setting apart for payment (i) full cumulative
dividends have been or
12
<PAGE>
contemporaneously are declared and paid (or declared and a sum sufficient
for the payment thereof set apart for such payment) on the Series B
Preferred Stock for all Dividend Periods terminating on or prior to the
date of payment of such dividends on Junior Stock or Parity Stock, and (ii)
an amount equal to the dividends accrued on the Series B Preferred Stock
from the last Dividend Payment Date to the date of payment of such
dividends on Junior Stock or Parity Stock has been declared and set apart
in cash for payment on the Series B Preferred Stock.
(ii) Notwithstanding anything to the contrary in subsection (i)
above, cumulative dividends on any Parity Stock may be paid if cumulative
dividends shall be declared upon shares of Series B Preferred Stock and
such Parity Stock on a pro rata basis so that in all cases the amount of
dividends declared per share on the Series B Preferred Stock and such
Parity Stock shall bear to each other the same ratio that accrued dividends
per share on the shares of Series B Preferred Stock and on such Parity
Stock bear to each other.
(5) Liquidation Preference.
----------------------
(i) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
Corporation, the holders of shares of the Series B Preferred Stock shall be
entitled to receive for each share of Series B Preferred Stock then held,
out of the assets of the Corporation, whether such assets are capital or
surplus and whether or not any dividends as such are declared, an amount
equal to $100.00 per share of Series B Preferred Stock, plus an amount
equal to accrued and unpaid dividends thereon, on the date fixed for
distribution, and no more, before any distribution shall be made to the
holders of the Common Stock or Junior Stock with respect to the
distribution of assets.
If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation, the assets of the Corporation distributable
among the holders of all outstanding shares of the Series B Preferred Stock
and of any Parity Stock shall be insufficient to permit the payment in full
to such holders of the preferential amounts to which they are entitled,
then the entire assets of the Corporation remaining after the payment or
provision for payment of the debts and other liabilities of the Corporation
shall be distributed among the holders of the Series B Preferred Stock and
of any Parity Stock ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.
(ii) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a
payment date and the place where the distributive amounts shall be payable,
shall be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein,
13
<PAGE>
to the holders of record of the Series B Preferred Stock at their respective
addresses as the same shall appear on the books of the Corporation.
(iii) No payment on account of such liquidation, dissolution or
winding up of the affairs of the Corporation shall be made to the holders
of any Parity Stock, unless there shall likewise be paid at the same time
to the holders of the Series B Preferred Stock like proportionate
distributive amounts, ratably, in proportion to the full distributive
amounts to which they and the holders of such Parity Stock are respectively
entitled with respect to such preferential distribution.
(6) Voting Rights. Except as otherwise required by law, the holders
--------------
of the Series B Preferred Stock shall be entitled to vote along with the Common
Stock (and not as a separate class) on all matters and shall be entitled to one
vote per share of Series B Preferred Stock.
(e) DENIAL OF SHAREHOLDER'S PREEMPTIVE RIGHTS. Except as otherwise
-----------------------------------------
provided in any agreement among the Corporation and its shareholders, no
shareholder shall be entitled as a matter of right to subscribe for, purchase,
or receive any shares of stock, or other securities convertible into stock, of
the Corporation which it may issue, or sell, whether such shares are now or
hereafter authorized, but all such additional shares of stock or other
securities may be issued and disposed of by the Board of Directors to such
persons and upon such terms as in its absolute discretion it may deem advisable.
No shareholder of any shares of stock shall have any preemptive rights with
respect to the issuance of any class of stock, including treasury shares.
(f) SHAREHOLDERS' AGREEMENT; RESTRICTIONS ON TRANSFER. The Bylaws of the
-------------------------------------------------
Corporation, an agreement among shareholders of the Corporation, or an agreement
between such shareholders and the Corporation may impose restrictions on the
transfer or registration of transfer of shares of the Corporation, and notice is
hereby given that any such bylaw provision or agreement may exist restricting
the transfer or registration of transfer of shares of the Corporation. If such
bylaw provision or agreement exists, the restriction on transfer or registration
of transfer of shares of the Corporation imposed thereby will be noted
conspicuously on the front or back of the certificate or certificates evidencing
the shares to which the restriction relates. Even if not so noted, such a
restriction is enforceable against a person with actual knowledge of the
restriction. The Corporation may, from time to time, lawfully enter into any
agreement to which all, or less than all, of the holders of record of the issued
and outstanding shares of the Corporation shall be parties, restricting the
transfer of any or all shares upon such reasonable terms and conditions as may
be approved by the Board of Directors of the Corporation, and containing such
other provisions and agreements between the Corporation and its shareholders, or
among the shareholders, as may be permitted by the Act.
(g) LIEN ON SHARES. The Corporation shall have a lien on its shares for
--------------
any debt or liability incurred to it by its shareholders on account of
subscription obligations of such shareholders for the payment of newly issued
shares of the Corporation before notice
14
<PAGE>
of transfer of or levy on such shares,
which lien may be exercised by cancellation, forfeiture, or public or private
sale, upon reasonable notice, of such shares, which remedies are cumulative to
an action to enforce payment or other remedies provided by law.
4. REGISTERED OFFICE AND AGENT. The street address of the registered
---------------------------
office of the Corporation, and the name of its registered agent at such
address are as follows:
CSC - Lawyers Incorporating Services Incorporated
57 Adams Avenue
Montgomery, Alabama 36104-4045
5. DIRECTORS.
---------
(a) AUTHORITY OF THE BOARD OF DIRECTORS. All corporate powers shall be
-----------------------------------
exercised by or under the authority of, and the business and affairs of the
Corporation managed under the direction of, its Board of Directors, subject to
any limitations set forth in these Articles of Incorporation or in an agreement
authorized under the Act.
(b) NUMBER OF DIRECTORS. The number of directors shall be as set forth in,
-------------------
or as determined in accordance with, the Bylaws. The number of directors may be
increased or decreased from time to time by amendment to the Bylaws or in the
manner provided for therein.
(c) INITIAL BOARD OF DIRECTORS. The names and addresses of the persons who
--------------------------
served as the initial directors are listed in the original Articles of
Incorporation.
(d) LIMITATION ON LIABILITY OF DIRECTORS. A director of the Corporation
------------------------------------
shall have no personal liability to the Corporation or its shareholders for
money damages for any action taken, or any failure to take any action, as a
director, except liability for (i) the amount of any financial benefit received
by a director to which he or she is not entitled; (ii) an intentional infliction
of harm on the Corporation or the shareholders; (iii) a violation of Section 10-
2B-8.33 of the Act as the same now exists or may hereafter be amended; (iv) an
intentional violation of criminal law; or (v) a breach of the director's duty of
loyalty to the Corporation or its shareholders. If the Act, or any successor
statute thereto, is hereafter amended to authorize the further elimination or
limitation of the liability of a director of a corporation, then the liability
of a director of the Corporation, in addition to the limitations on liability
provided herein, shall be limited to the fullest extent permitted by the Act, as
amended, or any successor statute thereto. No amendment to or repeal of this
Section shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal.
15
<PAGE>
6. INDEMNIFICATION.
---------------
(a) In amplification and not in limitation of applicable provisions of the
Act:
(1) Except as provided in subsection (4) of this Section (a), the
Corporation (which term, for purposes of this Article, includes any domestic or
foreign predecessor entity of the Corporation in a merger or other transaction
in which the predecessor's existence ceased upon consummation of the
transaction) shall indemnify an individual who is or was a director, officer,
employee or agent of the Corporation or an individual who, while a director,
officer, employee or agent of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Indemnitee", which term
includes, unless the context requires otherwise, the estate or personal
representative of such individual) who was, is or has threatened to be made a
named defendant or respondent (a "Party") in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (a "Proceeding") because he or she
is or was a director, officer, employee or agent of the Corporation or, while a
director, officer, employee or agent of the Corporation, is or was serving at
the Corporation's request as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against the obligation to pay
a judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan), all reasonable expenses, including counsel
fees, incurred with respect to a Proceeding ("Liability") incurred in the
Proceeding if:
(i) the Indemnitee conducted himself or herself in good faith;
and
(ii) the Indemnitee reasonably believed:
(A) in the case of conduct in his or her Official Capacity
(meaning thereby (y) when used with respect to a director, the office of
director in the Corporation; and (z) when used with respect to an
individual other than a director, the office in the Corporation held by an
officer or the employment or agency relationship undertaken by the employee
or agent on behalf of the Corporation; "Official Capacity" does not include
service for any other foreign or domestic corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise) with the
Corporation, that the conduct was in its best interest; and
(B) in all other cases that the conduct was at least not
opposed to its best interest; and
(iii) in case of any criminal Proceeding the Indemnitee had no
reasonable cause to believe his or her conduct was unlawful.
16
<PAGE>
(2) An Indemnitee is considered to be serving an employee benefit
plan at the Corporation's request if his or her duties to the Corporation also
impose duties on, or otherwise involve services by, the Indemnitee to the plan
or to participants in or beneficiaries of the plan. An Indemnitee's conduct with
respect to an employee benefit plan for a purpose he or she reasonably believed
to be in the interests of the participants in, and beneficiaries of, the plan is
conduct that satisfies the requirement of subsection (1)(ii)(B) of this Section
(a).
(3) The termination of a Proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the Indemnitee did not meet the standard of
conduct described in this Section (a).
(4) The Corporation shall not indemnify an Indemnitee under this
Section:
(i) in connection with a Proceeding by or in the right of the
Corporation in which the Indemnitee was adjudged liable to the Corporation;
or
(ii) in connection with any other Proceeding charging improper
personal benefit to the Indemnitee, whether or not involving action in his
or her Official Capacity, in which the Indemnitee was adjudged liable on
the basis that personal benefit was improperly received by him or her.
(5) Indemnification permitted under this Section in connection
with a Proceeding by or in the right of the Corporation is limited to reasonable
expenses, including counsel fees, incurred in connection with the Proceeding.
(b) The Corporation shall indemnify an Indemnitee who was successful, on
the merits or otherwise, in the defense of any Proceeding, or of any claim,
issue or matter in such Proceeding, where he or she was a Party because he or
she is or was a director, officer, employee or agent of the Corporation or,
while a director, officer, employee or agent of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against reasonable
expenses, including counsel fees, incurred in connection therewith,
notwithstanding that he or she was not successful on any other claim, issue or
matter in any such Proceeding.
(c) (1) The Corporation may pay for or reimburse the reasonable expenses,
including counsel fees, incurred by an Indemnitee who was a party to a
Proceeding in advance of final disposition of the Proceeding if:
(i) the Indemnitee furnishes the Corporation a written
affirmation of good faith and belief that he or she has met the standard of
conduct described in Section (a)(1) above;
17
<PAGE>
(ii) the Indemnitee furnishes the Corporation a written
undertaking, executed personally or on the Indemnitee's behalf, to repay
the advance if it is ultimately determined that the Indemnitee did not meet
the standard of conduct, or is not otherwise entitled to indemnification
under section (a)(4) above unless an indemnification is approved by the
court under the provisions of the Act; and
(iii) a determination is made that the facts then known to those
making the determination would not preclude indemnification under this
Article.
(2) The undertaking required by subsection (1)(ii) above must be an
unlimited general obligation of the Indemnitee but need not be secured and may
be accepted without reference to financial ability to make repayment.
(3) Determinations and authorizations of payment under this Section
shall be made in the manner specified in Section (d) below.
(d) (1) The Corporation may not indemnify an Indemnitee under Section (a)
above unless authorized in the specific case after a determination has been made
that indemnification of the Indemnitee is permissible in the circumstances
because the Indemnitee has met the standard of conduct set forth in Section
(a)(1) above.
(2) The determination shall be made:
(i) by the Board of Directors of the Corporation by a majority
vote of a quorum consisting of directors not at the time Parties to the
Proceeding;
(ii) if a quorum cannot be obtained under subdivision (i) above,
by a majority vote of a committee duly designated by the Board of Directors
(in which designation directors who are Parties may participate) consisting
solely of two or more directors not at the time Parties to the Proceeding;
(iii) by special legal counsel;
(A) selected by the Board of Directors or committee in the
manner prescribed in subdivision (i) or (ii) above; or
(B) if a quorum of the Board of Directors cannot be obtained
under subdivision (i) and a committee cannot be designated under
subdivision (ii), selected by a majority vote of the full Board of
Directors (in which selection directors who are Parties may participate);
or
(iv) by the shareholders, but shares owned or voted under the
control of Indemnitees who are at the time Parties to the Proceeding may
not be voted on the determination. A majority of the shares that are
entitled to vote on the transaction by virtue of not being owned by or
under the control of such
18
<PAGE>
Indemnitees constitutes a quorum for the purpose of taking action under this
Section (d).
(3) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(2)(iii) above to select counsel.
(e) The Corporation may purchase and maintain insurance, or furnish similar
protection (including but not limited to trust funds, self-insurance reserves or
the like), on behalf of an individual who is or was a director, officer,
employee or agent of the Corporation, who, while a director, officer, employee
or agent of the Corporation, is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, against Liability asserted against or incurred by him
or her in that capacity or arising from his or her status as a director,
officer, employee or agent, whether or not the Corporation would have the power
to indemnify him or her against the same Liability under Sections (a) or (b)
above.
(f) Any indemnification, or advance for expenses, authorized under this
Article shall not be deemed exclusive of and shall be in addition to that which
may be contained in the Corporation Bylaws, a resolution of its shareholders or
Board of Directors, or in a contract or otherwise.
(g) This Article does not limit the Corporation's power to pay or reimburse
expenses incurred by an Indemnitee in connection with the Indemnitee's
appearance as a witness in a Proceeding at a time when he or she has not been
made or named defendant or respondent to the Proceeding.
7. BYLAWS; AMENDMENT OF ARTICLES.
-----------------------------
(a) BYLAWS. The initial Bylaws of the Corporation shall be adopted by the
------
Board of Directors. The power to alter, amend or repeal the Bylaws or adopt new
Bylaws shall be vested in the Board of Directors, which power may be exercised
in the manner and to the extent provided in the Bylaws; provided, however, that
the Bylaws so altered, amended or repealed by the Board of Directors may be
altered, amended or repealed by the shareholders; and provided further, that the
Board of Directors may not alter, amend or repeal any bylaw or resolution that
was adopted by the shareholders and specifically provides that it cannot be
altered, amended or repealed by the Board of Directors. The Bylaws may contain
any provision for the regulation of the business and affairs of the Corporation
that is not inconsistent with law or these Articles of Incorporation.
(b) AMENDMENT OF ARTICLES. The Corporation reserves the right to amend,
---------------------
alter, change or repeal any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed or permitted by the Act,
and all rights conferred upon
19
<PAGE>
officers, directors and shareholders herein are granted subject to such
reservation. Any such amendment for which voting by voting group is required by
the Act shall be effective only if each voting group approves in addition to
approval of all shareholders entitled to vote.
8. SUBSEQUENTLY ADOPTED CORPORATION LAWS. Any and every statute of the State
-------------------------------------
of Alabama hereinafter enacted whereby the rights, powers and privileges of the
shareholders of corporations organized under the general laws of the State of
Alabama are increased, diminished or in any way affected, or whereby effect is
given to the action taken by any part but less than all of the shareholders of
any such corporation, shall apply to the Corporation and to every shareholder
thereof, to the same extent as if such statute had been in force at the date of
the making and filing of these Articles of Incorporation.
THIRD: The foregoing Amended and Restated Articles of Incorporation were
- -----
unanimously adopted by the shareholders and the directors of the Corporation on
July 7, 1998 pursuant to Ala. Code (S)(S) 10-2B-10.03, 10-2B-10.06 and 10-2B-
10.07 (1994).
FOURTH: The number of shares of Common Stock and Series B Preferred Stock of
- ------
the Corporation outstanding at the time of the adoption of the foregoing Amended
and Restated Articles of Incorporation were 85,897 and 374,391.024,
respectively, and the number of shares entitled to vote thereon was in the
aggregate 460,288.024. The number of shares voting in favor of the Amended and
Restated Articles of Incorporation was 460,288.024 and the number of shares
voting against the Amended and Restated Articles of Incorporation was zero (0).
20
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Amended and
Restated Articles of Incorporation to be signed by its Assistant Secretary on
July 8, 1998.
/s/ John W.Cash
----------------
John Cash
Assistant Secretary
The foregoing document was prepared by:
Mary J. Yoo, Esq.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
21
<PAGE>
BY LAWS
ARTICLE I
NAME AND PLACE OF BUSINESS
--------------------------
A. Name. The name of the corporation is City Truck & Trailer Parts, Inc.
----
B. Principal Office. The principal office shall be located in Birmingham,
----------------
Jefferson County, Alabama.
B. Other Offices. Other offices for the transaction of business shall be
-------------
located at such places as the business of the corporation may require.
ARTICLE II
CAPITAL STOCK
-------------
A. Certificates. Every stockholder shall be entitled to a certificate or
------------
certificates of stock of the corporation, duly numbered, bearing the corporate
seal, setting forth the number and kind of shares, and signed by the President
or Vice President and by the Treasurer or Secretary.
B. Transfer of Shares. Shares of stock of the corporation shall be
------------------
transferable on the stock transfer book of the corporation only upon surrender
and cancellation of the certificates thereof, properly endorsed or accompanied
by written assignment or power of attorney as provided by law, and bearing all
necessary trasfer tax stamps properly affixed and cancelled, whereupon new
certificates for a like number of shares will be issued. The person registered
on the stock transfer book of the corporation as the owner of any shares of
stock may be treated by the corporation as entitled to all rights of ownership
with respect to such shares.
C. Stock Transfer Book. The stock transfer book of the corporation shall
-------------------
be closed against transfers for ten days before the date of payment of a
dividend and for ten days before the date of the annual meeting of stockholders.
It shall be the duty of every stockholder to notify the corporation of his
correct post office address.
D. Treasury Stock. Treasury stock held by'the corporation shall be
--------------
subject to disposal by the Board of Directors and shall be entitled to neither
vote nor to participate in dividends.
<PAGE>
E. Lost Certificates. No new certificates shall be issued in lieu of a
-----------------
lost or destroyed certificate except upon satisfactory proof of such loss or
destruction and upon the giving of satisfactory security against loss to the
corporation. Any such new certificate shall be plainly marked "Duplicate" upon
its fact.
F. Corporate Lien. If any stockholder be indebted to the corporation, the
--------------
corporation shall have a first lien upon all dividends declared on shares of its
stock owned by such stockholders; and shall also have a first lien on such
shares of its stock owned by such stockholder as the certificates representative
thereof state the existence of such lien.
ARTICLE III
SEAL
----
The seal of the corporation shall be in the form impressed hereon.
ARTICLE IV
DIVIDENDS AND FINANCE
---------------------
A. Dividends. The Board of Directors shall determine from time to time
---------
the amount of the profits of the corporation to be reserved as working capital
or for any other lawful purpose and shall determine what part, if any, of the
annual net profits of the corporation or of its net assets in excess of its
capital shall be declared in dividends; provided, however, that no dividend
shall be paid that will impair the capital of the corporation.
B. Finance. The funds of the corporation shall be deposited in such
-------
banks and trust companies as the Board of Directors shall designate. All orders
for the payment of money, notes, and other evidences of indebtedness issued in
the name of the corporation shall be signed by such officers or agents as the
Board of Directors shall designate.
ARTICLE V
STOCKHOLDERS' MEETINGS
----------------------
A. Place. All meetings of stockholders of the corporation shall be held
-----
at the principal office of the corporation or at such other places as may be
legally designated by the Board of Directors.
B. Annual Meeting. The annual meeting of stockholders of the corporation
--------------
shall be held at 9.00 AM. on the first Monday of Feb. of each year unless such
day be a legal
-2-
<PAGE>
holiday, in which case the meeting shall be held at the same time on the next
succeeding Monday not a legal holiday.
C. Special Meetings. A special meeting of the stockholders of the
----------------
corporation may be called at any time by the Board of Directors, the President,
or Vice President. It shall be the duty of the President, or, in the President's
absence, a Vice President, to call a special meeting of the stockholders
whenever so requested by stockholders holding 25% or more in interest of the
outstanding stock of the corporation.
D. Notice. Notice of the time, place, and purpose of all meetings of the
------
stockholders, regular and special, shall be mailed at least five days prior to
the date of the meeting by the Secretary to each stockholder of record at his
address as it appears on the stock transfer book. Notwithstanding the failure to
give notice as hereinbef ore provided, any meeting shall be a legal meeting for
the transaction of all business if each stockholder is either present, in person
or by proxy, or has in writing waived such notice.
E. Quorum. Except as may otherwise be provided by law, a majority in
------
interest of all the voting stock issued and outstanding, represented in person
or by proxy by stockholders of record, shall constitute a quorum at any meeting,
in person or by proxy, though less than a quorum, may adjourn the meeting to a
future time, and the adjourned meeting may be held at such time without further
notice.
F. Voting and Proxies. Each stockholder shall be entitled to one vote for
------------------
each share of voting stock held by him which vote may be cast either in person
or by written proxy filed with the Secretary of the meeting prior to being
voted. Such proxy shall entitle the holder thereof to vote at any adjournment
thereof unless provided to the contrary therein.
ARTICLE VI
BOARD OF DIRECTORS
------------------
A. Election. The stockholders at the annual meeting of the stockholders
--------
shall elect not less than three or more than seven tirectorS, who shall hold
office until the succeeding annual meeting of stockholders or until their
successors are duly elected and qualified.
B. Powers. The Board of Directors shall have the entire management of the
------
business and property of the corporation, and shall
-3-
<PAGE>
have all powers possessed by the corporation itself so far as not inconsistent
with the laws of the State to incorporation, with the Certificate of
Incorporation, or with these By-Laws.
C. Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held immediately after adjournment of each annual stockholder's meeting and at
such other times and places as the Board of Directors by vote may determine; and
no notice of regular meetings of the Board of Directors need be given.
D. Special Meetings. Special meetings of the Board of Directors may be
----------------
called at any time by the President, Vice President, or a majority of the
Directors. Notice of the time and place of all special meetings shall be given
to each Director by the person or persons calling such meeting by mailing same
at least five days before such meeting or by delivering, in person or by
telephone or telegram, same at least twenty-four hours before such meeting.
Notwithstanding the failure to give notice as hereinabove provided, any meeting
shall be a legal meeting for the transaction of all business if each irector is
either present or has at any time in writing waived such notice.
E. Quorum. A majority of the members of the Board of Directors, as
------
constituted at such time, shall constitute a quorum at any meeting of the Board
of Directors; but the Directors present, though less than a quorum, may adjourn
the meeting to a future time, and the adjourned meeting may be held at such time
without further notice.
F. Removal. At any meeting of the stockholders a majority in interest of
-------
all the voting stock issued and outstanding, represented in person or by proxy
by stockholders of record, amy remove from office any Director.
G. Vacancy. Vacancies on the Board of Directors may be filled for the
-------
unexpired term by the remaining Directors.
ARTICLE VII
OFFICERS
--------
A. Number and Terms. The officers of the corporation shall be a
----------------
President, a Vice President, a Secretary and a Treasurer. Any two of such
offices may be held by any one person. The Board of Directors may also select
such additional officers and agents as it may deem advisable, and prescribe the
duties and power thereof. Each officer shall be elected to serve until
-4-
<PAGE>
the next regular meeting of the Board of Directors held immediately after
adjournment of the next annual stockholders' meeting, or until his successor is
duly elected and qualified.
B. President. The President shall be the chief executive officer of the
---------
corporation and, when present, shall preside at all meetings of stockholders and
at all meetings of the Board of Directors. The President shall have general
supervision over the affairs of the corporation, and such powers and duties
commonly incident to such office or as may be designated by the Board of
Directors.
C. Vice President. The Vice President shall perform the duties and have
--------------
the powers of the President during the absence or disability of the President
and shall have the powers and duties commonly incident to such office, or as may
be designated by the Board of Directors.
D. Secretary. The Secretary shall keep accurate minutes of all meetings
---------
of stockholders and of all meetings of the Board of Directors, and shall have
such powers and duties commonly incident to such office, or as may be
designated by the Board of Directors.
E. Treasurer. The Treasurer shall have the care and custody of the
---------
money, funds, valuable papers and documents of the corporation, other than his
own bond, if any, which shall be in the custody of the President. The Treasurer
shall have such powers and duties commonly incident to such office, or as may be
designated by the Board of Directors.
F. Removal. Any officer may be removed from office at any time by vote of
-------
two-thirds, of the members of the Board of Directors as constituted at such
time.
ARTICLE VIII
AMENDMENT
---------
These By-Laws may be amended at a stockholders' meeting by vote of a
majority in interest of all voting stock issued and outstanding.
These By-Laws consisting of Article One to Eight approved by unanimous
vote of the stockholders this 12th day of March, 1975.
/s/ Larry Clayton, Jr.
--------------------------
Secretary
-5-
<PAGE>
Exhibit 4.1
=================================================
HDA PARTS SYSTEM, INC.
Issuer,
CITY TRUCK AND TRAILER PARTS OF ALABAMA, INC.
CITY TRUCK AND TRAILER PARTS OF ALABAMA, L.L.C.
CITY TRUCK AND TRAILER PARTS OF TENNESSEE, INC.
CITY FRICTION, INC.
Guarantors,
and
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
-------------------
INDENTURE
Dated as of July 31, 1998
-------------------
$100,000,000
12% Senior Subordinated Notes due 2005
=================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.1. Definitions............................................ 1
SECTION 1.2. Incorporation by Reference of TIA...................... 27
SECTION 1.3. Rules of Construction.................................. 27
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating........................................ 28
SECTION 2.2. Execution and Authentication........................... 29
SECTION 2.3. Registrar and Paying Agent............................. 30
SECTION 2.4. Paying Agent to Hold Assets in Trust................... 31
SECTION 2.5. Securityholder Lists................................... 31
SECTION 2.6. Transfer and Exchange.................................. 31
SECTION 2.7. Replacement Securities................................. 45
SECTION 2.8. Outstanding Securities................................. 46
SECTION 2.9. Treasury Securities.................................... 46
SECTION 2.10. Temporary Securities................................... 46
SECTION 2.11. Cancellation........................................... 47
SECTION 2.12. Defaulted Interest..................................... 47
SECTION 2.13. CUSIP Numbers.......................................... 48
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.................................... 49
SECTION 3.2. Notices to Trustee..................................... 49
SECTION 3.3. Selection of Securities to Be Redeemed................. 50
SECTION 3.4. Notice of Redemption................................... 50
SECTION 3.5. Effect of Notice of Redemption......................... 51
SECTION 3.6. Deposit of Redemption Price............................ 52
SECTION 3.7. Securities Redeemed in Part............................ 52
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
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ARTICLE IV
COVENANTS
<S> <C> <C>
SECTION 4.1. Payment of Securities.................................. 52
SECTION 4.2. Maintenance of Office or Agency........................ 53
SECTION 4.3. Limitation on Restricted Payments...................... 53
SECTION 4.4. Corporate and Partnership Existence.................... 54
SECTION 4.5. Payment of Taxes and Other Claims...................... 55
SECTION 4.6. Maintenance of Properties and Insurance................ 55
SECTION 4.7. Compliance Certificate; Notice of Default.............. 56
SECTION 4.8. Reports................................................ 56
SECTION 4.9. Limitation on Status as Investment Company............. 57
SECTION 4.10. Limitation on Transactions with Affiliates............. 57
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock........................ 57
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries................................ 59
SECTION 4.13. Limitations on Layering Indebtedness................... 60
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock..... 61
SECTION 4.15. Waiver of Stay, Extension or Usury Laws................ 65
SECTION 4.16. Limitation on Liens Securing Indebtedness.............. 65
SECTION 4.17. Rule 144A Information Requirement...................... 65
SECTION 4.18. Limitations on Lines of Business....................... 66
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation............ 66
SECTION 5.2. Successor Corporation Substituted...................... 66
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default...................................... 67
SECTION 6.2. Acceleration of Maturity Date; Rescission
and Annulment......................................... 69
SECTION 6.3. Collection of Indebtedness and Suits for
Enforcement by Trustee................................ 70
</TABLE>
iii
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<TABLE>
Page
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<S> <C> <C>
SECTION 6.4. Trustee May File Proofs of Claim....................... 71
SECTION 6.5. Trustee May Enforce Claims Without
Possession of Securities.............................. 72
SECTION 6.6. Priorities............................................. 72
SECTION 6.7. Limitation on Suits.................................... 72
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest....................... 73
SECTION 6.9. Rights and Remedies Cumulative......................... 73
SECTION 6.10. Delay or Omission Not Waiver........................... 74
SECTION 6.11. Control by Holders..................................... 74
SECTION 6.12. Waiver of Existing or Past Default..................... 74
SECTION 6.13. Undertaking for Costs.................................. 75
SECTION 6.14. Restoration of Rights and Remedies..................... 75
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee...................................... 76
SECTION 7.2. Rights of Trustee...................................... 77
SECTION 7.3. Individual Rights of Trustee........................... 78
SECTION 7.4. Trustee's Disclaimer................................... 78
SECTION 7.5. Notice of Default...................................... 78
SECTION 7.6. Reports by Trustee to Holders.......................... 79
SECTION 7.7. Compensation and Indemnity............................. 79
SECTION 7.8. Replacement of Trustee................................. 80
SECTION 7.9. Successor Trustee by Merger, Etc....................... 81
SECTION 7.10. Eligibility; Disqualification.......................... 81
SECTION 7.11. Preferential Collection of Claims Against Company...... 81
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal
Defeasance or Covenant Defeasance..................... 82
SECTION 8.2. Legal Defeasance and Discharge......................... 83
SECTION 8.3. Covenant Defeasance.................................... 84
SECTION 8.4. Conditions to Legal or Covenant Defeasance............. 84
SECTION 8.5. Deposited Cash and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions........................ 85
</TABLE>
iv
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<TABLE>
Page
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<S> <C> <C>
SECTION 8.6. Repayment to the Company............................... 86
SECTION 8.7. Reinstatement.......................................... 86
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders..... 87
SECTION 9.2. Amendments, Supplemental Indentures
and Waivers with Consent of Holders................... 88
SECTION 9.3. Compliance with TIA.................................... 89
SECTION 9.4. Revocation and Effect of Consents...................... 89
SECTION 9.5. Notation on or Exchange of Securities.................. 90
SECTION 9.6. Trustee to Sign Amendments, Etc........................ 90
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the
Holder Upon a Change of Control..................... 91
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee............................................. 94
SECTION 11.2. Execution and Delivery of Guarantee................... 96
SECTION 11.3. Certain Bankruptcy Events............................. 96
SECTION 11.4. Limitation on Merger of Subsidiaries and
Release of Guarantors............................... 96
ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Debt................ 97
SECTION 12.2. No Payment on Securities in Certain Circumstances..... 97
SECTION 12.3. Securities Subordinated to Prior Payment of
All Senior Debt on Dissolution, Liquidation
or Reorganization................................... 99
SECTION 12.4. Securityholders to Be Subrogated to
</TABLE>
v
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Page
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<S> <C> <C>
Rights of Holders of Senior Debt.................... 100
SECTION 12.5. Obligations of the Company and the
Guarantors Unconditional............................ 100
SECTION 12.6. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice..................... 101
SECTION 12.7. Application by Trustee of Assets Deposited with It.... 101
SECTION 12.8. Subordination Rights Not Impaired by Acts or
Omissions of the Company, the Guarantors or
Holders of Senior Debt.............................. 101
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities......................... 102
SECTION 12.10. Right of Trustee to Hold Senior Debt.................. 102
SECTION 12.11. Article XII Not to Prevent Events of Default.......... 103
SECTION 12.12. No Fiduciary Duty of Trustee to Holders
of Senior Debt...................................... 103
<CAPTION>
ARTICLE XIII
MISCELLANEOUS
<S> <C> <C>
SECTION 13.1. TIA Controls.......................................... 103
SECTION 13.2. Notices............................................... 103
SECTION 13.3. Communications by Holders with Other Holders.......... 104
SECTION 13.4. Certificate and Opinion as to Conditions Precedent.... 105
SECTION 13.5. Statements Required in Certificate or Opinion......... 105
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar............. 105
SECTION 13.7. Legal Holidays........................................ 106
SECTION 13.8. Governing Law......................................... 106
SECTION 13.9. No Adverse Interpretation of Other Agreements......... 106
SECTION 13.10. No Recourse Against Others........................... 106
SECTION 13.11. Successors........................................... 106
SECTION 13.12. Duplicate Originals.................................. 106
SECTION 13.13. Severability......................................... 107
SECTION 13.14. Table of Contents, Headings, Etc..................... 107
SECTION 13.15. Qualification of Indenture........................... 107
SECTION 13.16. Registration Rights.................................. 107
EXHIBITS
EXHIBIT A FORM OF NOTE AND GUARANTEE
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER
EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE
</TABLE>
vi
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
EXHIBIT E FORM OF SUPPLEMENTAL INDENTURE EXHIBIT A
</TABLE>
vii
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
-------
<S> <C>
310(a)(1)............................................. 7.10
(a)(2)............................................. 7.10
(a)(3)............................................. N.A.
(a)(4)............................................. N.A.
(a)(5)............................................. 7.10
(b)................................................ 7.8;
7.10;
13.2
(c)................................................ N.A.
311(a)................................................ 7.11
(b)................................................ 7.11
(c)................................................ N.A.
312(a)................................................ 2.5
(b)................................................ 13.3
(c)................................................ 13.3
313(a)................................................ 7.6
(b)(1)............................................. 7.6
(b)(2)............................................. 7.6
(c)................................................ 7.6;
13.2
(d)................................................ 7.6
314(a)................................................ 4.7(a);
4.8;
(b)................................................ N.A.
(c)(1)............................................. 2.2;
7.2;
13.4
(c)(2)............................................. 7.2;
13.4
(c)(3)............................................. N.A.
(d)................................................ N.A.
(e)................................................ 13.5
(f)................................................ N.A.
315(a)................................................ 7.1(b)
(b)................................................ 7.5;
7.6;
13.2
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
TIA Indenture
Section Section
------- -------
<S> <C>
(c)................................................ 7.1(a)
(d)................................................ 6.11;
7.1(b),
(c)
(e)................................................ 6.13
316(a)(last sentence)................................. 2.9
(a)(1)(A).......................................... 6.11
(a)(1)(B).......................................... 6.12
(a)(2)............................................. N.A.
(b)................................................ 6.12;
6.7;
6.8
317(a)(1)............................................. 6.3
(a)(2)............................................. 6.4
(b)................................................ 2.4
</TABLE>
_____________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
ix
<PAGE>
INDENTURE, dated as of July 31, 1998, by and between HDA Parts System,
Inc., an Alabama corporation (the "Company"), and U.S. Trust Company, National
Association, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 12%
Series A Senior Subordinated Notes due 2005 and the class of 12% Series B Senior
Subordinated Notes due 2005 to be exchanged for the 12% Series A Senior
Subordinated Notes due 2005:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness or Disqualified Capital
Stock of any person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
all or substantially all the assets of any person by any other person, whether
by purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Additional Securities" means additional Securities which may be
issued after the Issue Date pursuant to this Indenture (other than pursuant to
an Exchange Offer or otherwise in exchange for or in replacement of outstanding
Securities). All references herein to "Securities" shall be deemed to include
Additional Securities.
"Administrative Services Agreement" means that certain Corporate
Development and Administrative Services Agreement between the Company and
Brentwood dated as of May 29, 1998.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Affiliate Transaction" shall have the meaning specified in Section
4.10.
<PAGE>
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Security, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Approved Cost Savings" means with respect to cost savings associated
with any Acquisition (other than the Stone Acquisition and the City
Recapitalization), those cost savings that result from elimination of any of the
following items: (i) accounting policy-related charges, (ii) private company
expenses, (iii) excess officer or owner compensation, (iv) expenses not required
to operate the acquired business on an ongoing basis, and (v) business-related
charges; provided that, with respect to the Stone Acquisition and the City
Recapitalization the term "Approved Cost Savings" shall mean the pro forma
adjustments for non-recurring and private company expenses enumerated in
footnotes (1) and (3) of the Notes to the Unaudited Pro Forma Financial Data for
the twelve months ended March 31, 1998 included in the Offering Memorandum.
"Asset Sale" shall have the meaning specified in Section 4.14.
"Asset Sale Offer" shall have the meaning specified in Section 4.14.
"Asset Sale Offer Amount" shall have the meaning specified in Section
4.14.
"Asset Sale Offer Period" shall have the meaning specified in Section
4.14.
"Asset Sale Offer Price" shall have the meaning specified in Section
4.14.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Beneficial Owner" or "beneficial owner" for purposes of the
definition of Change of Control and Affiliate has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
2
<PAGE>
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the board of directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Brentwood" means Brentwood Private Equity LLC and Brentwood
Associates Buyout Fund II, L.P. together with any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
Brentwood Private Equity LLC and Brentwood Associates Buyout Fund II, L.P.
"Broker-Dealer" means any broker-dealer that receives Exchange
Securities for its own account in the Exchange Offer in exchange for Securities
that were acquired by such broker-dealer as a result of market-making or other
trading activities.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
"Capital Contribution" means any contribution to the equity of the
Company from a direct or indirect parent of the Company for which no
consideration other than the issuance of common stock with no redemption rights
and no special preferences, privileges or voting rights is given.
"Capitalized Lease Obligation" means, as to any person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of, or interests (however designated) in,
stock issued by that corporation.
"Cash" or "cash" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public or private debts.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that, the full faith and credit of the United
States of America is pledged in support thereof) or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any
3
<PAGE>
domestic commercial bank of recognized standing having capital and surplus in
excess of $500.0 million or (iii) commercial paper issued by others rated at
least A-2 or the equivalent thereof by Standard & Poor's Corporation or at least
P-2 or the equivalent thereof by Moody's Investors Service, Inc., and in the
case of each of (i), (ii), and (iii) maturing within one year after the date of
acquisition.
"Cedel" means Cedel Bank, S.A., or its successors.
"Change of Control" means (i) prior to consummation of an Initial
Public Equity Offering the Excluded Persons shall cease to own beneficially and
of record at least 51% of the ordinary Voting Power represented by the Equity
Interests of the Company unless a Parent is formed after the date hereof and the
Excluded Persons own beneficially and of record at least 51% of the ordinary
Voting Power of the Parent and the Parent beneficially and of record owns 100%
of the ordinary Voting Power of the Company or (ii) following the consummation
of an Initial Public Equity Offering, (A) any merger or consolidation of the
Company or Parent, as the case may be, with or into any person or any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of the Company or Parent, as the case may be, on
a consolidated basis, in one transaction or a series of related transactions,
if, immediately after giving effect to such transaction(s), any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) (other than the Excluded Persons) is or
becomes the "beneficial owner," directly or indirectly, of more than 35% of the
total voting power in the aggregate normally entitled to vote in the election of
directors, managers, or trustees, as applicable, of the transferee(s) or
surviving entity or entities, (B) any "person" or "group" (as terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) (other than the Excluded Persons) is or becomes the "beneficial
owner," directly or indirectly, of more than 35% of the total voting power in
the aggregate of all classes of Capital Stock of the Company or Parent, as the
case may be, then outstanding normally entitled to vote in elections of
directors, or (C) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company or Parent, as the case may be, (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company or Parent, as the
case may be, was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved including new
directors designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or substantially all
of the assets of the Company or Parent, as the case may be, if such agreement
was approved by a vote of such majority of directors) cease for any reason to
constitute a majority of the Board of Directors of the Company or Parent, as the
case may be, then in office or (D) the Company or Parent, as the case may be,
adopts a plan of liquidation.
"Change of Control Offer" shall have the meaning specified in Section
10.1.
4
<PAGE>
"Change of Control Offer Period" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Date" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Price" shall have the meaning specified in
Section 10.1.
"City Recapitalization" means BABF City Corp.'s purchase of 80% of the
outstanding common stock of City Truck on June 1, 1998.
"City Truck" means City Truck and Trailer Parts, Inc., an Alabama
corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means such
successor.
"Consolidation" means, with respect to the Company, the consolidation
of the accounts of the Subsidiaries with those of the Company, all in accordance
with GAAP; provided, that, "consolidation" will not include consolidation of
the accounts of any Unrestricted Subsidiary with the accounts of the Company.
The term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis,
of (a) the aggregate amount of Consolidated EBITDA of such person attributable
to continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that, for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of the Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or
5
<PAGE>
dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"Consolidated EBITDA" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense,
(iii) Consolidated Fixed Charges, and (iv) other non-recurring, non-cash charges
of such person and its consolidated subsidiaries, less the amount of all cash
payments made by such person or any of its Subsidiaries during such period to
the extent such payments relate to non-recurring, non-cash charges that were
added back in determining Consolidated EBITDA for such period or any prior
period, less any non-cash items increasing Consolidated Net Income for such
period.
"Consolidated Fixed Charges" of any person means, for any period,
the aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued, or
scheduled to be paid or accrued (including, in accordance with the following
sentence, interest attributable to Capitalized Lease Obligations) of such person
and its Consolidated Subsidiaries during such period, including (i) original
issue discount and non-cash interest payments or accruals on any Indebtedness,
(ii) the interest portion of all deferred payment obligations, (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(iv) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person or of any Restricted Subsidiary of such Person
(other than dividends paid in Qualified Capital Stock) paid, accrued or
scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal, and (b) the amount of dividends accrued or payable (or
guaranteed) by such person or any of its Consolidated Subsidiaries in respect of
Preferred Stock (other than by Subsidiaries of such person to such person or
such person's Wholly-Owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good faith by the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP and (y) interest expense attributable to any Indebtedness represented by
the guaranty by such person or a Subsidiary of such person of an obligation of
another person shall be deemed to be the interest expense of such other person
attributable to the Indebtedness guaranteed.
6
<PAGE>
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all gains (but not losses)
which are either extraordinary (as determined in accordance with GAAP) or are
either unusual or nonrecurring (including any gain from the sale or other
disposition of assets outside the ordinary course of business or from the
issuance or sale of any capital stock), (b) the net income, if positive, of any
person, other than a Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of the amount of
any dividends or distributions actually paid in cash to such person or a
Consolidated Subsidiary of such person during such period, but in any case not
in excess of such person's pro rata share of such person's net income for such
period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition, and
(d) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Consolidated
Subsidiary.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all write-ups in the book value of any asset of such person or
a Consolidated Subsidiary of such person subsequent to the Issue Date (other
than writeups resulting from foreign currency translations or of tangible assets
of a going concern business made within 12 months after the acquisition of such
business) and (c) all investments in Subsidiaries that are not Consolidated
Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election.
"Corporate Trust Office" means the office of the Trustee in the
Borough of Manhattan, The City of New York.
7
<PAGE>
"Credit Agreement" means the Revolving Credit Facility, including
any related notes, guarantees, collateral documents, instruments and agreements
executed by the Company or any of its Subsidiaries or other Affiliates in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term ''Credit Agreement'' shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement (i) extending the
maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as borrowers and
issuers include one or more of the Company and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder, provided, that, on
the date such Indebtedness is incurred it would not be prohibited by the terms
in Section 4.11 hereof or (iv) otherwise altering the terms and conditions
thereof in a manner not prohibited by the terms of this Indenture.
"Covenant Defeasance" shall have the meaning specified in Section 8.3.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 3 and 8 thereof.
"Depository" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.3 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
8
<PAGE>
"Designated Senior Debt" means (a) Senior Debt originating under the
Credit Agreement and (b) any other Senior Debt in an aggregate outstanding
principal amount in excess of $25 million which is designated as Designated
Senior Debt by the Board of Directors.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any person, Equity Interests of such person that, by its terms
or by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Securities and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Distribution Compliance Period" means the period as defined in
Regulation S.
"Equity Interest" of any Person means any shares, interests,
participation or other equivalents (however designated) in such Person's equity,
and shall in any event include any Capital Stock issued by, or partnership or
membership interests in, such Person.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, or its successor, as operator of the Euroclear system.
"Event of Default" shall have the meaning specified in Section 6.1.
"Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exchange Offer" means an offer that may be made by the Company
pursuant to the Registration Rights Agreement (or another similar agreement
entered into in connection with the issuance of Additional Securities) to
exchange Exchange Securities for Series A Notes.
"Exchange Securities" means the 12% Series B Senior Subordinated Notes
due 2005, as supplemented from time to time in accordance with the terms hereof,
to be issued pursuant to this Indenture in connection with the offer to exchange
Securities for the Initial Securities that may be made by the Company pursuant
to the Registration Rights Agreement that contains the information referred to
in footnotes 1, 2 and 8 to the form of Security attached hereto as Exhibit A.
9
<PAGE>
"Excluded Persons" means Brentwood, Larry Clayton and James Stone
and (i) any controlling stockholder, general partner, majority owned Subsidiary,
or spouse or immediate family member (in the case of an individual) of such
Person or (ii) (a) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
80% or more of the Voting Stock of which consist of such Person and/or such
other Persons referred to in the immediately preceding clause (i) or (b) any
partnership the sole general partner of which is such Person or one of the
Persons referred to in clause (i).
"Exempted Affiliate Transaction" means (a) customary employee
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Company, (b) Restricted
Payments that are permitted by the provisions of this Indenture, (c)
transactions solely between the Company and any of its Wholly-Owned Consolidated
Subsidiaries or solely among Wholly-Owned Consolidated Subsidiaries of the
Company, (d) the Administrative Services Agreement, (e) leases entered into
concurrently with the closing of the acquisition by BABF City Corp. of 80% of
the outstanding common stock of City Truck and Trailer Parts, Inc. on June 1,
1998, (f) leases entered into concurrently with the closing of the acquisition
of substantially all of the assets of Stone Heavy Duty, Inc. on June 19, 1998,
(g) Permitted Investments and (h) Capital Contributions from Parent to the
Company or any Guarantor.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of this Indenture.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company
that is incorporated in a jurisdiction other than the United States of America
and all or substantially all of the sales, earnings or assets of which are
located in, generated from or derived from operations located in jurisdictions
outside the United States of America.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession
in the United States as in effect on the Issue Date.
"Global Security" means a Security that contains the information
referred to in footnotes 3 and 6 to the form of Security attached hereto as
Exhibit A.
"Global Security Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Securities issued
under this Indenture.
"Guarantee" shall have the meaning provided in Section 11.1.
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"Guarantors" means all existing and future Subsidiaries of the Company
other than Receivables Subsidiaries and Foreign Subsidiaries; provided that any
Foreign Subsidiary that guarantees the obligations of the Company under the
Securities and this Indenture pursuant to Section 11.1 hereof, shall be deemed
to be a Guarantor.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" or "incur" shall have the meaning specified in Section 4.11.
"Incurrence Date" shall have the meaning specified in Section 4.11.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation, or (iii) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clause (a), (b) or (c) that such person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such person; (e) any and all deferrals, renewals,
extensions, refinancing and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind described
in any of the preceding clauses (a), (b), (c) or (d), or this clause (e),
whether or not between or among the same parties; and (f) all Disqualified
Capital Stock of such Person and its Subsidiaries (measured at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends). For purposes hereof, the "maximum fixed repurchase price"
of any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to this Indenture, and
if such price is based upon, or measured by, the Fair Market Value of such
Disqualified Capital Stock, such Fair Market Value to be determined in good
faith by the board of directors of the issuer (or managing general partner of
the issuer) of such Disqualified Capital Stock.
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"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Indirect Participant" means an entity that, with respect to DTC,
clears through or maintains a direct or indirect, custodial relationship with a
Participant.
"Initial Public Equity Offering" means an initial underwritten
offering of common stock of the Company or the Parent for cash pursuant to an
effective registration statement under the Securities Act following which the
common stock of the Company or the Parent is listed on a national securities
exchange or quoted on the national market system of the Nasdaq stock market.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation and BancAmerica Robertson Stephens, severally, and not jointly.
"Initial Securities" means the 12% Series A Senior Subordinated Notes
due 2005, as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture that contains the information referred to in
footnotes 4, 5 and 7 to the form of Security attached hereto as Exhibit A.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who is not also a QIB.
"Interest Payment Date" means the stated due date of an installment of
interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other person or any agreement to make any such acquisition; (b) the making
by such person of any deposit with, or advance, loan or other extension of
credit to, such other person (including
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the purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
person) or any commitment to make any such advance, loan or extension (but
excluding accounts receivable, endorsements for collection or deposits arising
in the ordinary course of business); (c) other than guarantees of Indebtedness
of the Company or any Guarantor to the extent permitted by Section 4.11, the
entering into by such person of any guarantee of, or other credit support or
contingent obligation with respect to, Indebtedness or other liability of such
other person; (d) the making of any capital contribution by such person to such
other person; and (e) the designation by the Board of Directors of the Company
of any person to be an Unrestricted Subsidiary. The Company shall be deemed to
make an Investment in an amount equal to the fair market value of the net assets
of any subsidiary (or, if neither the Company nor any of its Subsidiaries has
theretofore made an Investment in such subsidiary, in an amount equal to the
Investments being made), at the time that such subsidiary is designated an
Unrestricted Subsidiary, and any property transferred to an Unrestricted
Subsidiary from the Company or a Subsidiary of the Company shall be deemed an
Investment valued at its fair market value at the time of such transfer.
"Issue Date" means the date of first issuance of the Notes under this
Indenture.
"Junior Securities" means any Qualified Capital Stock and any
Indebtedness of the Company or a Guarantor, as applicable, that is subordinated
in right of payment to Senior Debt at least to the same extent as the Notes or
the Guarantee, as applicable, and has no scheduled installment of principal due,
by redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the Notes; provided, that, in the case of subordination in respect
of Senior Debt under the Credit Agreement, "Junior Security" shall mean any
Qualified Capital Stock and any Indebtedness of the Company or the Guarantor, as
applicable, that (i) is unsecured, (ii) is not entitled to the benefits of
covenants or defaults materially more beneficial to the holders of such Junior
Securities than those in effect with respect to the Notes on the date hereof (or
the Senior Debt under the Credit Agreement, including after giving effect to any
plan of reorganization or readjustment), (iii) shall not provide for
amortization (including sinking fund and mandatory prepayment or redemption
provisions) commencing prior to the date that is six months following the final
scheduled maturity date of the Senior Debt under the Credit Agreement (as
modified by any plan of reorganization or readjustment), and (iv) by their terms
or by law are subordinated to Senior Debt outstanding under the Credit Agreement
on the date of issuance of such Qualified Capital Stock or Indebtedness at least
to the same extent as the Notes or the Guarantee, as applicable; provided that
(x) if a new corporation or other entity results from any reorganization or
readjustment, such corporation or other entity assumes such Senior Debt and (y)
the rights of the holders of Senior Debt under the Credit Agreement are not,
without the consent of such holders, materially altered by any such
reorganization or readjustment, including without limitation, such rights being
materially impaired within the meaning of Section 1124 of Title 11 of the United
States Code or any material impairment of the right to receive interest accruing
during the pendency of a bankruptcy or insolvency proceeding, including
proceedings under Title 11 of the United States Code.
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"Legal Defeasance" shall have the meaning specified in Section 8.2.
"Legal Holiday" shall have the meaning specified in Section 13.7.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Securities for use by such Holders
in connection with the Exchange Offer.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Liquidated Damages" shall have the meaning specified in the
Registration Rights Agreement.
"Maturity Date" means, when used with respect to any Security, the
date specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Asset Sale
Offer).
"Moody's" means Moody's Investors Services, Inc. and its successors.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale or Capital
Contribution in respect of Qualified Capital Stock and by the Company and its
Subsidiaries in respect of an Asset Sale plus, in the case of an issuance of
Qualified Capital Stock upon any exercise, exchange or conversion of securities
(including options, warrants, rights and convertible or exchangeable debt) of
the Company that were issued for cash on or after the Issue Date, the amount of
cash originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt) less,
in each case, the sum of all payments, fees, commissions and (in the case of
Asset Sales, reasonable and customary) expenses (including, without limitation,
the fees and expenses of legal counsel and investment banking fees and expenses)
incurred in connection with such Asset Sale or sale or Capital Contribution in
respect of Qualified Capital Stock, and, in the case of an Asset Sale only, less
the amount (estimated reasonably and in good faith by the Company) of income,
franchise, sales and other applicable taxes required to be paid by the Company
or any of its respective Subsidiaries in connection with such Asset Sale in the
taxable year that such sale is consummated or in the immediately succeeding
taxable year, the computation of which shall take into account the reduction in
tax liability resulting from any available operating losses and net operating
loss carry-overs, tax credits and tax credit carry-forwards, and similar tax
attributes.
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"Non-Recourse Indebtedness" means Indebtedness (a) as to which
neither the Company nor any of its Subsidiaries (i) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (ii) is directly or indirectly liable (as a guarantor
or otherwise), or (iii) constitutes the lender; and (b) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Notes" means, collectively, the Initial Securities and, when and if
issued as provided in the Registration Rights Agreement, the Exchange
Securities.
"Obligation" means any principal, premium or interest payment, or
monetary penalty, or damages, due by the Company, the Parent or any Guarantor
under the terms of the Notes or this Indenture, including any liquidated damages
due pursuant to the terms of the Registration Rights Agreement.
"Offering Memorandum" means the final Offering Memorandum of the
Company dated July 28, 1998, relating to the offering of the Initial Securities
in a transaction exempt from the requirements of Section 5 of the Securities
Act.
"Officer" means, with respect to the Company or any Guarantor, the
Chief Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller, the Secretary or the Assistant Secretary
of the Company or such Guarantor.
"Officers' Certificate" means, with respect to the Company or any
Guarantor, a certificate signed by two Officers or by an Officer and an
Assistant Secretary of the Company or such Guarantor and otherwise complying
with the requirements of Sections 13.4 and 13.5.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
13.4 and 13.5.
"Parent" means any Person, other than any Excluded Person, of which
the Company is a Subsidiary.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Paying Agent" shall have the meaning specified in Section 2.3.
"Payment Default" shall have the meaning specified in Section 12.2.
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"Payment Notice" shall have the meaning specified in Section 12.2.
"Permitted Indebtedness" means that:
(a) the Company and the Guarantors may incur Indebtedness evidenced by the
Notes and the Guarantees and represented by this Indenture up to the $100.0
million issued on the Issue Date less any amounts refinanced, redeemed or
retired pursuant to clause (b) below;
(b) the Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clause (a) of this definition or incurred under the
Debt Incurrence Ratio test of Section 4.11, or which is outstanding on the Issue
Date (after giving effect to the repayment of indebtedness as described under
the heading "Use of Proceeds" in the Offering Memorandum), provided, that, in
each case such Refinancing Indebtedness is secured only by the assets, if any,
that secured the Indebtedness so refinanced;
(c) the Company and its Subsidiaries may incur Indebtedness solely in respect
of bankers acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the ordinary
course of business in accordance with customary industry practices, in amounts
and for the purposes customary in the Company's industry in order to provide
security for workers' compensation, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business.
(d) the Company may incur Indebtedness to any Guarantor, and any Guarantor may
incur Indebtedness to any Guarantor or to the Company; provided, that, in the
case of Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the Notes
and any event that causes such Guarantor which loaned such Indebtedness no
longer to be a Guarantor shall be deemed to be a new incurrence subject to
Section 4.11;
(e) any Guarantor may guaranty any Indebtedness of the Company or another
Guarantor that was permitted to be incurred pursuant to this Indenture,
substantially concurrently with such incurrence or at the time such person
becomes a Guarantor of the Notes;
(f) Indebtedness or other contractual requirements of a Receivables Subsidiary
in connection with a Qualified Receivables Transaction, provided, that, such
restrictions apply only to such Receivables Subsidiary;
(g) a Receivables Subsidiary may incur Indebtedness in a Qualified Receivables
Transaction that is without recourse to the Company or to any Subsidiary of the
Company or their assets (other than such Receivables Subsidiary and its assets),
and is not guaranteed by any such person and is not otherwise such person's
legal liability;
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(h) Interest Swap and Hedging Obligations of the Company covering Indebtedness
of the Company or any of its Restricted Subsidiaries and Interest Swap and
Hedging Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary, provided, however, that such
Interest Swap and Hedging Obligations are entered into to protect the Company
and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture to the extent the
notional principal amount of such Interest Swap and Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap and
Hedging Obligation relates; and
(i) Any Foreign Subsidiary may incur Indebtedness to any other Foreign
Subsidiary; provided, that, any event that causes the Foreign Subsidiary which
loaned such Indebtedness no longer to be a Subsidiary shall be deemed to be a
new incurrence subject to Section 4.11.
"Permitted Investment" means Investments in (a) any of the Notes and
the Guarantees; (b) Cash Equivalents; (c) intercompany notes to the extent
permitted under clauses (d) and (i) of the definition of "Permitted
Indebtedness" provided, however, that any event that causes the obligee on such
inter-company notes no longer to be a Subsidiary shall be deemed a new
Investment subject to Section 4.3; (d) Investment by the Company or any
Guarantor in a Person in a Related Business if as a result of such Investment
such Person immediately becomes a Wholly-Owned Subsidiary Guarantor or such
Person is immediately merged with or into the Company or a Wholly-Owned
Subsidiary Guarantor; (e) the acquisition by a Receivables Subsidiary in
connection with a Qualified Receivables Transaction of Equity Interests of a
trust or other person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction; (f) any Investment by the Company or any
Guarantor in a Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other person in connection with a Qualified Receivables
Transaction; provided, that, the foregoing Investment is in the form of a note
that the Receivables Subsidiary or other person is required to repay as soon as
practicable from available cash collections less amounts required to be
established as reserves pursuant to contractual arrangements with entities that
are not Affiliates entered into as part of a Qualified Receivables Transaction;
(g) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $1.5 million at any one time outstanding; (h) Currency
Agreements and Interest Swap and Hedging Obligations entered into in the
ordinary course of the Company's or its Subsidiaries' businesses and otherwise
in compliance with the Indenture; (i) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (j) Investments made by the Company or its Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with Section 4.14; (k) Investments by the Company or any Guarantor in a Foreign
Subsidiary in the aggregate not in excess of $5.0 million plus to the extent
that any Investment (other than an Investment which when made was not deducted
in this clause (k)) that was made after the Issue Date is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the
lesser of (A) the cash or Cash Equivalents return of capital with respect
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to such Investment (less the cost of disposition, if any) and (B) the initial
amount of such Investment; and (l) any Investment in the Company or in a Wholly-
Owned Subsidiary Guarantor.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, material men, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business provided, that, (i) the underlying obligations are not overdue for a
period of more than 30 days, or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided, that, such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (j) Liens arising from Purchase Money Indebtedness permitted
to be incurred pursuant to clause (a) of Section 4.11 provided, such Liens
relate solely to the property which is subject to such Purchase Money
Indebtedness; (k) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the business
of the Company or any of its Subsidiaries or materially detracting from the
value of the relative assets of the Company or any Subsidiary; (l) Liens arising
from precautionary Uniform Commercial Code financing statement filings regarding
operating leases entered into by the Company or any of its Subsidiaries in the
ordinary course of business; (m) Liens securing Refinancing Indebtedness
incurred to refinance any Indebtedness that was previously so secured in a
manner no more adverse to the Holders of the Notes than the terms of the Liens
securing such refinanced Indebtedness, and provided, that, the Indebtedness
secured is not increased and the lien is not extended to any additional assets
or property that would not have been security for the Indebtedness refinanced;
(n) Liens securing Senior Debt incurred in accordance with the terms of this
Indenture; and (o) Liens on assets of a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction.
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"Permitted Payments to Parent" means without duplication as to amounts,
(a) payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary accounting, legal and administrative expenses of the
Parent, not in excess of $350,000 in the aggregate during any consecutive 12-
month period and (b) payment to Parent to enable Parent to pay foreign, federal,
state or local tax liabilities ("Tax Payment"), not to exceed the amount of
any tax liabilities that would be otherwise payable by the Company and its
Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing authorities
if each of the Company, such Subsidiaries and Unrestricted Subsidiaries filed a
separate tax return, to the extent that Parent has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
Subsidiaries and Unrestricted Subsidiaries; provided however, that (i),
notwithstanding the foregoing, in the case of determining the amount of a Tax
Payment that is permitted to be paid by Company and any of its United States
Subsidiaries in respect of their Federal income tax liability, such payment
shall be determined assuming that Company is the parent company of an affiliated
group (the "Company Affiliated Group") filing a consolidated Federal income
tax return and that Parent and each such United States subsidiary is a member of
the Company Affiliated Group and (ii) any Tax Payments shall either be used by
Parent to pay such tax liabilities within 90 days of Parent's receipt of such
payment or refunded to the payee.
"Person" or "person" means any corporation, individual, limited liability
company, joint stock company, joint venture, partnership, limited liability
company, unincorporated association, governmental regulatory entity, country,
state or political subdivision thereof, trust, municipality or other entity.
"Preferred Stock" means an Equity Interest of any class or classes of a
Person (however designated) which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such Person.
"principal" of any Indebtedness means the principal of such Indebtedness.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Securities issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"property" means any right or interest in or to property or assets of any
kind whatsoever, whether real, personal or mixed and whether tangible,
intangible, contingent, direct or indirect.
"Public Equity Offering" means an underwritten offering of common stock
of any Person for cash pursuant to an effective registration statement under the
Securities Act.
"Purchase Agreement" means the Purchase Agreement dated July 28, 1998 by
and between the Company and the Initial Purchasers, as such agreement may be
amended, modified or supplemented from time to time in accordance with the terms
thereof.
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"Purchase Money Indebtedness" of any person means any Indebtedness of
such person to any seller or other person incurred solely to finance the
acquisition (including in the case of a Capitalized Lease Obligation, the lease)
of any after-acquired real or personal tangible property which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
directly related to a Related Business of the Company and which is incurred
concurrently with such acquisition and is secured only by the assets so
financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
on or after the Issue Date with the Net Cash Proceeds received by the Company
from the substantially concurrent sale of Qualified Capital Stock or a Capital
Contribution or any exchange of Qualified Capital Stock for any Capital Stock or
Indebtedness of the Company or Capital Stock of the Parent on or after the Issue
Date.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company, any Guarantor or any
Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of, (a) a Receivables Subsidiary (in the
case of a transfer or encumbrancing by the Company or any Guarantor) and (b) any
other person (solely in the case of a transfer or encumbrancing by a Receivables
Subsidiary), solely accounts receivable (whether now existing or arising in the
future) of the Company or any Guarantor which arose in the ordinary course of
business of the Company or any Guarantor, and any assets related thereto,
including, without limitation, all collateral securing such accounts receivable,
all contracts and all guarantees or other obligations in respect of such
accounts receivable, proceeds of such accounts receivable and other assets which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly-Owned Subsidiary of the Company
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary (a) no portion of any
Indebtedness or any other obligations (contingent or otherwise) of which,
directly or indirectly, contingently or otherwise, (i) is guaranteed by the
Company or any other Subsidiary of the Company (excluding guarantees of
obligations (other than the principal of, and interest on, Indebtedness)
pursuant to representations, warranties, covenants and
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indemnities entered into in the ordinary course of business in connection with a
Qualified Receivables Transaction, (b) with which neither the Company nor any
other Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than those customarily entered into in
connection with Qualified Receivables Transactions, and (c) with which neither
the Company nor any other Subsidiaries of the Company has any obligation,
directly or indirectly, contingently or otherwise, to maintain or preserve such
Subsidiary's financial condition or cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Company shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the resolution of the Board of Directors of the Company giving
effect to such designation, an Officers' Certificate certifying that such
designation complied with the foregoing conditions and an Opinion of Counsel
satisfactory to the Trustee.
"Record Date" means a Record Date specified in the Securities whether or
not such Record Date is a Business Day, or, if applicable, as specified in
Section 2.12.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to Article III of this
Indenture and Paragraph 5 in the form of Security attached hereto as Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security attached hereto as Exhibit A, which shall include,
without duplication, in each case, accrued and unpaid interest and Liquidated
Damages, if any, to the Redemption Date.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Securities or this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing plus the amount of any premium paid in connection with such
Refinancing in accordance with the terms of the documents governing the
Indebtedness refinanced without giving effect to any modification thereof made
in connection with
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or in contemplation of such refinancing) the lesser of (i) the principal amount
or, in the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, that, (A) such Refinancing Indebtedness shall only
be used to Refinance outstanding Indebtedness or Disqualified Capital Stock of
such person issuing such Refinancing Indebtedness, (B) such Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Notes than was the Indebtedness or Disqualified
Capital Stock to be refinanced, (C) such Refinancing Indebtedness shall have a
final stated maturity or redemption date, as applicable, no earlier than the
final stated maturity or redemption date, as applicable, of the Indebtedness or
Disqualified Capital Stock to be so refinanced, and (D) such Refinancing
Indebtedness shall be secured (if secured) in a manner no more adverse to the
Holders of the Notes than the terms of the Liens (if any) securing such
refinanced Indebtedness, including, without limitation, the amount of
Indebtedness secured shall not be increased.
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof by and between the Initial Purchasers and the
Company, as such agreement may be amended, modified or supplemented from time to
time in accordance with the terms thereof.
"Reg S Global Security" means a Reg S Temporary Global Security or Reg S
Permanent Global Security.
"Reg S Permanent Global Security" means a permanent global Security in
the form of Exhibit A hereto bearing the Global Security Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Reg S Temporary Global Security upon
expiration of the Distribution Compliance Period.
"Reg S Temporary Global Security" means a temporary global Security in
the form of Exhibit A hereto bearing the Private Placement Legend and deposited
with or on behalf of and registered in the name of the Depositary or its
nominee, issued in a denomination equal to the outstanding principal amount of
the Securities initially sold in reliance on Rule 903 of Regulation S.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are reasonably related businesses.
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"Restricted Definitive Security" means a Definitive Security bearing the
Private Placement Legend.
"Restricted Global Security" means a Global Security bearing the Private
Placement Legend.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than other Permitted Investments.
"Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such person or any parent or Subsidiary of such person, (b)
any payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness any purchase,
redemption, or other acquisition or retirement for value of, any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or Subsidiary
of such person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Indebtedness and (d) any Restricted Investment by such person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Equity Interests of an
issuer to the extent payable solely in shares of Qualified Capital Stock of such
issuer; (ii) any dividend, distribution or other payment to the Company, or to
any of its Subsidiary Guarantors, by the Company or any of its Subsidiaries; or
(iii) Permitted Investments.
"Restricted Security" means a Security, unless or until it has been (i)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering it or (ii) distributed to the public
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act; provided, that in no case shall an Exchange Security issued in
accordance with this Indenture and the terms and provisions of the Registration
Rights Agreement be a Restricted Security.
"Revolving Credit Facility" means that certain Revolving Credit Facility
among the Company, the lenders parties thereto, Bank of America National Trust
and Savings Association, as administrative agent and syndication agent, and The
Industrial Bank of Japan, Limited, New York Branch, as documentation agent dated
June 1, 1998.
"Rule 144A" means Rule 144A promulgated under the Securities Act, as it
may be amended from time to time, and any successor provision thereto.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
and its successors.
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"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities and, when and if
issued as provided in the Registration Rights Agreement, the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a Security is
registered on the Registrar's books.
"Senior Debt" of the Parent, the Company or any Guarantor means (i)
Indebtedness (including any interest, whether or not allowable, accruing on
Indebtedness incurred pursuant to the Credit Agreement after the filing of a
petition initiating any proceeding under any bankruptcy, insolvency or similar
law) of the Parent, the Company or such Guarantor arising under the Credit
Agreement or that, by the terms of the instrument creating or evidencing such
Indebtedness, is not expressly designated Subordinated Indebtedness or pari
passu Indebtedness with the Notes and made subordinated or pari passu in right
of payment to the Notes or the applicable Guarantee and (ii) all other amounts
due on or in connection with such Indebtedness, including all interest,
premiums, reimbursement obligations, charges, fees, indemnities and expenses
(including fees and expenses of counsel); provided, that, in no event shall
Senior Debt include (a) Indebtedness to any Subsidiary of the Company or any
officer, director or employee of the Company or any Subsidiary of the Company,
(b) Indebtedness incurred in violation of the terms of this Indenture, (c)
Indebtedness to trade creditors, (d) Disqualified Capital Stock, (e) Capitalized
Lease Obligations and (f) any liability for taxes owed or owing by the Company
or such Guarantor.
"Shelf Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"Special Record Date" for payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Note, means August 1,
2005.
"Stone" means Stone Heavy Duty, Inc., a North Carolina corporation.
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"Stone Acquisition" means City Truck's acquisition of substantially all
of the assets of Stone on June 19, 1998.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment by its terms or the terms of
any document or instrument relating thereto to the Notes or such Guarantee, as
applicable, in any respect or has a stated maturity on (except for the Notes) or
after the Stated Maturity.
"Subsidiary," with respect to any Person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such Person or a Subsidiary of such Person is,
at the time, a general partner and in which such Person, directly or indirectly,
at the date of determination thereof has at least a majority ownership interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary includes, without limitation, each direct
and indirect Subsidiary of the Company.
"Subsidiary Guarantee" means any Guarantee issued by a Subsidiary
pursuant to the terms of this Indenture.
"Subsidiary Guarantors" means any Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"TIA" means the Trust Indenture Act of 1939, as amended, (15 U.S. Code
(S)(S) 77aaa-77bbbb) as in effect on the date of the execution of this
Indenture, except as provided in Section 9.3.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.6.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust division (or
any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
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"Unrestricted Definitive Security" means one or more Definitive
Securities that do not bear and are not required to bear the Private Placement
Legend.
"Unrestricted Global Security" means a permanent global Security in the
form of Exhibit A attached hereto that bears the Global Security Legend and that
has the "Schedule of Exchanges of Definitive Securities" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Securities that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any subsidiary of the Company that does
not own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that, such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Indebtedness; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Subsidiaries. The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Subsidiary, provided, that, (i) no Default or
Event of Default is existing or will occur as a consequence thereof and (ii)
immediately after giving effect to such designation, on a pro forma basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio of Section 4.11. Each such designation shall be evidenced by
filing with the Trustee a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"U.S. Global Security" means a global security in the form of Exhibit A
hereto bearing the Global Security Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"U.S. Government Obligations" means direct non-callable obligations of,
or noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"Voting Power" with respect to any Person means the power of all classes
of Capital Stock of such Person then outstanding normally entitled to vote in
elections of directors.
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"Wholly-Owned Subsidiary" means a Subsidiary at least 99% of the Equity
Interests of which are owned by the Company or one or more Wholly-Owned
Subsidiaries of the Company.
SECTION 1.2. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, each Guarantor
and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
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(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The Securities offered and sold to purchasers who are QIBs in
transactions exempt from registration under the Securities Act shall be issued
initially in the form of a U.S. Global Security. Securities resold to
Institutional Accredited Investors who are not QIBs in transactions exempt from
registration under the Securities Act not made in reliance on Regulation S shall
be issued initially in the form of Restricted Definitive Securities. Securities
offered and sold in reliance on Regulation S shall be issued initially in the
form of Security attached hereto as Exhibit A, which shall be deposited on
behalf of the purchasers of the Securities represented thereby with the Trustee,
at its New York office, as custodian for the Depositary, and registered in the
name of the Depositary or the nominee of the Depositary for the accounts of
designated agents holding on behalf of Euroclear or Cedel, duly executed by the
Company and authenticated by the Trustee as hereinafter provided until the
expiration of the Distribution Compliance Period. The Distribution Compliance
Period shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary or the Securities Custodian, together with
copies of certificates from Euroclear and Cedel certifying that they have
received certification of Non-United States beneficial ownership of 100% of the
aggregate principal amount of the Reg S Temporary Global Security, and (ii) an
Officers' Certificate from the Company to the effect set forth in Section
13.4(1) hereof. Following the termination of the Distribution Compliance
Period, beneficial interests in the Reg S Temporary Global Security shall be
exchanged for beneficial interests in Reg S Permanent Global Securities pursuant
to the Applicable Procedures. Simultaneously with the authentication of Reg S
Permanent Global Securities, the Trustee shall cancel the Reg S Temporary Global
Security.
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Securities issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the Global Security Legend and the
"Schedule of Exchanges of Definitive Securities" attached thereto). Securities
issued in definitive form shall be substantially in the form of Exhibit A
attached hereto (but without the Global Security Legend and without the
"Schedule of Exchanges of Definitive Securities" attached thereto). Each Global
Security shall represent such of the outstanding Securities as shall be
specified therein and each shall provide that it shall represent the aggregate
principal amount of outstanding Securities from time to time endorsed thereon
and that the aggregate principal amount of outstanding Securities represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Security to
reflect the amount of any increase or decrease in the aggregate principal amount
of outstanding Securities represented thereby shall be made by the Trustee or
the Securities Custodian, at the direction of the Company, in accordance with
instructions given by the Holder thereof as required by Section 2.6 hereof.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2 Execution and Authentication.
----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in the aggregate principal amount of up to $100,000,000 and shall authenticate
Exchange Securities for original issue in the aggregate principal amount of up
to $100,000,000, in each case upon a written order of the Company in the form of
an Officers' Certificate; provided that such Exchange Securities shall be
issuable only upon the valid surrender for cancellation of Initial Securities of
a like aggregate principal amount in accordance with the Registration Rights
Agreement. The Officers' Certificate shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated.
The aggregate principal amount of Securities outstanding at any time may not
exceed $150,000,000, except as provided in Section 2.7. Upon the written order
of the Company in the form of an Officers' Certificate, the Trustee shall
authenticate Securities in
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substitution of Securities originally issued to reflect any name change of the
Company or issue Additional Securities.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiples thereof.
SECTION 2.3. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar"), and an office or agency
where Securities may be presented for payment ("Paying Agent"), and where
notices and demands to or upon the Company in respect of the Securities may be
served. The Company may act as Registrar or Paying Agent, except that, for the
purposes of Articles III, VIII, X, and Section 4.14 hereof and as otherwise
specified in this Indenture, neither the Company nor any Affiliate of the
Company shall act as Paying Agent. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company may have one or more
co-Registrars and one or more additional Paying Agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
Paying Agent. The Company hereby initially appoints the Trustee as Registrar
and Paying Agent, and by its acknowledgment and acceptance on the signature page
hereto, the Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent (including the Paying Agent) not a party to this Indenture, which
agreement shall implement the provisions of this Indenture that relate to such
Agent, and shall furnish a copy of each such agreement to the Trustee. The
Company shall promptly notify the Trustee in writing of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
The Company initially appoints The Depository Trust Company ("DTC"),
to act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
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Upon the occurrence of an Event of Default described in Section 6.1(v)
or (vi) hereof, the Trustee shall, or upon the occurrence of any other Event of
Default by notice to the Company, the Registrar and the Paying Agent, the
Trustee may assume the duties and obligations of the Registrar and the Paying
Agent hereunder.
SECTION 2.4 Paying Agent to Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest (or Liquidated Damages, if any) on,
the Securities (whether such assets have been distributed to it by the Company
or any other obligor on the Securities), and shall notify the Trustee in writing
of any Default in making any such payment. If either of the Company or a
Subsidiary of the Company acts as Paying Agent, it shall segregate such assets
and hold them as a separate trust fund for the benefit of the Holders or the
Trustee. The Company at any time may require a Paying Agent to distribute all
assets held by it to the Trustee and account for any assets disbursed and the
Trustee may at any time during the continuance of any payment Default or any
Event of Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company) shall have no further liability for such assets.
SECTION 2.5 Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S)312(a). If the Trustee or any
Paying Agent is not the Registrar, the Company shall furnish to the Trustee on
or before the third Business Day preceding each Interest Payment Date and at
such other times as the Trustee or any such Paying Agent may request in writing
a list in such form and as of such date as the Trustee or any such Paying Agent
reasonably may require of the names and addresses of Holders and the Company
shall otherwise comply with TIA (S)312(a).
SECTION 2.6. Transfer and Exchange
---------------------
(a) Transfer and Exchange of Global Securities. A Global
------------------------------------------
Security may not be transferred as a whole except by the Depositary to a nominee
of the Depositary, by a nominee of the Depositary to the Depositary or to
another nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global
Securities will be exchanged by the Company for Definitive Securities if (i) the
Company delivers to the Trustee notice from the Depositary that it is unwilling
or unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 90 days after the date of such
notice from the Depositary, (ii) the Company,
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at its option, determines that the Global Securities (in whole but not in part)
should be exchanged for Definitive Securities and delivers a written notice to
such effect to the Trustee or (iii) upon request of the Trustee or Holders of a
majority of the aggregate principal amount of outstanding Securities if there
shall have occurred and be continuing a Default or Event of Default with respect
to the Securities; provided that in no event shall the Reg S Temporary Global
Security be exchanged by the Company for Definitive Securities prior to (x) the
expiration of the Distribution Compliance Period and (y) the receipt by the
Registrar of any certificates identified by the Company or its counsel to be
required pursuant to Rule 903 or Rule 904 under the Securities Act. Upon the
occurrence of any of the preceding events in (i), (ii) or (iii) above,
Definitive Securities shall be issued in such names as the Depositary shall
instruct the Trustee. Global Securities also may be exchanged or replaced, in
whole or in part, as provided in Sections 2.7 and 2.10 hereof. Every Security
authenticated and delivered in exchange for, or in lieu of, a Global Security or
any portion thereof, pursuant to this Section 2.6 or Section 2.7 or 2.10 hereof,
shall be authenticated and delivered in the form of, and shall be, a Global
Security. A Global Security may not be exchanged for another Security other than
as provided in this Section 2.6(a), however, beneficial interests in a Global
Security may be transferred and exchanged as provided in Section 2.6(b), (c) or
(f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the
----------------------------------------------------
Global Securities. The transfer and exchange of beneficial interests in the
- -----------------
Global Securities shall be effected through the Depositary, in accordance with
the provisions of this Indenture and the Applicable Procedures. Beneficial
interests in the Restricted Global Securities shall be subject to restrictions
on transfer comparable to those set forth herein to the extent required by the
Securities Act. Transfers of beneficial interests in the Global Securities also
shall require compliance with either subparagraph (i) or (ii) below, as
applicable, as well as one or more of the other following subparagraphs, as
applicable:
(i) Transfer of Beneficial Interests in the Same Global
Security. Beneficial interests in any Restricted Global Security may be
transferred to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Security in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however, that
prior to the expiration of the Distribution Compliance Period, transfers of
beneficial interests in the Reg S Temporary Global Security may not be made to a
U.S. Person or for the account or benefit of a U.S. Person (other than an
Initial Purchaser). Beneficial interests in any Unrestricted Global Security may
be transferred to Persons who take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Security. No written orders or instructions
shall be required to be delivered to the Registrar to effect the transfers
described in this Section 2.6(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Securities. In connection with all transfers and exchanges
of beneficial interests that are not subject to Section 2.6(b)(i) above, the
transferor of such beneficial interest must deliver to the Registrar either (A)
(1) an order from a Participant or an Indirect
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Participant given to the Depositary in accordance with the Applicable Procedures
directing the Depositary to credit or cause to be credited a beneficial interest
in another Global Security in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant account
to be credited with such increase or (B) (1) an order from a Participant or an
Indirect Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive Security
in an amount equal to the beneficial interest to be transferred or exchanged and
(2) instructions given by the Depositary to the Registrar containing information
regarding the Person in whose name such Definitive Security shall be registered
to effect the transfer or exchange referred to in (B)(1) above; provided that in
no event shall Definitive Securities be issued upon the transfer or exchange of
beneficial interests in the Reg S Temporary Global Security prior to (x) the
expiration of the Distribution Compliance Period and (y) the receipt by the
Registrar of any certificates identified by the Company or its counsel to be
required pursuant to Rule 903 and Rule 904 under the Securities Act. Upon
consummation of an Exchange Offer by the Company in accordance with Section
2.6(f) hereof, the requirements of this Section 2.6(b)(ii) shall be deemed to
have been satisfied upon receipt by the Registrar of the instructions contained
in the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Securities. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Securities contained in this Indenture and the Securities or otherwise
applicable under the Securities Act, the Trustee shall adjust the principal
amount of the relevant Global Security(s) pursuant to Section 2.6(h) hereof.
(iii) Transfer of Beneficial Interests to Another
Restricted Global Security. A beneficial interest in any Restricted Global
Security may be transferred to a Person who takes delivery thereof in the form
of a beneficial interest in another Restricted Global Security if the transfer
complies with the requirements of Section 2.6(b)(ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the U.S. Global Security, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Reg S Temporary Global Security or the Reg S
Permanent Global Security, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in item (2)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Security for Beneficial Interests in the Unrestricted Global
Security. A beneficial interest in any Restricted Global Security may be
exchanged by any holder thereof for a beneficial interest in an Unrestricted
Global Security or transferred to a Person who takes
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delivery thereof in the form of a beneficial interest in an Unrestricted Global
Security if the exchange or transfer complies with the requirements of Section
2.6(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and the
holder of the beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Securities or (3)
a Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the
holder of such beneficial interest in a Restricted Global Security proposes
to exchange such beneficial interest for a beneficial interest in an
Unrestricted Global Security, a certificate from such holder in the form of
Exhibit C hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global
Security proposes to transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Security, a certificate from such holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof; and, in
each such case set forth in this subparagraph (D), an Opinion of Counsel in
form reasonably acceptable to the Registrar and the Company to the effect
that such exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Security has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.2 hereof, the Trustee shall authenticate one or more
Unrestricted Global Securities in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global
Security cannot be exchanged for, or transferred to Persons who take delivery
thereof in the form of, a beneficial interest in a Restricted Global Security.
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(c) Transfer or Exchange of Beneficial Interests for
------------------------------------------------
Definitive Securities.
---------------------
(i) Beneficial Interests in Restricted Global
Securities to Restricted Definitive Securities. If any holder of a
beneficial interest in a Restricted Global Security proposes to exchange
such beneficial interest for a Restricted Definitive Security or to
transfer such beneficial interest to a Person who takes delivery thereof in
the form of a Restricted Definitive Security, then, upon receipt by the
Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Security proposes to exchange such beneficial interest
for a Restricted Definitive Security, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item (2)(a)
thereof;
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications in
item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those listed
in subparagraphs (B) through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(b)
thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
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the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Security to be reduced accordingly pursuant to Section 2.6(h)
hereof, and the Company shall execute and, upon receipt of an Authentication
Order pursuant to Section 2.2, the Trustee shall authenticate and deliver to the
Person designated in the instructions a Restricted Definitive Security in the
appropriate principal amount. Any Restricted Definitive Security issued in
exchange for a beneficial interest in a Restricted Global Security pursuant to
this Section 2.6(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall deliver such
Restricted Definitive Securities to the Persons in whose names such Securities
are so registered. Any Restricted Definitive Security issued in exchange for a
beneficial interest in a Restricted Global Security pursuant to this Section
2.6(c)(i) shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Securities
to Unrestricted Definitive Securities. A holder of a beneficial interest in
a Restricted Global Security may exchange such beneficial interest for an
Unrestricted Definitive Security or may transfer such beneficial interest
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Security only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and the
holder of such beneficial interest, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable Letter
of Transmittal that it is not (1) a Broker-Dealer, (2) a Person
participating in the distribution of the Exchange Securities or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the
holder of such beneficial interest in a Restricted Global Security proposes
to exchange such beneficial interest for a Definitive Security that does
not bear the Private Placement Legend, a certificate from such holder in
the form of Exhibit C hereto, including the certifications in item (1)(b)
thereof; or (2) if the holder of such beneficial interest in a Restricted
Global Security proposes to transfer such beneficial interest to a Person
who shall take delivery thereof in the form of a Definitive Security that
does not bear the Private Placement Legend, a certificate from such holder
in the
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form of Exhibit B hereto, including the certifications in item (4)
thereof; and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global
Securities to Unrestricted Definitive Securities. If any holder of a beneficial
interest in an Unrestricted Global Security proposes to exchange such beneficial
interest for an Unrestricted Definitive Security or to transfer such beneficial
interest to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Security, then, upon satisfaction of the conditions set forth in
Section 2.6(b)(ii) hereof, the Trustee shall cause the aggregate principal
amount of the applicable Unrestricted Global Security to be reduced accordingly
pursuant to Section 2.6(h) hereof, and the Company shall execute and, upon
receipt of an Authentication Order pursuant to Section 2.2, the Trustee shall
authenticate and deliver to the Person designated in the instructions an
Unrestricted Definitive Security in the appropriate principal amount. Any
Unrestricted Definitive Security issued in exchange for a beneficial interest
pursuant to this Section 2.6(c)(iii) shall be registered in such name or names
and in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Unrestricted Definitive Securities to the Persons in whose names
such Securities are so registered. Any Unrestricted Definitive Security issued
in exchange for a beneficial interest pursuant to this Section 2.6(c)(iii) shall
not bear the Private Placement Legend.
(iv) Notwithstanding Sections 2.6(c)(i)(A) and (C)
hereof, a beneficial interest in the Reg S Temporary Global Security may not be
(A) exchanged for a Definitive Security prior to (x) the expiration of the
Distribution Compliance Period (unless such exchange is effected by the Company,
does not require an investment decision on the part of the holder thereof and
does not violate the provisions of Regulation S) and (y) the receipt by the
Registrar of any certificates identified by the Company or its counsel to be
required pursuant to Rule 903(c)(3)(B) under the Securities Act or (B)
transferred to a Person who takes delivery thereof in the form of a Definitive
Security prior to the conditions set forth in clause (A) above or unless the
transfer is pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 903 or Rule 904.
(d) Transfer and Exchange of Definitive Securities for
--------------------------------------------------
Beneficial Interests.
- --------------------
(i) Restricted Definitive Securities to Beneficial
Interests in Restricted Global Securities. If any Holder of a Restricted
Definitive Security proposes to exchange such Security for a beneficial interest
in a Restricted Global Security or to
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transfer such Restricted Definitive Securities to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Security,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Security
proposes to exchange such Security for a beneficial interest in a
Restricted Global Security, a certificate from such Holder in the form
of Exhibit C hereto, including the certifications in item (2)(b)
thereof;
(B) if such Restricted Definitive Security is being
transferred to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof; or
(C) if such Restricted Definitive Security is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof,
the Trustee shall cancel the Restricted Definitive Security, increase or cause
to be increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Security, in the case of clause (B)
above, the U.S. Global Security, and in the case of clause (C) above, the Reg S
Global Security.
(ii) Restricted Definitive Securities to Beneficial
Interests in Unrestricted Global Securities. A Holder of a Restricted
Definitive Security may exchange such Security for a beneficial interest in
an Unrestricted Global Security or transfer such Restricted Definitive
Security to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Security only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Exchange Securities or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
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(D) the Registrar receives the following: (1) if the
Holder of such Restricted Definitive Securities proposes to exchange
such Securities for a beneficial interest in the Unrestricted Global
Security, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or (2) if
the Holder of such Restricted Definitive Securities proposes to
transfer such Securities to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Security, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof; and, in each
such case set forth in this subparagraph (D), an Opinion of Counsel in
form reasonably acceptable to the Registrar and the Company to the
effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act. Upon satisfaction of the
conditions of any of the subparagraphs in this Section 2.6(d)(ii), the
Trustee shall cancel the Restricted Definitive Securities so
transferred or exchanged and increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Security.
(iii) Unrestricted Definitive Securities to Beneficial
Interests in Unrestricted Global Seurities. A Holder of an Unrestricted
Definitive Security may exchange such Security for a beneficial interest in
an Unrestricted Global Security or transfer such Definitive Securities to a
Person who takes delivery thereof in the form of a beneficial interest in
an Unrestricted Global Security at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Security and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Securities. If
any such exchange or transfer from a Definitive Security to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii)
above at a time when an Unrestricted Global Security has not yet been
issued, the Company shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.2 hereof, the Trustee shall authenticate
one or more Unrestricted Global Securities in an aggregate principal amount
equal to the principal amount of Definitive Securities so transferred.
(e) Transfer and Exchange of Definitive Securities for
--------------------------------------------------
Definitive Securities. Upon request by a Holder of Definitive Securities and
- ---------------------
such Holder's compliance with the provisions of this Section 2.6(e), the
Registrar shall register the transfer or exchange of Definitive Securities.
Prior to such registration of transfer or exchange, the requesting Holder shall
present or surrender to the Registrar the Definitive Securities duly endorsed or
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by its attorney, duly authorized in
writing. In addition, the requesting Holder shall provide any additional
certifications, documents and information, as applicable, required pursuant to
the following provisions of this Section 2.6(e).
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(i) Restricted Definitive Securities to Restricted
Definitive Securities. Any Restricted Definitive Security may be
transferred to and registered in the name of Persons who take delivery
thereof in the form of a Restricted Definitive Security if the Registrar
receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of Exhibit
B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Securities to Unrestricted
Definitive Securities. Any Restricted Definitive Security may be exchanged
by the Holder thereof for an Unrestricted Definitive Security or
transferred to a Person or Persons who take delivery thereof in the form of
an Unrestricted Definitive Security if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Exchange Securities or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
(D) the Registrar receives the following: (1) if the
Holder of such Restricted Definitive Securities proposes to exchange
such Securities for an Unrestricted Definitive Security, a certificate
from such Holder in the form of Exhibit C hereto, including the
certifications in item (1)(d) thereof; or (2) if the Holder of such
Restricted Definitive Securities proposes to transfer such Securities
to a Person who shall take delivery thereof in the form of an
Unrestricted
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<PAGE>
Definitive Security, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion
of Counsel in form reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in compliance
with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Securities to Unrestricted
Definitive Securities. A Holder of Unrestricted Definitive Securities may
transfer such Securities to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Security. Upon receipt of a request to
register such a transfer, the Registrar shall register the Unrestricted
Definitive Securities pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange
--------------
Offer in accordance with the Registration Rights Agreement, the Company shall
issue and, upon receipt of an Authentication Order in accordance with Section
2.2 and an Opinion of Counsel for the Company as to certain matters discussed in
this Section 2.6(f), the Trustee shall authenticate (i) one or more Unrestricted
Global Securities in an aggregate principal amount equal to the sum of (A) the
principal amount of the beneficial interests in the Restricted Global Securities
tendered for acceptance by Persons that certify in the applicable Letters of
Transmittal that (x) they are not Broker-Dealers, (y) they are not participating
in a distribution of the Exchange Securities and (z) they are not affiliates (as
defined in Rule 144) of the Company, and accepted for exchange in the Exchange
Offer and (B) the principal amount of Definitive Securities exchanged or
transferred for beneficial interests in Unrestricted Global Securities in
connection with the Exchange Offer pursuant to Section 2.6(d)(ii) and (ii)
Definitive Securities in an aggregate principal amount equal to the principal
amount of the Restricted Definitive Securities accepted for exchange in the
Exchange Offer (other than Definitive Securities described in clause (i)(B)
immediately above). Concurrently with the issuance of such Notes, the Trustee
shall cause the aggregate principal amount of the applicable Restricted Global
Securities to be reduced accordingly, and the Company shall execute and, upon
receipt of an Authentication Order pursuant to Section 2.2, the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Securities so accepted Definitive Securities in the appropriate principal
amount.
The Opinion of Counsel for the Company referenced above shall state
that:
(i) the Series B Senior Notes have been duly authorized
and, when executed and authenticated in accordance with the provisions of
the Indenture and delivered in exchange for Series A Notes in accordance
with the Indenture and the Exchange Offer, will be entitled to the benefits
of the Indenture and will be valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to customary
exceptions; and
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(ii) when the Series B Notes are executed and
authenticated in accordance with the provisions of the Indenture and
delivered in exchange for Series A Notes in accordance with the Indenture
and the Exchange Offer, the Subsidiary Guarantees endorsed thereon will be
entitled to the benefits of the Indenture and will be valid and binding
obligations of the Guarantors, enforceable in accordance with their terms,
subject to customary exceptions.
(g) Legends. The following legends shall appear on the
-------
face of all Global Securities and Definitive Securities issued under this
Indenture unless specifically stated otherwise in the applicable provisions
of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Security and each Definitive Security (and all Securities
issued in exchange therefor or substitution thereof) shall bear the
legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI")
OR (C) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE
COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE
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<PAGE>
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE
COMPANY SO REQUESTS, THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE COMPANY SO
REQUESTS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Security or
Definitive Security issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section
2.6 (and all Securities issued in exchange therefor or substitution
thereof) shall not bear the Private Placement Legend.
(ii) Global Security Legend. To the extent required by the
Depositary, each Global Security shall bear a legend in substantially the
following form:
THIS GLOBAL SECURITY IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS SECURITY) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.6
OF THE INDENTURE, (II) THIS GLOBAL SECURITY MAY BE EXCHANGED IN WHOLE
BUT NOT IN PART PURSUANT TO SECTION 2.6(a) OF THE INDENTURE, (III)
THIS GLOBAL SECURITY MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION
PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
SECURITY MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY.
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(iii) Reg S Temporary Global Security Legend. To the extent
required by the Depositary, each Reg S Temporary Global Security shall bear
a legend in substantially the following form:
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE
CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS
THIS SECURITY. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT
INTEREST FROM ACCRUING ON THIS SECURITY.
(h) Cancellation and/or Adjustment of Global Securities.
---------------------------------------------------
At such time as all beneficial interests in a particular Global Security have
been exchanged for Definitive Securities or a particular Global Security has
been redeemed, repurchased or cancelled in whole and not in part, each such
Global Security shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Security is exchanged for or transferred to
a Person who will take delivery thereof in the form of a beneficial interest in
another Global Security or for Definitive Securities, the principal amount of
Securities represented by such Global Security shall be reduced accordingly and
an endorsement shall be made on such Global Security by the Trustee or by the
Depositary at the direction of the Trustee to reflect such reduction; and if the
beneficial interest is being exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Security, such other Global Security shall be increased accordingly and an
endorsement shall be made on such Global Security by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchange
-----------------------------------------------------
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Global
Securities and Definitive Securities upon receipt of an Authentication
Order.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Security or to a Holder of a Definitive
Security for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.7, 4.14 and 10.1 hereof).
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(iii) The Registrar shall not be required to register the
transfer of or exchange any Security selected for redemption in whole or in
part, except the unredeemed portion of any Security being redeemed in part.
(iv) All Global Securities and Definitive Securities
issued upon any registration of transfer or exchange of Global Securities
or Definitive Securities shall be the valid obligations of the Company,
evidencing the same Indebtedness, and entitled to the same benefits under
this Indenture, as the Global Securities or Definitive Securities
surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Securities during a period
beginning at the opening of business 15 days before the day of any
selection of Securities for redemption under Section 3.3 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Security so selected for redemption in whole
or in part, except the unredeemed portion of any Security being redeemed in
part or (C) to register the transfer of or to exchange a Security between a
record date and the next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a
transfer of any Security, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Security is registered as the
absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Securities and for all other purposes,
and none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Securities and
Definitive Securities in accordance with the provisions of Section 2.2
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this Section
2.6 to effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.7. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Trustee, to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder must provide an indemnity
bond or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee or any Agent from any loss which
any of them may suffer if a Security is
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replaced. The Company may charge such Holder for its reasonable, out-of-pocket
expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.8. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9 hereof.
If a Security is replaced pursuant to Section 2.7 hereof (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7
hereof.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or an Affiliate of the Company) holds cash sufficient to pay
all of the principal and interest and premium, if any, due on the Securities
payable on that date and payment of the Securities called for redemption is not
otherwise prohibited, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.9. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that a Trust Officer of the Trustee knows are
so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
--------------------
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of Definitive Securities but may
have variations that the Company reasonably and in good faith consider
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall, upon receipt of a written order of the
Company in the form of an Officers' Certificate, authenticate Definitive
Securities in exchange for temporary
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Securities. Until so exchanged, the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11 Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration, transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or an Affiliate of the Company), and no one
else, shall cancel and, without the written direction of the Company to the
contrary, shall dispose of all Securities surrendered for transfer, exchange,
payment or cancellation. Subject to Section 2.7 hereof, the Company may not
issue new Securities to replace Securities that have been paid or delivered to
the Trustee for cancellation. No Securities shall be authenticated in lieu of
or in exchange for any Securities cancelled as provided in this Section 2.11
hereof, except as expressly permitted in the form of Securities and as permitted
by this Indenture.
SECTION 2.12. Defaulted Interest.
------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus any interest
payable on the defaulted interest at the rate and in the manner provided in
Section 4.1 hereof and the Security (herein called "Defaulted Interest"), shall
forthwith cease to be payable to the registered holder on the relevant Record
Date, or, as applicable, the Special Record Date (as defined below), and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Securities (or their
respective predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee and the Paying Agent in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment,
and at the same time the Company shall deposit with the Paying Agent an
amount of cash equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements satisfactory to the
Paying Agent for such deposit prior to the date of the proposed payment,
such cash when deposited to be held in trust for the benefit of the persons
entitled to such Defaulted Interest as provided in this clause (1).
Thereupon the Paying Agent shall fix a special record date for the payment
of such Defaulted Interest
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(a "Special Record Date"), which shall be not more than 15 days, and not
less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Paying Agent of the notice of the
proposed payment. The Paying Agent shall promptly notify the Company and
the Trustee of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security register not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the persons in whose names the
Securities (or their respective predecessor Securities) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2) .
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee and the Paying Agent of the proposed payment
pursuant to this clause, such manner shall be deemed practicable by the
Trustee and the Paying Agent.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon the registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.13. CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
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ARTICLE 111
REDEMPTION
SECTION 3.1 Right of Redemption.
-------------------
Redemption of Securities, as permitted by the provisions of this
Indenture, shall be made in accordance with such provisions and this Article
III. The Company shall not have the right to redeem any Securities prior to
August 1, 2002, other than as provided in the following paragraph and Paragraph
5 of the Securities. On or after August 1, 2002, the Company shall have the
right to redeem all or any part of the Securities for cash at the Redemption
Prices specified in the form of Security attached as Exhibit A set forth therein
in Paragraph 5 thereof, in each case (subject to the right of Holders of record
on a Record Date to receive interest due on an Interest Payment Date that is on
or prior to such Redemption Date, and subject to the provisions set forth in
Section 3.5), including accrued and unpaid interest and Liquidated Damages, if
any, thereon to the Redemption Date.
Notwithstanding the foregoing, until August 1, 2001, upon one or more
Public Equity Offerings of common stock for cash of the Company (or of the
Parent, provided that Net Cash Proceeds sufficient to make such redemption are
contributed to the Company by the Parent as a Capital Contribution), up to 35%
of the aggregate principal amount of the Securities issued pursuant to this
Indenture may be redeemed at the option of the Company within 90 days of such
Public Equity Offering, on not less than 30 days, but not more than 60 days,
notice to each holder of the Securities to be redeemed, with cash from the Net
Cash Proceeds of such Public Equity Offering, at a redemption price equal to
112% of principal, (subject to the right of Holders of record on a Record Date
to receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided, however, that at least 65%
of the aggregate principal amount of the Securities issued pursuant to this
Indenture (without giving effect to the cancellation of Initial Securities in
connection with the issuance of Exchange Securities) remain outstanding
immediately following such redemption.
Except as provided in this paragraph and Paragraph 5 of the
Securities, the Securities may not otherwise be redeemed at the option of the
Company.
SECTION 3.2. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee and the Paying Agent in writing of
the Redemption Date and the principal amount of Securities to be redeemed and
whether it wants the Paying Agent to give notice of redemption to the Holders.
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If the Company elects to reduce the principal amount of Securities to
be redeemed pursuant to Paragraph 5 of the Securities by crediting against any
such redemption Securities it has not previously delivered to the Trustee and
the Paying Agent for cancellation, it shall so notify the Trustee, in the form
of an Officers' Certificate, and the Paying Agent of the amount of the reduction
and deliver such Securities with such notice.
The Company shall give each notice to the Trustee and the Paying Agent
provided for in this Section 3.2 at least 40 days before the Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee and the Paying
Agent). Any such notice may be cancelled at any time prior to notice of such
redemption being mailed to any Holder and shall thereby be void and of no
effect.
SECTION 3.3 Selection of Securities to Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed on a
pro rata basis or by lot.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
and the Paying Agent in writing of the Securities selected for redemption and,
in the case of any Security selected for partial redemption, the principal
amount thereof to be redeemed. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.4. Notice of Redemption.
--------------------
At least 30 days, but not more than 60 days prior to the Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee, the Paying Agent and each Holder whose Securities are
to be redeemed. At the Company's request, the Paying Agent shall give the
notice of redemption in the Company's name and at the Company's expense. Each
notice for redemption shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price, including accrued and unpaid
interest and Liquidated Damages, if any, to be paid upon such redemption;
(3) the name and address of the Paying Agent;
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(4) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such notice to
collect the Redemption Price;
(5) that, unless (a) the Company defaults in its obligation
to deposit with the Paying Agent cash which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms
shall provide the amount to fund the Redemption Price in accordance with
Section 3.6 hereof or (b) such redemption payment is prohibited, interest
on Securities called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price, including accrued
and unpaid interest (and Liquidated Damages, if any) to the Redemption
Date, upon surrender to the Paying Agent of the Securities called for
redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion
of the principal amount, equal to $1,000 or any integral multiple thereof,
of such Security to be redeemed and that, after the Redemption Date, and
upon surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof shall be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption ;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section
3.4 and pursuant to the optional redemption provisions of Paragraph 5 of
the Securities.
SECTION 3.5 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.4
hereof, Securities called for redemption become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest (and Liquidated Damages, if any) to the Redemption Date. Upon
surrender to the Trustee or Paying Agent, such Securities called for redemption
shall be paid at the Redemption Price, including interest and Liquidated
Damages, if any, accrued and unpaid to the Redemption Date; provided that if the
Redemption Date is after a regular Record Date and on or prior to the Interest
Payment Date, to which such Record Date relates, the accrued interest (and
Liquidated Damages, if any) shall be payable to the Holder of the redeemed
Securities registered on the relevant Record Date; and provided, further, that
if a Redemption Date is a Legal Holiday, payment shall be made on the next
succeeding Business Day and no interest shall accrue for the period from such
Redemption Date to such succeeding Business Day.
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SECTION 3.6. Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) cash
sufficient to pay the Redemption Price of all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any cash
so deposited which is not required for that purpose upon the written request of
the Company.
If the Company complies with the preceding paragraph and payment of
the Securities called for redemption is not prohibited for any reason, interest
on the Securities to be redeemed shall cease to accrue on the applicable
Redemption Date, whether or not such Securities are presented for payment.
Notwithstanding anything herein to the contrary, if any Security surrendered for
redemption in the manner provided in the Securities shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7 Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
---------------------
The Company shall pay the principal of and interest (and Liquidated
Damages, if any) on the Securities on the dates and in the manner provided
herein and in the Securities. An installment of principal of or interest (or
Liquidated Damages, if any) on the Securities shall be considered paid on the
date it is due if the Trustee or Paying Agent (other than the Company or an
Affiliate of the Company) holds for the benefit of the Holders (on or before
10:00 a.m. New York City time to the extent necessary to provide the funds to
the Depository in accordance with the Depository's procedures) on that date cash
deposited and designated for and sufficient to pay the installment.
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The Company shall pay interest on overdue principal and on overdue
installments of interest (and Liquidated Damages, if any) at the rate specified
in the Securities compounded semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency.
-------------------------------
The Company and the Guarantors shall maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company and the Guarantors in respect of the Securities and this Indenture
may be served. The Company and the Guarantors shall give prompt written notice
to the Trustee and the Paying Agent of the location, and any change in the
location, of such office or agency. If at any time the Company and the
Guarantors shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee and the Paying Agent with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.2 hereof.
The Company and the Guarantors may also from time to time designate
one or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company and the Guarantors of their obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York,
for such purposes. The Company and the Guarantors shall give prompt written
notice to the Trustee and the Paying Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby initially designates the Corporate Trust Office of the Trustee as
such office.
SECTION 4.3. Limitation on Restricted Payments.
---------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly, make any Restricted
Payment if, after giving effect to such Restricted Payment on a pro forma basis,
(1) a Default or an Event of Default shall have occurred and be continuing, (2)
the Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in Section 4.11 or (3) the aggregate
amount of all Restricted Payments made by the Company and its Subsidiaries,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed, without duplication, the sum of (a) 50% of
the aggregate Consolidated Net Income of the Company for the period (taken as
one accounting period), commencing on the first day of the first full fiscal
quarter commencing after the Issue Date, to and including the last day of the
fiscal quarter ended immediately prior to the date of each such calculation (or,
in the event Consolidated Net Income for such period is a deficit, then minus
100% of such deficit), plus (b) the aggregate Net Cash Proceeds received by the
Company from the sale of its Qualified Capital Stock (other than (i) to a
Subsidiary of the Company and (ii) to the extent applied in connection with a
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Qualified Exchange), after the Issue Date plus (c) to the extent not included in
Consolidated Net Income, 100% of any dividends or other distributions received
by the Company or a Subsidiary of the Company after the Issue Date from an
Unrestricted Subsidiary of the Company, plus (d) to the extent that any
Investment (other than a Permitted Investment and any other Investment which
when made was not deducted in this clause (3)) that was made after the Issue
Date is sold for cash or Cash Equivalents or otherwise liquidated or repaid for
cash or Cash Equivalents, the lesser of (A) the cash or Cash Equivalents return
of capital with respect to such Investment (less the cost of disposition, if
any) and (B) the initial amount of such Investment plus (e) 100% of the
aggregate net Cash Equivalent proceeds received by the Company (other than from
its Subsidiaries) from Capital Contributions after the Issue Date.
The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, shall not prohibit (v) to the extent such payments would constitute a
Restricted Payment, the payments of amounts to Brentwood in accordance with the
Administrative Services Agreement, and (w) repurchases of Capital Stock from
employees of the Company, a Parent or their Subsidiaries upon the death,
disability or termination of employment in an aggregate amount to all employees
not to exceed $1.0 million per year or $3.0 million in the aggregate on and
after the Issue Date, and the provisions of the immediately preceding paragraph
will not prohibit (x) any dividend, distribution or other payments by any
Subsidiary of the Company on its Equity Interests that is paid pro rata to all
holders of such Equity Interests, (y) a Qualified Exchange, (z) the payment of
any dividend on Qualified Capital Stock within 60 days after the date of its
declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions or (aa) Permitted
Payments to Parent. The full amount of any Restricted Payment made pursuant to
the foregoing clauses (w), (x) and (z) (but not pursuant to clauses (v), (y) and
(aa)) of the immediately preceding sentence, however, shall be deducted in the
calculation of the aggregate amount of Restricted Payments available to be made
referred to in clause (3) of the immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of the Company.
Additionally, within 5 days of each Restricted Payment in excess of $1.0
million, the Company shall deliver an Officers' Certificate to the Trustee
describing in reasonable detail the nature of such Restricted Payment, stating
the amount of such Restricted Payment, stating in reasonable detail the
provisions of this Indenture pursuant to which such Restricted Payment was made
and certifying that such Restricted Payment was made in compliance with this
Indenture.
SECTION 4.4. Corporate and Partnership Existence.
-----------------------------------
Except as otherwise permitted by Article V, Section 4.14 or Section
11.4, the Company and the Guarantors shall do or cause to be done all things
necessary to preserve and keep in full force and effect their respective
corporate, partnership or other organizational existence,
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as the case may be, and the corporate, partnership or other organizational
existence, as the case may be, of each of their Subsidiaries in accordance with
the respective organizational documents of each of them and the material rights
(charter and statutory) and material corporate franchises of the Company, the
Guarantors and each of their respective Subsidiaries; provided, however, that
neither the Company nor any Guarantor shall be required to preserve, with
respect to themselves, any right or franchise, and with respect to any of their
respective Subsidiaries, any such existence, right or franchise, if (a) the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and (b) the loss thereof is not
adverse in any material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims.
---------------------------------
The Company and the Guarantors shall, and shall cause each of their
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company, any Guarantor or any
of their Subsidiaries or any of their respective properties and assets and (ii)
all lawful claims, whether for labor, materials, supplies or services, which
have become due and payable and which by law have or may become a Lien upon the
property and assets of the Company, any Guarantor or any of their Subsidiaries;
provided, however, that neither the Company nor any Guarantor shall be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
SECTION 4.6. Maintenance of Properties and Insurance.
---------------------------------------
The Company and the Guarantors shall cause all material properties
used or useful to the conduct of their business and the business of each of
their Subsidiaries to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in their reasonable
judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; provided, however, that
nothing in this Section 4.6 shall prevent the Company or any Guarantor from
discontinuing any operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is (a)(i) in the
judgment of the Board of Directors of the Company, desirable in the conduct of
the business of the Company and (ii) not adverse in any material respect to the
Holders or (b) otherwise permitted under Section 4.14.
The Company and the Guarantors shall provide, or cause to be provided,
for themselves and each of their Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Board of Directors of the Company is adequate and
appropriate for the conduct of the business of the Company, the Guarantors and
such Subsidiaries in a prudent manner, with (except for self-insurance)
reputable
55
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insurers or with the government of the United States of America or an
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the reasonable, good faith opinion of
the Company and adequate and appropriate for the conduct of the business of the
Company, the Guarantors and such Subsidiaries in a prudent manner for entities
similarly situated in the industry.
SECTION 4.7. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee within 120
days after the end of its fiscal year an Officers' Certificate, one of the
signers of which shall be the principal executive, principal financial or
principal accounting officer of the Company, complying with Section 314(a)(4) of
the TIA and stating that a review of its activities and the activities of its
Subsidiaries, if any, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture (without regard to notice requirements or grace periods) and further
stating, as to each such Officer signing such certificate, whether or not the
signer knows of any failure by the Company, any Guarantor or any Subsidiary of
the Company to comply with any conditions or covenants in this Indenture and, if
such signer does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall also
notify the Trustee should the relevant fiscal year end on any date other than
the current fiscal year end date.
(b) The Company shall, so long as any of the Securities
are outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have knowledge of any
Default or any Event of Default unless one of its Trust Officers receives
written notice thereof from the Company or any of the Holders.
SECTION 4.8 Reports.
-------
Whether or not the Parent or the Company are subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Parent and the
Company shall deliver to the Trustee and, to each Holder and to prospective
purchasers of Securities identified to the Company by an Initial Purchaser,
within 15 days after it is or would have been (if it were subject to such
reporting obligations) required to file such with the Commission, annual and
quarterly financial statements substantially equivalent to financial statements
that would have been included in reports filed with the Commission if the
Company or the Parent were subject to the requirements of Section 13 or 15(d) of
the Exchange Act, including, with respect to annual information only, a report
thereon by the Company's and the Parent's certified independent public
accountants as such would be required in such reports to the Commission, and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required and, unless the
Commission shall not accept such reports, file with the Commission
56
<PAGE>
the annual, quarterly and other reports which it is or would have been required
to file with the Commission; provided that the foregoing shall not require the
Company or the Parent to furnish separate financial results of its Subsidiaries
unless otherwise required to do so by the Commission. Notwithstanding the
foregoing, the Company shall not be required to file a quarterly report for the
quarter ended June 30, 1998 until August 31, 1998.
SECTION 4.9. Limitation on Status as Investment Company.
------------------------------------------
The Company shall not and shall not permit any of its Subsidiaries to
become required to register as an "investment company" (as that term is defined
in the Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act.
SECTION 4.10 Limitation on Transactions with Affiliates.
------------------------------------------
Neither the Company nor any of its Subsidiaries shall be permitted on
or after the Issue Date to enter into or suffer to exist any contract,
agreement, arrangement or transaction with any Affiliate (an ''Affiliate
Transaction''), or any series of related Affiliate Transactions, (other than
Exempted Affiliate Transactions), (i) unless it is determined that the terms of
such Affiliate Transaction are fair and reasonable to the Company, and no less
favorable to the Company, than could have been obtained in an arm's length
transaction with a non-Affiliate, and (ii) if involving consideration to either
party in excess of $1.0 million, unless such Affiliate Transaction(s) is
evidenced by an Officers' Certificate addressed and delivered to the Trustee
certifying that such Affiliate Transaction (or Transactions) has been approved
by a majority of the members of the Board of Directors that are disinterested in
such transaction (if any) and (iii) if involving consideration to either party
in excess of $5.0 million, unless in addition the Company, prior to the
consummation thereof, obtains a written favorable opinion as to the fairness of
such transaction to the Company from a financial point of view from an
independent investment banking firm, independent investment adviser, accounting
firm or other qualified appraiser, including, in the case of a transaction
involving real estate, a real estate appraisal firm, in each case, of national
standing or with a national reputation.
SECTION 4.11 Limitation on Incurrence of Additional Indebtedness and
-------------------------------------------------------
Disqualified Capital Stock.
- --------------------------
Except as set forth in this covenant, the Company and the Guarantors
shall not, and shall not permit any of their respective Subsidiaries to,
directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to ''incur'' or, as appropriate, an ''incurrence''), any
Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness), other than Permitted Indebtedness. Notwithstanding the foregoing,
if (i) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness or Disqualified Capital Stock and (ii) on the date of
such incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to, such
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<PAGE>
incurrence of such Indebtedness or Disqualified Capital Stock and, to the
extent set forth in the definition of Consolidated Coverage Ratio, the use of
proceeds thereof, would be at least 2 to l (the "Debt Incurrence Ratio"), then
the Company and the Guarantors may incur such Indebtedness or Disqualified
Capital Stock.
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any of its Subsidiaries of
Purchase Money Indebtedness, provided that (i) the aggregate amount of such
Indebtedness incurred and outstanding at any time pursuant to this paragraph
(a) (plus any Indebtedness issued to retire, defease, refinance, replace or
refund such Indebtedness) shall not exceed $10.0 million, and (ii) in each
case, such Indebtedness shall not constitute more than 100% of the cost
(determined in accordance with GAAP) to the Company or such Subsidiary, as
applicable, of the property so purchased or leased;
(b) if no Event of Default shall be continuing after application of
the proceeds from such incurrence, the incurrence by the Company or any
Guarantor of Indebtedness in an aggregate amount incurred and outstanding at
any time pursuant to this paragraph (b) (plus any Indebtedness incurred to
retire, defease, refinance, replace or refund such Indebtedness) of up to
$10.0 million; and
(c) the incurrence by the Company or any Guarantor of Indebtedness
pursuant to the Credit Agreement in an aggregate amount incurred and
outstanding at any time pursuant to this paragraph (c) (plus any Indebtedness
incurred to retire, defease, refinance, replace or refund such Indebtedness)
of up to $75.0 million, minus the amount of any such Indebtedness (i) retired
with the Net Cash Proceeds from any Asset Sale applied to permanently reduce
the outstanding amounts or the commitments with respect to such Indebtedness
pursuant to clause (1)(b)(ii) of the first paragraph of Section 4.14 or (ii)
assumed by a transferee in an Asset Sale; provided, however, that neither the
Company nor any Guarantor may incur Indebtedness pursuant to this clause (c)
the proceeds of which are used to finance one or more Acquisitions (including
the repayment of any Acquired Indebtedness substantially concurrently with
such Acquisition) unless the Consolidated Coverage Ratio for the Reference
Period immediately preceding the Incurrence Date, after giving effect on a pro
forma basis to such incurrence of Indebtedness, would be greater than the
ratio set forth below opposite such period:
<TABLE>
Consolidated
Coverage
Reference Period ending Ratio
- ----------------------- ----------------
<S> <C>
Prior to June 30, 1999................................ 1.50 to 1.00
</TABLE>
58
<PAGE>
<TABLE>
<S> <C>
June 30, 1999-June 29, 2000........................... 1.75 to 1.00
June 30, 2000-June 29, 2001........................... 1.90 to 1.00
June 30, 2001-June 29, 2002........................... 2.00 to 1.00
June 30, 2002 and thereafter.......................... 2.25 to 1.00
</TABLE>
For purposes of this clause (c) only, Consolidated EBITDA as used to
determine the Consolidated Coverage Ratio shall be calculated after giving
pro forma effect to (A) any Acquisition (including the Stone Acquisition
and the City Recapitalization) occurring during the Reference Period as if
such Acquisition occurred at the beginning of the Reference Period and (B)
any Approved Cost Savings anticipated to be realized over the next four
fiscal quarters in connection with an Acquisition (including the Stone
Acquisition and the City Recapitalization) occurring during the Reference
Period. For each full fiscal quarter completed after consummation of an
Acquisition occurring during the Reference Period, 25% of such Approved
Cost Savings associated with such Acquisition shall be excluded from the
calculation of Consolidated EBITDA (and comparable pro rata exclusions
shall be made for post-Acquisition periods of less than a full fiscal
quarter). Such aggregate Approved Cost Savings shall not exceed 25% of
Consolidated EBITDA for any Reference Period.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
Upon each incurrence, the Company shall designate pursuant to which
provision of this covenant such Indebtedness or Disqualified Capital Stock is
being incurred and such Indebtedness or Disqualified Capital Stock shall not be
deemed to have been incurred or outstanding under any other provision of this
covenant, except as stated otherwise in any such provision or applicable
definition.
SECTION 4.12. Limitations on Dividends and Other Payment
------------------------------------------
Restrictions Affecting Subsidiaries.
- -----------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly, create, assume or
suffer to exist any consensual restriction on the ability of any Subsidiary of
the Company to pay dividends or make other distributions to or on behalf of, or
to pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, the Company or any Subsidiary of the Company, except (a) restrictions
imposed by the Notes or this Indenture or by other indebtedness of the Company
(which may also be guaranteed by the Guarantors) ranking senior or pari passu
with the Notes or the guarantees, as applicable,
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<PAGE>
provided, such restrictions taken as a whole are no more restrictive than those
imposed by this Indenture and the Notes, (b) restrictions imposed by applicable
law, (c) existing restrictions under Indebtedness outstanding on the Issue Date,
including pursuant to the Credit Agreement, (d) restrictions under any Acquired
Indebtedness not incurred in violation of this Indenture or any agreement
relating to any property, asset, or business acquired by the Company or any of
its Subsidiaries, which restrictions in each case existed at the time of
acquisition, were not put in place in connection with or in anticipation of such
acquisition and are not applicable to any person, other than the person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired; (e) any such restriction or requirement imposed by
Indebtedness incurred under the Credit Agreement pursuant to clause (c) of
Section 4.11 provided, in each case, such restriction or requirement is no more
restrictive taken as a whole than that imposed by the Credit Agreement as of the
Issue Date, (f) restrictions with respect solely to a Subsidiary of the Company
imposed pursuant to a binding agreement which has been entered into for the sale
or disposition of all or substantially all of the Equity Interests or assets of
such Subsidiary, provided, such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold (g) restrictions on
transfer contained in Purchase Money Indebtedness incurred pursuant to paragraph
(a) of Section 4.11, provided, such restrictions relate only to the transfer of
the property acquired with the proceeds of such Purchase Money Indebtedness, (h)
restrictions contained in Indebtedness or other contractual requirements of a
Receivables Subsidiary in connection with a Qualified Receivables Transaction,
provided, that, such restrictions apply only to such Receivables Subsidiary, and
(i) in connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clauses (a), (c), (d) or (e) of this paragraph
that are not more restrictive taken as a whole than those being replaced and do
not apply to any other person or assets than those that would have been covered
by the restrictions in the Indebtedness so refinanced. Notwithstanding the
foregoing, (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, consistent with industry
practice, shall in and of themselves not be considered a restriction on the
ability of the applicable Subsidiary to transfer such assets and (b) any asset
subject to a Lien which is not prohibited to exist with respect to such asset
pursuant to the terms of this Indenture may be subject to restrictions on the
transfer or disposition thereof in accordance with any such Liens.
SECTION 4.13. Limitations on Layering Indebtedness.
------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their respective Subsidiaries to, directly or indirectly, incur, or suffer to
exist any Indebtedness that is subordinate in right of payment to any other
Indebtedness of the Company or a Guarantor unless, by its terms, such
Indebtedness is subordinate in right of payment to, or ranks pari passu with,
the Notes or the Guarantees, as applicable.
60
<PAGE>
SECTION 4.14 Limitation on Sales of Assets and Subsidiary Stock.
--------------------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their respective Subsidiaries to, in one or a series of related transactions,
convey, sell, transfer, assign or otherwise dispose of, directly or indirectly,
any of its property, business or assets, including by merger or consolidation
(in the case of a Subsidiary of the Company), and including any sale or other
transfer or issuance of any Equity Interests of any Subsidiary of the Company,
whether by the Company or a Subsidiary of either or through the issuance, sale
or transfer of Equity Interests by a Subsidiary of the Company, and including
any sale and leaseback transaction (any of the foregoing, an ''Asset Sale''),
unless (l)(a) the Net Cash Proceeds therefrom (the ''Asset Sale Offer Amount'')
are applied (i) within 330 days after the date of such Asset Sale to the
optional redemption of the Notes in accordance with the terms of this Indenture
and other Indebtedness of the Company ranking on a parity with the Notes and
with similar provisions requiring the Company to redeem such Indebtedness with
the proceeds for asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Notes and such other Indebtedness then outstanding or
(ii) within 360 days after the date of such Asset Sale to the repurchase of the
Notes and such other Indebtedness on a parity with the Notes and with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from asset sales pursuant to a cash offer (subject only to
conditions required by applicable law, if any) (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding) (the ''Asset Sale Offer'') at a purchase price of 100% of
principal amount (or accreted value in the case of Indebtedness issued with an
original issue discount) (the ''Asset Sale Offer Price'') together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of payment, made
within 330 days of such Asset Sale or (b) within 330 days following such Asset
Sale, the Asset Sale Offer Amount is (i) invested (or committed, pursuant to a
binding commitment subject only to reasonable, customary closing conditions, to
be invested, and in fact is so invested, within an additional 90 days) in assets
and property (except in connection with the acquisition of a Guarantor in a
Related Business, other than notes, bonds, obligations and securities) or other
Permitted Investments pursuant to clause (d) thereof, which in the good faith
reasonable judgment of the Board shall immediately constitute or be a part of a
Related Business of the Company or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction or (ii) used to retire
Purchase Money Indebtedness or Senior Debt and to permanently reduce (in the
case of Senior Debt that is not Purchase Money Indebtedness) the amount of such
Indebtedness outstanding on the Issue Date or permitted pursuant to paragraph
(b) or (c) of Section 4.11 (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so permanently
reduced by such amount), (2) at least 75% of the consideration for such Asset
Sale or series of related Asset Sales consists of cash or Cash Equivalents
received at the time of such Asset Sale, (3) no Default or Event of Default
shall have occurred and be continuing at the time of, or would occur after
giving effect, on a pro forma basis, to, such Asset Sale, and (4) the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives at least fair market value for such Asset
Sale.
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<PAGE>
An acquisition of Notes pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in 1(a)(i) or 1(b) above (the ''Excess Proceeds'') exceeds
$5.0 million and that each Asset Sale Offer shall remain open for 20 Business
Days following its commencement (the ''Asset Sale Offer Period''). Upon
expiration of the Asset Sale Offer Period, the Company shall apply the Asset
Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Indebtedness properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest and Liquidated Damages, if any). To the extent that the
aggregate amount of Notes and such other pari passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Company may use any remaining Net Cash Proceeds for general corporate purposes
as otherwise permitted by the Indenture and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero. For purposes of (2) above,
consideration received means the total consideration received for such Asset
Sales minus the amount of, (a) Purchase Money Indebtedness secured solely by the
assets sold and assumed by a transferee and (b) property that within 30 days of
such Asset Sale is converted into cash or Cash Equivalents, provided, that, such
cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to
the original Asset Sale for which such property was received.
Notwithstanding, and without complying with, the provisions of this
covenant, (i) the Company and its Subsidiaries may, in the ordinary course of
business, (1) convey, sell, transfer, assign or otherwise dispose of inventory
and other assets acquired and held for resale in the ordinary course of business
and (2) liquidate Cash Equivalents; (ii) the Company and its Subsidiaries may
convey, sell, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with Section 5.1; (iii) the Company and its Subsidiaries may sell or
dispose of damaged, worn out or other obsolete property in the ordinary course
of business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary, as applicable; (iv)
the Company and the Guarantors may convey, sell, transfer, assign or otherwise
dispose of assets to the Company or any of the Guarantors; (v) the Company and
its Subsidiaries, in the ordinary course of business, may convey, sell transfer,
assign, or otherwise dispose of assets (or related assets in related
transactions) with a fair market value of less than $250,000; (vi) the Company
and each of its Subsidiaries may surrender or waive contract rights or settle,
release or surrender of contract, tort or other claims of any kind or grant
Liens not prohibited by this Indenture; and (vii) the Company may sell accounts
receivable and related assets of the type specified in the definition of
Qualified Receivables Transaction to a Receivables Subsidiary for the fair
market value thereof, but in any case including cash in an amount at least equal
to 75% of the book value thereof as determined in accordance with GAAP, and a
Receivables Subsidiary may transfer accounts receivable and related assets of
the type specified in the definition of Qualified Receivables Transaction (or a
fractional undivided interest therein) in a Qualified Receivables Transaction.
All Net Cash Proceeds from an Event of Loss relating to a Company
facility shall be invested, used for prepayment of Senior Debt or used to
repurchase Notes and pari passu debt
62
<PAGE>
on a pro rata basis, all within the period and as otherwise provided above in
clauses 1(a) or 1(b) of the first paragraph of this covenant.
In addition to the foregoing and notwithstanding anything herein to
the contrary, the Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly make any Asset Sale of any of the Equity Interests of
any Subsidiary of the Company (other than to the Company or a Wholly-Owned
Subsidiary Guarantor) except pursuant to an Asset Sale of all the Equity
Interests of such Subsidiary.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this paragraph,
compliance by the Company or any of its subsidiaries with such laws and
regulations shall not in and of itself cause a breach of its obligations under
such covenant.
If the payment date in connection with an Asset Sale Offer hereunder
is on or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (or Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
Notice of an Asset Sale Offer shall be sent, on or prior to the
commencement of the Asset Sale Offer, by first-class mail, by the Company to
each Holder at its registered address, with a copy to the Trustee. The notice
to the Holders shall contain all information, instructions and materials
required by applicable law or otherwise material to such Holders' decision to
tender Securities pursuant to the Asset Sale Offer. The notice, which (to the
extent consistent with this Indenture) shall govern the terms of an Asset Sale
Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant to such
notice and this Section 4.14;
(2) the Asset Sale Offer Amount, the Asset Sale Offer Price
(including the amount of accrued but unpaid interest (and Liquidated
Damages, if any)), and the date of purchase;
(3) that any Security or portion thereof not tendered or accepted
for payment will continue to accrue interest if interest is then accruing;
(4) that, unless the Company defaults in depositing cash with the
Paying Agent (which may not for purposes of this Section 4.14,
notwithstanding anything in this Indenture to the contrary, be the Company
or any Affiliate of the Company)
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<PAGE>
in accordance with the last paragraph of this Section 4.14 any Security, or
portion thereof, accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest after the Asset Sale Purchase Date;
(5) that Holders electing to have a Security, or portion thereof,
purchased pursuant to an Asset Sale Offer will be required to surrender
their Security, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Security completed, to the Paying Agent (which may
not for purposes of this Section 4.14, notwithstanding any other provision
of this Indenture, be the Company or any Affiliate of the Company) at the
address specified in the notice;
(6) that Holders will be entitled to withdraw their elections, in
whole or in part, if the Paying Agent receives, prior to the expiration of
the Asset Sale Offer, a facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Securities the Holder is
withdrawing and a statement containing a facsimile signature and stating
that such Holder is withdrawing his election to have such principal amount
of the Securities purchased;
(7) that if Indebtedness in a principal amount in excess of the
principal amount of Securities to be acquired pursuant to the Asset Sale
Offer are tendered and not withdrawn, the Company shall purchase
Indebtedness on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) thereof (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of
$1,000 or integral multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such Asset
Sales.
On or before the date of purchase, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Asset
Sale Offer (on a pro rata basis if required pursuant to paragraph (7) above),
(ii) deposit with the Paying Agent cash sufficient to pay the Asset Sale Offer
Price for all Securities or portions thereof so accepted and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof being purchased by the Company.
The Paying Agent shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the Asset Sale Offer Price for such
Securities, and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security equal in principal amount to any unpurchased portion
of the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof.
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SECTION 4.15. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of,
premium of, or interest (or Liquidated Damages, if any) on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each of the Company and the Guarantors hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.16 Limitation on Liens Securing Indebtedness.
-----------------------------------------
The Company and the Guarantors shall not, and shall not permit any of
their respective Subsidiaries to, create, incur, assume or suffer to exist any
Lien of any kind, other than Permitted Liens, upon any of their respective
assets now owned or acquired on or after the date of this Indenture or upon any
income or profits therefrom securing any Indebtedness of the Company or any
Guarantor unless the Company provides, and causes its Subsidiaries to provide,
concurrently therewith, that the Notes (and the Guarantees, as applicable) are
equally and ratably so secured, provided, that, if such Indebtedness is
Subordinated Indebtedness, the Lien securing such Subordinated Indebtedness
shall be subordinate and junior to the Lien securing the Notes with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the Notes.
SECTION 4 17. Rule 144A Information Requirement.
---------------------------------
The Company, the Guarantors and the Parent, if any, shall furnish to
the Holders of the Securities, securities analysts, and prospective purchasers
of Securities designated by the Holders of Transfer Restricted Securities, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act until such time as either the Company has
concluded an offer to exchange the Exchange Securities for the Initial
Securities or a registration statement relating to resales of the Securities has
become effective under the Securities Act. The Company, the Guarantors and the
Parent, if any, shall also furnish such information during the pendency of any
suspension of effectiveness of such resale registration statement.
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SECTION 4.18. Limitations on Lines of Business.
--------------------------------
Neither the Company nor any of its Subsidiaries (other than
Receivables Subsidiaries) shall directly or indirectly engage to any substantial
extent in any line or lines of business activity other than that which, in the
reasonable good faith judgment of the Board of Directors of the Company, is a
Related Business.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
The Company shall not consolidate with or merge with or into another
person or, directly or indirectly, sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons, unless (i) either (a) the Company is the continuing
entity or (b) the resulting, surviving or transferee entity is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Notes and this Indenture; (ii)
no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; and (iii) immediately
after giving effect to such transaction on a pro forma basis, the consolidated
resulting, surviving or transferee entity would immediately thereafter be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio set forth in Section 4.11.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to and (except in the
case of a lease) be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Notes and
this Indenture except with respect to any obligations that arise from, or are
related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise) of all or substantially all of the properties and assets of
one or more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2. Successor Corporation Substituted.
---------------------------------
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Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1
hereof, the successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made, or, in the case of a plan
of liquidation, the entity which receives the greatest value from such plan of
liquidation shall succeed to, and (except in the case of a lease) be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor corporation had been named herein as
the Company, and (except in the case of a lease) when a successor corporation
duly assumes all of the obligations of the Company pursuant hereto and pursuant
to the Securities, the Company shall be released from such obligations (except
with respect to any obligations that arise from, or are related to, such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure by the Company to pay any installment of interest
(or Liquidated Damages, if any) upon the Securities as and when the same
becomes due and payable, and the continuance of any such failure for a
period of 30 days;
(ii) failure by the Company to pay all or any part of the
principal of or premium, if any, on the Securities when and as the same
becomes due and payable at maturity, redemption, by acceleration, or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price on Notes validly tendered
pursuant to a Change of Control Offer or Asset Sale Offer, as applicable,
or otherwise;
(iii) failure by the Company or any Subsidiary otherwise to
comply with the provisions of Article V;
(iv) failure by the Company or any Subsidiary to observe or
perform any other covenant or agreement contained in the Securities or this
Indenture (except as provided in clauses (i), (ii) or (iii) of this Section
6.1) and the continuance of such failure for a period of 30 days after
written notice is given to the Company by the Trustee or to the Company and
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the Trustee by the Holders of at least 25% in aggregate principal amount of
the Securities outstanding;
(v) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 60 days; or a decree, judgment or order of a court of competent
jurisdiction appointing a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency for the Company, any of its Significant
Subsidiaries, or any substantial part of the property of any such Person,
or for the winding up or liquidation of the affairs of any such Person,
shall have been entered, and such decree, judgment, or order shall have
remained in force undischarged and unstayed for a period of 60 days;
(vi) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any substantial part of its assets or property, or shall make a
general assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, fail generally
to pay its debts as they become due, or take any corporate action in
furtherance of any of the foregoing;
(vii) the failure to pay at final stated maturity (giving
effect to any applicable grace periods) the principal amount of any
Indebtedness of the Company or any Subsidiary of the Company (other than a
Receivables Subsidiary) or the acceleration of the final stated maturity of
any Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any such Indebtedness in default for
failure to pay principal at final maturity or which has been accelerated,
aggregates $5 million or more at any time;
(viii) final unsatisfied judgments not covered by insurance for
the payment of money, or the issuance of any warrant of attachment against
any portion of the property or assets of the Company or any of its
Subsidiaries, aggregating in excess of $5 million, at any one time shall be
rendered against the Company or any of its Subsidiaries and not be stayed,
bonded or discharged for a period (during which execution shall not be
effectively stayed) of 60 days; and
(ix) any of the Guarantees ceases to be in full force and
effect or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is
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found to be invalid or any of the Guarantors or Parent denies its liability
under its Guarantee (other than by reason of release of a Guarantor in
accordance with the terms of this Indenture).
SECTION 6.2. Acceleration of Maturity Date; Rescission and
---------------------------------------------
Annulment.
- ---------
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 6.1(v) or Section 6.1(vi) above relating to the
Company or any Significant Subsidiary), then, and in every such case, unless the
principal of all of the Securities shall have already become due and payable,
either the Trustee or the Holders of 25% in aggregate principal amount of then
outstanding Securities, by notice in writing to the Company (and to the Trustee
if given by Holders) (an "Acceleration Notice"), may declare all principal,
determined as set forth below, and accrued interest (and Liquidated Damages, if
any) thereon to be due and payable and the same (i) shall become immediately due
and payable or (ii) if there is any Senior Debt outstanding under the Credit
Agreement, such principal and interest shall become immediately due and payable
upon the first to occur of an acceleration under the Credit Agreement or five
business days after receipt by the Company and the Representative of the holders
of the Indebtedness under the Credit Agreement of the notice of such an
acceleration, but only if such Event of Default is then continuing. In the
event a declaration of acceleration resulting from an Event of Default described
in Section 6.1(vii) above has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if such default is cured or waived
or the holders of the Indebtedness which is the subject of such default have
rescinded their declaration of acceleration in respect of such Indebtedness
within 15 days thereof and the Trustee has received written notice of such cure,
waiver or rescission and no other Event of Default described in Section 6.1(vii)
above has occurred that has not been cured or waived within 15 days of the
declaration of such acceleration in respect of such Indebtedness. If an Event
of Default specified in Section 6.1(v) or (vi) above relating to the Company
occurs, all principal and accrued interest (and Liquidated Damages, if any)
thereon will be immediately due and payable on all outstanding Securities
without any declaration or other act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of not less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee cash sufficient
to pay:
(A) all overdue interest and Liquidated Damages, if any, on all
Securities,
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(B) the principal of (and premium, if any, applicable to) any
Securities which would become due other than by reason of such declaration of
acceleration, and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
(D) all sums paid or advanced by the Trustee hereunder and the
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel, and all other amounts due the Trustee under Section 7.7 and
(2) all Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on Securities which have become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 6.12.
Notwithstanding the previous sentence of this Section 6.2, no waiver
shall be effective against any Holder for any Event of Default or event which
with notice or lapse of time or both would be an Event of Default with respect
to (i) any covenant or provision which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected thereby, unless all
such affected Holders agree, in writing, to waive such Event of Default or other
event and (ii) any provision requiring supermajority approval to amend, unless
such default has been waived by such a supermajority. No such waiver shall cure
or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement
----------------------------------------------------
by Trustee.
- ----------
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (i) or (ii) of Section 6.1
hereof occurs and is continuing, the Company shall, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable on such Securities for principal, premium (if any), and
interest (and Liquidated Damages, if any), and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
(and premium, if any), and on any overdue interest (and Liquidated Damages, if
any), at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including compensation to, and expenses, disbursements and advances
of the Trustee and its agents and counsel and all other amounts due the Trustee
under Section 7.7.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner
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provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any (and
Liquidated Damages, if any), or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise to take any and all actions under
the TIA, including
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Liquidated Damages, if any) owing and unpaid
in respect of the Securities and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee and its agent and counsel and all other amounts due the Trustee
under Section 7.7) and of the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
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SECTION 6.5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee and its agents and counsel
and all other amounts due the Trustee under Section 7.7, be for the ratable
benefit of the Holders of the Securities in respect of which such judgment has
been recovered.
SECTION 6.6. Priorities.
----------
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any), or interest (or Liquidated Damages, if any), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), and interest (and Liquidated Damages, if
any) on, the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal,
premium (if any), and interest (and Liquidated Damages, if any), respectively;
and
THIRD: To the Company, the Guarantors or such other Person as may be
lawfully entitled thereto, the remainder, if any, each as their respective
interests may appear.
The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(A) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
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(B) the Holders of not less than 25% in aggregate principal amount of
then outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities to be incurred
or reasonably probable to be incurred in compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any), and interest (and
Liquidated Damages, if any) on, such Security on the Maturity Dates of such
payments as expressed in such Security (in the case of redemption, the
Redemption Price on the applicable Redemption Date, in the case of a Change of
Control, the Change of Control Purchase Price on the Change of Control Purchase
Date, and in the case of an Asset Sale, the Asset Sale Offer Price on the
relevant purchase date) and to institute suit for the enforcement of any such
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy
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hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.10. Delay or Omission Not Waiver.
----------------------------
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. Control by Holders.
------------------
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee, provided, that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee shall not determine that the action so directed would
be unjustly prejudicial to the Holders not taking part in such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Existing or Past Default.
----------------------------------
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Securities may, on
behalf of all Holders, waive any existing or past Default or Event of Default
hereunder and its consequences under this Indenture, except a default
(A) in the payment of the principal of, premium, if any, or interest
(or Liquidated Damages, if any) on, any Security as specified in clauses (i) and
(ii) of Section 6.1 hereof and not yet cured, or
(B) in respect of a covenant or provision hereof which, under Article
IX, cannot be modified or amended without the consent of the Holder of each
outstanding Security affected.
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Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted to be taken by it
as Trustee, any court may in its discretion require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 6.13 shall not apply to any
suit instituted by the Company, to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in aggregate principal amount of the outstanding Securities, or to
any suit instituted by any Holder for enforcement of the payment of principal
of, or premium (if any), or interest (or Liquidated Damages, if any) on, any
Security on or after the respective Maturity Date expressed in such Security
(including, in the case of redemption, on or after the Redemption Date).
SECTION 6.14 Restoration of Rights and Remedies .
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Guarantors, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
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ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed, subject to
the terms hereof.
SECTION 7.1. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are specifically set
forth in this Indenture and no others, and no covenants or obligations shall
be implied in or read into this Indenture which are adverse to the Trustee,
and
(2) The Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such certificates
or opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1,
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts, and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.11 hereof.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order
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or direction of the Holders or in the exercise of any of its rights or powers if
it shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this
Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company
(including without limitation to the extent the Trustee receives funds prior to
the interest payment date in order to comply with the provisions of Section
4.1). Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.2. Rights of Trustee.
-----------------
Subject to Section 7.1 hereof:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5 hereof. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such certi ficate or advice of counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it or its
agent takes or omits to take in good faith which it believes to be authorized or
within its rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond, debenture
or other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee
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reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company or any
Guarantor shall be sufficient if signed by an Officer of the Company or such
Guarantor, as applicable.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's or any Guarantor's covenants in Article IV hereof
or as to the performance by any Agent of its duties hereunder. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
except (i) any Event of Default occurring pursuant to Sections 6.1(i), 6.1(ii)
and 4.1 hereof, or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge.
(i) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence herein is specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
SECTION 7.3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, the
Parent, any Guarantor, any of their Subsidiaries, or their respective Affiliates
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights. However, the Trustee must comply with Sections 7.10 and
7.11 hereof.
SECTION 7.4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any), of, or interest (or Liquidated
Damages, if any) on, any Security (including the payment of the Change of
Control Purchase Price on the Change of Control Payment Date, the payment of the
Redemption Price on
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the Redemption Date and the payment of the Asset Sale Offer Price on the
relevant purchase date), the Trustee may withhold the notice if and so long as a
Trust Officer in good faith determines that withholding the notice is in the
interest of the Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each April 30 beginning with the April 30
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder a brief report dated as of such April 30 that
complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S)(S)
313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
--------------------------
The Company and the Guarantors jointly and severally agree to pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantors shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it in accordance with this Indenture. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents, accountants, experts and counsel.
The Company and the Guarantors jointly and severally agree to
indemnify the Trustee (in its capacity as Trustee) and each of its officers,
directors, attorneys-in-fact and agents for, and hold it harmless against, any
claim, demand, expense (including but not limited to reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel), loss or
liability incurred by it without negligence or willful misconduct on the part of
the Trustee, arising out of or in connection with the administration of this
trust and its rights or duties hereunder, including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company and the Guarantors shall
defend the claim and the Trustee shall provide reasonable cooperation at the
Company's and the Guarantors' expense in the defense. The Trustee may have
separate counsel and the Company and the Guarantors shall pay the reasonable
fees and expenses of such counsel; provided, that the Company and the Guarantors
will not be required to pay such fees and expenses if they assume the Trustee's
defense and there is no conflict of interest between the Company and the
Guarantors and the Trustee in
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connection with such defense. The Company and the Guarantors need not pay for
any settlement made without their written consent. The Company and the
Guarantors need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence or
willful misconduct.
To secure the Company's and the Guarantors' payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the Securities on all
assets held or collected by the Trustee, in its capacity as Trustee, except
assets held in trust to pay principal and premium, if any, of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(v) or (vi) of this Indenture occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The Company's and the Guarantors' obligations under this Section 7.7
and any lien arising hereunder shall survive the resignation or removal of the
Trustee, the discharge of the Company's and the Guarantors' obligations pursuant
to Article VIII of this Indenture and any rejection or termination of this
Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in aggregate principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to
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the retiring Trustee provided for in Section 7.7 hereof have been paid, the
retiring Trustee shall transfer all property held by it as trustee to the
successor Trustee, subject to the lien provided in Section 7.7 hereof, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession to
each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's and the Guarantors' obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee (or in the case of a corporation included
in a bank holding company system, the related bank holding company) shall have
a combined capital and surplus of at least $25,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
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ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal Defeasance or
-----------------------------------------------
Covenant Defeasance.
- -------------------
(a) This Indenture shall cease to be of further effect (except
that the Company's, the Parent's and the Guarantors' obligations under Section
7.7 and the Trustee's and the Paying Agent's obligations under Sections 8.6 and
8.7 shall survive) when all outstanding Securities theretofore authenticated and
issued have been delivered (other than destroyed, lost or stolen Securities that
have been replaced or paid) to the Trustee for cancellation and the Company or
the Guarantors have paid all sums payable hereunder, or if :
(i) pursuant to Article III, the Company shall have given
irrevocable and unconditional notice to the Trustee and mailed a notice of
redemption to each Holder of the redemption of all of the Securities under
arrangements reasonably satisfactory to the Trustee for the giving of such
notice;
(ii) the Company shall have irrevocably deposited with the
Trustee, in trust, for the benefit of the holders of the Securities, U.S.
legal tender, U.S. Government Obligations or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on such Securities on the stated date for payment
thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Securities, as the case
may be;
(iii) the Company shall have paid all other sums payable by it
hereunder;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(v) such Discharge shall not result in a breach or violation
of, or constitute a default under any material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(vi) the deposit was not made by the Company with the intent of
defeating, hindering, delaying or defrauding any other creditors of the
Company; and
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel reasonably acceptable to
the Trustee, each stating that the conditions precedent provided for, in
the case of the Officers' Certificate, clauses (i)
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through (vii) and, in the case of the Opinion of Counsel, clause (vi), of
this Section 8.1(a) have been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.3, 2.7, 2.10, 4.1, 4.2, 7.7, 7.8, 8.6, and 8.7in respect thereof
shall survive until the Securities are no longer outstanding. After the
Securities are no longer outstanding, the Company's obligations in Sections 7.7,
8.6 and 8.7 in respect thereof shall survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall promptly acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture except for those surviving obligations
specified above.
(b) In addition, the Company may elect to have Section 8.2, at
the Company's option and at any time within one year of the Maturity Date of the
Securities, or Section 8.3, at the Company's option at any time, of this
Indenture applied to all outstanding Securities upon compliance with the
conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 8.1(b) hereof of the option
applicable to this Section 8.2, the Company, the Parent and the Guarantors shall
be deemed to have been discharged from their respective obligations with respect
to all outstanding Securities on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented and this Indenture shall cease to be of
further effect as to all outstanding Securities and Guarantees, except as to be
deemed to be "outstanding" only for the purposes of Section 8.5 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and the
Company, the Parent and the Guarantors shall be deemed to have satisfied all
other of their respective obligations under such Securities and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Securities to receive payments in respect of the
principal of, premium, if any, and interest (and Liquidated Damages, if any) on
such Securities when such payments are due from the trust described in Section
8.5, (b) the Company's obligations with respect to such Securities under
Sections 2.3, 2.4, 2.6, 2.7, 2.10, 4.2, 8.5, 8.6 and 8.7 hereof and (c) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Company's, the Parent's and the Guarantors' obligations in connection therewith.
Subject to compliance with this Article VIII, the Company may exercise its
option under this Section 8.2 notwithstanding the prior exercise of its option
under Section 8.3 hereof with respect to the Securities.
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SECTION 8.3. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 8.1(b) hereof of the option
applicable to this Section 8.3, the Company, the Parent and the Guarantors shall
be released from their respective obligations under the covenants contained in
Sections 4.3, 4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.18,
Article V and Article X hereof with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Securities, none of the Company, the Parent nor any Guarantor
need comply with and shall have any liability in respect of any term, condition
or limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. In addition, upon the Company's
exercise under Section 8.1(b) hereof of the option applicable to this Section
8.3, Sections 6.1(iii) through 6.1(ix) hereof shall not constitute Events of
Default with respect to the Securities.
SECTION 8.4. Conditions to Legal or Covenant Defeasance.
------------------------------------------
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Securities:
(a) (i) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of this
Article VIII applicable to it), in trust, for the benefit of the Holders of the
Securities, cash, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest (and Liquidated Damages, if any) on such outstanding Securities on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Securities,
and the holders of Securities must have a valid, perfected, exclusive security
interest in such trust, (ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of such
outstanding Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
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times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
such Trustee confirming that the Holders of such outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Covenant Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under any material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of such Securities over the
other creditors of the Company with the intent of defeating, hindering, delaying
or defrauding any other creditors of the Company; and (vii) the Company shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the conditions precedent provided for, in the case of
the Officers' Certificate, clauses (i) through (vi) and, in the case of the
opinion of counsel, clauses (i), (with respect to the validity and perfection of
the security interest) (ii), (iii) and (v), of this paragraph have been complied
with and the Company shall have delivered to the Trustee an Officers'
Certificate, subject to such qualifications and exceptions as the Trustee deems
appropriate, to the effect that, assuming no Holder of the Securities is an
insider of the Company, the trust funds will not be subject to the effect of any
applicable Federal bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest (and Liquidated Damages, if any) on the Securities when due, then
the obligations of the Company and the Guarantors under this Indenture, the
Securities and the Guarantees will be revived and no such defeasance will be
deemed to have occurred.
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be
----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.1 or 8.4 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Paying Agent,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any other Paying Agent as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal, premium, if any, and interest
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(and Liquidated Damages, if any), but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.1 or 8.4 or the principal and interest received
in respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of Outstanding Securities.
SECTION 8.6. Repayment to the Company.
------------------------
(a) Anything in this Article VIII to the contrary
notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the
Company from time to time upon the request of the Company any cash or U.S.
Government Obligations held by it as provided in Section 8.1 or 8.4 hereof which
in the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.4(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Discharge, Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest (and Liquidated Damages, if any) on any Security and remaining
unclaimed for two years after such principal, and premium, if any, or interest
has become due and payable shall be paid to the Company on its request; and the
Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.7. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any cash or U.S.
Government Obligations in accordance with Section 8.1, 8.2 or 8.3 hereof, as the
case may be, of this Indenture by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.1, 8.2 or 8.3 hereof until such time
as the Trustee or Paying Agent is permitted to apply such money in accordance
with Sections 8.1, 8.2 and 8.3 hereof, as the case may be; provided, however,
that, if the Company makes any payment of
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principal of, premium, if any, or interest (and Liquidated Damages, if any) on
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the cash or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holder, the Company or any Guarantor, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or make any other
provisions with respect to matters or questions arising under this Indenture
which shall not be inconsistent with the provisions of this Indenture, provided
such action pursuant to this clause (1) shall not adversely affect the interests
of any Holder in any respect;
(2) to add to the covenants of the Company or the Guarantors for the
benefit of the Holders, or to surrender any right or power herein conferred upon
the Company or the Guarantors or make any other change that does not adversely
affect the rights of any Holder;
(3) to provide for collateral for or additional Guarantors of the
Securities;
(4) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the obligations of the Company, herein
and in the Securities in accordance with Article V;
(5) to comply with the TIA;
(6) to evidence the succession of another corporation to any Guarantor
and assumption by any such successor of the Guarantee of such Guarantor (as set
forth in Section 11.4) in accordance with Article XI;
(7) to evidence the release of any Guarantor in accordance with
Article XI;
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities;
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(9) in any other case where a supplemental indenture is required or
permitted to be entered into pursuant to the provisions of this Indenture
without the consent of any Holder;
(10) to provide for the issuance and authorization of the Exchange
Securities;
(11) to provide for uncertificated Notes in addition to or in place of
certificated Notes; or
(12) to comply with the procedures of the Depositary or the Trustee
with respect to the provisions of the Indenture and the Notes relating to
transfers of Notes.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
----------------------------------------------------
Consent of Holders.
- ------------------
Subject to Section 6.8 hereof, with the consent of the Holders of at
least a majority in principal amount of the Securities then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for such Securities), by written act of said Holders delivered to the Company
and the Trustee, the Company or any Guarantor, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities;
provided that no such modification may, without the consent of holders of at
least 66% in aggregate principal amount of Securities at the time outstanding,
modify the provisions (including the defined terms therein) of Article X in a
manner adverse to the holders. Subject to Section 6.8, the Holder or Holders of
not less than a majority in aggregate principal amount of then outstanding
Securities may waive compliance by the Company or any Guarantor with any
provision of this Indenture or the Securities. Notwithstanding any of the
above, however, no such amendment, supplemental indenture or waiver shall,
without the consent of the Holder of each outstanding Security affected thereby:
(1) change the Maturity Date on any Security, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Maturity Date thereof (or in the
case of redemption, on or after the Redemption Date), or reduce the Change of
Control Purchase Price or the Asset Sale Offer Price (after the occurrence of an
event giving rise to a Change of Control Offer or an Asset Sale Offer,
respectively) or alter the provisions (including the defined terms used herein)
of Article III of this Indenture or Paragraph 5 of the Securities regarding the
right of the Company to redeem the Securities in a manner adverse to the
Holders; or
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(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or wavier provided for in this Indenture; or
(3) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 hereof becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
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The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (3) of Section 9.2 hereof, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest (and Liquidated Damages, if any) on a
Security, on or after the respective dates set for such amounts to become due
and payable expressed in such Security, or to bring suit for the enforcement of
any such payment on or after such respective dates.
SECTION 9.5. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
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ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon
-----------------------------------------------------
a Change of Control.
- -------------------
(a) In the event that a Change of Control has occurred, each
holder of Securities shall have the right, at such holder's option, pursuant to
an irrevocable and unconditional offer by the Company (the "Change of Control
Offer"), to require the Company to repurchase all or any part of such holder's
Securities (provided, that the principal amount of such Securities must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that is no later than 45 Business Days after the occurrence of
such Change of Control, at a cash price equal to 101% of the principal amount
thereof (the "Change of Control Purchase Price"), together with accrued and
unpaid interest and Liquidated Damages, if any, to the Change of Control
Purchase Date.
Notwithstanding the foregoing, the Company will not be required to
make a Change of Control Offer upon a Change of Control if a Person with which
the Company or Parent, as the case may be, intends to merge, consolidate, or be
sold makes the Change of Control Offer in the manner, at the times and otherwise
in compliance with the requirements set forth in this Article X applicable to a
Change of Control Offer made by the Company, including any requirements to repay
in full the Revolving Credit Facility or obtain the consents of such lenders to
such Change of Control Offer as set forth in the following paragraph, and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Notwithstanding anything in this Article X to the contrary, prior to
the commencement of a Change of Control Offer, but in any event within 20 days
following any Change of Control, the Company shall (i)(a) repay in full and
terminate all commitments under Indebtedness under the Credit Agreement or (b)
offer to repay in full and terminate all commitments under all Indebtedness
under the Credit Agreement and repay the Indebtedness owed to each lender which
has accepted such offer in full or (ii) obtain the requisite consents under the
Credit Agreement to permit the repurchase of the Securities as provided herein.
The Company's failure to comply with the preceding sentence shall constitute an
Event of Default described in Section 6.1(iv) and not in Section 6.1(ii).
(b) In the event that, pursuant to this Section 10.1, the
Company shall be required to commence a Change of Control Offer, the Company
shall follow the procedures set forth in this Section 10.1 as follows:
(i) the Change of Control Offer shall commence within 20
Business Days following the occurrence of a Change of Control;
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(ii) the Change of Control Offer shall remain open for at least
25 Business Days following its commencement (the "Change of Control Offer
Period");
(iii) upon the expiration of the Change of Control Offer Period,
the Company promptly shall purchase all of the tendered Securities at the
Change of Control Purchase Price;
(iv) if the Change of Control is on or after an interest payment
record date and on or before the related interest payment date, any accrued
interest (and Liquidated Damages, if any) will be paid to the Person in
whose name a Security is registered at the close of business on such record
date, and no additional interest will be payable to Securityholders who
tender Securities pursuant to the Change of Control Offer;
(v) the Company shall provide the Trustee and the Paying Agent
with written notice of the Change of Control Offer at least three Business
Days before the commencement of any Change of Control Offer; and
(vi) on or before the commencement of any Change of Control
Offer, the Company or the Trustee (upon the request and at the expense of
the Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the extent consistent with this Indenture) shall
govern the terms of the Change of Control Offer and shall state:
(A) that the Change of Control Offer is being made
pursuant to this Section 10.1 and that all Securities, or portions
thereof, tendered will be accepted for payment;
(B) the Change of Control Purchase Price (including
the amount of accrued but unpaid interest (and Liquidated Damages, if
any)) and the Change of Control Purchase Date;
(C) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue interest;
(D) that, unless the Company defaults in depositing
cash with the Paying Agent in accordance with the last paragraph of this
Section 10.1, or such payment is prevented for any reason, any Security,
or portion thereof, accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date;
(E) that Holders electing to have a Security, or
portion thereof, purchased pursuant to a Change of Control Offer will be
required to surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security completed, to
the Paying Agent (which
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may not for purposes of this Section 10.1, notwithstanding anything in
this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the expiration
of the Change of Control Offer;
(F) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent receives, prior to
the expiration of the Change of Control Offer, a facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Securities the Holder is withdrawing and a statement containing a
facsimile signature and stating that such Holder is withdrawing his
election to have such principal amount of Securities purchased;
(G) that Holders whose Securities are purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(H) a brief description of the events resulting in
such Change of Control.
Any such Change of Control Offer shall comply with the requirements of
Regulation 14E under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Securities pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Indenture relating to a Change of Control, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under such provisions of
this Indenture by virtue thereof.
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any) of all Securities so
tendered and (iii) deliver to the Trustee Securities so accepted together with
an Officers' Certificate listing the Securities or portions thereof being
purchased by the Company. The Paying Agent promptly will pay the Holders of
Securities so accepted an amount equal to the Change of Control Purchase Price
(together with accrued and unpaid interest and Liquidated Damages, if any), and
the Trustee promptly will authenticate and deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted will be delivered promptly by the
Company to the Holder thereof. The Company publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
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ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee.
---------
(a) (i) All current and future Subsidiaries of the Company
(other than a Receivables Subsidiary or a Foreign Subsidiary), whether pursuant
to the acquisition by the Company or any Guarantor of Equity Interests of such
Person, or otherwise, (ii) each Foreign Subsidiary (A) which guarantees or
otherwise becomes liable for Indebtedness of the Company or any Guarantor or (B)
more than 65% of the capital stock of which becomes pledged to secure any
Indebtedness of the Company or any Guarantor (in each case, a "Guarantor") and
(iii) any Parent shall, to the fullest extent permitted by applicable law,
irrevocably and unconditionally guarantee (the "Guarantee") to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability against
the Company, the Parent and any Guarantors of this Indenture, the Securities or
the obligations of the Company under this Indenture or the Securities, that: (x)
the principal of and premium (if any), and interest (and Liquidated Damages, if
any) on the Securities will be paid in full when due, whether at the Maturity
Date or Interest Payment Date, by acceleration, call for redemption, upon a
Change of Control, an Asset Sale Offer or otherwise; (y) all other obligations
of the Company to the Holders or the Trustee under this Indenture or the
Securities will be promptly paid in full or performed, all in accordance with
the terms of this Indenture and the Securities; and (z) in case of any extension
of time of payment or renewal of any Securities or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at maturity, by acceleration,
call for redemption, upon a Change of Control, an Asset Sale Offer or otherwise.
Failing payment when due of any amount so guaranteed for whatever reason, each
Guarantor shall be obligated to pay the same before failure so to pay becomes an
Event of Default. Each Guarantor shall, within five Business Days after becoming
obligated to execute a Guarantee pursuant to clauses (i), (ii) or (iii) above,
execute and deliver to the Trustee a supplemental indenture, which shall be in a
form satisfactory to the Trustee, making such Guarantor a party to this
Indenture.
If the Company, the Parent or a Guarantor defaults in the payment of
the principal of, premium, if any, or interest (or Liquidated Damages, if any)
on, the Securities when and as the same shall become due, whether upon maturity,
acceleration, call for redemption, upon a Change of Control Offer, upon an Asset
Sale Offer or otherwise, without the necessity of action by the Trustee or any
Holder, each Guarantor and the Parent shall be required, jointly and severally,
to promptly make such payment in full.
(b) Each Guarantor and the Parent hereby agree to the fullest
extent permitted by applicable law, that its obligations with regard to this
Guarantee shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this
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Indenture, the absence of any action to enforce the same, any delays in
obtaining or realizing upon or failures to obtain or realize upon collateral,
the recovery of any judgment against the Company, any action to enforce the same
or any other circumstances that might otherwise constitute a legal or equitable
discharge or defense of a Guarantor. Each Guarantor and the Parent hereby waive
to the fullest extent permitted by applicable law diligence, presentment, demand
of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company or right to require the prior disposition of the assets of the Company
to meet its obligations, protest, notice and all demands whatsoever and
covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities and this Indenture.
(c) If any Holder or the Trustee is required by any court or
otherwise to return to either the Company, the Parent or any Guarantor, or any
Custodian or similar official acting in relation to either the Company, the
Parent or such Guarantor, any amount paid by either the Company, the Parent or
such Guarantor to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor and the Parent agree that it will not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor and the Parent further agree that, as between such Guarantor and the
Parent, on the one hand, and the Holders and the Trustee, on the other hand, (i)
the maturity of the obligations guaranteed hereby may be accelerated as provided
in Section 6.2 hereof for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration as to the
Company of the obligations guaranteed hereby, and (ii) in the event of any
declaration of acceleration of those obligations as provided in Section 6.2
hereof, those obligations (whether or not due and payable) will forthwith become
due and payable by each of the Guarantors and the Parent for the purpose of this
Guarantee.
(d) It is the intention of each Guarantor, the Parent and the
Company that the obligations of each Guarantor and the Parent hereunder shall be
in, but not in excess of, the maximum amount permitted by applicable law.
Accordingly, if the obligations in respect of the Guarantee would be annulled,
avoided or subordinated to the creditors of any Guarantor or the Parent by a
court of competent jurisdiction in a proceeding actually pending before such
court as a result of a determination both that such Guarantee was made by such
Guarantor or the Parent without fair consideration and, immediately after giving
effect thereto, such Guarantor or the Parent was insolvent or unable to pay its
debts as they mature or left with an unreasonably small capital, then the
obligations of such Guarantor or the Parent under such Guarantee shall be
reduced by such court if and to the extent such reduction would result in the
avoidance of such annulment, avoidance or subordination; provided, however, that
any reduction pursuant to this paragraph shall be made in the smallest amount as
is strictly necessary to reach such result. For purposes of this paragraph,
"fair consideration", "insolvency", "unable to pay its debts as they mature",
"unreasonably small capital" and the effective times of reductions, if any,
required by this paragraph shall be determined in accordance with applicable
law.
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SECTION 11.2. Execution and Delivery of Guarantee.
-----------------------------------
Each Guarantor and the Parent shall, by virtue of such Guarantor's or
the Parent's execution and delivery of an indenture supplement pursuant to
Section 11.1 hereof, be deemed to have signed on each Security issued hereunder
the notation of guarantee set forth on the form of the Securities attached
hereto as Exhibit A to the same extent as if the signature of such Guarantor or
the Parent appeared on such Security.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the guarantee set forth in
Section 11.1 on behalf of each Guarantor and the Parent. The notation of a
guarantee set forth on any Security shall be null and void and of no further
effect with respect to the guarantee of any Guarantor or the Parent which,
pursuant to Section 11.4, is released from such Guarantee.
SECTION 11.3. Certain Bankruptcy Events.
-------------------------
Each Guarantor and the Parent hereby covenant and agree, to the
fullest extent that it may do so under applicable law, that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Guarantor and the Parent shall not file (or join in any filing
of), or otherwise seek to participate in the filing of, any motion or request
seeking to stay or to prohibit (even temporarily) execution on the Guarantee and
hereby waives and agrees not to take the benefit of any such stay of execution,
whether under Section 362 or 105 of the United States Bankruptcy Code or
otherwise.
SECTION 11.4. Limitation on Merger of Subsidiaries and Release of
---------------------------------------------------
Guarantors and the Parent.
- ----------
Neither any Guarantor nor the Parent shall consolidate or merge with
or into (whether or not such Guarantor or the Parent is the surviving person)
another person unless (i) subject to the provisions of the following paragraph
and certain other provisions of this Indenture, the person formed by or
surviving any such consolidation or merger (if other than such Guarantor or the
Parent) assumes all the obligations of such Guarantor or the Parent pursuant to
a supplemental indenture in form reasonably satisfactory to the Trustee,
pursuant to which such person shall unconditionally guarantee, on a senior
subordinated basis, all of such Guarantor's or the Parent's obligations under
such Guarantor's or the Parent's guarantee and this Indenture on the terms set
forth in this Indenture; and (ii) immediately before and immediately after
giving effect to such transaction on a pro forma basis, no Default or Event of
Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a Subsidiary Guarantor (or all of its assets) to an entity
which is not a Subsidiary Guarantor (including the designation of a Subsidiary
to become an Unrestricted Subsidiary), which transaction is otherwise in
compliance with this Indenture (including, without limitation, the
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provisions of Section 4.14), such Subsidiary Guarantor will be deemed released
from its obligations under its Guarantee of the Securities; provided, however,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any Indebtedness of
the Company or any other Subsidiary shall also terminate upon such release, sale
or transfer.
ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Debt.
--------------------------------------
The Company, the Parent and the Guarantors and each Holder, by its
acceptance of Securities, agree that (a) the payment of the principal of and
interest on the Securities and (b) any other payment in respect of the
Securities, including on account of the acquisition or redemption of the
Securities by the Company, the Parent and the Guarantors (including, without
limitation, pursuant to Section 4.14, Article X or Article XI) is subordinated,
to the extent and in the manner provided in this Article XII, to the prior
payment in full in cash or Cash Equivalents of all Senior Debt of the Company,
the Parent and the Guarantors and that these subordination provisions are for
the benefit of the holders of Senior Debt. References herein to payment in full
of Senior Debt shall in any event be construed to require cash collateralization
on terms satisfactory to the representative under the Credit Agreement of any
letters of credit outstanding thereunder or pursuant to such other arrangements
as are satisfactory to the representative under the Credit Agreement.
This Article XII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are made for the benefit of the holders of
Senior Debt and such holders are made obligees hereunder and any one or more of
them may enforce such provisions.
SECTION 12.2. No Payment on Securities in Certain Circumstances.
-------------------------------------------------
(a) No payment (by set-off or otherwise) shall be made by or
on behalf of the Company, the Parent or a Guarantor, as applicable, on account
of the principal of, premium, if any, or interest or Liquidated Damages on the
Securities (including any repurchases of Securities), or on account of any other
obligation for the payment of money due in respect of the Securities, or on
account of the redemption provisions of the Securities, for cash or property
(other than Junior Securities), (i) upon the maturity of any Senior Debt of the
Company, the Parent or such Guarantor by lapse of time, acceleration (unless
waived) or otherwise, unless and until all principal of, premium, if any, and
the interest on or other amounts owing in respect of such Senior Debt are first
paid in full in cash or Cash Equivalents (or, such payment is duly provided for
in accordance with the terms thereof) or otherwise to the extent holders accept
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satisfaction of amounts due by settlement in other than cash or Cash
Equivalents, or (ii) in the event of default in the payment of any principal of,
premium, if any, or interest on Senior Debt of the Company, the Parent or such
Guarantor when it becomes due and payable, whether at maturity, a scheduled
payment date, or at a date fixed for prepayment or by declaration of
acceleration or otherwise (a "Payment Default"), unless and until such Payment
Default has been cured or waived or otherwise has ceased to exist.
(b) Upon (i) the happening of an event of default other than a
Payment Default that permits the holders of Senior Debt or any representative
thereof to declare such Senior Debt to be due and payable and (ii) written
notice of such event of default given to the Company and the Trustee by the
Representative under the Credit Agreement or the holders of any other Designated
Senior Debt or their representative (a "Payment Notice"), then, unless and until
such event of default has been cured or waived or otherwise has ceased to exist,
no payment (by set-off or otherwise) may be made by or on behalf of the Company,
the Parent or any Guarantor, as applicable, which is an obligor under such
Senior Debt on account of any Obligation in respect of the Securities, including
the principal of, premium, if any, or interest on the Securities (including any
repurchases of any of the Securities), or on account of the redemption
provisions of the Securities (or liquidated damages pursuant to the Registration
Rights Agreement), in any such case, other than payments made with Junior
Securities. Notwithstanding the foregoing, unless the Senior Debt in respect of
which such event of default exists has been declared due and payable in its
entirety within 179 days after the Payment Notice is delivered as set forth
above (the "Payment Blockage Period") (and such declaration has not been
rescinded or waived), at the end of the Payment Blockage Period, the Company,
the Parent and the Guarantors shall be required to pay all sums not paid to the
Holders of the Securities during the Payment Blockage Period due to the
foregoing prohibitions and to resume all other payments as and when due on the
Securities, subject to the provisions of Section 12.2(a) above. Any number of
Payment Notices may be given; provided, however, that (i) not more than one
Payment Notice shall be given within a period of any 360 consecutive days, and
(ii) no default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default is on the same issue of Senior Debt) shall be made the basis for the
commencement of any other Payment Blockage Period unless such default shall have
been cured or waived for a period of not less than 90 days (it being
acknowledged that any subsequent action, or any subsequent breach of any
financial covenant after the expiration of such Payment Blockage Period that, in
either case, would give rise to a new event of default, even though it is an
event that would also have constituted a breach pursuant to any provision under
which a prior event of default previously existed, shall constitute a new event
of default for this purpose).
(c) In furtherance of the provisions of Section 12.1, in the event
that, notwithstanding the foregoing provisions of this Section 12.2, any payment
or distribution of assets of the Company, the Parent or any Guarantor, whether
in cash, property or securities (other than Junior Securities) shall be received
by the Trustee or the Holders at a time when such payment or distribution is
prohibited by the foregoing provisions of this Section 12.2, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt,
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and shall be paid or delivered by the Trustee or such Holders, as the case may
be, to the holders of such Senior Debt remaining unpaid or unprovided for or to
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior Debt
may have been issued, ratably according to the aggregate principal amounts
remaining unpaid on account of such Senior Debt held or represented by each, for
application to the payment of all such Senior Debt remaining unpaid, to the
extent necessary to pay or to provide for the payment of all such Senior Debt in
full in cash or Cash Equivalents or otherwise to the extent holders accept
satisfaction of amounts by settlement in other than cash or Cash Equivalents
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
SECTION 12.3. Securities Subordinated to Prior Payment of All Senior
------------------------------------------------------
Debt on Dissolution, Liquidation or Reorganization.
- --------------------------------------------------
Upon any distribution of assets of the Company, the Parent or any
Guarantor upon any dissolution, winding up, total or partial liquidation or
reorganization of the Company, the Parent or a Guarantor, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or
upon assignment for the benefit of creditors or any marshalling of assets or
liabilities:
(a) the holders of all Senior Debt of the Company, the Parent
or such Guarantor, as applicable, will first be entitled to receive payment in
full in cash or Cash Equivalents (or have such payment duly provided for in
accordance with the terms thereof) or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or Cash Equivalents
before the Holders are entitled to receive any payment on account of any
Obligation in respect of the Securities, including the principal of, premium, if
any, and interest on the Securities (or liquidated damages pursuant to the
Registration Rights Agreement) (other than Junior Securities); and
(b) any payment or distribution of assets of the Company, the
Parent or such Guarantor of any kind or character from any source, whether in
cash, property or securities (other than Junior Securities) to which the Holders
or the Trustee on behalf of the Holders would be entitled (by set-off or
otherwise), except for the subordination provisions contained in this Indenture,
will be paid by the liquidating trustee or agent or other person making such a
payment or distribution directly to the holders of such Senior Debt or their
representative to the extent necessary to make payment in full (or have such
payment duly provided for) on all such Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt.
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SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders
-----------------------------------------------------
of Senior Debt.
- --------------
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt of the Company, the Parent or any Guarantor as provided herein, the
Holders of Securities shall be subrogated to the rights of the holders of such
Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing on the Securities shall be
paid in full, and for the purpose of such subrogation no such payments or
distributions to the holders of such Senior Debt by or on behalf of the Company,
the Parent or any Guarantor, or by or on behalf of the Holders by virtue of this
Article XII, which otherwise would have been made to the Holders shall, as
between the Company, the Parent or any Guarantor and the Holders, be deemed to
be payment by the Company, the Parent or any Guarantor or on account of such
Senior Debt, it being understood that the provisions of this Article XII are and
are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of such Senior Debt, on the other
hand.
SECTION 12.5. Obligations of the Company, the Parent and the
----------------------------------------------
Guarantors Unconditional.
- ------------------------
Nothing contained in this Article XII or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, the
Parent and any Guarantors and the Holders, the obligation of each such Person,
which is absolute and unconditional, to pay to the Holders the principal of,
premium, if any, and interest on (or, if applicable, Liquidated Damages) the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company, the Parent and the Guarantors other than
the holders of the Senior Debt, nor shall anything herein or therein prevent the
Trustee or any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article XII, of the holders of Senior Debt, including, without
limitation, their right to receive any cash, property or securities of the
Company, the Parent and the Guarantors received upon the exercise of any such
remedy. Notwithstanding anything to the contrary in this Article XII or
elsewhere in this Indenture or in the Securities, upon any distribution of
assets of the Company, the Parent and the Guarantors referred to in this Article
XII, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the
Holders shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
Trustee or agent or other Person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other Indebtedness of
the Company, the Parent or any Guarantor, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XII so long as such court has been apprised of the
provisions of, or the order, decree or certificate makes reference to, the
provisions of this Article XII. Nothing in this Section 12.5 shall apply to the
claims of, or payments to, the Trustee under or pursuant to Section 7.7.
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SECTION 12.6. Trustee Entitled to Assume Payments Not Prohibited in
-----------------------------------------------------
Absence of Notice.
- -----------------
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment
written notice thereof from the Company or from one or more holders of Senior
Debt or from any representative therefor and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2,
shall be entitled in all respects conclusively to assume that no such fact
exists.
SECTION 12.7. Application by Trustee of Assets Deposited with It.
--------------------------------------------------
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Securityholders
and, to the extent (i) the making of such deposit by the Company shall not be in
contravention of any term or provision of the Credit Agreement or other
Designated Senior Debt and (ii) allocated for the payment of Securities, shall
not be subject to the subordination provisions of this Article XII. Otherwise,
any deposit of assets with the Trustee or the Agent (whether or not in trust)
for the payment of principal of or interest on any Securities shall be subject
to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; provided that, if prior
to one Business Day preceding the date on which by the terms of this Indenture
any such assets may become distributable for any purpose (including without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such assets
the written notice provided for in Section 12.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions
------------------------------------------------------
of the Company, the Parent, the Guarantors or Holders of Senior Debt.
- --------------------------------------------------------------------
No right of any present or future holders of any Senior Debt to
enforce subordination provisions contained in this Article XII shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company, the Parent or any Guarantor or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company, the
Parent or any Guarantor with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
The holders of Senior Debt may extend, renew, modify or amend the terms of the
Senior Debt or any security therefor and release, sell or exchange such security
and otherwise deal freely with the Company, the Parent and the Guarantors, all
without affecting the liabilities and obligations of the parties to this
Indenture or the Holders. The subordination provisions contained in this
Indenture are for the benefit of the holders from time to time of Senior Debt
and may not be rescinded, cancelled, amended or modified in any way other than
any amendment or modification that would not
101
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adversely affect the rights of any holder of Senior Debt or any amendment or
modification that is consented to by each holder of Senior Debt that would be
adversely affected thereby. The subordination provisions hereof shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Debt is rescinded or must otherwise be returned by any
holder of the Senior Debt upon the insolvency, bankruptcy, or reorganization of
the Company, the Parent or any Guarantor, or otherwise, all as though such
payment has not been made.
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
-----------------------------------------------
Subordination of Securities.
- ---------------------------
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XII and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company, the Parent or any Guarantor (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Company, the Parent or any Guarantor), the immediate filing of a claim for the
unpaid balance of his Securities in the form required in said proceedings and
cause said claim to be approved. In the event of any liquidation or
reorganization of the Company, the Parent or any Guarantor in bankruptcy,
insolvency, receivership or similar proceeding, if the Holders of the Securities
(or the Trustee on their behalf) have not filed any claim, proof of claim, or
other instrument of similar character necessary to enforce the obligations of
the Company, the Parent or any Guarantor in respect of the Securities at least
thirty (30) days before the expiration of the time to file the same, then in
such event, but only in such event, the holders of the Designated Senior Debt or
a representative on their behalf may, as an attorney-in-fact for such Holders,
file any claim, proof of claim, or other instrument of similar character on
behalf of such Holders. Nothing herein contained shall be deemed to authorize
the Trustee or the holders of Senior Debt or their representative to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Senior Debt or their representative to vote in respect of the claim of any
Securityholder in any such proceeding. As a condition to taking any action by
the Trustee pursuant to this Section 12.9, the Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred thereby.
SECTION 12.10. Right of Trustee to Hold Senior Debt.
------------------------------------
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Senior Debt at any time held by it to the same
extent as any other holder of Senior Debt, and nothing in this Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
102
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SECTION 12.11. Article XII Not to Prevent Events of Default.
--------------------------------------------
The failure to make a payment on account of principal of, premium, if
any, or interest (or Liquidated Damages, if any) on the Securities by reason of
any provision of this Article XII shall not be construed as preventing the
occurrence of a Default or an Event of Default under Section 6.1 or in any way
limit the rights of the Trustee or any Holder to pursue any other rights or
remedies with respect to the Securities.
SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Senior
-------------------------------------------------
Debt.
- ----
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or negligence) if it shall in good faith mistakenly
pay over or distribute to the Holders of Securities or the Company, the Parent,
any Guarantor or any other Person, cash, property or securities to which any
holders of Senior Debt shall be entitled by virtue of this Article XII or
otherwise. Nothing in this Section 12.12 shall affect the obligation of any
other such Person to hold such payment for the benefit of, and to pay such
payment over to, the holders of Senior Debt or their representative. In the
event of any conflict between the fiduciary duty of the Trustee to the Holders
of Securities and to the holders of Senior Debt, the Trustee is expressly
authorized to resolve such conflict in favor of the Holders.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 13.2. Notices.
-------
Any notices or other communications to the Company, the Parent or any
Guarantor or the Trustee required or permitted hereunder shall be in writing,
and shall be sufficiently given if made by hand delivery, by telex, by
telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company, the Parent or any Guarantor:
HDA Parts System, Inc.
2912 3rd Avenue North
103
<PAGE>
Birmingham, Alabama 35202
Attention: John J. Greisch
Telecopy: (800) 292-6509
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Randy Bassett, Esq.
Telecopy: (213) 891-8763
if to the Trustee:
U.S. Trust Company, National Association
515 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
Telecopy: (213) 488-1370
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
104
<PAGE>
SECTION 13.4. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company, the Parent or any
Guarantor to the Trustee to take any action under this Indenture, such Person
shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been met; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel,
all such conditions precedent have been met.
SECTION 13.5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been met; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been met; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
105
<PAGE>
SECTION 13.7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 13.8. Governing Law.
-------------
THIS INDENTURE, THE GUARANTEES AND THE SECURITIES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW AND NEW YORK CIVIL PRACTICE LAWS AND RULES 327(b).
SECTION 13.9. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company, the Parent or any Guarantor or any of their
respective Subsidiaries. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
--------------------------
No partner, incorporator, direct or indirect stockholder, director,
officer or employee, as such, past, present or future, of the Company, the
Parent or any Guarantor, or any successor entity, shall have any personal
liability in respect of the obligations of the Company, the Parent and the
Guarantors under the Securities, this Indenture or for any claim based on, in
respect of, or by reason of such obligations or their creation by reason of his,
her or its status as such partner, incorporator, stockholder, director, officer
or employee. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the Securities.
SECTION 13.11. Successors.
----------
All agreements of the Company, the Parent and the Guarantors in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 13.12. Duplicate Originals.
-------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
106
<PAGE>
SECTION 13.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15. Qualification of Indenture.
--------------------------
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of this Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive
from the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 13.16. Registration Rights.
-------------------
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
107
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
HDA PARTS SYSTEM, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, L.L.C.,
an Alabama limited liability company
By: /s/ John J. Greisch
-----------------------------
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
TENNESSEE, INC.,
a Tennessee corporation
By: /s/ John J. Greisch
-----------------------------
Name:
Title:
CITY FRICTION, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------
Name:
Title:
U.S. TRUST COMPANY,
NATIONAL ASSOCIATION
as Trustee
By: /s/ Sandee Parks
-----------------------------
Name: Sandee Parks
Title: Vice President
108
<PAGE>
Exhibit 4.1.1
FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture (this "First Supplemental Indenture"),
dated as of September 30, 1998 among Truck & Trailer Parts, Inc. ("Truck"), City
Truck Holdings, Inc. ("Holdings" and together with Truck, the "Guarantors"), the
Company, any other Guarantors (as defined in the Indenture referred to herein)
party thereto, any Parent (as defined in the Indenture referred to herein) party
thereto and U.S. Trust Company, National Association, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of July 31, 1998 providing for
the issuance of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this First Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
<PAGE>
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such,
past, present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantors and their respective successors
and assigns until full and final payment of all of the Company's obligations
under the Notes and Indenture or until released in accordance with the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders, and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Guarantee
of payment and not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited
to the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
First Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
HDA PARTS SYSTEM, INC.
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF ALABAMA, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C.,
an Alabama limited liability company
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF
TENNESSEE, INC.,
a Tennessee corporation
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: Vice President
S-1
<PAGE>
CITY FRICTION, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: Vice President
U.S. TRUST COMPANY,
NATIONAL ASSOCIATION
as Trustee
By: /s/ Sandee Parks
------------------------------------
Name: Sandee Parks
Title: Vice President
TRUCK & TRAILER, INC.,
a Georgia corporation,
as Guarantor
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC.,
a Delaware corporation
as Guarantor
By: /s / John J. Greisch
------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
S-2
<PAGE>
EXHIBIT 4.1.2
SECOND SUPPLEMENTAL INDENTURE
Second Supplemental Indenture (this "Second Supplemental Indenture"),
dated as of December 21, 1998 among Truckparts, Inc. (the "Guarantor"), the
Company, any other Guarantors (as defined in the Indenture referred to herein)
party to the Indenture referred to herein and U.S. Trust Company, National
Association, as trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture, dated as of July 31, 1998, as supplemented by the First
Supplemental Indenture dated September 30, 1998 (as supplemented, the
"Indenture"), providing for the issuance of 12% Senior Subordinated Notes due
2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Second Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
<PAGE>
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such,
past, present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantors and their respective successors
and assigns until full and final payment of all of the Company's obligations
under the Notes and Indenture or until released in accordance with the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders, and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Guarantee
of payment and not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited
to the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
Second Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
HDA PARTS SYSTEM, INC.
an Alabama corporation
By: /s/ John Greisch
___________________________________
Name: John Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF ALABAMA, INC.,
an Alabama corporation
By: /s/ John Greisch
___________________________________
Name: John Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C.,
an Alabama limited liability company
HDA PARTS SYSTEM, INC., AS SOLE MEMBER
By: /s/ John Greisch
___________________________________
Name: John Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF TENNESSEE,
INC.,
a Tennessee corporation
By: /s/ John Greisch
___________________________________
Name: John Greisch
Title: Vice President
S-1
<PAGE>
CITY FRICTION, INC.,
an Alabama corporation
By: /s/ John J. Greisch
___________________________________
Name: John J. Greisch
Title: Vice President
TRUCK & TRAILER, INC.,
a Georgia corporation,
as Guarantor
By: /s/ John J. Greisch
___________________________________
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC.,
a Delaware corporation
as Guarantor
By: /s/ John J. Greisch
___________________________________
Name: John J. Greisch
Title: President
U.S. TRUST COMPANY,
NATIONAL ASSOCIATION
as Trustee
By: /s/ Sandee Parks
___________________________________
Name: Sandee Parks
Title: Vice President
S-2
<PAGE>
TRUCKPARTS, INC.,
a Connecticut corporation,
as Guarantor
By: /s/ John P. Miller
___________________________________
Name: John P. Miller
Title: Vice President - Finance
S-3
<PAGE>
EXHIBIT 4.1.3
THIRD SUPPLEMENTAL INDENTURE
Third Supplemental Indenture (this "Third Supplemental Indenture"),
dated as of January 14, 1999 among Associated Brake Supply, Inc. ("Associated"),
Associated Truck Center, Inc. ("Center"), Onyx Distribution, Inc. ("Onyx"),
Associated Truck Parts of Nevada, Inc. ("Nevada"), Freeway Truck Parts of
Washington, Inc. ("Washington"), Tisco, Inc. ("Tisco") and Tisco of Redding,
Inc. ("Redding" and, together with Associated, Center, Onyx, Nevada, Washington
and Tisco, the "Guarantors"), the Company, any other Guarantors (as defined in
the Indenture referred to herein) party to the Indenture referred to herein and
U.S. Trust Company, National Association, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture, dated as of July 31, 1998, as supplemented by the First
Supplemental Indenture dated September 30, 1998 and the Second Supplemental
Indenture dated December 21, 1998 (as supplemented, the "Indenture"), providing
for the issuance of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Third Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
<PAGE>
extension or renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such,
past, present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guarantors and their respective successors
and assigns until full and final payment of all of the Company's obligations
under the Notes and Indenture or until released in accordance with the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders, and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Guarantee
of payment and not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited
to the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
Third Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
HDA PARTS SYSTEM, INC.
an Alabama corporation
By: /s/ John J. Greisch
-----------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C.,
an Alabama limited liability company
HDA PARTS SYSTEM, INC.
as sole member
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF TENNESSEE,
INC.,
a Tennessee corporation
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
S-1
<PAGE>
CITY FRICTION, INC.,
an Alabama corporation
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
TRUCK & TRAILER PARTS INC.,
a Georgia corporation,
as Guarantor
By: /s/ John P. Miller
-------------------------------------
Name: John P. Miller
Title: Secretary
CITY TRUCK HOLDINGS, INC.,
a Delaware corporation
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
TRUCKPARTS, INC.,
a Connecticut corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Chief Executive Officer
S-2
<PAGE>
U.S. TRUST COMPANY,
NATIONAL ASSOCIATION
as Trustee
By: /s/ Sandee Parks
-------------------------------------
Name: Sandee Parks
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC.,
a California corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED TRUCK CENTER, INC.,
a California corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
ONYX DISTRIBUTION, INC.,
a California corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
S-3
<PAGE>
ASSOCIATED TRUCK PARTS OF NEVADA, INC.,
a Nevada corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
FREEWAY TRUCK PARTS OF WASHINGTON, INC.,
a Washington corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO, INC.,
a California corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO OF REDDING, INC.,
a California corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------------------
Name: John J. Greisch
Title: Vice President
S-4
<PAGE>
Exhibit 4.2
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of July 31, 1998
by and among
HDA PARTS SYSTEM, INC.
(as Issuer)
CITY TRUCK AND TRAILER PARTS OF ALABAMA, INC.
CITY TRUCK AND TRAILER PARTS OF ALABAMA, L.L.C.
CITY TRUCK AND TRAILER PARTS OF TENNESSEE, INC.
CITY FRICTION, INC.
(as Guarantors)
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCAMERICA ROBERTSON STEPHENS
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into as of July 31, 1998, by and among HDA Parts System, Inc., an Alabama
corporation (the "Company"), City Truck and Trailer Parts of Alabama, Inc., an
-------
Alabama corporation, City Truck and Trailer Parts of Alabama, L.L.C., an Alabama
limited liability company, City Truck and Trailer Parts of Tennessee, Inc., a
Tennessee corporation, and City Friction, Inc., an Alabama corporation,
(collectively, the "Guarantors"), and Donaldson, Lufkin & Jenrette Securities
----------
Corporation and BancAmerica Robertson Stephens (each an "Initial Purchaser" and,
-----------------
collectively, the "Initial Purchasers"), each of whom has agreed to purchase the
------------------
Company's 12% Series A Senior Subordinated Notes due 2005 (the "Series A Notes")
--------------
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated July 28,
1998, (the "Purchase Agreement"), by and among the Company, the Guarantors and
------------------
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Series A Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 3 of
the Purchase Agreement. Capitalized terms used herein and not otherwise defined
shall have the meaning assigned to them in the Indenture, dated July 31, 1998,
between the Company and U.S. Trust Company, National Association, as Trustee,
relating to the Series A Notes and the Series B Notes (the "Indenture").
---------
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
---
Affiliate: As defined in Rule 144 of the Act.
---------
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
-------------
Certificated Securities: Definitive Notes, as defined in the Indenture.
-----------------------
Closing Date: The date hereof.
------------
Commission: The Securities and Exchange Commission.
----------
2
<PAGE>
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes
----------
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange
Offer Registration Statement continuously effective and the keeping of the
Exchange Offer open for a period not less than the period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
----------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Offer: The exchange and issuance by the Company of a principal
--------------
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose
--------------
to sell the Series A Notes to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, and pursuant to Regulation S under
the Act.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
---------------
Holders: As defined in Section 2 hereof.
-------
Prospectus: The prospectus included in a Registration Statement at the
----------
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
-------------------
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company and the
----------------------
Guarantors relating to (a) an offering of Series B Notes pursuant to an Exchange
Offer or (b) the
3
<PAGE>
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) that is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Regulation S: Regulation S promulgated under the Act.
------------
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Notes
------------------------
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Act.
--------
Series B Notes: The Company's 12% Series B Senior Subordinated Notes due
--------------
2005 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
Suspension Notice: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
---
in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur of
------------------------------
(a) the date on which such Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Note has
been disposed of in accordance with a Shelf Registration Statement, (c) the date
on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities.
------
SECTION 3. REGISTERED EXCHANGE OFFER
4
<PAGE>
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company and the Guarantors shall (i) cause the Exchange Offer
Registration Statement to be filed with the Commission (the "Exchange Offer
--------------
Filing Date") no later than 150 days after the Closing Date (such 150th day
- -----------
being the "Filing Deadline"), (ii) use its best efforts to cause such Exchange
---------------
Offer Registration Statement to become effective at the earliest possible time
after the Exchange Offer Filing Date, but in no event later than 225 days after
the Closing Date (such 225th day being the "Effectiveness Deadline"), (iii) in
----------------------
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Securities and to
permit resales of Series B Notes by Broker-Dealers that tendered into the
Exchange Offer Series A Notes that such Broker-Dealer acquired for its own
account as a result of market making activities or other trading activities
(other than Series A Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 20 Business Days. The Company and the Guarantors shall cause the
Exchange Offer to comply with all applicable federal and state securities laws.
No securities other than the Series B Notes shall be included in the Exchange
Offer Registration Statement. The Company and the Guarantors shall use their
respective best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company),
may exchange such Transfer Restricted Securities pursuant to the Exchange
Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer and that the
Prospectus contained in the Exchange Offer Registration Statement may be used to
5
<PAGE>
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement.
To the extent necessary to ensure that the Exchange Offer Registration
Statement is available for sales of Series B Notes by Broker-Dealers, the
Company and the Guarantors agree to use their respective best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of one year from the date on which the Exchange Offer is Consummated, or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Company and the Guarantors shall promptly provide sufficient copies of the
latest version of such Prospectus to such Broker-Dealers promptly upon request,
and in no event later than one day after such request, at any time during such
period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
------------------
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation of the Exchange Offer that (A) such Holder was prohibited by
law or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Series B Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a) (ii) above,
(such earlier date, the "Filing Deadline"), a shelf registration statement
---------------
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "Shelf Registration Statement")), relating to
----------------------------
all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf Registration
Statement to become effective on or prior to 90 days after the Filing Deadline
(such 90th day the
6
<PAGE>
"Effectiveness Deadline").
----------------------
If, after the Company has filed an Exchange Offer Registration Statement
that satisfies the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely because the
Exchange Offer is not permitted under applicable federal law due to a change in
such law (or rules and regulations) after the date of the filing of the Exchange
Offer, then the filing of the Exchange Offer Registration Statement shall be
deemed to satisfy the requirements of clause (x) above; provided that, in such
event, the Company shall remain obligated to meet the Effectiveness Deadline set
forth in clause (y).
The Company and the Guarantors shall use their respective best efforts to
keep any Shelf Registration Statement required by this Section 4(a) continuously
effective, supplemented and amended as required by and subject to the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for sales of Transfer Restricted Securities by the Holders thereof
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i), following the date on
which such Shelf Registration Statement first became effective under the Act, or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Shelf Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with the
------------------------------------------------------------------
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
- ----------------------------
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the applicable Filing Deadline, (ii) any such
Registration Statement has not been declared effective by the Commission on or
prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not
been Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being
7
<PAGE>
succeeded immediately by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective
immediately (each such event referred to in clauses (i) through (iv), a
"Registration Default"), then the Company and the Guarantors hereby jointly
--------------------
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 in principal amount of Transfer Restricted Securities; provided that
the Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-
effective amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective or
made usable in the case of (iv) above, the liquidated damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease to accrue.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Guarantors set forth in the
preceding paragraph that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantors shall comply with all applicable
provisions of Section 6(c) below, shall use their respective best efforts to
effect such exchange and to permit the resale of Series B Notes by Broker-
Dealers that tendered in the Exchange Offer Series A Notes that such Broker-
Dealer acquired for its own account as a result of its market making activities
or other trading activities (other than Series A Notes acquired directly from
the Company or any of its Affiliates) being sold in accordance with the intended
method or methods of distribution thereof, and shall comply with all of the
following provisions:
8
<PAGE>
(i) If, following the date hereof there has been announced a change in
Commission policy with respect to exchange offers such as the Exchange Offer,
that in the reasonable opinion of counsel to the Company raises a substantial
question as to whether the Exchange Offer is permitted by applicable federal
law, the Company and the Guarantors hereby agree to seek a no-action letter
or other favorable decision from the Commission allowing the Company and the
Guarantors to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company and the Guarantors hereby agree to pursue the
issuance of such a decision to the Commission staff level. In connection with
the foregoing, the Company and the Guarantors hereby agree to take all such
other actions as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without limitation
(A) participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to the
Company setting forth the legal bases, if any, upon which such counsel has
concluded that such an Exchange Offer should be permitted and (C) diligently
pursuing a resolution (which need not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer, each
Holder of Transfer Restricted Securities (including, without limitation, any
Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in
the letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the Company, (B)
it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and (C)
it is acquiring the Series B Notes in its ordinary course of business. Each
Holder using the Exchange Offer to participate in a distribution of the
Series B Notes hereby acknowledges and agrees that, if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
acquired directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement, rely on
the position of the Commission enunciated in Morgan Stanley and Co., Inc.
----------------------------
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), as interpreted in the Commission's letter to Shearman &
----------
Sterling dated July 2, 1993, and similar no-action letters (including, if
--------
applicable, any no-action letter obtained pursuant to clause (i) above), and
(2) must comply with the registration and prospectus delivery requirements of
the Act in connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective registration
statement containing the selling security holder information required by Item
507 or 508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental letter
to the Commission (A) stating that the Company and the Guarantors are
registering the Exchange Offer in reliance on the position of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988),
----------------------------------
Morgan Stanley and Co., Inc. (available June 5, 1991) as
----------------------------
9
<PAGE>
interpreted in the Commission's letter to Shearman & Sterling dated July 2,
-------------------
1993, and, if applicable, any no-action letter obtained pursuant to clause
(i) above, (B) including a representation that neither the Company nor any
Guarantor has entered into any arrangement or understanding with any Person
to distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no arrangement or
understanding with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer and (C) any other undertaking
or representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement and
------------------
any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if
Commission review is required, use their respective best efforts to cause
such amendment to be declared effective as soon as practicable.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Act, and to comply
fully with Rules 424, 430A and 462, as applicable, under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance
10
<PAGE>
with the intended method or methods of distribution by the sellers thereof
set forth in such Registration Statement or supplement to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by such
Persons, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by
the Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document incorporated
by reference therein untrue, or that requires the making of any additions to
or changes in the Registration Statement in order to make the statements
therein not misleading, or that requires the making of any additions to or
changes in the Prospectus in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company and the
Guarantors shall use their respective best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement
or post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(v) furnish to the Initial Purchasers and each selling Holder named
in any Registration Statement or Prospectus in connection with such exchange
or sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such selling Holders in connection with such sale, if any, for a
period of at least five Business Days, and the Company will not file any such
Registration Statement or Prospectus
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or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to which
such selling Holders shall reasonably object within five Business Days after
the receipt thereof. A selling Holder shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment, Prospectus
or supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable requirements
of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and Initial Purchasers
in connection with such exchange or sale, if any, make the Company's and the
Guarantors' representatives available for discussion of such document and
other customary due diligence matters, and include such information in such
document prior to the filing thereof as such Persons may reasonably request;
(vii) make available at reasonable times for inspection by the selling
Holders participating in any disposition pursuant to such Registration
Statement and Initial Purchasers and any attorney or accountant retained by
such Persons, all financial and other records, pertinent corporate documents
of the Company and the Guarantors and cause the Company's and the Guarantors'
officers, directors and employees to supply all information reasonably
requested by any such Persons, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent to
the filing thereof and prior to its effectiveness;
(viii) if requested by any selling Holders in connection with such
exchange or sale or any Initial Purchasers, in connection with market marking
activities, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such selling Holders and Initial Purchasers may reasonably
request to have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted Securities
and the use of the Registration Statement or Prospectus for market making
activities; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified
of the matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each selling Holder in connection with such exchange
or sale and each Initial Purchaser, who is deemed to be an affiliate of the
Company, for the purpose of making a market, without charge, at least one
copy of the Registration Statement, as first filed with the Commission, and
of each amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
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(x) deliver to each selling Holder and each Initial Purchaser, who is
deemed to be an affiliate of the Company, for the purposes of market making,
without charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company and the Guarantors hereby consent to the
use (in accordance with law) of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and such Initial Purchasers
in connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement thereto
and the market making activities of such Initial Purchasers, as the case may
be;
(xi) upon the request of any selling Holder, enter into such
agreements (including underwriting agreements) and make such representations
and warranties and take all such other actions in connection therewith in
order to expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated by
this Agreement as may be reasonably requested by any Holder of Transfer
Restricted Securities in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection and in connection with
market making activities by an Initial Purchaser who is deemed to be an
affiliate of the Company, the Company and the Guarantors shall:
(A) upon request of any such Person, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished) to
each such Person, upon the effectiveness of the Shelf Registration
Statement or upon Consummation of the Exchange Offer, as the case may be:
(1) a certificate, dated such date, signed on behalf of the Company
and each Guarantor by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company and such
Guarantor, confirming, as of the date thereof, the matters set forth in
paragraphs (a) through (d) of Section 9 of the Purchase Agreement and
such other similar matters as such Person may reasonably request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer, or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company and the
Guarantors covering matters similar to those set forth in paragraphs
(e) and (f) of Section 9 of the Purchase Agreement and such other
matter as such Person may reasonably request, and in any event
including a statement to the effect that such counsel has participated
in conferences with officers and other representatives of the Company
and the Guarantors, representatives of the independent public
accountants for the Company and the Guarantors and have considered the
matters required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that such
counsel
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advises that, on the basis of the foregoing (relying as to materiality
to the extent such counsel deems appropriate upon the statements of
officers and other representatives of the Company and the Guarantors)
and without independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became effective and,
in the case of the Exchange Offer Registration Statement, as of the
date of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Without limiting the foregoing, such counsel
may state further that such counsel assumes no responsibility for, and
has not independently verified, the accuracy, completeness or fairness
of the financial statements, notes and schedules and other financial
data included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of Consummation of
the Exchange Offer, or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters to underwriters in
connection with underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 9(h) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be reasonably
requested by such Persons to evidence compliance with clause (A) above and
with any customary conditions contained in the any agreement entered into
by the Company and the Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the securities or Blue Sky laws of such jurisdictions as the selling Holders
may request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided,
however, that neither the Company nor any Guarantor shall be required to
register or qualify as a foreign corporation where it is not now so qualified
or to take any action that would subject it to the service of process in
suits or to taxation, other than as to matters and transactions relating to
the Registration Statement, in any jurisdiction where it is not now so
subject;
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(xiii) issue, upon the request of any Holder of Series A Notes covered
by any Shelf Registration Statement contemplated by this Agreement, Series B
Notes having an aggregate principal amount equal to the aggregate principal
amount of Series A Notes surrendered to the Company by such Holder in
exchange therefor or being sold by such Holder; such Series B Notes to be
registered in the name of such Holder or in the name of the purchaser(s) of
such Series B Notes, as the case may be; in return, the Series A Notes held
by such Holder shall be surrendered to the Company for cancellation;
(xiv) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and such
names as the selling Holders may request at least two Business Days prior to
such sale of Transfer Restricted Securities;
(xv) use their respective best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in clause (xii) above;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are in
a form eligible for deposit with the Depository Trust Company;
(xvii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement meeting
the requirements of Rule 158 (which need not be audited) covering a twelve-
month period beginning after the effective date of the Registration Statement
(as such term is defined in paragraph (c) of Rule 158 under the Act);
(xviii) make appropriate officers of the Company available to the
selling Holders for meetings with prospective purchasers of the Transfer
Restricted Securities and prepare and present to potential investors
customary "road show" material in a manner consistent with other new
issuances of other securities similar to the Transfer Restricted Securities;
and
(xix) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the
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<PAGE>
TIA; and execute and use its best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner; and
(xx) provide promptly to each Holder and Initial Purchaser upon
request each document filed with the Commission pursuant to the requirements
of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security and each Initial Purchaser who is required to
deliver a prospectus in connection with market making transactions agrees that,
upon receipt of the notice referred to in Section 6(c)(iii)(C) or any notice
from the Company of the existence of any fact of the kind described in Section
6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Person will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until (i) such Person has received copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(iv)
hereof, or (ii) such Person is advised in writing by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "Recommencement Date"). Each Person receiving a Suspension
-------------------
Notice hereby agrees that it will either (i) destroy any Prospectuses, other
than permanent file copies, then in such Person's possession which have been
replaced by the Company with more recently dated Prospectuses or (ii) deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such Person's possession of the Prospectus covering such
Transfer Restricted Securities that was current at the time of receipt of the
Suspension Notice. The time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall
be extended by a number of days equal to the number of days in the period from
and including the date of delivery of the Suspension Notice to the date of
delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws; (iii) all expenses of printing (including printing certificates for the
Series B Notes to be issued in the Exchange Offer and printing of Prospectuses
whether for exchanges, sales, market making or otherwise), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and the Guarantors; (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the
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<PAGE>
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Skadden, Arps, Slate, Meagher & Flom LLP, unless another firm shall be chosen by
the Holders of a majority in principal amount of the Transfer Restricted
Securities for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, its officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any holder or any prospective purchaser of
Series B Notes, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by an untrue statement or omission or
alleged untrue statement or omission that is based upon information relating to
any of the Holders furnished in writing to the Company by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors and officers, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company, or the Guarantors to the same extent as the foregoing indemnity
from the Company and the Guarantors to each of the Indemnified Holders, but only
with reference to information relating to such Indemnified Holder furnished in
writing
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<PAGE>
to the Company by such Indemnified Holder expressly for use in any Registration
Statement. In no event shall any Indemnified Holder be liable or responsible for
any amount in excess of the amount by which the total amount received by such
Indemnified Holder with respect to its sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds (i) the amount paid by such
Indemnified Holder for such Transfer Restricted Securities and (ii) the amount
of any damages that such Indemnified Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying person") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by a majority of the Indemnified Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with
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<PAGE>
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this Section 8
is unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or judgments referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities (it being expressly understood and agreed that
the relative benefits received by the Company and the Guarantors from the sale
by the Holders of Transfer Restricted Securities shall be the amount of the net
proceeds received by the Company from the original issuance of the Notes) or
(ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(d)(i) above but also the relative fault of the
Company and the Guarantors, on the one hand, and of the Indemnified Holder, on
the other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Guarantors, on the one hand, and of the Indemnified Holder, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or such
Guarantor, on the one hand, or by the Indemnified Holder, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and judgments
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other
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<PAGE>
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any matter, including any action that could have
given rise to such losses, claims, damages, liabilities or judgments.
Notwithstanding the provisions of this Section 8, no Holder or its related
Indemnified Holders shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Holders' obligations to contribute pursuant to
this Section 8(c) are several in proportion to the respective principal amount
of Transfer Restricted Securities held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144 and RULE 144A
The Company and each Guarantor agree with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of the
Exchange Act, to make available, upon request of any Holder of Transfer
Restricted Securities, to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree that
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any failure by the Company and/or the Guarantors to comply with their respective
obligations under Sections 3 and 4 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Initial Purchasers or
any Holder may obtain such relief as may be required to specifically enforce the
Company's and the Guarantors' obligations under Sections 3 and 4 hereof. The
Company and the Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
--------------------------
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with
20
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the provisions hereof. Neither the Company nor any Guarantor has previously
entered into any agreement granting any registration rights with respect to its
debt securities to any Person. The rights granted to the Holders hereunder do
not in any way conflict with and are not inconsistent with the rights granted to
the holders of the Company's and the Guarantors' securities under any agreement
in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or
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permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture;
(ii) if to the Company or the Guarantors:
HDA Parts System, Inc.
2912 3rd Avenue North
Birmingham, AL 35202
Telecopier No.: (800) 292-6509
Attention: John J. Greisch
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With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Telecopier No.: (213) 891-8763
Attention: Randy Bassett
(iii) if to the Initial Purchasers:
Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172.
Telecopier No.: (310) 892-7272
Attention: Louise Guarneri (Compliance Department)
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071
Telecopier No.: (213) 687-5600
Attention: Nicholas P. Saggese
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to Donaldson, Lufkin &
Jenrette Securities Corporation, on behalf of the Initial Purchasers (in the
form attached hereto as Exhibit A) and shall be addressed to: Attention: Louise
Guarneri (Compliance Department), 277 Park Avenue, New York, New York 10172.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of Transfer
Restricted Securities in violation of the terms hereof or of the
22
<PAGE>
Purchase Agreement or the Indenture. If any transferee of any Holder shall
acquire Transfer Restricted Securities in any manner, whether by operation of
law or otherwise, such Transfer Restricted Securities shall be held subject to
all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT LIMITATION,
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HDA PARTS SYSTEM, INC.
/s/ John J. Greisch
---------------------------------
By:
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC.
/s/ John J. Greisch
---------------------------------
By:
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, L.L.C.
/s/ John J. Greisch
---------------------------------
By:
Name:
Title:
CITY TRUCK AND TRAILER PARTS OF
TENNESSEE, INC.
/s/ John J. Greisch
---------------------------------
By:
Name:
Title:
<PAGE>
CITY FRICTION, INC.
/s/ John J. Greisch
---------------------------------
By:
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Navid Mahmoodzadegan
------------------------------
Name: Navid Mahmoodzadegan
Title: Vice President
BANCAMERICA ROBERTSON STEPHENS
By: /s/ Mark S. Dawley
------------------------------
Name: Mark S. Dawley
Title: Managing Director
<PAGE>
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: HDA Parts System, Inc.
12% Series A Senior Subordinated Notes due 2005
Date: ___, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 199_, we filed [an A/B Exchange Registration Statement/a Shelf
Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
26
<PAGE>
Exhibit 5
[Latham & Watkins Letterhead]
April 8, 1999
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Re: Registration Statement on Form S-4 (File no. 333- __)
$100,000,000 Principal Amount of 12% Senior Subordinated Notes due 2005
-----------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of $100,000,000 aggregate principal
amount of 12% Senior Subordinated Notes due 2005 (the "Series B Notes") by HDA
Parts System, Inc., an Alabama corporation (the "Company") and the related
guarantees thereof (the "Guarantees"), on Form S-4 to be filed with the
Securities and Exchange Commission on April 8, 1999 (the "Registration
Statement"), you have requested our opinion with respect to the matters set
forth below. The Series B Notes will be issued pursuant to an indenture dated as
of July 31, 1998, a first supplemental indenture, dated as of September 30,
1998, a second supplemental indenture, dated as of December 21, 1998, and a
third supplemental indenture, dated as of January 14, 1999, (together, the
"Indenture") by and among the Company, the guarantors named therein (the
"Guarantors") and U.S. Trust Company of California, N.A., as trustee (the
"Trustee"). The Series B Notes will be issued in exchange for the Company's
outstanding 12% Senior Subordinated Notes due 2005 (the "Series A Notes") on the
terms set forth in the prospectus contained in the Registration Statement and
the Letter of Transmittal to be filed as an exhibit thereto (the "Exchange
Offer"). Capitalized terms used herein without definition have the meanings
assigned to them in the Indenture.
In our capacity as your special counsel, we have made such legal and
factual examinations and inquiries as we have considered appropriate for
purposes of rendering the opinions expressed below. We have examined, among
other things, the Indenture, the Series B Notes and the Guarantees.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies. As
to facts material to the opinions, statements and assumptions expressed herein,
we have, with your consent,
<PAGE>
relied upon oral or written statements and representations of officers and other
representatives of the Company and others. In addition, we have obtained and
relied upon such certificates and assurances from public officials as we have
deemed necessary.
We are opining herein as to the effect on the subject transactions only of
the internal laws of the State of New York and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is our
opinion, as of the date hereof, that assuming due authorization, execution,
delivery and authentication of the Series B Notes and the Guarantees, upon
issuance in the manner described in the Registration Statement, the Series B
Notes will be legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, and the Guarantees will be
legally valid and binding obligations of the Guarantors, enforceable against the
Guarantors in accordance with their terms.
The opinions rendered above relating to the enforceability of the Series B
Notes and the Guarantees are subject to the following exceptions, limitations
and qualifications: (1) the effect of bankruptcy, insolvency, fraudulent
conveyances, reorganization, moratorium or other similar laws now or hereafter
in effect relating to or affecting the rights and remedies of creditors, (2) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or law, and the discretion of the court before which any
proceeding therefor may be brought; (3) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy; and (4) we
express no opinion regarding the waivers of rights or defenses contained in
Section 4.15 of the Indenture.
To the extent that the obligations of the Company and the Guarantors under
the Indenture and the Guarantees may be dependent upon such matters, we have
assumed for purposes of this opinion that (i) the Trustee (a) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization; (b) has the requisite organizational and legal power and authority
to perform its obligations under the Indenture; and (c) is duly qualified to
engage in the activities contemplated by the Indenture; (ii) the Indenture has
been duly authorized, executed and delivered by the Trustee and constitutes the
Trustee's legally valid and binding obligation, enforceable against the Trustee
in accordance with its terms; and (iii) the Trustee is in compliance, generally
and with respect to acting as trustee under the Indenture, with all applicable
laws and regulations.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
(including updated Schedules reflecting Stone Acquisition)
CITY TRUCK AND TRAILER PARTS, INC.
____________________________________________________
$75,000,000
CREDIT AGREEMENT
June 1, 1998
____________________________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent and Syndication Agent
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH,
as Documentation Agent
BANCAMERICA ROBERTSON STEPHENS,
as Arranger
<PAGE>
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS.................................................... 2
1.1 Defined Terms.................................................... 2
1.2 Other Definitional Provisions.................................... 21
SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS...................... 22
2.1 Revolving Commitments............................................ 22
2.2 Scheduled Reductions............................................. 22
2.3 Procedure for Revolving Loan Borrowing........................... 24
2.4 Commitment Fees, etc............................................. 24
2.5 Termination or Reduction of Revolving Commitments................ 25
2.6 Optional Prepayments............................................. 25
2.7 Special Mandatory Prepayment..................................... 25
2.8 Mandatory Commitment Reductions.................................. 25
2.9 Conversion and Continuation Options.............................. 26
2.10 Limitations on Eurodollar Tranches............................... 27
2.11 Interest Rates and Payment Dates................................. 27
2.12 Computation of Interest and Fees................................. 27
2.13 Inability to Determine Interest Rate............................. 28
2.14 Pro Rata Treatment and Payments.................................. 28
2.15 Requirements of Law.............................................. 29
2.16 Taxes............................................................ 30
2.17 Indemnity........................................................ 32
2.18 Change of Lending Office......................................... 32
2.19 Replacement of Lenders........................................... 32
SECTION 3. LETTERS OF CREDIT.............................................. 33
3.1 L/C Commitment................................................... 33
3.2 Procedure for Issuance of Letter of Credit....................... 33
3.3 Fees and Other Charges........................................... 34
3.4 L/C Participations............................................... 34
3.5 Reimbursement Obligation of the Borrower......................... 35
3.6 Obligations Absolute............................................. 35
3.7 Letter of Credit Payments........................................ 35
3.8 Applications..................................................... 35
SECTION 4. REPRESENTATIONS AND WARRANTIES................................. 36
4.1 Financial Condition.............................................. 36
4.2 No Change........................................................ 36
4.3 Existence; Compliance with Law................................... 37
4.4 Power; Authorization; Enforceable Obligations.................... 37
4.5 No Legal Bar..................................................... 37
4.6 Litigation....................................................... 38
4.7 No Default....................................................... 38
4.8 Ownership of Property; Liens..................................... 38
4.9 Intellectual Property............................................ 38
4.10 Taxes............................................................ 38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4.11 Federal Regulations............................................. 38
4.12 Labor Matters................................................... 38
4.13 ERISA........................................................... 39
4.14 Investment Company Act; Other Regulations....................... 39
4.15 Subsidiaries.................................................... 39
4.16 Use of Proceeds................................................. 39
4.17 Environmental Matters........................................... 39
4.18 Accuracy of Information, etc.................................... 40
4.19 Security Documents.............................................. 41
4.20 Solvency........................................................ 41
4.21 Senior Indebtedness............................................. 41
4.22 Year 2000 Matters............................................... 41
4.23 Regulation H.................................................... 41
4.24 Certain Documents............................................... 42
SECTION 5. CONDITIONS PRECEDENT.......................................... 42
5.1 Conditions to Initial Extension of Credit....................... 42
5.2 Conditions to Each Extension of Credit.......................... 45
SECTION 6. AFFIRMATIVE COVENANTS......................................... 46
6.1 Financial Statements............................................ 46
6.2 Certificates; Other Information................................. 46
6.3 Payment of Obligations.......................................... 48
6.4 Maintenance of Existence; Compliance............................ 48
6.5 Year 2000 Compliance............................................ 48
6.6 Maintenance of Property; Insurance.............................. 48
6.7 Inspection of Property; Books and Records; Discussions.......... 48
6.8 Notices......................................................... 48
6.9 Environmental Laws.............................................. 49
6.10 Interest Rate Protection........................................ 49
6.11 Further Assurances.............................................. 50
6.12 Additional Collateral, etc...................................... 50
SECTION 7. NEGATIVE COVENANTS............................................ 51
7.1 Financial Condition Covenants................................... 51
7.2 Indebtedness.................................................... 53
7.3 Liens........................................................... 54
7.4 Fundamental Changes............................................. 55
7.5 Disposition of Property......................................... 56
7.6 Restricted Payments............................................. 56
7.7 Capital Expenditures; Foreign Expenditures...................... 57
7.8 Investments..................................................... 57
7.9 Optional Payments and Modifications of Certain Instruments...... 58
7.10 Transactions with Affiliates.................................... 58
7.11 Sales and Leasebacks............................................ 59
7.12 Changes in Fiscal Periods....................................... 59
7.13 Negative Pledge Clauses......................................... 59
7.14 Clauses Restricting Subsidiary Distributions.................... 59
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.15 Lines of Business............................................... 59
7.16 Amendments to Acquisition Documents............................. 59
SECTION 8. EVENTS OF DEFAULT.............................................. 60
SECTION 9. THE AGENTS..................................................... 64
9.1 Appointment..................................................... 64
9.2 Delegation of Duties............................................ 64
9.3 Exculpatory Provisions.......................................... 64
9.4 Reliance by Agents.............................................. 65
9.5 Notice of Default............................................... 65
9.6 Non-Reliance on Agents and Other Lenders........................ 65
9.7 Indemnification................................................. 66
9.8 Agent in Its Individual Capacity................................ 66
9.9 Successor Administrative Agent.................................. 66
SECTION 10. MISCELLANEOUS................................................. 67
10.1 Amendments and Waivers.......................................... 67
10.2 Notices......................................................... 67
10.3 No Waiver; Cumulative Remedies.................................. 68
10.4 Survival of Representations and Warranties...................... 68
10.5 Payment of Expenses and Taxes................................... 68
10.6 Successors and Assigns; Participations and Assignments.......... 69
10.7 Adjustments; Set-off............................................ 71
10.8 Counterparts.................................................... 71
10.9 Severability.................................................... 72
10.10 Integration..................................................... 72
10.11 GOVERNING LAW................................................... 72
10.12 Submission To Jurisdiction; Waivers............................. 72
10.13 Acknowledgements................................................ 72
10.14 Confidentiality................................................. 73
10.15 WAIVERS OF JURY TRIAL........................................... 73
</TABLE>
-iii-
<PAGE>
ANNEX:
- -----
A Pricing Grid
SCHEDULES:
- ---------
1.1A Commitments
1.1B Certain Consolidated EBITDA Adjustments
4.4 Approvals
4.6 Litigation
4.15(a) Subsidiaries
4.15(b) Capital Stock Agreements
4.19(a) UCC Filing Jurisdictions
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.8(e) Conditions to Stone Acquisition
7.10 Certain Affiliate Agreements
EXHIBITS:
- --------
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Exemption Certificate
E Form of Assignment and Acceptance
F-1 Form of Legal Opinion of Latham & Watkins
F-2 Form of Legal Opinion of Local Counsel
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of June 1, 1998, among CITY TRUCK AND
TRAILER PARTS, INC., an Alabama corporation (the "Borrower"), the several banks
--------
and other financial institutions or entities from time to time parties to this
Agreement (the "Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
-------
ASSOCIATION, a national banking association ("Bank of America"), as
---------------
administrative agent and syndication agent for the Lenders hereunder, THE
INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH ("IBJ"), as documentation
---
agent for the Lenders hereunder (in such capacity, the "Documentation Agent"),
-------------------
and BANCAMERICA ROBERTSON STEPHENS ("BARS"), as arranger (in such capacity, the
----
"Arranger").
--------
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, BABF City Corp. (the "Buyer"), the Borrower, its affiliates
-----
and Merger Subsidiaries named in the Stock Purchase Agreement and the
Shareholders of the Borrower and its Affiliates and Merger Subsidiaries have
entered into a Stock Purchase Agreement, dated as of June 1, 1998 (the "City
----
Truck Stock Purchase Agreement"), pursuant to which the Buyer will acquire 80%
- ------------------------------
of the Capital Stock of the Borrower (the "City Truck Acquisition");
----------------------
WHEREAS, the City Truck Acquisition will be accomplished through the
following steps: (a) (i) the Buyer will purchase 80% of the Capital Stock of the
Borrower for $20,000,000 in cash, (ii) immediately after such purchase, the
Borrower will reclassify its Capital Stock to consist of shares of common stock,
$.01 par value, and shares of non-redeemable preferred stock and (iii) after
such reclassification, the Buyer will own approximately $46,543 in shares of
common stock of the Borrower (the "New Investor Common Stock") and $19,953,457
-------------------------
in shares of non-redeemable preferred stock of the Borrower (the "Initial New
-----------
Investor Preferred Stock"); (b) Brentwood Associates Buyout Fund II, L.P.
- ------------------------
("BABF") will purchase newly issued shares of redeemable preferred stock of the
----
Borrower in exchange for $3,324,867 in cash (the "Initial New Investor
--------------------
Redeemable Preferred Stock", and together with the New Investor Common Stock and
- --------------------------
the Initial New Investor Preferred Stock, the "Initial New Investor Shares");
---------------------------
(c) the Borrower, concurrently with the issuance of the Initial New Investor
Shares, will (i) repurchase all of its issued and outstanding shares of common
stock, other than the Initial New Investor Shares and certain shares of common
stock (such shares, the "Rollover City Truck Shares") owned by certain existing
--------------------------
stockholders of the Borrower (the "Rollover City Truck Shareholders"), and (ii)
--------------------------------
refinance certain of its existing debt, for a maximum aggregate amount not to
exceed $62,000,000 (subject to adjustment in accordance with the terms of the
City Truck Stock Purchase Agreement); and (d) the Rollover City Truck Shares
will have an aggregate value of at least $5,000,000.
WHEREAS, in furtherance of its expansion plans, (x) the Borrower
intends to acquire substantially all of the assets (the "Stone Acquisition", and
-----------------
together with the City Truck Acquisition, the "Transactions") of Stone Heavy
------------
Duty ("Stone") in exchange for $26,666,000 (subject to adjustment in accordance
-----
with the terms of the Stone Acquisition Agreement) in cash and shares of common
stock and non-redeemable preferred stock (the "Rollover Stone Shares", and,
---------------------
together with the Rollover City Truck Shares, the "Rollover Shares") of the
---------------
Borrower (the holders of such shares, the "Rollover Stone Shareholders", and,
---------------------------
together with the Rollover City Truck Shareholders, the "Rollover
--------
Shareholders"); (y) in connection with the Stone Acquisition, the Buyer will
- ------------
purchase newly issued shares of non-redeemable preferred stock of the Borrower
in exchange for $7,000,000 in cash (the "Additional New Investor Preferred
---------------------------------
Stock"; the Initial New Investor Shares and the Additional New Investor
- -----
Preferred Stock are referred to collectively as the "New Investor Shares"); and
-------------------
(z) the Rollover Stone Shares will have an aggregate value of at least
$3,000,000. Upon consummation of the Transactions, the Buyer will own at least
60% of the then outstanding shares of common stock of the Borrower and at least
60% of the then outstanding shares of preferred stock of the Borrower. The Buyer
may elect not to complete the reclassification referred to above concurrently
with the City Truck Acquisition, in which
<PAGE>
2
case the Borrower will amend its articles of incorporation to create a class of
nonvoting redeemable preferred stock identical to the proposed Initial New
Investor Redeemable Preferred Stock, and BABF will acquire newly issued shares
of such new class in exchange for $3,324,867 concurrently with the City Truck
Acquisition. In such event, references to the Initial New Investor Preferred
Stock shall mean another $19,900,000 in shares of New Investor Common Stock, and
references to New Investor Common Stock will include such $19,900,000 in
additional shares. In addition, if such reclassification is not completed prior
to the Stone Acquisition, in connection with the Stone Acquisition, the Buyer,
the other shareholders of the Borrower and Stone may elect to contribute their
New Investor Common Stock to Holdings in exchange for shares of common stock and
preferred stock of Holdings having attributes identical to those described above
for the New Investor Common Stock and Initial New Investor Preferred Stock.
Thereafter, the Borrower would be a Wholly Owned Subsidiary of Holdings, and
references to New Investor Shares will be deemed references to the stock of
Holdings. In such event, Holdings would immediately contribute the former assets
of Stone to the Borrower.
WHEREAS, to finance (i) the City Truck Acquisition (a) the Borrower or
Holdings will have $28,324,867 in equity consisting of the Initial New Investor
Shares and the Rollover City Truck Shares, and (b) the Borrower will require
approximately $35,992,885 in Revolving Loans pursuant to this Agreement, and
(ii) the Stone Acquisition (a) the Borrower will receive $10,000,000 in equity
consisting of the Additional New Investor Preferred Stock and the Rollover Stone
Shares, and (b) the Borrower will require approximately $18,858,100 in Revolving
Loans pursuant to this Agreement.
WHEREAS, the Borrower, or a newly formed holding company of the
Borrower, intends to issue at least $75,000,000 of senior subordinated unsecured
notes in a public offering or Rule 144A private placement, the proceeds of which
would be used to reduce Revolving Loans outstanding (but not Revolving
Commitments) under this Agreement and, after such Revolving Loans outstanding
have been paid in full, to redeem, subject to the conditions set forth herein,
the Initial New Investor Redeemable Preferred Stock.
WHEREAS, the Lenders are willing to make available a senior secured
revolving credit facility upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"Acquisition": as to any Person, the acquisition (in a single
-----------
transaction or a series of related transactions) by such Person of (a) at least
50% of the outstanding Capital Stock of any other Person, (b) all or
substantially all of the assets of any other Person or (c) assets constituting
one or more business units or divisions of any other Person.
"Additional New Investor Preferred Stock": as defined in the recitals
---------------------------------------
to this Agreement.
"Adjustment Date": as defined in the Pricing Grid.
---------------
<PAGE>
3
"Administrative Agent": Bank of America, together with its affiliates,
--------------------
as the arranger of the Revolving Commitments and as the administrative agent for
the Lenders under this Agreement and the other Loan Documents, together with any
of its successors.
"Affiliate": as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Agent-Related Persons": the Agents and any successor agent pursuant
---------------------
to Section 9.9, together with their respective Affiliates (including BARS), and
the officers, directors, employees, agents and attorneys-in-fact of such Persons
and Affiliates.
"Agents": the collective reference to the Documentation Agent and the
------
Administrative Agent.
"Aggregate Exposure": with respect to any Lender at any time, an
------------------
amount equal to the amount of such Lender's Revolving Commitment then in effect
or, if the Revolving Commitments have been terminated, the amount of such
Lender's Revolving Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
-----------------------------
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": (a) 1.50%, in the case of Base Rate Loans and
-----------------
(b) 2.50%, in the case of Eurodollar Loans; provided, that on and after the
--------
first Adjustment Date occurring after the Closing Date, the Applicable Margin
will be determined pursuant to the Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Approved Category": with respect to the cost savings associated with
-----------------
any Acquisition, those cost savings that result from elimination of any of the
following items: (a) accounting policy-related charges, (b) charges associated
with status as a closely held private company, (c) excess officer or owner
compensation, (d) charges having no relation to the acquired businesses to be
operated on an ongoing basis or (e) business-related charges.
"Arranger": as defined in the preamble to this Agreement.
--------
"Asset Sale": any Disposition of property or series of related
----------
Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c) or (d) of Section 7.5) that yields gross proceeds to Holdings (if
any such holding company exists or is created), the Borrower or any of its
Subsidiaries (valued at the initial principal amount thereof in the case of non-
cash proceeds consisting of notes or other debt securities and valued at fair
market value in the case of other non-cash proceeds) in excess of $100,000.
<PAGE>
4
"Assignee": as defined in Section 10.6(c).
--------
"Assignment and Acceptance": an Assignment and Acceptance,
-------------------------
substantially in the form of Exhibit E.
"Assignor": as defined in Section 10.6(c).
--------
"Available Revolving Commitment": as to any Lender at any time, an
------------------------------
amount equal to the excess, if any, of (a) such Lender's Revolving Commitment
then in effect over (b) such Lender's Revolving Extensions of Credit then
----
outstanding.
"BABF": as defined in the recitals to this Agreement.
----
"BARS": as defined in the preamble to this Agreement.
----
"Base Rate": for any day, a rate per annum (rounded upwards, if
---------
necessary, to the next 1/16 of 1%) equal to the greater of (i) the rate of
interest publicly announced by Bank of America as its "reference rate" (the
"Reference Rate") and (ii) the Federal Funds Effective Rate in effect from time
--------------
to time plus 0.50%; any change in the Base Rate due to a change in the Reference
----
Rate or the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Reference Rate or the
Federal Funds Effective Rate.
"Base Rate Loans": Revolving Loans the rate of interest applicable to
---------------
which is based upon the Base Rate.
"Benefitted Lender": as defined in Section 10.7(a).
-----------------
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": as defined in the preamble to this Agreement.
--------
"Borrowing Date": any Business Day specified by the Borrower as a date
--------------
on which the Borrower requests the relevant Lenders to make Revolving Loans
hereunder.
"Build-Up Capital Expenditures": as defined in Section 7.7(a).
-----------------------------
"Business": as defined in Section 4.17(b).
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City, San Francisco, Alabama or Chicago are
authorized or required by law to close, provided, that with respect to notices
--------
and determinations in connection with, and payments of principal and interest
on, Eurodollar Loans, such day is also a day for trading by and between banks in
Dollar deposits in the interbank eurodollar market.
"Buyer": as defined in the recitals to this Agreement.
-----
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs
<PAGE>
5
and improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
---
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
-------
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"City Truck Acquisition": as defined in the recitals to this
----------------------
Agreement.
"City Truck Acquisition Documentation": collectively, the City Truck
------------------------------------
Stock Purchase Agreement and all schedules, exhibits and annexes thereto and all
side letters and agreements affecting the terms thereof or entered into in
connection therewith, in each case as amended, supplemented or otherwise
modified from time to time in accordance with Section 7.16.
"City Truck Stock Purchase Agreement": as defined in the recitals to
-----------------------------------
this Agreement.
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which date is June 1, 1998.
<PAGE>
6
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all property of the Loan Parties, now owned or hereafter
----------
acquired, upon which a Lien is purported to be created by any Security Document.
"Commitment Fee Rate": 0.50% per annum.
-------------------
"Commonly Controlled Entity": (a) an entity, whether or not
--------------------------
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414(b) or (c) of the Code and
(b) solely for the purposes of potential liability under Section 302(c)(11) of
ERISA and Section 412(c)(11) of the Code and the Lien created under Section
302(f) of ERISA and Section 412(n) of the Code, any Person which is a member of
any group of organizations described in Section 414(m) or (o) of the Code of
which the Borrower is a member.
"Compliance Certificate": a certificate duly executed by a Responsible
----------------------
Officer substantially in the form of Exhibit B.
"Consolidated Current Assets": at any date, all amounts (other than
---------------------------
cash and Cash Equivalents) that would, in conformity with GAAP, be set forth
opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of the Test Party and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts that
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the Test
Party and its Subsidiaries at such date, but excluding (a) the current portion
of any Funded Debt of the Test Party and its Subsidiaries and (b) without
duplication of clause (a) above, all Indebtedness consisting of Revolving Loans
to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and to the extent reflected as a charge in
----
the statement of such Consolidated Net Income for such period, the sum of (a)
income tax expense, (b) Consolidated Interest Expense, amortization or writeoff
of debt discount and debt issuance costs and commissions, discounts and other
fees and charges associated with Indebtedness (including the Revolving Loans),
(c) depreciation and amortization expense, (d) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (e) any
extraordinary, unusual or non-recurring non-cash expenses or losses (including,
whether or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, non-cash losses on sales of assets
outside of the ordinary course of business), provided, that the amounts referred
--------
to in this clause (e) shall not, in the aggregate, exceed $100,000 for any
fiscal year of the Test Party, (f) any other non-cash charges and (g) any
amounts of the type described on Schedule 1.1B, and minus, to the extent
-----
included in the statement of such Consolidated Net Income for such period, the
sum of (a) interest income, (b) any extraordinary, unusual or non-recurring
income or gains (including, whether or not otherwise includable as a separate
item in the statement of such Consolidated Net Income for such period, gains on
the sales of assets outside of the ordinary course of business) and (c) any
other non-cash income, all as determined on a consolidated basis. For the
purposes of calculating Consolidated EBITDA for any period (each, a "Reference
---------
Period"), (i) if at any time during such Reference Period, the Test Party or any
- ------
Subsidiary shall have made any Material Disposition, the Consolidated EBITDA for
such Reference Period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) attributable to the property
<PAGE>
7
that is the subject of such Material Disposition for such Reference Period or
increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such Reference Period and (ii) if during such Reference
Period the Borrower or any Subsidiary shall have made an Acquisition (which term
shall include the Stone Acquisition and, for the purposes of this definition
only, the City Truck Acquisition), Consolidated EBITDA for such Reference Period
shall be calculated after giving pro forma effect (A) to such Acquisition as if
--- -----
such Acquisition occurred on the first day of such Reference Period and (B) to
any cost savings to be implemented in connection with such Acquisition,
determined on the basis of a four-quarter period ("Acquisition Cost Savings"),
------------------------
as disclosed in Schedule 1.1B (in the case of the City Truck Acquisition and the
Stone Acquisition) or, in all other cases, which fall within an Approved
Category; provided that (x) for each full fiscal quarter completed after the
--------
consummation of an Acquisition, 25% of the Acquisition Cost Savings associated
with such Acquisition shall be excluded from the calculation of Consolidated
EBITDA (and comparable pro rata exclusions shall be made for post-Acquisition
--- ----
periods of less than a full fiscal quarter) and (y) in no event shall the
aggregate amount of Acquisition Cost Savings included in Consolidated EBITDA for
any period exceed 25% of the amount of such Consolidated EBITDA. As used in this
definition, "Material Disposition" means any Disposition of property or series
--------------------
of related Dispositions of property constituting a line of business or any
Disposition of a Subsidiary that, in any such case, yields gross proceeds to the
Borrower or any of its Subsidiaries in excess of $100,000. All calculations of
Consolidated EBITDA shall exclude any financial results or other items (positive
or negative) associated with City Transportation LLC.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense": for any period, total cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of the Test
Party and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Test Party and its Subsidiaries, including (a) all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (b) net costs under Hedge
Agreements in respect of interest rates to the extent such net costs are
allocable to such period in accordance with GAAP and (c) cash dividends paid in
respect of preferred Capital Stock.
"Consolidated Leverage Ratio": as at the last day of any Test Period,
---------------------------
the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA
for such period.
"Consolidated Net Income": for any period, the consolidated net income
-----------------------
(or loss) of the Test Party and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded (a) the
--------
income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the Test Party or is merged into or consolidated with the Test
Party or any of its Subsidiaries (except as otherwise provided in the definition
of "Consolidated EBITDA"), (b) the income (or deficit) of any Person (other than
a Subsidiary of the Test Party) in which the Test Party or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Test Party or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Test Party to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary. It is understood
that, in determining Consolidated Net Income for any period, all components of
Consolidated Interest Expense for such period shall be reflected as a charge
against such Consolidated Net Income.
<PAGE>
8
"Consolidated Net Worth": at any date, all amounts that would, in
----------------------
conformity with GAAP, be included on a consolidated balance sheet of the Test
Party and its Subsidiaries under stockholders' equity at such date.
"Consolidated Senior Debt": all Consolidated Total Debt which is not
------------------------
subordinated to the Obligations (or, as applicable, the obligations of the
relevant Guarantor under the Guarantee and Collateral Agreement) on terms and
conditions satisfactory to the Administrative Agent, provided, that during the
--------
period from the Senior Subordinated Note Date to the first date thereafter on
which any extension of credit hereunder is outstanding, such amount shall be
reduced by the amount of cash and Cash Equivalents reflected on the consolidated
balance sheet of the Test Party as of the relevant date of calculation.
"Consolidated Senior Debt Ratio": as of the last day of any Test
------------------------------
Period, the ratio of (a) Consolidated Senior Debt on such day to (b)
Consolidated EBITDA for such period.
"Consolidated Total Debt": at any date, the aggregate principal amount
-----------------------
of all Indebtedness of the Test Party and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP, provided, that
--------
during the period from the Senior Subordinated Note Date to the first date
thereafter on which any extension of credit hereunder is outstanding, such
amount shall be reduced by the amount of cash and Cash Equivalents reflected on
the consolidated balance sheet of the Test Party as of the relevant date of
calculation.
"Consolidated Working Capital": at any date, the excess of
----------------------------
Consolidated Current Assets on such date over Consolidated Current Liabilities
----
on such date.
"Continuing Directors": the directors of the Borrower on the Closing
--------------------
Date, after giving effect to the City Truck Acquisition and the other
transactions contemplated hereby to occur on the Closing Date, and each other
director, if, in each case, such other director's nomination for election to the
board of directors of the Borrower or Holdings (if any such holding company
exists or is created) is recommended by a majority of the then Continuing
Directors or such other director receives the vote of the Permitted Investors in
his or her election by the shareholders of the Borrower or Holdings (if any such
holding company exists or is created).
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control Investment Affiliate": as to any Person, any other Person
----------------------------
that (a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person and (b) is organized by such Person primarily
for the purpose of making equity or debt investments in one or more companies.
For purposes of this definition, "control" of a Person means the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition thereof.
The terms "Dispose" and "Disposed of" shall have correlative meanings.
------- -----------
<PAGE>
9
"Documentation Agent": as defined in the preamble to this Agreement.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
-------------------
the laws of any jurisdiction within the United States.
"ECF Percentage": 50%.
--------------
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect and applicable to any Loan
Party.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate for
deposits in Dollars for the period commencing on the first day of such Interest
Period and ending on the last day of such Interest Period which appears on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. If at least two rates
appear on such Page of the Dow Jones Markets screen for such Interest Period,
the "Eurodollar Base Rate" shall be the arithmetic mean of such rates. If the
--------------------
"Eurodollar Base Rate" cannot be determined in accordance with the immediately
--------------------
preceding sentences with respect to any Interest Period, the "Eurodollar Base
---------------
Rate" with respect to each day during such Interest Period shall be the rate per
- ----
annum equal to the rate at which Bank of America is offered Dollar deposits at
or about 10:00 A.M., San Francisco time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of its
Eurodollar Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its Eurodollar Loan to be outstanding during such
Interest Period.
"Eurodollar Loans": Revolving Loans the rate of interest applicable to
----------------
which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
<PAGE>
10
Eurodollar Base Rate
-----------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans the
------------------
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Revolving Loans shall
originally have been made on the same day).
"Event of Default": any of the events specified in Section 8, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess,
----------------
if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
(including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent deducted in arriving at such Consolidated Net Income over (b) the
----
sum, without duplication, of (i) an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income, (ii) the aggregate
amount actually paid by the Borrower and its Subsidiaries in cash during such
fiscal year on account of Capital Expenditures or Acquisitions permitted hereby
(excluding the principal amount of Indebtedness incurred in connection with such
expenditures and any such expenditures financed with the proceeds of any
Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of
Revolving Loans during such fiscal year to the extent accompanying permanent
optional reductions of the Revolving Commitments, (iv) the aggregate amount of
all regularly scheduled principal payments of Funded Debt of the Borrower and
its Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) increases in Consolidated Working
Capital for such fiscal year, and (vi) an amount equal to the aggregate net non-
cash gain on the Disposition of property by the Borrower and its Subsidiaries
during such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent included in arriving at such Consolidated Net Income.
"Excess Cash Flow Application Date": as defined in Section 2.8(c).
---------------------------------
"Excluded Foreign Subsidiary": any Foreign Subsidiary in respect of
---------------------------
which either (a) the pledge of all of the Capital Stock of such Subsidiary as
Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would,
in the good faith judgment of the Borrower, result in adverse tax consequences
to the Borrower.
"Federal Funds Effective Rate": for any day, the weighted average of
----------------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
------------------
Domestic Subsidiary.
<PAGE>
11
"Funded Debt": as to any Person, all Indebtedness of such Person that
-----------
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date, including all
current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Revolving Loans.
"Funding Office": the office of the Administrative Agent specified in
--------------
Section 10.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
----
as in effect from time to time, except that for purposes of Section 7.1, GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b). In the event that
any "Accounting Change" (as defined below) shall occur and such change results
in a change in the method of calculation of financial covenants, standards or
terms in this Agreement, then the Borrower and the Administrative Agent agree to
enter into negotiations in order to amend such provisions of this Agreement so
as to equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the financial condition of the Test Party and its
Subsidiaries shall be the same after such Accounting Changes as if such
Accounting Changes had not been made. Until such time as such an amendment
shall have been executed and delivered by the Borrower and the Majority Lenders,
all financial covenants, standards and terms in this Agreement shall continue to
be calculated or construed as if such Accounting Changes had not occurred.
"Accounting Changes" refers to changes in accounting principles required by the
------------------
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants or, if applicable, the SEC.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by the Borrower and each Guarantor,
substantially in the form of Exhibit A, as the same may be amended, supplemented
or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including
any bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
<PAGE>
12
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantors": the collective reference to Holdings (if any such
----------
holding company exists or is created) and the Subsidiary Guarantors.
"Hedge Agreements": all interest rate swaps, caps or collar
----------------
agreements, currency swaps or similar arrangements providing for protection
against fluctuations in interest rates or currency exchange rates or the
exchange of nominal interest obligations, either generally or under specific
contingencies.
"Holdings": any corporation, partnership or similar entity created
--------
after the Closing Date by shareholders of the Borrower to own the Capital Stock
of the Borrower.
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than trade
payables incurred in the ordinary course of such Person's business), (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations of such Person, (f)
all obligations of such Person, contingent or otherwise, as an account party
under acceptance, letter of credit or similar facilities, (g) for the purposes
of Section 7.2 only, the liquidation value of all redeemable preferred Capital
Stock of such Person, (h) all Guarantee Obligations of such Person in respect of
obligations of the kind referred to in clauses (a) through (g) above; (i) all
obligations of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including accounts and
contract rights) owned by such Person, whether or not such Person has assumed or
become liable for the payment of such obligation; and (j) for the purposes of
Section 8(e) only, all net obligations of such Person in respect of Hedge
Agreements.
"Initial New Investor Preferred Stock": as defined in the recitals to
------------------------------------
this Agreement.
"Initial New Investor Redeemable Preferred Stock": as defined in the
-----------------------------------------------
recitals to this Agreement.
"Initial New Investor Shares": as defined in the recitals to this
---------------------------
Agreement.
<PAGE>
13
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day of
---------------------
each March, June, September and December to occur while such Revolving Loan is
outstanding and the final maturity date of such Revolving Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last day
of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period
longer than three months, each day that is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day of such
Interest Period and (d) as to any Revolving Loan (other than any Revolving Loan
that is a Base Rate Loan), the date of any repayment or prepayment made in
respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent no later than 8:00 A.M., San Francisco time, on the date
that is three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing provisions
--------
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) the Borrower may not select an Interest Period that would
extend beyond the Revolving Termination Date;
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Revolving Loan.
"Investments": as defined in Section 7.8.
-----------
"Issuing Lender": Bank of America, in its capacity as issuer of any
--------------
Letter of Credit.
<PAGE>
14
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Lenders other
----------------
than the Issuing Lender.
"Lenders": as defined in the preamble to this Agreement.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
"Loan Parties": Holdings (if any such holding company exists or is
------------
created), the Borrower and each Subsidiary of the Borrower that is a party to a
Loan Document.
"Majority Lenders": the holders of more than 50% of the aggregate
----------------
unpaid principal amount of the Total Revolving Extensions of Credit outstanding
(or prior to any termination of the Revolving Commitments, the holders of more
than 50% of the Total Revolving Commitments).
"Management Subscription Agreements": the collective reference to any
----------------------------------
subscription agreement or stockholders agreement between the Borrower or
Holdings (if any such holding company exists or is created) and any present or
former officer or employee of Holdings (if any such holding company exists or is
created), the Borrower or any of its Subsidiaries.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, property, operations, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including friable asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.
"Mortgages": each of the mortgages and deeds of trust made by any
---------
Loan Party in favor of, or for the benefit of, the Administrative Agent for the
benefit of the Lenders, substantially in the form required or advisable under
the law of the jurisdiction in which such mortgage or deed of
<PAGE>
15
trust is to be recorded, as the same may be amended, supplemented or otherwise
modified from time to time.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"New Investor Common Stock": as defined in the recitals to this
-------------------------
Agreement.
"New Investor Shares": as defined in the recitals to this Agreement.
-------------------
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or the sale of any non-cash consideration or otherwise, but only as
and when received) of such Asset Sale or Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied to
the repayment of Indebtedness secured by a Lien expressly permitted hereunder on
any asset that is the subject of such Asset Sale or Recovery Event (other than
any Lien pursuant to a Security Document) and other customary fees and expenses
actually incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and (b) in
connection with any issuance or sale of equity securities or debt securities or
instruments or the incurrence of loans, the cash proceeds received from such
issuance or incurrence, net of attorneys' fees, investment banking fees,
accountants' fees, underwriting discounts and commissions and other customary
fees and expenses actually incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.16(a).
------------------
"Non-U.S. Lender": as defined in Section 2.16(d).
---------------
"Notes": the collective reference to any promissory note evidencing
-----
Revolving Loans.
"Obligations": the unpaid principal of and interest on (including
-----------
interest accruing after the maturity of the Revolving Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Revolving Loans and
all other obligations and liabilities of the Borrower to the Administrative
Agent or to any Lender (or, in the case of Hedge Agreements, any affiliate of
any Lender), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, this Agreement, any other Loan Document, the Letters
of Credit, any Hedge Agreement entered into with any Lender or any affiliate of
any Lender or any other document made, delivered or given in connection herewith
or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Administrative Agent or to any Lender that are
required to be paid by the Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
<PAGE>
16
"Participant": as defined in Section 10.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Acquisition": any Acquisition (other than the Stone
---------------------
Acquisition); provided, that (a) the Borrower satisfies, and will continue to
--------
satisfy through the Revolving Termination Date, after giving effect (on a pro
---
forma basis) to such Acquisition and any Indebtedness incurred in connection
- -----
therewith, the financial covenants set forth in Section 7.1 (with the base Test
Period for this purpose being the most recent period of 12 consecutive months
for which the relevant financial information is available (or, in the case of
Section 7.1(b), if shorter, a period consisting of each full month subsequent to
the Closing Date)) as set forth in reasonable detail in a certificate of the
chief financial officer of the Borrower delivered to the Lenders at least 10
Business Days prior to the consummation of such Acquisition; (b) the Borrower
delivers to the Lenders at least 10 Business Days prior to the consummation of
such Acquisition a description of the business being acquired (including
historical financial and operating data for the most recent 12 complete
consecutive calendar months for which such information is available), the
sources and uses of funding for such Acquisition, the cost savings to be
achieved in connection therewith (on a category-by-category basis) and
projections for the business being acquired for a period of at least 3 years
after the date such Acquisition is to be consummated; (c) such Acquisition is
approved by the Board of Directors (or other analogous body) of the Person which
is to be, or whose assets are to be, acquired, in such Acquisition; (d) the
Borrower shall have delivered (i) to the Administrative Agent (x) draft
documentation with respect to such Acquisition no later than 10 Business Days
prior to the consummation thereof and (y) any environmental reports relating to
such Acquisition promptly after they are received by the Borrower) and (ii) to
the Lenders, true and complete copies of the definitive documentation with
respect to such Acquisition no later than 5 Business Days after the consummation
thereof; (e) no Default or Event of Default has then occurred and is continuing
or would result therefrom; (f) in connection with the first $100,000,000 of
Acquisitions, including the Stone Acquisition, the Borrower must have received
at least $33,000,000 in cash equity consisting of common stock (with an
aggregate value between $90,000 and $600,000) (including the New Investor Common
Stock) and preferred stock (with an aggregate value between $24,410,000 and
$24,910,000) (including the Initial New Investor Preferred Stock and the
Additional New Investor Preferred Stock), and the balance in Rollover Shares or
other rolled equity interests; (g) with respect to any such Acquisition the
total consideration (including assumed Indebtedness) for which exceeds
$30,000,000, such Acquisition shall have been approved by Required Lenders; and
(h) the Available Revolving Commitments of all the Lenders are at least equal to
$7,500,000 after giving effect to such Acquisition.
"Permitted Investors": the collective reference to the Buyer and its
-------------------
Control Investment Affiliates.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan that is
----
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
<PAGE>
17
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
-----------------------
"Projections": as defined in Section 6.2(c).
-----------
"Properties": as defined in Section 4.17(a).
----------
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of Holdings (if any such holding company exists or is created), the
Borrower or any of its Subsidiaries that yields gross proceeds to Holdings (if
any such holding company exists or is created), the Borrower or any of its
Subsidiaries (valued at the initial principal amount thereof in the case of non-
cash proceeds consisting of notes or other debt securities and valued at fair
market value in the case of other non-cash proceeds) in excess of $100,000.
"Reference Lender": Bank of America National Trust and Savings
----------------
Association.
"Register": as defined in Section 10.6(d).
--------
"Regulation H": Regulation H of the Board as in effect from time to
------------
time.
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by Holdings (if any such holding
company exists or is created), the Borrower or any of its Subsidiaries in
connection therewith that are not applied to reduce the Revolving Commitments
pursuant to Section 2.8 as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets useful in its business (including to make
Permitted Acquisitions).
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
useful in the business of the Borrower or any of its Subsidiaries.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring six months after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to, or
shall have otherwise ceased to, acquire assets useful in the business of the
Borrower or any of its Subsidiaries with all or any portion of the relevant
Reinvestment Deferred Amount.
<PAGE>
18
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
(S) 4043.
"Required Lenders": the holders of more than 66-2/3% of the aggregate
----------------
unpaid principal amount of the Total Revolving Extensions of Credit outstanding
(or, prior to any termination of the Revolving Credit Commitments, the holders
of more than 66-2/3% of the Total Revolving Commitments).
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president or chief
-------------------
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
-------------------
"Revolving Commitment": as to any Lender, the obligation of such
--------------------
Lender, if any, to make Revolving Loans and participate in Letters of Credit in
an aggregate principal and/or face amount not to exceed the amount set forth
under the heading "Revolving Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Acceptance pursuant to which such Lender became a
party hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Commitments is $75,000,000.
"Revolving Commitment Period": the period from and including the
---------------------------
Closing Date to the Revolving Termination Date.
"Revolving Credit Facility": the Revolving Commitments and the
-------------------------
extensions of credit made thereunder.
"Revolving Extensions of Credit": as to any Lender at any time, an
------------------------------
amount equal to the sum of (a) the aggregate principal amount of all Revolving
Loans held by such Lender then outstanding, and (b) such Lender's Revolving
Percentage of the L/C Obligations then outstanding.
"Revolving Loans": as defined in Section 2.1.
---------------
"Revolving Percentage": as to any Lender at any time, the percentage
--------------------
which such Lender's Revolving Commitment then constitutes of the Total Revolving
Commitments (or, at any time after the Revolving Commitments shall have expired
or terminated, the percentage which the aggregate principal amount of such
Lender's Revolving Loans then outstanding constitutes of the aggregate principal
amount of the Revolving Loans then outstanding).
"Revolving Termination Date": the date which is six years after the
--------------------------
Closing Date.
<PAGE>
19
"Rollover City Truck Shares": as defined in the recitals to this
--------------------------
Agreement.
"Rollover City Truck Shareholders": as defined in the recitals to this
--------------------------------
Agreement.
"Rollover Shares": as defined in the recitals to this Agreement.
---------------
"Rollover Shareholders": as defined in the recitals to this Agreement.
---------------------
"Rollover Stone Shares": as defined in the recitals to this Agreement.
---------------------
"Rollover Stone Shareholders": as defined in the recitals to this
---------------------------
Agreement.
"SEC": the Securities and Exchange Commission, any successor thereto
---
and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any property of any
Person to secure the obligations and liabilities of any Loan Party under any
Loan Document.
"Senior Subordinated Note Date": the date of issuance of at least
-----------------------------
$75,000,000 aggregate principal amount of Senior Subordinated Notes.
"Senior Subordinated Notes": any unsecured Indebtedness of Holdings or
-------------------------
the Borrower, no part of the principal of which is required to be paid (whether
by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or
otherwise) prior to the tenth anniversary of the Closing Date; the payment of
the principal of and interest on which and other obligations of Holdings, the
Borrower or any Subsidiary Guarantor in respect thereof are subordinated to the
prior payment in full of the Obligations (or, as applicable, the obligations of
the relevant Guarantor under the Guarantee and Collateral Agreement) on terms
and conditions satisfactory to the Majority Lenders; and all other terms and
conditions of which are reasonably satisfactory in form and substance to the
Majority Lenders (as evidenced by their prior written approval thereof).
"Senior Subordinated Note Indenture": the Indenture entered into by
----------------------------------
Holdings or the Borrower (and, if guaranteed, certain of the relevant issuer's
Subsidiaries) in connection with the issuance of the Senior Subordinated Notes,
together with all instruments and other agreements entered into by Holdings or
the Borrower (or such Subsidiaries) in connection therewith, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
Section 7.9.
"Services Agreement": as defined in Section 7.10.
------------------
"Single Employer Plan": any Plan that is covered by Title IV of ERISA
--------------------
or that is subject to Section 412 of the Code, but that is not a Multiemployer
Plan.
"Solvent": when used with respect to any Person, means that, as of any
-------
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the
<PAGE>
20
liability of such Person on its debts as such debts become absolute and matured,
(c) such Person will not have, as of such date, an unreasonably small amount of
capital with which to conduct its business, and (d) such Person will be able to
pay its debts as they mature. For purposes of this definition, (i) "debt" means
liability on a "claim", and (ii) "claim" means any (x) right to payment, whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
"Specified Change of Control": a "Change of Control" (or similar
---------------------------
concept) as defined in the Senior Subordinated Note Indenture.
"Specified Event of Default": as defined in Section 8(o).
--------------------------
"Stone": as defined in the recitals to this Agreement.
-----
"Stone Acquisition": as defined in the recitals to this Agreement.
-----------------
"Stone Acquisition Agreement": the asset purchase agreement pursuant
---------------------------
to which the Borrower acquires any assets of Stone.
"Stone Acquisition Documentation": collectively, the Stone Acquisition
-------------------------------
Agreement and all schedules, exhibits and annexes thereto and all side letter
and agreements affecting the terms thereof, in each case as amended,
supplemented or otherwise modified in accordance with Section 7.16.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower other than any
--------------------
Excluded Foreign Subsidiary.
"Test Party": (a) at any time prior to the creation of Holdings, the
----------
Borrower and (b) thereafter, Holdings.
"Test Period": except as otherwise expressly provided herein, any
-----------
period of four consecutive fiscal quarters of the Test Party.
"Total Revolving Commitments": at any time, the aggregate amount of
---------------------------
the Revolving Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Lenders outstanding at such
time.
<PAGE>
21
"Transactions": as defined in the recitals to this Agreement.
------------
"Transferee": any Assignee or Participant.
----------
"Type": as to any Revolving Loan, its nature as a Base Rate Loan or a
----
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
---------------
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
-------------
"U.S. Taxes": as defined in Section 10.6(d).
----------
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of the Borrower.
"Year 2000 Problem": the inability of computers, as well as embedded
-----------------
microchips in non-computing devices, to perform properly date-sensitive
functions with respect to certain dates prior to and after December 31, 1999.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to Holdings (if any such holding company exists or is
created), the Borrower and its Subsidiaries not defined in Section 1.1 and
accounting terms partly defined in Section 1.1, to the extent not defined, shall
have the respective meanings given to them under GAAP, (ii) the words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation", (iii) the word "incur" shall be construed to mean incur, create,
issue, assume, become liable in respect of or suffer to exist (and the words
"incurred" and "incurrence" shall have correlative meanings), and (iv) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, Capital Stock, securities, revenues, accounts, leasehold
interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
<PAGE>
22
SECTION 2. AMOUNT AND TERMS OF REVOLVING COMMITMENTS
2.1 Revolving Commitments. (a) Subject to the terms and conditions
---------------------
hereof, each Lender severally agrees to make revolving credit loans ("Revolving
---------
Loans") to the Borrower from time to time during the Revolving Commitment Period
- -----
in an aggregate principal amount at any one time outstanding which, when added
to such Lender's Revolving Percentage of the L/C Obligations then outstanding,
does not exceed the amount of such Lender's Revolving Commitment. During the
Revolving Commitment Period the Borrower may use the Revolving Commitments by
borrowing, prepaying the Revolving Loans in whole or in part, and reborrowing,
all in accordance with the terms and conditions hereof. The Revolving Loans may
from time to time be Eurodollar Loans or Base Rate Loans, as determined by the
Borrower and notified to the Administrative Agent in accordance with Sections
2.3 and 2.9.
(b) The Borrower shall repay all outstanding Revolving Loans on the
Revolving Termination Date.
2.2 Scheduled Reductions. (a) The Total Revolving Commitments shall
--------------------
reduce on each of the dates set forth by the amount set forth below opposite
such date (each Lender's Revolving Commitment shall be reduced ratably in
connection with any such reduction in the Total Revolving Commitments in
accordance with Section 2.14(a)):
DATE REDUCTION AMOUNT
September 30, 2001 $ 2,500,000
December 31, 2001 2,500,000
March 31, 2002 2,500,000
June 30, 2002 2,500,000
September 30, 2002 2,500,000
December 31, 2002 2,500,000
March 31, 2003 2,500,000
June 30, 2003 2,500,000
September 30, 2003 2,500,000
December 31, 2003 2,500,000
March 31, 2004 2,500,000
Revolving Termination Date 47,500,000
(b) Notwithstanding the foregoing, in the event the Stone Acquisition
is not consummated on or prior to the day which is 90 days following the Closing
Date, the Total Revolving Commitments shall reduce automatically on the next
succeeding Business Day to the lower of (i) $40,000,000 and (ii) the sum of (x)
the aggregate principal amount of Revolving Loans then outstanding and (y)
$7,500,000 and, thereafter, the Total Revolving Commitments shall be reduced on
each of the dates set forth below by the amount set forth opposite such date
below. In the event that clause (ii) above is applicable, the amounts set forth
below shall be ratably reduced. Each Lender's Revolving Commitment shall be
reduced ratably in connection with each reduction of the Total Revolving
Commitments pursuant to this proviso in accordance with Section 2.14(a).
<PAGE>
23
<TABLE>
<CAPTION>
Date Reduction Amount
<S> <C>
September 30, 1999 $1,500,000
December 31, 1999 $1,500,000
March 31, 2000 $1,500,000
June 30, 2000 $1,500,000
September 30, 2000 $1,750,000
December 31, 2000 $1,750,000
March 31, 2001 $1,750,000
June 30, 2001 $1,750,000
September 30, 2001 $2,000,000
December 31, 2001 $2,000,000
March 31, 2002 $2,000,000
June 30, 2002 $2,000,000
September 30, 2002 $2,000,000
December 31, 2002 $2,000,000
March 31, 2003 $2,000,000
June 30, 2003 $2,000,000
September 30, 2003 $2,750,000
December 31, 2003 $2,750,000
March 31, 2004 $2,750,000
Revolving Termination Date $2,750,000
</TABLE>
(c) Notwithstanding the foregoing, in the event that the Stone
Acquisition is consummated but the Senior Subordinated Note Date does not occur
prior to the first anniversary of the Closing Date, the Total Revolving
Commitments shall be reduced on each of the dates set forth below by the amount
set forth below opposite such date (each Lender's Revolving Commitment shall be
reduced ratably in connection with any such reduction in the Total Revolving
Commitments in accordance with Section 2.14(a)):
<TABLE>
<CAPTION>
Date Reduction Amount
<S> <C>
September 30, 1999 $2,500,000
December 31, 1999 2,500,000
March 31, 2000 2,500,000
June 30, 2000 2,500,000
September 30, 2000 2,500,000
December 31, 2000 2,500,000
March 31, 2001 2,500,000
June 30, 2001 2,500,000
September 30, 2001 2,500,000
December 31, 2001 2,500,000
March 31, 2002 2,500,000
June 30, 2002 2,500,000
September 30, 2002 2,500,000
December 31, 2002 2,500,000
March 31, 2003 2,500,000
June 30, 2003 2,500,000
September 30, 2003 2,500,000
December 31, 2003 2,500,000
March 31, 2004 2,500,000
Revolving Termination Date 27,500,000
</TABLE>
<PAGE>
24
2.3 Procedure for Revolving Loan Borrowing. The Borrower may borrow
--------------------------------------
under the Revolving Commitments during the Revolving Commitment Period on any
Business Day; provided, that the Borrower shall give the Administrative Agent
--------
irrevocable notice (which notice must be received by the Administrative Agent
prior to 8:00 A.M., San Francisco time, (a) three Business Days prior to the
requested Borrowing Date, in the case of Eurodollar Loans, or (b) on the
requested Borrowing Date, in the case of Base Rate Loans), specifying (i) the
amount and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing
Date and (iii) in the case of Eurodollar Loans, the respective amounts of each
such Type of Revolving Loan and the respective lengths of the initial Interest
Period therefor. Any Revolving Loans made on the Closing Date shall initially
be Base Rate Loans and, unless otherwise agreed by the Administrative Agent in
its sole discretion, no Revolving Loan may be made as, converted into or
continued as a Eurodollar Loan prior to the date that is 30 days after the
Closing Date. Each borrowing under the Revolving Commitments shall be in an
amount equal to (x) in the case of Base Rate Loans, $250,000 or a whole multiple
of $100,000 in excess thereof (or, if the then aggregate Available Revolving
Commitments are less than $250,000, such lesser amount) and (y) in the case of
Eurodollar Loans, $1,000,000 or a whole multiple of $100,000 in excess thereof.
Upon receipt of any such notice from the Borrower, the Administrative Agent
shall promptly notify each Lender thereof. Each Lender will make the amount of
its pro rata share of each borrowing available to the Administrative Agent for
--- ----
the account of the Borrower at the Funding Office prior to 11:00 A.M., San
Francisco time, on the Borrowing Date requested by the Borrower in funds
immediately available to the Administrative Agent. Such borrowing will then be
made available to the Borrower by the Administrative Agent crediting the account
of the Borrower on the books of such office with the aggregate of the amounts
made available to the Administrative Agent by the Lenders and in like funds as
received by the Administrative Agent.
2.4 Commitment Fees, etc. The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the Closing
<PAGE>
25
Date to the last day of the Revolving Commitment Period, computed at the
Commitment Fee Rate on the daily amount of the Available Revolving Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Termination Date, commencing on the first of such dates to occur after
the date hereof.
(b) The Borrower agrees to pay to the Agents the fees in the amounts
and on the dates previously agreed to in writing by the Borrower and the Agents.
2.5 Termination or Reduction of Revolving Commitments. The Borrower
-------------------------------------------------
shall have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Commitments or, from time to
time, to reduce the amount of the Revolving Commitments; provided, that no such
--------
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Revolving Loans made on the
effective date thereof, the Total Revolving Extensions of Credit would exceed
the Total Revolving Commitments. Any such reduction shall be in an amount equal
to $1,000,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Commitments then in effect.
2.6 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Revolving Loans, in whole or in part, without premium or
penalty, upon irrevocable notice delivered to the Administrative Agent no later
than 8:00 A.M., San Francisco time, at least three Business Days prior thereto
in the case of Eurodollar Loans and at least one Business Day prior thereto in
the case of Base Rate Loans, which notice shall specify the date and amount of
prepayment and whether the prepayment is of Eurodollar Loans or Base Rate Loans;
provided, that if a Eurodollar Loan is prepaid on any day other than the last
- --------
day of the Interest Period applicable thereto, the Borrower shall also pay any
amounts owing pursuant to Section 2.17. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Revolving Loans that are Base Rate Loans) accrued interest to such date on the
amount prepaid. Partial prepayments of Revolving Loans shall be in an aggregate
principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.
2.7 Special Mandatory Prepayment. On any date of issuance of Senior
----------------------------
Subordinated Notes, the Borrower shall prepay outstanding Revolving Loans in an
amount equal to the lesser of (a) the aggregate principal amount of Revolving
Loans then outstanding and (b) the Net Cash Proceeds of the issuance of such
Senior Subordinated Notes. The Revolving Commitments shall not be reduced as a
result of any such prepayment.
2.8 Mandatory Commitment Reductions. (a) Unless the Majority Lenders
-------------------------------
shall otherwise agree, if any Capital Stock shall be issued (other than to the
Permitted Investors) by the Borrower or by Holdings (if any such holding company
exists or is created) in a public offering consummated after July 1, 2001, an
amount equal to 50% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance toward the reduction of the Revolving Commitments.
(b) Unless the Majority Lenders shall otherwise agree, if on any date
Holdings (if any such holding company exists or its created), the Borrower or
any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or
Recovery Event then, unless a Reinvestment Notice shall be delivered in respect
thereof, such Net Cash Proceeds shall be applied on such date toward the
reduction of the Revolving Commitments; provided, that, notwithstanding the
--------
foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales that may be
excluded from the foregoing requirement
<PAGE>
26
pursuant to a Reinvestment Notice shall not exceed $500,000 in any fiscal year
of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal
to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment
Event shall be applied toward the reduction of the Revolving Commitments.
(c) Unless the Majority Lenders shall otherwise agree, if, for any
fiscal year of the Borrower commencing with the fiscal year ending December 31,
2001, there shall be Excess Cash Flow, the Borrower shall, on the relevant
Excess Cash Flow Application Date, apply the ECF Percentage of such Excess Cash
Flow toward the reduction of the Revolving Commitments. Each such prepayment and
commitment reduction shall be made on a date (an "Excess Cash Flow Application
----------------------------
Date") no later than five days after the earlier of (i) the date on which the
financial statements of the Borrower referred to in Section 6.1(a), for the
fiscal year with respect to which such prepayment is made, are required to be
delivered to the Lenders and (ii) the date such financial statements are
actually delivered.
(d) Amounts to be applied in connection with reductions of the
Revolving Commitments made pursuant to this Section 2.8 shall reduce permanently
the Revolving Commitments. Any such reduction of the Revolving Commitments shall
be accompanied by prepayment of the Revolving Loans to the extent, if any, that
the Total Revolving Extensions of Credit exceed the amount of the Total
Revolving Commitments as so reduced, provided that if the aggregate principal
--------
amount of Revolving Loans then outstanding is less than the amount of such
excess (because L/C Obligations constitute a portion thereof), the Borrower
shall, to the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount in cash in a cash collateral account
established with the Administrative Agent for the benefit of the Lenders on
terms and conditions satisfactory to the Administrative Agent. The application
of any prepayment pursuant to this Section 2.8 shall be made, first, to Base
-----
Rate Loans and, second, to Eurodollar Loans. Each prepayment of the Revolving
------
Loans under this Section 2.8 (except in the case of Revolving Loans that are
Base Rate Loans) shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
2.9 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent irrevocable notice no later than 8:00 A.M., San Francisco
time, one Business Day prior to the effectiveness of such election, provided
--------
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative
Agent irrevocable notice no later than 8:00 A.M., San Francisco time, three
Business Days prior to the effectiveness of such election (which notice shall
specify the length of the initial Interest Period therefor), provided that no
--------
Base Rate Loan may be converted into a Eurodollar Loan when any Event of Default
has occurred and is continuing and the Administrative Agent or the Majority
Lenders have determined in its or their sole discretion not to permit such
conversions. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Revolving Loans,
provided that no Eurodollar Loan may be continued as such when any Event of
- --------
Default has occurred and is continuing and the Administrative Agent has or the
Majority Lenders have determined in its or their sole discretion not to permit
such continuations, and provided, further, that if the Borrower shall
-------- -------
<PAGE>
27
fail to give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Revolving
Loans shall be automatically converted to Base Rate Loans on the last day of
such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
2.10 Limitations on Eurodollar Tranches. Notwithstanding anything to
----------------------------------
the contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than ten Eurodollar
Tranches shall be outstanding at any one time.
2.11 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
--------------------------------
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum
equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Revolving
Loan or Reimbursement Obligation shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), all outstanding Revolving Loans
and Reimbursement Obligations (whether or not overdue) shall bear interest at a
rate per annum equal to (x) in the case of the Revolving Loans, the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate
----
applicable to Base Rate Loans plus 2%, and (ii) if all or a portion of any
----
interest payable on any Revolving Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then applicable
to Base Rate Loans plus 2%, in each case, with respect to clauses (i) and (ii)
----
above, from the date of such non-payment until such amount is paid in full (as
well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
2.12 Computation of Interest and Fees. (a) Interest and fees payable
--------------------------------
pursuant hereto shall be calculated on the basis of a 360-day year for the
actual days elapsed, except that, with respect to Base Rate Loans the rate of
interest on which is calculated on the basis of the Reference Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Revolving Loan
resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to
<PAGE>
28
the Borrower a statement showing the quotations used by the Administrative Agent
in determining any interest rate pursuant to Section 2.11(a).
2.13 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Revolving Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as Base Rate Loans, (y) any Revolving
Loans that were to have been converted on the first day of such Interest Period
to Eurodollar Loans shall be continued as Base Rate Loans and (z) any
outstanding Eurodollar Loans shall be converted, on the last day of the then-
current Interest Period, to Base Rate Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made
or continued as such, nor shall the Borrower have the right to convert Revolving
Loans to Eurodollar Loans.
2.14 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Revolving Commitments of the Lenders
shall be made pro rata according to the respective Revolving Percentages of the
--- ----
relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Loans shall be made pro
---
rata according to the respective outstanding principal amounts of the Revolving
- ----
Loans then held by the Lenders. Commitment reductions pursuant to Section 2.5 or
2.8 shall be applied pro rata to the relevant remaining scheduled Revolving
--- ----
Commitment reductions set forth in Section 2.2.
(c) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 8:00 A.M., San
Francisco time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the
<PAGE>
29
preceding two sentences, interest thereon shall be payable at the then
applicable rate during such extension.
(d) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans, on demand, from the Borrower.
(e) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
--- ----
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.15 Requirements of Law. (a) If the adoption of or any change in any
-------------------
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.16 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, the
relevant lending office of such Lender that is not otherwise included in
the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
<PAGE>
30
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
within 15 days following its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable. If
any Lender becomes entitled to claim any additional amounts pursuant to this
paragraph, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time,
within 15 days following submission by such Lender to the Borrower (with a copy
to the Administrative Agent) of a written request therefor, the Borrower shall
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction; provided that the Borrower shall not be required to
--------
compensate a Lender pursuant to this paragraph for any amounts incurred more
than six months prior to the date that such Lender notifies the Borrower of such
Lender's intention to claim compensation therefor; and provided further that, if
-------- -------
the circumstances giving rise to such claim have a retroactive effect, then such
six-month period shall be extended to include the period of such retroactive
effect.
(c) A certificate in reasonable detail as to any additional amounts
payable pursuant to this Section submitted by any Lender to the Borrower (with a
copy to the Administrative Agent) shall be conclusive in the absence of manifest
error. The obligations of the Borrower pursuant to this Section shall survive
the termination of this Agreement and the payment of the Revolving Loans and all
other amounts payable hereunder.
2.16 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) and branch profits taxes imposed on the Administrative Agent
or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes
------------------
are required to be withheld from any amounts payable to the Administrative Agent
or any Lender hereunder, the amounts so payable to the Administrative Agent or
such Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and
Other Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement, provided, however, that the
-------- -------
Borrower shall not be required to increase any such
<PAGE>
31
amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that
are attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to such Lender at the time the Lender becomes a
party to this Agreement, except to the extent that such Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Within 30 days after the date the Administrative Agent or any
Lender receives a refund of any Non-Excluded Taxes or Other Taxes for which it
has been indemnified by the Borrower pursuant to this Agreement, the
Administrative Agent or such Lender, as the case may be, shall pay to the
Borrower such refund of Non-Excluded Taxes or Other Taxes. Notwithstanding the
foregoing, the Administrative Agent or such Lender shall not be required to make
any payment hereunder before such time as the Borrower shall have made all
payments or indemnities then due pursuant to this Agreement; provided, that the
--------
Administrative Agent or such Lender shall be required to make such payment
promptly after such time as the Borrower shall have made all such payments or
indemnities.
(e) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit D and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
<PAGE>
32
(f) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
--------
legally entitled to complete, execute and deliver such documentation and in such
Lender's judgment such completion, execution or submission would not materially
prejudice the legal position of such Lender.
(g) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Revolving Loans and all other amounts
payable hereunder.
2.17 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Revolving Loans provided for herein (excluding, however, the Applicable
Margin included therein, if any) over (ii) the amount of interest (as reasonably
----
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Revolving Loans and all
other amounts payable hereunder.
2.18 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.15 or 2.16(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Revolving Loans affected by such event
with the object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
-------- -------
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.15 or 2.16(a).
2.19 Replacement of Lenders. The Borrower shall be permitted to
----------------------
replace any Lender that (a) requests reimbursement for amounts owing pursuant to
Section 2.15 or 2.16(a) or (b) defaults in its obligation to make Revolving
Loans hereunder, with a replacement financial institution; provided that (i)
--------
such replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.18 so as to eliminate the continued need for
<PAGE>
33
payment of amounts owing pursuant to Section 2.15 or 2.16(a), (iv) the
replacement financial institution shall purchase, at par, all Revolving Loans
and other amounts owing to such replaced Lender on or prior to the date of
replacement, (v) the Borrower shall be liable to such replaced Lender under
Section 2.17 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 10.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.15 or 2.16(a), as the case may
be, and (ix) any such replacement shall not be deemed to be a waiver of any
rights that the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Lenders set forth
in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit") for
-----------------
the account of the Borrower on any Business Day during the Revolving Commitment
Period in such form as may be approved from time to time by the Issuing Lender;
provided that the Issuing Lender shall have no obligation to issue any Letter of
- --------
Credit if, after giving effect to such issuance, (i) the L/C Obligations would
exceed the L/C Commitment or (ii) the aggregate amount of the Available
Revolving Commitments would be less than zero. Each Letter of Credit shall (i)
be denominated in Dollars and (ii) expire no later than the earlier of (x) the
first anniversary of its date of issuance and (y) the date that is thirty
Business Days prior to the Revolving Termination Date, provided that any Letter
--------
of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from
------------------------------------------
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative
<PAGE>
34
Agent, which shall in turn promptly furnish to the Lenders, notice of the
issuance of each Letter of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans, shared ratably among the
Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date. In addition, the Borrower shall pay to the Issuing Lender for its
own account a fronting fee of 0.25% per annum on the undrawn and unexpired
amount of each Letter of Credit, payable quarterly in arrears on each L/C Fee
Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
------------------
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing Lender's address for
notices specified herein an amount equal to such L/C Participant's Revolving
Percentage of the amount of such draft, or any part thereof, that is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans. A certificate of the Issuing Lender submitted to
any L/C Participant with respect to any amounts owing under this Section shall
be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
- ----
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
--- ----
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Lender shall be required to be returned by the Issuing
<PAGE>
35
Lender, such L/C Participant shall return to the Issuing Lender the portion
thereof previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender within one Business Day after the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall
be payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date of the applicable drawing until payment in full at the
rate set forth in (i) until the second Business Day following the date of the
applicable drawing, Section 2.11(b) and (ii) thereafter, Section 2.11(c).
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any Application
------------
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
<PAGE>
36
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Revolving Loans and issue or participate in the
Letters of Credit, the Borrower hereby represents and warrants to the
Administrative Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
------------------- --- -----
balance sheet of the Borrower and its consolidated Subsidiaries as at the date
of the most recent consolidated and combined balance sheet delivered pursuant to
clause (b) below and the December 31, 1997 balance sheet of City Friction, Inc.
(including the notes thereto) (the "Pro Forma Balance Sheet") has been prepared
-----------------------
giving effect (as if such events had occurred on such date) to (i) the
consummation of the City Truck Acquisition and the Stone Acquisition, (ii) the
Revolving Loans to be made on the Closing Date and the use of proceeds thereof
and (iii) the payment of fees and expenses in connection with the foregoing. The
Pro Forma Balance Sheet has been prepared based on the best information
available to the Borrower as of the date of delivery thereof, and presents
fairly on a pro forma basis the estimated financial position of Borrower and its
--- -----
consolidated Subsidiaries as at the date of the most recent consolidated and
combined balance sheet delivered pursuant to clause (b) below and the December
31, 1997 balance sheet of City Friction, Inc., assuming that the events
specified in the preceding sentence had actually occurred at such date. It is
understood that the representations and warranties in this paragraph shall be
made as of the date of delivery of the Pro Forma Balance Sheet pursuant to
Section 6.2(g).
(b) The audited consolidated and combined balance sheets of the
Borrower and certain Affiliates for the three most recent fiscal years for which
such financial statements are available, and the related consolidated and
combined statements of income and of cash flows for the fiscal years ended on
such dates, reported on by and accompanied by an unqualified report from Warren,
Averett, Kimbrough & Marino, P.C., present fairly the consolidated and combined
financial condition of the Borrower and certain Affiliates as at such dates, and
the consolidated and combined results of their operations and their consolidated
and combined cash flows for the respective fiscal years then ended. The
unaudited consolidated and combined balance sheet of the Borrower and certain
Affiliates for each quarterly period ended prior to the Closing Date and
subsequent to the date of the latest applicable financial statements delivered
pursuant to this paragraph, and the related unaudited consolidated and combined
statements of income and cash flows for the three-month period ended on such
date, present fairly the consolidated and combined financial condition of the
Borrower and certain Affiliates as at such date, and the consolidated and
combined results of their operations and their consolidated and combined cash
flows for the three-month period then ended (subject to normal year-end audit
adjustments). All such financial statements, including the related schedules and
notes thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved (except (i) as approved by the aforementioned
firm of accountants and disclosed therein and (ii) in the case of unaudited
financial statements, as disclosed in the City Truck Acquisition Documentation).
The Borrower and its Subsidiaries do not have any material Guarantee
Obligations, contingent liabilities and liabilities for taxes, or any long-term
leases or unusual forward or long-term commitments, including any interest rate
or foreign currency swap or exchange transaction or other obligation in respect
of derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1997 to and
including the date hereof there has been no Disposition by the Borrower of any
material part of its business or property, except as contemplated by the City
Truck Acquisition Documentation.
4.2 No Change. Since December 31, 1997 there has been no development
---------
or event that has had or could reasonably be expected to have a Material Adverse
Effect. As of the Closing
<PAGE>
37
Date, there has been no development or event that has had or could reasonably be
expected to have a Material Adverse Effect on the City Truck Acquisition or the
Stone Acquisition. As of the date of consummation of the Stone Acquisition,
there has been no development or event that had or could reasonably be expected
to have a Material Adverse Effect on the Stone Acquisition.
4.3 Existence; Compliance with Law. Each of the Borrower and its
------------------------------
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has the organizational
power and authority, and the legal right, to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged, (c) is duly qualified as a foreign corporation or limited
liability company and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification except to the extent that failure to be so qualified
could not reasonably be expected to have a Material Adverse Effect and (d) is in
compliance with all Requirements of Law except to the extent that the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.4 Power; Authorization; Enforceable Obligations. Each Loan Party
---------------------------------------------
has the organizational power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
organizational action to authorize the execution, delivery and performance of
the Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
material consent or authorization of, filing with, notice to or other act by or
in respect of, any Governmental Authority or any other Person (collectively,
"Approvals") is required in connection with the City Truck Acquisition or the
Stone Acquisition and the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) Approvals with respect to the City Truck Acquisition
described in Schedule 4.4, which Approvals have been obtained or made and are in
full force and effect (or, in the case of the Stone Acquisition, such Approvals
as will be obtained or made prior to the consummation thereof) and (ii) the
filings referred to in Section 4.19. Each Loan Document has been duly executed
and delivered on behalf of each Loan Party party thereto. This Agreement
constitutes, and each other Loan Document upon execution will constitute, a
legal, valid and binding obligation of each Loan Party party thereto,
enforceable against each such Loan Party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or any Contractual Obligation of the Borrower or any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation (other than the Liens
created by the Security Documents), provided, that the "blanket" Lien granted
--------
pursuant to the Guarantee and Collateral Agreement shall not be deemed to
violate any contractual restrictions applicable to purchase money Liens or
leases permitted hereby that restrict the ability to grant Liens on the assets
subject to such purchase money Liens, or such leases, as the case may be. No
Requirement of Law or Contractual Obligation applicable to the Borrower or any
of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
<PAGE>
38
4.6 Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or, to the knowledge
of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) that could reasonably be expected to have a Material
Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its Subsidiaries is
----------
in default under or with respect to any of its Contractual Obligations in any
respect that could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of the Borrower and its
----------------------------
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3.
4.9 Intellectual Property. The Borrower and each of its Subsidiaries
---------------------
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Borrower know of any valid basis for any such claim. The use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person in any material respect.
4.10 Taxes. Each of the Borrower and each of its Subsidiaries has
-----
filed or caused to be filed all Federal, state and other material tax returns
that are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.11 Federal Regulations. No part of the proceeds of any Revolving
-------------------
Loans will be used for "buying" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U as now and
from time to time hereafter in effect or for any purpose that violates the
provisions of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in
Regulation U.
4.12 Labor Matters. Except as, in the aggregate, could not reasonably
-------------
be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against the Borrower or any of its Subsidiaries pending or, to
the knowledge of the Borrower, threatened; (b) hours worked by and payment made
to employees of the Borrower and its Subsidiaries have not been in violation of
the Fair Labor Standards Act or any other applicable Requirement of Law dealing
with such matters; and (c) all payments due from the Borrower or any of its
Subsidiaries on account of employee health and welfare insurance have been paid
or accrued as a liability on the books of the Borrower or the relevant
Subsidiary.
<PAGE>
39
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Single Employer Plan.
Each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Single Employer Plan has arisen, during
such five-year period. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits by a material amount. Neither the
Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan that has resulted or could reasonably be
expected to result in a material liability under ERISA, and neither the Borrower
nor any Commonly Controlled Entity would become subject to any material
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. To the best knowledge of the Borrower, no such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent by
------------
the Borrower in writing from time to time after the Closing Date, (a) Schedule
4.15(a) sets forth the name and jurisdiction of organization of each Subsidiary
and, as to each such Subsidiary, the percentage of each class of Capital Stock
owned by any Loan Party and (b) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options and/or purchased management shares subject to vesting provisions granted
to employees or directors and directors' qualifying shares) of any nature
relating to any Capital Stock of the Borrower as of the Closing Date or of any
Subsidiary, except as created by the Loan Documents or as set forth on Schedule
4.15(b).
4.16 Use of Proceeds. The proceeds of the Revolving Loans shall be
---------------
used to finance a portion of the City Truck Acquisition, including refinancing
Indebtedness, and to pay related fees and expenses and for general corporate
purposes, including Acquisitions permitted hereby.
4.17 Environmental Matters. Except as, in the aggregate, could not
---------------------
reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain, and
----------
have not previously contained, any Materials of Environmental Concern in
amounts or concentrations or under circumstances that constitute or
constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) neither the Borrower nor any of its Subsidiaries has received or
is aware of any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or
compliance with Environmental Laws with regard to any of the
<PAGE>
40
Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business"), nor does the Borrower have knowledge or
--------
reason to believe that any such notice will be received or is being
threatened;
(c) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location that could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law;
(d) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties or
the Business;
(e) there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could give rise to liability under
Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to
the Properties or the Business; and
(g) neither the Borrower nor any of its Subsidiaries has assumed any
liability of any other Person under Environmental Laws.
4.18 Accuracy of Information, etc. No statement or information
----------------------------
contained in this Agreement, any other Loan Document or any other document,
certificate or written statement furnished by or on behalf of any Loan Party to
the Administrative Agent or the Lenders, or any of them, for use in connection
with the transactions contemplated by this Agreement or the other Loan
Documents, contained as of the date such statement, information, document or
certificate was so furnished any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements contained herein or
therein not misleading. To the extent applicable to disclosure of matters that
relate to a business acquired pursuant to an Acquisition (other than the City
Truck Acquisition or the Stone Acquisition) for periods prior to the
consummation thereof, the representations and warranties set forth in the
preceding sentence shall be made only to the best knowledge of the Borrower. The
projections and pro forma financial information contained in the materials
--- -----
referenced above and delivered on or after the Closing Date are based upon good
faith estimates and assumptions believed by management of the Borrower to be
reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount. As of the date hereof, the representations and warranties
contained in the City Truck Acquisition Documentation are true and correct,
except as could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to any officer of any Loan Party that could reasonably be
expected to have a Material Adverse Effect that has
<PAGE>
41
not been expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
4.19 Security Documents. (a) The Guarantee and Collateral Agreement
------------------
is effective to create in favor of the Administrative Agent, for the benefit of
the Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement which is evidenced by
certificated securities, when stock certificates representing such Pledged Stock
are delivered to the Administrative Agent, and in the case of the other
Collateral described in the Guarantee and Collateral Agreement, when financing
statements and other filings specified on Schedule 4.19(a) in appropriate form
are filed in the offices specified on Schedule 4.19(a), the Guarantee and
Collateral Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the Guarantee and Collateral Agreement), in each case prior and superior in
right to any other Person (except, in the case of Collateral other than Pledged
Stock, Liens permitted by Section 7.3).
(b) Each of the Mortgages, when executed and delivered, will be
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable Lien on the mortgaged properties
described therein and proceeds thereof, and when the Mortgages are filed in the
offices specified therein, each such Mortgage shall constitute a fully perfected
Lien on, and security interest in, all right, title and interest of the Loan
Parties in such mortgaged properties and the proceeds thereof, as security for
the Obligations, in each case prior and superior in right to any other Person
(other than Liens permitted by Section 7.3).
4.20 Solvency. Each Loan Party is, and after giving effect to the
--------
City Truck Acquisition, the Stone Acquisition and the incurrence of all
Indebtedness and obligations being incurred in connection herewith and therewith
will be and will continue to be, Solvent.
4.21 Senior Indebtedness. After the issuance of the Senior
-------------------
Subordinated Notes, (a) in the event that the Borrower is the issuer thereof,
the Obligations constitute "Senior Indebtedness" and "Designated Senior
Indebtedness" of the Borrower under and as defined in the Senior Subordinated
Note Indenture or (b) in the event that Holdings is the issuer thereof, (i) the
obligations of Holdings under the Guarantee and Collateral Agreement constitute
"Senior Indebtedness" and "Designated Senior Indebtedness" of Holdings under and
as defined in the Senior Subordinated Note Indenture and (ii) the Obligations
constitute "Guarantor Senior Indebtedness" of the Borrower under and as defined
in the Senior Subordinated Note Indenture. After the issuance of the Senior
Subordinated Notes, the obligations of each Subsidiary Guarantor under the
Guarantee and Collateral Agreement constitute "Guarantor Senior Indebtedness" of
such Subsidiary Guarantor under and as defined in the Senior Subordinated Note
Indenture.
4.22 Year 2000 Matters. On the basis of a comprehensive review and
-----------------
assessment of the Borrower's systems and equipment, the Borrower's management is
of the view that the Year 2000 Problem, including costs of remediation, will not
result in a Material Adverse Effect. The Borrower has developed feasible
contingency plans adequately to ensure uninterrupted and unimpaired business
operation in the event of failure of its own systems or equipment due to the
Year 2000 Problem, as well as a general failure of or interruption in its
communications and delivery infrastructure.
4.23 Regulation H. No Mortgage encumbers improved real property that
------------
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having
<PAGE>
42
special flood hazards and in which flood insurance has been made available under
the National Flood Insurance Act of 1968, other than real property as to which
insurance required by Regulation H is in effect.
4.24 Certain Documents. The Borrower has delivered to the Agents a
-----------------
complete and correct copy (a) as of the Closing Date, of the City Truck
Acquisition Documentation, (b) as of the date of consummation of the Stone
Acquisition, of the Stone Acquisition Documentation and (c) as of the date of
issuance of Senior Subordinated Notes, of the Senior Subordinated Note
Indenture, including any amendments, supplements or modifications with respect
to any of the foregoing.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it on the
Closing Date is subject to the satisfaction, prior to or concurrently with the
making of such extension of credit on the Closing Date (but in any event no
later than June 15, 1998), of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by the Administrative Agent, the
Borrower and each Person listed on Schedule 1.1A, (ii) the Guarantee and
Collateral Agreement, executed and delivered by the Borrower and each
Subsidiary Guarantor, (iii) an Acknowledgement and Consent in the form
attached to the Guarantee and Collateral Agreement, executed and delivered
by each Issuer (as defined therein), if any, that is not a Loan Party, and
(iv) an agreement, in form and substance satisfactory to the Administrative
Agent, pursuant to which the Buyer shall agree to contribute cash equity to
the Borrower such that the Specified Event of Default shall not occur on
the day which is 91 days following the Closing Date.
Notwithstanding the foregoing, in the event that this Agreement has
not been duly executed and delivered by each Person listed on Schedule 1.1A
on the date scheduled to be the Closing Date, the condition referred to in
clause (i) above shall nevertheless be deemed satisfied if on such date the
Borrower and the Administrative Agent shall have designated one or more
Persons (the "Designated Lenders") to assume, in the aggregate, all of the
------------------
Revolving Commitments that would have been held by the Persons listed on
Schedule 1.1A (the "Non-Executing Persons") which have not so executed and
---------------------
delivered this Agreement (subject to each such Designated Lender's consent
and its execution and delivery of this Agreement). Schedule 1.1A shall
automatically be deemed to be amended to reflect the respective Commitments
of the Designated Lenders and the omission of the Non-Executing Persons as
Lenders hereunder.
(b) City Truck Acquisition. The following transactions shall have
----------------------
been consummated, in each case on terms and conditions reasonably
satisfactory to the Lenders:
(i) Shareholders of the Borrower shall have received at
least $20,000,000 in cash from the Buyer in respect of the purchase of
the Initial New Investor Shares and the Borrower shall have received
at least $3,324,867 from BABF in respect of the Initial New Investor
Redeemable Preferred Stock, in each case on terms and conditions
satisfactory to the Lenders. Without limiting the foregoing, the terms
of the Initial New Investor Redeemable Preferred Stock will provide
that, in the event Senior Subordinated Notes in an aggregate principal
amount of at least $75,000,000 are not issued on or prior to the first
anniversary of the Closing Date, the Initial New Investor
<PAGE>
43
Redeemable Preferred Stock will cease to be entitled to current cash
dividends and shall cease to be redeemable.
(ii) The Administrative Agent and the Lenders be satisfied
that the integration of the Stone and City Truck management
information systems will not cost a material amount and can be
completed within 30 days after consummation of the Stone Acquisition.
(iii) The City Truck Acquisition shall have been consummated
in accordance with applicable law and on terms satisfactory to the
Agents. The City Truck Stock Purchase Agreement and other City Truck
Acquisition Documentation shall have terms and conditions reasonably
satisfactory to the Agents, shall be in full force and effect and no
provision of such documentation shall have been waived, amended,
supplemented or otherwise modified in any material respect without the
consent of the Required Lenders.
(iv) The Administrative Agent shall be satisfied that,
after giving effect to the City Truck Acquisition, the Rollover City
Truck Shares shall have an aggregate value of at least $5,000,000.
(c) Financial Statements. The Lenders shall have received (i) audited
--------------------
consolidated and combined financial statements of the Borrower for the
three most recent fiscal years and (ii) unaudited interim consolidated and
combined financial statements of the Borrower for the first quarterly
period and, to the extent available, each subsequent quarterly period,
ended subsequent to the date of the latest applicable financial statements
delivered pursuant to clause (i) of this paragraph, and such financial
statements shall not, in the reasonable judgment of the Lenders, reflect
any material adverse change in the consolidated and combined financial
condition of the Borrower and its Subsidiaries and Affiliates, as reflected
in the financial statements or projections contained in the business plan
referred to in Section 5.1(g).
(d) Stone Financials. The Lenders shall have received (i) audited
----------------
financial statements of Stone and its Subsidiaries for the most recent
fiscal year and reviewed statements for the prior two fiscal years and (ii)
unaudited interim consolidated financial statements of Stone and its
Subsidiaries for the first quarterly period and, to the extent available,
each subsequent quarterly period ended after the latest fiscal year
referred to in clause (i) above and such financial statements shall not
reflect any material adverse change in the consolidated financial condition
of Stone and its Subsidiaries from what was reflected in the financial
statements or projections previously furnished to the Lenders.
(e) EBITDA. The Agents shall be satisfied that (i) the Consolidated
------
EBITDA of the Borrower and its Subsidiaries and combined Affiliates for the
most recent Test Period for which the relevant financial information is
available shall equal at least $7,500,000 (and, after giving effect to the
Stone Acquisition, if consummated, will equal at least $11,400,000) and
(ii) the Consolidated Leverage Ratio after giving pro forma effect to the
--- -----
transactions occurring on the Closing Date shall not exceed 4.50 to 1.0,
and the Borrower shall provide support for each such calculation of a
nature which is satisfactory to the Agents.
(f) Approvals. All governmental and third party approvals (including
---------
landlords' and other consents) necessary in connection with the City Truck
Acquisition, the continuing operations of the Borrower and its Subsidiaries
and the transactions contemplated hereby shall
<PAGE>
44
have been obtained on terms satisfactory to the Agents and be in full force
and effect, and all applicable waiting periods shall have expired without
any action being taken or threatened by any competent authority that would
restrain, prevent or otherwise impose adverse conditions on the City Truck
Acquisition or the financing contemplated hereby.
(g) Business Plan. The Lenders shall have received a satisfactory
-------------
business plan for fiscal years 1998-2004 and a satisfactory written
analysis of the business and prospects of the Borrower and its Subsidiaries
for the period from the Closing Date through the Revolving Termination
Date.
(h) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrower or its Subsidiaries except for liens
permitted by Section 7.3 or discharged on or prior to the Closing Date
pursuant to documentation satisfactory to the Administrative Agent.
(i) Environmental Report. The Administrative Agent shall have
--------------------
received satisfactory Phase I environmental reports with respect to the
real properties owned or leased by the Borrower and its Subsidiaries and
Stone and its Subsidiaries from a consulting firm satisfactory to the
Administrative Agent.
(j) Termination of Existing Indebtedness. The Administrative Agent
------------------------------------
shall have received satisfactory evidence that all of the existing
Indebtedness of the Borrower and its Subsidiaries have been terminated or
will be terminated on the Closing Date (other than Indebtedness permitted
by Section 7.2), all amounts thereunder have been paid in full or will be
paid in full on the Closing Date and satisfactory arrangements have been
made for the termination of all Liens and security interests granted in
connection therewith.
(k) Fees. The Lenders, the Agents and the Arranger shall have
----
received all fees required to be paid, and all expenses for which invoices
have been presented (including the reasonable fees and expenses of legal
counsel), on or before the Closing Date. All such amounts will be paid with
proceeds of Revolving Loans made on the Closing Date and will be reflected
in the funding instructions given by the Borrower to the Administrative
Agent on or before the Closing Date.
(l) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(m) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Latham & Watkins, counsel to the
Borrower and its Subsidiaries, substantially in the form of Exhibit F-
1;
(ii) the legal opinion of special Alabama and Tennessee counsel
to the Borrower and its Subsidiaries, substantially in the form of
Exhibit F-2; and
<PAGE>
45
(iii) to the extent consented to by the relevant counsel, each
legal opinion, if any, delivered in connection with the City Truck
Stock Purchase Agreement, accompanied by a reliance letter in favor of
the Lenders.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(n) Pledged Stock; Stock Powers; Pledged Notes. The Administrative
------------------------------------------
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note (if any) pledged to the Administrative Agent pursuant to
the Guarantee and Collateral Agreement endorsed (without recourse) in blank
(or accompanied by an executed transfer form in blank) by the pledgor
thereof.
(o) Filings, Registrations and Recordings. Each document (including
-------------------------------------
any Uniform Commercial Code financing statement) required by the Security
Documents or under law or reasonably requested by the Administrative Agent
to be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other
Person (other than with respect to Liens permitted by Section 7.3), shall
be in proper form for filing, registration or recordation.
(p) Solvency Certificate. The Administrative Agent shall have
--------------------
received a satisfactory solvency certificate from an officer of the
Borrower which shall document the solvency of the Borrower and its
Subsidiaries after giving effect to the City Truck Acquisition.
(q) Insurance. The Administrative Agent shall have received insurance
---------
certificates satisfying the requirements of Section 5.2(b) of the Guarantee
and Collateral Agreement.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date (except to the extent expressly relating
to an earlier date, in which case such representations and warranties shall
have been true and correct in all material respects on and as of the
relevant earlier date).
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
<PAGE>
46
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving Commitments
remain in effect, any Letter of Credit remains outstanding or any Revolving Loan
or other amount is owing to any Lender or the Administrative Agent hereunder,
the Borrower shall and shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent and
--------------------
each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Ernst & Young LLP or other independent
certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments); and
(c) as soon as available, but in any event not later than 45 days
(or, in the case of October 1998 and each relevant succeeding month, 30
days) after the end of each month occurring during each fiscal year of the
Borrower (other than the third, sixth, ninth and twelfth such month), the
unaudited consolidated balance sheets of the Borrower and its Subsidiaries
as at the end of such month and the related unaudited consolidated
statements of income and of cash flows for such month and the portion of
the fiscal year through the end of such month, setting forth in each case
in comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail. All financial statements
referred to in paragraph (a) or (b) above (except the financial statements for
the fiscal quarter ended June 30, 1998) shall be prepared in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the case
may be, and disclosed therein). All financial statements referred to above
shall be prepared on a basis consistent with the Borrower's past practices.
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent and each Lender (or, in the case of clause (h), to the relevant Lender):
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial
<PAGE>
47
statements stating that in making the examination necessary therefor no
knowledge was obtained of any Default or Event of Default, except as
specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate or as previously
disclosed in writing to the Administrative Agent and each Lender and (ii)
in the case of quarterly or annual financial statements, (x) a Compliance
Certificate containing all information and calculations necessary for
determining compliance by Holdings (if any such holding company exists or
is created), the Borrower and its Subsidiaries with the provisions of this
Agreement referred to therein as of the last day of the fiscal quarter or
fiscal year of the Borrower, as the case may be, and (y) to the extent not
previously disclosed to the Administrative Agent, a listing of any county
or state within the United States where any Loan Party keeps inventory or
equipment and of any Intellectual Property acquired by any Loan Party since
the date of the most recent list delivered pursuant to this clause (y) (or,
in the case of the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a detailed consolidated
budget for the following fiscal year (including a projected consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of the
following fiscal year, the related consolidated statements of projected
cash flow, projected changes in financial position and projected income and
a description of the underlying assumptions applicable thereto), and, as
soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the
"Projections"), which Projections shall in each case be accompanied by a
-----------
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower (commencing with the fiscal quarter ended September 30, 1998), a
narrative discussion and analysis of the financial condition and results of
operations of the Borrower and its Subsidiaries for such fiscal quarter and
for the period from the beginning of the then current fiscal year to the
end of such fiscal quarter, as compared to the portion of the Projections
covering such periods and to the comparable periods of the previous year;
(e) no later than 10 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed amendment,
supplement, waiver or other modification with respect to the Senior
Subordinated Note Indenture, the City Truck Acquisition Documentation or
the Stone Acquisition Documentation;
(f) within five days after the same are sent, copies of all financial
statements and reports that Holdings (if any such holding company exists or
is created) or the Borrower sends to the holders of any class of its debt
securities or public equity securities and, within five days after the same
are filed, copies of all financial statements and reports that Holdings (if
any such holding company exists or is created) or the Borrower may make to,
or file with, the SEC;
(g) within 21 days after the Closing Date, (i) if the Stone
Acquisition has been consummated, audited financial statements of Stone and
its Subsidiaries for the 1995 and 1996
<PAGE>
48
fiscal years, (ii) financial statements of the Borrower and its
Subsidiaries for the 1995, 1996 and 1997 fiscal years audited by Ernst &
Young LLP and (iii) a Pro Forma Consolidated Balance Sheet and Statement of
--- -----
Income of the Borrower and its Subsidiaries (assuming consummation of the
City Truck Acquisition and, if the Stone Acquisition has been consummated,
the Stone Acquisition) prepared by Ernst & Young LLP as at or for the
period ending on December 31, 1997 (or, if available, March 31, 1998); and
(h) promptly, such additional financial and other information
(including information relating to Permitted Acquisitions) as any Lender
may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
6.4 Maintenance of Existence; Compliance. (a) (i) Preserve, renew and
------------------------------------
keep in full force and effect its corporate existence and (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business, except, in each case, as
otherwise permitted by Section 7.4 and except, in the case of clause (ii) above,
to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect; and (b) comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Year 2000 Compliance. By September 30, 1999, the Borrower shall
--------------------
have renovated all systems and equipment affected by the Year 2000 Problem to
cause them to perform correctly date-sensitive functions for relevant date data
from before and after December 31, 1999, or shall have replaced them with
technology not so affected, and completed testing of such replacement
technology.
6.6 Maintenance of Property; Insurance. (a) Keep all property useful
----------------------------------
and necessary in its business in good working order and condition, ordinary wear
and tear excepted and (b) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business.
6.7 Inspection of Property; Books and Records; Discussions. (a) Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time upon reasonable advance notice and as often as may reasonably be desired
and to discuss the business, operations, properties and financial and other
condition of Holdings (if any such holding company exists or is created), the
Borrower and its Subsidiaries with officers and employees of Holdings (if any
such holding company exists or is created), the Borrower and its Subsidiaries
and with its independent certified public accountants.
6.8 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
<PAGE>
49
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings (if any such holding company exists or is created),
the Borrower or any of its Subsidiaries or (ii) litigation, investigation
or proceeding that may exist at any time between Holdings (if any such
holding company exists or is created), the Borrower or any of its
Subsidiaries and any Governmental Authority, that in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting Holdings (if any such
holding company exists or is created), the Borrower or any of its
Subsidiaries in which the amount involved is $500,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Single Employer
Plan, a failure to make any required contribution to a Plan, the creation
of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Plan; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.8 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings (if any such holding company exists or
is created), the Borrower or the relevant Subsidiary proposes to take with
respect thereto.
6.9 Environmental Laws. (a) Comply in all material respects with, and
------------------
use reasonable efforts to ensure compliance in all material respects by all
tenants and subtenants, if any, with, all applicable Environmental Laws, and
obtain and comply in all material respects with and maintain, and use reasonable
efforts to ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all material licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all
lawful orders and directives of all Governmental Authorities regarding
Environmental Laws.
6.10 Interest Rate Protection. In the case of the Borrower, in the
------------------------
event Senior Subordinated Notes in an aggregate principal amount at least equal
to $75,000,000 are not issued on or prior to the first anniversary of the
Closing Date, enter into Hedge Agreements to the extent necessary to provide
that at least 50% of the Revolving Credit Facility is subject to either a fixed
interest rate or interest rate protection for a period of not less than three
years, which Hedge Agreements shall have terms and conditions reasonably
satisfactory to the Administrative Agent.
<PAGE>
50
6.11 Further Assurances. Upon the reasonable request of the
------------------
Administrative Agent, promptly perform or cause to be performed any and all acts
and execute or cause to be executed any and all documents (including, without
limitation, financing statements and continuation statements) for filing under
the provisions of the Uniform Commercial Code or any other Requirement of Law
which are necessary or advisable to maintain in favor of the Administrative
Agent, for the benefit of the Lenders, Liens on the Collateral that are duly
perfected in accordance with all applicable Requirements of Law.
6.12 Additional Collateral, etc. (a) With respect to any property
--------------------------
acquired after the Closing Date by Holdings (if any such holding company exists
or is created), the Borrower or any of its Subsidiaries (other than (x) any
property described in paragraph (b), (c) or (d) below, (y) any property subject
to a Lien permitted by Section 7.3(g) and (z) property acquired by any Excluded
Foreign Subsidiary) as to which the Administrative Agent, for the benefit of the
Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the
Administrative Agent such amendments to the Guarantee and Collateral Agreement
or such other documents as the Administrative Agent deems necessary or advisable
to grant to the Administrative Agent, for the benefit of the Lenders, a security
interest in such property and (ii) take all actions necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in such property (subject only to Liens
permitted by Section 7.3), including the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be requested by the Administrative
Agent.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $500,000 acquired after
the Closing Date by Holdings (if any such holding company exists or is created),
the Borrower or any of its Subsidiaries (other than (x) any such real property
subject to a Lien expressly permitted by Section 7.3(g) and (z) real property
acquired by any Excluded Foreign Subsidiary), promptly (i) execute and deliver a
first priority Mortgage (subject only to Liens permitted by Section 7.3), in
favor of the Administrative Agent, for the benefit of the Lenders, covering such
real property, (ii) if requested by the Administrative Agent, provide the
Lenders with (x) title and extended coverage insurance covering such real
property in an amount at least equal to the purchase price of such real property
(or such other amount as shall be reasonably specified by the Administrative
Agent) as well as a current ALTA survey thereof, together with a surveyor's
certificate and (y) any consents or estoppels reasonably deemed necessary or
advisable by the Administrative Agent in connection with such mortgage or deed
of trust, each of the foregoing in form and substance reasonably satisfactory to
the Administrative Agent and (iii) if requested by the Administrative Agent,
deliver to the Administrative Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by Holdings (if
any such holding company exists or is created) (which, for the purposes of this
paragraph (c), shall include any existing Subsidiary that ceases to be an
Excluded Foreign Subsidiary), the Borrower or any of its Subsidiaries, promptly
(i) execute and deliver to the Administrative Agent such amendments to the
Guarantee and Collateral Agreement as the Administrative Agent deems necessary
or advisable to grant to the Administrative Agent, for the benefit of the
Lenders, a perfected first priority security interest in the Capital Stock of
such new Subsidiary that is owned by Holdings (if any such holding company
exists or is created), the Borrower or any of its Subsidiaries, (ii) deliver to
the Administrative Agent the certificates representing such Capital Stock,
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of Holdings, the Borrower or such Subsidiary, as the case may
be, (iii)
<PAGE>
51
cause such new Subsidiary (A) to become a party to the Guarantee and Collateral
Agreement, (B) to take such actions necessary or advisable to grant to the
Administrative Agent for the benefit of the Lenders a perfected first priority
security interest in the Collateral described in the Guarantee and Collateral
Agreement with respect to such new Subsidiary (subject only to Liens permitted
by Section 7.3), including the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent and (C) to deliver to the Administrative Agent a certificate of such
Subsidiary, substantially in the form of Exhibit C, with appropriate insertions
and attachments, and (iv) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings (if any such holding company exists
or is created), the Borrower or any of its Subsidiaries, promptly (i) execute
and deliver to the Administrative Agent such amendments to the Guarantee and
Collateral Agreement as the Administrative Agent deems necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a perfected
first priority security interest in the Capital Stock of such new Subsidiary
that is owned by Holdings, the Borrower or any of its Subsidiaries (provided
that in no event shall more than 65% of the total outstanding Capital Stock of
any such new Subsidiary be required to be so pledged), (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of Holdings, the Borrower or such Subsidiary, as the case may be, and
take such other action as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Administrative Agent's security
interest therein, and (iii) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Revolving Commitments
remain in effect, any Letter of Credit remains outstanding or any Revolving Loan
or other amount is owing to any Lender or the Administrative Agent hereunder,
the Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio as at the last day of any Test Period ending during any period set forth
below to exceed the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
September 30, 1998 - June 29, 2000 6.00 to 1.0
June 30, 2000 - June 29, 2002 5.75 to 1.0
June 30, 2002 and thereafter 5.50 to 1.0
</TABLE>
; provided, that, if the Senior Subordinated Note Date has not occurred on or
--------
prior to the end of the relevant Test Period, the applicable ratios shall
instead be as follows:
<PAGE>
52
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
September 30, 1998 - June 29, 2000 4.00 to 1.0
June 30, 2000 - June 29, 2001 3.75 to 1.0
June 30, 2001 - June 29, 2002 3.50 to 1.0
June 30, 2002 - June 29, 2003 3.25 to 1.0
June 30, 2003 - June 29, 2004 3.00 to 1.0
June 30, 2004 and thereafter 2.75 to 1.0
</TABLE>
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any Test Period (or, if shorter, a period consisting
of each full fiscal quarter subsequent to the Closing Date) ending during any
period set forth below to be less than the ratio set forth below opposite such
period:
<TABLE>
<CAPTION>
Consolidated Interest
Period Coverage Ratio
------ ---------------------
<S> <C>
October 1, 1998 - June 29, 1999 1.50 to 1.0
June 30, 1999 - June 29, 2000 1.75 to 1.0
June 30, 2000 - June 29, 2001 1.90 to 1.0
June 30, 2001 - June 29, 2002 2.00 to 1.0
June 30, 2002 and thereafter 2.25 to 1.0
</TABLE>
; provided, that the Test Party shall be required to comply with the
--------
Consolidated Interest Coverage Ratio as provided above (i) only if the Senior
Subordinated Note Date has occurred and (ii) only for each Test Period ended on
or after September 30, 1999 unless, on or prior to June 30, 1999, there shall at
------
any time be outstanding either (x) Total Revolving Extensions of Credit in
excess of $5,000,000 or (y) Total Revolving Extensions of Credit in excess of
the aggregate amount of cash and Cash Equivalents that would then appear on the
Test Party's balance sheet in accordance with GAAP, in which case the Test Party
shall be required to comply with the Consolidated Interest Coverage Ratio as
provided above for each Test Period ended on or after the date any such
circumstance first occurs, whether or not any such circumstance subsequently
ceases to exist; and
; provided, further, that, in the event that the Senior Subordinated Note Date
-------- -------
does not occur on or prior to the date that is 90 days after the Closing Date,
the applicable ratios shall instead be as follows (whether or not the Senior
Subordinated Note Date subsequently occurs):
<TABLE>
<CAPTION>
Consolidated Interest
Period Coverage Ratio
------ ---------------------
<S> <C>
September 30, 1998 - June 29, 2000 2.00 to 1.0
June 30, 2000 - June 29, 2002 2.25 to 1.0
June 30, 2002 and thereafter 2.50 to 1.0
</TABLE>
(c) Consolidated Senior Debt Ratio. Permit the Consolidated Senior
------------------------------
Debt Ratio as at the last day of any Test Period ending during any period set
forth below to exceed the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Consolidated Interest
Period Senior Debt Ratio
------ ---------------------
<S> <C>
September 30, 1998 - June 29, 2000 3.00 to 1.0
</TABLE>
<PAGE>
53
<TABLE>
<S> <C>
June 30, 2000 - June 29, 2002 2.75 to 1.0
June 30, 2002 and thereafter 2.50 to 1.0
</TABLE>
; provided, that, if the Senior Subordinated Note Date has not occurred on or
--------
prior to the end of the relevant Test Period, the applicable ratios shall
instead be as follows:
<TABLE>
<CAPTION>
Consolidated Interest
Period Senior Debt Ratio
------ ---------------------
<S> <C>
September 30, 1998 - June 29, 2000 4.00 to 1.0
June 30, 2000 - June 29, 2001 3.75 to 1.0
June 30, 2001 - June 29, 2002 3.50 to 1.0
June 30, 2002 - June 29, 2003 3.25 to 1.0
June 30, 2003 - June 29, 2004 3.00 to 1.0
June 30, 2004 and thereafter 2.75 to 1.0
</TABLE>
(d) Minimum EBITDA. Permit Consolidated EBITDA for any Test Period
--------------
ending on or after September 30, 1998 to be less than the sum of (i) the greater
of (x) 85% of Consolidated EBITDA for the immediately preceding Test Period and
(y) the Consolidated EBITDA that was required for such immediately preceding
Test Period pursuant to this paragraph (d) plus (ii) 80% of Consolidated EBITDA
----
attributable to any Acquisition (determined at the time of such Acquisition with
respect to the most recent period of four consecutive fiscal quarters for which
the relevant financial information is available, giving effect to any cost
savings), to the extent such Consolidated EBITDA is not included in the amount
determined pursuant to clause (i) above. For the purposes of this paragraph (d),
the amount referred to in clause (i)(y) above for the Test Period ended
September 30, 1998 shall be (A) $11,400,000, if the Stone Acquisition has
occurred on or prior to such date or (B) $7,500,000, otherwise (in which case
such amount shall equal $11,400,000 for the first Test Period ending after the
Stone Acquisition is consummated).
7.2 Indebtedness. Create, issue, incur, assume, become liable in
------------
respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of business
by the Borrower or any of its Subsidiaries of obligations of any Wholly
Owned Subsidiary Guarantor;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals or extensions
thereof (without increasing, or shortening the maturity of, the principal
amount thereof);
(e) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate
principal amount not to exceed $500,000 at any one time outstanding;
(f) (i) Indebtedness of the Borrower in respect of the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$100,000,000 and (ii) Guarantee Obligations of any Subsidiary Guarantor in
respect of such Indebtedness, provided that such Guarantee
--------
<PAGE>
54
Obligations are subordinated to the same extent as the obligations of the
Borrower in respect of the Senior Subordinated Notes;
(g) the Initial New Investor Redeemable Preferred Stock;
(h) customary purchase price adjustments in connection with
Acquisitions or Dispositions permitted hereby;
(i) Indebtedness assumed in connection with an Acquisition permitted
hereby and not incurred in contemplation thereof in an aggregate principal
amount not to exceed $100,000 at any one time outstanding; and
(j) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all
Subsidiaries) not to exceed $500,000 at any one time outstanding.
7.3 Liens. Create, incur, assume or suffer to exist any Lien upon any
-----
of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business that are not
overdue for a period of more than 30 days or that are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), provided that no such
--------
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(e) to finance the acquisition
of fixed or capital assets (and extensions, renewals and replacements
thereof), provided that (i) such Liens shall be created substantially
--------
simultaneously with the acquisition of such fixed or capital assets, (ii)
such Liens do not at any time encumber any property other than the property
financed by such Indebtedness and the proceeds thereof and (iii) the amount
of Indebtedness secured thereby is not increased;
<PAGE>
55
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor or a lessee under any lease
entered into by the Borrower or any other Subsidiary in the ordinary course
of its business and covering only the assets so leased;
(j) attachment and judgment Liens in connection with judgments not
otherwise resulting in an Event of Default so long as such Liens are not
prior or superior to the Liens in favor of the Administrative Agent in
respect of the Collateral;
(k) customary deposit and escrow arrangements serving as a source of
payment for a portion of the purchase price for any Acquisition permitted
hereby;
(l) any Lien existing on any fixed or capital asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
fixed or capital asset of any Person that becomes a Subsidiary after the
date hereof prior to the time such Person becomes a Subsidiary; provided
--------
that (i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case may be,
(ii) such Lien shall not apply to any other property or assets of the
Borrower or any Subsidiary, (iii) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date
such Person becomes a Subsidiary, as the case may be and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof and (iv) the aggregate principal amount of
Indebtedness secured by such Lien does not exceed the amount permitted by
Section 7.2(i);
(m) Liens resulting from the cash collateralization (in the aggregate
amount of up to $1,000,000) of letters of credit and overdraft obligations
of the Borrower and its Subsidiaries outstanding on the Closing Date; and
(n) Liens not otherwise permitted by this Section so long as neither
(i) the aggregate outstanding principal amount of the obligations secured
thereby nor (ii) the aggregate fair market value (determined as of the date
such Lien is incurred) of the assets subject thereto exceeds (as to the
Borrower and all Subsidiaries) $500,000 at any one time.
7.4 Fundamental Changes. Enter into any merger, consolidation or
-------------------
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
--------
continuing or surviving corporation);
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor;
(c) any Subsidiary of the Borrower may be merged with any other
Person to effect a Permitted Acquisition permitted by Section 7.8(h) so
long as the surviving entity is a Subsidiary of the Borrower; and
<PAGE>
56
(d) the mergers contemplated by the City Truck Acquisition
Documentation shall be permitted.
7.5 Disposition of Property. After the Closing Date, Dispose of
-----------------------
any of its property, whether now owned or hereafter acquired, or, in the case of
any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to
any Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor; and
(e) the Disposition of other property having a fair market value not
to exceed $500,000 in the aggregate for any fiscal year of the Borrower.
7.6 Restricted Payments. Declare or pay any dividend (other than
-------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of Holdings (if any such holding company
exists or is created), the Borrower or any Subsidiary, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of Holdings (if any
such holding company exists or is created), the Borrower or any Subsidiary
(collectively, "Restricted Payments"), except that:
(a) any Subsidiary may make Restricted Payments to the Borrower or
any Wholly Owned Subsidiary Guarantor;
(b) so long as no Default or Event of Default shall have occurred and
be continuing, the Borrower may (i) (A) purchase Capital Stock from present
or former officers or employees of the Borrower or any Subsidiary upon the
death, disability or termination of employment of such officer or employee,
or (B) pay dividends to Holdings (if any such holding company exists or is
created) to purchase Holdings' Capital Stock from present or former
officers or employees of Holdings, the Borrower or any Subsidiary upon the
death, disability or termination of employment of such officer or employee,
provided, that the aggregate amount of payments under clause (i) after the
--------
date hereof (net of any proceeds received by Holdings (if any such holding
company exists or is created) and contributed to the Borrower after the
date hereof in connection with resales of Capital Stock so purchased) shall
not exceed $100,000, (ii) pay fees expressly permitted by the last sentence
of Section 7.10 and (iii) pay customary directors' fees, expenses and
indemnities;
(c) the Borrower may pay dividends to Holdings (if any such holding
company exists or is created) to permit Holdings to (i) pay corporate
overhead expenses incurred in the ordinary course of business not to exceed
$250,000 in any fiscal year, (ii) pay any taxes that are due and payable by
Holdings and the Borrower as part of a consolidated group, (iii) pay
<PAGE>
57
fees expressly permitted by the last sentence of Section 7.10 and (iv) pay
customary directors' fees, expenses and indemnities;
(d) so long as no Loans are outstanding hereunder, the Borrower may
redeem the Initial New Investor Redeemable Preferred Stock on or prior to
the first anniversary of the Closing Date with the proceeds of the issuance
of Senior Subordinated Notes or a capital contribution;
(e) the Borrower may make dividend payments with respect to any class
of preferred stock in the form of additional shares of such class of stock;
and
(f) the Borrower may pay cash dividends with respect to the Initial
New Investor Redeemable Preferred Stock, at a per annum rate not to exceed
10.5%, on or prior to the first anniversary of the Closing Date.
7.7 Capital Expenditures; Foreign Expenditures. (a) Make or commit to
------------------------------------------
make any Capital Expenditure, except (i) maintenance Capital Expenditures of the
Borrower and its Subsidiaries in the ordinary course of business not exceeding
$3,000,000 in any fiscal year; provided, that such amount shall increase at a
--------
rate of $1,000,000 per every $30,000,000 of consideration paid with respect to
Permitted Acquisitions; provided further, that (x) up to $1,000,000 of any such
--------
amount referred to above, if not so expended in the fiscal year for which it is
permitted, may be carried over for expenditure in the next succeeding fiscal
year and (y) Capital Expenditures made pursuant to this clause (i) during any
fiscal year shall be deemed made, first, in respect of amounts permitted for
-----
such fiscal year as provided above and, second, in respect of amounts carried
------
over from the prior fiscal year pursuant to subclause (x) above, (ii) Capital
Expenditures in connection with the "build-up" of new business units ("Build-Up
--------
Capital Expenditures") not exceeding $3,000,000 in any fiscal year, (iii)
- --------------------
Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount
and (iv) pursuant to the Stone Acquisition and Permitted Acquisitions.
(b) Notwithstanding anything in this Agreement to the contrary, (i)
Permitted Acquisitions and Build-Up Capital Expenditures shall in each case
result in the acquisition of Capital Stock of Persons domiciled, or assets
located, in the United States or Canada and (ii) the aggregate amount expended
pursuant thereto to purchase Capital Stock of Persons domiciled in Canada or
assets owned by such Persons shall not exceed $5,000,000 during the term of this
Agreement.
7.8 Investments. Make any advance, loan, extension of credit (by way
-----------
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of Holdings (if any such holding
company exists or is created), the Borrower or any Subsidiary of the
Borrower in the ordinary course of business (including for travel,
entertainment and relocation expenses) in an aggregate amount
<PAGE>
58
for Holdings (if any such holding company exists or is created), the
Borrower or any Subsidiary of the Borrower not to exceed $500,000 at any
one time outstanding;
(e) the City Truck Acquisition and, subject to the satisfaction of
the conditions set forth on Schedule 7.8(e), the Stone Acquisition;
(f) Investments in assets useful in the business of the Borrower and
its Subsidiaries made by the Borrower or any of its Subsidiaries with the
proceeds of any Reinvestment Deferred Amount;
(g) Investments by Holdings (if any such holding company exists or is
created), the Borrower or any of its Subsidiaries in the Borrower or any
Person that, prior to such investment, is a Wholly Owned Subsidiary
Guarantor;
(h) Permitted Acquisitions, provided that no such Acquisitions may be
--------
consummated prior to the consummation of the Stone Acquisition;
(i) notes or Capital Stock of any customer received in connection
with any workout or insolvency event relating to such customer; and
(j) in addition to Investments otherwise expressly permitted by this
Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $500,000 during the term of
this Agreement.
7.9 Optional Payments and Modifications of Certain Instruments. (a)
----------------------------------------------------------
Make or offer to make any optional or voluntary payment, prepayment, repurchase
or redemption of or otherwise optionally or voluntarily defease or segregate
funds with respect to the Senior Subordinated Notes, (b) amend, modify, waive or
otherwise change, or consent or agree to any amendment, modification, waiver or
other change to, any of the terms of the Senior Subordinated Notes (other than
any such amendment, modification, waiver or other change that (i) would extend
the maturity or reduce the amount of any payment of principal thereof or reduce
the rate or extend any date for payment of interest thereon and (ii) does not
involve the payment of a consent fee), (c) amend, modify, waive or otherwise
change, or consent or agree to any amendment, modification, waiver or other
change to, any of the terms of the Initial New Investor Preferred Stock, the
Initial New Investor Redeemable Preferred Stock or the Additional New Investor
Preferred Stock (other than any such amendment, modification, waiver or other
change that (i) would extend the scheduled redemption date or reduce the amount
of any scheduled redemption payment or reduce the rate or extend any date for
payment of dividends thereon and (ii) does not involve the payment of a consent
fee) or (d) designate any Indebtedness (other than obligations of the Loan
Parties pursuant to the Loan Documents) as "Designated Senior Indebtedness" for
the purposes of the Senior Subordinated Note Indenture.
7.10 Transactions with Affiliates. Enter into any transaction,
----------------------------
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate (other than Holdings (if any such holding company exists or is
created), the Borrower or any Wholly Owned Subsidiary Guarantor) unless such
transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary
course of business of Holdings (if any such holding company exists or is
created), the Borrower or such Subsidiary, as the case may be, and (c) upon fair
and reasonable terms no less favorable to Holdings (if any such holding company
exists or is created), the Borrower or such Subsidiary, as the case may be, than
it would obtain in a comparable arm's length transaction with a Person that is
not an Affiliate. Notwithstanding the
<PAGE>
59
foregoing, the Borrower and its Subsidiaries may pay to the Buyer and its
Control Investment Affiliates fees and expenses pursuant to the Corporate
Development and Administrative Services Agreement dated as of June 1, 1998 (the
"Services Agreement") and may perform their obligations under the agreements
------------------
listed on Schedule 7.10, in each case as such agreements are in effect on the
Closing Date.
7.11 Sales and Leasebacks. After the Closing Date, enter into any
--------------------
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property that has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
7.12 Changes in Fiscal Periods. Permit the fiscal year of the Test
-------------------------
Party to end on a day other than December 31 or permit the first three fiscal
quarters of the Test Party to end on any dates other than March 31, June 30 and
September 30, respectively.
7.13 Negative Pledge Clauses. Enter into or suffer to exist or become
-----------------------
effective any agreement that prohibits or limits the ability of Holdings (if any
such holding company exists or is created), the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property or revenues, whether now owned or hereafter acquired, to secure its
obligations under the Loan Documents to which it is a party other than (a) this
Agreement and the other Loan Documents; (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby); (c) customary clauses in leases restricting the
assignment thereof; and (d) the Senior Subordinated Note Indenture.
7.14 Clauses Restricting Subsidiary Distributions. Enter into or
--------------------------------------------
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or
advances to, or other Investments in, the Borrower or any other Subsidiary of
the Borrower or (c) transfer any of its assets to the Borrower or any other
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents and (ii) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement that has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary.
7.15 Lines of Business. Enter into any business, either directly or
-----------------
through any Subsidiary, except for those businesses in which the Borrower and
its Subsidiaries are engaged on the date of this Agreement (after giving effect
to the City Truck Acquisition) or that are reasonably related thereto.
7.16 Amendments to Acquisition Documents. (a) Amend, supplement or
-----------------------------------
otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of
the indemnities and licenses furnished to the Borrower or any of its
Subsidiaries pursuant to the City Truck Acquisition Documentation or, after
consummation of the Stone Acquisition, the Stone Acquisition Documentation such
that after giving effect thereto such indemnities or licenses shall be
materially less favorable to the interests of the Loan Parties or the Lenders
with respect thereto or (b) otherwise amend, supplement or otherwise modify the
terms and conditions of the City Truck Acquisition Documentation or the Stone
Acquisition Documentation except for any such amendment, supplement
<PAGE>
60
or modification that (i) becomes effective after the Closing Date and (ii) could
not reasonably be expected to have a Material Adverse Effect.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Revolving
Loan or Reimbursement Obligation when due in accordance with the terms
hereof; or the Borrower shall fail to pay any interest on any Revolving
Loan or Reimbursement Obligation, or any other amount payable hereunder or
under any other Loan Document, within five days after any such interest or
other amount becomes due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) any Loan Party shall default in the observance or performance
of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Borrower only), Section 6.5, Section 6.7(a) or Section 7 of
this Agreement or Section 5.6 or Section 5.8(b) of the Guarantee and
Collateral Agreement or (ii) an "Event of Default" under and as defined in
any Mortgage shall have occurred and be continuing; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days after notice
to the Borrower from the Administrative Agent or any Lender; or
(e) Holdings (if any such holding company exists or is created), the
Borrower or any of its Subsidiaries shall (i) default in making any payment
of any principal of any Indebtedness (including any Guarantee Obligation,
but excluding the Revolving Loans) on the scheduled or original due date
with respect thereto (after giving effect to the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created); or (ii) default in making any payment of any interest on any such
Indebtedness beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created; or (iii) default in
the observance or performance of any other agreement or condition relating
to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or beneficiary of such Indebtedness (or a
trustee or agent on behalf of such holder or beneficiary) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; provided, that a default, event or
--------
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default unless, at such time,
one or more defaults, events or conditions of the type described in clauses
(i), (ii) and (iii) of this paragraph
<PAGE>
61
(e) shall have occurred and be continuing with respect to Indebtedness the
outstanding principal amount of which exceeds in the aggregate $500,000; or
(f) (i) Holdings (if any such holding company exists or is created),
the Borrower or any of its Subsidiaries shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or Holdings (if any such holding company exists or is created), the
Borrower or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against Holdings
(if any such holding company exists or is created), the Borrower or any of
its Subsidiaries any case, proceeding or other action of a nature referred
to in clause (i) above that (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against Holdings (if any such holding company exists or is
created), the Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets that results in the entry of an order for any such relief that shall
not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) Holdings (if any such
holding company exists or is created), the Borrower or any of its
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) Holdings (if any such holding
company exists or is created), the Borrower or any of its Subsidiaries
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(g) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered against
Holdings (if any such holding company exists or is created), the Borrower
or any of its Subsidiaries involving in the aggregate a liability (to the
extent not paid or fully covered by insurance as to which the relevant
insurance company has acknowledged coverage) of $500,000 or more, and all
such
<PAGE>
62
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) any of the Security Documents shall cease, for any reason, to be
in full force and effect in accordance with its terms, or any Loan Party or
any Affiliate of any Loan Party shall so assert, or any Lien created by any
of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby; or
(j) the guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k) (i) the Permitted Investors shall cease to have the power to
directly or indirectly vote or direct the voting of securities having a
majority of the ordinary voting power for the election of directors of the
Borrower or Holdings (if any such holding company exists or is created)
(determined on a fully diluted basis); (ii) the Permitted Investors shall
cease to own, directly or indirectly, of record and beneficially, at least
45% of the outstanding stock (including Initial New Investor Preferred
Stock) of the Borrower or Holdings (if any such holding company exists or
is created) having ordinary voting power for the election of directors
(determined on a fully diluted basis); (iii) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), excluding the Permitted
Investors, shall become, or obtain rights (whether by means or warrants,
options or otherwise) to become, the "beneficial owner" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly,
of 45% or more of the outstanding stock (including Initial New Investor
Preferred Stock) of the Borrower or Holdings (if any such holding company
exists or is created) having ordinary voting power for the election of
directors; (iv) the board of directors of the Borrower or Holdings (if any
such holding company exists or is created) shall cease to consist of a
majority of Continuing Directors; (v) Holdings (if any such holding company
exists or is created) shall cease to own and control, of record and
beneficially, directly, 100% of each class of outstanding Capital Stock of
the Borrower free and clear of all Liens (except Liens created by the
Guarantee and Collateral Agreement); or (vi) after the issuance of the
Senior Subordinated Notes, a Specified Change of Control shall occur; or
(l) Holdings (if any such holding company exists or is created) shall
(i) conduct, transact or otherwise engage in, or commit to conduct,
transact or otherwise engage in, any business or operations other than
those incidental to its ownership of the Capital Stock of the Borrower,
(ii) incur, create, assume or suffer to exist any Indebtedness or other
liabilities or financial obligations, except (x) nonconsensual obligations
imposed by operation of law, (y) pursuant to the Senior Subordinated Note
Indenture or the Loan Documents to which it is a party and (z) obligations
with respect to its Capital Stock or the Services Agreement, or (iii) own,
lease, manage or otherwise operate any properties or assets (including cash
(other than cash received in connection with dividends made by the Borrower
in accordance with Section 7.6 pending application in the manner
contemplated by said Section) and Cash Equivalents) other than the
ownership of shares of Capital Stock of the Borrower;
(m) after the issuance of the Senior Subordinated Notes, the Senior
Subordinated Notes or the guarantees thereof shall cease, for any reason,
to be validly subordinated to the Obligations or the obligations of the
Subsidiary Guarantors under the Guarantee and Collateral
<PAGE>
63
Agreement, as the case may be, as provided in the Senior Subordinated Note
Indenture, or any Loan Party or any Affiliate of any Loan Party shall so
assert;
(n) the Borrower shall fail to appoint a satisfactory chief executive
officer within 10 days after the Closing Date (it being hereby agreed that
Larry Clayton or, if the Stone Acquisition is consummated, Jim Stone shall
be a satisfactory chief executive officer);
(o) on the day which is 91 days after the Closing Date, the
Consolidated Leverage Ratio (with the Test Period for this purpose being
the most recent period of 12 consecutive months for which the relevant
financial information is available) shall exceed 4.0 to 1.0 (the "Specified
---------
Event of Default") unless (a) the Senior Subordinated Note Date shall have
---------------- ------
occurred on or prior to the day which is 90 days after the Closing Date and
(b) the Stone Acquisition shall have been consummated on or prior to such
day; or
(p) Holdings, if any such holding company exists or is created, shall
fail to become a Guarantor, and a "Grantor", pursuant to the Guarantee and
Collateral Agreement;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Revolving Commitments shall immediately terminate and the
Revolving Loans hereunder (with accrued interest thereon) and all other amounts
owing under this Agreement and the other Loan Documents (including all amounts
of L/C Obligations, whether or not the beneficiaries of the then outstanding
Letters of Credit shall have presented the documents required thereunder) shall
immediately become due and payable, and (B) if such event is any other Event of
Default, either or both of the following actions may be taken: (i) with the
consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower declare the Revolving Commitments to be terminated forthwith,
whereupon the Revolving Commitments shall immediately terminate; and (ii) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Revolving Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents (including all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable. With respect to all Letters of
Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under the other Loan
Documents. After all such Letters of Credit shall have expired or been fully
drawn upon, all Reimbursement Obligations shall have been satisfied and all
other obligations of the Borrower hereunder and under the other Loan Documents
shall have been paid in full, the balance, if any, in such cash collateral
account shall be returned to the Borrower (or such other Person as may be
lawfully entitled thereto). Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
<PAGE>
64
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints each Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, neither Agent shall have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against either Agent.
Without limiting the foregoing, the use of the term "agent" with respect to
either Agent is used as a matter of market custom and is intended to create or
reflect only an administrative relationship between independent contracting
parties. The Agents and the Lenders hereby acknowledge and agree that the
Administrative Agent shall be the only Agent which shall be a "Representative"
of the Lenders under the Senior Subordinated Note Indenture (after execution and
delivery thereof).
The Issuing Lender shall act on behalf of the Lenders with respect to
Letters of Credit issued or made under this Agreement and the documents
associated therewith. It is understood and agreed that the Issuing Lender (a)
shall have all of the benefits and immunities (i) provided to the Agents in this
Section 9 with respect to acts taken or omissions suffered by the Issuing Lender
in connection with Letters of Credit issued or made under this Agreement and the
documents associated therewith as fully as if the term "Agents", as used in this
Section 9, included the Issuing Lender with respect to such acts or omissions
and (ii) as additionally provided in this Agreement and (b) shall have all of
the benefits of the provisions of subsection 9.7 or Section 10 as fully as if
the term "Agents", as used in subsection 9.7 or Section 10, included the Issuing
Lender.
9.2 Delegation of Duties. Each Agent may execute any of its duties
--------------------
under this Agreement and the other Loan Documents by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Neither Agent shall be
responsible for the negligence or misconduct of any agents or attorneys in-fact
selected by it with reasonable care.
9.3 Exculpatory Provisions. Neither Agent nor any of their respective
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any other Loan
Party or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agents under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower or any other Loan Party to perform
its obligations hereunder or thereunder. No Agent-Related Person shall be under
any obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower or any other Loan Party.
<PAGE>
65
9.4 Reliance by Agents. Each Agent shall be entitled to rely, and
------------------
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower or any other Loan Party), independent
accountants and other experts selected by such Agent. The Administrative Agent
may deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. Each Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the relevant Lenders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Each Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in accordance
with a request of the relevant Lenders entitled to so act, and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Lenders and all future holders of the Revolving Loans.
9.5 Notice of Default. Neither Agent shall be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
notice thereof to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Lenders entitled to so act; provided that unless and until the
--------
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders (except to the extent that
this Agreement expressly requires that such actions be taken or not be taken
only with the consent or upon the authorization of the Majority Lenders).
9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
-----------------------------------------
acknowledges that neither Agent nor any of their respective officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by such Agent or any such other Person
hereinafter taken, including any review of the affairs of the Borrower or any
other Loan Party, shall be deemed to constitute any representation or warranty
by such Agent or any such other Person to any Lender. Each Lender represents to
the Agents that it has, independently and without reliance upon any Agent-
Related Person or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and the other Loan Parties and made its own
decision to make its extensions of credit hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon any Agent-Related Person or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and the other Loan Parties. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agents
hereunder, the Agents shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property,
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66
condition (financial or otherwise), prospects or creditworthiness of the
Borrower or any other Loan Party which may come into the possession of the
Agents or any of their respective officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
9.7 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Lenders agree to indemnify each Agent-Related Person
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Revolving Percentages in effect on the date on which indemnification is sought,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Revolving Loans) be imposed on, incurred by or
asserted against such Agent-Related Person in any way relating to or arising out
of, the Revolving Commitments, this Agreement, any of the other Loan Documents
or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by
such Agent-Related Person under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements to the extent resulting from the relevant
Agent-Related Person's gross negligence or willful misconduct. The agreements
in this subsection shall survive the payment of the Revolving Loans and all
other amounts payable hereunder.
9.8 Agent in Its Individual Capacity. Each Agent and its Affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and the other Loan Parties as though such Agent were
not an Agent hereunder and under the other Loan Documents and without notice to
or consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, each Agent and its Affiliates may receive information regarding the
Borrower or the other Loan Parties or their respective Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Borrower or the other Loan Parties or their respective Affiliates) and
acknowledge that neither Agent nor their respective Affiliates shall be under an
obligation to provide such information to them. With respect to the Revolving
Loans made by it and with respect to any Letter of Credit issued or participated
in by it, each Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not an Agent, and the terms "Lender" and "Lenders" shall include each
Agent in its individual capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Majority Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent (provided that it shall have been approved by the Borrower
--------
(which approval shall not be unreasonably withheld)), shall succeed to the
rights, powers and duties of the Administrative Agent hereunder. If no
successor agent is appointed prior to the effective date of the resignation of
the Administrative Agent, the Administrative Agent may appoint, after consulting
with the Lenders and the Borrower, a successor agent from among the Lenders.
Effective upon such appointment by the Majority Lenders or by the Administrative
Agent, the term "Administrative Agent" shall mean such successor agent, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Revolving Loans. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was
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67
Administrative Agent under this Agreement and the other Loan Documents. If no
successor agent has accepted appointment as Administrative Agent by the date
which is 10 days following a retiring Administrative Agent's notice of
resignation, the retiring Administrative Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall assume and perform all of the
duties of the Administrative Agent hereunder until such time, if any, as the
Majority Lenders appoint a successor agent as provided for above.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Majority Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Majority Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Majority Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) extend the date of scheduled reduction of
the Revolving Commitments pursuant to Section 2.2 without approval of the
Required Lenders; (ii) forgive the principal amount or extend the final
scheduled date of maturity of any Revolving Loan, reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Lender's
Revolving Commitment, in each case without the consent of each Lender directly
affected thereby; (iii) amend, modify or waive any provision of this Section
10.1 or reduce any percentage specified in the definition of Majority Lenders or
Required Lenders, consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral or release all or
substantially all of the Subsidiary Guarantors from their obligations under the
Guarantee and Collateral Agreement, in each case without the written consent of
all Lenders; (iv) amend, modify or waive any provision of Section 9 without the
written consent of the Agents; or (v) amend, modify or waive any provision of
Section 3 without the written consent of the Issuing Lender. Any such waiver
and any such amendment, supplement or modification shall apply equally to each
of the Lenders and shall be binding upon the Loan Parties, the Lenders, the
Agents and all future holders of the Revolving Loans. In the case of any
waiver, the Loan Parties, the Lenders and the Agents shall be restored to their
former position and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings (if any such holding
company exists or is created), the Borrower and the Administrative Agent, and as
set forth in an administrative questionnaire delivered to the Administrative
Agent in the case of the Lenders, or to such other address as may be hereafter
notified by the respective parties hereto:
<PAGE>
68
The Borrower: City Truck and Trailer Parts, Inc.
2901 Third Avenue North
Birmingham, Alabama 35202
Attention: Larry Clayton
Facsimile: 205-251-4962
Telephone: 205-322-5621
The Administrative Agent: Bank of America National Trust and
Savings Association
1850 Gateway Boulevard
Concord, California 94520
Attention: Jerry W. Allard
Facsimile: 925-675-8500
Telephone: 925-675-8384
; provided, that any notice, request or demand to or upon the Administrative
--------
Agent or the Lenders shall not be effective until received.
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Revolving Loans and other extensions of credit hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
-----------------------------
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
the consummation and administration of the transactions contemplated hereby and
thereby and the enforcement or preservation of its rights hereunder or
thereunder, including the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses, with statements
with respect to the foregoing to be submitted to the Borrower prior to the
Closing Date (in the case of amounts to be paid on the Closing Date) and from
time to time thereafter on a quarterly basis or such other periodic basis as the
Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender
and the Administrative Agent for all its costs and expenses incurred in
connection with the enforcement or, while an Event of Default is in effect,
preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each
Lender and the Administrative Agent harmless from, any and all recording and
filing fees and any and all liabilities with respect to, or resulting from any
delay in paying, stamp, excise and other taxes, if any, that may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any
<PAGE>
69
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, the other Loan Documents and any such other
documents, and (d) to pay, indemnify, and hold each Lender and the
Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "Indemnitee") harmless from
----------
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including any of the foregoing relating to the use of
proceeds of the Revolving Loans or the violation of, noncompliance with or
liability under, any Environmental Law applicable to the operations of Holdings
(if any such holding company exists or is created), the Borrower any of its
Subsidiaries or any of the Properties and the reasonable fees and expenses of
legal counsel in connection with claims, actions or proceedings by any
Indemnitee against any Loan Party under any Loan Document (all the foregoing in
this clause (d), collectively, the "Indemnified Liabilities"), provided, that
----------------------- --------
the Borrower shall have no obligation hereunder to any Indemnitee (including
pursuant to the next succeeding sentence) with respect to Indemnified
Liabilities to the extent such Indemnified Liabilities are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnitee. Without
limiting the foregoing, and to the extent permitted by applicable law, the
Borrower agrees not to assert and to cause its Subsidiaries not to assert, and
hereby waives and agrees to cause its Subsidiaries to so waive, all rights for
contribution or any other rights of recovery with respect to all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature, under or related to Environmental Laws, that any of
them might have by statute or otherwise against any Indemnitee. All amounts due
under this Section 10.5 shall be payable promptly after written demand therefor.
Statements payable by the Borrower pursuant to this Section 10.5 shall be
submitted to Larry Clayton (Telephone No. (205) 322-5621, Telecopy No. (205)
251-4962, at the address of the Borrower set forth in Section 10.2, or to such
other Person or address as may be hereafter designated by the Borrower in a
written notice to the Administrative Agent. The agreements in this Section 10.5
shall survive repayment of the Revolving Loans and all other amounts payable
hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent, all future holders of the Revolving Loans and
their respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights or obligations under this Agreement without the
prior written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
-----------
in any Revolving Loan owing to such Lender, any Commitment of such Lender or any
other interest of such Lender hereunder and under the other Loan Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Revolving Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event shall
any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Revolving
Loans or any fees payable hereunder, or postpone the date of the final maturity
of the Revolving Loans, in each case to the extent
<PAGE>
70
subject to such participation. The Borrower agrees that if amounts outstanding
under this Agreement and the Revolving Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
--------
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it
were a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.15, 2.16 and 2.17 with respect to its
participation in the Revolving Commitments and the Revolving Loans outstanding
from time to time as if it was a Lender; provided that, in the case of Section
--------
2.16, such Participant shall have complied with the requirements of said Section
and provided, further, that no Participant shall be entitled to receive any
-------- -------
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower and the Administrative Agent
(which, in each case, shall not be unreasonably withheld or delayed), to an
additional bank, financial institution or other entity (an "Assignee") all or
--------
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, executed by such Assignee, such Assignor and any
other Person whose consent is required pursuant to this paragraph, and delivered
to the Administrative Agent for its acceptance and recording in the Register;
provided that no such assignment to an Assignee (other than any Lender or any
- --------
affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), unless otherwise agreed by the Borrower and the
Administrative Agent. Upon such execution, delivery, acceptance and recording,
from and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment and/or Revolving Loans as
set forth therein, and (y) the Assignor thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such Assignor shall
cease to be a party hereto). Notwithstanding any provision of this Section 10.6,
the consent of the Borrower shall not be required for any assignment that occurs
when an Event of Default pursuant to Section 8(f) shall have occurred and be
continuing with respect to the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of the Lenders and the Revolving
Commitment of, and the principal amount of the Revolving Loans owing to, each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, each other Loan Party, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Revolving Loans and any Notes
evidencing the Revolving Loans recorded therein for all purposes of this
Agreement. Any assignment of any Revolving Loan, whether or not evidenced by a
Note, shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of all or part of a Revolving Loan evidenced by a Note
shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note evidencing
<PAGE>
71
such Revolving Loan, accompanied by a duly executed Assignment and Acceptance,
and thereupon one or more new Notes shall be issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $4,000, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) record the information contained therein
in the Register on the effective date determined pursuant thereto.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 10.6 concerning assignments of
Revolving Loans and Notes relate only to absolute assignments and that such
provisions do not prohibit assignments creating security interests, including
any pledge or assignment by a Lender of any Revolving Loan or Note to any
Federal Reserve Bank in accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.
10.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement expressly provides for payments to be allocated to a particular
Lender or to the Lenders, if any Lender (a "Benefitted Lender") shall, at any
-----------------
time after the Revolving Loans and other amounts payable hereunder shall
immediately become due and payable pursuant to Section 8, receive any payment
of all or part of the Obligations owing to it, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to
events or proceedings of the nature referred to in Section 8(f), or otherwise),
in a greater proportion than any such payment to or collateral received by any
other Lender, if any, in respect of the Obligations owing to such other Lender,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of the Obligations owing to each such
other Lender, or shall provide such other Lenders with the benefits of any such
collateral, as shall be necessary to cause such Benefitted Lender to share the
excess payment or benefits of such collateral ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
- -------- -------
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise), to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower, as the case may be. Each Lender agrees
promptly to notify the Borrower and the Administrative Agent after any such
setoff and application made by such Lender, provided that the failure to give
--------
such notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of
<PAGE>
72
this Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower, as the case may be at its address set forth in Section 10.2 or at
such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
<PAGE>
73
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
10.14 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to keep confidential all non-public information provided to it by
any Loan Party pursuant to this Agreement that is designated by such Loan Party
as confidential; provided that nothing herein shall prevent the Administrative
--------
Agent or any Lender from disclosing any such information (a) to the
Administrative Agent, any other Lender or any affiliate of any Lender that
agrees to maintain the confidentiality thereof, (b) to any Transferee or
prospective Transferee that agrees to comply with the provisions of this
Section, (c) to its employees, directors, agents, attorneys, accountants and
other professional advisors or those of any of its affiliates, (d) upon the
request or demand of any Governmental Authority, (e) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (f) if required to do so in connection with
any litigation or similar proceeding, (g) that has been publicly disclosed, (h)
to the National Association of Insurance Commissioners or any similar
organization or any nationally recognized rating agency that requires access to
information about a Lender's investment portfolio in connection with ratings
issued with respect to such Lender, or (i) in connection with the exercise of
any remedy hereunder or under any other Loan Document.
10.15 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS
---------------------
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
<PAGE>
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CITY TRUCK AND TRAILER PARTS, INC.
By: /s/ Larry Clayton
-----------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION, as Administrative
Agent and as a Lender
By: /s/ Barry R. Dunn
-----------------------------
Name: BARRY R. DUNN
Title: VICE PRESIDENT
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, NEW YORK BRANCH,
as Documentation Agent and as a Lender
By: /s/ Takuya Honjo
-----------------------------
Name: TAKUYA HONJO
Title: SENIOR VICE PRESIDENT
<PAGE>
Annex A
-------
PRICING GRID FOR REVOLVING LOANS
<TABLE>
<CAPTION>
============================================================================================================
Consolidated Leverage Ratio Applicable Margin Applicable Margin for
for Eurodollar Loans Base Rate Loans
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.0 to 1.0 2.50% 1.50%
- ------------------------------------------------------------------------------------------------------------
Greater than or equal to 4.5 to 1.0 but less than 2.25% 1.25%
5.0 to 1.0
- ------------------------------------------------------------------------------------------------------------
Greater than or equal to 4.0 to 1.0 but less than 2.00% 1.00%
4.5 to 1.0
- ------------------------------------------------------------------------------------------------------------
Greater than or equal to 3.5 to 1.0 but less than 1.75% 0.75%
4.0 to 1.0
- ------------------------------------------------------------------------------------------------------------
Less than 3.5 to 1.0 1.50% 0.50%
============================================================================================================
</TABLE>
Changes in the Applicable Margin resulting from changes in the Consolidated
Leverage Ratio shall become effective on the date (the "Adjustment Date") on
---------------
which financial statements are delivered to the Lenders pursuant to Section 6.1
(but in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph, provided, that the first
--------
Adjustment Date shall not occur prior to the earlier of the Senior Subordinated
Note Date and the date that is 90 days after the Closing Date. If any financial
statements referred to above are not delivered within the time periods specified
above, then, until such financial statements are delivered, the Consolidated
Leverage Ratio as at the end of the fiscal period that would have been covered
thereby shall for the purposes of this definition be deemed to be greater than
5.0 to 1.0. In addition, at all times while an Event of Default shall have
occurred and be continuing, the Consolidated Leverage Ratio shall for the
purposes of this definition be deemed to be greater than 5.0 to 1.0. Each
determination of the Consolidated Leverage Ratio pursuant to this pricing grid
shall be made with respect to (or, in the case of Consolidated Total Debt, as at
the end of) the Test Period ending at the end of the period covered by the
relevant financial statements.
<PAGE>
EXHIBIT 10.1.1
FIRST AMENDMENT AND CONSENT, dated as of December 30, 1998 (this
"Amendment"), to the CREDIT AGREEMENT, dated as of June 1, 1998 (the "Credit
--------- ------
Agreement"), among HDA Parts System, Inc. (formerly known as City Truck and
- ---------
Trailer Parts, Inc.) (the "Borrower"), the several banks and other financial
institutions or entities from time to time parties to the Credit Agreement
(the "Lenders"), the Syndication Agent, Documentation Agent and Arranger named
-------
therein and Bank of America National Trust and savings Association, as
Administrative Agent. Terms defined in the Credit Agreement shall be used in
this Amendment with their defined meanings unless otherwise defined herein.
WITNESSETH:
WHEREAS, the Borrower has requested the Lenders to enter into this
Amendment on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
I. AMENDMENTS.
1. The Credit Agreement is hereby amended to increase the aggregate amount
of the Revolving Commitments from $75,000,000 to $85,000,000, effective as of
the later of the First Amendment Effective Date and January 11, 1999 (such later
date , the "Commitment Increase Effective Date"). By executing and delivering
---------- -------- --------- ----
this Amendment in its capacity as a Lender, Bank of America National Trust and
Savings Association hereby agrees to initially provide the entire amount of such
increase. The Borrower shall take such actions, and the parties hereto hereby
consent to the taking of such actions, as may be reasonably requested by the
Administrative Agent to ensure that each borrowing under the Credit Agreement
outstanding or to be made on the Commitment Increase Effective Date shall be
held or made on a pro rata basis among the Lenders based on their respective
--- ----
Revolving Commitments as in effect after giving effect to the aforementioned
commitment increase.
2. Section 2.2(a) of the Credit Agreement is hereby amended by (a) in each
case changing the amount "2,500,000" to the amount "3,000,000" and (b) changing
the amount "47,500,000" to the amount "52,000,000".
3. Section 2.2 of the Credit Agreement is hereby amended by replacing the
text following the paragraph references "(b)" and "(c)" with the words
"[INTENTIONALLY OMITTED]"
4. Section 8 of the Credit Agreement is hereby amended by adding the
following new paragraph immediately after paragraph (p) thereof:
"(q) (i) on or prior to the first date on which the aggregate
amount of the Revolving Extensions of Credit equals or exceeds $72,500,000,
the Borrower shall have failed to have received at least $5,000,000 in
proceeds from the issuance after the First Amendment Effective Date (as
defined in the First Amendment to this Agreement) of Capital Stock of
Holdings or (ii) on or prior to the first date on which the aggregate
amount of the Revolving Extensions of Credit equals or exceeds $77,500,000
(or, if earlier, February
<PAGE>
28, 1999) the Borrower shall have failed to have received at least
$10,000,000 in proceeds from the issuance after the First Amendment
Effective Date of Capital Stock of Holdings;"
II. CONSENT.
-------
In order to enable the Borrower to satisfy the condition specified in
clause (g) of the definition of "Permitted Acquisition", the parties hereto
hereby consent to the acquisition (the "Associated Acquisition") by the Borrower
---------- -----------
of all of the Capital Stock of Associated Brake Supply, Inc. ("Associated");
----------
provided that (a) the aggregate purchase price for the Associated Acquisition
- --------
shall not exceed $60,000,000 (subject to adjustments substantially of the type
described in the 11/30/98 draft Stock Purchase Agreement among Holdings, the
Borrower and Associated), of which $55,000,000 (subject to the above-referenced
adjustments) shall be in the form of cash and the remainder shall be in the form
of Capital Stock of Holdings and (b) all other conditions specified in the
definition of "Permitted Acquisition" shall be satisfied with respect to the
Associated Acquisition.
III. MISCELLANEOUS.
-------------
1. Representations and Warranties. Each Loan Party hereby represents and
------------------------------
warrants as of the date hereof that, after giving effect to this Amendment, (a)
no Default or Event of Default has occurred and is continuing and (b) all
representations and warranties of such Loan Party contained in the Loan
Documents (with each reference to the Credit Agreement in such representations
and warranties being deemed to refer to this Amendment and to the Credit
Agreement as amended by this Amendment) are true and correct in all material
respects with the same effect as if made on and as of such date.
2. Expenses. The Borrower agrees to pay or reimburse the Administrative
--------
Agent on demand for all its reasonable out-of-pocket costs and expenses incurred
in connection with the preparation and execution of this Amendment, including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Change. Except as expressly provided herein, no term or provision of
---------
the Credit Agreement shall be amended, modified or supplemented, and each
term and provision of the Credit Agreement shall remain in full force and
effect.
4. Confirmation. Each Guarantor confirms that all of its obligations
------------
under the Loan Documents to which it is a party shall remain in full force and
effect and, without limiting the generality of the foregoing, that such Loan
Party's guarantee obligations under such Loan Documents in respect of the
Obligations shall apply to the full amount of such Obligations as they may be
increased as a result of this Amendment.
5. Effectiveness. Except as otherwise provided in paragraph 1 of Section I
-------------
of this Amendment, this Amendment shall become effective on the date (the "First
Amendment Effective Date") on which each of the following conditions shall have
been satisfied: (a) the Administrative Agent shall have received (i)
counterparts hereof duly executed by the Borrower, the Guarantors and the
Required Lenders and (ii) such evidence of the corporate authority of the
Borrower to enter into
<PAGE>
this Amendment as may be reasonably requested by the Administrative Agent and
(b) the Associated Acquisition shall have been consummated.
6. Counterparts. This Amendment may be executed by the parties hereto in
------------
any number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
7. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
HDA PARTS SYSTEM, INC.
By: /s/ John P. Miller
-----------------------------
Title: Vice President of Finance,
Chief Financial Officer
and Secretary
CITY TRUCK & TRAILER PARTS OF
ALABAMA, INC.
By: /s/ John P. Miller
-----------------------------
Title: Vice President
CITY TRUCK & TRAILER PARTS OF
TENNESSEE, INC.
By: /s/ John P. Miller
-----------------------------
Title: Vice President
CITY FRICTION, INC.
By: /s/ John P. Miller
-----------------------------
Title: Vice President
<PAGE>
CITY TRUCK & TRAILER PARTS OF
ALABAMA, L.L.C.
By: HDA Parts System, Inc., its sole member
By: /s/ John P. Miller
______________________________________
Title: Vice President of Finance, Chief
Financial Officer and Secretary
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Administrative
Agent and as a Lender
By: /s/ Barry R. Harman
__________________________________________
Title: Vice President
IBJ Schroder Bank & Trust Company
By: /s/ David Chapman
__________________________________________
Title: Director
BHF-BANK AKTIENGESELLSCHAFT
By:
__________________________________________
Title:
By:
__________________________________________
Title:
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE,
FKA CREDITANSTALT CORPORATE FINANCE, INC.
INC.
By: /s/ ^signature illegible^
__________________________________________
Title: Senior Associate
By: /s/ ^signature illegible^
__________________________________________
Title: Executive Vice President
<PAGE>
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ [ILLEGIBLE]
------------------------------
Title: Vice President
FLEET NATIONAL BANK
By: /s/ [ILLEGIBLE]
------------------------------
Title:[ILLEGIBLE]
<PAGE>
Exhibit 10.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
BABF CITY CORP.
CITY TRUCK AND TRAILER PARTS, INC.
AND ITS AFFILIATES AND MERGER SUBSIDIARIES NAMED HEREIN
AND
THE SHAREHOLDERS AND MEMBERS OF
CITY TRUCK AND TRAILER PARTS, INC.
AND ITS AFFILIATES AND MERGER SUBSIDIARIES
May 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. ACTIONS PRIOR TO AND IMMEDIATELY FOLLOWING THE CLOSING....................... 1
1.1. The Mergers and Contributions................................................. 1
1.2. Redemption and Payment of Debt................................................ 2
1.3. The Closing................................................................... 2
1.4. Reclassification.............................................................. 3
ARTICLE II. PURCHASE.................................................................... 3
2.1. Purchase Price................................................................ 3
2.2. Post-Closing Redemption Price Adjustment...................................... 3
2.3. Section 338(h)(10) Election................................................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE EXISTING
SHAREHOLDERS................................................................ 5
3.1. Corporate Organization and Standing........................................... 5
3.2. Affiliates and Merger Subsidiaries............................................ 6
3.3. Capitalization of City........................................................ 6
3.4. Authorization................................................................. 6
3.5. Title to Shares............................................................... 7
3.6. No Conflict or Violation...................................................... 7
3.7. Facilities.................................................................... 8
3.8. Financial Statements.......................................................... 9
3.9. Books and Records............................................................. 10
3.10. Litigation................................................................... 10
3.11. Licenses and Permits; Compliance with Laws................................... 10
3.12. Tax Matters.................................................................. 11
3.13. Brokers, Finders............................................................. 13
3.14. Absence of Certain Changes................................................... 13
3.15. Material Contracts........................................................... 16
3.16. Proprietary Rights........................................................... 17
3.17. Labor Matters................................................................ 18
3.18. Consents..................................................................... 18
3.19. Employee Benefit Plans; Employment Agreements................................ 18
3.20. Compliance with Environmental Laws........................................... 21
3.21. Certain Business Relationships with the Companies............................ 23
3.22. Undisclosed Liabilities...................................................... 23
3.23. Insurance.................................................................... 23
3.24. Accounts Receivable.......................................................... 24
3.25. Inventory.................................................................... 24
3.26. Payments..................................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
3.27. Customers, Distributors and Suppliers........................................ 25
3.28. Banking Relationships........................................................ 25
3.29. Material Misstatements Or Omissions.......................................... 25
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BABF...................................... 25
4.1. Organization and Standing..................................................... 25
4.2. Authorization................................................................. 25
4.3. No Conflict................................................................... 26
4.4. Litigation.................................................................... 26
4.5. Brokers, Finders.............................................................. 26
4.6. Approvals, Etc................................................................ 26
4.7. Material Misstatements or Omissions........................................... 26
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING COVENANTS............... 27
5.1. Further Assurances............................................................ 27
5.2. No Solicitation and Confidentiality........................................... 27
5.3. Disclosures................................................................... 28
5.4. Notification of Certain Matters............................................... 28
5.5. Investigation by BABF and Its Representatives................................. 28
5.6. Conduct of Business........................................................... 29
5.7. Tax Matters................................................................... 29
5.8 Non-Compliance With and Termination of This Agreement.......................... 30
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY BABF..................... 35
6.1. No Injunctive Proceedings..................................................... 35
6.2. Representations and Warranties................................................ 35
6.3. Performance of Agreements..................................................... 36
6.4. Compliance Certificate........................................................ 36
6.5. Material Changes.............................................................. 36
6.6. Opinion of Counsel............................................................ 36
6.7. Consents, Etc................................................................. 36
6.8. Ancillary Agreements.......................................................... 36
6.9. Resignations.................................................................. 37
6.10. Escrow Agreement............................................................. 37
6.11. Loans and Advances........................................................... 37
6.12. Pre-Closing Events........................................................... 37
</TABLE>
ii
<PAGE>
<TABLE>
Page
----
<CAPTION>
<S> <C> <C>
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANIES AND
THE EXISTING SHAREHOLDERS...................................................37
7.1. No Injunctive Proceedings..................................................... 37
7.2. Representations and Warranties................................................ 37
7.3. Performance of Agreements; Instruments of Transfer............................ 38
7.4. Compliance Certificates....................................................... 38
7.5. Ancillary Agreements.......................................................... 38
7.6. Opinion of Counsel............................................................ 38
ARTICLE VIII. INDEMNIFICATION........................................................... 38
8.1. Indemnification by the Existing Shareholders.................................. 38
8.2. Indemnification by BABF....................................................... 39
8.3. Indemnification by City for Tax-Related Issues................................ 39
8.4. Survival of Representations, Warranties and Covenants......................... 39
8.5. Threshold; Deductible......................................................... 40
8.6. Notice and Opportunity to Defend.............................................. 40
8.7. Indemnification Payments through Surrender of City Stock...................... 41
8.8. Insurance..................................................................... 41
ARTICLE IX. MISCELLANEOUS............................................................... 41
9.1. Expenses...................................................................... 41
9.2. Notices....................................................................... 42
9.3. Counterparts.................................................................. 43
9.4. Entire Agreement.............................................................. 43
9.5. Headings...................................................................... 43
9.6. Assignment; Amendment of Agreement............................................ 43
9.7. Governing Law................................................................. 43
9.8. Further Assurances............................................................ 43
9.9. No Third-Party Rights......................................................... 44
9.10. Non-Waiver................................................................... 44
9.11. Severability................................................................. 44
9.12. Incorporation of Exhibits and Schedules...................................... 44
9.13. Knowledge.................................................................... 44
9.14. Disclosure................................................................... 45
9.15. Arbitration.................................................................. 45
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 29,
1998, is entered into by and among BABF City Corp., a Delaware corporation
("BABF"), City Truck and Trailer Parts, Inc., an Alabama corporation ("City"),
City Truck and Trailer Parts of Alabama, Inc., an Alabama corporation
("Alabama"), City Truck and Trailer Parts of Tennessee, Inc., a Tennessee
corporation ("Tennessee"), City Truck and Trailer Parts of Alabama, L.L.C., an
Alabama limited liability company ("Alabama LLC"), City Friction, Inc., an
Alabama corporation ("Friction," and together with Alabama, Tennessee and
Alabama LLC, each an "Affiliate" and collectively, the "Affiliates"), CTTP
Alabama Merger Sub, Inc., an Alabama corporation ("Alabama Merger Sub"), CTTP
Tennessee Merger Sub, Inc., a Tennessee corporation ("Tennessee Merger Sub"),
CTTP Friction Merger Sub, Inc., an Alabama corporation ("Friction Merger Sub"
and together with Alabama Merger Sub and Tennessee Merger Sub, each a "Merger
Sub" and collectively, the "Merger Subs," and the Merger Subs, and the
"Affiliates," each a "Company" and collectively, the "Companies"), and each of
the shareholders and members of City and its Affiliates and Merger Subsidiaries
identified on Annex A attached hereto (individually, an "Existing Shareholder"
and collectively, the "Existing Shareholders"). BABF, City, the Affiliates, the
Merger Subs and the Existing Shareholders are referred to herein as each a
"Party" and collectively, the "Parties."
RECITALS
WHEREAS, one or more of the Existing Shareholders own all of the
capital stock of City and the Affiliates;
WHEREAS, BABF desires to acquire 80% of the capital stock of City.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
ACTIONS PRIOR TO AND IMMEDIATELY FOLLOWING THE CLOSING
1.1. The Mergers and Contributions. Subject to the terms of this
-----------------------------
Agreement, including, without limitation, Section 3.8(c) hereof, prior to the
Closing, Tennessee Merger Sub, Friction Merger Sub and Alabama Merger Sub will
merge into Tennessee, Friction and Alabama, respectively, through forward
triangular mergers in which the outstanding capital stock of each of Tennessee,
Friction and Alabama will be converted into common stock of City, and Tennessee
Merger Sub, Friction Merger Sub and Alabama Merger Sub will become wholly-owned
subsidiaries of City, and the members of Alabama LLC shall contribute all of
their equity interests to City in exchange for common stock of City, as a result
of which Alabama LLC will become a wholly-owned subsidiary of City. Immediately
following such mergers, the redemption referred to in Section 1.2 will occur.
<PAGE>
1.2. Redemption and Payment of Debt.
------------------------------
(a) In order to fund the redemption and the payment of debt described
below, City intends to obtain financing, and City hereby engages BABF to arrange
and negotiate the terms of such financing. Such financing may include debt
and/or redeemable nonconvertible nonvoting nonparticipating preferred stock
which by its terms ranks pari passu with respect to liquidation preference with
----------
all other preferred stock of City then or thereafter outstanding issued to BABF.
Immediately prior to Closing, BABF shall cause such financing to be available to
City or its subsidiaries (which in no event shall include any personal guaranty
or other personal liability with respect to such indebtedness by any Existing
Shareholder), which will enable City or its subsidiaries to borrow an amount up
to that set forth in Section 1.2(b). As used herein, "Redemption Price" means
Sixty One Million Dollars ($61,000,000), plus the sum of (i) 50% of any
----
incremental tax liability of the Existing Shareholders generated from "LIFO
recapture" triggered as a result of the Closing, (ii) an amount equal to the HD
America ("HDA") payment received by City in March of 1998, and (iii)
consolidated combined net income of the Companies from January 1, 1998 through
the Closing Date ("Year to Date Income") determined pursuant to Section 2.2
hereof, less the sum of (i) all indebtedness of City as of December 31, 1997
----
(other than trade debt and other obligations (excluding obligations for borrowed
money) incurred in the ordinary course of business), including, without
limitation, the debts owed to (x) Regions Bank (other than the $150,000 owed by
Friction to Regions Bank) and (y) the Existing Shareholders, (ii) the aggregate
amounts, in the form of distributions or bonuses (excluding (w) normal salary
payments, rental payments and other amounts paid in the ordinary course, (x) the
$75,000 of Friction income payable pursuant to Section 5.6(g)(i), (y) the
distribution of the City Transportation, L.L.C. membership interests and the
distribution of any other assets contributed to City Transportation, L.L.C.
pursuant to Section 3.8(c)), received by the Existing Shareholders in 1998 in
excess of $872,484.62, and (iii) $25,000,000, and (z) the actual amount of the
bonuses referred to in Section 5.6(e)(i).
(b) Provided BABF arranges the necessary financing as set forth in
Section 1.2(a) above, City shall borrow or cause its subsidiaries to borrow an
amount (the "Borrowed Amount") sufficient to fund the redemption described
herein, and City shall use the Borrowed Amount to, among other things, (x)
redeem a portion of the outstanding capital stock of City for an amount equal to
the Redemption Price and (y) repay all indebtedness of City as of the Closing
Date (other than (x) trade debt and other obligations (excluding obligations for
borrowed money) incurred in the ordinary course of business and (y) the Borrowed
Amount), including, without limitation, the debts owed to (x) Regions Bank and
(y) the Existing Shareholders.
1.3. The Closing. The closing of the transactions contemplated by
-----------
this Agreement (the "Closing"), shall take place commencing at 9:00 a.m. local
time on May 29, 1998, or, if all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby have not be satisfied
or waived by such date, on such mutually agreeable later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations
2
<PAGE>
of the Parties to consummate the transactions contemplated hereby, but in no
event later than June 15, 1998 (the "Closing Date").
1.4. Reclassification. Immediately after the Closing, if BABF so
----------------
requests, City's equity capital structure will be reclassified to consist of two
classes of stock, Common Stock at $1.00 per share ("Common Stock") and 6.00%
Cumulative Non-Convertible Voting Preferred Stock at $100 per share ("Preferred
Stock"). There will be no more than 100,000 shares of Common Stock issued, and
all remaining equity of City will be in the form of Preferred Stock. The
shareholders of City shall then exchange their Common Stock for a pro rata
--- ----
interest in each such class of stock.
ARTICLE II.
PURCHASE
2.1. Purchase Price.
--------------
(a) Following the transactions described in Sections 1.1 and 1.2
hereof, upon the terms and subject to the conditions set forth herein, BABF will
purchase from the Existing Shareholders 80% of the outstanding capital stock of
City for Twenty Million Dollars ($20,000,000) (the "Purchase Price"). The
Purchase Price will be paid by wire transfer of immediately available funds.
(b) The Redemption Price is subject to post-Closing adjustment
pursuant to Section 2.2 below. The Redemption Price will be estimated at
Closing (the "Estimated Redemption Price") by City and BABF based on
certificates provided by the Chief Financial Officer of City regarding Year to
Date Income.
2.2. Post-Closing Redemption Price Adjustment.
----------------------------------------
(a) Determination of Earnings. City will prepare a combined and
-------------------------
consolidated income statement of City and the Companies for the period from
January 1, 1998 through the Closing (the "Closing Income Statement") and will
deliver such Closing Income Statement to BABF as soon as possible after the
Closing. The Closing Income Statement shall be audited by Ernst & Young. The
Closing Income Statement shall be prepared using the same practices, procedures
and methods used in the preparation of the audited combined, consolidated income
statement of the Companies (excluding Friction) dated December 31, 1997 ("1997
Income Statement"), except that the Companies' accounting shall reflect (i)
current accrual of HDA rebates for 1998 purchases through the date of the
Closing, (ii) no accrual of HDA rebates for pre-1998 purchases, (iii) accruals
for bad debt reserves in accordance with United States generally accepted
accounting principles ("GAAP") applied on a basis consistent with past practices
to the extent such practices are GAAP, (iv) inventory on a most recent purchase
price method basis, (v) exclusion of all the revenues and expenses of City
Transportation, L.L.C, and (vi) the inclusion of Friction's earnings up to
$350,000 calculated consistent with past practices
3
<PAGE>
and principles used in the preparation of its financial statements; provided,
however, inter-company transactions between Friction and the other Companies
will not be eliminated.
The following items shall not reduce the earnings as calculated
pursuant to Section 2.2(a): (i) dividends not in excess of $328,884.62 to the
shareholders of Tennessee and (ii) any expenses incurred by either party
(including, without limitation, any legal, accounting and investment bankers'
fees, H-S-R filing fees and any other filing fees and any other miscellaneous
fees or expenses) in connection with the negotiation and consummation of the
transactions contemplated herein.
(b) Closing Income Statement Notice.
-------------------------------
(i) Within 30 days of the receipt of such Closing Income
Statement, BABF will deliver to Larry Clayton a written notice certifying
that either (x) it agrees with such Closing Income Statement, or (y) its
disagrees with such Closing Income Statement, in which case it will also
provide therewith a reasonably detailed written report stating the basis
for disagreement with the Closing Income Statement (the "Closing Income
Statement Notice"). The Companies shall provide reasonable access to their
respective accountants' work papers, personnel and to such historical
financial information as BABF shall reasonably request in order to review
such Closing Income Statement.
(ii) If the Closing Income Statement Notice is not timely given
as described in Section 2.2(b)(i) hereof, the Closing Income Statement
shall be final, binding and conclusive upon the Parties. If BABF disagrees
with the Closing Income Statement Notice as described in Section
2.2(b)(i)(y) hereof, and if the disagreement is not resolved by mutual
agreement among the Parties within 30 days following delivery of the
Closing Income Statement Notice, such dispute will be resolved by a "Big 5"
accounting firm ("BFAF"), other than Ernst & Young, selected by BABF and
Larry Clayton.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute which
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Income
Statement only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 2.2(a) above.
(c) Post-Closing Adjustment. After a final resolution by the BFAF of
-----------------------
such disagreements as may arise out of the review of the Closing Income
Statement in accordance with Section 2.2(b) above, and an appropriate adjustment
to the Closing Income Statement to reflect such resolution, or if Section
2.2(b)(i)(x) hereof or the first sentence of Section 2.2(b)(ii) hereof applies,
the actual Year to Date Income will be determined, and the actual Redemption
Price will be calculated based on such, and to the extent that the Estimated
Redemption Price
4
<PAGE>
was less than the actual Redemption Price, the difference due to the Existing
Shareholders will be paid to them by BABF within ten (10) business days after a
final resolution. Similarly, to the extent the Estimated Redemption Price was
more than the actual Redemption Price, the excess will be returned by the
Existing Shareholders to BABF within ten (10) business days after a final
resolution.
2.3. Section 338(h)(10) Election. At the Closing, the Companies shall
---------------------------
deliver to the BABF such duly executed documents, forms and consents as BABF
shall deem to be reasonable necessary to effect an election pursuant to Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"). BABF
and the Companies further agree that the Purchase Price shall be allocated by
mutual agreement of BABF and the Existing Shareholders pursuant to Schedule 2.3
and consistent with the Treasury Regulations adopted pursuant to Section 338 of
the Code.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE
EXISTING SHAREHOLDERS
The Companies and the Existing Shareholders represent and warrant to
BABF as follows, except as set forth in a disclosure schedule ("Schedule")
attached hereto, incorporated by reference herein and made a part hereof, the
number of each Schedule corresponding to the Section number to which it refers:
3.1. Corporate Organization and Standing. Schedule 3.1 hereto is a
-----------------------------------
complete and correct list setting forth for each of the Companies (i) the name
of each entity, the jurisdiction of its incorporation or other organization, and
each jurisdiction in which it is qualified to do business as a foreign
corporation. Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as presently conducted. Each
of the Companies has delivered to BABF or its representatives complete and
correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Each of the Companies is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now being conducted by it or
the property owned or leased by it makes such qualification necessary.
3.2. Affiliates and Merger Subsidiaries. Schedule 3.2(a) hereto is a
----------------------------------
complete and correct list setting forth for each Affiliate (both on a pre-
Closing and post-Closing basis) (i) the number of shares of authorized capital
stock of each class of its capital stock, and (ii) the number of issued and
outstanding shares of each class of its capital stock, (iii) the names of the
holders thereof, and (iv) the number of shares held by each such holder. All of
the issued and outstanding shares of capital stock of each Affiliate have been
duly authorized and are validly issued, fully paid and non-assessable. City
and/or the Existing Shareholders own (and at the
5
<PAGE>
Closing City will own) of record and beneficially all of the outstanding shares
of capital stock of each Affiliate, free and clear of liens, encumbrances,
restrictions, claims and interests of others of any kind. There are no
preemptive or similar rights on the part of any holder of any class of
securities of any Affiliate, any options, warrants, conversion or other rights,
agreements, commitments of any kind obligating any Affiliate, contingently or
otherwise to issue, sell, or otherwise cause to become outstanding any shares of
its capital stock of any class or any securities convertible into or
exchangeable for any such shares. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, dividend rights or
disposition of any capital stock of any Affiliate or Merger Sub, except as set
forth on Schedule 3.2. City does not control directly or indirectly nor has any
direct or indirect equity participation in any corporation, partnership, trust
or other entity which is not an Affiliate or Merger Sub, except as set forth on
Schedule 3.2. As used herein, the term "capital stock" includes equity
interests in limited liability companies and the term "corporation" shall
include limited liability companies when referring to Alabama LLC.
3.3. Capitalization of City. The authorized capital stock of City
----------------------
consists of 2,000 shares of Common Stock, $1.00 par value per share ("City
Common Stock"). As of the date of this Agreement and at the Closing, 410 shares
and ____ shares of City Common Stock, respectively, are or will be, as
applicable, outstanding, all of which shares have been duly authorized, validly
issued and are fully paid and non-assessable and are owned in the aggregate by
the Existing Shareholders (the "Shares"). Except as contemplated by this
Agreement, there are (i) no preemptive or similar rights on the part of any
holder of any class of securities of City, and (ii) no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
City, contingently or otherwise, to issue, sell or otherwise cause to be
outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
3.4. Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined below), and the transactions contemplated hereby and thereby have been
duly authorized, executed and delivered by each of the Companies and the
Existing Shareholders, and are the legal, valid and binding obligations of each
of the Companies and the Existing Shareholders, enforceable against it, him or
her in accordance with their terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
3.5. Title to Shares. Except as set forth on Schedule 3.5, each
---------------
Existing Shareholder has, and at Closing will have, good and valid title to the
Shares owned by him, free and clear of any claims, liens, security interests,
options, charges, restrictions and interests of others whatsoever. Upon delivery
to BABF at the Closing of certificates representing the Shares owned by each
Existing Shareholder, duly endorsed by such Existing Shareholder for transfer to
BABF, BABF will obtain good and valid title to such Shares, free and clear of
any claims, liens, security interests, options, charges, restrictions and
interests of others whatsoever. Except as set
6
<PAGE>
forth on Schedule 3.5, there are no voting trusts, proxies, or other agreements
or understandings with respect to the voting, dividend right or disposition of
any of the Shares. Except as contemplated by this Agreement and Schedule 3.5, no
Company nor any Existing Shareholder has any obligation, absolute or contingent,
to any other person or entity to issue, sell or otherwise dispose of any capital
stock of City or to effect any merger, consolidation, reorganization or other
business combination of any Company or to enter into any agreement with respect
thereto.
3.6. No Conflict or Violation. Except as set forth on Schedule 3.6,
------------------------
neither the execution and delivery of this Agreement, the Ancillary Agreements
nor the consummation of the transactions contemplated hereby or thereby will (i)
violate, conflict with or result in or constitute a default under or result in
the termination or the acceleration of, or the creation in any party of any
right (whether or not with notice or lapse of time or both) to declare a
default, accelerate, terminate or cancel any indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability ("Contractual
Obligation") to which any Company is a party or by which any of them is bound or
to which any of their assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, (ii) violate, conflict with or result in a
breach of or constitute a default under any provision of the Articles of
Incorporation or Bylaws (or other organizational documents) of any Company,
(iii) violate, conflict with or result in a breach of or constitute a default
under any judgment, order, decree, rule or regulation of any court or
governmental agency to which any Company is subject or, in the case of clause
(i), relates to a Material Contract (as defined below) or (iv) violate, conflict
with or result in a breach of any applicable federal or state rule or
regulation, which violation, conflict or breach would have a Material Adverse
Effect.
3.7. Facilities. Schedule 3.7 contains a complete and accurate list
----------
of all real property used in connection with the businesses of the Companies
("Real Property"), all of which are leased ("Leased Real Property"). The
Companies do not own any Real Property except for leasehold improvements.
(a) Actions. There are no pending or, to the best knowledge of any
-------
Company, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any Real Property used by any Company in
connection with the business of any Company ("Facility"), except as set forth on
Schedule 3.7.
(b) Leases or Other Agreements. There are no leases, subleases,
--------------------------
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person (other than the
Companies) the right to purchase, use or occupy any Facility or any Real
Property or any portion thereof, or interest in any such Facility or Real
Property.
(c) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, the respective Company has an unencumbered interest in its
applicable leasehold estate.
7
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The respective Company enjoys peaceful and undisturbed possession of its
applicable Leased Real Property.
(d) Certificate of Occupancy. To the best knowledge of the
------------------------
Companies, all Facilities have received all required approvals of governmental
authorities (including, without limitation, permits and a certificate of
occupancy or similar certificate permitting lawful occupancy of the Facilities)
required in connection with the operation thereof and are and have been operated
and maintained in accordance with applicable regulations.
(e) Utilities. All Facilities are supplied with all utilities
---------
necessary to the operation of such Facilities (including, without limitation,
water, sewage, disposal, electricity, gas and telephone) as currently operated,
and, to the best knowledge of the Companies, there is no condition which would
reasonably be expected to result in the termination of the present access from
any Facility to such utility services.
(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by any Company at the Facilities are (i) insured to the extent
reflected in Schedule 3.7, (ii) sufficient for the operation of such Company as
presently conducted and (iii) in conformity with all applicable regulations.
(g) No Special Assessment. No Company has received notice of any
---------------------
special assessment relating to any Facility or any portion thereof, and, to the
best knowledge of the Companies, there is no pending or threatened special
assessment.
(h) Rent Schedule. Schedule 3.7(h) sets forth a schedule of the
-------------
annual base rent for each of the properties which is the subject of a New Lease
(as defined below), which will also be the initial annual base rent under the
applicable New Lease, except as noted otherwise on Schedule 3.7(h).
3.8. Financial Statements.
--------------------
(a) The (i) audited consolidated and combined balance sheets of the
Companies (excluding Friction) dated December 31, 1997, 1996 and 1995,
respectively, and (ii) unaudited balance sheets of Friction dated December 31,
1997, 1996 and 1995, respectively (the balance sheets described under Section
3.8(a)(i) and (ii) hereof, dated 1997, 1996 and 1995, the "Balance Sheets," the
"1996 Balance Sheets" and the "1995 Balance Sheets," respectively) were, in the
case of the consolidated and combined balance sheet of the Companies, prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied except as set forth on Schedule 3.8 and were, in the case
of the balance sheets of Friction, prepared in accordance with sound accounting
principles consistently applied in accordance with past practices, and both
fairly present the financial condition of the Companies in all material respects
as of their respective dates, except as set forth on Schedule 3.8(a). The
Companies had no
8
<PAGE>
liabilities of any nature as of such respective dates, whether absolute,
accrued, asserted or unasserted or contingent or whether due or to become due
which should have been recorded or reserved for on the Balance Sheets and were
not so recorded or reserved, except as set forth on Schedule 3.8(a).
(b) The (i) audited consolidated and combined statements of earnings
and retained earnings and statements of cash flows of the Companies (excluding
Friction) for the fiscal years ended December 31, 1997, 1996 and 1995,
respectively, (ii) the unaudited consolidated and combined income statements of
the Companies for the three-month period ended March 31, 1998, and (iii)
statements of earnings and retained earnings of Friction for the fiscal years
ended December 31, 1997, 1996 and 1995, respectively, were, in the case of the
consolidated and combined statements of earnings and retained earnings and
statements of cash flows of the Companies, prepared in accordance with GAAP
consistently applied (except as set forth on Schedule 3.8 and except for the
absence of footnotes, and subject to customary year-end adjustments, in the
unaudited statement), and were, in the case of the statements of earnings and
retained earnings for Friction, prepared in accordance with sound accounting
principles applied consistently with past practices, and both fairly present the
results of operations, changes in shareholder's equity and, where applicable,
the cash flows of the Companies in all material respects for each such period,
except as set forth on Schedule 3.8(a).
(c) Prior to the Closing, the Existing Shareholders shall remove the
airplane and the related debt in connection with City Transportation L.L.C. (or
in the Existing Shareholders' discretion, distribute the membership interests of
City Transportation, L.L.C.) from the financial statements of the Companies at
no impact to the Companies (other than the removal of the assets of City
Transportation, L.L.C. from the Companies' financial statements) and with any
tax effects being in periods prior to the Closing. Prior to the Closing, the
Existing Shareholders shall cause the Companies to contribute the life insurance
on Lane Clayton and the truck utilized by Lane Clayton to City Transportation,
L.L.C. and remove such items from the financial statements of the Companies at
no impact to the Companies (other than the removal of such assets from the
Companies' financial statements). In addition, prior to Closing, the Existing
Shareholders shall cause the Companies to remove the assets set forth on
Schedule 3.7.
(d) Copies of the financial statements described in Sections 3.8(a)
and (b) hereof have been provided to BABF or its representatives.
(e) The personal items set forth on Schedule 3.8(e) are personally
owned by the Existing Shareholders regardless of whether such items are removed
prior to the Closing.
3.9. Books and Records. Each of the Companies has made and kept (and
-----------------
given BABF and its representatives access to books and records and accounts,
which, in reasonable detail, accurately and fairly reflect all material
activities of each of the Companies. The minute books of each of the Companies
accurately and adequately reflect all material action taken by the shareholders,
board of directors (or
9
<PAGE>
members) and committees of the board of directors (or members) of each of the
Companies. The copies of the stock/membership book records of each of the
Companies are true, correct and complete, and accurately reflect all
transactions effected in each Company's stock or membership interests through
and including the date hereof. None of the Companies have engaged in any
material transaction, maintained any bank account or used any material amount of
corporate funds except for the transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of each of
the Companies.
3.10. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of the Companies, after a search
of the information contained in their files relating to pending litigation,
threatened against any of the Companies or the directors, officers, agents or
employees of any of the Companies (in their capacity as such), or any properties
or rights of any of the Companies, except as set forth on Schedule 3.10. There
are no orders, writs, injunctions or decrees currently in force against any of
the Companies or the directors, officers, agents or employees of any of the
Companies (in their capacity as such) with respect to the conduct of any
Company's business.
3.11. Licenses and Permits; Compliance with Laws. Each of the
------------------------------------------
Companies owns, holds or possesses all licenses and permits necessary to entitle
it to use its corporate name, to own or lease, operate and use its assets and
properties and to carry on and conduct its business and operations as presently
conducted (the "Licenses and Permits"). No Company is in violation of or default
under any Licenses or Permits or any judgment, order, writ, injunction or decree
of any court or administrative agency issued against it or any law, ordinance,
rule or regulation applicable to it, except for such violations or defaults
which would not singly or in the aggregate have a Material Adverse Effect. Each
Company's conduct of its business has been and is in compliance with all
applicable laws, statutes, ordinances and regulations, the violation of which
would not singly or in the aggregate have a Material Adverse Effect. No Company
has received any notice asserting a failure to comply with any law, statute,
ordinance, regulation, rule or order of any foreign, federal, state or local
government or any other governmental department or agency.
3.12. Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, capital stock,
franchise, profits, withholding, social security, unemployment, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, (ii) "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof, (iii) "Income Tax" means any
federal, state, local or foreign tax calculated or assessed with respect to
income, including any interest, penalty or addition thereto, whether disputed or
not, and (iv)
10
<PAGE>
"Income Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Income Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
(b) Each Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file, taking into account any applicable
extensions of time with which to file any such Tax Returns. All such Tax
Returns were correct and complete in all material respects. All Taxes owed by
each Company (whether or not shown on any Tax Return) have been paid. No
Company currently is the beneficiary of any extension of time within which to
file any Tax Return except as set forth on Schedule 3.12. No claim has ever
been made by an authority in a jurisdiction where any Company does not file Tax
Returns that such Company is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of any Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) Each Company has withheld and paid all material Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability of any
Company either (i) claimed or raised by any authority in writing or (ii) of
which any Existing Shareholder or any Company has knowledge. To the knowledge
of each Company and each Existing Shareholder, no audit or examination of any
Tax Return is currently in progress, and no Company has received notice of any
proposed audit or examination. Each Company has furnished to BABF or its
representatives correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by any Company with respect to years ended on December 31, 1993 to December
31, 1997. No Company has waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) No Company has filed a consent under Section 341(f) of the Code
concerning collapsible corporations (or any comparable state income tax
provision). No Corporation has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. No Company is a party to any Tax allocation, sharing or indemnity
agreement. No Company (i) has been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return or (ii) has any
liability for the Taxes of any person under Reg. Sec. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise. Schedule 3.12 hereto sets forth all material elections
(e.g., accelerated depreciation, Sec. 263(a) regarding the allocation of
overhead to inventory, and LIFO election for inventory accounting) in effect as
of the date hereof with respect to Taxes affecting any Company.
11
<PAGE>
(f) The unpaid Taxes of each Company did not exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
most recent Balance Sheets, except as set forth on Schedule 3.12. Each Company
has made provision, in conformity with GAAP consistently applied, on the Balance
Sheets and the interim financial statements for the payment of all Taxes which
may subsequently become due with respect to all periods up to and including the
respective dates of such statements, except as set forth on Schedule 3.12.
(g) City, Tennessee, Alabama and Friction (each an "S Corp," and
collectively, the "S Corps") have each been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code (and, except in the
case of Tennessee, any analogous provisions of state and local law) at all times
since the respective dates reflected on Schedule 3.12, and each S Corp will be
an S corporation up to and including the Closing Date except as set forth on
Schedule 3.12 (assuming the forward triangular merger does not destroy,
invalidate or cancel the S election). No Income Taxes will be payable by the S
Corps with respect to the taxable year beginning on January 1, 1998 and ending
on the day immediately preceding the Closing Date other than such Taxes
attributable to the consummation of the transactions contemplated by this
Agreement, except as set forth on Schedule 3.12 (assuming the forward triangular
merger does not destroy, invalidate or cancel the S election).
(h) No Company will be liable for any Tax under Section 1374 of the
Code in connection with the deemed sale of assets caused by an election under
Section 338(h)(10) of the Code other than Friction. No Company has, in the past
ten (10) years, (i) acquired assets from another corporation in a transaction in
which the Company's Tax basis for the acquired assets was determined, in whole
or in part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor or (ii) acquired the stock of any
corporation which is a qualified subchapter S subsidiary, except as set forth on
Schedule 3.12.
3.13. Brokers, Finders. Except as set forth on Schedule 3.13, no
----------------
Company nor any Existing Shareholder has retained any broker or finder in
connection with the transactions contemplated herein, and is not obligated and
has not agreed to pay any brokerage or finder's commission, fee or similar
compensation.
3.14. Absence of Certain Changes.
--------------------------
(a) Except as otherwise contemplated by this Agreement, since
December 31, 1997, each Company has conducted its business in the ordinary
course, has not done or permitted to be done anything described in Sections
5.6(a) through (r) hereof, and there has not occurred with respect to any
Company:
(i) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Companies,
taken as a whole (excluding
12
<PAGE>
effects or changes resulting from consequential general industry wide
changes in the national or international economy) ("Material Adverse
Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business consistent with
past practices;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure (other than in the ordinary course
of business consistent with past practice), the execution of any lease or
the incurring of any obligation to make any capital expenditure (other than
in the ordinary course of business consistent with past practice) or
execute any lease;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect, or (ii)
except where there is a bona fide dispute as to the nature or amount of
such liability and adequate reserves in accordance with GAAP are reflected
in the applicable financial statements;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind, except in the
ordinary course of business;
(viii) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any third party of any
Proprietary Rights not theretofore a matter of public knowledge;
(ix) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets for any amount to a Company, other than (i) in the ordinary
course of business consistent with past practices, (ii) pursuant to Section
3.8(c) hereof, or (iii) the cancellation of certain real property leases
between the Companies on one hand and Larry Clayton, C&J Properties or D&D
Properties, Inc. on the other hand, which will be replaced by new real
property leases between such parties to be executed at Closing,
substantially in the forms of Exhibits A1 and A2 attached hereto (the "New
Leases");
13
<PAGE>
(x) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or Permit which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(xi) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than bonuses
and increases in base compensation to non-executive employees in the
ordinary course consistent in timing and amount or method with past
practices), or entry into or variation of the terms of any employment or
incentive agreement with any such person;
(xii) a material adverse change in employee relations which has
or is reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of a Company and the management of such Company;
(xiii) any change in any method of accounting or keeping books
of account or accounting practices;
(xiv) any damage, destruction or loss of any asset, whether or
not covered by insurance, which has had or would have a Material Adverse
Effect.
(xv) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings
under its revolving credit facility in the ordinary course of business);
(xvi) the declaration, payment or setting aside for payment any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
City Stock, or the creation of any securities convertible into or
exchangeable for any shares of City Stock or any options, warrants or other
rights to purchase or subscribe to any of the foregoing, other than for (i)
distributions in an amount not to exceed Seventy-Five Thousand Dollars
($75,000) made to the shareholders of Friction representing the
undistributed balance of 1997 taxable income, (ii) distributions made to
the Existing Shareholders of 1998 earnings, (iii) in March of 1998,
contributions in the amount of $127,400.00 to the capital of City
Transportation L.L.C. in accordance with prior practices, (iv) as of
December 31, 1997, advances of $120,330.27 to Delton Clayton and
$137,804.35 to Deidra O'Neal, (v) in January, 1998, for purposes of paying
1997 taxes, a distribution to Larry Clayton of $416,200.00 and advances of
$34,070.00 and $36,680.00 to Delton Clayton and Deidra O'Neal,
respectively, and (vi) as otherwise specifically contemplated herein;
14
<PAGE>
(xvii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xviii) the existence of any other event or condition which, in
any one case or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect; or
(xix) an agreement to do any of the things described in the
preceding clauses (i) - (xviii) other than as expressly provided for
herein, except as set forth on Schedule 3.14.
3.15. Material Contracts. Schedule 3.15 sets forth a complete and
------------------
correct list of all the Material Contracts to which any Company, or in the case
of Section 3.15(g) hereof, any Existing Shareholder, is a party. As used in this
Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which any Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of any Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000, other than the New Leases;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to any Company in a principal amount (or
with maximum availability) in excess of $15,000;
(f) all contracts and agreements to which any Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors, sales
agents or dealers of such Company other than purchase orders made by any
customer of the Companies in the ordinary course of business and contracts which
by their terms are cancelable by such Company with notice of not more than 30
days and without cancellation penalties or severance payments, in the case of
any such contract, in excess of $5,000, (ii) collective bargaining agreements of
any Company which relate to the business of such Company, and (iii) pension,
profit-sharing, bonus, retirement, stock option or employee benefit plans or
other similar plans or arrangements of any Company;
15
<PAGE>
(g) any covenant not to compete or similar restriction on any Company
or any Existing Shareholder;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement (other than purchase orders for the
sale or purchase of inventory and equipment in the ordinary course of business)
providing for the receipt or payment (whether the obligations are fixed or
contingent) of $5,000 or more after the date of this Agreement, including,
without limitation, agreements calling for penalties or payments upon voluntary
termination or withdrawal by any Company.
The Companies have furnished or will furnish to BABF or its representatives true
and correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.16. Proprietary Rights.
------------------
(a) Schedule 3.16 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for each of
the Companies. Schedule 3.16 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.16 are
all those used by the Companies in connection with their respective businesses.
None of the Companies own, control or otherwise have any interest in any patents
or pending patent applications.
(b) No Company has entered into an agreement to compensate any person
for the use of any such Proprietary Rights nor has any Company granted to any
person any license, option or other rights to use in any manner any of its
Proprietary Rights, whether requiring the payment of royalties or not.
(c) To the best knowledge of the Companies, the Companies
individually or collectively own or have a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of any Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. No Company has received any notice of
invalidity or infringement of any rights of others with respect to such
trademarks. No other person (i) to the best knowledge of any Company after a
search of its files relating to intellectual property (excluding any search of
records generally available to the public), has the right to use
16
<PAGE>
any trademarks of any of the Companies on the goods on which they are now being
used either in identical form or in such near resemblance thereto as to be
likely, when applied to the goods of any such person, to cause confusion with
such trademarks or to cause a mistake or to deceive, (ii) has notified any
Company that it is claiming any ownership of or right to use such Proprietary
Rights, or (iii) to the best knowledge of any Company, is infringing upon any
such Proprietary Rights in any way. To the best knowledge of any Company after a
search its files relating to intellectual property (excluding any search of
records generally available to the public), no Company's use of any Proprietary
Rights does not and will not conflict with, infringe upon or otherwise violate
the valid rights of any third party in or to such Proprietary Rights, and no
Action has been instituted against or notices received by any Company that are
presently outstanding, alleging that a Company's use of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights.
3.17. Labor Matters. No Company is a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. No Company has
experienced any attempt by organized labor or its representatives to make it
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of such
Company. There is no labor strike or labor disturbance pending or, to the best
knowledge of any Company, threatened against a Company, nor is any grievance
currently being asserted, and no Company has experienced a work stoppage or
other labor difficulty, and is not and has not engaged in any unfair labor
practice. Without limiting the foregoing, to the best knowledge of the
Companies, the Companies are in compliance with the Immigration Reform and
Control Act of 1986. The Companies maintain a current Form I-9, as required by
such Act, in the personnel file of each employee hired after November 9, 1986.
3.18. Consents. Except as set forth on Schedule 3.18 and except for
--------
the filing required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "H-S-R Act"), no consent, approval, authorization, order,
filing, registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by any
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Companies and the Existing
Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.19. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.19 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of any Company and that
are not Plans (as defined below) (collectively, the "Employment Contracts"),
(ii) all "employee welfare benefit plans" or "employee pension benefit plans,"
as such terms are defined in Sections 3(1) and 3(2),
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<PAGE>
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which are maintained, administered or contributed to by the Companies
and cover employees or former employees of the Companies or under which any
Company could incur any liability (collectively, the "Plans"). The Companies
have furnished to BABF or its representatives, true and correct copies of
instruments evidencing all such Employment Contracts and the Plans, all as
amended to date.
(b) None of the Plans is a "multiemployer plan" as such term is
defined in Section 3(37) or Section 4001(1)(a)(3) of ERISA. In the past six
years, no Company has maintained, sponsored, or been required to contribute to,
has withdrawn from (either completely or partially), or has incurred any unpaid
withdrawal liability (as defined in Section 4201, 4063 or 4064 of ERISA) with
respect to, any "multiemployer plan," as such term is defined in Section 3(37)
or Section 4001(1)(a)(3) of ERISA.
(c) The Plans have been administered in compliance with their terms
and with all filings, reporting, disclosure, and other requirements of ERISA,
the Code and any other applicable law. Each Plan (together with its related
funding instrument) which is an "employee pension benefit plan," as such term is
defined in Section 3(2) of ERISA (such Plans, the "Pension Plans"), and which is
intended to be qualified under the Code, is qualified under Section 401 of the
Code and the regulations issued thereunder, and each such Plan and its related
funding instrument have been the subject of a favorable determination letter
issued by the Internal Revenue Service holding that such Plan and funding
instrument are currently and at all times have been so qualified except as
otherwise reflected on Schedule 3.19.
(d) None of the Companies nor any of their respective employees or
directors, nor, to the knowledge of each Company, any plan fiduciary of any of
the Plans, have engaged in any transaction in violation of Section 406(a) or (b)
of ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which no exemption exists under Section 4975(d) of the Code, and,
to the knowledge of any Company, no "reportable event" (as defined in Section
4043 of ERISA and the regulations promulgated thereunder), other than such as
may arise out of the consummation of the transactions contemplated by this
Agreement, has occurred in connection with any Plan.
(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims") and to the best knowledge of any Company, no such Claims are
threatened against any Plan or fiduciary of any such Plan by any participant,
beneficiary or governmental agency with respect to the qualification or
administration of any such Plan.
(f) The Companies have provided to BABF or its representatives a copy
of the Plans, related trust agreements, all amendments thereto together with the
annual reports required to be filed during the last three years (Form 5500,
including Schedule B thereto). The
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Companies have provided BABF or its representatives with true and complete age,
service and related data for employees covered under each Pension Plan as of
December 31, 1997.
(g) None of the Plans is subject to minimum funding requirements of
ERISA or Section 412 of the Code. No Company has, in the past six years,
maintained, sponsored, contributed to or been obligated to contribute to any
"employee pension benefit plan," as such term is defined in Section 3(2) of
ERISA which is, or at any time in the past six years was, subject to the minimum
funding requirements of ERISA or Section 412 of the Code.
(h) The Companies and the entities required to be aggregated with it
under Sections 414(b), (c), (m) and (o) of the Code (the "Company ERISA
Affiliates") have not incurred any liability to the PBGC or any Pension Plan
under Title IV of ERISA that could become a liability of BABF or any Company
ERISA Affiliate. Neither BABF nor any Company ERISA Affiliate will incur any
liability under Section 411(d)(3) of the Code for vested accrued benefits
arising from a partial termination of any Pension Plan prior to the Closing
Date.
(i) All amounts required to be contributed to any Pension Plan by any
Company will, as of the Closing Date, have been paid or properly accrued on the
books of each of the Companies. Any amounts required to be accrued as expenses
in accordance with applicable pension accounting requirements through the
Closing Date have been or will be properly recorded on the books of each of the
Companies as of the Closing Date. The Companies shall either contribute or
accrue on their respective books the amount of any employer matching
contributions or discretionary contributions (in an amount determined in
accordance with each Company's past practices) to any Pension Plan which in the
ordinary course of business would be contributed for or attributable to the
period for the calendar quarter prior to the Closing Date.
(j) To the best knowledge of any Company, no condition exists and no
event has occurred which has caused or would give rise to a partial termination
of any Pension Plan.
(k) None of the assets of the Pension Plans are invested in property
constituting employer real property or employer security (within the meaning of
Section 407(d) of ERISA).
(l) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of any
Company.
19
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(m) Except as set forth on Schedule 3.19, no Company or any Plan
which is a "welfare benefit plan," as such term is defined in Section 3(1) of
ERISA has any present or future obligation to provide medical or other welfare
benefits to, or to make any payment to or with respect to medical or other
welfare benefits of, any present or former employee of any Company or any ERISA
Subsidiary.
(n) No Company ERISA Affiliate has incurred any liability with
respect to which any Company has incurred or could incur any liability.
3.20. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.20, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference.
(i) "Company" for the purposes of this Section, shall mean (i)
the Companies, (ii) all partnerships, joint ventures and other entities or
organizations in which any Company was at any time or is a partner, joint
venturer, member or participant and (iii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by any Company or to which any Company has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge
or other release or threatened release of, Hazardous Substances (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater,
20
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drinking water, air, wildlife, plants or other natural resources, or the
health and safety of persons or property, including without limitation
protection of the health and safety of employees. Environmental Laws shall
include, without limitation, the Federal Insecticide, Fungicide,
Rodenticide Act, Resource Conservation & Recovery Act, Clean Water Act,
Safe Drinking Water Act, Atomic Energy Act, Occupational Safety and Health
Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response, Compensation and Liability Act, Emergency Planning
and Community Right-to-Know Act, Hazardous Materials Transportation Act and
all analogous or related federal, state or local law, each as amended.
(v) "Environmental Conditions" means the Release of a
Hazardous Substance (whether or not upon any Facility or former Facility or
other property and whether or not the Release constituted at the time
thereof a violation of any Environmental Law as a result of which any
Company has or may become liable to any person or by reason of which any
Facility or any of the assets of any Company may suffer or be subjected to
any lien.
(b) Notice of Violation. No Company has received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
No Company has received notice of any other claim, demand or Action by any
individual or entity alleging any actual or threatened injury or damage to any
person, property, natural resource or the environment arising from or relating
to any Release or threatened Release of any Hazardous Substances at, on, under,
in, to or from any Facilities or former Facilities, or in connection with any
operations or activities of any Company.
(c) Environmental Conditions. To the knowledge of each Company,
------------------------
there are no present or past Environmental Conditions at any Facility or former
Facility, except as disclosed in any report described on Schedule 3.20.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of any Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by a Company or
any attorney, environmental consultant or engineer engaged for such purpose,
have been delivered to BABF or its representatives and a list of all such
reports, audits and assessments and any other similar report, audit or
assessment of which any Company has knowledge is included in Schedule 3.20
hereto.
21
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(e) Indemnification Agreements. To the knowledge of each Company
--------------------------
after a review of its lease and acquisition files, no Company is a party,
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any lease or other contract (excluding
insurance policies disclosed on the Schedule) under which any Company is
obligated by or entitled to the benefits of, directly or indirectly, any
representation, warranty, indemnification, covenant, restriction or other
undertaking concerning Environmental Conditions, except as set forth on Schedule
3.20.
(f) Releases or Waivers. To the knowledge of each Company after a
-------------------
review of its lease and acquisition files, no Company has released any other
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. To the knowledge of each Company,
-----------------------------
each of the Companies has given all notices and warnings, made all reports, and
has kept and maintained all records required by and in compliance with all
Environmental Laws.
3.21. Certain Business Relationships with the Companies. Except as
-------------------------------------------------
set forth on Schedule 3.21, none of the Existing Shareholders owning more than
5% of its outstanding voting securities have been involved in any business
arrangement or relationship with any Company within the past 12 months, and none
of such Existing Shareholders own any assets, tangible or intangible, which are
used in the business of any Company.
3.22. Undisclosed Liabilities. To the best knowledge of any Company
-----------------------
after a search of its files relating to pending litigation and outstanding debt
for borrowed money, no Company has any liabilities or obligations, whether
accrued, absolute, contingent or otherwise except (i) to the extent reflected or
reserved for on the Balance Sheets, (ii) liabilities or obligations incurred in
the normal and ordinary course of business of each of the Companies since
December 31, 1997, (iii) liabilities or obligations disclosed in Schedule 3.22
and in the other Schedules attached hereto, or (iv) liabilities or obligations
disclosed elsewhere in this Agreement.
3.23. Insurance. Schedule 3.23 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage maintained by each of
the Companies on its respective (i) businesses, (ii) assets or (iii) employees
as presently maintained and a list prepared by the Company's insurance broker of
all such policies or binders for all times since December 31, 1987. All
insurance coverage applicable to each of the Companies or its respective
businesses or assets is in full force and effect provides coverage as may be
required by applicable law and by any and all contracts to which any Company is
a party. There is no default under any such coverage nor has there been any
failure to give notice or present any claim under any such coverage in a due and
timely fashion. There are no outstanding unpaid premiums except in the ordinary
course of business
22
<PAGE>
and no notice of cancellation or nonrenewal of any such coverage has been
received. There are no outstanding performance bonds covering or issued for the
benefit of any Company. No insurer has advised any Company that it intends to
reduce coverage, increase premiums or fail to renew existing policy or binder.
3.24. Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheets, and all accounts receivable arising since the date of the
Balance Sheets, represent bona fide claims of the Companies against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. To the Companies' knowledge, said accounts
receivable are subject to no defenses, counterclaims or rights of setoff other
than those that have arisen in the ordinary course of business consistent with
past experiences which in the aggregate would not have a Material Adverse
Effect. The reserves for bad debts on accounts receivable as set forth on the
Balance Sheets have been established by estimates of the Company made in the
exercise of its business judgment consistent with past practices and in
accordance with GAAP.
3.25. Inventory. Schedule 3.25 contains a complete and accurate list
---------
of all inventory set forth on the Balance Sheets and the addresses at which such
inventory is located. The Companies have good title to, and unrestricted
possession of, all inventory set forth on the Balance Sheets, free and clear of
all liens, mortgage, pledges, encumbrances, and security interests except as set
forth on Schedule 3.25. The inventory as set forth on the Balance Sheets or
arising since the date of the Balance Sheets was acquired and has been
maintained in the ordinary course of business of the Companies consistent with
past practices, and is valued at amounts based on the normal valuation policy of
the Companies.
3.26. Payments. No Company has, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of any Company, which
is, or may be with the passage of time or discovery, illegal under any federal,
state or local laws of the United States (including, without limitation, the
U.S. Foreign Corrupt Practices' Act) or any other country having jurisdiction.
No Company has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers.
3.27. Customers, Distributors and Suppliers. Schedule 3.27 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of each Company's (i)
ten largest (in terms of dollar volume) customers, distributors and other agents
and representatives during each Company's last fiscal year, showing the
approximate total sales in dollars by such Company to such customer during such
fiscal year; and (ii) suppliers during each Company's last fiscal year, showing
the approximate total purchases in dollars by each Company from such supplier
during such fiscal year. Since the date of the Balance Sheets, no Company has
received any written
23
<PAGE>
communication regarding any adverse change in the business relationship of such
Company with any customer, distributor or supplier named on Schedule 3.27. No
Company has received any written communication from any customer, distributor or
supplier named on Schedule 3.27 regarding any intention, and no Company has any
reason to anticipate that any customer, distributor or supplier intends, to
terminate or materially reduce purchases from or supplies to such Company.
3.28. Banking Relationships. Schedule 3.28 sets forth a complete and
---------------------
accurate description of all arrangements that each Company has with any banks,
savings and loan associations or other financial institutions providing for
checking accounts, safe deposit boxes, borrowing arrangements, and certificates
of deposit or otherwise, indicating in each case account numbers, if applicable,
and the person or persons authorized to act or sign on behalf of each Company in
respect of any of the foregoing.
3.29. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Companies or the Existing Shareholders in this Agreement,
including, without limitation, the Exhibits and Schedules, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact necessary to make the statements or facts contained herein not
misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BABF
BABF represents and warrants to the Companies and the Existing Shareholders
as follows:
4.1. Organization and Standing. BABF City Corp. is a corporation duly
-------------------------
incorporated, organized, and validly existing under the laws of the State of
Delaware and has all requisite corporate power and authority to execute and
deliver this Agreement, the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized, executed
-------------
and delivered by BABF, and is its valid and binding obligation, enforceable
against it in accordance with its terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
4.3. No Conflict. Neither the execution and delivery of this
-----------
Agreement, the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, will (i) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which BABF is a party or by which it is bound or to
which any of its assets is subject, (ii) conflict with or result in a breach of
or constitute a default under
24
<PAGE>
any provision of its Certificate of Incorporation or Bylaws (or other charter
documents), or a default under or violation of any material restriction, lien,
encumbrance or any contract to BABF is a party or by which it is bound or to
which any of its assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, (iii) violate or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which BABF is subject, or (iv) violate,
conflict with or result in a breach of any applicable federal or state rule or
regulation.
4.4. Litigation. There are no actions, suits, proceedings or
----------
investigations pending, or to BABF's best knowledge after a review of its files
related to litigation, threatened which question the validity of this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated herein.
4.5. Brokers, Finders. BABF has not retained any broker or finder,
----------------
nor is obligated or has agreed to pay any brokerage or finder's commission, fee
or similar compensation, in connection with the transactions contemplated
herein, other than pursuant to the Corporate Development and Administrative
Services Agreement to be entered into at Closing between City and Brentwood
Private Equity LLC.
4.6. Approvals, Etc. All consents, approvals, authorizations and
--------------
orders (corporate, governmental or otherwise) necessary for the due
authorization, execution and delivery by BABF of this Agreement, the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been obtained.
4.7. Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by BABF in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements of facts contained herein not misleading.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Companies, the Existing Shareholders and BABF each covenant with
the others as follows:
5.1. Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, both before and after the Closing, (i) to
use all reasonable good faith efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement or
the Ancillary Agreements, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder, and (iii) to cooperate with
each other in
25
<PAGE>
connection with the foregoing. Without limiting the foregoing, the parties
agree to use their respective good faith reasonable efforts (A) to obtain all
necessary waivers, consents and approvals from other parties (including, without
limitation, governmental entities) to the consummation of the transactions
contemplated by this Agreement, except that no Parties shall be required to
engage in litigation or to incur any material costs with respect thereto (other
than payment of the H-S-R filing fee by BABF; (B) to obtain all necessary
Permits as are required to be obtained under any regulations; (C) to defend all
Actions challenging this Agreement or the consummation of the transactions
contemplated hereby; (D) to lift or rescind any injunction or restraining order
or other court order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; (E) to give all notices to, and
make all registrations and filings with third parties, including, without
limitation, submissions of information requested by governmental authorities;
and (F) to fulfill all conditions to this Agreement. If not previously done,
within five (5) calendar days after the execution and delivery of this
Agreement, the Parties shall make all filings required under the H-S-R Act.
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) The Confidentiality Agreement, dated February 26, 1998, by and
between Brentwood Private Equity LLC and City, shall continue in effect until
the Closing. From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of the Companies, or of any shares of capital stock of any Company, or
any merger, consolidation, liquidation, dissolution or similar transaction
involving any Company (each such transaction being referred to herein as a
"Proposed Acquisition Transaction") other than with (i) another Party hereto and
their representatives or (ii) employees of the Companies regarding such
employees' possible investments in City. No Company shall, directly or
indirectly, through any officer, director, employee, representative, agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or entity
relating to any Proposed Acquisition Transaction. Each of the Companies
represents that it is not now engaged in discussions or negotiations with any
party other than BABF with respect to any of the foregoing.
(b) Notification. Each of the Companies will immediately notify BABF
------------
if any discussions or negotiations are sought to be initiated, any inquiry or
proposal is made, or any information is requested with respect to any Proposed
Acquisition Transaction and notify BABF of the terms of any proposal which it
may receive in respect of any such Proposed Acquisition Transaction, including,
without limitation, the identity of the prospective purchaser or soliciting
party.
26
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5.3. Disclosures.
-----------
(a) Prior to the Closing, none of the Parties shall disclose the
details nor the status of the transactions contemplated by this Agreement except
(i) as required by law, (ii) to Jim Stone and his representatives or (iii)
certain vendors of the Companies.
(b) Prior to the Closing, the Parties shall agree on the terms of any
press releases or other public announcements related to this Agreement and shall
consult with each other before issuing any press releases or other public
announcements related to this Agreement; provided, however, that any party may
make a public disclosure if in the opinion of such party's counsel it is
required by law to make such disclosure. The parties agree, to the extent
practicable, to consult with each other regarding any such required public
announcement in advance thereof.
5.4. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, each of the Companies shall give prompt notice to BABF of (a) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement or
in any exhibit or Schedule hereto to be untrue or inaccurate in any material
respect and (b) any material failure of any Company, or of any of their
respective shareholders or representatives, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or any exhibit or Schedule hereto; provided, however, that such
-------- -------
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition. Each of the Companies shall
promptly notify BABF of any default, the threat or commencement of any Action,
or any development that occurs before the Closing that could in any way
materially affect any Company, its assets or its business.
5.5. Investigation by BABF and Its Representatives.
---------------------------------------------
(a) The Companies shall, and shall cause its officers, directors,
employees and agents, to afford BABF and its representatives complete access at
all reasonable times and upon reasonable notice to each Company's Facilities,
officers, employees, agents, attorneys, accountants, properties, books and
records, and contracts, and shall furnish BABF and its representatives, all
financial, operating and other data and information as BABF through its
respective representatives, may reasonably request, including an unaudited
consolidated balance sheets and the related statements of earnings and retained
earnings and cash flow for each month from the date hereof through the Closing
Date within 15 calendar days after the end of each month, which financial
statements shall be in accordance with the books and records of each of the
Companies and be prepared in accordance with accounting principles and
procedures historically used in preparing interim statements, all of which will
be unaudited without footnotes and subject to normal year-end adjustments.
(b) BABF shall have the right to conduct due diligence of the Leased
Real Property, to confirm that all such Leased Real Property are in compliance
with environmental
27
<PAGE>
and zoning laws and the Americans with Disabilities Act of 1990. BABF agrees to
order Phase I site assessment reports and, if necessary, Phase II site
assessment reports for the Leased Real Property. BABF shall initially bear the
costs of the due diligence which it incurs, but if the Closing occurs, City
shall bear (and reimburse BABF for) all such costs of the due diligence;
provided, however, that the Existing Shareholders shall be liable up to $50,000
- -------- -------
for any environmental remediation recommended in the site assessment reports of
any Leased Real Property. If remediation costs exceed $50,000, the Parties will
negotiate in good faith regarding such excess, but no Party will have any
liability for failure to reach an agreement on this point.
5.6. Conduct of Business. From the date hereof through the Closing,
-------------------
the Companies shall, except as contemplated by this Agreement, or as consented
to by BABF in writing, operate their respective businesses in the ordinary
course of business and in accordance with past practice and will not take any
action inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, no Company shall, except as
specifically contemplated by this Agreement or as consented to by BABF in
writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
contract or lease, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and, without limiting the generality of the
foregoing, each Company will produce, maintain and sell inventory consistent
with its past practices;
(d) incur any liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of each of the Companies in effect on the date hereof that are
described on the Schedules) or with respect to any increase of benefits
payable under its severance or termination pay policies or agreements in
effect on the date hereof or increase in any manner the compensation or
fringe benefits of any employee or pay any benefit not required by any
existing Employee Plan or policy, except that the Companies may pay
aggregate bonuses of up to $400,000 to four employees identified by Larry
Clayton prior to the date hereof;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers or the
termination of existing officers ;
28
<PAGE>
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
any employee, except for any such amendment as may be required to comply
with applicable Regulations; or
(iv) fail to maintain all Employee Plans in accordance with
applicable Regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock except for (i) distributions in an
amount not to exceed $75,000 made to the shareholders of Friction representing
the undistributed balance of 1997 taxable income, (ii) distributions to Existing
Shareholders immediately prior to Closing as set forth in Section 1.2 hereof,
and (iii) distributions or advances made to Existing Shareholders not in excess
of Year to Date Income plus $10,000,000 pursuant to Section 5.6(e)(i) hereof;
----
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(j) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business; or
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, worn-out or obsolete or destroyed assets;
(l) make any loans or advances to any partnership, firm or
corporation, or, except for expenses incurred in the ordinary course of
business, any individual;
(m) make any income tax election or settlement or compromise with tax
authorities without providing BABF with written notice of such election,
settlement or compromise;
(n) fail to comply with all regulations applicable to it, its assets
and its business, the violation of which would singly or in the aggregate have a
Material Adverse Effect;
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(o) intentionally do any other act which would cause any
representation or warranty of any Company in this Agreement to be or become
untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its good faith reasonable efforts consistent with
past practices to (i) retain its employees and (ii) maintain the its business so
that such employees will remain available to it on and after the Closing Date,
(iii) maintain existing relationships with suppliers, customers and others
having business dealings with it and (iv) otherwise preserve the goodwill of its
business so that such relationships and goodwill will be preserved on and after
the Closing Date;
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Tax Matters.
-----------
(a) Each S Corp shall timely prepare and file, or cause to be
prepared and filed, Internal Revenue Service Form 1120S (and any analogous state
or local Tax Returns) in accordance with Section 1362(e) of the Code and each
limited liability company shall prepare and file, or cause to be prepared and
filed Internal Revenue Service Form 1065 (and any analogous state or local
Income Tax Returns), for the period January 1, 1997 through the day immediately
preceding the Closing Date (the "S Short Year") and Internal Revenue Service
Schedules K-1 for the S Short Year. As used herein, all reference to Income Tax
Returns shall include the Internal Revenue Service Form 1065 and any analogous
state or local Income Tax Returns applicable to limited liability companies.
Each S Corp shall deliver such Income Tax Returns to BABF or its representatives
and allow BABF the opportunity to comment upon such returns prior to the filing
thereof. The Existing Shareholders shall timely pay, or cause to be paid, when
due (i) all Income Taxes relating to the periods covered by such Income Tax
Returns and (ii) any other Income Taxes relating to periods ending on or before
the Closing Date and not accrued on the Balance Sheets. Nothing herein shall be
construed to limit the rights of City or BABF under the provisions of Section
8.1 with respect to any breach of the representations and warranties contained
in Section 3.12.
(b) Except as provided in Section 5.7(a) and subject to Section
5.7(c) hereof, City shall prepare or complete, or cause to be prepared or
completed, and timely file, or cause to be timely filed, all Tax Returns of each
Company required to be filed that relate to a taxable period that ends on or
prior to or includes the Closing Date to the extent such Tax Returns have not
been filed prior to the Closing Date, and shall timely pay, or cause to be
timely paid, when due, all Taxes relating to such Tax Returns in accordance with
all applicable laws and regulations. Nothing herein shall be construed to limit
the rights of City and BABF under Section 8.1 hereof with respect to any breach
of the representations and warranties contained in
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Section 3.12 hereof. Except as provided in Section 5.7(a) hereof, with respect
to Tax Returns of any Company not filed prior to the Closing Date that relate to
a taxable period that ends on or prior to or includes the Closing Date, such Tax
Returns shall be prepared or completed by each Company in a manner consistent
with the prior practice of each Company (including elections and accounting
methods and conventions, the conversion of the S Corps from subchapter "S" to
subchapter "C" corporations and as otherwise required by applicable law or
regulation or otherwise agreed to by each S Corp prior to the filing thereof),
and in a manner that does not distort taxable income (e.g., by accelerating
----
income to a period or periods prior to the Closing Date or deferring deductions
to a period or periods after the Closing Date).
(c) Although the Companies, as the taxpayers or in connection with
filing the Tax Returns specified in Section 5.7(b) above, may be required to pay
Income Taxes relating to time periods ending on or before the Closing Date
("Pre-Closing Income Taxes"), it is the intention of the Parties that, to the
extent such Pre-Closing Income Taxes (including any penalties, interest or
additions to Tax) were not fully accrued on the Closing Balance Sheet, the
Existing Shareholders will be responsible for such Pre-Closing Income Taxes
either by payment of such Pre-Closing Income Taxes themselves or pursuant to
Section 8.1 hereof.
(d) City shall promptly notify the Existing Shareholders in writing
upon receipt by City or any affiliate of City of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding ("Tax Proceeding"). The Existing Shareholders
shall have the sole right to control, conduct, and otherwise represent the
interests of each Company in any such Tax Proceeding; provided, however, that
-------- -------
without the prior written approval of City, which approval shall not be
unreasonably withheld or delayed, the Existing Shareholders shall not agree or
consent to compromise or settle any issue or claim arising in any such Tax
Proceeding to the extent that any such compromise, settlement, consent or
agreement would have an adverse effect on City for any period ending after the
Closing Date.
(e) None of City nor any affiliate of City shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to any Company relating to Taxes for
which the Existing Shareholders may be liable hereunder. Promptly after the
reasonable request of the Existing Shareholders, at the sole expense of the
Existing Shareholders (provided that the Existing Shareholders shall not be
--------
responsible for reimbursing City for the cost of City's employees' time expended
in connection therewith), City shall, or cause the appropriate Company, to file
any amended Tax Return or claim for Tax refund relating to Taxes for which the
Existing Shareholders may be liable hereunder, provided that such amended Tax
--------
Returns or claims shall be prepared in a manner consistent with the principles
set forth in Section 5.7(b) hereof and, in the reasonable determination of City,
shall conform to applicable laws and regulations. If City or any affiliate of
City shall receive a Tax refund relating to a period or transaction for which
the Existing Shareholders are liable hereunder, City shall, within 30 days after
receipt of such Tax refund, remit such Tax refund (including any
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<PAGE>
interest received on such Tax refund and net of (i) any Tax cost relating to the
receipt of such Tax refund and (ii) any unreimbursed cost or expense incurred in
obtaining such Tax refund), to the Existing Shareholders. For purposes of this
Section 5.7 hereof, the term "Tax refund" shall include a reduction in Tax or
the use of an overpayment as a credit or other Tax offset, and the receipt of a
refund shall be deemed to be realized upon the earliest to occur of (i) the date
on which City has actual knowledge that a payment due to the relevant taxing
authority (for which City would be responsible under this Agreement) has been
offset by such a refund and (ii) the receipt of cash.
(f) After the date hereof, City and the Companies shall provide each
other and the Existing Shareholders, with such cooperation and information
relating to each Company as either party reasonably may request in (i) filing
any Tax Return, amended Tax Return or claim for Tax refund, (ii) determining any
Tax liability or a right to a Tax refund, (iii) conducting or defending any
proceeding in respect of Taxes or (iv) effectuating the terms of this Agreement.
The Parties and each Company shall retain all Tax Returns, schedules and work
papers, and all material records and other documents relating thereto, until the
expiration of the statute of limitations (and, to the extent notified by any
party, any extensions thereof) of the taxable years to which such Tax Returns
and other documents relate and until the final determination of any Tax in
respect of such years. Any information obtained under this Section 5.7 shall be
kept confidential, except as may be otherwise necessary in connection with
filing any Tax Return, amended Tax Return, or claim for Tax refund, determining
any Tax liability or right to a Tax refund, or in conducting or defending any
proceedings in respect of Taxes.
(g) The Parties agree that for purposes of preparing the Tax Returns,
the books will be closed effective as of the Closing.
5.8 Non-Compliance With and Termination of This Agreement. This
-----------------------------------------------------
Agreement may be terminated at any time prior to the Closing as follows:
(a) by the mutual agreement of the Companies and BABF, provided such
--------
termination is set forth in writing executed by each Party;
(b) by BABF, if any of the conditions specified in Section 6.1 hereof
(other than the expiration or other termination of all applicable H-S-R
waiting periods) shall not have been met by June 15, 1998 and shall not
have been waived in writing by BABF;
(c) by the Companies and the Existing Shareholders, if any of the
conditions set forth in Section 7.1 hereof (other than the expiration or
other termination of all applicable H-S-R waiting periods) shall not have
been met by June 15, 1998 and shall not have been waived in writing by the
Companies and the Existing Shareholders;
(d) if the Parties are unable to reach an agreement regarding the
allocation of and responsibility for the remediation costs in excess of
$50,000 as set forth in Section 5.5(b); or
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<PAGE>
(e) if the Closing does not occur by June 15, 1998 for any reason.
If this Agreement is validly terminated pursuant to this Section, this Agreement
will forthwith become null and void, except that the provisions of Section 5.3
and Section 9.1 hereof will continue to apply following any such termination;
provided, however, no Party will be relieved of any liability that such Party
may have to any other Party by reason of such Party's breach of this Agreement.
5.9 Covenant of Larry Clayton Regarding City Friction Property.
----------------------------------------------------------
Notwithstanding any other provisions of this Agreement, Larry Clayton agrees to
undertake the following actions immediately at his sole cost and responsibility
at the City Friction facility:
(a) reimburse BABF up to $25,000 for environmental enhancements
implemented by BABF within ninety days from the Closing, such as prevention and
proper handling of stormwater, runoff, releases, leaks or discharges and repair
and improvement of the sand interceptor or other such feature; and
(b) remediate soil contamination from petroleum hydrocarbons adjacent
to the uncovered concrete pad to a level of no more than 100 parts per million
of total petroleum hydrocarbons or other mandated regulatory levels, including
taking confirmatory soil samples at locations and depths reasonably satisfactory
to BABF; Larry Clayton will be solely responsible for the petroleum hydrocarbon
soil contamination cleanup, in compliance with all Environmental Laws associated
with such petroleum hydrocarbon contamination cleanup, including reporting
obligations.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY BABF
The obligations of BABF under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by BABF
6.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that BABF has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2. Representations and Warranties. The representations and
------------------------------
warranties of the Companies and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, as if made on such date, except as otherwise contemplated by this
Agreement.
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<PAGE>
6.3. Performance of Agreements. The Companies and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
them pursuant to the terms hereof on or prior to the Closing Date.
6.4. Compliance Certificate. The Companies and the Existing
----------------------
Shareholders shall have delivered to BABF or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by
their respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
6.5. Material Changes. There shall not have been any Material Adverse
----------------
Effect from the date hereof to the Closing Date.
6.6. Opinion of Counsel. BABF shall have received the opinion of
------------------
Berkowitz, Lefkovits, Isom & Kushner, counsel for the Companies and the Existing
Shareholders, in the form set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. The authorizations, consents or approvals of
-------------
third parties and governmental regulatory authorities necessary in connection
with the consummation of the Closing shall have been obtained and be in full
force and effect.
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than BABF: (i) the New Leases substantially in the forms attached hereto as
Exhibit A1 and A2, (ii) a Management Services Agreement (including noncompete
clauses) with an entity owned by Larry Clayton and Delton Clayton substantially
in the form attached hereto as Exhibit B, (iii) a Stockholders' Agreement for
City substantially in the form attached hereto as Exhibit C, (iv) a Corporate
Development and Administrative Services Agreement by and between Brentwood
Private Equity LLC and City substantially in the form attached hereto as Exhibit
D, and (v) a Noncompetition Agreement substantially in the form attached hereto
as Exhibit E.
6.9. Resignations. Subject to the Stockholder's Agreement attached
------------
hereto as Exhibit A, BABF shall have received the resignations of those
directors of any Company as it may request.
6.10. Escrow Agreement. An escrow agreement ("Escrow Agreement") by
----------------
and among Larry Clayton, as representative of the Existing Shareholders, and
BABF, substantially in the form attached hereto as Exhibit F, in connection with
the holdback escrow arrangement described in Section 8.7 hereof, shall have been
executed and delivered.
6.11. Loans and Advances. All loans or advances to an Existing
------------------
Shareholder by a Company or to a Company by an Existing Shareholder shall have
been repaid in full.
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6.12. Pre-Closing Events. The Pre-Closing Events described in Sections
------------------
1.1 and 1.2 hereof (assuming BABF has performed its obligations under Section
1.2(a) hereof) shall have occurred.
6.13 Consultant's Letter. Larry Clayton shall cause his consultant to
-------------------
provide a letter reasonably satisfactory to BABF (i) documenting the
consultant's conclusion that the total petroleum hydrocarbons and arsenic
detected in the vicinity of the sand interceptor is not reportable to any
government regulator under any Environmental Law and (ii) permitting BABF to
rely on the consultant's conclusions.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE
COMPANIES AND THE EXISTING SHAREHOLDERS
The obligations of the Companies and Existing Shareholders under this
Agreement are subject to the fulfillment prior to the Closing of each of the
following conditions, any one or more of which may be waived by the Companies
and the Existing Shareholders:
7.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement shall have been issued
and remain in effect.
7.2. Representations and Warranties. Except as otherwise contemplated
------------------------------
by this Agreement, representations and warranties of BABF contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as if made on such date.
7.3. Performance of Agreements; Instruments of Transfer. BABF shall
--------------------------------------------------
have fully performed in all material respects all obligations, agreements,
conditions and commitments required to be fulfilled by BABF on or prior to the
Closing Date and shall have tendered to the Companies and the Existing
Shareholders, the documents, instruments and certificates required by Article 7
hereof.
7.4. Compliance Certificates. BABF shall have delivered to the
-----------------------
Companies and the Existing Shareholders its respective certificate, dated the
Closing Date, executed on its behalf by its President or a Vice President, as to
the fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5. Ancillary Agreements. The condition set forth in Section 6.8
--------------------
hereof shall be satisfied, except that such documents shall be signed by all
parties other than the Existing Shareholders and/or entities controlled by them.
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<PAGE>
7.6. Opinion of Counsel. The Companies and the Existing Shareholders
------------------
shall have received the opinion of Latham & Watkins, counsel for BABF, in the
form set forth in Schedule 7.6 hereto.
ARTICLE VIII.
INDEMNIFICATION
8.1. Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article 8, Larry Clayton will indemnify, defend and hold
City, BABF and each of their respective stockholders, subsidiaries, officers,
directors, employees, agents, successors and assigns, in each case in their
capacity as such and not in any capacity as an Existing Shareholder (BABF, City
and such indemnified persons are collectively hereinafter referred to as "BABF's
Indemnified Persons"), harmless from and against any and all loss, liability,
damage (excluding consequential, indirect and punitive damages) or deficiency
(including interest, penalties, judgments, costs of preparation and
investigation, and reasonable attorneys' fees) (collectively, "Losses") that
BABF's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) any inaccuracy of any representation of the
Companies and the Existing Shareholders in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of the Companies and the Existing
Shareholders in this Agreement or any Schedule hereto, (c) environmental
liabilities caused by any of the Companies which were not disclosed in the Phase
I or Phase II Site Assessment Reports described in Section 5.5(b) hereof,
provided that there will be no liability solely for conditions or actions which
- --------
were not in violation of law as it exists or was interpreted by relevant
judicial or administrative authorities as of the Closing but later become
violations of law as a result of changes in law after the Closing, or (d) the
nonfulfillment of any covenant, undertaking, agreement or other obligation of
the Companies and the Existing Shareholders under this Agreement or any Schedule
hereto, not otherwise waived by BABF "Losses" as used herein is not limited to
matters asserted by third parties, but includes Losses incurred or sustained in
the absence of third party claims. Payment is not a condition precedent to
recovery of indemnification for Losses.
8.2. Indemnification by BABF Subject to this Article 8, BABF agrees
-----------------------
to indemnify, defend and hold the Existing Shareholders and their respective
heirs, successors and assigns (the Existing Shareholders and such persons are
hereinafter collectively referred to as "Existing Shareholders' Indemnified
Persons"), harmless from and against any and all Losses that the Existing
Shareholders' Indemnified Persons may suffer, sustain, incur or become subject
to arising out of or due to: (a) any inaccuracy of any representation of BABF in
this Agreement or in any Schedule hereto; (b) the breach of any warranty of BABF
in this Agreement or any Schedule hereto; and (c) the nonfulfillment of any
covenant, undertaking, agreement or other obligation of BABF under this
Agreement or any Schedule hereto, not otherwise waived by an Existing
Shareholder.
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<PAGE>
8.3. Indemnification by City for Tax-Related Issues. Subject to this
----------------------------------------------
Article 8, City agrees to indemnify the Existing Shareholders' Indemnified
Persons for the amount of any incremental tax owed by the Existing Shareholders
as a result of the structure of the transactions contemplated by this Agreement
which is greater than that which the Existing Shareholders would have paid if
the Companies prior to any restructuring contemplated herein had sold their
assets to a new entity owned by BABF. After calculating the amount of such
indemnity, such amount will be increased to compensate for taxes payable on such
indemnity payment (but not for taxes on such increase); provided, however, the
-------- -------
Existing Shareholders will reimburse City for the amount of any tax savings
enjoyed by them over the taxes they would have paid in an asset sale if the
Section 338(h)(10) election to be made by City and BABF in connection with these
transactions is disregarded by the Internal Revenue Service, and the
transactions are treated as a combination of redemption and sale of stock.
Notwithstanding any contrary provision contained herein, the indemnities
provided for in his Section 8.3 hereof shall not be subject to the $500,000
deductible amount or the $5,000,000 ceiling amount provided in Section 8.5
hereof.
8.4. Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article 8 shall survive the Closing Date and
shall remain in full force and effect thereafter for a period (the "Effective
Period") ending the earlier of (i) the 60th day following the delivery of the
audited financial statements for the first full fiscal year of City ending after
the Closing, or (ii) June 30, 1999, and shall be effective with respect to any
inaccuracy therein or breach thereof, notice of which shall have been duly given
within the Effective Period in accordance with Section 8.6 hereof, after which
Effective Period they shall terminate and be of no further force or effect;
provided, however, that the representations and warranties contained in Section
- -------- -------
3.12 hereof, relating to tax matters, and the matters contained in Section 8.3
shall survive for the length of the applicable statute of limitations.
8.5. Threshold; Deductible. Except as provided in the last sentence
---------------------
of Section 8.3 hereof or in this Section 8.5, no BABF Indemnified Person or
Existing Shareholders' Indemnified Person shall be entitled to any recovery in
accordance with this Article 8 unless and until the amount of such Losses
suffered, sustained or incurred by such party, or to which such party becomes
subject, by reason of such inaccuracy or breach, exceeds $500,000 and then only
to the extent of such excess. Except for willful and intentional fraud,
liability for breach of representations and warranties under this Agreement
shall not exceed $5,000,000, except that liability of Larry Clayton for breach
of tax representations and warranties shall not be subject to either the
$500,000 deductible nor $5,000,000 ceiling. In addition, the $500,000 deductible
and the $5,000,000 ceiling do not apply to the obligations of the Companies and
the Existing Shareholders under Section 5.7 hereof. Indemnification pursuant to
this Agreement shall constitute the sole and exclusive monetary remedy of the
Parties with respect to any breach of the representation, warranties, covenants
or agreements contained in this Agreement; provided, however, that if
indemnification is not available, any Party may pursue any other remedy to the
extent that any awards under such remedy does not, in the aggregate with all
other
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indemnification recoveries hereunder, exceed the $5,000,000 cap set forth in
this Section 8.5, except in the cases referred to in Sections 8.3 and 8.5 hereof
where the cap is not applicable.
8.6. Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Section 8.5 hereof. If the Indemnitor fails to assume the defense
of such matter within said 30-day period, the Indemnitee against which such
matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.7. Indemnification Payments through Surrender of City Stock. At the
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Closing, BABF and Larry Clayton will deposit into a holdback escrow arrangement
either $2,000,000 in cash or shares of Common and Preferred Stock of City ("Pro
Rata Strip") pursuant to the Escrow Agreement to serve as partial security for
the indemnification obligations of Larry Clayton under this Agreement.
Indemnification obligations shall initially be satisfied pursuant to the terms
and conditions set forth in the Escrow Agreement attached hereto as Exhibit F
until the escrow is exhausted.
8.8. Insurance. For the duration of the Effective Period, BABF shall
---------
cause City and the other Companies to maintain general liability insurance on
the Companies and its assets in amounts comparable to that in effect prior to
the Closing and to include Larry Clayton as an additional insured thereon. The
amount of any claims otherwise subject to indemnification to this Agreement
shall be reduced by the amount of any insurance proceeds actually received by
such Party in respect of such claims.
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ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, if
--------
and only if the Closing occurs, City shall, as soon as reasonably practicable,
pay the expenses and costs incurred by it and by each of the Parties hereto in
preparing, negotiating and closing this Agreement, including, without
limitation, any expenses set forth in Section 2.2(a)(iv) hereof. Otherwise, each
party hereto shall bear its own expenses.
9.2. Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to City or any Company, at
City Truck and Trailer Parts, Inc.
2901 Third Avenue North
Birmingham, Alabama 35202
Attn: Larry Clayton
With a Copy to:
Berkowitz, Lefkovits, Isom & Kushner
South Trust Tower
420 North 20th Street, Suite 1600
Birmingham, Alabama 35203-5202
Attn: Harold B. Kushner, Esq.
If to BABF:
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, CA 90025
Attention: Christopher A. Laurence
With a Copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Elizabeth A. Blendell, Esq.
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<PAGE>
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the subject matter hereof and
supersedes all prior negotiations, agreements and understandings, whether
written or oral, of the Parties.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6. Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. Except
as specifically provided herein, this Agreement may not be assigned by any Party
hereto without the prior written consent of all other Parties hereto. This
Agreement may be amended only by written agreement of the Parties hereto, duly
executed and delivered by an authorized representative of each of the Parties
hereto.
9.7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Delaware
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof. Each of the Parties to this Agreement
hereby irrevocably and unconditionally (i) agrees to be subject to, and hereby
consents and submits to, the jurisdiction of the courts of the State of Delaware
and of the federal courts sitting in the State of Delaware, (ii) to the extent
such party is not otherwise subject to service of process in the State of
Delaware, hereby appoints The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801, as such party's agent in the State of Delaware for
acceptance of legal process and (iii) agrees that service made on such agent
shall have the same legal force and effect as if served upon such party
personally within the State of Delaware.
9.8. Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
40
<PAGE>
9.9. No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than the Companies,
BABF and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10. Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13. Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase means actual knowledge of any Existing Shareholder,
any officer of any of the Companies or Affiliates and any employee of any of the
Companies or Affiliates whose job duties include the subject matter in question
9.14. Disclosure. Any item disclosed in one Section or Schedule shall
----------
be deemed to be disclosed in any other Section or Schedule where such disclosure
is relevant, even if there is no express cross-reference. Disclosure of items
that may or may not be required to be disclosed by this Agreement does not mean
that such items are material or create a standard of materiality and shall not
be deemed an admission that any such disclosed matter is or may give rise to a
breach of any contract or violation of any law.
9.15. Arbitration. To the extent that that Parties are unable to
-----------
resolve their disputes or controversies arising out of or relating to this
Agreement, or the performance, breach, validity, interpretation or enforcement
of this Agreement, through discussion and negotiation, all
41
<PAGE>
disputes and controversies will be resolved by binding arbitration in accordance
with rules of the JAMS/Endispute, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. A Party may
initiate arbitration by sending written notice of its intention to arbitrate to
the other Parties and to the JAMS/Endispute, office located in Atlanta, Georgia.
Such written notice will contain a description of the dispute and the remedy
sought. The arbitration will be conducted at the offices of the JAMS/Endispute
office located in Atlanta, Georgia before an independent and impartial
arbitrator (who shall be a retired judge) acceptable to all Parties. The
arbitrator shall agree to apply the internal laws of the State of Delaware
(without regard to conflicts of laws) in interpreting this Agreement. The
arbitrator will have the power to award any party all or any portion of its
costs and expenses of arbitration. The decision of the arbitrator will be final
and binding on the Parties and their successors and assignees. The Parties
intend that this agreement to arbitrate be irrevocable.
(Signature Page Follows)
42
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
BABF CITY CORP.,
a Delaware corporation
BY: /s/ Christopher A. Laurence
----------------------------------------
Christopher A. Laurence
President
CITY TRUCK AND TRAILER PARTS, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC., an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CITY TRUCK AND TRAILER PARTS OF TENNESSEE, INC., a
Tennessee corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
43
<PAGE>
CITY TRUCK AND TRAILER PARTS OF ALABAMA, L.L.C., an
Alabama limited liability company
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
Member
CITY FRICTION, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CTTP ALABAMA MERGER SUB, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CTTP TENNESSEE MERGER SUB, INC.,
a Tennessee corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
44
<PAGE>
CTTP FRICTION MERGER SUB, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
THE DELTON LANE CLAYTON TRUST
dated November 1, 1990
BY: /s/ Neil Bailey
----------------------------------------
Neil Bailey as Trustee
THE DIEDRA ELAINE CLAYTON TRUST
Dated November 1, 1990
BY: /s/ Neil Bailey
----------------------------------------
Neil Bailey as Trustee
THE WILLIAM LARRY CLAYTON GRANDCHILDREN'S TRUST
Dated April 30, 1997
BY: /s/ Neil Bailey
----------------------------------------
Neil Bailey as Trustee
45
<PAGE>
/s/ William L. Clayton
----------------------------------------
William L. Clayton
/s/ Charles Roy Johnson
----------------------------------------
Charles Roy Johnson
46
<PAGE>
ANNEX A
William L. Clayton
The Delton Lane Clayton Trust dated November 1, 1990, Neil Bailey as Trustee
The Diedra Elaine Clayton Trust dated November 1, 1990, Neil Bailey as Trustee
The William Larry Clayton Grandchildren's Trust dated April 30, 1997, Neil
Bailey as Trustee
Charles Roy Johnson
<PAGE>
LIST OF ANNEXES, EXHIBITS AND SCHEDULES TO
STOCK PURCHASE AGREEMENT
Annex A The Existing Shareholders
Exhibit A1 New Leases
Exhibit A2 New Leases
Exhibit B Stockholders' Agreement
Exhibit C Management Services Agreement
Exhibit D Corporate Development and Administrative Services Agreement
Exhibit E Noncompetition Agreement
Exhibit F Escrow Agreement
Schedule 2.3 Allocation of Purchase Price
Schedule 3.1 Corporate Organization and Standing
Schedule 3.2 Affiliates and Merger Subs
Schedule 3.5 Title to Shares
Schedule 3.6 No Conflict or Violation
Schedule 3.7 Facilities
Schedule 3.7(h) Rents for New Leases
Schedule 3.8 Financial Statements
Schedule 3.10 Litigation
Schedule 3.12 Tax Matters
Schedule 3.13 Brokers, Finders
Schedule 3.14 Absence of Certain Changes
Schedule 3.15 Material Contracts
Schedule 3.16 Proprietary Rights
Schedule 3.18 Consents
Schedule 3.19 Employee Benefit Plans; Employment Agreements
Schedule 3.20 Compliance with Environmental Laws
Schedule 3.21 Certain Business Relationships with Companies
Schedule 3.22 Undisclosed Liabilities
Schedule 3.23 Insurance
Schedule 3.25 Inventory
Schedule 3.27 Customers, Distributors and Suppliers
Schedule 3.28 Banking Relationships
Schedule 6.6 Form of Opinion of Berkowitz, Lefkovits, Isom & Kushner
Schedule 7.6 Form of Opinion of Latham & Watkins
<PAGE>
Exhibit 10.3
ASSET CONTRIBUTION AGREEMENT
BY AND AMONG
CITY TRUCK AND TRAILER PARTS, INC.
AND
STONE HEAVY DUTY, INC.,
ASHLAND AUTOMOTIVE PARTS, INC.
FRED A. STONE, JR.,
JAMES T. STONE AND
THOMAS D. STONE
DATED JUNE 19, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. CONTRIBUTION OF ASSETS.......................................... 1
1.1. Contribution to City.................................................. 1
1.2. Transfer of Assets.................................................... 2
1.3. Tax-Free Contribution................................................. 2
1.4. Liabilities........................................................... 2
1.5. One-Time Make-Whole Payment........................................... 2
ARTICLE II. CLOSING........................................................ 3
2.1. Closing............................................................... 3
2.2. Conveyances at Closing................................................ 3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF STONE AND ASHLAND........... 4
3.1. Corporate Organization and Standing................................... 4
3.2. Authorization......................................................... 4
3.3. No Conflict or Violation.............................................. 4
3.4. Facilities............................................................ 5
3.5. Assets................................................................ 6
3.6. Financial Statements.................................................. 6
3.7. Books and Records..................................................... 7
3.8. Litigation............................................................ 7
3.9. Licenses and Permits; Compliance with Laws............................ 7
3.10. Tax Matters.......................................................... 8
3.11. Brokers, Finders..................................................... 10
3.12. Absence of Certain Changes or Events................................. 10
3.13. Material Contracts................................................... 12
3.14. Proprietary Rights................................................... 13
3.15. Labor Matters........................................................ 14
3.16. Consents............................................................. 14
3.17. Employee Benefit Plans; Employment Agreements........................ 14
3.18. Compliance With Environmental Laws................................... 17
3.19. Certain Business Relationships with the Existing Shareholders........ 19
3.20. Undisclosed Liabilities.............................................. 19
3.21. Insurance............................................................ 19
3.22. Accounts Receivable.................................................. 20
3.23. Inventory............................................................ 20
3.24. Payments............................................................. 20
3.25. Customers, Distributors and Suppliers................................ 21
3.26. Banking Relationships................................................ 21
3.27. Investment........................................................... 21
3.28. MATERIAL MISSTATEMENTS OR OMISSIONS.................................. 22
i
<PAGE>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CITY......................... 22
4.1. Corporate Organization and Standing................................... 22
4.2. Authorization......................................................... 22
4.3. No Conflict or Violation.............................................. 22
4.4. Litigation............................................................ 22
4.5. Brokers, Finders...................................................... 23
4.6. Approvals, Etc........................................................ 23
4.7. Material Misstatements or Omissions................................... 23
4.8. Stock................................................................. 23
4.9. Capitalization........................................................ 23
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING
COVENANTS....................................................... 23
5.1. Further Assurances.................................................... 23
5.2. No Solicitation and Confidentiality................................... 24
5.3. Disclosures........................................................... 24
5.4. Notification of Certain Matters....................................... 25
5.5. Investigation by City and Its Representatives......................... 25
5.6. Conduct of Business................................................... 26
5.7. Non-Compliance With and Termination of This Agreement................. 28
5.8. Covenant Regarding Environmental Remediation and Compliance........... 28
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY CITY........................................................ 29
6.1. No Injunctive Proceedings............................................. 29
6.2. Representations and Warranties; Disclosure Schedule................... 29
6.3. Performance of Agreements............................................. 29
6.4. Compliance Certificate................................................ 29
6.5. Material Changes...................................................... 29
6.6. Opinion of Counsel.................................................... 29
6.7. Consents, Etc......................................................... 30
6.8. Ancillary Agreements.................................................. 30
6.9. Escrow Agreement...................................................... 30
6.10. Loans and Advances................................................... 30
6.11. Name Change.......................................................... 30
6.12. Nonforeign Affidavit................................................. 30
6.13. Management Continuity Agreements..................................... 30
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS................ 31
BY STONE AND ASHLAND.......................................... 31
7.1. No Injunctive Proceedings............................................. 31
7.2. Representations and Warranties........................................ 31
7.3. Performance of Agreements; Instruments of Transfer.................... 31
7.4. Compliance Certificates............................................... 31
ii
<PAGE>
7.5. Ancillary Agreements.................................................. 31
7.6. Opinion of Counsel.................................................... 31
7.7. Amended and Restated Articles of Incorporation........................ 31
ARTICLE VIII. ACTIONS BY CITY, STONE AND ASHLAND AFTER THE CLOSING......... 32
8.1. Collection of Accounts Receivable and Letters of Credit............... 32
8.2. Consents to Assignment................................................ 32
8.3. Indemnification by Stone, Ashland and the Existing Shareholders....... 32
8.4. Indemnification by City............................................... 33
8.5. Survival of Representations, Warranties and Covenants................. 33
8.6. Threshold; Deductible................................................. 33
8.7. Notice and Opportunity to Defend...................................... 34
8.8. Indemnification Payments through Surrender of City Stock.............. 34
8.9. Stone Incentive Plans................................................. 34
8.10. Employment Matters and Severance Benefits............................ 35
8.11. Shareholder Representative........................................... 35
ARTICLE IX. MISCELLANEOUS.................................................. 36
9.1. Expenses.............................................................. 36
9.2. Notices............................................................... 36
9.3. Counterparts.......................................................... 37
9.4. Entire Agreement...................................................... 37
9.5. Headings.............................................................. 37
9.6. Assignment; Amendment of Agreement.................................... 37
9.7. Governing Law......................................................... 37
9.8. Further Assurances.................................................... 38
9.9. No Third-Party Rights................................................. 38
9.10. Non-Waiver........................................................... 38
9.11. Severability......................................................... 38
9.12. Incorporation of Exhibits and Schedules.............................. 38
9.13. Knowledge............................................................ 39
9.14. Arbitration.......................................................... 39
iii
<PAGE>
ASSET CONTRIBUTION AGREEMENT
THIS ASSET CONTRIBUTION AGREEMENT ("Agreement") is entered into as of
June 19, 1998, by and among CITY TRUCK AND TRAILER PARTS, INC., an Alabama
corporation ("City"), STONE HEAVY DUTY, INC., a North Carolina corporation
("Stone"), the following stockholders of Stone: FRED A. STONE, JR., JAMES T.
STONE AND THOMAS D. STONE (COLLECTIVELY, THE "EXISTING SHAREHOLDERS"), AND
ASHLAND AUTOMOTIVE PARTS, INC., A SOUTH CAROLINA CORPORATION ("ASHLAND" AND
TOGETHER WITH STONE AND THE EXISTING SHAREHOLDERS, THE "SELLING PARTIES").
CITY, STONE, THE EXISTING SHAREHOLDERS AND ASHLAND ARE SOMETIMES REFERRED TO
HEREIN INDIVIDUALLY AS A "PARTY" AND COLLECTIVELY AS THE "PARTIES."
RECITALS
A. WHEREAS, Stone and Ashland own certain assets listed on Annex A
(the "Assets") which are used in connection with or useful to their business of
distributing aftermarket parts and services to the domestic heavy duty vehicle
market (the "Business");
B. WHEREAS, upon the terms but subject to the conditions of this
Agreement, City desires to acquire such Assets from Stone and Ashland, and Stone
and Ashland desire to contribute such Assets to City.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Parties agree as
follows:
ARTICLE I.
CONTRIBUTION OF ASSETS
1.1. Contribution to City.
--------------------
(a) Upon the terms and subject to the conditions set forth herein,
Stone agrees to contribute to City the Assets owned by Stone in exchange for the
issuance and/or delivery to Stone of the "Stone Price" as follows: (i) Twenty
Three Million Seventy Seven Thousand Dollars ($23,077,000) in cash payable by
wire transfer of immediately available funds to Stone, as decreased by the
aggregate amount of the distributions made to the Existing Shareholders on or
about June 15, 1998 to enable them to pay income taxes relating to income
arising out of the Business, (ii) One Hundred Fifty Thousand Dollars ($150,000)
to be retained by City pursuant to Section 5.8 hereof; (iii) 6,867 shares of
Common Stock of City, par value $.01 per share (the "Common Stock"), and (iv)
29,931.328 shares of Series B Preferred Stock of City, par value $.01 per share
(the "Series B Preferred Stock"), in each case equaling 60% of the number of
such shares retained by Larry Clayton and his affiliates after the purchase by
BABF City Corp. from them on May 29, 1998.
(b) Upon the terms and subject to the conditions set forth herein,
Ashland agrees to contribute to City the Assets owned by Ashland in exchange for
the
<PAGE>
issuance and/or delivery to Ashland of the "Ashland Price" as follows: (i)
Four Hundred Thirty Nine Thousand Dollars ($439,000) in cash payable by wire
transfer of immediately available funds to Ashland.
(c) Schedule 1.1 to be mutually agreed upon and which is reasonably
satisfactory to City, Stone and Ashland sets forth the amount of the Stone Price
and the Ashland Price allocable to the various Assets.
1.2. Transfer of Assets. Upon the terms and subject to the conditions set
------------------
forth herein, at the Closing, Stone and Ashland will contribute to City, and
City will acquire from Stone and Ashland, the Assets, free and clear of all
encumbrances other than Permitted Encumbrances (as defined herein).
1.3. Tax-Free Contribution. The transactions hereunder are intended to be
---------------------
free from United States federal income taxes pursuant to Section 351 of the
Code, except with respect any payments thereon made to Stone and Ashland in
partial consideration of the contribution of the Assets to City.
1.4. Liabilities. Upon the terms and subject to the conditions set forth
-----------
herein, at the Closing, City shall assume all liabilities and contractual
obligations of Stone and Ashland, other than certain excluded liabilities listed
on Schedule 1.4 and those listed below (collectively, the "Excluded
Liabilities") (such liabilities other than the "Excluded Liabilities," the
"Assumed Liabilities"), including, without limitation:
(a) Any liability of Stone or Ashland in respect of any Income Tax;
and
(b) Any liability which was required to be disclosed on a
Schedule to this Agreement and was not so disclosed;
The liabilities assumed pursuant to this Section 1.4 are called
"Assumed Liabilities."
1.5. One-Time Make-Whole Payment. In connection with the transaction
---------------------------
contemplated under this Agreement, the cash portion of the Stone Price shall be
increased by a one-time make-whole payment equal to the difference to the
Existing Shareholders between income taxes at ordinary income tax rates and
income taxes at capital gains tax rates (each for federal and state income tax
purposes) attributable to the transaction being structured as an asset purchase
or partially taxable (S)351 transaction versus a stock purchase including,
without limitation, depreciation recapture, LIFO recapture and Stone
distribution of subchapter "C" corporation earnings after the Closing to the
Existing Shareholders. The preliminary calculation of the make-whole payment
shall be increased to compensate for federal and state income taxes payable on
the make-whole payment (but not for taxes on such increase), and then such
increased amount will be reduced by a percentage equal to the percentage of the
total consideration to be paid pursuant to Section 1.1(a) which consists of
stock. The result of these calculations shall be the amount of the actual make-
whole payment and shall be payable upon determination but no later than
September 30, 1998.
2
<PAGE>
ARTICLE II.
CLOSING
2.1. Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 9:00 a.m. local time on June 19, 1998 (the "Closing
Date"), unless the Parties otherwise agree.
2.2. Conveyances at Closing.
----------------------
(a) Instruments and Possession. To effect the sale and transfer of
--------------------------
Assets referred to in Section 1.3 hereof, Stone and Ashland will, at the
Closing, execute and deliver to City:
(i) one or more Bills of Sale, in the form attached hereto as
Exhibit A, conveying in the aggregate all of the personal property owned by
Stone and Ashland included in the Assets;
(ii) subject to Section 8.3, Assignments of Lease in the form
attached hereto as Exhibit B with respect to the Leases;
(iii) subject to Section 8.3, Assignments of Contract Rights in
the form attached hereto as Exhibit C with respect to all contracts which City
shall assume unless listed on Schedule 1.4;
(iv) subject to Section 8.3, Assignments of Patents and
Trademarks and other Proprietary Rights (including an assignment of all rights,
title and interest of Stone and Ashland to the names "Stone Heavy Duty and
"Ashland Auto Parts," respectively and all variations thereof) each in the form
attached hereto as Exhibit D, in recordable form to the extent necessary to
assign such rights; and
(v) such other instruments as shall be requested by City to
vest in City title in and to the Assets in accordance with the provisions
hereof.
(b) Assumption Document. Upon the terms and subject to the
-------------------
conditions set forth herein, at the Closing, City shall deliver to Stone and
Ashland an instrument of assumption substantially in the form attached hereto as
Exhibit E, evidencing City's assumption of all liabilities of Stone and Ashland,
pursuant to Section 1.4 hereof, excluding the Excluded Liabilities (the
"Assumption Document").
(c) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner
reasonably satisfactory to City and Stone.
(d) Certificates; Opinions. City, Stone and Ashland shall deliver
----------------------
the certificates, opinions of counsel and other matters described in Articles VI
and VII.
3
<PAGE>
(e) Consents. Stone and Ashland shall deliver all Permits (as
--------
defined herein) and any other third party consents required for the valid
transfer of the Assets as contemplated by this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF STONE AND ASHLAND
Stone and Ashland hereby represent and warrant to City as follows,
except as otherwise set forth in a disclosure schedule ("Schedule") attached
hereto, incorporated by reference herein and made a part hereof, the number of
each Schedule corresponding to the Section number to which it refers:
3.1. Corporate Organization and Standing. Stone and Ashland are each a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and each has all requisite corporate power and
authority to own or lease its properties and to carry on its business as
presently conducted. Stone has delivered to City or its representatives complete
and correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Stone and Ashland are each duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now being conducted by it or
the property owned or leased by it makes such qualification necessary. Schedule
3.1 hereto contains a true, correct and complete list of all jurisdictions in
which Stone or Ashland is qualified to do business as a foreign corporation.
3.2. Authorization. This Agreement, the Ancillary Agreements, and the
-------------
transactions contemplated hereby and thereby have been duly authorized, executed
and delivered by each of Stone, Ashland and the Existing Shareholders, and are
the legal, valid and binding obligations of each of Stone, Ashland and the
Existing Shareholders, enforceable against it, him or her in accordance with
their terms, except as enforcement may be limited by equitable principles
limiting the right to obtain specific performance or other equitable remedies,
or by applicable bankruptcy or insolvency laws and related decisions affecting
creditors' rights generally.
3.3. No Conflict or Violation. Except as set forth on Schedule 3.3,
------------------------
neither the execution and delivery of this Agreement, the Ancillary Agreements
nor the consummation of the transactions contemplated hereby or thereby will (i)
violate, conflict with or result in or constitute a default under or result in
the termination or the acceleration of, or the creation in any party of any
right (whether or not with notice or lapse of time or both) to declare a
default, accelerate, terminate or cancel any indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability ("Contractual
Obligation") to which Stone or Ashland is a party or by which any of them is
bound or to which any of their assets is subject or result in the creation of
any lien or encumbrance upon any of said assets, (ii) violate, conflict with or
result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of Stone or Ashland, (iii) violate, conflict
with or result in a breach of or constitute a default under any judgment, order,
decree, rule or regulation of any court or governmental agency to which Stone or
Ashland is subject, or would, in the case of clause (i), constitute a default
with respect to a Material Contract (as defined below) or (iv) violate, conflict
with or result in a breach of any
4
<PAGE>
applicable federal or state rule or regulation, which violation, conflict or
breach would have a Material Adverse Effect (as defined herein).
3.4. Facilities. Schedule 3.4 contains a complete and accurate list of
----------
all real property used in connection with the Business ("Real Property"), all of
which are leased ("Leased Real Property"). Neither Stone nor Ashland owns any
Real Property except for leasehold improvements.
(a) Actions. There are no pending or, to the best knowledge of Stone
-------
or Ashland, threatened, condemnation proceedings or other actions, claims,
suits, litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any facility located on Real Property used
by Stone or Ashland in connection with the Business ("Facility"), except as set
forth on Schedule 3.4.
(b) Leases or Other Agreements. There are no leases, subleases,
--------------------------
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person (other than Stone or
Ashland) the right to purchase, use or occupy any Facility or any Real Property
or any portion thereof, or interest in any such Facility or Real Property.
(c) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, Stone has an unencumbered interest in its applicable leasehold
estate and enjoys peaceful and undisturbed possession of its applicable Leased
Real Property.
(d) Certificate of Occupancy. To the best knowledge of Stone or
------------------------
Ashland, all Facilities have received all required approvals of governmental
authorities (including, without limitation, permits and a certificate of
occupancy or similar certificate permitting lawful occupancy of the Facilities)
required in connection with the operation thereof and are and have been operated
and maintained in accordance with applicable regulations.
(e) Utilities. All Facilities are supplied with all utilities
---------
necessary to the operation of such Facilities (including, without limitation,
water, sewage, disposal, electricity, gas and telephone) as currently operated,
and, to the best knowledge of Stone or Ashland, there is no condition which
would reasonably be expected to result in the termination of the present access
from any Facility to such utility services.
(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by Stone or Ashland at the Facilities are (i) insured to the
extent reflected in Schedule 3.21, (ii) sufficient for the operation of Stone or
Ashland as presently conducted and (iii) in conformity with all applicable
regulations.
(g) No Special Assessment. Neither Stone nor Ashland has received
---------------------
notice of any special assessment relating to any Facility or any portion
thereof, and, to the best knowledge of Stone or Ashland, there is no pending or
threatened special assessment.
5
<PAGE>
3.5. Assets. Excluding the Leased Real Property, Stone and Ashland have
------
and will transfer to City good and marketable title to the Assets, free and
clear of any encumbrances, except for minor liens which in the aggregate are not
substantial in amount, do not materially detract from the value or
transferability of the Assets subject thereto taken as a whole or interfere in
any material respect with the present use and have not arisen other than in the
ordinary course of business ("Permitted Encumbrances"). All tangible assets and
properties which are part of the Assets are in good operating condition and
repair, ordinary wear and tear excepted, and are usable in the ordinary course
of business and conform in all material respects to all applicable regulations
(including Environmental Laws (as defined herein)) relating to their use and
operation.
3.6. Financial Statements.
--------------------
(a) The audited combined balance sheets of Stone and Ashland dated
as of December 31, 1997 and the reviewed combined balance sheets of Stone and
Ashland dated as of December 31,1996 and 1995, respectively, and the unaudited
combined balance sheets of Stone and Ashland for the three-month period ended
March 31, 1998 (the balance sheets dated 1997, 1996, 1995 and March 31, 1998,
the "1997 Balance Sheets," the "1996 Balance Sheets", the "1995 Balance Sheets"
and the March 31, 1998 Balance Sheet, respectively, or collectively, the
"Balance Sheets") were prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied (excluding footnotes and year-end
adjustments) and fairly present the financial condition of Stone and Ashland in
all material respects as of their respective dates. Neither Stone nor Ashland
had any material liabilities of any nature as of such respective dates, whether
absolute, accrued, asserted or unasserted or contingent or whether due or to
become due which should have been recorded or reserved for on the Balance Sheets
and were not so recorded or reserved.
(b) The audited combined statements of earnings and retained
earnings and statements of cash flows of Stone and Ashland for the fiscal year
ended December 31, 1997 and the reviewed combined statements of earnings and
retained earnings and statements of cash flows of Stone and Ashland for the
fiscal year ended December 31, 1996 and 1995, respectively, and the unaudited
combined income statements of Stone and Ashland for the three-month period ended
March 31, 1998, were prepared in accordance with GAAP consistently applied
(excluding footnotes and year-end adjustments), and both fairly present the
results of operations, changes in shareholder's equity and, where applicable,
the cash flows of Stone and Ashland in all material respects for each such
period.
(c) Copies of the financial statements described in Sections 3.6(a)
and (b) hereof in draft form have been provided to City or its representatives.
3.7. Books and Records. Stone and Ashland have made and kept (and given
-----------------
City and its representatives access to) all books and records and accounts,
which, in reasonable detail, accurately and fairly reflect all material
activities of Stone and Ashland. The minute books of Stone and Ashland
accurately and adequately reflect all material action taken by the shareholders,
board of directors and committees of the board of directors of Stone and
Ashland.
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The copies of the stock records of Stone and Ashland are true, correct and
complete, and accurately reflect all transactions effected in Stone's and
Ashland's stock through and including the date hereof. Neither Stone nor Ashland
has engaged in any material transaction, maintained any bank account or used any
material amount of corporate funds except for the transactions, bank accounts
and funds which have been and are reflected in the normally maintained books and
records of Stone and Ashland.
3.8. Litigation. Except as set forth on Schedule 3.8, there is no claim,
----------
action, suit, proceeding, or investigation pending or, to the best knowledge of
Stone or Ashland, after a search of the information contained in its files
relating to pending litigation, threatened against Stone or Ashland or their
respective directors, officers, agents or employees (in their capacities as
such), or any properties or rights of Stone or Ashland. There are no orders,
writs, injunctions or decrees currently in force against Stone or Ashland or
their respective directors, officers, agents or employees (in their capacities
as such) with respect to the conduct of the Business.
3.9. Licenses and Permits; Compliance with Laws. Stone and Ashland each
------------------------------------------
owns, holds or possesses all material licenses and permits necessary to entitle
it to use its corporate name, to own or lease, operate and use its assets and
properties and to carry on and conduct its business and operations as presently
conducted (the "Licenses and Permits"). Neither Stone nor Ashland is in
violation of or default under any Licenses or Permits or any judgment, order,
writ, injunction or decree of any court or administrative agency issued against
it or any law, ordinance, rule or regulation applicable to it, except for such
violations or defaults which would not singly or in the aggregate have a
Material Adverse Effect. The conduct of business of each of Stone and Ashland
has been and is in compliance with all applicable laws, statutes, ordinances and
regulations, the violation of which would not singly or in the aggregate have a
Material Adverse Effect. Neither Stone nor Ashland has received any notice
asserting a failure to comply with any law, statute, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency.
3.10. Tax Matters.
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(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, capital stock,
franchise, profits, withholding, social security, unemployment, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, (ii) "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof, (iii) "Income Tax" means any
federal, state, local or foreign tax calculated or assessed with respect to
income, including any interest, penalty or addition thereto, whether disputed or
not, and (iv) "Income Tax Return" means any return, declaration, report, claim
for refund or information return or statement relating to Income Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
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(b) Each of Stone and Ashland has timely filed, or caused to be
timely filed, all Tax Returns that it was required to file, taking into account
any applicable extensions of time with which to file any such Tax Returns. All
such Tax Returns were correct and complete in all material respects. All Taxes
owed by Stone or Ashland (whether or not shown on any Tax Return) have been paid
or accrued on the Balance Sheets, the March 31, 1998 Balance Sheet or otherwise
will be properly accrued as of the end of the month immediately preceding the
Closing Date. Except as set forth on Schedule 3.10, neither Stone nor Ashland
is currently the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction where
Stone or Ashland does not file Tax Returns that Stone or Ashland is or may be
subject to taxation by that jurisdiction. There are no liens on any of the
Assets of Stone or Ashland that arose in connection with any failure (or alleged
failure) to pay any Tax.
(c) Each of Stone and Ashland has withheld and paid all material
Taxes required to have been withheld and paid by it in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(d) There is no dispute or claim concerning any Tax liability of
Stone either (i) claimed or raised by any authority in writing or (ii) of which
Stone or Ashland has knowledge. To the knowledge of Stone, no audit or
examination of any Tax Return of Stone or Ashland is currently in progress, and
neither Stone nor Ashland has received notice of any proposed audit or
examination. Each of Stone and Ashland has furnished to City or its
representatives correct and complete copies of all federal income Tax Returns
filed by Stone or Ashland, examination reports received by Stone or Ashland with
respect to its Income Tax, and statements of deficiencies of Income Tax assessed
against or agreed to by Stone or Ashland with respect to the years ended on or
after December 31, 1994. Neither Stone nor Ashland has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(e) Neither Stone nor Ashland has filed a consent under Section
341(f) of the Code concerning collapsible corporations (or any comparable state
income tax provision). Neither Stone nor Ashland has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code. Neither Stone nor Ashland is a party
to any Tax allocation, sharing or indemnity agreement. Neither Stone nor
Ashland has (i) been a member of an affiliated group of corporations filing a
consolidated federal Income Tax Return or (ii) has any liability for the Taxes
of any person under Reg. Sec. 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract, or otherwise.
Schedule 3.10 sets forth all material elections (e.g., accelerated depreciation,
Sec. 263(a) regarding the allocation of overhead to inventory, and LIFO election
for inventory accounting) in effect as of the date hereof with respect to Taxes
affecting Stone or Ashland.
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(f) The unpaid Taxes of Stone or Ashland did not exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the most recent Balance Sheets. Each of Stone and Ashland has made provision,
in conformity with GAAP consistently applied, on the Balance Sheets and the
interim financial statements for the payment of all Taxes which may subsequently
become due with respect to all periods up to and including the respective dates
of such statements.
(g) Stone has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times since the respective
dates reflected on Schedule 3.10, and Stone will be an S corporation up to and
including the Closing Date. No Income Taxes will be payable by Stone or
Ashland with respect to the taxable year beginning on January 1, 1998 and ending
on the day immediately preceding the Closing Date.
(h) Stone has not, in the past ten (10) years, (i) acquired assets
from another corporation in a transaction in which Stone's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor or (ii) acquired the stock of any corporation which is a qualified
subchapter S subsidiary.
3.11. Brokers, Finders. Except as set forth on Schedule 3.11, neither
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Stone nor Ashland has not retained any broker or finder in connection with the
transactions contemplated herein, and is not obligated and has not agreed to pay
any brokerage or finder's commission, fee or similar compensation.
3.12. Absence of Certain Changes or Events.
------------------------------------
(a) Except as otherwise contemplated by this Agreement or as set
forth on Schedule 3.12, since December 31, 1997, each of Stone and Ashland has
conducted its business in the ordinary course, has not done or permitted to be
done anything described in Sections 5.6(a) through (r) hereof, and there has not
occurred with respect to Stone or Ashland:
(i) any material adverse effect on the Business, operations,
Assets, results of operations or financial condition of Stone or Ashland, taken
as a whole (excluding effects or changes resulting from consequential general
industry wide changes in the national or international economy) ("Material
Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable,
other than in the ordinary course of business consistent with past practices;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
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(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any assumptions
underlying or methods of calculating, any doubtful account contingency or other
reserves;
(v) any capital expenditure (other than in the ordinary course
of business consistent with past practice), the execution of any lease or the
incurring of any obligation to make any capital expenditure (other than in the
ordinary course of business consistent with past practice);
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect, or (ii)
except where there is a bona fide dispute as to the nature or amount of such
liability and adequate reserves in accordance with GAAP are reflected in the
applicable financial statements;
(vii) any Assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, except in the ordinary course of
business;
(viii) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any third party of any
Proprietary Rights not theretofore a matter of public knowledge;
(ix) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or other
disposition of any assets, except for sales of finished goods inventory in the
ordinary course of business, or any disposal of any material assets for any
amount to Stone or Ashland, other than in the ordinary course of business
consistent with past practices;
(x) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or the
business or entry into any contract, commitment, agreement, lease, transaction
or Permit which is not in the ordinary course of business, including, without
limitation, any employment or consulting agreements;
(xi) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or employee,
whether now or hereafter payable or granted (other than bonuses and increases in
base compensation to non-executive employees in the ordinary course consistent
in timing and amount or method with past practices), or entry into or variation
of the terms of any employment or incentive agreement with any such person
except as set forth on Schedule 3.12;
(xii) a material adverse change in employee relations which has
or is reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of Stone or Ashland and the management of Stone or
Ashland;
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(xiii) any change in any method of accounting or keeping books
of account or accounting practices;
(xiv) any damage, destruction or loss of any asset, whether or
not covered by insurance, which has had or would have a Material Adverse Effect.
(xv) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings under its
revolving credit facility in the ordinary course of business);
(xvi) the declaration, payment or setting aside for payment any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of stock
of Stone or Ashland, or the creation of any securities convertible into or
exchangeable for any shares of stock of Stone or Ashland or any options,
warrants or other rights to purchase or subscribe to any of the foregoing (other
than distributions to the Existing Shareholders to enable them to pay Income Tax
on income arising out of the Business and to enable the Existing Shareholders to
make their required note payments to Fred A. Stone, Sr.);
(xvii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xviii) the existence of any other event or condition which, in
any one case or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect; or
(b) an agreement to do any of the things described in the preceding
clauses (i) - (xviii) other than as expressly provided for herein.
3.13. Material Contracts. Schedule 3.13 sets forth a complete and correct
------------------
list of all the Material Contracts to which Stone or Ashland is a party. As used
in this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which Stone or Ashland is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of Stone or Ashland, which entails annual payments, in the case of any such
lease or agreement, in excess of $5,000;
(c) all options with respect to any property, real or personal,
whether Stone or Ashland shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
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(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to Stone or Ashland in a principal amount
(or with maximum availability) in excess of $15,000;
(f) all contracts and agreements to which Stone or Ashland is a
party and which are (i) outstanding contracts with its officers, employees,
agents, consultants, advisors, salesmen, sales representatives, distributors,
sales agents or dealers of Stone or Ashland other than purchase orders made by
any customer of Stone or Ashland in the ordinary course of business and
contracts which by their terms are cancelable by Stone or Ashland with notice of
not more than 30 days and without cancellation penalties or severance payments,
in the case of any such contract, in excess of $5,000, (ii) collective
bargaining agreements of Stone or Ashland which relate to the business of Stone
or Ashland, and (iii) pension, profit-sharing, bonus, retirement, stock option
or employee benefit plans or other similar plans or arrangements of Stone or
Ashland;
(g) any covenant not to compete or similar restriction on Stone or
Ashland;
(h) any contract with the United States, state or local government
or any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement (other than purchase orders for the
sale or purchase of inventory and equipment in the ordinary course of business)
providing for the receipt or payment (whether the obligations are fixed or
contingent) of $5,000 or more after the date of this Agreement which are not
cancelable on thirty (30) calendar days notice without penalty, including,
without limitation, agreements calling for penalties or payments upon voluntary
termination or withdrawal by Stone or Ashland.
Stone and Ashland has furnished or will furnish to City or its representatives
true and correct copies of all Material Contracts prior to the Closing,
including all amendments and supplements thereto.
3.14. Proprietary Rights.
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(a) Schedule 3.14 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for Stone
and Ashland. Schedule 3.14 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.14 are
all those used by Stone and Ashland in connection with is business. Neither
Stone nor Ashland owns, controls or otherwise has any interest in any patents or
pending patent applications.
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(b) Neither Stone nor Ashland has entered into an agreement to
compensate any person for the use of any such Proprietary Rights nor has Stone
or Ashland granted to any person any license, option or other rights to use in
any manner any of its Proprietary Rights, whether requiring the payment of
royalties or not.
(c) To the best knowledge of Stone or Ashland, Stone and Ashland has
a valid right to use each of the Proprietary Rights, and the Proprietary Rights
will not cease to be valid rights of Stone or Ashland by reason of the
execution, delivery and performance of this Agreement, the Ancillary Agreements
or the consummation of the transactions contemplated hereby and thereby.
Neither Stone nor Ashland has received any notice of invalidity or infringement
of any rights of others with respect to such trademarks. No other person (i) to
the best knowledge of Stone or Ashland after a search of its files relating to
intellectual property (excluding any search of records generally available to
the public), has the right to use any trademarks of Stone or Ashland on the
goods on which they are now being used either in identical form or in such near
resemblance thereto as to be likely, when applied to the goods of any such
person, to cause confusion with such trademarks or to cause a mistake or to
deceive, (ii) has notified Stone and Ashland that it is claiming any ownership
of or right to use such Proprietary Rights, or (iii) to the best knowledge of
Stone or Ashland, is infringing upon any such Proprietary Rights in any way. To
the best knowledge of Stone or Ashland after a search its files relating to
intellectual property (excluding any search of records generally available to
the public), the use by Stone and Ashland of any Proprietary Rights does not and
will not conflict with, infringe upon or otherwise violate the valid rights of
any third party in or to such Proprietary Rights, and no Action has been
instituted against or notices received by Stone or Ashland that are presently
outstanding, alleging that such use of the Proprietary Rights infringes upon or
otherwise violates any rights of a third party in or to such Proprietary Rights.
3.15. Labor Matters. Neither Stone nor Ashland is a party to any labor
-------------
agreement with respect to its employees with any labor organization, union,
group or association, and there are no employee unions (nor any other similar
labor or employee organizations) under local statutes, custom or practice.
Neither Stone nor Ashland has experienced any attempt by organized labor or its
representatives to make it conform to demands of organized labor relating to its
employees or to enter into a binding agreement with organized labor that would
cover the employees of Stone or Ashland. There is no labor strike or labor
disturbance pending or, to the best knowledge of Stone, threatened against Stone
or Ashland, nor is any grievance currently being asserted, and neither Stone nor
Ashland has experienced a work stoppage or other labor difficulty, and is not
and has not engaged in any unfair labor practice. Without limiting the
foregoing, to the best knowledge of Stone or Ashland, Stone and Ashland is in
compliance with the Immigration Reform and Control Act of 1986. Each of Stone
and Ashland maintains a current Form I-9, as required by such Act, in the
personnel file of each employee hired after November 9, 1986.
3.16. Consents. Except for the filing required under the Hart-Scott-Rodino
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Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), and as set
forth on Schedule 3.16, no consent, approval, authorization, order, filing,
registration or qualification (each, a "Consent") of or with any court,
governmental authority or third person is required to be
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made or obtained by Stone or Ashland in connection with the execution and
delivery of this Agreement, the Ancillary Agreements or the consummation by
Stone or Ashland of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.17. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.17 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of Stone and Ashland and
that are not Plans (as defined below) (collectively, the "Employment
Contracts"), (ii) all "employee welfare benefit plans" or "employee pension
benefit plans," as such terms are defined in Sections 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which are maintained, administered or contributed to by Stone and
Ashland and cover employees or former employees of Stone and Ashland or under
which Stone and Ashland could incur any liability (collectively, the "Plans").
Each of Stone and Ashland has furnished or will furnish to City or its
representatives, true and correct copies of instruments evidencing all such
Employment Contracts and the Plans, all as amended to date.
(b) None of the Plans is a "multiemployer plan" as such term is
defined in Section 3(37) or Section 4001(1)(a)(3) of ERISA. In the past six
years, neither Stone nor Ashland has maintained, sponsored, or been required to
contribute to, withdrawn from (either completely or partially), or incurred any
unpaid withdrawal liability (as defined in Section 4201, 4063 or 4064 of ERISA)
with respect to, any "multiemployer plan," as such term is defined in Section
3(37) or Section 4001(1)(a)(3) of ERISA.
(c) The Plans have been administered in compliance in all material
respects with their terms and with all filings, reporting, disclosure, and other
requirements of ERISA, the Code and any other applicable law. Each Plan
(together with its related funding instrument) which is an "employee pension
benefit plan," as such term is defined in Section 3(2) of ERISA (such Plans, the
"Pension Plans"), and which is intended to be qualified under the Code, is
qualified under Section 401 of the Code and the regulations issued thereunder,
and each such Plan and its related funding instrument is a prototype plan in
respect of which a favorable determination letter has been issued by the
Internal Revenue Service to the sponsor holding that the terms of such prototype
Plan and funding instrument satisfy the qualification requirements of the Code.
(d) Neither Stone, Ashland or to the knowledge of Stone or Ashland,
any of its respective employees or directors, or plan fiduciary of any of the
Plans, have engaged in any transaction in violation of Section 406(a) or (b) of
ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of the
Code) for which no exemption exists under Section 4975(d) of the Code, and, to
the knowledge of Stone or Ashland, no "reportable event" (as defined in Section
4043 of ERISA and the regulations promulgated thereunder), other than such as
may arise out of the consummation of the transactions contemplated by this
Agreement, has occurred in connection with any Plan.
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(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims") and to the best knowledge of Stone or Ashland, no such Claims
are threatened against any Plan or fiduciary of any such Plan by any
participant, beneficiary or governmental agency with respect to the
qualification or administration of any such Plan.
(f) Each of Stone and Ashland has provided to City or its
representatives a copy of the Plans, related trust agreements and all amendments
thereto together with the annual reports required to be filed during the last
three years (Form 5500, including Schedule B thereto). Each of Stone and
Ashland has provided to City or its representatives with true and complete age,
salary, service and related data for employees, former employees entitled to
benefits under each Pension Plan as of the Closing Date.
(g) None of the Plans is subject to minimum funding requirements of
ERISA or Section 412 of the Code. Neither Stone nor Ashland has not, in the
past six years, maintained, sponsored, contributed to or been obligated to
contribute to any "employee pension benefit plan," as such term is defined in
Section 3(2) of ERISA which is, or at any time in the past six years was,
subject to the minimum funding requirements of ERISA or Section 412 of the Code.
(h) Stone and Ashland and the entities required to be aggregated with
them under Sections 414(b), (c), (m) and (o) of the Code (the "Stone ERISA
Affiliates") have not incurred any liability to the PBGC or any Pension Plan
under Title IV of ERISA that could become a liability of City. No Stone ERISA
Affiliate will incur any liability under Section 411(d)(3) of the Code for
vested accrued benefits arising from a partial termination of any Pension Plan
prior to the Closing Date.
(i) All amounts required to be contributed to any Pension Plan by
Stone or Ashland will, as of the Closing Date, have been paid or properly
accrued on the books of Stone. Any amounts required to be accrued as expenses
in accordance with applicable pension accounting requirements through the
Closing Date have been or will be properly recorded on the books of Stone as of
the Closing Date. Each of Stone and Ashland shall either contribute or accrue
on its respective books the amount of any employer matching contributions or
discretionary contributions (in an amount determined in accordance with Stone's
or Ashland's past practices) to any Pension Plan which in the ordinary course of
business would be contributed for or attributable to the period for the calendar
quarter prior to the Closing Date.
(j) To the best knowledge of Stone or Ashland, no condition exists
and no event has occurred which (i) would constitute grounds for termination by
the PBGC of any Pension Plan, or (ii) after a review of its files maintained
with respect to benefit plans, has caused or would give rise to a partial
termination of any Pension Plan.
(k) None of the assets of the Pension Plans are invested in property
constituting employer real property or employer securities (within the meaning
of Section 407(d) of ERISA).
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(l) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of Stone
and Ashland.
(m) Except as required by COBRA, neither Ashland, Stone nor any Plan
which is a "welfare benefit plan," as such term is defined in Section 3(1) of
ERISA has any present or future obligation to provide medical or other welfare
benefits to, or to make any payment to or with respect to medical or other
welfare benefits of any former employee of Stone, Ashland or any ERISA
Affiliate.
(n) No Stone ERISA Affiliate has incurred any liability with respect
to which Stone or Ashland has incurred or could incur any liability.
3.18. Compliance With Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section 3.18
-----------
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(i) "Stone," for the purposes of this Section, shall mean Stone
or Ashland. "Predecessors", for the purposes of this Section, shall mean all
partnerships, joint ventures and other entities or organizations in which Stone
or Ashland was at any time or is a partner, joint venturer, member or
participant and all predecessor or former corporations, partnerships, joint
ventures, organizations, businesses or other entities, whether in existence as
of the date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by Stone or Ashland or to
which Stone or Ashland has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitable or flammable chemical or chemical compound or hazardous
substance, material or waste, whether solid, liquid or gas, including, without
limitation, any quantity of asbestos in any form, urea formaldehyde, PCB's,
radon gas, crude oil or any fraction thereof, all forms of natural gas,
petroleum products or by-products or derivatives, radioactive substance or
material, pesticide waste waters, sludges, slag and any other
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substance, material or waste that is subject to regulation, control or
remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the use,
treatment, storage, transportation, generation, manufacture, processing,
distribution, handling or disposal of, or emission, discharge or other release
or threatened release of, Hazardous Substances (whether, gas, liquid or solid),
the preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health and safety of persons
or property, including without limitation protection of the health and safety of
employees. Environmental Laws shall include, without limitation, the Federal
Insecticide, Fungicide, Rodenticide Act, Resource Conservation & Recovery Act,
Clean Water Act, Safe Drinking Water Act, Atomic Energy Act, Occupational Safety
and Health Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response, Compensation and Liability Act, Emergency Planning and
Community Right-to-Know Act, Hazardous Materials Transportation Act and all
analogous or related federal, state or local law, each as amended.
(v) "Environmental Conditions" means the Release of a Hazardous
Substance (whether or not upon any Facility or former Facility or other property
and whether or not the Release constituted at the time thereof a violation of
any Environmental Law) as a result of which Stone has or may become liable to
any person or by reason of which any Facility or any of the assets of Stone may
suffer or be subjected to any lien.
(b) Notice of Violation. Except as set forth on Schedule 3.18, Stone
-------------------
and, to the knowledge of Stone, Predessors, have not received a notice of
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
Stone and, to its knowledge, Predecessors, have not received notice of any other
claim, demand or Action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or former
Facilities, or in connection with any operations or activities of Stone.
(c) Environmental Conditions. To the knowledge of Stone, there are
------------------------
no present or past Environmental Conditions at any Facility or former Facility,
except as disclosed in any report described on Schedule 3.18.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of Stone, of all
environmental audits or
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assessments which have been conducted at any Facility or former Facility within
the past five years, either by Stone or any attorney, environmental consultant
or engineer engaged by Stone for such purpose, have been delivered to City or
its representatives and a list of all such reports, audits and assessments and
any other similar report, audit or assessment of which Stone has knowledge is
included in Schedule 3.18 hereto.
(e) Indemnification Agreements. To the knowledge of Stone after a
--------------------------
review of its lease and acquisition files, Stone is not a party, whether as a
direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any lease or other contract (excluding insurance policies
disclosed on the Schedule) under which Stone is obligated by or entitled to the
benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
Environmental Conditions.
(f) Releases or Waivers. To the knowledge of Stone after a review
-------------------
of its lease and acquisition files, Stone has not released any other person from
any claim under any Environmental Law or waived any rights concerning any
Environmental Condition.
(g) Notices, Warnings and Records. To the knowledge of Stone, Stone
-----------------------------
has given all notices and warnings, made all reports, and has kept and
maintained all records required by and in compliance with all Environmental
Laws.
3.19. Certain Business Relationships with the Existing Shareholders.
-------------------------------------------------------------
Except as set forth on Schedule 3.19, none of Existing Shareholders
owning more than 5% of its outstanding voting securities of Stone have been
involved in any business arrangement or relationship with Stone or Ashland
within the past 12 months, and none of Existing Shareholders own any assets,
tangible or intangible, which are used in the Business.
3.20. Undisclosed Liabilities. To the best knowledge of Stone or Ashland
-----------------------
after a search of their respective files relating to pending litigation and
outstanding debt for borrowed money, neither Stone nor Ashland has any
liabilities or obligations, whether accrued, absolute, contingent or otherwise
except (i) to the extent reflected or reserved for on the Balance Sheets, (ii)
liabilities or obligations incurred in the normal and ordinary course of
business of Stone since December 31, 1997, (iii) liabilities or obligations
disclosed in Schedule 3.20 hereto and in the other Schedules attached hereto, or
(iv) liabilities or obligations disclosed elsewhere in this Agreement.
Notwithstanding the foregoing, Ashland has no obligations secured by liens in
favor of Southern National Bank, and Stone has no obligation subject to a
mechanics' or similar lien in favor of Champion Systems, Inc.
3.21. Insurance. Schedule 3.21 contains a complete and accurate list of
---------
all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage maintained by Stone or
Ashland on its respective (i) businesses, (ii) assets or (iii) employees as
presently maintained and a list prepared by the insurance broker of Stone and
Ashland of all such
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policies or binders for all times since December 31, 1991 for Stone, and for all
times since September 1, 1995 for Ashland. All insurance coverage applicable to
Stone, Ashland or the Business or Assets is in full force and effect provides
coverage as may be required by applicable law and by any and all contracts to
which Stone or Ashland is a party. There is no default under any such coverage
nor has there been any failure to give notice or present any claim under any
such coverage in a due and timely fashion. There are no outstanding unpaid
premiums except in the ordinary course of business and no notice of cancellation
or nonrenewal of any such coverage has been received. There are no outstanding
performance bonds covering or issued for the benefit of Stone or Ashland. No
insurer has advised Stone or Ashland that it intends to reduce coverage,
increase premiums or fail to renew existing policy or binder.
3.22. Accounts Receivable. The accounts receivable set forth on the 1997
-------------------
Balance Sheet, and all accounts receivable arising since the date of the 1997
Balance Sheet, represent bona fide claims of Stone and Ashland against debtors
for sales, services performed or other charges arising on or before the date
hereof, and all the goods delivered and services performed which gave rise to
said accounts were delivered or performed in accordance with the applicable
orders, contracts or customer requirements. To the knowledge of Stone or
Ashland, said accounts receivable are subject to no defenses, counterclaims or
rights of setoff other than those that have arisen in the ordinary course of
business consistent with past experiences which in the aggregate would not have
a Material Adverse Effect. The reserves for bad debts on accounts receivable as
set forth on the 1997 Balance Sheet have been established by estimates of Stone
and Ashland made in the exercise of its business judgment consistent with past
practices and in accordance with GAAP.
3.23. Inventory. Schedule 3.23 contains a complete and accurate list of
---------
all inventory set forth on the 1997 Balance Sheet and the addresses at which
such inventory is located. Each of Stone and Ashland has good title to, and
unrestricted possession of, all inventory set forth on the 1997 Balance Sheet,
free and clear of all liens, mortgage, pledges, encumbrances, and security
interests. The inventory as set forth on the 1997 Balance Sheet or arising since
the date of the 1997 Balance Sheet was acquired and has been maintained in
accordance with the regular business practices of Stone and Ashland, consists in
all material respects of items of a quality and quantity usable or salable in
the ordinary course of business consistent with past practice, and is valued at
reasonable amounts based on the normal valuation policy of Stone and Ashland at
prices equal to the lower of cost or market value on a FIFO basis. No material
portion of such inventory is obsolete, unusable, slow-moving, damaged or
unsalable in the ordinary course of business, except for such items of inventory
which have been written down to realizable market value, or for which adequate
reserves have been provided, in the 1997 Balance Sheet.
3.24. Payments. Neither Stone nor Ashland has, directly or indirectly,
--------
paid or delivered any fee, commission or other sum of money or item or property,
however characterized, to any finder, agent, client, customer, supplier,
government official or other party, in the United States or any other country,
which is in any manner related to the business, assets or operations of Stone or
Ashland, which is, or may be with the passage of time or discovery, illegal
under any federal, state or local laws of the United States (including, without
limitation, the U.S. Foreign Corrupt Practices' Act) or any other country having
jurisdiction. Neither Stone
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nor Ashland has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers.
3.25. Customers, Distributors and Suppliers. Schedule 3.25 sets forth a
-------------------------------------
complete and accurate list of the names and addresses of each of Stone and
Ashland's (i) ten largest (in terms of dollar volume) customers, distributors
and other agents and representatives during Stone and Ashland's last fiscal
year, showing the approximate total sales in dollars by Stone or Ashland to such
customer during such fiscal year; and (ii) ten (10) largest suppliers during
each of Stone and Ashland's last fiscal year, showing the approximate total
purchases in dollars by Stone or Ashland from such supplier during such fiscal
year. Since the date of the Balance Sheets, neither Stone nor Ashland has
received any written communication regarding any adverse change in the business
relationship of Stone or Ashland with any customer, distributor or supplier
named on Schedule 3.25. Neither Stone nor Ashland has received any written
communication from any customer, distributor or supplier named on Schedule 3.25
regarding any intention, and neither Stone nor Ashland has any reason to
anticipate that any customer, distributor or supplier intends to terminate or
materially reduce purchases from or supplies to Stone or Ashland.
3.26. Banking Relationships. Schedule 3.26 sets forth a complete and
---------------------
accurate description of all arrangements that Stone has with any banks, savings
and loan associations or other financial institutions providing for checking
accounts, safe deposit boxes, borrowing arrangements, and certificates of
deposit or otherwise, indicating in each case account numbers, if applicable,
and the person or persons authorized to act or sign on behalf of Stone or
Ashland in respect of any of the foregoing.
3.27. Investment. Stone (i) understands that the Common and Preferred
----------
Stock has not been, and will not be as of the Closing Date, registered under the
Securities Act, or under any state securities laws, and is being offered and
sold in reliance upon federal and state exemptions for transactions not
involving any public offering, (ii) is acquiring the Common and Preferred Stock
solely for its own account for investment purposes, and not with a view to the
distribution thereof, (iii) is a sophisticated investor with knowledge and
experience in business and financial matters and an "accredited investor" (as
defined under the federal securities laws), (iv) has received information
concerning City and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding the
Common and Preferred Stock, and (v) is able to bear the economic risk and lack
of liquidity inherent in holding the Common and Preferred Stock.
3.28. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by Stone or Ashland in this Agreement, including, without limitation,
the Exhibits and Schedules, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary to
make the statements or facts contained herein not misleading.
20
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF CITY
City hereby represents and warrants to Stone and Ashland as follows:
4.1. Corporate Organization and Standing. City is a corporation, duly
-----------------------------------
incorporated and validly existing under the laws of the State of Alabama, with
all requisite corporate power and authority to execute and deliver this
Agreement, the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized, executed and
-------------
delivered by City, and is its valid and binding obligation, enforceable against
it in accordance with its terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
4.3. No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement, the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, will (i) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which City is a party or by which it is bound or to
which any of its assets is subject, (ii) conflict with or result in a breach of
or constitute a default under any provision of its Certificate of Incorporation
or Bylaws (or other charter documents), or a default under or violation of any
material restriction, lien, encumbrance or any contract to City is a party or by
which it is bound or to which any of its assets is subject or result in the
creation of any lien or encumbrance upon any of said assets, (iii) violate or
result in a breach of or constitute a default under any judgment, order, decree,
rule or regulation of any court or governmental agency to which City is subject,
or (iv) violate, conflict with or result in a breach of any applicable federal
or state rule or regulation.
4.4. Litigation. There are no actions, suits, proceedings or
----------
investigations pending, or to City' best knowledge after a review of its files
related to litigation, threatened which question the validity of this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated herein.
4.5. Brokers, Finders. City has not retained any broker or finder, nor is
----------------
obligated or has agreed to pay any brokerage or finder's commission, fee or
similar compensation, in connection with the transactions contemplated herein,
other than pursuant to the Corporate Development and Administrative Services
Agreement by and between City and Brentwood Private Equity LLC.
4.6. Approvals, Etc. All consents, approvals, authorizations and orders
--------------
(corporate, governmental or otherwise) necessary for the due authorization,
execution and delivery by City of this Agreement, the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby have been
obtained.
4.7. Material Misstatements or Omissions. No representations or warranties
-----------------------------------
by City in this Agreement contains or will contain any untrue statement of a
material fact, or omits
21
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or will omit to state any material fact necessary to make the statements of
facts contained herein not misleading.
4.8. Stock. The shares of Common Stock and Series B Preferred Stock issued
-----
to Stone pursuant to this Agreement will be validly issued, fully paid and
nonassessable.
4.9. Capitalization. Immediately after the Closing, the total invested
--------------
capital and the percentage ownership of pre-management shares of City shall be
as set forth on Schedule 4.9.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Parties each covenant with the others as follows:
5.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, both before and after the Closing, (i) to
use all reasonable good faith efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement or
the Ancillary Agreements, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder, and (iii) to cooperate with
each other in connection with the foregoing. Without limiting the foregoing, the
parties agree to use their respective good faith reasonable efforts (A) to
obtain all necessary waivers, consents and approvals from other parties
(including, without limitation, governmental entities) to the consummation of
the transactions contemplated by this Agreement, except that no Parties shall be
required to engage in litigation or to incur any material costs with respect
thereto (other than payment of the H-S-R filing fee by City; (B) to obtain all
necessary Permits as are required to be obtained under any regulations; (C) to
defend all Actions challenging this Agreement or the consummation of the
transactions contemplated hereby; (D) to lift or rescind any injunction or
restraining order or other court order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby; (E) to give all
notices to, and make all registrations and filings with third parties,
including, without limitation, submissions of information requested by
governmental authorities; and (F) to fulfill all conditions to this Agreement.
If not previously done, within five (5) calendar days after the execution and
delivery of this Agreement, the Parties shall make all filings required under
the H-S-R Act.
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of Stone, or of any shares of capital stock of Stone,
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or any merger, consolidation, liquidation, dissolution or similar transaction
involving Stone (each such transaction being referred to herein as a "Proposed
Acquisition Transaction") other than with (i) another Party hereto and their
representatives (ii) as required by law, or (iii) employees of Stone regarding
such employees' possible investments in City. Stone shall not, directly or
indirectly, through any officer, director, employee, representative, agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or entity
relating to any Proposed Acquisition Transaction. Stone represents that it is
not now engaged in discussions or negotiations with any party other than City
with respect to any of the foregoing.
(b) Notification. Stone and Ashland will immediately notify City if
------------
any discussions or negotiations are sought to be initiated, any inquiry or
proposal is made, or any information is requested with respect to any Proposed
Acquisition Transaction and notify City of the identity of the prospective
purchaser or soliciting party.
5.3. Disclosures.
-----------
(a) Prior to the Closing, none of the Parties shall disclose the
details nor the status of the transactions contemplated by this Agreement except
(i) as required by law, (ii) to Larry Clayton and his representatives or (iii)
certain vendors of Stone or Ashland.
(b) Prior to the Closing, the Parties shall agree on the terms of
any press releases or other public announcements related to this Agreement and
shall consult with each other before issuing any press releases or other public
announcements related to this Agreement; provided, however, that any Party may
make a public disclosure if in the opinion of such Party's counsel it is
required by law to make such disclosure. The Parties agree, to the extent
practicable, to consult with each other regarding any such required public
announcement in advance thereof.
5.4. Notification of Certain Matters. From the date hereof through the
-------------------------------
Closing, Stone or Ashland shall give prompt notice to City of (a) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement or
in any exhibit or Schedule hereto to be untrue or inaccurate in any material
respect and (b) any material failure of Stone or Ashland, or their respective
shareholders or representatives, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any exhibit or Schedule hereto; provided, however, that such
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition, Stone shall promptly notify
City of any default, the threat or commencement of any Action, or any
development that occurs before the Closing that could in any way materially
affect Stone, Ashland, the Assets or the Business.
5.5. Investigation by City and Its Representatives.
---------------------------------------------
(a) Stone and Ashland shall, and shall cause their respective
officers, directors, employees and agents, to afford City and its
representatives complete access at all
23
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reasonable times and upon reasonable notice to the Facilities, officers,
employees, agents, attorneys, accountants, properties, books and records, and
contracts of Stone and Ashland, and shall furnish City and its representatives,
all financial, operating and other data and information as City through its
respective representatives, may reasonably request, including unaudited combined
balance sheets and the related statements of earnings and retained earnings and
cash flow for each month from the date hereof through the end of the month
immediately preceding Closing Date within 15 calendar days after the end of each
month, which financial statements shall be in accordance with the books and
records of Stone and Ashland and be prepared in accordance with accounting
principles and procedures historically used in preparing interim statements, all
of which will be unaudited without footnotes and subject to normal year-end
adjustments.
(b) City shall have the right to conduct due diligence of the Leased
Real Property, to confirm that all such Leased Real Property are in compliance
with environmental and zoning laws and the Americans with Disabilities Act of
1990. City agrees to order Phase I site assessment reports and, if necessary,
Phase II site assessment reports for the Leased Real Property. City shall bear
the costs of the due diligence which it incurs. Any underground storage tank
removal and resulting remediation required by applicable law or any remediation
involving environmental conditions existing as of the Closing to the extent
caused by Stone, Ashland, the Existing Shareholders or an entity controlled by
the Existing Shareholders shall be performed by Stone or Ashland at its expense.
5.6. Conduct of Business. From the date hereof through the Closing, Stone
-------------------
and Ashland shall, except as contemplated by this Agreement, or as consented to
by City in writing, operate their respective businesses in the ordinary course
of business and in accordance with past practice and will not take any action
inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, neither Stone nor Ashland
shall, except as specifically contemplated by this Agreement or as consented to
by City in writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
contract or lease, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and, without limiting the generality of the
foregoing, Stone and Ashland will produce, maintain and sell inventory
consistent with its past practices;
(d) incur any liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of Stone in effect on the date hereof that are described on the
Schedules) or with respect to any increase of
24
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benefits payable under its severance or termination pay policies or
agreements in effect on the date hereof or increase in any manner the
compensation or fringe benefits of any employee or pay any benefit not
required by any existing Employee Plan or policy;
(ii) make any change in the key management structure, including,
without limitation, the hiring of additional officers or the termination of
existing officers;
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
any employee, except for any such amendment as may be required to comply
with applicable Regulations; or
(iv) fail to maintain all Employee Plans in accordance with
applicable Regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock, except for distributions on or
about June 15, 1998 to the Existing Shareholders to enable them to pay Income
Tax on income arising out of the Business;
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of
the Insurance Policies may be suspended, impaired or canceled;
(j) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business, consistent with past practices; or
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, worn-out or obsolete or destroyed assets;
(l) make any loans or advances to any partnership, firm or
corporation, or, except for expenses incurred in the ordinary course of
business, any individual;
(m) make any income tax election or settlement or compromise with
tax authorities without providing City with written notice of such election,
settlement or compromise;
(n) fail to comply with all regulations applicable to it, its assets
and its business, the violation of which would singly or in the aggregate have a
Material Adverse Effect;
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(o) intentionally do any other act which would cause any
representation or warranty of Stone or Ashland in this Agreement to be or become
untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its good faith reasonable efforts consistent with
past practices to (i) retain its employees and (ii) maintain its business so
that such employees will remain available to it on and after the Closing Date,
(iii) maintain existing relationships with suppliers, customers and others
having business dealings with it and (iv) otherwise preserve the goodwill of its
business so that such relationships and goodwill will be preserved on and after
the Closing Date;
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Non-Compliance With and Termination of This Agreement. This Agreement
-----------------------------------------------------
may be terminated at any time prior to the Closing as follows:
(a) by the mutual agreement of Stone and Ashland and City, provided
such termination is set forth in writing executed by each Party;
(b) by City, if any of the conditions specified in Section 6.1
hereof (other than the expiration or other termination of all applicable H-S-R
waiting periods) shall not have been met by July 15, 1998 and shall not have
been waived in writing by City;
(c) by Stone or Ashland, if any of the conditions set forth in
Section 7.1 hereof (other than the expiration or other termination of all
applicable H-S-R waiting periods) shall not have been met by July 15, 1998 and
shall not have been waived in writing by Stone;
(d) if the Closing does not occur by July 15, 1998 for any reason.
If this Agreement is validly terminated pursuant to this Section, this Agreement
will forthwith become null and void, except that the provisions of Section 5.3
and Section 9.1 hereof will continue to apply following any such termination;
provided, however, no Party will be relieved of any liability that such Party
may have to any other Party by reason of such Party's breach of this Agreement.
5.8. Covenant Regarding Environmental Remediation and Compliance.
-----------------------------------------------------------
(a) Stone agrees to undertake the following actions:
(i) immediately report to the appropriate regulatory agencies
contaminant exceedances identified at the Jones Sausage Road and U.S. Highway 70
facilities, and accept sole responsibility for such exceedances;
26
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(ii) promptly conduct at Stone's sole cost and responsibility
all actions necessary to respond to contamination at the facilities to the
satisfaction of the appropriate regulatory agencies; and
(iii) promptly take all steps reasonably necessary to prevent
such contamination from reoccurring, including but not limited to (a) plugging
the floor drains, sealing or permanently encasing the bay sump (and prior to
Closing and until such sealing or encasing is completed, cease using such sump
and covering it with a tarp or similar cover) and pumping out the underground
cistern of the Jones Sausage Road facility and (b) modifying operations at the
U.S. Highway 70 facility to eliminate exposures of operations at such facility
to stormwater, runoff or other Release..
(b) At Closing, City will retain One Hundred Fifty Thousand Dollars
($150,000) of the Stone Price as security and holdback for the obligations set
forth in Section 5.8. Such amount, net of any offsets or deductions necessary
to indemnify City for any expenses incurred as a result of Stone's failing to
satisfy its obligations under Section 5.8(a), shall be paid to Stone as soon as
Section 5.8(a) has been complied with.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY CITY
The obligations of City under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by City:
6.1. No Injunctive Proceedings. No preliminary or permanent injunction or
-------------------------
other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect (provided that City has acted in accordance with the
requirements of Section 5.1 hereof).
6.2. Representations and Warranties; Disclosure Schedule. The
---------------------------------------------------
representations and warranties of Stone and Ashland contained in this Agreement
shall be true and correct in all material respects as of the Closing Date, as if
made on such date, except as otherwise contemplated by this Agreement.
6.3. Performance of Agreements. Stone and Ashland shall have fully
-------------------------
performed in all material respects all obligations, agreements, conditions and
commitments required to be fulfilled by them pursuant to the terms hereof on or
prior to the Closing Date.
6.4. Compliance Certificate. Each of Stone and Ashland shall have
----------------------
delivered to City or its representatives, its respective certificates, dated the
Closing Date, executed on its behalf by its respective duly authorized
representatives, as to the fulfillment of the conditions set forth in Sections
6.2 and 6.3 hereof.
6.5. Material Changes. There shall not have been any Material Adverse
----------------
Effect from the date hereof to the Closing Date.
27
<PAGE>
6.6. Opinion of Counsel. City shall have received the opinion of Wyrick
------------------
Robbins Yates & Ponton LLP, counsel for Stone and Ashland, in a form reasonably
acceptable to City.
6.7. Consents, Etc. The authorizations, consents or approvals of third
-------------
parties and governmental regulatory authorities necessary in connection with the
consummation of the Closing shall have been obtained and be in full force and
effect.
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than City: (i) employment agreements (including noncompete clauses) with Fred A.
Stone, Jr. and James T. Stone substantially in the form attached hereto as
Exhibit F, (ii) an Amended and Restated Stockholders' Agreement for City
substantially in the form attached hereto as Exhibit G; and (iii) real property
leases for current locations at which Stone does business between the Stones or
an entity controlled by them and City, which will replace leases currently in
effect between Stone and the Stones or an entity controlled by them, such leases
to be in the form attached hereto and to be initially at the same base rents as
in effect for such properties immediately prior to Closing.
6.9. Escrow Agreement. An escrow agreement ("Escrow Agreement") by and
----------------
among Stone, City and, substantially in the form attached hereto as Exhibit H,
in connection with the holdback escrow arrangement described in Section 8.9
hereof, shall have been executed and delivered.
6.10. Loans and Advances. All loans or advances to an Existing Shareholder
------------------
by Stone or Ashland or to Stone or Ashland by an Existing Shareholder shall have
been repaid in full.
6.11. Name Change. Stone and Ashland shall have delivered to City for
-----------
filing post-Closing an amendment to their respective Articles of Incorporation
to change its corporate name so as not to include the words "Stone Heavy Duty,"
or "Ashland Auto Parts," respectively or any other name or mark that has such a
near resemblance thereto as may be likely to cause confusion or mistake to the
public, or to otherwise deceive the public.
6.12. Nonforeign Affidavit. Each of Stone and Ashland shall furnish to
--------------------
City an affidavit, stating, under penalty of perjury, its United States taxpayer
identification number and that it is not a foreign person, pursuant to Section
1445(b)(2) of the Code.
6.13. Management Continuity Agreements. All Management Continuity
--------------------------------
Agreements in effect by and between Stone and its executives shall be terminated
prior to Closing, or if not terminated, shall not constitute the Assets and
---
shall be Excluded Liabilities.
28
<PAGE>
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY STONE AND ASHLAND
The obligations of Stone and Ashland under this Agreement are subject
to the fulfillment prior to the Closing of each of the following conditions, any
one or more of which may be waived by Stone and Ashland:
7.1. No Injunctive Proceedings. No preliminary or permanent injunction or
-------------------------
other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
7.2. Representations and Warranties. Except as otherwise contemplated by
------------------------------
this Agreement, the representations and warranties of City contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as if made on such date.
7.3. Performance of Agreements; Instruments of Transfer. City shall have
--------------------------------------------------
fully performed in all material respects all obligations, agreements, conditions
and commitments required to be fulfilled by City on or prior to the Closing Date
and shall have tendered to Stone and Ashland, the documents, instruments and
certificates required by Article 7 hereof.
7.4. Compliance Certificates. City shall have delivered to Stone and
-----------------------
Ashland its certificate, dated the Closing Date, executed on its behalf by its
President or a Vice President, as to the fulfillment of the conditions set forth
in Sections 7.2 and 7.3 hereof.
7.5. Ancillary Agreements. The condition set forth in Section 6.8 hereof
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6. Opinion of Counsel. Stone and Ashland shall have received the opinion
------------------
of counsel for City in a form reasonably acceptable to Stone and Ashland.
7.7. Amended and Restated Articles of Incorporation. Prior to Closing,
----------------------------------------------
City shall have filed with the Judge of Probate of Jefferson County, Alabama,
Amended and Restated Articles of Incorporation, reclassifying its shares of
Common Stock, par value $.01 per share, into shares of Common Stock, par value
$.01 per share, and shares of Series B Preferred Stock, par value $.01 per
share.
ARTICLE VIII.
ACTIONS BY CITY, STONE AND ASHLAND AFTER THE CLOSING
8.1. Collection of Accounts Receivable and Letters of Credit. At the
-------------------------------------------------------
Closing, City will acquire hereunder the right and authority to collect all
receivables, letters of credit and other items which constitute a part of the
Assets, and Stone and Ashland shall within forty-eight (48) hours after receipt
of any payment in respect of any of the foregoing, properly endorse and
29
<PAGE>
deliver to City any letters of credit, documents, cash or checks or other
consideration received on account of or otherwise relating to any such
receivables, letters of credit or other items.
8.2. Consents to Assignment. Anything in this Agreement to the contrary
----------------------
notwithstanding. this Agreement shall not constitute an agreement to assign any
lease, contract or license, or any claim or right or any benefit arising
thereunder or resulting therefrom if any attempted assignment thereof, without
the consent of a third party thereto, would constitute a breach thereof or in
any way adversely affect the rights of Stone or Ashland thereunder. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights thereunder so that City would not receive
all such rights. Stone and Ashland will cooperate with City, in all reasonable
respects, to provide to City with the benefits under any such lease, contract,
license, claim or right, including, without limitation, enforcement for the
benefit of City of any and all rights of Stone or Ashland against a third party
thereto arising out of the breach or cancellation by such third party or
otherwise.
8.3. Indemnification by Stone, Ashland and the Existing Shareholders.
---------------------------------------------------------------
Subject to the provisions of this Article VIII, Stone, Ashland and the Existing
Shareholders will jointly and severally indemnify, defend and hold City and its
respective stockholders, subsidiaries, officers, directors, employees, agents,
successors and assigns, (such indemnified persons are collectively hereinafter
referred to as "City's Indemnified Persons"), harmless from and against any and
all loss, liability, damage (excluding consequential, indirect special,
exemplary and punitive damages) or deficiency (including interest, penalties,
judgments, costs of preparation and investigation, and reasonable attorneys'
fees) (collectively, "Losses") that City's Indemnified Persons may suffer,
sustain, incur or become subject to arising out of or due to: (a) any inaccuracy
of any representation of Stone or Ashland in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of Stone or Ashland in this Agreement or
any Schedule hereto, (c) environmental liabilities caused by Stone which were
not disclosed in the Phase I or Phase II Site Assessment Reports described in
Section 5.5(b) hereof, provided that there will be no liability solely for
conditions or actions which were not in violation of law as it exists or was
interpreted by relevant judicial or administrative authorities as of the Closing
but later become violations of law as a result of changes in law after the
Closing, or (d) the nonfulfillment of any covenant, undertaking, agreement or
other obligation of the Stone under this Agreement or any Schedule hereto, not
otherwise waived by City. "Losses" as used herein is not limited to matters
asserted by third parties, but includes Losses incurred or sustained in the
absence of third party claims. Payment is not a condition precedent to recovery
of indemnification for Losses.
8.4. Indemnification by City. Subject to the provisions of this Article
-----------------------
VIII, City agrees to indemnify, defend and hold Stone, Ashland, the Existing
Shareholders and their respective heirs, representatives, successors and assigns
(such persons are hereinafter collectively referred to as "Stone's Indemnified
Persons"), harmless from and against any and all Losses that the Stones'
Indemnified Persons may suffer, sustain, incur or become subject to arising out
of or due to: (a) any inaccuracy of any representation of City in this Agreement
or in any Schedule hereto; (b) the breach of any warranty of City in this
Agreement or any Schedule hereto; and (c) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of City under this Agreement or any
Schedule hereto, not otherwise waived by Stone.
30
<PAGE>
8.5. Survival of Representations, Warranties and Covenants. The several
-----------------------------------------------------
representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article VIII shall survive the Closing Date
and shall remain in full force and effect thereafter for a period (the
"Effective Period") ending upon the earlier of (i) the 60th day following the
delivery of the audited financial statements for the first full fiscal year of
City ending after the Closing, or (ii) June 30, 1999, and shall be effective
with respect to any inaccuracy therein or breach thereof, notice of which shall
have been duly given within the Effective Period in accordance with Section 9.6
hereof, after which Effective Period they shall terminate and be of no further
force or effect; provided, however, that the representations and warranties
contained in Section 3.10 hereof, relating to tax matters, shall survive for the
length of the applicable statute of limitations.
8.6. Threshold; Deductible. Except as provided in this Section 8.6, no
---------------------
City's Indemnified Person or Stone's Indemnified Person shall be entitled to any
recovery in accordance with this Article 8 unless and until the amount of such
Losses suffered, sustained or incurred by such party, or to which such party
becomes subject, by reason of such inaccuracy, breach or nonfulfillment exceeds
$500,000 and then only to the extent of such excess. Except for willful and
intentional fraud, liability for breach of representations and warranties under
this Agreement shall not exceed $5,000,000 except that liability of Stone or
Ashland for breach of tax representations and warranties or of Section 5.8
hereof or of the last sentence of Section 3.20 shall not be subject to either
the $500,000 deductible nor $5,000,000 ceiling; provided, however, any liability
of Stone or Ashland for breach of tax representations or warranties arising out
of any sales tax audit shall have a $25,000 deductible. Indemnification pursuant
to this Agreement shall constitute the sole and exclusive monetary remedy of the
Parties with respect to any breach of the representation, warranties, covenants
or agreements contained in this Agreement; provided, however, that if
indemnification is not available, any Party may pursue any other remedy to the
extent that any awards under such remedy does not, in the aggregate with all
other indemnification recoveries hereunder, exceed the $5,000,000 cap set forth
in this Section 8.6, except in the cases referred to in this Section 8.6 hereof
where the cap is not applicable.
8.7. Notice and Opportunity to Defend. If a claim for Losses (a "Claim")
--------------------------------
is to be made by a party seeking indemnification hereunder, such party seeking
indemnification (the "Indemnitee") shall notify the party obligated to provide
indemnification (the "Indemnitor") promptly. If such event involves (a) any
claim or (b) the commencement of any action or proceeding by a third person, the
Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.5 and 8.6 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to
31
<PAGE>
undertake, at the Indemnitor's cost and expense, the defense, compromise or
settlement of such matter on behalf of the Indemnitee. The Indemnitee agrees to
cooperate fully with the Indemnitor and its counsel in the defense against any
such asserted liability. In any event, the Indemnitee shall have the right to
participate at its own expense in the defense of such asserted liability. Any
compromise of such asserted liability by the Indemnitor shall require the prior
written consent of the Indemnitee, which consent will not be unreasonably
withheld and in the event the Indemnitee defends any such asserted liability,
then any compromise of such asserted liability by the Indemnitee shall require
the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld.
8.8. Indemnification Payments through Surrender of City Stock. At the
--------------------------------------------------------
Closing, City will deposit into a holdback escrow arrangement $1,330,000 in
shares of Common and Preferred Stock of City pursuant to the Escrow Agreement to
serve as partial security for the indemnification obligations of Stone and
Ashland under this Agreement. Indemnification obligations shall initially be
satisfied pursuant to the terms and conditions set forth in the Escrow Agreement
until the escrow is exhausted.
8.9. Stone Incentive Plans. City agrees to assume and discharge Stone's
---------------------
obligations under the short-term and long-term incentive bonus plans listed on
Schedule 8.9, including the payment of accrued benefits thereunder paid out in
accordance with such plans, and not to terminate or amend such plans prior to
January 1, 1999, except that such short-term and long-term incentive plans with
respect to Fred A. Stone, Jr., James T. Stone and Thomas D. Stone shall not be
assumed by City. Each of Fred A. Stone, Jr., James T. Stone and Thomas D. Stone
shall receive the benefits accrued through the Closing Date on their respective
short-term and long-term incentive plans, to be paid out in accordance with such
plans' terms .
8.10. Employment Matters and Severance Benefits. City shall not (i)
-----------------------------------------
require Gary Baker, Keith McLemore, Jeff McKeown or Don Purcell to relocate
outside of the greater Raleigh, North Carolina area nor (ii) decrease the base
salary of any of the foregoing individuals for the period of one (1) year
following the Closing Date (or, if such a decrease is implemented within one
year and any of them resigns within 30 days of his decrease, such individual
will be entitled to receive six (6) months base salary as severance pay in that
event). In addition, each of the foregoing individuals shall be entitled to
receive six (6) months base salary as severance pay if he is terminated by City
prior to the end of two years after the Closing Date. To the extent that City
establishes a stock option program for its employees, each of the foregoing
individuals shall be entitled to participate in such program.
8.11 Shareholder Representative.
--------------------------
(a) Each Existing Shareholder hereby covenants and agrees that James
T. Stone is hereby fully and exclusively authorized, empowered and appointed to
serve as his sole representative and agent (the "Existing Shareholder
Representative"), to take any and all actions, with respect to the execution,
delivery and performance of the Escrow Agreement, dated as of the Closing Date,
by and among City, Stone, James T. Stone and SouthTrust Bank ("Escrow
Agreement"), and to make any and all decisions and determinations, which may be
required or permitted to be taken or made pursuant to any of the provisions of
the Escrow Agreement by the Existing Shareholders, to perform all of the
obligations of the Existing Shareholders required or
32
<PAGE>
permitted to be performed thereunder, and to execute, deliver and perform on
behalf of the Existing Shareholders any and all amendments thereto. Any such
action, decision or determination taken or made by the Existing Shareholder
Representative and any such amendment, shall be absolutely and irrevocably
binding on each Existing Shareholder as if such Existing Shareholder had
personally taken such action or made such decision or determination in his
individual (or, as applicable, fiduciary) capacity.
(b) Each Existing Shareholder hereby irrevocably makes, constitutes
and appoints the Existing Shareholder Representative as his true and lawful
proxy and attorney-in-fact, with full power of substitution, to act with respect
to the Escrow Agreement. By granting this proxy, the Existing Shareholder
hereby revokes any other proxy granted by him to vote or act by written consent
with respect to the Escrow Agreement. All power and authority hereby conferred
by the Existing Shareholder in this subsection (b) is coupled with an interest
and is irrevocable, shall not be terminated by any act of the Existing
Shareholder or by operation of law, by death, incapacity or dissolution, by
lack of appropriate power or authority, or by the occurrence of any other event
or events, and shall be binding upon all beneficiaries, heirs, legatees,
distributees, successors, assigns and legal representatives of such Existing
Shareholder. If after the execution of the Escrow Agreement, an Existing
Shareholder shall die or become incapacitated or cease to have appropriate power
or authority, or if any other such event or events shall occur, the Existing
Shareholder Representative, acting as provided herein, is nevertheless
authorized to act with respect to the Escrow Agreement) in accordance with the
terms of the Escrow Agreement as if such death, incapacity, lack of appropriate
power or authority or other event or events had not occurred and regardless of
notice thereof.
ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise specified in this Agreement, each Party
--------
hereto shall pay its own legal, accounting, out-of-pocket and other expenses
incident to this Agreement and to any action taken by such Party in carrying out
the intent and purposes of this Agreement; provided that if this Agreement is
terminated, City will reimburse Stone and Ashland for any additional costs of
the audit of the 1997 combined financial statements in excess of 105% of the
costs of Stone and Ashland for the review of their 1996 financial statements. In
addition, if the Closing occurs, City will bear all legal, accounting, out-of-
pocket and other expenses of City, Stone and Ashland in connection with this
Agreement, including without limitation, the 2 1/2% transaction fee of Duff &
Phelps Securities, LLC and will reimburse Stone and Ashland for all out-of-
pocket and other expenses previously paid by them in connection with this
Agreement.
9.2. Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
33
<PAGE>
If to Stone or Ashland, addressed to:
Stone Heavy Duty, Inc.
P. O. Box 25518
Raleigh, North Carolina 27611
Attention: James T. Stone
With a copy to:
Wyrick Robbins Yates & Ponton LLP
P. O. Drawer 17803
Raleigh, North Carolina 27619
Attention: James M. Yates, Esq.
If to City, addressed to:
Brentwood Associates
11150 Santa Monica Boulevard, Suite 1200
Los Angeles, California 90025
Attention: Christopher A. Laurence
With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071
Attention: Elizabeth A. Blendell, Esq.
All Notices shall be deemed delivered when actually received if delivered
personally or by overnight courier, sent by telecopier or telex (promptly
confirmed in writing), addressed as set forth above. Each of the Parties shall
hereafter notify the other in accordance with this Section 9.2 of any change of
address or telecopy number to which notice is required to be mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in one or
------------
more counterparts, and by different parties hereto in separate counterparts,
each of which when executed shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the Parties with respect to the subject matter hereof and supersedes all prior
negotiations, agreements and understandings, whether written or oral, of the
Parties.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
34
<PAGE>
9.6. Assignment; Amendment of Agreement. This Agreement shall be binding
----------------------------------
upon the respective successors and assigns of the Parties hereto. Except as
specifically provided herein, this Agreement may not be assigned by any Party
hereto without the prior written consent of all other Parties hereto. This
Agreement may be amended only by written agreement of the Parties hereto, duly
executed and delivered by an authorized representative of each of the Parties
hereto.
9.7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal laws, and not the laws of conflicts of
laws, of the State of Delaware. Each of the parties to this Agreement hereby
irrevocably and unconditionally (i) agrees to be subject to, and hereby consents
and submits to, the jurisdiction of the courts of the State of Delaware and of
the federal courts sitting in the State of Delaware, (ii) to the extent such
party is not otherwise subject to service of process in the State of Delaware,
hereby appoints The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801, as such party's agent in the State of Delaware for acceptance of
legal process and (iii) agrees that service made on such agent shall have the
same legal force and effect as if served upon such party personally within the
State of Delaware.
9.8. Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9. No Third-Party Rights. Except with respect to the persons or
---------------------
beneficiaries of the provisions of Article 8 and Section 8.10, this Agreement is
not intended, and shall not be construed, to create any rights in any parties
other than Stone, Ashland and City, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10. Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
35
<PAGE>
9.12. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
hereto are incorporated into this Agreement and shall be deemed a part hereof as
if set forth herein in full. References herein to "this Agreement" and the words
"herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13. Knowledge. As used herein, to the "knowledge" or "best knowledge" or
---------
similar phrase means actual knowledge of any Existing Shareholder, any officer
of Stone or Ashland and any employee of Stone or Ashland whose job duties
include the subject matter in question.
9.14. Arbitration. To the extent that that Parties are unable to resolve
-----------
their disputes or controversies arising out of or relating to this Agreement, or
the performance, breach, validity, interpretation or enforcement of this
Agreement, through discussion and negotiation, all disputes and controversies
will be resolved by binding arbitration in accordance with rules of the
JAMS/Endispute, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. A Party may initiate
arbitration by sending written notice of its intention to arbitrate to the other
Parties and to the JAMS/Endispute, office located in Atlanta, Georgia. Such
written notice will contain a description of the dispute and the remedy sought.
The arbitration will be conducted at the offices of the JAMS/Endispute office
located in Atlanta, Georgia before an independent and impartial arbitrator (who
shall be a retired judge) acceptable to all Parties. The arbitrator shall agree
to apply the internal laws of the State of Delaware (without regard to conflicts
of laws) in interpreting this Agreement. The arbitrator will have the power to
award any party all or any portion of its costs and expenses of arbitration. The
decision of the arbitrator will be final and binding on the Parties and their
successors and assignees. The Parties intend that this agreement to arbitrate be
irrevocable.
(Signature Page Follows)
36
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
CITY TRUCK AND TRAILER PARTS, INC.
an Alabama corporation
By: /s/ William L. Clayton
------------------------------
William L. Clayton
President
STONE HEAVY DUTY, INC.,
a North Carolina corporation
By: /s/ James T. Stone
------------------------------
James T. Stone
President
ASHLAND AUTOMOTIVE PARTS, INC.,
a South Carolina corporation
By: /s/ James T. Stone
------------------------------
James T. Stone
President
/s/ Fred A. Stone, Jr.
- ----------------------------
Fred A. Stone, Jr.
/s/ James T. Stone
- ----------------------------
James T. Stone
/s/ Thomas D. Stone
- ----------------------------
Thomas D. Stone
S-1
<PAGE>
ANNEX A
"Assets" shall mean all of the right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business or in which Stone or Ashland has any interest,
including, without limitation, all of the rights, titles and interests of Stone
or Ashland in the following:
(a) all cash and cash equivalents;
(b) all accounts and notes receivable (whether current or
noncurrent), refunds, deposits, prepayments or prepaid expenses;
(c) all contract rights, to the extent transferable;
(d) all leases;
(e) all leasehold estates, to the extent transferable;
(f) all leasehold improvements;
(g) all fixtures and equipment;
(h) all inventory;
(i) all books and records, excluding originals of the minute books
and other organizational documents;
(j) all Proprietary Rights relating to the Business, to the extent
transferable;
(k) all Permits, to the extent transferable;
(l) all computers and, to the extent transferable, software;
(m) all insurance policies, to the extent assignable; and
(n) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, telephone and
fax numbers and purchasing records related to the Business.
(o) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to Stone pertaining to the Business or affecting the Assets, to the
extent such warranties, representations and guarantees are assignable;
(p) all deposits and prepaid expenses of Stone or Ashland; and
(q) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by Stone or
Ashland on or prior to the Closing Date.
The Assets do not include the 1996 and 1997 HDA America, Inc. Non
---
Negotiables Certificates of Indebtedness in the original principal amounts of
approximately $573,964.28 and $693,461.39, respectively.
A-1
<PAGE>
Exhibit 10.4
CONTRIBUTION AND PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.,
HDA PARTS SYSTEM, INC.
AND
TRUCK & TRAILER PARTS, INC.,
DHP LEASING, INC.
and
THE SHAREHOLDERS OF
TRUCK & TRAILER PARTS, INC. AND DHP LEASING, INC.
September 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. CONTRIBUTION, PURCHASE AND SALE.....................................2
1.1. Purchase Price.......................................................2
1.2. Contribution.........................................................2
------------
1.3. Post-Closing Purchase Price Adjustment...............................3
--------------------------------------
1.4. Transfer of Assets...................................................4
------------------
1.5. Assumption of Liabilities............................................4
-------------------------
1.6. Excluded Liabilities.................................................4
--------------------
ARTICLE II. CLOSING............................................................5
2.1. Closing..............................................................5
-------
2.2. Conveyances at Closing...............................................5
----------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLING
PARTIES AND TURNER.............................................6
3.1. Corporate Organization and Standing..................................6
-----------------------------------
3.2. Capitalization of Company............................................7
-------------------------
3.3. Authorization........................................................7
-------------
3.4. Title to Shares......................................................7
---------------
3.5. No Conflict or Violation.............................................8
------------------------
3.6. Facilities...........................................................8
----------
3.7. Assets...............................................................9
------
3.8. Financial Statements.................................................9
--------------------
3.9. Books and Records...................................................10
-----------------
3.10. Litigation.........................................................10
----------
3.11. Licenses and Permits; Compliance with Laws.........................10
------------------------------------------
3.12. Tax Matters........................................................11
-----------
3.13. Brokers, Finders...................................................12
----------------
3.14. Absence of Certain Changes.........................................12
--------------------------
3.15. Material Contracts.................................................14
------------------
3.16. Proprietary Rights.................................................15
------------------
3.17. Labor Matters......................................................16
-------------
3.18. Consents...........................................................16
--------
3.19. Employee Benefit Plans; Employment Agreements......................17
---------------------------------------------
3.20. Compliance with Environmental Laws.................................18
----------------------------------
3.21. Certain Business Relationships with the Companies..................20
-------------------------------------------------
3.22. Undisclosed Liabilities............................................20
-----------------------
3.23. Insurance..........................................................21
---------
3.24. Accounts Receivable................................................21
-------------------
3.25. Inventory..........................................................21
---------
3.26. Customers, Distributors and Suppliers..............................22
-------------------------------------
3.27. Banking Relationships..............................................22
---------------------
3.28. Investment.........................................................22
----------
3.29. Operations and Assets of DHP.......................................23
----------------------------
i
<PAGE>
Page
----
3.30. Representations and Warranties of Charles R. Turner................23
---------------------------------------------------
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HOLDINGS
AND HDA.........................................................24
4.1. Corporate Organization and Standing.................................24
-----------------------------------
4.2. Authorization.......................................................24
-------------
4.3. No Conflict or Violation............................................24
------------------------
4.4. Litigation..........................................................25
----------
4.5. Brokers, Finders....................................................25
----------------
4.6. Approvals, Etc......................................................25
--------------
4.7. Stock...............................................................25
-----
4.8. Investment..........................................................26
----------
4.9. Offering Memorandum.................................................26
-------------------
4.10. Absence of Certain Changes or Events...............................26
------------------------------------
4.11. Capitalization of Holdings and HDA.................................26
----------------------------------
4.12. Financial Statements...............................................27
--------------------
4.13. Shareholder Agreement; Other Agreements Relating to Holdings
------------------------------------------------------------
Capital Stock....................................................27
-------------
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-
CLOSING COVENANTS................................................28
5.1. Further Assurances..................................................28
------------------
5.2. Disclosures.........................................................28
-----------
5.3. Tax Matters.........................................................28
-----------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HOLDINGS AND HDA................................30
6.1. No Injunctive Proceedings...........................................30
-------------------------
6.2. Representations and Warranties......................................30
------------------------------
6.3. Performance of Agreements...........................................31
-------------------------
6.4. Compliance Certificate..............................................31
----------------------
6.5. Material Changes....................................................31
----------------
6.6. Opinion of Counsel..................................................31
------------------
6.7. Consents, Etc.......................................................31
-------------
6.8. Ancillary Agreements................................................31
--------------------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY THE SELLING PARTIES............................32
7.1. No Injunctive Proceedings...........................................32
-------------------------
7.2. Representations and Warranties......................................32
------------------------------
7.3. Performance of Agreements; Instruments of Transfer..................32
--------------------------------------------------
7.4. Compliance Certificates.............................................32
-----------------------
7.5. Ancillary Agreements................................................32
--------------------
7.6. Material Changes....................................................32
----------------
ii
<PAGE>
Page
----
7.7. Opinion of Counsel..................................................32
------------------
7.8. Consents, Etc.......................................................33
-------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING........................33
8.1. Consents to Assignment..............................................33
----------------------
8.2. Indemnification by the Selling Parties..............................33
--------------------------------------
8.3. Indemnification by HDA..............................................33
----------------------
8.4. Survival of Representations, Warranties and Covenants...............34
-----------------------------------------------------
8.5. Threshold; Deductible...............................................34
---------------------
8.6. Notice and Opportunity to Defend....................................34
--------------------------------
8.7. Indemnification Payments............................................35
------------------------
ARTICLE IX. MISCELLANEOUS.....................................................35
9.1. Expenses............................................................35
--------
9.2. Notices.............................................................35
-------
9.3. Counterparts........................................................37
------------
9.4. Entire Agreement....................................................37
----------------
9.5. Headings............................................................37
--------
9.6. Assignment; Amendment of Agreement..................................37
----------------------------------
9.7. Governing Law.......................................................37
-------------
9.8. No Third-Party Rights...............................................37
---------------------
9.9. Non-Waiver..........................................................37
----------
9.10. Severability.......................................................38
------------
9.11. Incorporation of Exhibits and Schedules............................38
---------------------------------------
iii
<PAGE>
CONTRIBUTION AND PURCHASE AGREEMENT
THIS CONTRIBUTION AND PURCHASE AGREEMENT (this agreement and all
schedules attached hereto, the "Agreement"), dated as of September 30, 1998, is
entered into by and among City Truck Holdings, Inc., a Delaware corporation
("Holdings"), HDA Parts System, Inc., an Alabama corporation ("HDA"), Truck &
Trailer Parts, Inc., a Georgia corporation ("Truck"), DHP Leasing, Inc., a
Georgia corporation ("DHP," and together with Truck, each a "Company" and
collectively, the "Companies"), and Robert L. Pope ("Pope"), Darlene H. Pope
(together with Pope, the "Popes") and Charles R. Turner ("Turner" and
individually, an "Existing Shareholder" and together with the Popes, the
"Existing Shareholders.") The Companies and the Popes are each a "Selling
Party" and collectively, the "Selling Parties"). HDA, Holdings, Truck, DHP and
the Existing Shareholders are referred to herein as each a "Party" and
collectively, the "Parties."
RECITALS
WHEREAS, Pope and Turner own all of the capital stock of Truck;
WHEREAS, Darlene H. Pope owns all of the outstanding stock of DHP;
WHEREAS, DHP owns certain assets listed on Annex A (the "Assets")
which are used in connection with or useful to its business of distributing
aftermarket parts and services to the domestic heavy duty vehicle market (the
"Business");
WHEREAS, Holdings desires to acquire a portion of the capital stock of
Truck in exchange for capital stock of Holdings pursuant to the Truck Stock
Contribution (as defined in Section 1.2 below);
WHEREAS, in connection with the Truck Stock Contribution, the existing
shareholders of HDA are contributing all of the capital stock of HDA to Holdings
in exchange for the remaining capital stock of Holdings (the "HDA Stock
Contribution");
WHEREAS, the Parties intend for the Truck Stock Contribution and the
HDA Stock Contribution to qualify as a transaction described in Section 351(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, HDA desires to purchase the Assets of DHP and all of the
capital stock of Truck other than the portion thereof acquired by Holdings
pursuant to the Truck Stock Contribution;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
<PAGE>
ARTICLE I.
CONTRIBUTION, PURCHASE AND SALE
1.1. Purchase Price.
(a) Immediately prior to the contribution described in Section 1.2
below, upon the terms and subject to the conditions set forth herein, HDA will
purchase from Pope and Turner 887 shares of common stock, no par value, of Truck
and from DHP the Assets for an aggregate price (the "Purchase Price") determined
as follows: Fourteen Million Five Hundred Fifteen Thousand ($14,515,000) in
cash payable by wire transfer of immediately available funds to the Selling
Parties, less the amount of (x) any liabilities of the Companies in excess of
----
$80,000 in the aggregate to (a) any Existing Shareholder, (b) a person related
directly or indirectly by blood or marriage to any Existing Shareholder, (c) an
officer, director or employee of any of the Companies, or (d) an entity
controlled by any of the foregoing, (y) any long-term indebtedness for borrowed
money, including the current portion thereof (excluding any indebtedness under
Truck's line of credit with SunTrust Bank), and (z) $30,000 representing payment
by Pope for his purchase of the Lexus sport utility vehicle from Truck, plus an
----
amount equal to the Companies' undistributed S Corporation earnings for 1997 and
1998 through Closing (as defined). The Purchase Price will be estimated at
Closing (the "Estimated Cash Purchase Price") by the Parties based on
certificates provided by officers of the Companies regarding S Corporation
earnings.
(b) On the Closing Date (as defined), (i) HDA shall pay to DHP an
amount of cash equal to $628,000 and (ii) HDA shall pay to the Existing
Shareholders an aggregate amount of cash equal to the Estimated Cash Purchase
Price (less Eight Hundred Fifty Thousand Dollars ($850,000) to be delivered to
the Escrow Agent (as defined) pursuant to Section 8.7 hereof) less $628,000.
1.2. Contribution.
------------
(a) In connection with and as part of the initial organization and
capitalization of Holdings upon the terms and subject to the conditions set
forth herein and in connection with the Stock Contribution Agreement dated
September 30, 1998 among HDA's existing shareholders and Holdings, Pope and
Turner will contribute to Holdings 182 shares of common stock, no par value, of
Truck in exchange for the number of shares of Common Stock of Holdings, par
value $.01 per share (the "Common Stock") and the number of shares of Series A
Preferred Stock of Holdings, par value $.01 per share (the "Series A Preferred
Stock") indicated on Schedule 1.2 attached hereto.
(b) On the Closing Date, Holdings shall deliver to Pope and Turner
certificates representing the shares of Common Stock and Series A Preferred
Stock acquired by them pursuant to Section 1.2(a) and in amounts as reflected on
Schedule 1.2(a) attached hereto.
(c) The Parties agree that they intend to report the Truck Stock
Contribution and the HDA Stock Contribution for federal and state income tax
purposes as a tax-free exchange
2
<PAGE>
described in Section 351(a) of the Code. HDA and Holdings agree that the
consummation of the HDA Stock Contribution will occur on the same day as the
Closing Date.
1.3. Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) Determination of Earnings. The Selling Parties will prepare at
-------------------------
the expense of Truck (i) a combined income statement of the Companies for the
period from January 1, 1998 through the Closing (the "Closing Income Statement")
and (ii) a balance sheet dated the Closing Date (as defined) (the "Closing
Balance Sheet" and together with the Closing Income Statement, the "Closing
Financial Statements"), prepared in accordance with generally accepted
accounting principles ("GAAP") applied in the same manner as the Balance Sheet
and the 1997 Income Statement (as defined in Section 3.8(a)). The Selling
Parties will deliver such Closing Financial Statements to HDA as soon as
possible but in any event within 45 days after the Closing. The Closing
Financial Statements shall be audited by Ernst & Young at the expense of HDA.
(b) Closing Financial Statements Notice.
-----------------------------------
(i) Within 30 days of the receipt of such Closing Financial
Statements, HDA will deliver to the Existing Shareholders a written notice
certifying that either (x) it agrees with such Closing Financial
Statements, or (y) it disagrees with such Closing Financial Statements, in
which case it will also provide therewith a reasonably detailed written
report stating the basis for disagreement with the Closing Financial
Statements (the "Closing Financial Statements Notice"). The Companies
shall provide reasonable access to their respective accountants' work
papers, personnel and to such historical financial information as HDA shall
reasonably request in order to review such Closing Financial Statements.
(ii) If the Closing Financial Statements Notice is not timely
given as described in Section 1.3(b)(i), the Closing Financial Statements
shall be final, binding and conclusive upon the Parties. If the Existing
Shareholders disagree with the Closing Financial Statements Notice as
described in Section 1.3(b)(i)(y), and if the disagreement is not resolved
by mutual agreement among the Parties within 30 days following delivery of
the Closing Financial Statements Notice, such dispute will be resolved by a
"Big 5" accounting firm ("BFAF"), other than Ernst & Young or Coopers &
Lybrand, selected by HDA and the Selling Parties. The costs of resolving
such a dispute shall be borne equally by HDA and the Existing Shareholders.
(iii) Upon appointment of a BFAF, such BFAF in consultation
with the Parties shall establish a schedule for resolution of the dispute
which is reasonably calculated to result in a resolution as expeditiously
as practicable, and in any event, no later than six months after the
Closing Date. In resolving such dispute, the BFAF shall revise the Closing
Financial Statements only with respect to the issues raised in the Closing
Financial Statements Notice and only to the extent necessary to make it
conform to the practices, procedures and methods described in Section
1.3(a) above.
(c) Post-Closing Adjustment. After a final resolution by the
-----------------------
BFAF of such
3
<PAGE>
disagreements as may arise out of the review of the Closing Financial Statements
in accordance with Section 1.3(b) above, and an appropriate adjustment to the
Closing Financial Statements to reflect such resolution, or if Section
1.3(b)(i)(x) or the first sentence of Section 1.3(b)(ii) applies, the actual
year to date undistributed earnings of Truck will be determined, and the actual
Purchase Price (the "Cash Purchase Price") will be calculated based on such, and
to the extent that the Estimated Cash Purchase Price was less than the Cash
Purchase Price, the difference and interest thereon due to the Selling Parties
will promptly be paid to them by HDA. Similarly, to the extent the Estimated
Cash Purchase Price was more than the Cash Purchase Price, the excess will be
promptly returned by the Selling Parties to HDA. Any amounts payable pursuant to
this paragraph shall bear interest from the Closing Date through the date of
payment at an annual rate equal to the prime rate as reported in The Wall Street
Journal on the Closing Date.
1.4. Transfer of Assets. Upon the terms and subject to the
------------------
conditions set forth herein, at the Closing, DHP will sell to HDA, and HDA will
purchase from DHP, the Assets, free and clear of all encumbrances other than
Permitted Encumbrances (as defined herein).
1.5. Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions contained herein, at the Closing, HDA shall assume all obligations
and liabilities accruing, arising out of, or relating to events or occurrences
happening after the Closing Date under, and only under, the Assumed Contracts
(as defined) listed on Schedule 3.15, but not including any obligation or
liability of DHP for any breach of any Contract (as defined) occurring on or
prior to the Closing Date (together with the liabilities assumed pursuant to the
Assumed Contracts, the "Assumed Liabilities").
1.6. Excluded Liabilities. Notwithstanding any other provision of
--------------------
this Agreement, except for the Assumed Liabilities expressly specified in
Section 1.4 hereof, HDA shall not assume, or otherwise be responsible for, any
of DHP's liabilities or obligations, whether actual or contingent, matured or
unmatured, liquidated or unliquidated, known or unknown, or related or unrelated
to the Business or the Assets, whether arising out of occurrences prior to, at
or after the date hereof (collectively, "Excluded Liabilities"), which Excluded
Liabilities include, without limitation:
(a) Any liability or obligation to or in respect of any employees
or former employees of DHP including without limitation (i) any employment
agreement, whether or not written, between DHP and any person, (ii) any
liability under any Employee Plan (as defined) at any time maintained,
contributed to or required to be contributed to by or with respect to DHP or
under which DHP may incur liability, or any contributions, benefits or
liabilities therefor, or any liability with respect to DHP's withdrawal or
partial withdrawal from or termination of any Employee Plan and (iii) any claim
of an unfair labor practice, or any claim under any state unemployment
compensation or worker's compensation law or regulation or under any federal or
state employment discrimination law or regulation, which shall have been
asserted on or prior to the Closing Date or is based on acts or omissions which
occurred on or prior to the Closing Date;
(b) Any liability or obligation of DHP in respect of any Tax (as
defined);
4
<PAGE>
(c) Any liability arising from any injury to or death of any person
or damage to or destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from defects in products sold or services performed by
or on behalf of DHP or any other person or entity on or prior to the Closing
Date, or arising from any other cause, including without limitation any
liabilities arising (on a date of occurrence basis or otherwise) on or prior to
the Closing Date relating to the use or misuse of equipment or to traffic
accidents;
(d) Any liability or obligation of DHP arising out of or related to
any Action (as defined) against DHP or any Action which adversely affects the
Assets and which shall have been asserted on or prior to the Closing Date or to
the extent the basis of which shall have arisen on or prior to the Closing Date;
(e) Any liability or obligation of DHP resulting from entering
into, performing its obligations pursuant to or consummating the transactions
contemplated by, this Agreement (including without limitation any liability or
obligation of DHP pursuant to Article X hereof);
(f) Any liability or obligation related to the Facilities; and
(g) Any liability or obligation arising out of any Environmental
Law, including but not limited to CERCLA (as defined) or any similar state law.
ARTICLE II.
CLOSING
2.1. Closing. The Closing of the transactions contemplated herein
-------
(the "Closing") shall be held at 9:00 a.m. local time on September 30, 1998 (the
"Closing Date"), unless the Parties otherwise agree, at a location mutually
agreeable to the Parties.
2.2. Conveyances at Closing.
----------------------
(a) Instruments and Possession. To effect the sale and transfer of
--------------------------
Assets referred to in Section 1.4 hereof, DHP will, at the Closing, execute and
deliver to HDA:
(i) one or more Bills of Sale, in the form attached hereto as
Exhibit A, conveying in the aggregate all of the personal property owned by
DHP included in the Assets;
(ii) subject to Section 8.1, Assignments of Contract Rights in
the form attached hereto as Exhibit B with respect to those contracts which
HDA shall assume;
(iii) such other instruments as shall be requested by HDA to
vest in HDA title in and to the Assets in accordance with the provisions
hereof.
5
<PAGE>
(b) Assumption Document. Upon the terms and subject to the
-------------------
conditions set forth herein, at the Closing, HDA shall deliver to DHP an
instrument of assumption substantially in the form attached hereto as Exhibit C,
evidencing HDA's assumption of all liabilities of DHP, pursuant to Section 1.5
hereof, excluding the Excluded Liabilities (the "Assumption Document").
(c) Stock Certificates. Holdings shall deliver to the Selling
------------------
Parties the stock certificates described in Section 1.2(b) hereof, and Pope and
Turner shall deliver to HDA stock certificates representing all of the
outstanding capital stock of Truck.
(d) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner
reasonably satisfactory to HDA and DHP.
(e) Consents. DHP shall deliver all Permits (as defined herein) and
--------
any other third party consents required for the valid transfer of the Assets as
contemplated by this Agreement.
(f) Truck shall deliver to Pope a certificate of title for the Lexus
sport utility vehicle owned by Truck.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE SELLING PARTIES AND TURNER
The Selling Parties jointly and severally, and in certain instances
where indicated, Turner severally, represent and warrant to Holdings and HDA as
follows, except as set forth in a disclosure schedule ("Schedule") attached
hereto and made a part hereof, the number of each Schedule corresponding to the
Section number to which it refers:
3.1. Corporate Organization and Standing. Schedule 3.1 hereto is a
-----------------------------------
complete and correct list setting forth for each of the Companies (i) the name
of each entity, the jurisdiction of its incorporation or other organization, and
each jurisdiction in which it is qualified to do business as a foreign
corporation. Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as presently conducted. Each
of the Companies has delivered to HDA or its representatives complete and
correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Each of the Companies is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now being conducted by it or
the property owned or leased by it makes such qualification necessary, except
where the failure to qualify would not have a material adverse effect (as
defined) on the Companies taken as a whole.
6
<PAGE>
3.2. Capitalization of Company. The authorized capital stock of
-------------------------
Truck consists of 10,000 shares of common stock, no par value per share ("Truck
Common Stock"). As of the date of this Agreement, 1,069 shares of Truck Common
Stock are outstanding, all of which shares have been duly authorized, validly
issued and are fully paid and non-assessable and are owned in the aggregate by
Pope and Turner (the "Shares"). There are (i) no preemptive or similar rights on
the part of any holder of any class of securities of Truck, and (ii) no options,
warrants, conversion or other rights, agreements or commitments of any kind
obligating Truck, contingently or otherwise, to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
3.3. Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized, executed and delivered by each of the Selling Parties that is a
party to each such agreement, and are the legal, valid and binding obligations
of each of the Selling Parties that is a party thereto, enforceable against it,
him or her in accordance with their terms, except as enforcement may be limited
by equitable principles limiting the right to obtain specific performance or
other equitable remedies, or by applicable bankruptcy or insolvency laws and
related decisions affecting creditors' rights generally.
3.4. Title to Shares. Pope has, and at Closing will have, good and
---------------
valid title to the Shares owned by him, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever. Upon delivery to HDA at the Closing of certificates representing the
Shares owned by Pope, duly endorsed by him for transfer to HDA, HDA will obtain
good and valid title to such Shares, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever, except for any restrictions created by HDA. There are no voting
trusts, proxies, or other agreements or understandings to which Pope or Truck is
a party with respect to the voting, dividend right or disposition of any of the
Shares. Pope has no obligation, absolute or contingent, to any other person or
entity to issue, sell or otherwise dispose of any capital stock of Truck or to
effect any merger, consolidation, reorganization or other business combination
of any Company or to enter into any agreement with respect thereto.
3.5. No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement or the Ancillary Agreements by the Popes and the Companies nor
the consummation by the Popes and the Companies of the transactions contemplated
hereby or thereby will (i) violate, conflict with or result in or constitute a
default under or result in the termination or the acceleration of, or the
creation in any party of any right (whether or not with notice or lapse of time
or both) to declare a default, accelerate, terminate or cancel any indenture,
contract, lease, sublease, loan agreement, note or other obligation or liability
("Contractual Obligation") to which the Popes or the Companies are a party or by
which any of them are bound or to which any of their assets is subject or result
in the creation of any lien or encumbrance upon any of said assets, (ii)
violate, conflict with or result in a breach of or constitute a default under
any provision of the Articles of Incorporation or Bylaws (or other
organizational documents) of any Company, (iii) violate, conflict with or result
in a breach of or constitute a default under any judgment, order, decree, rule
or regulation of any court or governmental agency to which any Company is
subject or, in the case of clause (i), relates to a Material Contract (as
defined below)
7
<PAGE>
or (iv) violate, conflict with or result in a breach of any applicable federal
or state rule or regulation.
3.6. Facilities. No Company has ever owned any real property.
----------
Schedule 3.6 contains a complete and accurate list of all real property used in
connection with the businesses of the Companies ("Leased Real Property").
(a) Actions. There are no pending or, to the knowledge of any
-------
Company, threatened, condemnation proceedings or, to the knowledge of any
Company, other actions, claims, suits, litigation, proceedings, notices of
violation, or investigations (collectively, "Actions") relating expressly to any
facility located on Leased Real Property ("Facility").
(b) Leases or Other Agreements. To the knowledge of any Company,
--------------------------
there are no leases, subleases, licenses, occupancy agreements, options, rights,
concessions or other agreements or arrangements, written or oral, granting to
any person the right to purchase, use or occupy any Facility or any Real
Property or any portion thereof, or interest in any such Facility or Real
Property.
(c) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, the Companies have an unencumbered interest in the leasehold
estate, other than Permitted Encumbrances. The Companies enjoy peaceful and
undisturbed possession of all Leased Real Property.
(d) Certificate of Occupancy. All Facilities have received all
------------------------
required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
in order to avoid a material adverse effect on the Companies and are and have
been operated and maintained in all material respects in accordance with
applicable material regulations.
(e) Utilities. All Facilities are supplied with utilities
---------
(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated.
(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by any Company at the Facilities are (i) structurally sound with
no known material defects, (ii) in good operating condition and repair, subject
to ordinary wear and tear, (iii) not in need of maintenance, repair or
correction except for ordinary routine maintenance and repair in relation to the
Company's past practice, the cost of which would not be material, and (iv) in
conformity in all material respects with all applicable material regulations.
(g) No Special Assessment. No Company has received notice from any
---------------------
governmental authority of any special assessment relating to any Facility or any
portion thereof since December 31, 1997. If any such notice was received by any
Company, such notice (even if the assessment was paid) has been disclosed to HDA
or its representatives.
8
<PAGE>
3.7. Assets. Excluding the Leased Real Property (discussed in
------
Section 3.6), DHP has and will transfer to HDA good and marketable title to the
Assets, free and clear of any encumbrances, except for minor liens which in the
aggregate are not substantial in amount, do not materially detract from the
value or transferability of the Assets subject thereto taken as a whole or
interfere in any material respect with the present use and have not arisen other
than in the ordinary course of business ("Permitted Encumbrances"). All tangible
assets and properties which are part of the Assets are in good operating
condition and repair, ordinary wear and tear excepted, and are usable in the
ordinary course of business and conform in all material respects to all
applicable material regulations (including Environmental Laws (as defined
herein)) relating to their use and operation.
3.8. Financial Statements.
--------------------
(a) The audited balance sheets of each of the Companies dated
December 31, 1997, 1996 and 1995, respectively (the "Balance Sheets," the "1996
Balance Sheets" and the "1995 Balance Sheets," respectively), were prepared in
accordance with GAAP consistently applied and fairly present in all material
respects the financial condition of Truck and DHP as of their respective dates.
As of the dates of the respective Balance Sheets, none of the Companies had any
liabilities of any nature, whether absolute, accrued, asserted or unasserted or
contingent or whether due or to become due, which should have been recorded or
reserved for on the Balance Sheets in accordance with GAAP and were not so
recorded or reserved. The Companies have not incurred any material liabilities
since December 31, 1997 other than in the ordinary course of business.
(b) The audited statements of operations, statements of changes in
shareholder's equity and statements of cash flows of each of the Companies for
the fiscal years ended December 31, 1997 (the "1997 Income Statement"), 1996 and
1995, respectively, were prepared in accordance with GAAP consistently applied
and fairly present in all material respects the results of operations, changes
in shareholder's equity and cash flows of the Companies for each such period.
(c) The unaudited balance sheet, statements of operations,
statements of changes in shareholder's equity and statements of cash flows of
each of the Companies at and for the seven months ended July 31, 1998, fairly
present in all material respects the results of operations, changes in
shareholder's equity and cash flows of the Companies for each such period.
(d) Copies of the financial statements described in Section 3.8(a)
and (b) have been provided to HDA or its representatives.
3.9. Books and Records. Each of the Companies has made and kept and
-----------------
given HDA and its representatives access to books and records and accounts,
which, in reasonable detail, accurately and fairly reflect the activities of
each of the Companies recorded therein. The copies of the stock book records of
each of the Companies are true, correct and complete, and accurately reflect all
transactions effected in each Company's stock through and including the date
hereof.
9
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3.10. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of the Companies, threatened
against any of the Companies or the directors, officers, agents or employees of
any of the Companies (in their capacity as such), or any properties or rights of
any of the Companies. There are no orders, writs, injunctions or decrees
currently in force against any of the Companies or the directors, officers,
agents or employees of any of the Companies (in their capacity as such) with
respect to the conduct of any Company's business.
3.11. Licenses and Permits; Compliance with Laws. Schedule 3.11 sets
------------------------------------------
forth a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by each
of the Companies. Each of the Companies owns, holds or possesses all Licenses
and Permits necessary to entitle it to use its corporate name, to own or lease,
operate and use its assets and properties and to carry on and conduct its
business and operations as presently conducted except where the failure to own,
hold or possess any Licenses and Permits would not have a material adverse
effect on the Companies. No Company is in violation of or default under any
Licenses or Permits or any judgment, order, writ, injunction or decree of any
court or administrative agency issued against it or any law, ordinance, rule or
regulation applicable to it where such violation would have a material adverse
effect on the Companies. Each Company's conduct of its business has been and is
in compliance in all material respects with all material applicable laws,
statutes, ordinances and regulations. No Company has received any notice
asserting a failure to comply with any law, statute, ordinance, regulation, rule
or order of any foreign, federal, state or local government or any other
governmental department or agency that has not been cured prior to the date
hereof. Any such notice received since January 1, 1995 has been provided to HDA
or its representatives.
3.12. Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and (ii) "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) Each Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all material respects. All Taxes owed by each Company (whether or
not shown on any Tax Return) that are due and payable have been paid. No
Company currently is the beneficiary of any extension of time within which to
file any Tax Return. Neither Company has received written notice of any claim
by an authority in a jurisdiction where such Company does not file Tax Returns
that such Company is subject to taxation by that jurisdiction. There are no
liens on any
10
<PAGE>
of the assets of any Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
(c) Each Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability of any
Company either (i) claimed or raised by any authority in writing or (ii) of
which any Existing Shareholder or any Company has knowledge. To the knowledge
of each Company and each Existing Shareholder, no audit or examination of any
Tax Return is currently in progress, and no Company has received notice of any
proposed audit or examination. Each Company has furnished to HDA or its
representatives correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by any Company with respect to years ended on or after December 31, 1991. No
Company has waived any statute of limitations in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or deficiency.
(e) No Company has filed a consent under Section 341(f) of the Code
concerning collapsible corporations (or any comparable state income tax
provision). No Corporation has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. No Company is a party to any Tax allocation, sharing or indemnity
agreement. No Company (i) has been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return or (ii) has any
liability for the Taxes of any person under Reg. Sec. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(f) The unpaid Taxes of each Company as of the date of the most
recent Balance Sheets did not exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent Balance Sheets.
Each Company has made provision, in conformity with GAAP consistently applied,
on the Balance Sheets and the interim financial statements for the payment of
all Taxes which may subsequently become due with respect to the respective
periods covered in the Balance Sheets.
(g) The Companies are each an "S Corporation." Truck and DHP have
each been a validly electing S corporation within the meaning of Sections 1361
and 1362 of the Code (and any analogous provisions of state and local law) at
all times since January 1, 1997 and January 25, 1995, respectively, and each
will be an S corporation up to and including the Closing Date. No federal,
state, local or foreign income taxes will be payable by the Companies with
respect to the taxable year beginning on January 1, 1998 and ending on the day
immediately preceding the Closing Date
11
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3.13. Brokers, Finders. No Company nor any Existing Shareholder has
----------------
retained any broker or finder other than SunTrust Equitable Securities in
connection with the transactions contemplated herein, and is not obligated and
has not agreed to pay any brokerage or finder's commission, fee or similar
compensation.
3.14. Absence of Certain Changes.
--------------------------
(a) Since December 31, 1997, each Company has conducted its business
in the ordinary course, has not done or permitted to be done anything described
in Sections 5.6(a) through (r), and there has not occurred with respect to any
Company:
(i ) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Companies,
taken as a whole ("Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, other than write-offs of uncollectible notes and accounts
receivable and write-downs of obsolete, slow moving or unsaleable inventory
in the ordinary course of business consistent with past practice;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities
incurred in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure exceeding $5,000, the execution
of any lease or the incurrence of any obligation to make any capital
expenditure or execute any lease other than in the ordinary course of
business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a material adverse effect on the
assets or the business;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind, except in the
ordinary course of business;
(viii) the failure of the Companies to use reasonable efforts
consistent with past practice to preserve for HDA the assets, the business
and the goodwill of each of the Company's suppliers, customers,
distributors and others having business relations with it;
12
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(ix) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disclosure to any person of any Proprietary Rights
not theretofore a matter of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets;
(xi) an amendment, cancellation or termination of any
contract, commitment, agreement, lease, transaction or Permit relating to
assets or the business other than in the ordinary course of business or
entry into any contract, commitment, agreement, lease, transaction or
Permit which is not in the ordinary course of business, including, without
limitation, any employment or consulting agreements;
(xii) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than (a)
increases in base compensation in the ordinary course consistent in timing
and amount with past practices and (b) the $300,000 in aggregate amount of
bonuses to be paid to employees on or prior to the Closing Date), or entry
into or variation of the terms of any employment or incentive agreement
with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have a material adverse effect on the productivity,
the financial condition, results of operations or business or the
relationships between the employees of a Company and the management of such
Company;
(xiv) any change in any method of accounting or keeping books
of account or accounting practices;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance;
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings
under its revolving credit facility in the ordinary course of business);
(xvii) the declaration, payment or setting aside for payment of
any dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
Truck Common Stock, or the creation of any securities convertible into or
exchangeable for any shares of Truck Common Stock or any options, warrants
or other rights to purchase or subscribe to any of the foregoing (except as
specifically contemplated herein);
13
<PAGE>
(xviii)the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xix) to the knowledge of the Companies, the existence of any
other event or condition (other than general industry, market or economic
conditions) which, in any one case or in the aggregate, has been or would
reasonably be expected to have a material adverse effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
3.15. Material Contracts. Schedule 3.15 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which any Company, or
in the case of Section 3.15(g), any Existing Shareholder, is a party. As used in
this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which any Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of any Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $10,000;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to any Company in a principal amount (or
with maximum availability) in excess of $10,000;
(f) all contracts and agreements to which any Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors, sales
agents or dealers of such Company other than contracts which by their terms are
cancelable by such Company with notice of not more than 30 days and without
cancellation penalties or severance payments, in the case of any such contract,
in excess of $5,000, (ii) collective bargaining agreements of any Company which
relate to the business of such Company, and (iii) pension, profit-sharing,
bonus, retirement, stock option or employee benefit plans or other similar plans
or arrangements of any Company;
(g) any covenant not to compete or similar restriction on any
Company or any Existing Shareholder;
14
<PAGE>
(h) any contract with the United States, state or local government
or any agency or department thereof, involving expenditures or liabilities in
excess of $10,000; or
(i) excluding purchase orders issued or received in the ordinary
course of business, any contract or agreement providing for the receipt or
payment (whether the obligations are fixed or contingent) of $10,000 or more
after the date of this Agreement, including, without limitation, agreements
calling for penalties or payments upon voluntary termination or withdrawal by
any Company.
The Companies have furnished or will furnish to HDA or its representatives true
and correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.16. Proprietary Rights.
------------------
(a) The Companies have no patents, trademarks (whether registered or
unregistered), service marks, trade names, service names, brand names, logos and
copyrights (collectively, the "Proprietary Rights"), except to the extent their
names constitute unregistered trademarks ("Names"). The only Proprietary Rights
used by the Companies in connection with their respective businesses are the
Names.
(b) No Company has any obligation to compensate any person for the
use of any such Proprietary Rights nor has any Company granted to any person any
license, option or other rights to use in any manner any of its Proprietary
Rights, whether requiring the payment of royalties or not.
(c) The Companies individually or collectively own or have a valid
right to use each of the Proprietary Rights, and the Proprietary Rights will not
cease to be valid rights of any Company by reason of the execution, delivery and
performance of this Agreement, the Ancillary Agreements or the consummation of
the transactions contemplated hereby and thereby. No Company has received any
notice of invalidity or infringement of any rights of others with respect to any
Proprietary Rights. No other person (i) has notified any Company that it is
claiming any ownership of or right to use such Proprietary Rights, or (ii) to
the best knowledge of the Companies, is infringing upon any such Proprietary
Rights in any way. To the knowledge of the Companies, any Company's use of any
Proprietary Rights does not and will not conflict with, infringe upon or
otherwise violate the valid rights of any third party in or to such Proprietary
Rights, and no Action has been instituted against or notices received by any
Company alleging that a Company's use of the Proprietary Rights infringes upon
or otherwise violates any rights of a third party in or to such Proprietary
Rights.
3.17. Labor Matters. No Company is a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association. No Company has experienced any attempt by organized labor or its
representatives to make it conform to demands of organized labor relating to its
employees or to enter into a binding agreement with organized labor that would
cover the employees of such Company. There is no labor strike or labor
disturbance pending or, to the best knowledge of any Company, threatened against
a
15
<PAGE>
Company, nor is any grievance currently being asserted by any union member, and
no Company has experienced an organized work stoppage, and is not and has not
engaged in any unfair labor practice. Without limiting the foregoing, the
Companies are in compliance with the Immigration Reform and Control Act of 1986
and maintains a current Form I-9, as required by such Act, in the personnel file
of each current employee hired after November 9, 1986.
3.18. Consents. Except for the filing required under the Hart-Scott-
--------
Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), no
consent, approval, authorization, order, filing, registration or qualification
(each a "Consent") of or with any court, governmental authority or third person
is required to be made or obtained by any Company in connection with the
execution and delivery of this Agreement, the Ancillary Agreements or the
consummation by the Companies and the Existing Shareholders of the transactions
contemplated herein and therein, which Consent(s), if not obtained, would have a
material adverse effect.
3.19. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.19 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of any Company and that
are not Plans (as defined below) (collectively, the "Employment Contracts") and
(ii) all "employee welfare benefit plans" or "employee pension benefit plans,"
as such terms are defined in Sections 3(1) and 3(2), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which are
maintained, administered or contributed to by the Companies and cover employees
or former employees of the Companies or under which any Company could incur any
liability (collectively, the "Plans").
(b) None of the Plans is subject to Title VII of ERISA. In the past
six years, no Company has maintained, sponsored, or been required to contribute
to, has withdrawn from (either completely or partially), or has incurred any
unpaid withdrawal liability with respect to, any plan subject to Title VII of
ERISA or the minimum funding requirements of Section 412 of the Code.
(c) The Plans have been administered in compliance in all material
respects with their terms and with all filings, reporting, disclosure, and other
requirements of ERISA, the Code and any other applicable law. The only Plan
which is an "employee pension benefit plan," as such term is defined in Section
3(2) of ERISA is Truck's 401(k) profit sharing plan (the "401(k) Plan"). The
401(k) Plan is and has been for all the years of the Plan the subject of a
favorable determination letter issued by the Internal Revenue Service. The
Companies have no knowledge of any facts which might adversely affect the
qualifying status of the 401(k) Plan.
(d) None of the Companies nor any of their respective employees or
directors, nor, to the knowledge of each Company, any plan fiduciary of any of
the Plans, have engaged in any transaction in violation of Section 406(a) or (b)
of ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which no exemption exists under Section 4975(d) of the Code.
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(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims"), and to the best knowledge of any Company, no such Claims are
threatened, against any Plan or fiduciary of any such Plan by any participant,
beneficiary or governmental agency with respect to the qualification or
administration of any such Plan.
(f) The Companies have provided to HDA or its representatives a copy
of the Employment Contracts, the Plans, related trust agreements, all amendments
thereto together with the annual report for the last three years (Form 5500,
including Schedule B thereto). The Companies have provided HDA or its
representatives with true and complete age, salary, service and related data for
employees, former employees and beneficiaries thereof covered under the 401(k)
Plan as of the Closing Date.
(g) No entity which is required to be aggregated with any of the
Companies under Sections 414(b), (c), (m) or (o) of the Code, other than any of
the Companies (the "Company ERISA Affiliates") has incurred any liability under
or with respect to any benefit plan, policy or arrangement for the benefit of
its employees or former employees that could become a liability of HDA or any of
the Companies. Neither HDA nor any Company ERISA Affiliate will incur any
liability under Section 411(d)(3) of the Code for vested accrued benefits
arising from a partial termination of the 401(k) Plan prior to the Closing Date.
(h) All amounts required to be contributed to any Plan by any
Company will, as of the Closing Date, have been paid or properly accrued on the
books of each of the Companies. The Companies shall either contribute or accrue
on their respective books the amount of any employer matching contributions or
discretionary contributions (in an amount determined in accordance with each
Company's past practices) to the 401(k) Plan which in the ordinary course of
business would be contributed for or attributable to the period prior to the
Closing Date.
(i) None of the assets of the 401(k) Plan is invested in property
constituting employer real property or employer security (within the meaning of
Section 407(d) of ERISA).
(j) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of any
Company.
(k) No Company or any Plan which is a "welfare benefit plan," as
such term is defined in Section 3(1) of ERISA has any present or future
obligation to provide medical or other welfare benefits to, or to make any
payment to or with respect to medical or other welfare benefits of, any present
or former employee of any Company or any ERISA Subsidiary.
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(l) No Company ERISA Affiliate has incurred any liability with
respect to which any Company has incurred or could incur any liability.
3.20. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.20, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(i) the Companies, (ii) all partnerships, joint ventures and other entities
or organizations in which any Company was at any time or is a partner,
joint venturer, member or participant and (iii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by any Company or to which any Company has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge
or other release or threatened release of, Hazardous Substances or
otherwise dangerous substances, wastes, pollution or materials (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater, drinking water, air, wildlife, plants or other natural
resources, or the health and safety of persons or property. Environmental
Laws shall include, without limitation, the Federal Insecticide, Fungicide,
Rodenticide Act, Resource Conservation & Recovery Act, Clean Water Act,
Safe Drinking Water Act, Atomic Energy Act, Occupational Safety and Health
Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response, Compensation and Liability Act, Emergency Planning
and Community Right-to-Know
18
<PAGE>
Act, Hazardous Materials Transportation Act and all analogous or related
federal, state or local law, each as amended.
(v) "Environmental Conditions" means the Release into the
environment of any Hazardous Substance as a result of which any Company has
or may become liable to any person or by reason of which any Facility or
any of the assets of any Company may suffer or be subjected to any lien.
(b) Notice of Violation. Since January 1, 1995, no Company has
-------------------
received a written notice of alleged, actual or potential responsibility for, or
any inquiry or investigation regarding, (i) any Release or threatened Release of
any Hazardous Substance at any location, whether at the Facilities, or (ii) an
alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
Since January 1, 1995, no Company has received written notice of any other
claim, demand or Action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or former
Facilities, or in connection with any operations or activities of any Company.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions in any way relating to the business of any Company or
at any Facility or except for those Environmental Conditions which do not have a
material adverse effect on the Companies.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of any Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by a Company or
environmental consultant or engineer engaged for such purpose, have been
delivered to HDA or its representatives and a list of all such reports, audits
and assessments and any other similar report, audit or assessment of which any
Company has knowledge is included in Schedule 3.20 hereto.
(e) Indemnification Agreements. No Company is a party, whether as a
--------------------------
direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any lease or other contract (excluding insurance policies
disclosed on the Schedule) under which any Company is obligated by or entitled
to the benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
environmental conditions.
(f) Releases or Waivers. No Company has released in writing any
-------------------
other person from any claim under any Environmental Law or waived in writing any
rights concerning any Environmental Condition.
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(g) Notices, Warnings and Records. Each of the Companies has given
-----------------------------
all notices and warnings, made all reports, and has kept and maintained all
records required by and in compliance with all Environmental Laws, except where
the failure to provide such notices, warnings and reports would not have a
material adverse effect.
3.21. Certain Business Relationships with the Companies. None of the
-------------------------------------------------
Existing Shareholders owning more than 5% of any Company outstanding voting
securities have been involved in any business arrangement or relationship with
any Company within the past 12 months, and none of such Existing Shareholders
own any assets, tangible or intangible, which are used in the business of any
Company.
3.22. Undisclosed Liabilities. No Company has any liabilities or
-----------------------
obligations, whether accrued, absolute, contingent or otherwise except (i) to
the extent reflected or reserved for on the Balance Sheets, (ii) liabilities or
obligations incurred in the normal and ordinary course of business of each of
the Companies since December 31, 1997, (iii) liabilities or obligations
disclosed in Schedule 3.22 hereto and in the other Schedules attached hereto
(including obligations under any contract, plan or policy disclosed on any
schedule hereto), or (iv) liabilities or obligations disclosed elsewhere in this
Agreement or not required to be disclosed by reason of being under a dollar
threshold or a "materiality" or "material adverse effect" qualifier.
3.23. Insurance. Schedule 3.23 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided, and indicating
whether such policies are occurrence-based or claims-made) maintained by each of
the Companies on its respective (i) businesses, (ii) assets or (iii) employees
at any time since December 31, 1993. All insurance coverage applicable to each
of the Companies or its respective businesses or assets is in full force and
effect and provides coverage as may be required by applicable regulation and by
any and all contracts to which any Company is a party and has been issued by
insurers of recognized responsibility. There is no default under any such
coverage nor has there been any failure to give notice or present any claim
under any such coverage in a due and timely fashion. There are no outstanding
unpaid premiums which are past due, and no pending notice of cancellation or
nonrenewal of any such coverage has been received. There are no provisions in
such insurance policies for retroactive or retrospective premium adjustments.
There are no outstanding performance bonds covering or issued for the benefit of
any Company. No insurer has advised any Company that it intends to reduce
coverage, increase premiums or fail to renew existing policy or binder.
3.24. Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheets, and all accounts receivable arising since the date of the
Balance Sheets, represent bona fide claims of the Companies against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. Said accounts receivable are subject to no
defenses, counterclaims or rights of setoff and are fully collectible in the
ordinary course of business without cost in collection efforts therefor, except
to the extent of the appropriate reserves for bad
20
<PAGE>
debts on accounts receivable as set forth on the Balance Sheets and, in the case
of accounts receivable arising since the date of the Balance Sheets, to the
extent of a reasonable reserve rate for bad debts on accounts receivable which
is not greater than the rate reflected by the reserve for bad debts on the
Balance Sheets.
3.25. Inventory. Schedule 3.25 contains a complete and accurate list
---------
of the addresses at which all inventory is located. The inventory as set forth
on the Balance Sheets or arising since the date of the Balance Sheets was
acquired and has been maintained in accordance with the regular business
practices of the Companies, consists of new and unused items of a quality and
quantity usable or saleable in the ordinary course of business, and is valued at
the lower of cost or market on a LIFO basis. None of such inventory is obsolete,
unusable, slow-moving, damaged or unsaleable in the ordinary course of business,
except for such items of inventory which have been written down to realizable
market value, or for which adequate reserves have been provided in the Balance
Sheets.
3.26. Customers, Distributors and Suppliers. Schedule 3.27 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of each Company's (i)
ten largest (in terms of dollar volume) customers, distributors and other agents
and representatives during each Company's last fiscal year, showing the
approximate total sales in dollars by such Company to such customer during such
fiscal year; and (ii) suppliers during each Company's last fiscal year, showing
the approximate total purchases in dollars by each Company from such supplier
during such fiscal year. Since December 31, 1997, there has been no material
adverse change in the business relationship of any Company with any customer,
distributor or supplier named on Schedule 3.27. Since December 31, 1997, no
Company has received any communication from any customer, distributor or
supplier named on Schedule 3.27 of any intention to terminate or materially
reduce purchases from or supplies to such Company.
3.27. Banking Relationships. Schedule 3.28 sets forth a complete and
---------------------
accurate description of all arrangements that each Company has with any banks,
savings and loan associations or other financial institutions providing for
checking accounts, safe deposit boxes, borrowing arrangements, and certificates
of deposit or otherwise, indicating in each case account numbers, if applicable,
and the person or persons authorized to act or sign on behalf of each Company in
respect of any of the foregoing.
3.28. Investment. The Popes (i) understand that the offer and sale of
----------
shares of Common and Series A Preferred Stock has not been, and will not be as
of the Closing Date, registered under the Securities Act, or under any state
securities laws, and such offer and sale is being made in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii)
are acquiring the Common and Series A Preferred Stock solely for their own
account for investment purposes, and not with a view to the distribution
thereof, (iii) are sophisticated investors with knowledge and experience in
business and financial matters and "accredited investors" (as defined under the
federal securities laws), (iv) have received information concerning HDA and have
had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Common and Series A
Preferred Stock, and (v) are able to bear the economic risk and lack of
liquidity inherent in holding the Common and Series A Preferred Stock.
21
<PAGE>
3.29. Operations and Assets of DHP. DHP has no operations or assets
----------------------------
other than those relating to the business of leasing equipment to Truck.
3.30. Representations and Warranties of Charles R. Turner.
---------------------------------------------------
(a) Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized, executed and delivered by Turner and are the legal, valid and
binding obligations of Turner, enforceable against him in accordance with their
terms, except as enforcement may be limited by equitable principles limiting the
right to obtain specific performance or other equitable remedies, or by
applicable bankruptcy or insolvency laws and related decisions affecting
creditors' rights generally.
(b) Title to Shares. Turner has, and at Closing will have, good and
---------------
valid title to the Shares owned by him, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever. Upon delivery to HDA at the Closing of certificates representing
the Shares owned by Turner, duly endorsed by him for transfer to HDA, HDA will
obtain good and valid title to such Shares, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever. There are no voting trusts, proxies, or other agreements or
understandings to which Turner is a party with respect to the voting, dividend
right or disposition of any of the Shares. Turner has no obligation, absolute
or contingent, to any other person or entity to issue, sell or otherwise dispose
of any capital stock of Truck or to effect any merger, consolidation,
reorganization or other business combination of any Company or to enter into any
agreement with respect thereto.
(c) No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement or the Ancillary Agreements by Turner nor the consummation by
Turner of the transactions contemplated hereby or thereby will (i) violate,
conflict with or result in or constitute a default under or result in the
termination or the acceleration of, or the creation in any party of any right
(whether or not with notice or lapse of time or both) to declare a default,
accelerate, terminate or cancel any indenture, contract, lease, sublease, loan
agreement, note or other obligation or liability ("Contractual Obligation") to
which Turner is a party or by which he is bound or to which his assets is
subject or result in the creation of any lien or encumbrance upon any of said
assets, (ii) violate, conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or Bylaws (or other
organizational documents) of any Company, (iii) violate, conflict with or result
in a breach of or constitute a default under any judgment, order, decree, rule
or regulation of any court or governmental agency to which any Company is
subject or, in the case of clause (i), relates to a Material Contract (as
defined below) or (iv) violate, conflict with or result in a breach of any
applicable federal or state rule or regulation.
(d) Consents. Except for the filing required under the Hart-Scott-
--------
Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), no
consent, approval, authorization, order, filing, registration or qualification
(each a "Consent") of or with any court,
22
<PAGE>
governmental authority or third person is required to be made or obtained by any
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by Turner of the transactions
contemplated herein and therein, which Consent(s), if not obtained, would have a
material adverse effect on Turner.
(e) Investment. Turner (i) understands that the offer and sale of
----------
Common and Series A Preferred Stock has not been, and will not be as of the
Closing Date, registered under the Securities Act, or under any state securities
laws, and such offer and sale is being made in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring
the Common and Series A Preferred Stock solely for his own account for
investment purposes and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters and an "accredited investor" (as defined under the federal securities
laws), (iv) has received information concerning HDA and has had the opportunity
to obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the Common and Series A Preferred Stock, and (v)
is able to bear the economic risk and lack of liquidity inherent in holding the
Common and Series A Preferred Stock.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA
HDA and Holdings represent and warrant to the Companies and the Existing
Shareholders as follows:
4.1. Corporate Organization and Standing. Each of Holdings and HDA
-----------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and each has all requisite corporate
power and authority to execute and deliver this Agreement, the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized,
-------------
executed and delivered by each of Holdings and HDA, and is the valid and binding
obligation of each of Holdings and HDA , enforceable against each of them in
accordance with its terms, except as enforcement may be limited by equitable
principles limiting the right to obtain specific performance or other equitable
remedies, or by applicable bankruptcy or insolvency laws and related decisions
affecting creditors' rights generally.
4.3. No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (i) result in the acceleration
of, or the creation in any party of any right to accelerate, terminate, modify
or cancel any indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which Holdings or HDA is a party or by which
either of them is bound or to which any of their assets are subject, (ii)
conflict with or result in a breach of or constitute a default under any
provision of their Certificate or Articles of Incorporation or Bylaws (or other
charter documents), or a default under or violation of any material restriction,
23
<PAGE>
lien, encumbrance or any contract to which Holdings or HDA is a party or by
which either of them is bound or to which any of their assets are subject or
result in the creation of any lien or encumbrance upon any of said assets, (iii)
violate or result in a breach of or constitute a default under any judgment,
order, decree, rule or regulation of any court or governmental agency to which
Holdings or HDA is subject, or (iv) violate, conflict with or result in a breach
of any applicable federal or state rule or regulation.
4.4. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of Holdings or HDA, threatened
against either of them or any subsidiary or the directors, officers, agents or
employees of Holdings or HDA or any subsidiary (in their capacity as such), or
any properties or rights of Holdings or any subsidiary except for those which,
if adversely determined, would not have a material adverse effect on Holdings or
HDA and its subsidiaries taken as a whole. There are no orders, writs,
injunctions or decrees currently in force against Holdings or HDA or any
subsidiary or the directors, officers, agents or employees of Holdings or HDA or
any subsidiary (in their capacity as such) with respect to the conduct of
business of Holdings or HDA or any subsidiary, except for those which would not
have a material adverse effect on Holdings or HDA and its subsidiaries taken as
a whole.
4.5. Brokers, Finders. Neither Holdings nor HDA has retained any
----------------
broker or finder, nor is obligated or has agreed to pay any brokerage or
finder's commission, fee or similar compensation, in connection with the
transactions contemplated herein, except for the fees payable to an affiliate of
Brentwood Associates Buyout Fund II, L.P. pursuant to the Corporate Development
and Administrative Services Agreement.
4.6. Approvals, Etc. All consents, approvals, authorizations and
--------------
orders (corporate, governmental or otherwise) necessary for the due
authorization, execution and delivery by Holdings and HDA of this Agreement, the
Ancillary Agreements to which each of them is a party and the consummation of
the transactions contemplated hereby and thereby have been obtained.
4.7. Stock. The shares of Common Stock and Series A Preferred Stock
-----
issued to the Selling Parties pursuant to this Agreement will be validly issued,
fully paid and nonassessable. At Closing, Pope and Turner will each acquire good
and marketable title to all of such Common Stock and Series A Preferred Stock,
free and clear of any lien, encumbrance, pledge, security interest or claim
whatsoever, except for any liens or restrictions created by or suffered to exist
by Pope or Turner.
4.8. Investment. Holdings and HDA (i) understand that the common
----------
stock of Truck has not been, and will not be as of the Closing Date, registered
under the Securities Act, or under any state securities laws, and is being
offered and sold in reliance upon federal and state exemptions from transactions
not involving any public offering, (ii) are acquiring the common stock of Truck
solely for their own account for investment purposes, and not with a view to
distribution thereof, (iii) are each an "accredited investor" (as defined under
the federal securities laws), (iv) have received information concerning Truck
and have had the opportunity to obtain additional information as desired in
order to evaluate the merits and risks inherent in holding the
24
<PAGE>
common stock of Truck, and (v) are able to bear the economic risk and lack of
liquidity inherent in holding the common stock of Truck.
4.9. Offering Memorandum. The final offering memorandum dated July
-------------------
28, 1998, relating to HDA's high-yield debt offering, does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.10. Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Schedule 4.9 and except for transactions contemplated by this Agreement, since
December 31, 1997, there has not been any change in the business, financial
condition or results of operations of Holdings and its subsidiaries which has or
would reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Holdings and its subsidiaries taken as a whole.
4.11. Capitalization of Holdings and HDA. The authorized capital
----------------------------------
stock of Holdings consists of 250,000 shares of Common Stock and 850,000 shares
of Series A Preferred Stock. Following the consummation of the transactions
contemplated by this Agreement, 101,667 shares of Common Stock and 414,798.316
shares of Series A Preferred Stock, respectively, are outstanding, all of which
shares have been duly authorized, validly issued and are fully paid and non-
assessable. There are no preemptive rights on the part of any holder of any
class of securities of Holdings. After the consummation of the recapitalization
of Holdings, it will own all of the outstanding capital stock of HDA. The
authorized capital stock of HDA consists of 250,000 shares of Common Stock,
40,000 shares of Series A Preferred Stock and 810,000 shares of Series B
Preferred Stock. As of the date of this Agreement 94,229 shares of Common Stock,
no shares of Series A Preferred Stock and 382,372.711 shares of Series B
Preferred Stock, respectively, are outstanding, all of which shares have been
duly authorized, validly issued and are fully paid and non-assessable. There are
no preemptive rights on the part of any holder of any class of securities of
HDA.
4.12. Financial Statements.
--------------------
(a) The audited combined balance sheets of City Truck & Trailer
Parts, Inc. and its affiliates ("City") and Stone Heavy Duty, Inc. ("Stone," and
together with City, the "Predecessors") dated December 31, 1997 and 1996,
respectively (the "Predecessor Balance Sheets" and the "1996 Predecessor Balance
Sheets," respectively), were prepared in accordance with GAAP consistently
applied and fairly present in all material respects the financial condition of
the Predecessors as of their respective dates. As of the dates of the
respective Predecessor Balance Sheets, none of the Predecessors had any
liabilities of any nature, whether absolute, accrued, asserted or unasserted or
contingent or whether due or to become due, which should have been recorded or
reserved for on the Predecessor Balance Sheets in accordance with GAAP and were
not so recorded or reserved.
(b) The audited combined statements of operations, statements of
changes in shareholder's equity and statements of cash flows of the Predecessors
for the fiscal years ended December 31, 1997 and 1996, respectively, were
prepared in accordance with GAAP
25
<PAGE>
consistently applied and fairly present in all material respects the results of
operations, changes in shareholder's equity and cash flows of the Predecessors
for each such period.
4.13. Shareholder Agreement; Other Agreements Relating to Holdings
------------------------------------------------------------
Capital Stock. Except as set forth in the Stockholders' Agreement, (i) there
- -------------
are no preemptive or similar rights on the part of any holder of any class of
securities of Holdings and (ii) no options, warrants, conversion or other
rights, agreements or commitments of any kind obligating Holdings, contingently
or otherwise, to issue, sell or otherwise cause to be outstanding any shares of
its capital stock of any class or any securities convertible into or
exchangeable for any such shares have been issued and outstanding by Holdings to
any seller of a business to Holdings as a portion of the purchase price
therefor. No stockholder has a "put" right requiring Holdings to repurchase any
of its shares. The Stockholder's Agreement dated September 30, 1998 is the only
agreement among HDA or Holdings and any of their respective stockholders (or, to
the knowledge of Holdings, among any of the stockholders) relating to the
transfer, voting or liquidity of Holdings capital stock. All outstanding shares
of Class B Preferred Stock and Common Stock of HDA were issued either (i) for
cash at the prices of $100 per share and $1.00 per share, respectively, or (ii)
for property in transactions in which the stock issued by HDA was valued at the
same prices set forth in clause (i).
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Companies, the Existing Shareholders, Holdings and HDA each
covenant with the others as follows:
5.1. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, the Parties agree, both before and after the
Closing, (i) to use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement or the Ancillary Agreements (as defined), (ii) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective commercially reasonable efforts (A) to obtain all necessary waivers,
consents and approvals from other parties (including, without limitation,
governmental entities) to the consummation of the transactions contemplated by
this Agreement; provided, however, that neither party shall be required to make
any material payments, commence litigation or agree to modification of the terms
of material contracts in order to obtain any such waivers, consents or
approvals; (B) to obtain all necessary Permits as are required to be obtained
under any regulations; (C) to defend all Actions challenging this Agreement or
the consummation of the transactions contemplated hereby; (D) to give all
notices to, and make all registrations and filings with third parties,
including, without limitation, submissions of information requested by
governmental authorities; and (E) to fulfill all conditions to this Agreement.
26
<PAGE>
5.2. Disclosures. Except as required by law or occurring after the
-----------
Closing, none of the Parties, without the prior written consent of the other
Parties, will make any press release or any similar public announcement
concerning the transactions contemplated hereby.
5.3. Tax Matters.
-----------
(a) Truck shall timely prepare and file, or cause to be prepared and
filed, Internal Revenue Service Form 1120S (and any analogous state or local Tax
Returns) in accordance with Section 1362(e) of the Code for the period January
1, 1998 through the day immediately preceding the Closing Date (the "S Short
Year") and Internal Revenue Service Schedules K-1 for the S Short Year. Truck
shall deliver such Tax Returns to its Existing Shareholders and HDA and its
representatives at least 20 days prior to the filing deadline for such Tax
Returns and obtain the consent of its Existing Shareholders and HDA thereto,
which consent shall not be unreasonably withheld or delayed, prior to the filing
thereof. The Existing Shareholders of Truck shall timely pay, or cause to be
paid, when due (i) all Taxes relating to the periods covered by such Tax Returns
and (ii) any other Taxes relating to periods ending on or before the Closing
Date and not accrued on the Balance Sheets of Truck.
(b) Except as provided in Section 5.7(a), Truck shall prepare or
complete, or cause to be prepared or completed, and timely filed, or cause to be
timely filed, all Tax Returns required to be filed after the Closing Date and,
subject to Section 5.3(c) hereof, shall timely pay, or cause to be timely paid,
when due, all Taxes relating to such Tax Returns in accordance with all
applicable laws and in a manner consistent with the principles set forth in
clause (i) of the next succeeding sentence. Except as provided in Section
5.3(a), with respect to Tax Returns of Truck not filed prior to the Closing Date
that relate to a taxable period that ends on or prior to or includes the Closing
Date, such Tax Returns shall be prepared or completed by Truck in a manner
consistent with the prior practice of Truck (including elections and accounting
methods and conventions, and as otherwise required by applicable law or
regulation or otherwise agreed to by Truck prior to the filing thereof), and in
a manner that does not distort taxable income (e.g., by accelerating income to a
----
period or periods prior to the Closing Date or deferring deductions to a period
or periods after the Closing Date). Truck shall deliver such Tax Returns to its
Existing Shareholders and HDA and its representatives at least 20 days prior to
the filing deadline for such Tax Returns and obtain the consent of its Existing
Shareholders and HDA thereto, which consent shall not be unreasonably withheld
or delayed, prior to the filing thereof.
(c) Although Truck, as the taxpayer or in connection with filing the
Tax Returns specified in Section 5.3(b) above, may be required to pay Taxes
relating to time periods ending on or before the Closing Date ("Pre-Closing
Taxes"), it is the intention of the Parties that, to the extent such Pre-Closing
Taxes (including any penalties, interest or additions to Tax) were not fully
accrued on the Closing Balance Sheet of Truck, its Existing Shareholders will be
responsible for such Pre-Closing Taxes either by payment of such Pre-Closing
Taxes themselves or pursuant to Section 5.3 hereof.
(d) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding
27
<PAGE>
("Tax Proceeding"). The Existing Shareholders shall have the sole right to
control, conduct, and otherwise represent the interests of each Company in any
such Tax Proceeding; provided, however, that without the prior written approval
-------- -------
of HDA, which approval shall not be unreasonably withheld or delayed, the
Existing Shareholders shall not agree or consent to compromise or settle any
issue or claim arising in any such Tax Proceeding to the extent that any such
compromise, settlement, consent or agreement could have an adverse effect on HDA
for any period ending after the Closing Date.
(e) Neither HDA nor any affiliate of HDA shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to Truck relating to Taxes for which
the Existing Shareholders may be liable hereunder. Promptly after the
reasonable request of the Existing Shareholders, at the sole expense of the
Existing Shareholders, HDA shall, or cause Truck, to file any amended Tax Return
or claim for Tax refund relating to Taxes for which the Existing Shareholders
may be liable hereunder, provided that such amended Tax Returns or claims shall
--------
be prepared in a manner consistent with the principles set forth in Section
5.3(b) and, in the reasonable determination of HDA, shall conform to applicable
laws and regulations. If HDA or any affiliate of HDA shall receive a Tax refund
relating to a period or transaction for which the Existing Shareholders are
liable hereunder, HDA shall, within 30 days after receipt of such Tax refund,
remit such Tax refund (including any interest received on such Tax refund and
net of (i) any Tax cost relating to the receipt of such Tax refund and (ii) any
unreimbursed cost or expense incurred in obtaining such Tax refund), to the
Existing Shareholders. For purposes of this Section 5.3, the term "Tax refund"
shall include a reduction in Tax or the use of an overpayment as a credit or
other Tax offset, and the receipt of a refund shall be deemed to be realized
upon the earliest to occur of (i) the date on which HDA has actual knowledge
that a payment due to the relevant taxing authority (for which HDA would be
responsible under this Agreement) has been offset by such a refund and (ii) the
receipt of cash.
(f) After the date hereof, HDA and Truck shall provide each other
and the Existing Shareholders, with such cooperation and information relating to
Truck as either party reasonably may request in (i) filing any Tax Return,
amended Tax Return or claim for Tax refund, (ii) determining any Tax liability
or a right to a Tax refund, (iii) conducting or defending any proceeding in
respect of Taxes or (iv) effectuating the terms of this Agreement. The Parties
and Truck shall retain all Tax Returns, schedules and work papers, and all
material records and other documents relating thereto, until the expiration of
the statute of limitations (and, to the extent notified by any party, any
extensions thereof) of the taxable years to which such Tax Returns and other
documents relate and until the final determination of any Tax in respect of such
years. Any information obtained under this Section 5.3 shall be kept
confidential, except as may be otherwise necessary in connection with filing any
Tax Return, amended Tax Return, or claim for Tax refund, determining any Tax
liability or right to a Tax refund, or in conducting or defending any
proceedings in respect of Taxes.
28
<PAGE>
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HOLDINGS AND HDA
The obligations of Holdings and HDA under this Agreement are subject
to the fulfillment prior to or at the Closing of each of the following
conditions, any one or more of which may be waived by HDA.
6.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that Holdings and HDA have acted in
--------
accordance with the requirements Section 5.1 hereof).
6.2. Representations and Warranties. All representations and
------------------------------
warranties of the Companies and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.3. Performance of Agreements. The Companies and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments in this Agreement required
to be fulfilled by them pursuant to the terms hereof on or prior to the Closing
Date.
6.4. Compliance Certificate. The Companies and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by
their respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
6.5. Material Changes. There shall not have been any material
----------------
adverse effect from the date hereof to the Closing Date with respect to the
Selling Parties.
6.6. Opinion of Counsel. HDA shall have received the opinion of King
------------------
& Spalding, counsel for the Companies and the Existing Shareholders, in the form
set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect. The waiting period under the H-S-R Act shall have
expired or been terminated.
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than HDA: (i) employment agreements, containing non-competition clauses, by and
between HDA and Robert L. Pope, substantially in the form attached hereto as
Exhibit D; (ii) Joinders to an Amended and Restated Stockholders' Agreement for
HDA substantially in the form attached hereto as Exhibit E, (iii) real property
leases by and between HDA and those entities with respect to which Pope
29
<PAGE>
has a partnership interest ("New Leases") substantially in the form attached
hereto as Exhibit F, and (iv) an escrow agreement (the "Escrow Agreement") by
and among Holdings, HDA, DHP, the Popes and Chase Manhattan Bank and Trust
Company, National Association as "Escrow Agent" substantially in the form
attached hereto as Exhibit G.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE SELLING
PARTIES
The obligations of the Selling Parties under this Agreement are
subject to the fulfillment prior to the Closing of each of the following
conditions, any one or more of which may be waived by the Selling Parties:
7.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement shall have been issued
and remain in effect.
7.2. Representations and Warranties. Except as otherwise
------------------------------
contemplated by this Agreement, all representations and warranties of HDA and
Holdings, if applicable, contained in this Agreement shall be true and correct
in all material respects as of the Closing Date.
7.3. Performance of Agreements; Instruments of Transfer. Holdings
--------------------------------------------------
and HDA shall have fully performed in all material respects all obligations,
agreements, conditions and commitments required to be fulfilled by Holdings and
HDA on or prior to the Closing Date and shall have tendered to the Companies and
the Existing Shareholders, the documents, instruments and certificates required
by Article 7 hereof.
7.4. Compliance Certificates. HDA shall have delivered to the
-----------------------
Companies and the Existing Shareholders its respective certificate, dated the
Closing Date, executed on its behalf by its President or a Vice President, as to
the fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5. Ancillary Agreements. The condition set forth in Section 6.8
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6. Material Changes. There shall not have been any material
----------------
adverse effect from the date hereof to the Closing Date with respect to HDA.
7.7. Opinion of Counsel. The Selling Parties shall have received the
------------------
opinion of Latham & Watkins, counsel for Holdings and HDA, in the form set forth
in Schedule 7.7 hereto.
7.8. Consents, Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect.
30
<PAGE>
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1. Consents to Assignment. Anything in this Agreement to the
----------------------
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any lease, contract or license, or any claim or right or any benefit
arising thereunder or resulting therefrom if any attempted assignment thereof,
without the consent of a third party thereto, would constitute a breach thereof
or in any way adversely affect the rights of the Companies thereunder. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights thereunder so that HDA would not receive
all such rights. The Companies will cooperate with HDA, in all reasonable
respects, to provide to HDA with the benefits under any such lease, contract,
license, claim or right, including, without limitation, enforcement for the
benefit of HDA of any and all rights of the Companies against a third party
thereto arising out of the breach or cancellation by such third party or
otherwise.
8.2. Indemnification by the Selling Parties. Subject to the
--------------------------------------
provisions of this Article VIII, the Popes will jointly and severally indemnify,
defend and hold HDA and its respective stockholders, subsidiaries, officers,
directors, employees, agents, successors and assigns, (such indemnified persons
are collectively hereinafter referred to as "HDA's Indemnified Persons"),
harmless from and against any and all loss, liability, damage (excluding
consequential, indirect special, exemplary and punitive damages) or deficiency
(including interest, penalties, judgments, costs of preparation and
investigation, and reasonable attorneys' fees) (collectively, "Losses") that
HDA's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) the breach of any representation or warranty of
the Selling Parties in this Agreement, (b) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of the Selling Parties under this
Agreement, not otherwise waived by HDA, or (c) the failure of Truck to qualify
in a timely manner to do business in Florida or South Carolina. "Losses" as used
herein is not limited to matters asserted by third parties, but includes Losses
incurred or sustained in the absence of third party claims. Payment is not a
condition precedent to recovery of indemnification for Losses.
8.3. Indemnification by HDA. Subject to the provisions of this
----------------------
Article VIII, HDA agrees to indemnify, defend and hold the Selling Parties and
their respective heirs, representatives, agents, successors and assigns (such
persons are hereinafter collectively referred to as the "Selling Parties'
Indemnified Persons"), harmless from and against any and all Losses that Selling
Parties' Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) the breach of any representation or warranty of
HDA in this Agreement and (b) the nonfulfillment of any covenant, undertaking,
agreement or other obligation of HDA under this Agreement, not otherwise waived
by the Selling Parties.
8.4. Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article VIII shall survive until the first
anniversary of the Closing Date; provided, however, that the representations and
warranties set forth in Section 3.12 relating to tax matters and Section 3.19
relating to employee benefits matters shall survive for the length of the
applicable statute of
31
<PAGE>
limitations, and provided further that the representations in Sections 3.2, 3.4
and 3.30(b) shall survive indefinitely.
8.5. Threshold; Deductible. Except as provided in this Section 8.5,
---------------------
no HDA's Indemnified Person or Selling Parties' Indemnified Person shall be
entitled to any recovery in accordance with this Article 8 unless and until the
amount of such Losses suffered, sustained or incurred by such party, or to which
such party becomes subject, by reason of such inaccuracy, breach or
nonfulfillment exceeds $125,000 and then only to the extent of such excess.
Indemnification pursuant to this Agreement shall constitute the sole and
exclusive monetary remedy of the Parties with respect to any breach of the
representations, warranties, covenants or agreements contained in this Agreement
or arising out of the transactions contemplated hereby; provided, however, that
if the indemnification provisions in this Agreement are unenforceable, any Party
may pursue any other remedy, subject in all cases to the $125,000 deductible and
$3,500,000 cap set forth in this Section. Notwithstanding any other provision
contained in this Agreement or the Ancillary Agreements to the contrary, in no
event shall the Selling Parties have any liability for indemnification pursuant
to Section 8.2, the other terms of this Agreement or the Ancillary Agreements in
an aggregate amount in excess of $3,500,000, except for liabilities relating to
the breach of tax representations and warranties, as to which neither the
$125,000 deductible nor the $3,500,000 cap apply.
8.6. Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.4 and 8.5 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
32
<PAGE>
8.7. Indemnification Payments. At the Closing, the Selling Parties
------------------------
will deliver by wire transfer of immediately available funds $850,000 of the
Cash Purchase Price to the Escrow Agent to serve as partial security for the
indemnification obligations and Purchase Price adjustment obligations of the
Selling Parties under this Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, HDA
--------
shall bear the expenses and costs incurred by it in preparing, negotiating and
closing this Agreement, and the Existing Shareholders, on behalf of themselves
and the Companies, shall bear the expenses and costs incurred by them in
connection with the sale of the Companies, including without limitation, the
fees and expenses of SunTrust Equitable Securities. HDA shall bear all expenses
relating to the audit of the Companies by Ernst & Young LLP currently being
conducted in connection with the transactions contemplated by this Agreement. To
the extent any of the expenses and costs to be borne by the Existing
Shareholders have already been paid by the Companies, the amount of such
expenses and costs have been paid back into the Companies.
9.2. Notices. All notices, requests, demands and other
-------
communications given hereunder (collectively, "Notices") shall be in writing and
delivered personally or by overnight courier to the Parties at the following
addresses or sent by telecopier, with confirmation received, to the telecopy
number specified below:
If to any Selling Party, at
Truck & Trailer Parts, Inc.
4145 Bonsal Road, P.O. Box 370
Conley, Georgia 30288
Attn: Robert Pope
Fax No.: (404) 361-2161
With a Copy to:
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1763
Attn: Michael J. Egan III, Esq.
Fax No.: (404) 572-5145
If to HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attn: John J. Greisch
Fax No.: (847) 444-1096
33
<PAGE>
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, CA 90025
Attention: Christopher A. Laurence
Fax No.: (310) 477-1011
And:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Elizabeth A. Blendell, Esq.
Fax No.: (213) 891-8763
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier (promptly
confirmed in writing), addressed as set forth above. Each of the Parties shall
hereafter notify the other in accordance with this Section 9.2 of any change of
address or telecopy number to which notice is required to be mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the subject matter hereof and
supersedes all prior negotiations, agreements and understandings, whether
written or oral, of the Parties including, without limitation, the Letter of
Intent dated July 17, 1998 between the Companies and HDA.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6. Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of the State of
Georgia applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
34
<PAGE>
9.8. No Third-Party Rights. This Agreement is not intended, and
---------------------
shall not be construed, to create any rights in any parties other than the
Companies, HDA and the Existing Shareholders, and no person shall assert any
rights as third-party beneficiary hereunder.
9.9. Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.10. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.11. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase includes (i) actual knowledge of any Existing
Shareholder, (ii) actual knowledge of any director or officer of any of the
Companies, including those directors and officers whose job duties include the
subject matter in question after inquiry of the other employees with management
responsibility for the subject matter in question, and (iii) the existence and
contents of any written agreement or other document to which any Company or
Existing Shareholder is a party.
9.14 Material Adverse Effect. As used herein, the phrase "material
-----------------------
adverse effect" means a material adverse effect on (i) the financial condition,
business or results of operations of the Companies on a consolidated basis or on
HDA and its subsidiaries taken as a whole, as applicable, or (ii) the ability of
the Selling Parties or HDA, as applicable, to consummate the transactions
contemplated by this Agreement.
(Signature Page Follows)
35
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John P. Miller
---------------------------------------
John P. Miller
Vice President of Finance, Chief Financial
Officer and Secretary
HDA PARTS SYSTEM, INC.
By: /s/ John P. Miller
----------------------------------------
John P. Miller
Vice President of Finance, Chief Financial
Officer and Secretary
TRUCK & TRAILER PARTS, INC.
By: /s/ Robert L. Pope
----------------------------------------
Robert L. Pope
President
DHP LEASING, INC.
By: /s/ Darlene H. Pope
----------------------------------------
Darlene H. Pope
President
/s/ Robert L. Pope
-------------------------------------------
Robert L. Pope
/s/ Darlene H. Pope
-------------------------------------------
Darlene H. Pope
/s/ Charles R. Turner
-------------------------------------------
Charles R. Turner
S-1
<PAGE>
ANNEX A
"Assets" shall mean all of the right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business or in which DHP has any interest, including,
without limitation, all of the rights, titles and interests of DHP in the
following:
(a) all cash and cash equivalents;
(b) all accounts and notes receivable (whether current or
noncurrent), refunds, deposits, prepayments or prepaid expenses;
(c) all contract rights, to the extent transferable;
(d) all leases;
(e) all leasehold estates, to the extent transferable;
(f) all leasehold improvements and fixtures;
(g) all equipment;
(h) all inventory;
(i) all books and records, excluding originals of the minute books
and other organizational documents;
(j) all Proprietary Rights relating to the Business, to the extent
transferable;
(k) all Permits, to the extent transferable;
(l) all computers and, to the extent transferable, software;
(m) all insurance policies, to the extent assignable; and
(n) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business.
(o) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to DHP pertaining to the Business or affecting the Assets, to the
extent such warranties, representations and guarantees are assignable;
(p) all deposits and prepaid expenses of DHP; and
(q) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by DHP on or
prior to the Closing Date.
A-1
<PAGE>
Exhibit 10.5
ASSET PURCHASE AGREEMENT
BY AND AMONG
HDA PARTS SYSTEM, INC.
AND
TAMPA BRAKE & SUPPLY CO., INC.
AND
THE SHAREHOLDERS OF TAMPA BRAKE & SUPPLY CO., INC.
As of October 31, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. PURCHASE AND SALE...................................................1
1.1. Purchase Price.......................................................1
--------------
1.2. Purchase Price Adjustment............................................2
1.3. Transfer of Assets...................................................2
------------------
1.4. Assumption of Liabilities............................................3
-------------------------
1.5. Excluded Liabilities.................................................3
--------------------
ARTICLE II. CLOSING............................................................4
2.1. Closing..............................................................4
-------
2.2. Conveyances at Closing...............................................4
----------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................5
AND THE EXISTING SHAREHOLDERS..................................................5
3.1. Corporate Organization and Standing..................................5
-----------------------------------
3.2. Authorization........................................................6
-------------
3.3. No Conflict or Violation.............................................6
------------------------
3.4. Facilities...........................................................6
----------
3.5. Assets...............................................................7
------
3.6. Financial Statements.................................................8
--------------------
3.7. Books and Records....................................................8
-----------------
3.8. Litigation...........................................................8
----------
3.9. Licenses and Permits; Compliance with Laws...........................9
------------------------------------------
3.10. Tax Matters.........................................................9
-----------
3.11. Brokers, Finders...................................................10
----------------
3.12. Absence of Certain Changes.........................................10
--------------------------
3.13. Material Contracts.................................................12
------------------
3.14. Proprietary Rights.................................................13
------------------
3.15. Labor Matters......................................................14
-------------
3.16. Consents...........................................................14
--------
3.17. Employee Benefit Plans; Employment Agreements......................14
---------------------------------------------
3.18. Compliance with Environmental Laws.................................16
----------------------------------
3.19. Certain Business Relationships with the Company....................18
-----------------------------------------------
3.20. Undisclosed Liabilities............................................18
-----------------------
3.21. Insurance..........................................................18
---------
3.22. Accounts Receivable................................................19
-------------------
3.23. Inventory..........................................................19
---------
3.24. Payments...........................................................19
--------
3.25. Customers, Distributors and Suppliers..............................20
-------------------------------------
3.26. Material Misstatements Or Omissions................................20
-----------------------------------
i
<PAGE>
Page
----
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HDA.............................20
4.1. Corporate Organization and Standing.................................20
-----------------------------------
4.2. Authorization.......................................................20
-------------
4.3. No Conflict or Violation............................................20
------------------------
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING COVENANTS.....21
5.1. Further Assurances..................................................21
------------------
5.2. No Solicitation and Confidentiality.................................21
-----------------------------------
5.3. Disclosures.........................................................22
-----------
5.4. Notification of Certain Matters.....................................22
-------------------------------
5.5. Investigation by HDA and Its Representatives........................22
--------------------------------------------
5.6. Conduct of Business.................................................23
-------------------
5.7. Employee Plans......................................................25
--------------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY HDA............25
6.1. No Injunctive Proceedings...........................................25
-------------------------
6.2. Representations and Warranties......................................25
------------------------------
6.3. Performance of Agreements...........................................25
-------------------------
6.4. Compliance Certificate..............................................25
----------------------
6.5. Material Changes....................................................25
----------------
6.6. Opinion of Counsel..................................................25
------------------
6.7. Consents, Etc.......................................................25
-------------
6.8. Ancillary Agreements................................................26
--------------------
6.9. Due Diligence.......................................................26
-------------
6.10. Name Change........................................................26
-----------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANY....26
7.1. No Injunctive Proceedings...........................................26
-------------------------
7.2. Representations and Warranties......................................26
------------------------------
7.3. Performance of Agreements; Instruments of Transfer..................26
--------------------------------------------------
7.4. Compliance Certificates.............................................26
-----------------------
7.5. Ancillary Agreements................................................27
--------------------
7.6. Opinion of Counsel..................................................27
------------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING........................27
8.1. Collection of Accounts Receivable and Letters of Credit.............27
-------------------------------------------------------
8.2. Consents to Assignment..............................................27
----------------------
8.3. Indemnification by the Company and the Existing Shareholders........27
------------------------------------------------------------
8.4. Indemnification by HDA..............................................28
----------------------
8.5. Survival of Representations, Warranties and Covenants...............28
-----------------------------------------------------
8.6. Threshold; Deductible...............................................28
---------------------
ii
<PAGE>
Page
----
8.7. Notice and Opportunity to Defend....................................28
--------------------------------
8.8. Indemnification Payments............................................29
------------------------
8.9. Right to Inspect Books and Records..................................29
----------------------------------
8.10. Environmental Matters..............................................29
---------------------
8.11. Filing with State of Florida Department of Revenue.................29
--------------------------------------------------
ARTICLE IX. MISCELLANEOUS.....................................................30
9.1. Expenses............................................................30
--------
9.2. Notices.............................................................30
-------
9.3. Counterparts........................................................31
------------
9.4. Entire Agreement....................................................31
----------------
9.5. Headings............................................................31
--------
9.6. Assignment; Amendment of Agreement..................................31
----------------------------------
9.7. Governing Law.......................................................31
-------------
9.8. Further Assurances..................................................31
------------------
9.9. No Third-Party Rights...............................................31
---------------------
9.10. Non-Waiver.........................................................31
----------
9.11. Severability.......................................................32
------------
9.12. Incorporation of Exhibits and Schedules............................32
---------------------------------------
9.13. Knowledge..........................................................32
---------
iii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of the
close of business October 31, 1998, is entered into by and among HDA Parts
System, Inc., an Alabama corporation ("HDA"), Tampa Brake & Supply Co., Inc., a
Florida corporation (the "Company"), and each of the shareholders of the Company
(all of whom are identified on the signature page hereto (individually, an
"Existing Shareholder" and collectively, the "Existing Shareholders"). HDA, the
Company and the Existing Shareholders are referred to herein as each a "Party"
and collectively, the "Parties."
RECITALS
WHEREAS, the Company owns certain assets listed on Annex A (the
"Assets") which are used in connection with or useful to its business of
distributing aftermarket parts and services to the domestic heavy duty vehicle
market (the "Business"); and
WHEREAS, HDA desires to acquire the Assets of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1. Purchase Price.
--------------
(a) Upon the terms and subject to the conditions set forth herein,
HDA will purchase from the Company the Assets for a price (the "Purchase Price")
of Eight Million Six Hundred Fifty Thousand Dollars ($8,650,000) in cash payable
by wire transfer of immediately available funds to the Company.
(b) The "Escrow Amount" shall be Five Hundred Thousand Dollars
($500,000) of the Purchase Price which HDA, at the Closing (as defined), shall
deliver to the Escrow Agent (as defined) for the purposes and for the period
referred to in Section 8.8 below.
(c) HDA and Tampa recognize that Section 1060 of the Internal
Revenue Code of 1986, as amended, requires that the Purchase Price shall be
allocated among categories of assets, and HDA and Tampa will make such
allocation within 60 days after the Closing. HDA believes that (i) the fair
market value of Tampa's inventory is not materially in excess of its book value
and (ii) the fair market value of the furniture, fixtures, equipment, and other
tangible assets of Tampa is not materially in excess of its book value. HDA and
Tampa agree that they will allocate $225,000 of the Purchase Price to Mr.
--------
Schilling's Employment and Noncompetition Agreement and Noncompetition
Agreement.
1
<PAGE>
1.2. Purchase Price Adjustment. If distributions other than (i) "S
-------------------------
Corporation earnings," (ii) the Company's Tampa building and (iii) leasehold
improvements are made to any Existing Shareholder or any persons related
directly or indirectly by blood or marriage to any Existing Shareholder between
March 31, 1998 through the Closing, the Purchase Price shall be reduced by the
difference between the amount distributed and the sum of the "S Corporation
earnings" which were distributed prior to Closing in the case of Section 1.2(i)
and by an amount determined by HDA in the case of Section 1.2(ii). The S
Corporation earnings will be estimated at Closing (the "Estimated S Corporation
earnings") by the Parties based on certificates provided by officers of the
Company regarding "S Corporation earnings" and the Estimated S Corporation
earnings shall be distributed at the Closing.
(a) Determination of S Corporation Earnings. The Company will
---------------------------------------
prepare at its expense an income statement for the period from January 1, 1998
through the Closing (the "Closing Income Statement"), prepared in accordance
with generally accepted accounting principles ("GAAP") applied in the same
manner as for the 1997 Income Statement (as defined in Section 3.6(b)). The
Company will deliver such Closing Income Statement to HDA as soon as possible
but in any event within 60 days after the Closing.
(b) Closing Income Statement Notice.
-------------------------------
(i) Within 30 days of the receipt of such Closing Income
Statement, HDA will deliver to the Existing Shareholders a written notice
certifying that either (x) it agrees with such Closing Income Statement, or
(y) its disagrees with such Closing Income Statement, in which case it will
also provide therewith a reasonably detailed written report stating the
basis for disagreement with the Closing Income Statement (the "Closing
Income Statement Notice"). The Company shall provide reasonable access to
their respective accountants' work papers, personnel and to such historical
financial information as HDA shall reasonably request in order to review
such Closing Income Statement.
(ii) If the Closing Income Statement Notice is not timely given
as described in Section 1.2(b)(i), the Closing Income Statement shall be
final, binding and conclusive upon the Parties. If the Existing
Shareholders disagree with the Closing Income Statement Notice as described
in Section 1.2(b)(i)(y), and if the disagreement is not resolved by mutual
agreement among the Parties within 30 days following delivery of the
Closing Income Statement Notice, such dispute will be resolved by a "Big 5"
accounting firm ("BFAF"), other than Price Waterhouse, selected by HDA and
the Company. The costs of resolving such a dispute shall be borne equally
by HDA and the Existing Shareholders.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute which
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Income
Statements only with respect to the issues raised in the Closing
2
<PAGE>
Income Statement Notice and only to the extent necessary to make it conform
to the practices, procedures and methods described in Section 1.2(a) above.
(c) Post-Closing Adjustment. After a final resolution by the BFAF of
-----------------------
such disagreements as may arise out of the review of the Closing Income
Statement in accordance with Section 1.2(b) above, and an appropriate adjustment
to the Closing Income Statement to reflect such resolution, or if Section
1.2(b)(i)(x) or the first sentence of Section 1.2 (b)(ii) applies, the actual
year to date undistributed earnings of the Company through closing (the "S
Corporation earnings") will be determined, and the actual Purchase Price (the
"Actual Purchase Price") will be calculated based on such, and to the extent
that the Estimated Purchase Price was less than the Actual Purchase Price, the
difference due to the Company will promptly be paid to them by HDA. Similarly,
to the extent the Estimated Purchase Price was more than the Actual Purchase
Price, the excess will be promptly returned by the Company to HDA.
1.3. Transfer of Assets. Upon the terms and subject to the
------------------
conditions set forth herein, at the Closing, the Company will sell to HDA, and
HDA will purchase from the Company, the Assets, free and clear of all
encumbrances other than Permitted Encumbrances (as defined herein). Thomas A.
Schilling may, at Closing, purchase the Company-owned vehicle which he is
currently driving at book value if he so elects.
1.4. Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions contained herein, at the Closing, HDA shall assume (i) all
liabilities and obligations of the Company, fixed or accrued to the extent
listed (even though it may be $0) on Item 1 of Schedule 1.4 plus additional
----
amounts in the categories listed in said Item 1 incurred in the ordinary course
of business, and (ii) all liabilities and obligations accruing, arising out of,
or relating to, events or occurrences happening after the Closing Date under,
and only under, the contracts listed on Schedule 1.4 (the "Assumed Contracts"),
but not including any obligation or liability for any breach of any contract
occurring on or prior to the Closing Date (together with the liabilities assumed
pursuant to clause (i) and clause (ii) (the "Assumed Liabilities"), except to
the extent the amounts indicated on Item 1 of Schedule 1.4 as of September 30,
1998 reflect fixed or accrued amounts payable pursuant to a breach of any
contract as of the Closing.
1.5. Excluded Liabilities. Notwithstanding any other provision of
--------------------
this Agreement, except for the Assumed Liabilities expressly specified in
Section 1.4 hereof, HDA shall not assume, or otherwise be responsible for, the
Company's liabilities or obligations, whether actual or contingent, matured or
unmatured, liquidated or unliquidated, known or unknown, or related or unrelated
to the Business or the Assets, whether arising out of occurrences prior to, at
or after the date hereof (collectively, "Excluded Liabilities"), which Excluded
Liabilities include, without limitation:
(a) Any liability or obligation to or in respect of any employees or
former employees of the Company including without limitation (i) any employment
agreement, whether or not written, between the Company and any person (including
those between the Company and each of Wayne R. Miller and Thomas Slavik, Jr.),
(ii) any liability under any Employee Plan (as defined) at any time maintained,
contributed to or required to be contributed to by or with respect to the
Company or under which the Company may incur liability, or any contributions,
benefits
3
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or liabilities therefor, or any liability with respect to the Company's
withdrawal or partial withdrawal from or termination of any Employee Plan and
(iii) any claim of an unfair labor practice, or any claim under any state
unemployment compensation or worker's compensation law or regulation or under
any federal or state employment discrimination law or regulation (including the
Negotiated Settlement Agreement, the Confidential Agreement and the Confidential
General Release between the Company and Willie S. Murphy), which shall have been
asserted on or prior to the Closing Date or is based on acts or omissions which
occurred on or prior to the Closing Date;
(b) Any liability or obligation of the Company in respect of any Tax
(as defined), except to the extent such liability is identified on Schedule 1.4
or is a type of Tax listed on Schedule 1.4 and accrued between October 1, 1998
and October 31, 1998 in the ordinary course of business;
(c) Any liability arising from any injury to or death of any person
or damage to or destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from defects in products sold or services performed by
or on behalf of the Company or any other person or entity on or prior to the
Closing Date, or arising from any other cause, including without limitation any
liabilities arising (on a date of occurrence basis or otherwise) on or prior to
the Closing Date relating to the use or misuse of equipment or to traffic
accidents;
(d) Any liability or obligation of the Company arising out of or
related to any Action (as defined) against the Company or any Action which
adversely affects the Assets and which shall have been asserted on or prior to
the Closing Date;
(e) Any liability or obligation of the Company resulting from
entering into, performing its obligations pursuant to or consummating the
transactions contemplated by, this Agreement (including without limitation any
liability or obligation of the Company pursuant to Article VIII hereof);
(f) Except as otherwise provided in the New Leases (as defined)
relating thereto, any liability or obligation related to the Facilities; and
(g) Any liability or obligation arising out of any Environmental Law,
to the extent such liability or obligation arose prior to the Closing Date.
ARTICLE II.
CLOSING
2.1. Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 9:00 a.m. local time on November 2, 1998, effective
as of the close of business on October 31, 1998, or such later date upon which
the Parties agree (the "Closing Date").
2.2. Conveyances at Closing.
----------------------
4
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(a) Instruments and Possession. To effect the sale and transfer of
--------------------------
Assets referred to in Section 1.3 hereof, the Company will, at the Closing,
execute and deliver to HDA:
(i) one or more Bills of Sale, in the form attached hereto as
Exhibit A, conveying in the aggregate all of the personal property owned by
the Company included in the Assets;
(ii) subject to Section 8.2, Assignments of Lease in the form
attached hereto as Exhibit B with respect to the Leases;
(iii) subject to Section 8.2, Assignments of Contracts in the
form attached hereto as Exhibit C with respect to those contracts which HDA
shall assume;
(iv) subject to Section 8.2, Assignments of Patents and
Trademarks and other Proprietary Rights (including an assignment of all
rights, title and interest of the Company to the name "Tampa Brake & Supply
Co." and all variations thereof) each in the form attached hereto as
Exhibit D, in recordable form to the extent necessary to assign such
rights; and
(v) such other instruments as shall be reasonably requested by
HDA to vest in HDA title in and to the Assets in accordance with the
provisions hereof.
(b) Assumption Document. Upon the terms and subject to the
-------------------
conditions set forth herein, at the Closing, HDA shall deliver to the Company an
instrument of assumption substantially in the form attached hereto as Exhibit E,
evidencing HDA's assumption of all liabilities of the Company, pursuant to
Section 1.4 hereof, excluding the Excluded Liabilities (the "Assumption
Document").
(c) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner
reasonably satisfactory to HDA and the Company.
(d) Consents. The Company shall deliver all Permits (as defined
--------
herein) and any other third party consents required for the valid transfer of
the Assets as contemplated by this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE EXISTING SHAREHOLDERS
The Company and the Existing Shareholders represent and warrant to HDA
as follows, except as set forth in a disclosure schedule ("Schedule") attached
hereto and made a part hereof, the number of each Schedule corresponding to the
Section number to which it refers:
3.1. Corporate Organization and Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its
5
<PAGE>
incorporation and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as presently conducted. The
Company has delivered to HDA or its representatives complete and correct copies
of its Articles of Incorporation and Bylaws (or other charter documents) and all
amendments thereto. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the nature of
the business as now being conducted by it or the property owned or leased by it
makes such qualification necessary, all of which are listed on Schedule 3.1.
3.2. Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized, executed and delivered by the Company, and are the legal, valid and
binding obligations of the Company, enforceable against it, him or her in
accordance with their terms, except as enforcement may be limited by equitable
principles limiting the right to obtain specific performance or other equitable
remedies, or by applicable bankruptcy or insolvency laws and related decisions
affecting creditors' rights generally.
3.3. No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will (i) violate, conflict with or
result in or constitute a default under or result in the termination or the
acceleration of, or the creation in any party of any right (whether or not with
notice or lapse of time or both) to declare a default, accelerate, terminate or
cancel any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability ("Contractual Obligation") to which the Company is a
party or by which it is bound or to which its assets is subject, which the
Company is required to disclose on Schedule 3.13 or result in the creation of
any lien or encumbrance upon any of said assets, (ii) violate, conflict with or
result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws (or other organizational documents) of the
Company, (iii) violate, conflict with or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Company is subject or, in the case of clause
(i), relates to a Material Contract (as defined below) or (iv) violate, conflict
with or result in a breach of any applicable federal or state rule or
regulation.
3.4. Facilities. Schedule 3.4 contains a complete and accurate list of
----------
all real property leased in connection with the Business ("Leased Real
Property"). The Company does not now and has not owned any real property in
connection with the Business other than a parcel of real property at the Tampa
facility which has been distributed to the Existing Shareholders (the "Tampa
Distribution") and which is the subject of one of the real property leases by
and between HDA and the Existing Shareholder which shall be entered into as of
the Closing Date (the "New Leases"). All existing leases by and between the
Company and the Existing Shareholders or entities controlled by them (the "Old
Leases") shall be terminated at Closing with no further liability to the
Company. At the Closing, the lease rate per square foot payable by HDA under
each of the New Leases shall be the same as that paid by the Company under the
Old Leases prior to the Closing such that the total rent payable under the New
Leases at the Closing shall be the same amount as the total rent payable under
the Old Leases, except that in addition, at the Closing an annual rental rate of
$48,333.38 shall be paid by HDA for the facility which is the subject of the
Tampa Distribution.
6
<PAGE>
(a) Actions. There are no pending or, to the best knowledge of the
-------
Company, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any facility used in connection with the
Business ("Facility").
(b) Leases or Other Agreements. There are no leases, subleases,
--------------------------
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Facility or any Real Property or any portion thereof, or
interest in any such Facility or Real Property.
(c) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, the Company has an unencumbered interest in the leasehold
estate. The Company enjoys peaceful and undisturbed possession of all Leased
Real Property.
(d) Certificate of Occupancy. All Facilities have received all
------------------------
required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
and are and have been operated and maintained in accordance with applicable
regulations.
(e) Utilities. All Facilities are supplied with utilities
---------
(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and there is no known condition which would reasonably be
expected to result in the termination of the present access from any Facility to
such utility services.
(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by the Company at the Facilities are (i) insured in accordance
with the policies previously provided to HDA or its representatives, (ii)
structurally sound with no known material defects, (iii) in good operating
condition and repair, subject to ordinary wear and tear, (iv) not in need of
maintenance, repair or correction except for ordinary routine maintenance and
repair, (v) sufficient for the operation of the Company as presently conducted
and (vi) in conformity with all applicable regulations.
(g) No Special Assessment. The Company has not received notice of
---------------------
any special assessment relating to any Facility or any portion thereof, and, to
the best knowledge of the Company, there is no pending or threatened special
assessment.
3.5. Assets. The Company has and will transfer to HDA good and
marketable title to the Assets, free and clear of any encumbrances, except for
minor liens which in the aggregate are not substantial in amount, do not
materially detract from the value or transferability of the Assets subject
thereto taken as a whole or interfere in any material respect with the present
use and have not arisen other than in the ordinary course of business
("Permitted Encumbrances"). All tangible assets and properties which are part of
the Assets are in good operating condition and repair, ordinary wear and tear
excepted, and are usable in the ordinary
7
<PAGE>
course of business and conform in all material respects to all applicable
regulations (including Environmental Laws (as defined herein)) relating to their
use and operation. The Assets include without limitation all assets necessary
for the conduct of the Business as presently conducted.
3.6. Financial Statements.
--------------------
(a) The unaudited balance sheets of the Company dated December 31,
1997, 1996 and 1995, respectively (the "Balance Sheets," the "1996 Balance
Sheets" and the "1995 Balance Sheets," respectively), were prepared in
accordance with GAAP consistently applied and fairly present the financial
condition of the Company as of their respective dates. The Company has no
liabilities of any nature, whether absolute, accrued, asserted or unasserted or
contingent or whether due or to become due which should have been recorded or
reserved for on the Balance Sheets and were not so recorded or reserved.
(b) The unaudited statement of income, retained earnings, and
statement of changes in shareholder's equity for the fiscal years ended December
31, 1997 (the "1997 Income Statement"), 1996 and 1995, respectively, were
prepared in accordance with GAAP consistently applied and fairly present the
results of operations, changes in shareholder's equity and cash flows of the
Company for each such period.
(c) The unaudited balance sheet, statement of income and retained
earnings, and statement of changes in shareholder's equity of the Company at and
for the nine months ended September 30, 1998, were prepared in accordance with
GAAP consistently applied and fairly present the results of operations, changes
in shareholder's equity and cash flows of the Company for each such period and
are consistent with the financial statements described in Section 3.7(a) and
(b).
(d) Copies of the financial statements described in Section 3.6(a)
and (b) have been provided to HDA or its representatives.
3.7. Books and Records. The Company has made and kept and given HDA
-----------------
and its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The minute books of the Company accurately and adequately reflect all material
actions taken by the shareholders, board of directors and committees of the
board of directors of the Company. The Company has not engaged in any
transaction, maintained any bank account or used any corporate funds except for
the transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of the Company.
3.8. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of the Company, threatened
against the Company or the directors, officers, agents or employees of the
Company (in their capacity as such), or any properties or rights of the Company.
There are no orders, writs, injunctions or decrees currently in force against
the Company or the directors, officers, agents or employees of the Company (in
their capacity as such) with respect to the conduct of the Company's business.
8
<PAGE>
3.9. Licenses and Permits; Compliance with Laws. Schedule 3.9 sets
------------------------------------------
forth a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by the
Company. The Company owns, holds or possesses all Licenses and Permits necessary
to entitle it to use its corporate name, to own or lease, operate and use its
assets and properties and to carry on and conduct its business and operations as
presently conducted. The Company is not in violation of or default under any
Licenses or Permits or any judgment, order, writ, injunction or decree of any
court or administrative agency issued against it or any law, ordinance, rule or
regulation applicable to it. The Company's conduct of its business has been and
is in compliance with all applicable laws, statutes, ordinances and regulations.
The Company has not received any notice asserting a failure to comply with any
law, statute, ordinance, regulation, rule or order of any foreign, federal,
state or local government or any other governmental department or agency.
3.10. Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and (ii) "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) The Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown
on any Tax Return) have been paid. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability of the
Company either (i) claimed or raised by any authority in writing or (ii) of
which the Company or any Existing Shareholder has knowledge. To the knowledge
of the Company and each Existing Shareholder, no audit or examination of any Tax
Return is currently in progress, and the Company has not received notice of any
proposed audit or examination. The Company has furnished to HDA or its
representatives correct and complete copies of all federal income Tax
9
<PAGE>
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company with respect to years ended on or before December 31,
1997. The Company has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times since July 1, 1990,
and the Company will be an S corporation up to and including the Closing Date.
No Income Taxes will be payable by the Company with respect to the taxable year
beginning on January 1, 1998 and ending on the day immediately preceding the
Closing Date.
(f) The Company has not, in the past ten (10) years, (i) acquired
assets from another corporation in a transaction in which the Company's Tax
basis for the acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in the hands of
the transferor or (ii) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
3.11. Brokers, Finders. Neither the Company nor any Existing
----------------
Shareholder has retained any broker or finder in connection with the
transactions contemplated herein, and is not obligated and has not agreed to pay
any brokerage or finder's commission, fee or similar compensation.
3.12. Absence of Certain Changes.
--------------------------
(a) Since December 31, 1997, the Company has conducted its business
in the ordinary course, has not done or permitted to be done anything described
in Sections 5.6(a) through (r), and there has not occurred with respect to the
Company:
(i) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Company, taken
as a whole ("Material Adverse Effect");
(ii) any material revaluation of assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivable;
(iii) any payment, discharge or satisfaction of any material
liabilities or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure exceeding $5,000, the execution of
any lease or the incurring of any obligation to make any capital
expenditure or execute any lease other than in the ordinary course of
business;
10
<PAGE>
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a material adverse effect on the
assets or the business;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind, except in the
ordinary course of business;
(viii) the failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets, the business and the
goodwill of the Company's suppliers, customers, distributors and others
having business relations with it;
(ix) to the best knowledge of the Company, the disposition or
lapsing of any Proprietary Rights (as defined below) or any disposition or
disclosure to any person of any Proprietary Rights not theretofore a matter
of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets for any amount;
(xi) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or Permit which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(xii) any bonus or distribution paid or promised (other than
distributions of S Corporation earnings and the Tampa building and the
leasehold improvements to the Existing Shareholders), an increase in the
base compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than increases
in base compensation in the ordinary course consistent in timing and amount
with past practices), or entry into or variation of the terms of any
employment or incentive agreement with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of the Company and the management of the Company;
(xiv) any change in any method of accounting or keeping books of
account or accounting practices;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance;
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for
11
<PAGE>
borrowed money (other than borrowings under its revolving credit facility
in the ordinary course of business);
(xvii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xviii) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Material Adverse Effect; or
(xix) an agreement to do any of the things described in the
preceding clauses (i) - (xviii) other than as expressly provided for
herein.
3.13. Material Contracts. Schedule 1.4 includes, among other things,
------------------
a complete and correct list of all the Material Contracts to which the Company
or, in the case of Section 3.13(g), any Existing Shareholder, is a party. As
used in this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which the Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of the Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to the Company in a principal amount (or
with maximum availability) in excess of $5,000;
(f) all contracts and agreements to which the Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors, sales
agents or dealers of the Company other than contracts which by their terms are
cancelable by the Company with notice of not more than 30 days and without
cancellation penalties or severance payments, in the case of any such contract,
in excess of $5,000, (ii) collective bargaining agreements of the Company which
relate to the business of the Company, and (iii) pension, profit-sharing, bonus,
retirement, stock option or employee benefit plans or other similar plans or
arrangements of the Company;
(g) any covenant not to compete or similar restriction on the Company
or any Existing Shareholder;
12
<PAGE>
(h) any contract with the United States, state or local government or
any agency or department thereof, involving payments in excess of $5,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $5,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by the Company.
The Company has furnished or will furnish to HDA or its representatives true and
correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.14. Proprietary Rights.
------------------
(a) Schedule 3.14 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for the
Company. Schedule 3.14 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.14 are
all those used by the Company in connection with its businesses. True and
correct copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of the Company or in which the
Company has any interest whatsoever have been provided to HDA or its
representatives.
(b) The Company has no obligation to compensate any person for the
use of any such Proprietary Rights nor has the Company granted to any person any
license, option or other rights to use in any manner any of its Proprietary
Rights, whether requiring the payment of royalties or not.
(c) The Company owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of the Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. The
Company has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has, to the
best knowledge of the Company, the right to use any trademarks of the Company on
the goods on which they are now being used either in identical form or in such
near resemblance thereto as to be likely, when applied to the goods of any such
person, to cause confusion with such trademarks or to cause a mistake or to
deceive, (ii) has notified the Company that it is claiming any ownership of or
right to use such Proprietary Rights, or (iii) to the best knowledge of the
Company, is infringing upon any such Proprietary Rights in any way. The
Company's use of any Proprietary Rights does not and will not conflict with,
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<PAGE>
infringe upon or otherwise violate the valid rights of any third party in or to
such Proprietary Rights, and no Action has been instituted against or notices
received by the Company that are presently outstanding, alleging that the
Company's use of the Proprietary Rights infringes upon or otherwise violates any
rights of a third party in or to such Proprietary Rights. There are not, and it
is reasonably expected that after the Closing there will not be, any
restrictions on right of the Company to sell products manufactured by the
Company in connection with the operation of its business.
3.15. Labor Matters. The Company is not a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. The Company
has not experienced any attempt by organized labor or its representatives to
make it conform to demands of organized labor relating to its employees or to
enter into a binding agreement with organized labor that would cover the
employees of the Company. There is no labor strike or labor disturbance pending
or, to the best knowledge of the Company, threatened against the Company, nor is
any grievance currently being asserted, and the Company has not experienced a
work stoppage or other labor difficulty, and is not and has not engaged in any
unfair labor practice. Without limiting the foregoing, the Company is in
compliance with the Immigration Reform and Control Act of 1986 and maintains a
current Form I-9, as required by such Act, in the personnel file of each
employee hired after November 9, 1986.
3.16. Consents. No consent, approval, authorization, order, filing,
registration or qualification (each, a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by the
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Company and the Existing
Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.17. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.17 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of the Company and that
are not Plans (as defined below) (collectively, the "Employment Contracts"),
(ii) all "employee welfare benefit plans" or "employee pension benefit plans,"
as such terms are defined in Sections 3(1) and 3(2), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which are
maintained, administered or contributed to by the Company and cover employees or
former employees of the Company or under which the Company as of the Closing
Date could incur any liability (collectively, the "Plans"). The Company has
furnished or will furnish to HDA or its representatives, true and correct copies
of instruments evidencing all such Employment Contracts and the Plans, all as
amended to date.
(b) None of the Plans is a "multiemployer plan" as such term is
defined in Section 3(37) or Section 4001(1)(a)(3) of ERISA. In the past six
years, the Company has not maintained, sponsored, or been required to contribute
to, withdrawn from (either completely or
14
<PAGE>
partially), or incurred any unpaid withdrawal liability (as defined in
Section 4201, 4063 or 4064 of ERISA) with respect to, any "multiemployer plan,"
as such term is defined in Section 3(37) or Section 4001(1)(a)(3) of ERISA.
(c) The Plans have been administered in compliance in all material
respects with their terms and with all filings, reporting, disclosure, and other
requirements of ERISA, the Code and any other applicable law. Each Plan
(together with its related funding instrument) which is an "employee pension
benefit plan," as such term is defined in Section 3(2) of ERISA (such Plans, the
"Pension Plans"), and which is intended to be qualified under the Code, is
qualified under Section 401 of the Code and the regulations issued thereunder,
and each such Plan and its related funding instrument is a prototype plan in
respect of which a favorable determination letter has been issued by the
Internal Revenue Service to the sponsor holding that the terms of such prototype
Plan and funding instrument satisfy the qualification requirements of the Code.
(d) Neither the Company nor any of its respective employees or
directors, or plan fiduciary of any of the Plans, have engaged in any
transaction in violation of Section 406(a) or (b) of ERISA or any "prohibited
transaction" (as defined in Section 4975(c)(1) of the Code) for which no
exemption exists under Section 4975(d) of the Code, and, to the knowledge of the
Company no "reportable event" (as defined in Section 4043 of ERISA and the
regulations promulgated thereunder), other than such as may arise out of the
consummation of the transactions contemplated by this Agreement, has occurred in
connection with any Plan.
(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims") and to the best knowledge of the Company, no such Claims are
threatened against any Plan or fiduciary of any such Plan by any participant,
beneficiary or governmental agency with respect to the qualification or
administration of any such Plan.
(f) The Company has provided to HDA or its representatives a copy of
the Plans, related trust agreements and all amendments thereto together with the
annual reports required to be filed during the last three years (Form 5500,
including Schedule B thereto). The Company has provided to HDA or its
representatives with true and complete age, salary, service and related data for
employees, former employees entitled to benefits under each Pension Plan as of
the Closing Date.
(g) The Company and the entities required to be aggregated with them
under Sections 414(b), (c), (m) and (o) of the Code (the "Company ERISA
Affiliates") have not incurred any liability to the PBGC or any Pension Plan
under Title IV of ERISA that could become a liability of HDA. No Company ERISA
Affiliate will incur any liability under Section 411(d)(3) of the Code for
vested accrued benefits arising from a partial termination of any Pension Plan
prior to the Closing Date.
(h) All amounts required to be contributed to any Pension Plan by the
Company will, as of the Closing Date, have been paid or properly accrued on the
books of the Company. Any amounts required to be accrued as expenses in
accordance with applicable
15
<PAGE>
pension accounting requirements through the Closing Date have been or will be
properly recorded on the books of the Company as of the Closing Date.
(i) To the best knowledge of the Company, no condition exists and no
event has occurred which (i) would constitute grounds for termination by the
PBGC of any Pension Plan, or (ii) after a review of its files maintained with
respect to benefit plans, has caused or would give rise to a partial termination
of any Pension Plan.
(j) None of the assets of the Pension Plans are invested in property
constituting employer real property or employer securities (within the meaning
of Section 407(d) of ERISA).
(k) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of the
Company.
(l) Except as required by COBRA, neither the Company nor any Plan
which is a "welfare benefit plan," as such term is defined in Section 3(1) of
ERISA has any present or future obligation to provide medical or other welfare
benefits to, or to make any payment to or with respect to medical or other
welfare benefits of any former employee of the Company or any Company ERISA
Affiliate.
(m) No Company ERISA Affiliate has incurred any liability with
respect to which the Company has incurred or could incur any liability.
3.18. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.18, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference.
(i) "Company" for the purposes of this Section, shall include
(i) the Company, (ii) all partnerships, joint ventures and other entities
or organizations in which the Company was at any time or is a partner,
joint venturer, member or participant and (iii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by the Company or to which the Company has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or
16
<PAGE>
disposing into the environment or the workplace of any hazardous substance,
and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge
or other release or threatened release of, Hazardous Substances or
otherwise dangerous substances, wastes, pollution or materials (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater, drinking water, air, wildlife, plants or other natural
resources, or the health and safety of persons or property, including
without limitation protection of the health and safety of employees.
Environmental Laws shall include, without limitation, the Federal
Insecticide, Fungicide, Rodenticide Act, Resource Conservation & Recovery
Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local
law, each as amended.
(v) "Environmental Conditions" means the introduction into the
environment of any pollution, including, without limitation, any
contaminant, irritant or pollutant or other Hazardous Substance (whether or
not upon any Facility or former Facility or other property and whether or
not such pollution constituted at the time thereof a violation of any
Environmental Law as a result of any Release of any kind whatsoever of any
Hazardous Substance) as a result of which the Company has or may become
liable to any person or by reason of which any Facility, former Facility or
any of the assets of the Company may suffer or be subjected to any lien.
(b) Notice of Violation. The Company has not received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
The Company has not received notice of any other claim, demand or Action by any
individual or entity alleging any actual or threatened injury or damage to any
person, property, natural resource or the environment arising from or relating
to any Release or
17
<PAGE>
threatened Release of any Hazardous Substances at, on, under, in, to or from any
Facilities or former Facilities, or in connection with any operations or
activities of the Company.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions in any way relating to the business of the Company or
at any Facility or former Facility, other than those revealed on the Phase I
Environmental Site Assessments provided to HDA by the Company for each such
Facility.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of the Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by the Company or
any attorney, environmental consultant or engineer engaged for such purpose,
have been delivered to HDA or its representatives and a list of all such
reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included in Schedule 3.18
hereto.
(e) Indemnification Agreements. The Company is not a party, whether
--------------------------
as a direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any lease or other contract (excluding insurance policies
disclosed on the Schedule) under which the Company is obligated by or entitled
to the benefits of, directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
environmental conditions.
(f) Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. The Company has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in compliance with all Environmental Laws.
3.19. Certain Business Relationships with the Company. None of the
-----------------------------------------------
Existing Shareholders of the Company owning more than 5% of its outstanding
voting securities have been involved in any business arrangement or relationship
with the Company within the past 12 months, and none of such Existing
Shareholders own any assets, tangible or intangible, which are used in the
business of the Company.
3.20. Undisclosed Liabilities. The Company has no liabilities or
-----------------------
obligations, whether accrued, absolute, or to the best knowledge of the Company,
contingent except (i) to the extent reflected or reserved for on the Balance
Sheets, (ii) liabilities or obligations incurred in the normal and ordinary
course of business of the Company since December 31, 1997, (iii) liabilities or
obligations disclosed in Schedule 3.20 hereto and in the other Schedules
attached hereto, or (iv) liabilities or obligations disclosed elsewhere in this
Agreement.
3.21. Insurance. Schedule 3.21 contains a complete and accurate
---------
list of all policies or binders of fire, liability, title, worker's
compensation, product liability and other
18
<PAGE>
forms of insurance (showing as to each policy or binder the carrier, policy
number, coverage limits, expiration dates, annual premiums, a general
description of the type of coverage provided, loss experience history by line of
coverage) maintained by the Company on its respective (i) businesses, (ii)
assets or (iii) employees at any time since December 31, 1987. All insurance
coverage applicable to the Company or its respective businesses or assets is in
full force and effect and provides coverage as may be required by applicable
regulation and by any and all contracts to which the Company is a party. There
is no default under any such coverage nor has there been any failure to give
notice or present any claim under any such coverage in a due and timely fashion.
There are no outstanding unpaid premiums except in the ordinary course of
business and no notice of cancellation or nonrenewal of any such coverage has
been received. There are no provisions in such insurance policies for
retroactive or retrospective premium adjustments. All products liability,
general liability and workers' compensation insurance policies maintained by the
Company have been occurrence policies and not claims made policies. There are no
outstanding performance bonds covering or issued for the benefit of the Company.
There are no known facts upon which an insurer might be justified in reducing
coverage or increasing premiums on existing policies or binders. No insurer has
advised the Company that it intends to reduce coverage, increase premiums or
fail to renew any existing policy or binder.
3.22. Accounts Receivable. The accounts receivable set forth on
-------------------
the Balance Sheets, and all accounts receivable arising since the date of the
Balance Sheets, represent bona fide claims of the Company against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. Said accounts receivable are fully
collectible in the ordinary course of business without cost in collection
efforts therefor, except to the extent of the appropriate reserves for bad debts
on accounts receivable as set forth on the Balance Sheets and, in the case of
accounts receivable arising since the date of the Balance Sheets, to the extent
of a reasonable reserve rate for bad debts on accounts receivable which is not
greater than the rate reflected by the reserve for bad debts on the Balance
Sheets.
3.23. Inventory. Schedule 3.23 contains a complete and accurate
---------
list of the addresses at which all inventory set forth on the Balance Sheets is
located. The inventory as set forth on the Balance Sheets or arising since the
date of the Balance Sheets was acquired and has been maintained in accordance
with the regular business practices of the Company, consists of new and unused
items of a quality and quantity usable or salable in the ordinary course of
business, and is valued at the lower of cost or market. None of such inventory
is obsolete, unusable, damaged or unsaleable in the ordinary course of business,
except for such items of inventory which have been written down to realizable
market value, or for which adequate reserves have been provided in the Balance
Sheets.
3.24. Payments. The Company has not, directly or indirectly, paid
--------
or delivered any fee, commission or other sum of money or item or property,
however characterized, to any finder, agent, client, customer, supplier,
government official or other party, in the United States or any other country,
which is in any manner related to the business, assets or operations of the
Company, which is illegal under any federal, state or local laws of the United
States (including, without limitation, the U.S. Foreign Corrupt Practices' Act)
or any other country having
19
<PAGE>
jurisdiction. The Company has not participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers.
3.25. Customers, Distributors and Suppliers. Schedule 3.25 sets
-------------------------------------
forth a complete and accurate list of the names and addresses of the Company's
(i) ten largest (in terms of dollar volume) customers, distributors and other
agents and representatives during the Company's last fiscal year, showing the
approximate total sales in dollars by the Company to such customer during such
fiscal year; and (ii) suppliers during the Company's last fiscal year, showing
the approximate total purchases in dollars by the Company from such supplier
during such fiscal year. Since the date of the Balance Sheets, there has been no
adverse change in the business relationship of the Company with any customer,
distributor or supplier named on Schedule 3.25. The Company has not received any
communication from any customer, distributor or supplier named on Schedule 3.25
of any intention to terminate or materially reduce purchases from or supplies to
the Company.
3.26. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Company in this Agreement, nor any document, exhibit,
certificate or Schedule heretofore or hereinafter furnished to HDA or its
representatives pursuant hereto, or in connection with the transactions
contemplated hereby, including, without limitation, the Schedules, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material fact necessary to make the statements or facts contained
therein not misleading. To the best knowledge of the Company, the Company has
disclosed all events, conditions and facts materially affecting its business,
prospects and financial conditions.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HDA
HDA represents and warrants to the Company and the Existing Shareholders as
follows:
4.1. Corporate Organization and Standing. HDA is a corporation,
-----------------------------------
duly incorporated and validly existing under the laws of the State of Alabama,
with all requisite corporate power and authority to execute and deliver this
Agreement, the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized,
-------------
executed and delivered by HDA, and is its valid and binding obligation,
enforceable against it in accordance with its terms, except as enforcement may
be limited by equitable principles limiting the right to obtain specific
performance or other equitable remedies, or by applicable bankruptcy or
insolvency laws and related decisions affecting creditors' rights generally.
4.3. No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (i) result in the acceleration
of, or the creation in any party of any right to accelerate, terminate, modify
or cancel any indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which HDA is a party or by which it is bound or
to which any of its assets is subject, (ii) conflict with or result in a breach
of or constitute a default under
20
<PAGE>
any provision of its Articles of Incorporation or Bylaws (or other charter
documents), or a default under or violation of any material restriction, lien,
encumbrance or any contract to which HDA is a party or by which it is bound or
to which any of its assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, (iii) violate or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which HDA is subject, or (iv) violate,
conflict with or result in a breach of any applicable federal or state rule or
regulation.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Company, the Existing Shareholders and HDA each covenant with the
other as follows:
5.1. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, the Parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or proper to
consummate and make effective the transactions contemplated by this Agreement or
the Ancillary Agreements, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary to carry out any of
the transactions contemplated hereunder, and (iii) to cooperate with each other
in connection with the foregoing. Without limiting the foregoing, the Parties
agree to use their respective best efforts (A) to obtain all necessary waivers,
consents and approvals from other parties (including, without limitation,
governmental entities) to the consummation of the transactions contemplated by
this Agreement; (B) to obtain all necessary Permits as are required to be
obtained under any regulations; (C) to defend all Actions challenging this
Agreement or the consummation of the transactions contemplated hereby; (D) to
lift or rescind any injunction or restraining order or other court order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby; (E) to give all notices to, and make all registrations and
filings with third parties, including, without limitation, submissions of
information requested by governmental authorities; and (F) to fulfill all
conditions to this Agreement. However, neither the Company and the Existing
Shareholders nor HDA shall be obligated to bear the expense of cooperating with
the other under clauses (A), (B), (C), (D), (E) or (F) unless such expense
arises from an omission or misstatement or breach of another covenant herein of
the Company and the Existing Shareholders on the one hand or HDA on the other.
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of the Company, or of any shares of capital stock of
21
<PAGE>
the Company or any merger, consolidation, liquidation, dissolution or similar
transaction involving the Company (each such transaction being referred to
herein as a "Proposed Acquisition Transaction") other than with (i) another
Party hereto and its representatives (ii) as required by law, or (iii) employees
of the Company regarding such employees' possible investments in HDA. The
Company shall not, directly or indirectly, through any officer, director,
employee, representative, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) or entity relating to any Proposed Acquisition
Transaction. The Company represents that it is not now engaged in discussions or
negotiations with any party other than HDA with respect to any of the foregoing.
(b) The Company will immediately notify HDA if any discussions or
negotiations are sought to be initiated, any inquiry or proposal is made, or any
information is requested with respect to any Proposed Acquisition Transaction
and notify HDA of the identity of the prospective purchaser or soliciting party.
5.3. Disclosures. Except as required by law or occurring after the
-----------
Closing, none of the Parties, without the prior written consent of the other
Parties, will make any press release or any similar public announcement
concerning the transactions contemplated hereby.
5.4. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, the Company shall give prompt notice to HDA of (a) the occurrence,
or failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement or in any
Exhibit or Schedule hereto to be untrue or inaccurate in any material respect
and (b) any material failure of the Company, or of any of its shareholders or
representatives, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement or any Exhibit or
Schedule hereto; provided, however, that such disclosure shall not be deemed to
-------- -------
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. The Company shall promptly notify HDA of any default, the
threat or commencement of any Action, or any development that occurs before the
Closing that could in any way materially affect the Company, its assets or its
business.
5.5. Investigation by HDA and Its Representatives.
--------------------------------------------
(a) The Company shall, and shall cause its officers, directors,
employees and agents, to afford HDA and its representatives access at all
reasonable times to the Company's Facilities, officers, employees, agents,
attorneys, accountants, properties, books and records, and contracts, and shall
furnish HDA and its representatives, all financial, operating and other data and
information as HDA through its respective representatives, may reasonably
request, including unaudited balance sheets and the related statements of income
and retained earnings for each month from the date hereof through the Closing
Date within 30 calendar days after the end of each month, which financial
statements shall (a) be true, correct and complete in all material respects, (b)
be in accordance with the books and records of the Company and (c) accurately
set forth the assets, liabilities and financial condition, results of operations
and other information purported to be set forth therein in accordance with GAAP
consistently applied.
22
<PAGE>
(b) HDA shall have the right, prior to the Closing, to conduct due
diligence of the Owned and Leased Real Property, to confirm that all such Owned
and Leased Real Property are in compliance with environmental and zoning laws
and the Americans with Disabilities Act of 1990. The Company shall order, at
its expense, Phase I site assessment reports for the Owned and Leased Real
Property.
5.6. Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, except as contemplated by this Agreement, or as consented to
by HDA in writing, operate its businesses in the ordinary course of business and
in accordance with past practice and will not take any action inconsistent with
this Agreement or with the consummation of the Closing. Without limiting the
generality of the foregoing, the Company shall not, except as specifically
contemplated by this Agreement or as consented to by HDA in writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
contract or lease in excess of $5,000.00, except in the ordinary course of
business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and, without limiting the generality of the
foregoing, the Company will produce, maintain and sell inventory consistent with
its past practices;
(d) incur any liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of the Company in effect on the date hereof that are described
on the Schedules) or with respect to any increase of benefits payable under
its severance or termination pay policies or agreements in effect on the
date hereof or increase in any manner the compensation or fringe benefits
of any employee or pay any benefit not required by any existing Employee
Plan or policy;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers or the
termination of existing officers;
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
any employee, except for any such amendment as may be required to comply
with applicable Regulations or termination of any Employee Plan at or after
Closing; or
(iv) fail to maintain all Employee Plans in accordance with
applicable Regulations;
23
<PAGE>
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock (other than distributions of S
Corporation earnings, the Tampa building, and the leasehold improvements to the
Existing Shareholders) through Closing;
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(j) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business; or
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, worn-out or obsolete or destroyed assets;
(l) make any loans or advances to any partnership, firm or
corporation, except for expenses incurred in the ordinary course of business,
any individual;
(m) make any income tax election or settlement or compromise with
tax authorities;
(n) knowingly fail to comply with any regulations applicable to it,
its assets and its business;
(o) intentionally do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its best efforts to (i) retain its employees and
(ii) maintain its business so that such employees will remain available to it on
and after the Closing Date, (iii) maintain existing relationships with
suppliers, customers and others having business dealings with it, and (iv)
otherwise preserve the goodwill of its business so that such relationships and
goodwill will be preserved on and after the Closing Date; or
24
<PAGE>
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Employee Plans. After the Closing, the Company shall, (i) if
--------------
requested by HDA, terminate its 401(k) Plan and cooperate with HDA in allowing
rollover contributions by the former employees of the Company and (ii) give or
cause to be given COBRA notices to the employees of the Company whose employment
terminates at Closing in connection with this transaction.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HDA
The obligations of HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by HDA.
6.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that HDA has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2. Representations and Warranties. All representations and
------------------------------
warranties of the Company and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.3. Performance of Agreements. The Company and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
it pursuant to the terms hereof on or prior to the Closing Date.
6.4. Compliance Certificate. The Company and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, their
respective certificates, dated the Closing Date, executed on its behalf by its
respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
6.5. Material Changes. There shall not have been any Material
----------------
Adverse Effect from the date hereof to the Closing Date.
6.6. Opinion of Counsel. HDA shall have received the opinion of
------------------
Hines & Associates, counsel for the Company and the Existing Shareholders, in
the form set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect.
25
<PAGE>
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than HDA: (i) an employment agreement, containing non-competition clauses, by
and between HDA and Thomas Schilling, substantially in the form attached hereto
as Exhibit F, (ii) the New Leases substantially in the form attached hereto as
Exhibit G and (iii) an Escrow Agreement by and among HDA, the Company, Thomas
Schilling and Chase Manhattan Bank and Trust Company, National Association as
"Escrow Agent" substantially in the form attached hereto as Exhibit H.
6.9. Due Diligence. HDA, together with its representatives, shall have
-------------
completed to its full satisfaction, its due diligence investigation described in
Section 5.5(a) and (b).
6.10. Name Change. The Company shall have delivered to HDA for filing
-----------
post-Closing an amendment to its Articles of Incorporation to change its
corporate name so as not to include the words "Tampa Brake & Supply, Co." or any
other name or mark that has such a near resemblance thereto as may be likely to
cause confusion or mistake to the public, or to otherwise deceive the public.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANY
The obligations of the Company under this Agreement are subject to the
fulfillment prior to the Closing of each of the following conditions, any one or
more of which may be waived by the Company:
7.1. No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
7.2. Representations and Warranties. Except as otherwise contemplated
------------------------------
by this Agreement, all representations and warranties of HDA contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date.
7.3. Performance of Agreements; Instruments of Transfer. HDA shall
--------------------------------------------------
have fully performed in all material respects all obligations, agreements,
conditions and commitments required to be fulfilled by HDA on or prior to the
Closing Date and shall have tendered to the Company and the Existing
Shareholders the Purchase Price, less the Escrow Amount, and documents,
instruments and certificates required by Article 7 hereof.
7.4. Compliance Certificates. HDA shall have delivered to the Company
-----------------------
and the Existing Shareholders its certificate, dated the Closing Date, executed
on its behalf by its President or a Vice President, as to the fulfillment of the
conditions set forth in Sections 7.2 and 7.3 hereof.
26
<PAGE>
7.5. Ancillary Agreements. The condition set forth in Section 6.8
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6. Opinion of Counsel. The Company and the Existing Shareholders
------------------
shall have received the opinion of Bradley Arant Rose & White LLP, Alabama
counsel for HDA, in the form set forth in Schedule 7.6 hereto.
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1. Collection of Accounts Receivable and Letters of Credit. At the
-------------------------------------------------------
Closing, HDA will acquire hereunder the right and authority to collect all
receivables, letters of credit and other items which constitute a part of the
Assets, and the Company shall within forty-eight (48) hours after receipt of any
payment in respect of any of the foregoing, properly endorse and deliver to HDA
any letters of credit, documents, cash or checks or other consideration received
on account of or otherwise relating to any such receivables, letters of credit
or other items.
8.2. Consents to Assignment. Anything in this Agreement to the
----------------------
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any lease, contract or license, or any claim or right or any benefit
arising thereunder or resulting therefrom if any attempted assignment thereof,
without the consent of a third party thereto, would constitute a breach thereof
or in any way adversely affect the rights of the Company thereunder. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights thereunder so that HDA would not receive
all such rights. The Company will cooperate with HDA, in all reasonable
respects, to provide to HDA with the benefits under any such lease, contract,
license, claim or right, including, without limitation, enforcement for the
benefit of HDA of any and all rights of the Company against a third party
thereto arising out of the breach or cancellation by such third party or
otherwise.
8.3. Indemnification by the Company and the Existing Shareholders.
------------------------------------------------------------
Subject to the provisions of this Article VIII, the Company and the Existing
Shareholders will jointly and severally indemnify, defend and hold HDA and its
successors and assigns, (such indemnified persons are collectively hereinafter
referred to as "HDA's Indemnified Persons"), harmless from and against any and
all loss, liability, damage (excluding consequential, indirect special,
exemplary and punitive damages) or deficiency (including interest, penalties,
judgments, costs of preparation and investigation, and reasonable attorneys'
fees) (collectively, "Losses") that HDA's Indemnified Persons may suffer,
sustain, incur or become subject to arising out of or due to: (a) any inaccuracy
of any representation of the Company and the Existing Shareholders in this
Agreement or in any Schedule hereto; (b) the breach of any warranty of the
Company and the Existing Shareholders in this Agreement or any Schedule hereto,
(c) any environmental liabilities arising prior to Closing (including any
environmental liabilities arising in connection with the commercial warehouse
leased from Joe P. Ruthven Investments, which lease shall be assumed by HDA at
the Closing), or (d) the nonfulfillment of any covenant, undertaking, agreement
or other obligation of the Company and the Existing Shareholders under this
Agreement or any Schedule hereto, not otherwise waived by HDA. "Losses" as used
herein is
27
<PAGE>
not limited to matters asserted by third parties, but includes Losses incurred
or sustained in the absence of third party claims. Payment is not a condition
precedent to recovery of indemnification for Losses.
8.4. Indemnification by HDA. Subject to the provisions of this Article
----------------------
VIII, HDA agrees to indemnify, defend and hold the Company and the Existing
Shareholders and their respective heirs, representatives, successors and assigns
(such persons are hereinafter collectively referred to as the "Company's
Indemnified Persons"), harmless from and against any and all Losses that the
Company's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) any inaccuracy of any representation of HDA in
this Agreement or in any Schedule hereto; (b) the breach of any warranty of HDA
in this Agreement or any Schedule hereto; (c) environmental liabilities arising
subsequent to the Closing (other than as a result of Environmental Conditions or
events prior to Closing) or (d) the nonfulfillment of any covenant, undertaking,
agreement or other obligation of HDA under this Agreement or any Schedule
hereto, not otherwise waived by the Company and the Existing Shareholders.
8.5. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
The several representations, warranties, covenants of the Parties contained in
this Agreement or in any document delivered pursuant hereto and the Parties'
right to indemnity in accordance with this Article VIII shall survive the
Closing Date and shall remain in full force and effect for one (1) year
thereafter; provided, however, that the representations and warranties set forth
in Section 3.10 relating to tax matters and Section 3.17 relating to employee
benefits matters shall survive for the length of the applicable statute of
limitations.
8.6. Threshold; Deductible. Except as provided in this Section 8.6, no
---------------------
HDA's Indemnified Person or Company's Indemnified Person shall be entitled to
any recovery in accordance with this Article VIII unless and until the amount of
such Losses suffered, sustained or incurred by such party, or to which such
party becomes subject, by reason of such inaccuracy, breach or nonfulfillment
exceeds $25,000 and then only to the extent of such excess.
8.7. Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.5 and 8.6 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to
28
<PAGE>
undertake, at the Indemnitor's cost and expense, the defense, compromise or
settlement of such matter on behalf of the Indemnitee. The Indemnitee agrees to
cooperate fully with the Indemnitor and its counsel in the defense against any
such asserted liability. In any event, the Indemnitee shall have the right to
participate at its own expense in the defense of such asserted liability. Any
compromise of such asserted liability by the Indemnitor shall require the prior
written consent of the Indemnitee, which consent will not be unreasonably
withheld and in the event the Indemnitee defends any such asserted liability,
then any compromise of such asserted liability by the Indemnitee shall require
the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld.
8.8. Indemnification Payments. At the Closing, and for a period of one
------------------------
(1) year thereafter, HDA will deliver to the Escrow Agent $500,000 of the
Purchase Price to serve as partial security for the indemnification obligations,
if any, of the Company and the Existing Shareholders under this Agreement.
8.9. Right to Inspect Books and Records. HDA shall provide the Company
----------------------------------
and the Existing Shareholders access to the books and records of the Company
purchased pursuant to the terms of this Agreement (the "Books and Records") for
the purpose of review and copying the same. Access shall be provided during
normal business hours at HDA's Tampa, Florida location upon three (3) days
written notice to HDA. HDA shall not destroy the Books and Records without first
providing the Company and the Existing Shareholders thirty (30) days advance
notice. The Company and the Existing Shareholders shall have the right to claim
the Books and Records at any time within the notice period.
8.10. Environmental Matters. The Company shall, at its sole cost and
---------------------
expense, (i) within 72 hours of the Closing, cause its environmental consultants
to obtain an supplement to the Phase I Environmental Site Assessment Report
which had been originally prepared for the property located at 2710 Mine & Mill
Road to include the property located at 2610 Mine & Mill Road on which the
commercial warehouse leased to the Company by Joe P. Ruthven Investments is
located by conducting a site visit and performing a records review of the site (
the "Supplemental Phase I") and (ii) within three (3) weeks of the Closing,
cause environmental consultants to conduct subsurface soil and groundwater
investigation of the septic tank system of the property located at 2710 Mine &
Mill Road to the reasonable satisfaction of HDA. If the results of either the
Supplemental Phase I or the septic tank system investigation identify or raise
the possibility of a recognized environmental condition, the Company shall
address such condition or cause such condition to be remediated to the extent
required by the appropriate regulatory agency or agencies to the accordance with
the Environmental Law.
8.11. Filing with State of Florida Department of Revenue. The Company
--------------------------------------------------
shall within 15 days of the Closing, (i) file appropriate tax and other related
documents with the Department of Revenue of the State of Florida (the
"Department of Revenue") and (ii) pay any outstanding taxes, interest and
penalties and (iii) submit to HDA the appropriate written receipt confirming the
filing and the payment of the outstanding taxes, interest and penalties, if any.
In the event the Department of Revenue pursues a claim against HDA relating to
such filing or the failure by the Company to pay any outstanding taxes, interest
or penalties, the Company shall indemnify HDA for the amount of any such claim
paid to the Department of Revenue.
29
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, each
--------
Party shall bear its own expenses and costs incurred by it in preparing,
negotiating and closing this Agreement.
9.2. Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the Parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to the Company or the Existing Shareholders, at
Thomas A. Schilling
237 Duke Simms Road
Brandon, Florida 33511
With a copy to:
Hines & Associates
315 South Hyde Park Avenue
Tampa, Florida 33606
Attn.: James P. Hines, Esq.
If to HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, IL 60015
Attn.: John J. Greisch
With a copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
And:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn.: Elizabeth A. Blendell, Esq.
30
<PAGE>
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the Parties with respect to the subject matter hereof and supersedes all
prior negotiations, agreements and understandings, whether written or oral, of
the Parties.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6. Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Florida
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8. Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9. No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than the Company,
HDA and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10. Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
31
<PAGE>
9.11. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best knowledge"
---------
or similar phrase includes (i) actual knowledge of any officer, director or
shareholder of the Company and any employee of the Company whose job duties
include the subject matter in question and (iii) such knowledge as would have
been obtained by any of the foregoing individuals after inquiring of the
appropriate personnel and after conducting, or having had conducted by such
appropriate personnel, a diligent search of files, computer records and other
available data.
(Signature Page Follows)
32
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
HDA PARTS SYSTEM, INC.
By /s/ John J. Greisch
--------------------------------------------
John J. Greisch
President and Chief Executive Officer
TAMPA BRAKE & SUPPLY CO., INC.
By /s/ Thomas A. Schilling
-------------------------------------------
Thomas A. Schilling
President
/s/ Thomas A. Schilling
-------------------------------------------
THOMAS A. SCHILLING
/S/ Linda M. Schilling
-------------------------------------------
LINDA M. SCHILLING
S-1
33
<PAGE>
ANNEX A
"Assets" shall mean all of the right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business or in which the Company has any interest,
including, without limitation, all of the rights, titles and interests of the
Company in the following:
(a) all cash and cash equivalents;
(b) all accounts and notes receivable (whether current or
noncurrent), refunds, deposits, prepayments or prepaid expenses;
(c) all Assumed Contracts;
(d) all leases;
(e) all leasehold estates, to the extent transferable;
(f) all equipment;
(g) all inventory;
(h) all books and records, excluding originals of the minute books
and other organizational documents;
(i) all Proprietary Rights relating to the Business, to the extent
transferable;
(j) all Permits, to the extent transferable;
(k) all computers and, to the extent transferable, software;
(l) all insurance policies, to the extent assignable; and
(m) all available supplies, sales literature, promotional literature,
customer, supplier and distributor lists, art work, display units, telephone and
fax numbers and purchasing records related to the Business.
(n) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to the Company pertaining to the Business or affecting the Assets, to
the extent such warranties, representations and guarantees are assignable;
(o) all deposits and prepaid expenses of the Company;
(p) the amount of any rebates received or receivable from Vipar by the
Company from and after the Closing and the stock of Vipar owned by the Company
or any amounts paid or payable by Vipar if it elects to repurchase such stock
from the Company; and
A-1
34
<PAGE>
(q) all claims, causes of action, choses in action, rights of recovery
and rights of set-off of any kind, against any person or entity, including
without limitation any liens, security interests, pledges or other rights to
payment or to enforce payment in connection with products delivered by the
Company on or prior to the Closing Date.
A2
35
<PAGE>
Exhibit 10.6
ASSET PURCHASE AGREEMENT
BY AND AMONG
HDA PARTS SYSTEM, INC.
AND
CONNECTICUT DRIVESHAFT, INC.
AND
THE SHAREHOLDERS OF CONNECTICUT DRIVESHAFT, INC.
November 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. PURCHASE AND SALE.......................................................................................................1
1.1. Purchase Price...............................................................................................................1
--------------
1.2. Closing Balance Sheet........................................................................................................2
---------------------
1.3. Transfer of Assets...........................................................................................................3
------------------
1.4. Assumption of Liabilities....................................................................................................3
-------------------------
1.5. Excluded Liabilities.........................................................................................................3
--------------------
ARTICLE II. CLOSING................................................................................................................4
2.1. Closing......................................................................................................................4
-------
2.2. Conveyances at Closing.......................................................................................................4
----------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................................5
AND THE SELLING PARTIES............................................................................................................5
3.1. Corporate Organization and Standing..........................................................................................6
-----------------------------------
3.2. Authorization................................................................................................................6
-------------
3.3. No Conflict or Violation.....................................................................................................6
------------------------
3.4. Facilities...................................................................................................................6
----------
3.5. Assets.......................................................................................................................8
------
3.6. Financial Statements.........................................................................................................8
--------------------
3.7. Books and Records............................................................................................................9
-----------------
3.8. Litigation...................................................................................................................9
----------
3.9. Licenses and Permits; Compliance with Laws...................................................................................9
------------------------------------------
3.10. Tax Matters.................................................................................................................9
-----------
3.11. Brokers, Finders...........................................................................................................11
----------------
3.12. Absence of Certain Changes.................................................................................................11
--------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.13. Material Contracts.........................................................................................................13
------------------
3.14. Proprietary Rights.........................................................................................................14
------------------
3.15. Labor Matters..............................................................................................................15
-------------
3.16. Consents...................................................................................................................15
--------
3.17. Employee Benefit Plans; Employment Agreements..............................................................................15
---------------------------------------------
3.18. Compliance with Environmental Laws.........................................................................................17
----------------------------------
3.19. Certain Business Relationships with the Company............................................................................19
-----------------------------------------------
3.20. Undisclosed Liabilities....................................................................................................20
-----------------------
3.21. Insurance..................................................................................................................20
---------
3.22. Accounts Receivable........................................................................................................20
-------------------
3.23. Inventory..................................................................................................................21
---------
3.24. Payments...................................................................................................................21
--------
3.25. Customers, Distributors and Suppliers......................................................................................21
-------------------------------------
3.26. Material Misstatements Or Omissions........................................................................................21
-----------------------------------
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HDA.................................................................................22
4.1. Corporate Organization and Standing.........................................................................................22
-----------------------------------
4.2. Authorization...............................................................................................................22
-------------
4.3. No Conflict or Violation....................................................................................................22
------------------------
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING
COVENANTS.........................................................................................................................22
5.1. Further Assurances..........................................................................................................22
------------------
5.2. No Solicitation and Confidentiality.........................................................................................23
-----------------------------------
5.3. Disclosures.................................................................................................................24
-----------
5.4. Employee Plans..............................................................................................................24
--------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY
HDA...............................................................................................................................24
6.1. No Injunctive Proceedings...................................................................................................24
-------------------------
6.2. Representations and Warranties..............................................................................................24
------------------------------
6.3. Performance of Agreements...................................................................................................24
-------------------------
6.4. Compliance Certificate......................................................................................................24
----------------------
6.5. Material Changes............................................................................................................25
----------------
6.6. Opinion of Counsel..........................................................................................................25
------------------
6.7. Consents, Etc...............................................................................................................25
-------------
6.8. Ancillary Agreements........................................................................................................25
--------------------
6.9. Name Change.................................................................................................................25
-----------
6.10. Nonforeign Affidavit.......................................................................................................25
--------------------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY
THE COMPANY.......................................................................................................................25
7.1. No Injunctive Proceedings...................................................................................................25
-------------------------
7.2. Representations and Warranties..............................................................................................26
------------------------------
7.3. Performance of Agreements; Instruments of Transfer..........................................................................26
--------------------------------------------------
7.4. Compliance Certificates.....................................................................................................26
-----------------------
7.5. Ancillary Agreements........................................................................................................26
--------------------
7.6. Opinion of Counsel..........................................................................................................26
------------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING............................................................................26
8.1. Collection of Accounts Receivable and Letters of Credit.....................................................................26
-------------------------------------------------------
8.2. Consents to Assignment......................................................................................................26
----------------------
8.3. Indemnification by the Company and the Existing Shareholders................................................................27
------------------------------------------------------------
8.4. Indemnification by HDA......................................................................................................27
----------------------
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.5. Survival of Representations, Warranties and Covenants.......................................................................27
-----------------------------------------------------
8.6. Threshold; Deductible.......................................................................................................28
---------------------
8.7. Notice and Opportunity to Defend............................................................................................28
--------------------------------
8.8. Payments Out of Escrow Amount...............................................................................................29
-----------------------------
ARTICLE IX. MISCELLANEOUS.........................................................................................................29
9.1. Expenses....................................................................................................................29
--------
9.2. Notices.....................................................................................................................29
-------
9.3. Counterparts................................................................................................................30
------------
9.4. Entire Agreement............................................................................................................30
----------------
9.5. Headings....................................................................................................................31
--------
9.6. Assignment; Amendment of Agreement..........................................................................................31
----------------------------------
9.7. Governing Law...............................................................................................................31
-------------
9.8. Further Assurances..........................................................................................................31
------------------
9.9. No Third-Party Rights.......................................................................................................31
---------------------
9.10. Non-Waiver.................................................................................................................31
----------
9.11. Severability...............................................................................................................31
------------
9.12. Incorporation of Exhibits and Schedules....................................................................................31
---------------------------------------
9.13 Knowledge...................................................................................................................32
---------
9.14 Arbitration.................................................................................................................32
-----------
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of November
4, 1998, is entered into by and among HDA Parts System, Inc., an Alabama
corporation ("HDA"), Connecticut Driveshaft, Inc., a Connecticut corporation
(the "Company"), each of the shareholders of the Company (all of whom are
identified on the signature page hereto (individually, an "Existing Shareholder"
and collectively, the "Existing Shareholders") and Anna Honek (together with the
Existing Shareholders, the "Selling Parties"). HDA, the Company and the
Existing Shareholders are referred to herein as each a "Party" and collectively,
the "Parties."
RECITALS
WHEREAS, the Company owns certain assets listed on Annex A (the
"Assets") which are used in connection with or useful to its business of
distributing aftermarket parts and services to the domestic heavy duty vehicle
market (the "Business");
WHEREAS, HDA desires to acquire the Assets of the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price. (a) Upon the terms and subject to the
--------------
conditions set forth herein, HDA will purchase from the Company the Assets for a
price (the "Purchase Price") of Seven Million Three Hundred Thousand Dollars
($7,300,000) in cash payable by wire transfer of immediately available funds to
the Company, subject to the holdback deposited into escrow as set forth below in
Section 1.1(c).
(b) Schedule 1.1 sets forth the amount of the Purchase Price allocable
to the various Assets.
(c) The "Escrow Amount" shall be Eight Hundred Thousand Dollars
($800,000) of the Purchase Price which HDA, at the Closing, shall deposit with
the Escrow Agent (as defined below) subject to the terms and conditions of the
Escrow Agreement (as defined below) to be delivered pursuant to Section 2.2(c)
below. Such holdback deposited into escrow is for the purposes referred to in
Section 8.8 below.
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<PAGE>
1.2 Closing Balance Sheet.
---------------------
(a) Closing Balance Sheet. The Existing Shareholders will prepare a
---------------------
balance sheet dated the Closing Date (as defined) (the "Closing Balance Sheet"),
prepared in accordance with generally accepted accounting principles ("GAAP"),
applied consistently with the Company's respective past practice to the extent
such practice is GAAP. The Existing Shareholders will deliver such Closing
Balance Sheet to HDA within 45 days after the Closing. The Closing Balance
Sheet shall be audited by McGladrey & Pullen, LLP.
(b) Closing Balance Sheet Notice.
----------------------------
(i) Within 30 days of the receipt of such Closing Balance Sheet,
HDA will deliver to the Existing Shareholders a written notice certifying
that either (x) it agrees with such Closing Balance Sheet, or (y) it
disagrees with such Closing Balance Sheet, in which case it will also
provide therewith a reasonably detailed written report stating the basis
for disagreement with the Closing Balance Sheet (the "Closing Balance Sheet
Notice"). The Existing Shareholders shall provide reasonable access to its
accountants' work papers, personnel and to such historical financial
information as HDA shall reasonably request in order to review such Closing
Balance Sheet.
(ii) If the Closing Balance Sheet Notice is not timely given as
described in Section 1.2(b)(i), the Closing Balance Sheet shall be final,
binding and conclusive upon the Parties. If HDA disagrees with the Closing
Balance Sheet Notice as described in Section 1.2(b)(i)(y), and if the
disagreement is not resolved by mutual agreement among the Parties within
30 days following delivery of the Closing Balance Sheet Notice, such
dispute will be resolved by a "Big 5" accounting firm ("BFAF") selected by
HDA and the Company.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute which
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Balance
Sheet only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 1.2(a) above.
2
<PAGE>
1.3 Transfer of Assets. Upon the terms and subject to the conditions
------------------
set forth herein, at the Closing, the Company will sell to HDA, and HDA will
purchase from the Company, the Assets, free and clear of all encumbrances other
than Permitted Encumbrances (as defined herein).
1.4 Assumption of Liabilities. Upon the terms and subject to the
-------------------------
conditions contained herein, at the Closing, HDA shall assume the following, and
only the following, obligations and liabilities of the Company (collectively,
the "Assumed Liabilities"):
(a) All obligations and liabilities accruing, arising out of, or
relating to events or occurrences happening after the Closing Date under, and
only under, the Assumed Contracts (as defined) listed on Schedule 3.13, but not
including any obligation or liability for any breach of any Contract (as
defined) occurring on or prior to the Closing Date (together with the
liabilities assumed pursuant to the Assumed Contracts, the "Assumed
Liabilities");
(b) All obligations and liabilities relating to accrued sick pay
and vacation reflected on the Closing Balance Sheet; and
(c) All liabilities listed on Schedule 1.4.
1.5 Excluded Liabilities. Notwithstanding any other provision of
--------------------
this Agreement, except for the Assumed Liabilities expressly specified in
Section 1.4 hereof, HDA shall not assume, or otherwise be responsible for, the
Company's liabilities or obligations, whether actual or contingent, matured or
unmatured, liquidated or unliquidated, known or unknown, or related or unrelated
to the Business or the Assets, whether arising out of occurrences prior to, at
or after the date hereof (collectively, the "Excluded Liabilities"), which
Excluded Liabilities include, without limitation:
(a) Except as set forth in Section 1.3 above, any liability or
obligation to or in respect of any employees or former employees of the Company
including without limitation (i) any employment agreement, whether or not
written, between the Company and any person, (ii) any liability arising prior to
the Closing (as defined below) under any Employee Plan (as defined) at any time
maintained, contributed to or required to be contributed to by or with respect
to the Company or under which the Company may incur liability, or any
contributions, benefits or liabilities therefor, or any liability with respect
to the Company's withdrawal or partial withdrawal from or termination of any
Employee Plan and (iii) any claim of an unfair labor practice, or any claim
under any state unemployment compensation or worker's compensation law or
regulation or under any federal or state employment discrimination law or
regulation, which shall have been asserted on or prior to the Closing Date or is
based on acts or omissions which occurred on or prior to the Closing Date;
(b) Any liability or obligation of the Company in respect of any Tax
(as defined), except any accrued sales taxes on the Closing Balance Sheet (as
defined in Section 1.2(a));
3
<PAGE>
(c) Any liability arising from any injury to or death of any person
or damage to or destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other legal or
equitable theory arising from defects in products sold or services performed by
or on behalf of the Company or any other person or entity on or prior to the
Closing Date, or arising from any other cause, including without limitation any
liabilities arising (on a date of occurrence basis or otherwise) on or prior to
the Closing Date relating to the use or misuse of equipment or to traffic
accidents;
(d) Any liability or obligation of the Company arising out of or
related to any Action (as defined) against the Company or any Action which
adversely affects the Assets and which shall have been asserted on or prior to
the Closing Date or to the extent the basis of which shall have arisen on or
prior to the Closing Date;
(e) Any liability or obligation of the Company resulting from
entering into, performing its obligations pursuant to or consummating the
transactions contemplated by, this Agreement (including without limitation any
liability or obligation of the Company pursuant to Article VIII hereof);
(f) Any liability or obligation related to the Facilities which
shall have been asserted on or prior to the Closing Date or to the extent the
basis of which shall have arisen on or prior to the Closing Date; and
(g) Any liability or obligation arising out of any Environmental Law
which shall have been asserted on or prior to the Closing Date or to the extent
the basis of which shall have arisen on or prior to the Closing Date
("Environmental Liabilities").
ARTICLE II.
CLOSING
2.1 Closing. The Closing of the transactions contemplated
-------
herein (the "Closing") shall be held at 9:00 a.m. local time on November 4, 1998
or such later date upon which the Parties otherwise agree (the "Closing Date").
2.2 Conveyances at Closing.
----------------------
(a) Instruments and Possession. To effect the sale and transfer of
--------------------------
Assets referred to in Section 1.3 hereof, the Company will, at the Closing,
execute and deliver to HDA:
(i) one or more Bills of Sale, in the form attached hereto as
Exhibit A, conveying in the aggregate all of the personal property owned by
the Company included in the Assets;
4
<PAGE>
(ii) subject to Section 8.2, Assignments of Lease in the form
attached hereto as Exhibit B with respect to the Leases;
(iii) subject to Section 8.2, Assignments of Contract Rights in
the form attached hereto as Exhibit C with respect to those contracts which
HDA shall assume;
(iv) subject to Section 8.2, Assignments of Patents and
Trademarks and other Proprietary Rights (including an assignment of all
rights, title and interest of the Company to the name "Connecticut
Driveshaft" and all variations thereof) each in the form attached hereto as
Exhibit D, in recordable form to the extent necessary to assign such
rights; and
(v) such other instruments as shall be requested by HDA to
vest in HDA title in and to the Assets in accordance with the provisions
hereof.
(b) Assumption Document. Upon the terms and subject to the
-------------------
conditions set forth herein, at the Closing, HDA shall deliver to the Company an
instrument of assumption substantially in the form attached hereto as Exhibit E,
evidencing HDA's assumption of all liabilities of the Company, pursuant to
Section 1.4 hereof, excluding the Excluded Liabilities (the "Assumption
Document").
(c) Escrow Agreement. At or prior to the Closing, HDA, the Company
----------------
and the Existing Shareholders will enter into an escrow agreement in
substantially the form attached hereto as Exhibit F (the "Escrow Agreement")
with Chase Trust Company of California (the "Escrow Agent").
(d) Form of Instruments. To the extent that a form of any document
-------------------
to be delivered hereunder is not attached as an Exhibit hereto, such documents
shall be in form and substance, and shall be executed and delivered in a manner
reasonably satisfactory to HDA and the Company.
(e) Consents. The Company shall deliver all Permits (as defined
--------
herein) and any other third party consents required for the valid transfer of
the Assets as contemplated by this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLING PARTIES
The Company and the Existing Shareholders, and Anna Honek with respect
to representations and warranties relating to the Owned Real Property (as
defined below), represent and warrant to HDA as follows, except as set forth in
a disclosure schedule ("Schedule") attached hereto and made a part hereof, the
number of each Schedule corresponding to the Section number to which it refers:
5
<PAGE>
3.1 Corporate Organization and Standing. The Company is a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own or lease its properties and to carry on its business as
presently conducted. The Company has delivered to HDA or its representatives
complete and correct copies of its Articles of Incorporation and Bylaws (or
other charter documents) and all amendments thereto. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of the business as now being conducted by
it or the property owned or leased by it makes such qualification necessary, all
of which are listed on Schedule 3.1.
3.2 Authorization. This Agreement, the Ancillary Agreements
-------------
(as defined), and the transactions contemplated hereby and thereby have been
duly authorized, executed and delivered by the Company and each Selling Party
party thereto, and are the legal, valid and binding obligations of the Company
and each Existing Shareholder party thereto, enforceable against it, him or her
in accordance with their terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
3.2 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will (i) violate, conflict with or
result in or constitute a default under or result in the termination or the
acceleration of, or the creation in any party of any right (whether or not with
notice or lapse of time or both) to declare a default, accelerate, terminate or
cancel any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability ("Contractual Obligation") to which the Company or any
Selling Party is a party or by which it is bound or to which its assets is
subject or result in the creation of any lien or encumbrance upon any of said
assets, (ii) violate, conflict with or result in a breach of or constitute a
default under any provision of the Articles of Incorporation or Bylaws (or other
organizational documents) of the Company, (iii) violate, conflict with or result
in a breach of or constitute a default under any judgment, order, decree, rule
or regulation of any court or governmental agency to which the Company or any
Selling Party is subject or, in the case of clause (i), relates to a Material
Contract (as defined below) or (iv) violate, conflict with or result in a breach
of any applicable federal or state rule or regulation.
3.4 Facilities. Schedule 3.4 contains (i) a complete and accurate
----------
list of all real property used in connection with the businesses of the Company
("Real Property"), identifying which are owned by the Company or a Selling Party
("Owned Real Property") and which are leased ("Leased Real Property"), and (ii)
accurate and complete copies of preliminary title reports and title policies
covering all of the Owned Real Property ("Title Reports").
(a) Owned Real Property. The party listed as owning the property on
-------------------
the Title Reports has good and marketable fee simple title to all Owned Real
Property, free and clear of all
6
<PAGE>
encumbrances, except as set forth in the real estate purchase and sale agreement
by and between Joseph Honek, Anna Honek, J. Frank Honek and HDA (the "Real
Estate Purchase Agreement") pursuant to which HDA will purchase simultaneously
with the Closing from Joseph Honek, Anna Honek and J. Frank Honek the properties
located at (i) 458, 460, 470 and 478-482 Naugatuck Avenue, Milford, Connecticut,
(ii) 366 Chapel Road, South Windsor, Connecticut, and (iii) 9 and 11 Baldwin
Street, Milford, Connecticut ("Permitted Exceptions"). Each such party enjoys
peaceful and undisturbed possession of all Owned Real Property.
(b) Actions. Except as set forth on Schedule 3.4(b), there are no
-------
pending or, to the best knowledge of the Company or any Selling Party,
threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any facility used in connection with the
business of the Company ("Facility") or any Real Property.
(c) Leases or Other Agreements. Except for Facility leases listed on
--------------------------
Schedule 3.4(c), there are no leases, subleases, licenses, occupancy agreements,
options, rights, concessions or other agreements or arrangements, written or
oral, granting to any person the right to purchase, use or occupy any Facility
or any Real Property or any portion thereof, or interest in any such Facility or
Real Property.
(d) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, the Company has an unencumbered interest in the leasehold
estate. The Company enjoys peaceful and undisturbed possession of all Leased
Real Property.
(e) Certificate of Occupancy. All Facilities have received all
------------------------
required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
and are and have been operated and maintained in accordance with applicable
regulations.
(f) Utilities. All Facilities are supplied with utilities
---------
(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and there is no condition which would reasonably be expected
to result in the termination of the present access from any Facility to such
utility services.
(g) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by the Company or any Selling Party at the Facilities are (i)
insured to the extent and in a manner customary in the industry, (ii)
structurally sound with no known material defects, (iii) in good operating
condition and repair, subject to ordinary wear and tear, (iv) not in need of
maintenance, repair or correction except for ordinary routine maintenance and
repair, the cost of which would not be material, (v) sufficient
7
<PAGE>
for the operation of the Company as presently conducted and (vi) in conformity
with all applicable regulations.
(h) No Special Assessment. Neither the Company nor any Selling Party
---------------------
has received notice of any special assessment relating to any Facility or any
portion thereof, and there is no pending or threatened special assessment.
3.5 Assets. The Company has and will transfer to HDA good and
------
marketable title to the Assets, free and clear of any encumbrances, except for
minor liens which in the aggregate are not substantial in amount, do not
materially detract from the value or transferability of the Assets subject
thereto taken as a whole or interfere in any material respect with the present
use and have not arisen other than in the ordinary course of business
("Permitted Encumbrances"). All tangible assets and properties which are part of
the Assets are in good operating condition and repair, ordinary wear and tear
excepted, and are usable in the ordinary course of business and conform in all
material respects to all applicable regulations (including Environmental Laws
(as defined herein)) relating to their use and operation. The Assets include
without limitation all assets necessary for the conduct of the Business as
presently conducted.
3.6 Financial Statements. Except as set forth on Schedule 3.6,
--------------------
(a) The balance sheets of the Company dated June 30, 1998 (the "June
1998 Balance Sheet") and December 31, 1997 (together with the June 1998 Balance
Sheet, the "Balance Sheets"), were prepared in accordance with GAAP consistently
applied and fairly present the financial condition of the Company as of their
respective dates. The Company has no liabilities of any nature, whether
absolute, accrued, asserted or unasserted or contingent or whether due or to
become due which should have been recorded or reserved for on the Balance Sheets
and were not so recorded or reserved.
(b) The statements of operations, statements of changes in
shareholder's equity and statements of cash flows of the Company for the fiscal
year ended December 31, 1997 were prepared in accordance with GAAP consistently
applied and fairly present the results of operations, changes in shareholder's
equity and cash flows of the Company for such period.
(c) The unaudited balance sheet, statements of operations,
statements of changes in shareholder's equity and statements of cash flows of
the Company at and for the eight months ended August 31, 1998, were prepared in
accordance with GAAP consistently applied and fairly present the results of
operations, changes in shareholder's equity and cash flows of the Company for
each such period and are consistent with the financial statements described in
Section 3.6(a) and (b).
(d) Copies of the financial statements described in Section 3.6(a)
and (b) have been provided to HDA or its representatives.
8
<PAGE>
3.7 Books and Records. The Company has made and kept and given
-----------------
HDA and its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The Company has not engaged in any transaction, maintained any bank account or
used any corporate funds except for the transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of the Company.
3.8 Litigation. Except as set forth on Schedule 3.8, there
----------
is no claim, action, suit, proceeding, or investigation pending or, to the best
knowledge of the Company, threatened against the Company or the directors,
officers, agents or employees of the Company (in their capacity as such), or any
owner of any Owned Real Property, or any properties or rights of the Company.
There are no orders, writs, injunctions or decrees currently in force against
the Company or the directors, officers, agents or employees of the Company (in
their capacity as such) or any Selling Party with respect to the conduct of the
Company's business.
3.9 Licenses and Permits; Compliance with Laws. Schedule 3.9 sets
------------------------------------------
forth a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by the
Company or any owner of any Owned Real Property. The Company owns, holds or
possesses all Licenses and Permits necessary to entitle it to use its corporate
name, to own or lease, operate and use its assets and properties and to carry on
and conduct its business and operations as presently conducted. Neither the
Company nor any owner of any Owned Real Property is in violation of or default
under any Licenses or Permits or any judgment, order, writ, injunction or decree
of any court or administrative agency issued against it or any law, ordinance,
rule or regulation applicable to it, except for such violations or defaults
which, in the aggregate would not have a material adverse effect on the Assets,
the Business, the Owned Real Property or on the ability of the Selling Parties
or the Company to consummate the transactions contemplated hereby. The Company's
conduct of its business has been and is in compliance with all applicable laws,
statutes, ordinances and regulations, except for such breaches which, in the
aggregate would not have a material adverse effect on the Assets, the Business
or on the ability of the Existing Shareholders or the Company to consummate the
transactions contemplated hereby. Neither the Company nor any owner of any Owned
Real Property has received any notice asserting a failure to comply with any
law, statute, ordinance, regulation, rule or order of any foreign, federal,
state or local government or any other governmental department or agency.
3.10 Tax Matters. (a) For purposes of this Agreement, (i)
-----------
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, and (ii) "Tax
Return" means any return, declaration, report,
9
<PAGE>
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(b) The Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown
on any Tax Return) have been paid. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. Except as set
forth on Schedule 3.10(b), no claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to taxation by that jurisdiction. There are no liens on any of
the assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(c) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) Except for the Sales and Use Tax Audit as of June 30, 1998, there
is no dispute or claim concerning any Tax Liability of the Company either (i)
claimed or raised by any authority in writing or (ii) of which the Company or
any Existing Shareholder has knowledge. To the knowledge of the Company and
each Existing Shareholder, except for the Sales and Use Tax Audit as of June 30,
1998, no audit or examination of any Tax Return is currently in progress, and
the Company has not received notice of any proposed audit or examination. The
Company has furnished to HDA or its representatives correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company with respect to years
ended on or before December 31, 1997. The Company has not waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(e) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations (or any comparable state income tax
provision). The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code. The Company is not a party to any Tax allocation, sharing or
indemnity agreement. The Company (i) has not been a member of an affiliated
group of corporations filing a consolidated federal income Tax Return or (ii)
has no liability for the Taxes of any person under Reg. Sec. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise. Schedule 3.10(e) hereto sets forth all material
elections (e.g., accelerated depreciation, Sec. 263(a) regarding the allocation
of overhead to inventory, and LIFO election for inventory accounting) in effect
as of the date hereof with respect to Taxes affecting the Company.
10
<PAGE>
(f) The Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times since January 1,
1987, and the Company will be an S corporation up to and including the Closing
Date. No Income Taxes will be payable by the Company with respect to the
taxable year beginning on January 1, 1998 and ending on the day immediately
preceding the Closing Date.
(g) The Company has not, in the past ten (10) years, (i) acquired
assets from another corporation in a transaction in which the Company's Tax
basis for the acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in the hands of
the transferor or (ii) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
3.11. Brokers, Finders. Neither the Company nor any Existing
----------------
Shareholder has retained any broker or finder in connection with the
transactions contemplated herein, and is not obligated and has not agreed to pay
any brokerage or finder's commission, fee or similar compensation.
3.12. Absence of Certain Changes. Since December 31, 1997, the
--------------------------
Company has conducted its business in the ordinary course and there has not
occurred with respect to the Company:
(a) any material adverse effect on the business, operations, assets,
results of operations or financial condition of the Company, taken as a whole
("Material Adverse Effect");
(b) any revaluation of assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable, except
as set forth on Schedule 3.12(b);
(c) any payment, discharge or satisfaction of any liabilities or
obligations, other than in the ordinary course of business;
(d) any incurrence of liabilities, except liabilities incurred in the
ordinary course of business, or increase or change in any assumptions underlying
or methods of calculating, any doubtful account contingency or other reserves;
(e) any capital expenditure exceeding $5,000, the execution of any
lease or the incurring of any obligation to make any capital expenditure or
execute any lease other than in the ordinary course of business, except as set
forth on Schedule 3.12(e);
(f) the failure to pay or satisfy when due any liability, except
where the failure would not have a material adverse effect on the assets or the
business;
11
<PAGE>
(g) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind, except in the ordinary course of
business;
(h) the failure to carry on diligently the business in the ordinary
course so as to preserve for HDA the assets, the business and the goodwill of
the Company's suppliers, customers, distributors and others having business
relations with it;
(i) the disposition or lapsing of any Proprietary Rights (as defined
below) or any disposition or disclosure to any person of any Proprietary Rights
not theretofore a matter of public knowledge, except as set forth on Schedule
3.12(i);
(j) any cancellation or waiver of any material claims or rights of
value, or any sale, lease, transfer, assignment, distribution or other
disposition of any assets, except for sales of finished goods inventory in the
ordinary course of business, or any disposal of any material assets for any
amount;
(k) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or the
business or entry into any contract, commitment, agreement, lease, transaction
or Permit which is not in the ordinary course of business, including, without
limitation, any employment or consulting agreements, except as set forth on
Schedule 3.12(k);
(l) any bonus paid or promised, an increase in the base compensation,
or other payment or loan to any director, officer or employee, whether now or
hereafter payable or granted (other than increases in base compensation in the
ordinary course consistent in timing and amount with past practices), or entry
into or variation of the terms of any employment or incentive agreement with any
such person, except as set forth on Schedule 3.12(l);
(m) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the financial
condition, results of operations or business or the relationships between the
employees of the Company and the management of the Company;
(n) any change in any method of accounting or keeping books of
account or accounting practices, except as set forth on Schedule 3.12(n);
(o) any material damage, destruction or loss of any asset, whether or
not covered by insurance.
(p) the issuance, delivery or sale of any equity securities, or
alteration in terms of any outstanding securities issued by it or any increase
in its indebtedness for borrowed money (other than borrowings under its
revolving credit facility in the ordinary course of business), except as set
forth on Schedule 3.12(p);
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(q) the adoption of any plan of liquidation or resolutions providing
for the liquidation, dissolution, merger, consolidation or other reorganization;
(r) the existence of any other event or condition which, in any one
case or in the aggregate, has been or might reasonably be expected to have a
Material Adverse Effect, except as set forth on Schedule 3.12(r); or
(s) an agreement to do any of the things described in the preceding
clauses (a) - (r) other than as expressly provided for herein.
3.13. Material Contracts. Schedule 3.13 attached hereto sets
------------------
forth a complete and correct list of all the Material Contracts to which the
Company or, in the case of Section 3.13(b), (c) and (e), Joseph Honek, Anna
Honek and J. Frank Honek, or, in the case of Section 3.13(g), any Existing
Shareholder, is a party. As used in this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which the Company, Joseph
Honek, Anna Honek or J. Frank Honek is a lessor or lessee of any real property
or any machinery, equipment, vehicle or other tangible personal property owned
by a third party and used in the business of the Company, which entails annual
payments, in the case of any such lease or agreement, in excess of $5,000;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to the Company or the Owned Real Property
in a principal amount (or with maximum availability) in excess of $5,000;
(f) all contracts and agreements to which the Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors, sales
agents or dealers of the Company other than contracts which by their terms are
cancelable by the Company with notice of not more than 30 days and without
cancellation penalties or severance payments, in the case of any such contract,
in excess of $5,000, (ii) collective bargaining agreements of the Company which
relate to the business of the Company, and (iii) pension, profit-sharing, bonus,
retirement, stock option or employee benefit plans or other similar plans or
arrangements of the Company;
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(g) any covenant not to compete or similar restriction on the Company
or any Existing Shareholder;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $5,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by the Company.
The Company has furnished or will furnish to HDA or its representatives true and
correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.14. Proprietary Rights.
------------------
(a) Schedule 3.14 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for the
Company. Schedule 3.14 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.14 are
all those used by the Company in connection with its businesses. True and
correct copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of the Company or in which the
Company has any interest whatsoever have been provided to HDA or its
representatives.
(b) The Company has no obligation to compensate any person for the
use of any such Proprietary Rights nor has the Company granted to any person any
license, option or other rights to use in any manner any of its Proprietary
Rights, whether requiring the payment of royalties or not.
(c) The Company owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of the Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. The
Company has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any trademarks the Company on the goods on which they are now being used
either in identical form or in such near resemblance thereto as to
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<PAGE>
be likely, when applied to the goods of any such person, to cause confusion with
such trademarks or to cause a mistake or to deceive, (ii) has notified the
Company that it is claiming any ownership of or right to use such Proprietary
Rights, or (iii) to the best knowledge of the Company, is infringing upon any
such Proprietary Rights in any way. The Company's use of any Proprietary Rights
does not and will not conflict with, infringe upon or otherwise violate the
valid rights of any third party in or to such Proprietary Rights, and no Action
has been instituted against or notices received by the Company that are
presently outstanding, alleging that the Company's use of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights. There are not, and it is reasonably expected that after the
Closing there will not be, any restrictions on right of the Company to sell
products manufactured by the Company in connection with the operation of its
business.
3.15. Labor Matters. The Company is not a party to any labor
-------------
agreement with respect to its employees with any labor organization, union,
group or association, and there are no employee unions (nor any other similar
labor or employee organizations) under local statutes, custom or practice. The
Company has not experienced any attempt by organized labor or its
representatives to make it conform to demands of organized labor relating to its
employees or to enter into a binding agreement with organized labor that would
cover the employees of the Company. There is no labor strike or labor
disturbance pending or, to the best knowledge of the Company, threatened against
the Company, nor is any grievance currently being asserted, and the Company has
not experienced a work stoppage or other labor difficulty, and is not and has
not engaged in any unfair labor practice. Without limiting the foregoing, the
Company are in compliance with the Immigration Reform and Control Act of 1986
and maintains a current Form I-9, as required by such Act, in the personnel file
of each employee hired after November 9, 1986.
3.16. Consents. No consent, approval, authorization, order, filing,
--------
registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by the
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Company and the Existing
Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.17. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.17 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of the Company and that
are not Plans (as defined below) (collectively, the "Employment Contracts") and
(ii) all "employee welfare benefit plans" or "employee pension benefit plans,"
as such terms are defined in Sections 3(1) and 3(2), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which are
maintained, administered or contributed to by the Company and cover employees or
15
<PAGE>
former employees of the Company or under which the Company could incur any
liability (collectively, the "Plans").
(b) None of the Plans is subject to Title VII of ERISA. In the past
six years, the Company has not maintained, sponsored, or been required to
contribute to, has withdrawn from (either completely or partially), nor has it
incurred any unpaid withdrawal liability with respect to, any plan subject to
Title VII of ERISA or the minimum funding requirements of Section 412 of the
Code.
(c) The Plans have been administered in compliance in all material
respects with their terms and with all filings, reporting, disclosure, and other
requirements of ERISA, the Code and any other applicable law. The only Plan
which is an "employee pension benefit plan," as such term is defined in Section
3(2) of ERISA is the Company's 401(k) profit sharing plan (the "401(k) Plan").
The 401(k) Plan is and has been for all the years of the Plan the subject of a
favorable determination letter issued by the Internal Revenue Service. The
Company has no knowledge of any facts which might adversely affect the
qualifying status of the 401(k) Plan.
(d) None of the Company nor any of its respective employees or
directors, nor, to the knowledge of the Company, any plan fiduciary of any of
the Plans, has engaged in any transaction in violation of Section 406(a) or (b)
of ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which no exemption exists under Section 4975(d) of the Code.
(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims"), and to the best knowledge of the Company, no such Claims are
threatened, against any Plan or fiduciary of any such Plan by any participant,
beneficiary or governmental agency with respect to the qualification or
administration of any such Plan.
(f) The Company has provided to HDA or its representatives a copy of
the Employment Contracts, the Plans, related trust agreements, all amendments
thereto together with the annual report for the last three years (Form 5500,
including Schedule B thereto). The Company has provided HDA or its
representatives with true and complete age, salary, service and related data for
employees, former employees and beneficiaries thereof covered under the 401(k)
Plan as of the Closing Date.
(g) No entity which is required to be aggregated with the Company
under Sections 414(b), (c), (m) or (o) of the Code (the "Company ERISA
Affiliates") has incurred any liability under or with respect to any benefit
plan, policy or arrangement for the benefit of its employees or former employees
that could become a liability of HDA or the Company. Neither HDA nor any
Company ERISA Affiliate will incur any liability under Section 411(d)(3) of the
Code for vested accrued benefits arising from a partial termination of the
401(k) Plan prior to the Closing Date.
16
<PAGE>
(h) All amounts required to be contributed to any Plan by the Company
will, as of the Closing Date, have been paid or properly accrued on the books of
the Company. The Company shall either contribute or accrue on its books the
amount of any employer matching contributions or discretionary contributions (in
an amount determined in accordance with the Company's past practices) to the
401(k) Plan which in the ordinary course of business would be contributed for or
attributable to the period prior to the Closing Date.
(i) None of the assets of the 401(k) Plan is invested in property
constituting employer real property or employer security (within the meaning of
Section 407(d) of ERISA).
(j) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of the
Company.
(k) Neither the Company nor any Plan which is a "welfare benefit
plan," as such term is defined in Section 3(1) of ERISA has any present or
future obligation to provide medical or other welfare benefits to, or to make
any payment to or with respect to medical or other welfare benefits of, any
present or former employee of the Company or any ERISA Subsidiary.
(l) No Company ERISA Affiliate has incurred any liability with
respect to which the Company has incurred or could incur any liability.
3.18. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.18, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(i) the Company and all owners of all of the Owned Real Property, (ii) all
partnerships, joint ventures and other entities or organizations in which
the Company was at any time or is a partner, joint venturer, member or
participant and (iii) all predecessor or former corporations, partnerships,
joint ventures, organizations, businesses or other entities, whether in
existence as of the date hereof or at any time prior to the date hereof,
the assets or obligations of which have been acquired or assumed by the
Company or to which the Company has succeeded.
17
<PAGE>
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge
or other release or threatened release of, Hazardous Substances or
otherwise dangerous substances, wastes, pollution or materials (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater, drinking water, air, wildlife, plants or other natural
resources, or the health and safety of persons or property, including
without limitation protection of the health and safety of employees.
Environmental Laws shall include, without limitation, the Federal
Insecticide, Fungicide, Rodenticide Act, Resource Conservation & Recovery
Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local
law, each as amended.
(v) "Environmental Conditions" means the introduction into the
environment of any pollution, including, without limitation, any
contaminant, irritant or pollutant or other Hazardous Substance (whether or
not upon any Facility or former Facility or other property and whether or
not such pollution constituted at the time thereof a violation of any
Environmental Law as a result of any Release of any kind whatsoever of any
Hazardous Substance) as a result of which the Company has or may become
liable to any person or by reason of which any Facility, former Facility or
any of the assets of the Company may suffer or be subjected to any lien.
(b) Notice of Violation. The Company has not received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the
18
<PAGE>
former Facilities or otherwise or (ii) an alleged violation of or non-compliance
with the conditions of any Permit required under any Environmental Law or the
provisions of any Environmental Law. The Company has not received notice of any
other claim, demand or Action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or former
Facilities, or in connection with any operations or activities of the Company.
(c) Environmental Conditions. Except as set forth on Schedule
------------------------
3.18(c), there are no present or past Environmental Conditions in any way
relating to the business of the Company or at any Facility owned by the Company
or a Selling Party and, to the knowledge of the Company and the Selling Parties,
there are no present or past Environmental Conditions at any Facility leased by
the Company.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of the Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by the Company or
any attorney, environmental consultant or engineer engaged for such purpose,
have been delivered to HDA or its representatives and a list of all such
reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included in Schedule 3.18(d)
hereto.
(e) Indemnification Agreements. Except as set forth on Schedule
--------------------------
3.18(e), the Company is not a party, whether as a direct signatory or as
successor, assign or third party beneficiary, or otherwise bound, to any lease
or other contract (excluding insurance policies disclosed on the Schedule) under
which the Company is obligated by or entitled to the benefits of, directly or
indirectly, any representation, warranty, indemnification, covenant, restriction
or other undertaking concerning environmental conditions.
(f) Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. The Company has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in substantial compliance with all Environmental Laws.
3.19. Certain Business Relationships with the Company. Except as
-----------------------------------------------
set forth on Schedule 3.19, none of the Existing Shareholders of the Company
owning more than 5% of its outstanding voting securities have been involved in
any business arrangement or relationship
19
<PAGE>
with the Company within the past 12 months, and none of such Existing
Shareholders own any assets, tangible or intangible, which are used in the
business of the Company.
3.20. Undisclosed Liabilities. Except as set forth on Schedule 3.20,
-----------------------
the Company has no liabilities or obligations, whether accrued, absolute,
contingent or otherwise except (i) to the extent reflected or reserved for on
the Balance Sheets, (ii) liabilities or obligations incurred in the normal and
ordinary course of business of the Company since December 31, 1997, (iii)
liabilities or obligations disclosed in Schedule 3.20 hereto and in the other
Schedules attached hereto, or (iv) liabilities or obligations disclosed
elsewhere in this Agreement.
3.21. Insurance. Schedule 3.21 contains a complete and accurate list of
---------
all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided, loss
experience history by line of coverage) maintained by the Company on its
respective (i) businesses, (ii) assets or (iii) employees at any time since
December 31, 1993. All insurance coverage applicable to the Company or its
respective businesses or assets is in full force and effect, insures the Company
in reasonably sufficient amounts against all risks usually insured against by
persons operating similar businesses or properties of similar size in the
localities where such businesses or properties are located, provides coverage as
may be required by applicable regulation and by any and all contracts to which
the Company is a party and has been issued by insurers of recognized
responsibility. There is no default under any such coverage nor has there been
any failure to give notice or present any claim under any such coverage in a due
and timely fashion. There are no outstanding unpaid premiums except in the
ordinary course of business and no notice of cancellation or nonrenewal of any
such coverage has been received. There are no provisions in such insurance
policies for retroactive or retrospective premium adjustments. All products
liability, general liability and workers' compensation insurance policies
maintained by the Company have been occurrence policies and not claims made
policies. There are no outstanding performance bonds covering or issued for the
benefit of the Company. There are no facts upon which an insurer might be
justified in reducing coverage or increasing premiums on existing policies or
binders. No insurer has advised the Company that it intends to reduce coverage,
increase premiums or fail to renew existing policy or binder.
3.22. Accounts Receivable. Except as set forth on Schedule 3.22, the
-------------------
accounts receivable set forth on the Balance Sheets, and all accounts receivable
arising since the date of the Balance Sheets, represent bona fide claims of the
Company against debtors for sales, services performed or other charges arising
on or before the date hereof, and all the goods delivered and services performed
which gave rise to said accounts were delivered or performed in accordance with
the applicable orders, contracts or customer requirements. Said accounts
receivable are subject to no defenses, counterclaims or rights of setoff and are
fully collectible in the ordinary course of business without cost in collection
efforts therefor, except to the extent of the appropriate reserves for bad debts
on accounts receivable as set forth on the Balance Sheets
20
<PAGE>
and, in the case of accounts receivable arising since the date of the Balance
Sheets, to the extent of a reasonable reserve rate for bad debts on accounts
receivable which is not greater than the rate reflected by the reserve for bad
debts on the Balance Sheets.
3.23 Inventory. Schedule 3.23 contains a complete and accurate list of
---------
all inventory set forth on the Balance Sheets and the addresses at which such
inventory is located. The inventory as set forth on the Balance Sheets or
arising since the date of the Balance Sheets was acquired and has been
maintained in accordance with the regular business practices of the Company,
consists of new and unused items of a quality and quantity usable or salable in
the ordinary course of business, and is valued at the lower of cost or market.
None of such inventory is obsolete, unusable, slow-moving, damaged or unsalable
in the ordinary course of business, except for such items of inventory which
have been written down to realizable market value, or for which adequate
reserves have been provided in the Balance Sheets.
3.24 Payments. The Company has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of the Company, which
is, or may be with the passage of time or discovery, illegal under any federal,
state or local laws of the United States (including, without limitation, the
U.S. Foreign Corrupt Practices' Act) or any other country having jurisdiction.
The Company has not participated, directly or indirectly, in any boycotts or
other similar practices affecting any of its actual or potential customers and
has at all times done business in an open and ethical manner.
3.24 Customers, Distributors and Suppliers. Schedule 3.25 sets forth a
-------------------------------------
complete and accurate list of the names and addresses of the Company's (i) ten
largest (in terms of dollar volume) customers, distributors and other agents and
representatives during the Company's last fiscal year, showing the approximate
total sales in dollars by the Company to such customer during such fiscal year;
and (ii) suppliers during the Company's last fiscal year, showing the
approximate total purchases in dollars by the Company from such supplier during
such fiscal year. Except as set forth on Schedule 3.25, since the date of the
Balance Sheets, there has been no adverse change in the business relationship of
the Company with any customer, distributor or supplier named on Schedule 3.25.
Except as set forth on Schedule 3.25, the Company has not received any
communication from any customer, distributor or supplier named on Schedule 3.25
of any intention to terminate or materially reduce purchases from or supplies to
the Company.
3.26 Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Company in this Agreement, nor any document, exhibit,
statement, certificate or Schedule heretofore or hereinafter furnished to HDA or
its representatives pursuant hereto, or in connection with the transactions
contemplated hereby, including, without limitation, the Schedules, contains or
will contain any untrue statement of a material fact, or omits or will omit
21
<PAGE>
to state any material fact necessary to make the statements or facts contained
therein not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HDA
HDA represents and warrants to the Company and the Existing Shareholders as
follows:
4.1 Corporate Organization and Standing. HDA is a corporation, duly
-----------------------------------
incorporated and validly existing under the laws of the State of Alabama, with
all requisite corporate power and authority to execute and deliver this
Agreement, the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby.
4.2 Authorization. This Agreement has been duly authorized,
-------------
executed and delivered by HDA, and is its valid and binding obligation,
enforceable against it in accordance with its terms, except as enforcement may
be limited by equitable principles limiting the right to obtain specific
performance or other equitable remedies, or by applicable bankruptcy or
insolvency laws and related decisions affecting creditors' rights generally.
4.4 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (i) result in the acceleration
of, or the creation in any party of any right to accelerate, terminate, modify
or cancel any indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which HDA is a party or by which it is bound or
to which any of its assets is subject, (ii) conflict with or result in a breach
of or constitute a default under any provision of its Articles of Incorporation
or Bylaws (or other charter documents), or a default under or violation of any
material restriction, lien, encumbrance or any contract to HDA is a party or by
which it is bound or to which any of its assets is subject or result in the
creation of any lien or encumbrance upon any of said assets, (iii) violate or
result in a breach of or constitute a default under any judgment, order, decree,
rule or regulation of any court or governmental agency to which HDA is subject,
or (iv) violate, conflict with or result in a breach of any applicable federal
or state rule or regulation.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Company, the Existing Shareholders and HDA each covenant with the
other as follows:
5.1 Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, the Parties agree, both before and after the
Closing, (i) to use all reasonable
22
<PAGE>
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
the transactions contemplated by this Agreement or the Ancillary Agreements,
(ii) to execute any documents, instruments or conveyances of any kind which may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder, and (iii) to cooperate with each other in connection
with the foregoing. Without limiting the foregoing, the Parties agree to use
their respective best efforts (A) to obtain all necessary waivers, consents and
approvals from other parties (including, without limitation, governmental
entities) to the consummation of the transactions contemplated by this
Agreement; (B) to obtain all necessary Permits as are required to be obtained
under any regulations; (C) to defend all Actions challenging this Agreement or
the consummation of the transactions contemplated hereby; (D) to lift or rescind
any injunction or restraining order or other court order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby; (E)
to give all notices to, and make all registrations and filings with third
parties, including, without limitation, submissions of information requested by
governmental authorities; and (F) to fulfill all conditions to this Agreement.
If not previously done, within five (5) calendar days after the execution and
delivery of this Agreement, HDA shall make all filings required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Company
shall cooperate with HDA with respect to such filings.
5.2 No Solicitation and Confidentiality
-----------------------------------
(a) From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of the Company, or of any shares of capital stock of the Company or any
merger, consolidation, liquidation, dissolution or similar transaction involving
the Company (each such transaction being referred to herein as a "Proposed
Acquisition Transaction") other than with (i) another Party hereto and its
representatives (ii) as required by law, or (iii) employees of the Company
regarding such employees' possible investments in HDA. The Company shall not,
directly or indirectly, through any officer, director, employee, representative,
agent or otherwise, solicit, initiate or encourage the submission of any
proposal or offer from any person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
or entity relating to any Proposed Acquisition Transaction. The Company
represents that it is not now engaged in discussions or negotiations with any
party other than HDA with respect to any of the foregoing.
(b) Notification. The Company will immediately notify HDA if any
------------
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made, or any
23
<PAGE>
information is requested with respect to any Proposed Acquisition Transaction
and notify HDA of the identity of the prospective purchaser or soliciting party.
5.3 Disclosures. Except as required by law or occurring after the
-----------
Closing, none of the Parties, without the prior written consent of the other
Parties, will make any press release or any similar public announcement
concerning the transactions contemplated hereby.
5.4 Employee Plans. After the Closing, the Company shall, if
--------------
requested by HDA, (i) terminate its 401(k) Plan and cooperate with HDA in
allowing rollover contributions by the former employees of the Company and (ii)
give or cause to be given COBRA notices to the employees of the Company whose
employment terminates at Closing in connection with this transaction.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HDA
The obligations of HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by HDA.
6.1 No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that HDA has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2 Representations and Warranties. All representations and
------------------------------
warranties of the Company and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.3 Performance of Agreements. The Company and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
it pursuant to the terms hereof on or prior to the Closing Date.
6.4 Compliance Certificate. The Company and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by
their respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
24
<PAGE>
6.5 Material Changes. There shall not have been any Material
----------------
Adverse Effect from the date hereof to the Closing Date.
6.6 Opinion of Counsel. HDA shall have received the opinion of
------------------
Cohen and Acampora, counsel for the Company and the Existing Shareholders, in
the form set forth in Schedule 6.6 hereto.
6.7 Consents, Etc. All authorizations, consents or approvals of any
--------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect.
6.8 Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than HDA: (i) employment agreements, containing non-competition clauses, by and
between HDA and each of J. Frank Honek and Andrew P. Honek (the "Employment
Agreements"), substantially in the form attached hereto as Exhibit G, (ii) non-
competition agreements by and between HDA and each of Joseph A. Honek, J. Frank
Honek and Andrew P. Honek containing non-competition clauses identical to the
non-competition clauses contained in the Employment Agreements, (iii) the Real
Estate Purchase Agreement and (iv) the Escrow Agreement.
6.9 Name Change. The Company shall have delivered to HDA for
-----------
filing post-Closing an amendment to its Articles of Incorporation to change its
corporate name so as not to include the words "Connecticut Driveshaft" or any
other name or mark that has such a near resemblance thereto as may be likely to
cause confusion or mistake to the public, or to otherwise deceive the public.
6.10 Nonforeign Affidavit. Each of Joseph A. Honek, Anna Honek and J.
--------------------
Frank Honek shall furnish to HDA an affidavit, stating, under penalty of
perjury, its United States taxpayer identification number and that it is not a
foreign person, pursuant to Section 1445(b)(2) of the Code.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANY
The obligations of the Company under this Agreement are subject to the
fulfillment prior to the Closing of each of the following conditions, any one or
more of which may be waived by the Company:
7.1 No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
25
<PAGE>
7.2 Representations and Warranties. Except as otherwise contemplated
------------------------------
by this Agreement, all representations and warranties of HDA contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date.
7.3 Performance of Agreements; Instruments of Transfer. HDA shall
--------------------------------------------------
have fully performed in all material respects all obligations, agreements,
conditions and commitments required to be fulfilled by HDA on or prior to the
Closing Date and shall have tendered to the Company and the Existing
Shareholders the documents, instruments and certificates required by Article 7
hereof.
7.4 Compliance Certificates. HDA shall have delivered to the Company
-----------------------
and the Existing Shareholders its certificate, dated the Closing Date, executed
on its behalf by its President or a Vice President, as to the fulfillment of the
conditions set forth in Sections 7.2 and 7.3 hereof.
7.5 Ancillary Agreements. The condition set forth in Section 6.8
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6 Opinion of Counsel. The Company shall have received the opinion
------------------
of Bradley Arant Rose & White, LLP counsel for HDA, in the form set forth in
Schedule 7.6 hereto.
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1 Collection of Accounts Receivable and Letters of Credit. At the
-------------------------------------------------------
Closing, HDA will acquire hereunder the right and authority to collect all
receivables, letters of credit and other items which constitute a part of the
Assets, and the Company shall within forty-eight (48) hours after receipt of any
payment in respect of any of the foregoing, properly endorse and deliver to HDA
any letters of credit, documents, cash or checks or other consideration received
on account of or otherwise relating to any such receivables, letters of credit
or other items.
8.2 Consents to Assignment. Anything in this Agreement to the
----------------------
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any lease, contract or license, or any claim or right or any benefit
arising thereunder or resulting therefrom if any attempted assignment thereof,
without the consent of a third party thereto, would constitute a breach thereof
or in any way adversely affect the rights of the Company thereunder. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would affect the rights thereunder so that HDA would not receive
all such rights. The Company will cooperate with HDA, in all reasonable
respects, to provide to HDA with the benefits under any
26
<PAGE>
such lease, contract, license, claim or right, including, without limitation,
enforcement for the benefit of HDA of any and all rights of the Company against
a third party thereto arising out of the breach or cancellation by such third
party or otherwise.
8.3 Indemnification by the Company and the Existing Shareholders.
------------------------------------------------------------
Subject to the provisions of this Article VIII, the Company and the Existing
Shareholders will jointly and severally indemnify, defend and hold HDA and its
respective stockholders, subsidiaries, officers, directors, employees, agents,
successors and assigns (such indemnified persons are collectively hereinafter
referred to as "HDA's Indemnified Persons"), harmless from and against any and
all loss, liability, damage (excluding consequential, indirect special,
exemplary and punitive damages) or deficiency (including interest, penalties,
judgments, costs of preparation and investigation, and reasonable attorneys'
fees) (collectively, "Losses") that HDA's Indemnified Persons may suffer,
sustain, incur or become subject to arising out of or due to: (a) any inaccuracy
of any representation of the Company and the Existing Shareholders in this
Agreement or in any Schedule hereto; (b) the breach of any warranty of the
Company and the Existing Shareholders in this Agreement or any Schedule hereto,
(c) Environmental Liabilities, including without limitation any Losses to the
extent they arise from events or conditions which existed before the Closing
Date and relate to any Environmental Condition, any Release, threatened Release,
or disposal of any Hazardous Substance at the Leased Real Property located at
27A South Commons Road, Waterbury, Connecticut and located at 98 1/2 Mill Plain
Road, Danbury, Connecticut or the operation or violation of any Environmental
Law at such leased properties or (d) the nonfulfillment of any covenant,
undertaking, agreement or other obligation of the Company and the Existing
Shareholders under this Agreement or any Schedule hereto, not otherwise waived
by HDA. "Losses" as used herein is not limited to matters asserted by third
parties, but includes Losses incurred or sustained in the absence of third party
claims. Payment is not a condition precedent to recovery of indemnification for
Losses.
8.4 Indemnification by HDA. Subject to the provisions of this Article
----------------------
VIII, HDA agrees to indemnify, defend and hold the Company and the Existing
Shareholders and their respective employees, agents, directors, officers, heirs,
representatives, successors and assigns (such persons are hereinafter
collectively referred to as the "Company's Indemnified Persons"), harmless from
and against any and all Losses that the Company's Indemnified Persons may
suffer, sustain, incur or become subject to arising out of or due to: (a) any
inaccuracy of any representation of HDA in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of HDA in this Agreement or any Schedule
hereto; (c) the nonfulfillment of any covenant, undertaking, agreement or other
obligation of HDA under this Agreement or any Schedule hereto, not otherwise
waived by the Company and the Existing Shareholders; and (d) any act or
occurrence related to the Business and the Assets accruing or arising after the
Closing, except the Excluded Liabilities.
8.5 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this
27
<PAGE>
Article VIII shall survive the Closing Date and shall remain in full force and
effect for one (1) year thereafter; provided, however, that the representations
and warranties set forth in Section 3.10 relating to tax matters and Section
3.17 relating to employee benefits matters shall survive for the length of the
applicable statute of limitations.
8.6 Threshold; Deductible. Except as provided in this Section 8.6, no
---------------------
HDA's Indemnified Person or Company's Indemnified Person shall be entitled to
any recovery in accordance with this Article VIII unless and until the amount of
such Losses suffered, sustained or incurred by such party, or to which such
party becomes subject, by reason of such inaccuracy, breach or nonfulfillment
exceeds $100,000 and then only to the extent of such excess. EXCEPT FOR WILLFUL
AND INTENTIONAL FRAUD, LIABILITY FOR BREACH OF REPRESENTATIONS AND WARRANTIES
UNDER THIS AGREEMENT SHALL NOT EXCEED THE $800,000 ESCROW AMOUNT, EXCEPT THAT
LIABILITY OF THE EXISTING SHAREHOLDERS FOR BREACH OF THE REPRESENTATIONS AND
WARRANTIES CONTAINED IN SECTION 3.10 (TAX MATTERS) AND SECTION 3.17 (EMPLOYEE
BENEFIT PLANS; EMPLOYMENT AGREEMENTS) AND ENVIRONMENTAL LIABILITIES RELATED TO
THE PROPERTIES TO BE PURCHASED BY HDA PURSUANT TO THE REAL ESTATE PURCHASE
AGREEMENT AND THE ENVIRONMENTAL LIABILITIES DESCRIBED IN SECTION 8.3(C) ABOVE
SHALL NOT BE SUBJECT TO THE $800,000 ESCROW AMOUNT CEILING.
8.7 Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.5 and 8.6 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior
28
<PAGE>
written consent of the Indemnitee, which consent will not be unreasonably
withheld and in the event the Indemnitee defends any such asserted liability,
then any compromise of such asserted liability by the Indemnitee shall require
the prior written consent of the Indemnitor, which consent shall not be
unreasonably withheld.
8.8 Payments Out of Escrow Amount. At the Closing, HDA will deposit
-----------------------------
into escrow, in accordance with the terms and conditions of the Escrow
Agreement, $800,000 of the Purchase Price (referred to above as the "Escrow
Amount") to serve as security for the indemnification obligations of the Company
and the Existing Shareholders under this Agreement. The Escrow Agreement will
provide that at the end of the one year survival period set forth in Section 8.5
above the Existing Shareholders will be paid an amount equal to $800,000 plus
any interest earned thereon, less any amount previously paid out of the Escrow
Amount to HDA and less any amount which is the subject of an unresolved,
disputed or pending claim, in accordance with the terms and conditions of the
Escrow Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses. Except as otherwise set forth in this Agreement, each
--------
Party shall bear its own expenses and costs incurred by it in preparing,
negotiating and closing this Agreement.
9.2 Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the Parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to the Company or the Existing Shareholders, at
Connecticut Driveshaft, Inc.
470 Naugatuck Avenue
Milford, Connecticut 06460
Attn: Joseph A. Honek
29
<PAGE>
With a Copy to:
Cohen and Acampora
8 Frontage Road
P.O. Box 190
East Haven, Connecticut 06512
Attn: John A. Acampora
If to HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, IL 60015
Attn: John Greisch
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn: Christopher A. Laurence
And:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Elizabeth A. Blendell, Esq.
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4 Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the Parties with respect to the subject matter hereof and supersedes all
prior negotiations, agreements and understandings, whether written or oral, of
the Parties.
30
<PAGE>
9.5 Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6 Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Connecticut
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8 Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9 No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than the Company,
HDA and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10 Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and
31
<PAGE>
words of similar import refer to this Agreement (including its Exhibits and
Schedules) as an entirety. In the event of any conflict between the provisions
of this Agreement and any such Exhibit or Schedule, the provisions of this
Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase includes (i) actual knowledge of any officer,
director or shareholder of the Company and any employee of the Company whose job
duties include the subject matter in question and (iii) such knowledge as would
have been obtained by any of the foregoing individuals after inquiring of the
appropriate personnel and after conducting, or having had conducted by such
appropriate personnel, a diligent search of files, computer records and other
available data.
9.14 Arbitration. To the extent that that Parties are unable to
-----------
resolve their disputes or controversies arising out of or relating to this
Agreement, or the performance, breach, validity, interpretation or enforcement
of this Agreement, through discussion and negotiation, all disputes and
controversies will be resolved by binding arbitration in accordance with rules
of the JAMS/Endispute, and judgment upon the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. A Party may initiate
arbitration by sending written notice of its intention to arbitrate to the other
Parties and to the JAMS/Endispute office located in Milford, Connecticut or in
closest proximity to Milford, Connecticut. Such written notice will contain a
description of the dispute and the remedy sought. The arbitration will be
conducted at the offices of the JAMS/Endispute office located in Milford,
Connecticut or the office located in closest proximity to Milford, Connecticut
before an independent and impartial arbitrator (who shall be a retired judge)
acceptable to all Parties. The arbitrator shall agree to apply the internal laws
of the State of Connecticut (without regard to conflicts of laws) in
interpreting this Agreement. The arbitrator will have the power to award any
party all or any portion of its costs and expenses of arbitration. The decision
of the arbitrator will be final and binding on the Parties and their successors
and assignees. The Parties intend that this agreement to arbitrate be
irrevocable.
(Signature Page Follows)
32
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
HDA PARTS SYSTEM, INC.
By: /s/ John Greisch
-------------------------------------
Name: John Greisch
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
CONNECTICUT DRIVESHAFT, INC.
By: /s/ Joseph A. Honek
-------------------------------------
Name: Joseph A. Honek
-------------------------------------
Title: President
-------------------------------------
/s/ Joseph A. Honek
--------------------------------------------
JOSEPH A. HONEK
/s/ J. Frank Honek
--------------------------------------------
J. FRANK HONEK
/s/ Andrew P. Honek
--------------------------------------------
ANDREW P. HONEK
/s/ Anna Honek
--------------------------------------------
ANNA HONEK
S-1
<PAGE>
ANNEX A
"Assets" shall mean all of the right, title and interest in and to the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal and constituting, or used or useful in connection
with, or related to, the Business or in which the Company has any interest,
including, without limitation, all of the rights, titles and interests of the
company in the following:
(a) all cash and cash equivalents;
(b) all accounts and notes receivable (whether current or
noncurrent), refunds, deposits, prepayments or prepaid expenses;
(c) all contract rights, to the extent transferable;
(d) all leases;
(e) all leasehold estates, to the extent transferable;
(f) all leasehold improvements and fixtures;
(g) all equipment;
(h) all inventory;
(i) all books and records, excluding originals of the minute books
and other organizational documents;
(j) all Proprietary Rights relating to the Business, to the extent
transferable;
(k) all Permits, to the extent transferable;
(l) all computers and, to the extent transferable, software;
(m) all insurance policies, to the extent assignable, except the
life insurance policy with respect to Joseph A. Honek owned by the Company; and
(n) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, display units,
telephone and fax numbers and purchasing records related to the Business.
(o) all rights under or pursuant to all warranties, representations
and guarantees made by suppliers in connection with the Assets or services
furnished to the Company pertaining to the Business or affecting the Assets, to
the extent such warranties, representations and guarantees are assignable;
(p) all deposits and prepaid expenses of the Company; and
(q) all claims, causes of action, choses in action, rights of
recovery and rights of set-off of any kind, against any person or entity,
including without limitation any liens, security interests, pledges or other
rights to payment or to enforce payment in connection with products delivered by
the Company on or prior to the Closing Date;
A-1
<PAGE>
but excluding all of the rights, titles and interests of the Company
---
in the following:
(a) the 1994Bobcat, Model #753, VIN #512716327, Wgt. 4700 lbs. with
bucket; and
(b) the golf cart and certain woodshop equipment owned by Joseph
Honek that has been stored on the Company's premises.
A-2
<PAGE>
Exhibit 10.7
STOCK PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.,
HDA PARTS SYSTEM, INC.,
TRUCKPARTS, INC.
AND
THE SHAREHOLDERS OF TRUCKPARTS, INC.
DECEMBER 17, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C>
<S>
ARTICLE I. PURCHASE AND SALE............................................... 1
1.1. Purchase Price................................................... 1
--------------
1.2. Purchase Price Adjustment........................................ 2
-------------------------
1.3. Closing Balance Sheet............................................ 2
---------------------
ARTICLE II. CLOSING........................................................ 3
2.1. Closing.......................................................... 3
-------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE EXISTING
SHAREHOLDERS....................................................... ...... 3
3.1. Corporate Organization and Standing.............................. 3
-----------------------------------
3.2. Authorization.................................................... 3
-------------
3.3. No Conflict or Violation......................................... 4
------------------------
3.4. Capitalization of the Company.................................... 4
-----------------------------
3.5. Title to Shares.................................................. 4
---------------
3.6. Facilities....................................................... 5
----------
3.7. Financial Statements............................................. 6
--------------------
3.8. Books and Records................................................ 7
-----------------
3.9. Litigation....................................................... 7
----------
3.10. Licenses and Permits; Compliance with Laws...................... 7
------------------------------------------
3.11. Tax Matters..................................................... 7
-----------
3.12. Brokers, Finders................................................ 9
----------------
3.13. Absence of Certain Changes...................................... 9
--------------------------
3.14. Material Contracts.............................................. 11
------------------
3.15. Proprietary Rights.............................................. 12
------------------
3.16. Labor Matters................................................... 13
-------------
3.17. Consents........................................................ 13
--------
3.18. Employee Benefit Plans; Employment Agreements................... 14
---------------------------------------------
3.19. Compliance with Environmental Laws.............................. 19
----------------------------------
3.20. Certain Business Relationships with the Company................. 21
-----------------------------------------------
3.21. Undisclosed Liabilities......................................... 21
-----------------------
3.22. Insurance....................................................... 21
---------
3.23. Accounts Receivable............................................. 22
-------------------
3.24. Inventory....................................................... 22
---------
3.25. Payments........................................................ 22
--------
3.26. Customers, Distributors and Suppliers........................... 22
-------------------------------------
3.27. Investment...................................................... 23
----------
3.28. Material Misstatements Or Omissions............................. 23
-----------------------------------
3.29. Expenses Paid................................................... 23
-------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HDA AND
HOLDINGS...................................................... 23
4.1. Corporate Organization and Standing............................... 23
-----------------------------------
4.2. Authorization..................................................... 23
-------------
4.3. No Conflict or Violation.......................................... 24
------------------------
4.4. Stock............................................................. 24
-----
4.5. Offering Memorandum............................................... 24
-------------------
4.6. Absence of Certain Changes or Events.............................. 24
------------------------------------
4.7. Capitalization of Holdings and HDA................................ 24
----------------------------------
4.8. Financial Statements.............................................. 25
--------------------
4.9. Stockholder Agreement; Other Agreements Relating to Holdings'
------------------------------------------------------------
Capital Stock.................................................. 25
-------------
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING
COVENANTS..................................................... 25
5.1. Further Assurances................................................ 26
------------------
5.2. No Solicitation and Confidentiality............................... 26
-----------------------------------
5.3. Disclosures....................................................... 27
-----------
5.4. Notification of Certain Matters................................... 27
-------------------------------
5.5. Investigation by HDA and Its Representatives...................... 27
--------------------------------------------
5.6. Conduct of Business............................................... 28
-------------------
5.7. Tax Matters....................................................... 30
-----------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HDA AND HOLDINGS............................ 31
6.1. No Injunctive Proceedings......................................... 31
-------------------------
6.2. Representations and Warranties.................................... 32
------------------------------
6.3. Performance of Agreements......................................... 32
-------------------------
6.4. Compliance Certificate............................................ 32
----------------------
6.5. Material Changes.................................................. 32
----------------
6.6. Opinion of Counsel................................................ 32
------------------
6.7. Consents, Etc..................................................... 32
--------------
6.8. Ancillary Agreements.............................................. 32
--------------------
6.9. Due Diligence..................................................... 32
-------------
6.10. Investment Affidavit............................................. 33
--------------------
6.11. Shareholder Releases............................................. 33
--------------------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY THE COMPANY AND THE
EXISTING SHAREHOLDERS......................................... 33
7.1. No Injunctive Proceedings......................................... 33
-------------------------
7.2. Representations and Warranties.................................... 33
------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> ----
<C>
7.3. Performance of Agreements; Instruments of Transfer................ 33
--------------------------------------------------
7.4. Compliance Certificates........................................... 33
-----------------------
7.5. Ancillary Agreements.............................................. 33
--------------------
7.6. Opinion of Counsel................................................ 34
------------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING...................... 34
8.1. Indemnification by the Existing Shareholders...................... 34
--------------------------------------------
8.2. Indemnification by HDA and Holdings............................... 35
-----------------------------------
8.3. Survival of Representations, Warranties and Covenants............. 35
-----------------------------------------------------
8.4. Threshold; Deductible............................................. 35
---------------------
8.5. Notice and Opportunity to Defend.................................. 36
--------------------------------
8.6. Indemnification Payments.......................................... 36
------------------------
ARTICLE IX. MISCELLANEOUS................................................... 37
9.1. Expenses.......................................................... 37
--------
9.2. Notices........................................................... 37
-------
9.3. Counterparts...................................................... 38
------------
9.4. Entire Agreement.................................................. 38
----------------
9.5. Headings.......................................................... 38
--------
9.6. Assignment; Amendment of Agreement................................ 38
----------------------------------
9.7. Governing Law..................................................... 39
-------------
9.8. Further Assurances................................................ 39
------------------
9.9. No Third-Party Rights............................................. 39
---------------------
9.10. Non-Waiver....................................................... 39
----------
9.11. Severability..................................................... 39
------------
9.12. Incorporation of Exhibits and Schedules.......................... 39
---------------------------------------
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of December
17, 1998, is entered into by and among City Truck Holdings, Inc., a Delaware
corporation ("Holdings"), HDA Parts System, Inc., an Alabama corporation
("HDA"), Truckparts, Inc., a Connecticut corporation (the "Company"), and each
of the shareholders identified on Annex A hereto (individually, an "Existing
Shareholder" and collectively, the "Existing Shareholders"). Holdings, HDA, the
Company and the Existing Shareholders are referred to herein as each a "Party"
and collectively, the "Parties."
RECITALS
WHEREAS, the Existing Shareholders own all of the capital stock of the
Company;
WHEREAS, Holdings owns all of the capital stock of HDA;
WHEREAS, Holdings desires that HDA acquire all of the capital stock of
the Company; and
WHEREAS, HDA desires to acquire all of the capital stock of the
Company.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price.
--------------
(a) Upon the terms and subject to the conditions set forth herein,
HDA will purchase from the Existing Shareholders all of the capital stock of the
Company for a price (the "Purchase Price") determined as follows: (i) Eleven
Million Seven Hundred Thousand Dollars ($11,700,000) in cash payable by wire
transfer of immediately available funds to the Existing Shareholders, less the
----
amount of any long-term liabilities listed on Schedule 1.1 and the current
portion thereof outstanding as of the Closing (as defined), (ii) 4,578 shares of
Common Stock of City Truck Holdings, Inc. ("Holdings"), par value $.01 per share
(the "Common Stock"), and (iii) 19,954.218 shares of Series A Preferred Stock of
Holdings, par value $.01 per share (the "Series A Preferred Stock"), subject to
the holdback deposited into escrow as set forth below in Section 1.1(c).
(b) HDA agrees to pay to the Existing Shareholders the Purchase
Price by wire transfer or delivery of other immediately available funds and by
delivery of the shares of
1
<PAGE>
Common Stock and Series A Preferred Stock referred to in Section 1.1(a) above
which are not held back pursuant to Section 1.1(c) below.
(c) The "Holdback Amount" shall be 2,289 shares of Common Stock and
9,977.109 shares of Series A Preferred Stock of the Purchase Price which HDA, at
the Closing, shall deposit with the Escrow Agent (as defined below) subject to
the terms and conditions of the Escrow Agreement (as defined below). Such
holdback deposited into escrow is for the purposes referred to in Section 8.6
below. .
1.2. Purchase Price Adjustment. If any distributions in excess of
-------------------------
$130,000 are made by the Company to any Existing Shareholder or any persons
related directly or indirectly by blood or marriage to any Existing Shareholder
or to an entity controlled by any of the foregoing between June 30, 1998 and the
Closing, the Purchase Price shall be reduced by the amount of the excess. In
addition, to the extent the Company has already paid any costs or expenses which
are to be borne by the Existing Shareholders pursuant to Section 9.1, the
Purchase Price will be reduced by that amount.
1.3. Closing Balance Sheet
---------------------
(a) Closing Balance Sheet. The Existing Shareholders will prepare a
---------------------
balance sheet dated the Closing Date (as defined) (the "Closing Balance Sheet"),
prepared in accordance with generally accepted accounting principles ("GAAP"),
applied consistently with the Company's respective past practice to the extent
such practice is GAAP. The Existing Shareholders will deliver such Closing
Balance Sheet to HDA within 45 days after the Closing. At HDA's election, the
Closing Balance Sheet shall be audited by McGladrey & Pullen, LLP. HDA shall
allow the Existing Shareholders and their authorized professionals reasonable
access to the financial information of HDA in order to prepare the Closing
Balance Sheet.
(b) Closing Balance Sheet Notice.
----------------------------
(i) Within 30 days of the receipt of such Closing Balance
Sheet, HDA will deliver to the Existing Shareholders a written notice
certifying that either (x) it agrees with such Closing Balance Sheet, or
(y) it disagrees with such Closing Balance Sheet, in which case it will
also provide therewith a reasonably detailed written report stating the
basis for disagreement with the Closing Balance Sheet (the "Closing Balance
Sheet Notice"). The Existing Shareholders shall provide reasonable access
to its accountants' work papers, personnel and to such historical financial
information as HDA shall reasonably request in order to review such Closing
Balance Sheet.
(ii) If the Closing Balance Sheet Notice is not timely given as
described in Section (b)(i), the Closing Balance Sheet shall be final,
binding and conclusive upon the Parties. If HDA disagrees with the Closing
Balance Sheet Notice as described in Section 1.3(b)(i)(y), and if the
disagreement is not resolved by mutual agreement among the Parties within
30 days following delivery of the Closing Balance
2
<PAGE>
Sheet Notice, such dispute will be resolved by a "Big 5" accounting firm
("BFAF") selected by HDA and the Company.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute which
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Balance
Sheet only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 1.3(a) above.
ARTICLE II.
CLOSING
2.1 Closing. The Closing of the transactions contemplated herein
-------
(the "Closing") shall take place at the offices of Parrett, Porto, Parese &
Colwell, P.C. commencing at 9:00 a.m. local time on December 17, 1998 or such
later date upon which the Parties mutually agree (the "Closing Date").
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE EXISTING SHAREHOLDERS
The Company and the Existing Shareholders represent and warrant to HDA
and Holdings as follows, except as set forth in a disclosure schedule
("Schedule") attached hereto and made a part hereof, the number of each Schedule
corresponding to the Section number to which it refers:
3.1 Corporate Organization and Standing. The Company is a
-----------------------------------
corporation duly organized and validly existing under the laws of the state of
Connecticut and has all requisite corporate power and authority to own or lease
its properties and to carry on its business as presently conducted. The Company
has delivered to HDA or its representatives complete and correct copies of its
Articles of Incorporation and Bylaws and all amendments thereto. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business as now being conducted
by it or the property owned or leased by it makes such qualification necessary,
all of which are listed on Schedule 3.1.
3.2. Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized, executed and delivered by the Company and the Existing Shareholders
party thereto, and are the legal, valid and binding obligations of the Company
and the Existing Shareholders party thereto, enforceable against it, him or her
in accordance with their terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies,
3
<PAGE>
or by applicable bankruptcy or insolvency laws and related decisions affecting
creditors' rights generally.
3.3. No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will (i) violate, conflict with or
result in or constitute a default under or result in the termination or the
acceleration of, or the creation in any party of any right (whether or not with
notice or lapse of time or both) to declare a default, accelerate, terminate or
cancel any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability ("Contractual Obligation") to which the Company or any
Existing Shareholder is a party or by which it, he or she is bound or to which
its, his or her assets are subject or result in the creation of any lien or
encumbrance upon any of said assets, (ii) violate, conflict with or result in a
breach of or constitute a default under any provision of the Articles of
Incorporation or Bylaws (or other organizational documents) of the Company,
(iii) violate, conflict with or result in a breach of or constitute a default
under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Company or any Existing Shareholder is subject
or, in the case of clause (i), relates to a Material Contract (as defined below)
or (iv) violate, conflict with or result in a breach of any applicable federal
or state rule or regulation.
3.4. Capitalization of the Company. The authorized capital stock of
-----------------------------
the Company consists of 2,000 shares of 6% non-cumulative, non-participating
preferred stock, non-voting, $500.00 par value per share ("Company Preferred"),
2,000 shares of Class A common stock, voting, $1.00 par value per share
("Company Class A Common"), and 1,000 shares of Class B common stock, voting,
$100.00 par value per share ("Company Class B Common"). As of the date of this
Agreement, 590 shares of Company Preferred, 1,000 shares of Company Class A
Common and 100 shares of Company Class B Common are outstanding, all of which
shares have been duly authorized, validly issued and are fully paid and non-
assessable and are owned in the aggregate by the Existing Shareholders (the
"Shares"). There are (i) no preemptive or similar rights on the part of any
holder of any class of securities of the Company, and (ii) no options,
warrants, conversion or other rights, agreements or commitments of any kind
obligating the Company, contingently or otherwise, to issue, sell or otherwise
cause to be outstanding any shares of its capital stock of any class or any
securities convertible into or exchangeable for any such shares.
3.5. Title to Shares. The Existing Shareholders have, and at Closing
---------------
will have, good and valid title to the Shares owned by them, free and clear of
any claims, liens, security interests, options, charges,restrictions and
interests of others whatsoever. Upon delivery to HDA at the Closing of
certificates representing the Shares owned by the Existing Shareholders, duly
endorsed by them for transfer to HDA, HDA will obtain good and valid title to
such Shares, free and clear of any claims, liens, security interests, options,
charges, restrictions and interests of others whatsoever except for any
restrictions created by HDA. There are no voting trusts, proxies, or other
agreements or understandings to which the Company or any Existing Shareholder
is a party with respect to the voting, dividend right or disposition of any of
the
4
<PAGE>
Shares. The Existing Shareholders have no obligation, absolute or contingent, to
any other person or entity to issue, sell or otherwise dispose of any capital
stock of the Company or to effect any merger, consolidation, reorganization or
other business combination of the Company or to enter into any agreement with
respect thereto.
3.6. Facilities. Schedule 3.6 contains (i) a complete and accurate
----------
list of all real property used in connection with the business of the Company
("Real Property"), identifying which are owned ("Owned Real Property") and which
are leased ("Leased Real Property"), and (ii) accurate and complete copies of
preliminary title reports covering all of the Owned Real Property.
(a) Owned Real Property. The Company has good and marketable fee
-------------------
simple title to all Owned Real Property, free and clear of all encumbrances,
except for minor liens which in the aggregate are not substantial in amount and
do not interfere with the present use of the property and have not arisen other
than in the ordinary course of business ("Permitted Encumbrances"). The Company
enjoys peaceful and undisturbed possession of all Owned Real Property.
(b) Actions. There are no pending or, to the best knowledge of the
-------
Company, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any facility used in connection with the
business of the Company ("Facility").
(c) Leases or Other Agreements. There are no leases, subleases,
--------------------------
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Facility or any Real Property or any portion thereof, or
interest in any such Facility or Real Property.
(d) Facility Leases and Leased Real Property. With respect to each
----------------------------------------
Facility lease, the Company has an unencumbered interest in the leasehold
estate. The Company enjoys peaceful and undisturbed possession of all Leased
Real Property.
(e) Certificate of Occupancy. All Facilities have received all
------------------------
required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
and are and have been operated and maintained in accordance with applicable
regulations.
(f) Utilities. All Facilities are supplied with utilities
---------
(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Facilities as
currently operated, and there is no condition which would reasonably be expected
to result in the termination of the present access from any Facility to such
utility services.
5
<PAGE>
(g) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by the Company at the Facilities are (i) insured to the extent
and in a manner customary in the industry, (ii) structurally sound with no known
material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost and scope of which
is consistent with past practice, (v) sufficient for the operation of the
Company as presently conducted and (vi) in conformity with all applicable
regulations.
(h) No Special Assessment. The Company has not received notice of
---------------------
any special assessment relating to any Facility or any portion thereof, and
there is no pending or threatened special assessment.
3.7. Financial Statements.
--------------------
(a) The Company will prepare and deliver to HDA no later than
December 31, 1998, the audited balance sheets of the Company dated September
30, 1998, and 1997, respectively (the "1998 Balance Sheet" and the "1997
Balance Sheet," respectively, and collectively the "Balance Sheets") and the
statements referred to in Section 3.7(b) below. The Balance Sheets will be
prepared in accordance with GAAP consistently applied and will fairly present
the financial condition of the Company as of their respective dates. The
Company has no liabilities of any nature, whether absolute, accrued, asserted or
unasserted or contingent or whether due or to become due which will be recorded
or reserved for on the Balance Sheets and were not so recorded or reserved on
the Unaudited 1998 Balance Sheet (as defined in Section 3.7(c) below), except
for liabilities incurred in the ordinary course of business since September 30,
1998, none of which involve borrowed money. The Balance Sheets and the
statements referred to in Section 3.7(b) below will be the same in all material
respects as the unaudited versions thereof previously delivered to HDA.
(b) The audited statements of operations, statements of changes in
shareholder's equity and statements of cash flows of the Company for the fiscal
years ended September 30, 1998, and 1997, respectively, will be prepared in
accordance with GAAP consistently applied and will fairly present, when
delivered, the results of operations, changes in shareholder's equity and cash
flows of the Company for each such period.
(c) The unaudited balance sheet, statements of operations,
statements of changes in shareholder's equity and statements of cash flows of
the Company (i) at and for the 11 months ended August 31, 1998, and (ii) at and
for the fiscal year ended September 30, 1998 (the "Unaudited 1998 Balance
Sheet"), were each prepared consistent with past practice and fairly present the
results of operations, changes in shareholder's equity and cash flows of the
Company at such dates and for each such period and are consistent with the
financial statements described in Section 3.7(a) and (b). The Company has no
liabilities of any nature, whether
6
<PAGE>
absolute, accrued, asserted or unasserted or contingent or whether due or to
become due which should have been recorded or reserved for on the Unaudited 1998
Balance Sheet and were not so recorded or reserved.
(d) Copies of the financial statements described in Section 3.7(a),
(b) and (c), other than the 1998 Balance Sheet and the 1997 Balance Sheet to be
delivered in accordance with Section 3.7(a), have been provided to HDA or its
representatives.
3.8. Books and Records. The Company has made and kept and given HDA
-----------------
and its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company.
The minute books of the Company accurately and adequately reflect all action
taken by the shareholders, board of directors and committees of the board of
directors of the Company. The copies of the stock book records of the Company
are true, correct and complete, and accurately reflect all transactions effected
in the Company's stock interests through and including the date hereof. The
Company has not engaged in any transaction, maintained any bank account or used
any corporate funds except for the transactions, bank accounts and funds which
have been and are reflected in the normally maintained books and records of the
Company.
3.9. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of the Company, threatened
against the Company or the directors, officers, agents or employees of the
Company (in their capacity as such), or any properties or rights of the
Company. There are no orders, writs, injunctions or decrees currently in force
against the Company or the directors, officers, agents or employees of the
Company (in their capacity as such) with respect to the conduct of the
Company's business.
3.10. Licenses and Permits; Compliance with Laws. Schedule 3.10 sets
------------------------------------------
forth a complete list of all licenses, franchises, permits, approvals and other
governmental authorizations (collectively, "Licenses and Permits") held by the
Company. The Company owns, holds or possesses all Licenses and Permits necessary
to entitle it to use its corporate name, to own or lease, operate and use its
assets and properties and to carry on and conduct its business and operations as
presently conducted. The Company is not in violation of or default under any
Licenses or Permits or any judgment, order, writ, injunction or decree of any
court or administrative agency issued against it or any law, ordinance, rule or
regulation applicable to it. The Company's conduct of its business has been and
is in compliance with all applicable laws, statutes, ordinances and regulations.
The Company has not received any notice asserting a failure to comply with any
law, statute, ordinance, regulation, rule or order of any foreign, federal,
state or local government or any other governmental department or agency.
3.11. Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means
any federal, state, local or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise,
7
<PAGE>
profits, withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, and (ii) "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
(b) The Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by the Company (whether or not shown
on any Tax Return) have been paid. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability of the
Company either (i) claimed or raised by any authority in writing or (ii) of
which the Company or any Existing Shareholder has knowledge. To the knowledge
of the Company and each Existing Shareholder, no audit or examination of any Tax
Return is currently in progress, and the Company has not received notice of any
proposed audit or examination. The Company has furnished to HDA or its
representatives correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company with respect to years ended on or before September 30, 1997.
The Company has not waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
(e) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations (or any comparable state income tax
provision). The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code. The Company is not a party to any Tax allocation, sharing or
indemnity agreement. The Company (i) has not been a member of an affiliated
group of corporations filing a consolidated federal income Tax Return or (ii)
has no liability for the Taxes of any person under Reg. Sec. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise. Schedule 3.11 hereto sets forth all material
elections (e.g., accelerated depreciation, Sec. 263(a) regarding the
8
<PAGE>
allocation of overhead to inventory, and FIFO election for inventory accounting)
in effect as of the date hereof with respect to Taxes affecting the Company.
(f) The unpaid Taxes of the Company did not exceed the reserve for
Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
most recent Balance Sheets. The Company has made provision, in conformity with
GAAP consistently applied, on the Balance Sheets and the interim financial
statements for the payment of all Taxes which may subsequently become due with
respect to the periods covered thereby.
3.12. Brokers, Finders. The Company has not retained any broker or
----------------
finder in connection with the transactions contemplated herein, and is not
obligated and has not agreed to pay any brokerage or finder's commission, fee or
similar compensation.
3.13. Absence of Certain Changes.
--------------------------
(a) Since June 30, 1998, the Company has conducted its business in
the ordinary course, has not done or permitted to be done anything described in
Sections 5.6(a) through (r), and there has not occurred with respect to the
Company:
(i) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Company, taken
as a whole ("Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, but excluding write-offs of uncollectible assets or of
inventory breakage, all consistent with past practice;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) except as disclosed on Schedule 3.13(a), any capital
expenditure exceeding $5,000, the execution of any lease or the incurring
of any obligation to make any capital expenditure or execute any lease
other than in the ordinary course of business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect on the
assets or the business;
9
<PAGE>
(vii) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind, except in the
ordinary course of business;
(viii) the failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets, the business and the
goodwill of the Company's suppliers, customers, distributors and others
having business relations with it;
(ix) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any person of any
Proprietary Rights not theretofore a matter of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets for any amount;
(xi) an amendment, cancellation or termination of any
contract, commitment, agreement, lease, transaction or Permit relating to
assets or the business or entry into any contract, commitment, agreement,
lease, transaction or Permit which is not in the ordinary course of
business, including, without limitation, any employment or consulting
agreements;
(xii) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than increases
in base compensation in the ordinary course consistent in timing and amount
with past practices), or entry into or variation of the terms of any
employment or incentive agreement with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of the Company and the management of the Company;
(xiv) any change in any method of accounting or keeping books
of account or accounting practices ;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance.
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings
under its revolving credit facility in the ordinary course of business);
10
<PAGE>
(xvii) the declaration, payment or setting aside for payment
any dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
Company Preferred, Company Class A Common or Company Class B Common, or the
creation of any securities convertible into or exchangeable for any shares
of Company Preferred, Company Class A Common or Company Class B Common or
any options, warrants or other rights to purchase or subscribe to any of
the foregoing (except the planned bonus payout to the Existing Shareholders
in September of 1998 in the amount of $130,000);
(xviii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xix) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Material Adverse Effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
3.14. Material Contracts. Schedule 3.14 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which the Company or,
in the case of Section 3.14(g), any Existing Shareholder, is a party. As used in
this Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which the Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of the Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to the Company in a principal amount (or
with maximum availability) in excess of $5,000;
(f) all contracts and agreements to which the Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen,
11
<PAGE>
sales representatives, distributors, sales agents or dealers of the Company
other than contracts which by their terms are cancelable by the Company with
notice of not more than 30 days and without cancellation penalties or severance
payments, in the case of any such contract, in excess of $5,000, (ii) collective
bargaining agreements of the Company which relate to the business of the
Company, and (iii) pension, profit-sharing, bonus, retirement, stock option or
employee benefit plans or other similar plans or arrangements of the Company;
(g) any covenant not to compete or similar restriction on the
Company or any Existing Shareholder;
(h) any contract with the United States, state or local government
or any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $5,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by the Company,
but excluding (A) any obligations to pay utility bills at the Facilities and (B)
any on-going supply or purchase contracts with non-affiliates of the Company
which do not obligate the Company to any specific level of purchases and which
are cancelable on no more than thirty (30) calendar days notice by the Company
without cancellation penalties.
The Company has furnished or will furnish to HDA or its representatives true and
correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.15. Proprietary Rights.
------------------
(a) Schedule 3.15 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for the
Company. Schedule 3.15 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.15 are
all those used by the Company in connection with its businesses. True and
correct copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of the Company or in which the
Company has any interest whatsoever have been provided to HDA or its
representatives.
(b) The Company has no obligation to compensate any person for the
use of any such Proprietary Rights nor has the Company granted to any person any
license, option or
12
<PAGE>
other rights to use in any manner any of its Proprietary Rights, whether
requiring the payment of royalties or not.
(c) The Company owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of the Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. The Company has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. The
Company has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any trademarks the Company on the goods on which they are now being used
either in identical form or in such near resemblance thereto as to be likely,
when applied to the goods of any such person, to cause confusion with such
trademarks or to cause a mistake or to deceive, (ii) has notified the Company
that it is claiming any ownership of or right to use such Proprietary Rights, or
(iii) to the best knowledge of the Company, is infringing upon any such
Proprietary Rights in any way. The Company's use of any Proprietary Rights does
not and will not conflict with, infringe upon or otherwise violate the valid
rights of any third party in or to such Proprietary Rights, and no Action has
been instituted against or notices received by the Company that are presently
outstanding, alleging that the Company's use of the Proprietary Rights infringes
upon or otherwise violates any rights of a third party in or to such Proprietary
Rights. There are not, and it is reasonably expected that after the Closing
there will not be, any restrictions on right of the Company to sell products
manufactured by the Company in connection with the operation of its business.
3.16. Labor Matters. The Company is not a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. The Company
has not experienced any attempt by organized labor or its representatives to
make it conform to demands of organized labor relating to its employees or to
enter into a binding agreement with organized labor that would cover the
employees of the Company. There is no labor strike or labor disturbance pending
or, to the best knowledge of the Company, threatened against the Company, nor is
any grievance currently being asserted, and the Company has not experienced a
work stoppage or other labor difficulty, and is not and has not engaged in any
unfair labor practice. Without limiting the foregoing, the Company are in
compliance with the Immigration Reform and Control Act of 1986 and maintains a
current Form I-9, as required by such Act, in the personnel file of each
employee hired after November 9, 1986.
3.17. Consents. No consent, approval, authorization, order, filing,
--------
registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by the
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Company and the
13
<PAGE>
Existing Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.18. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Definitions. The following terms, when used in this
-----------
Section 3.18, shall have the following meanings. Any of these terms may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference.
(i) Benefit Arrangement. "Benefit Arrangement" shall mean any
-------------------
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including without limitation
any self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including without limitation
any "voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing bonuses, stock options, stock
appreciation rights, stock purchases or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which
(A) is not a Welfare Plan or Pension Plan, (B) is entered into,
maintained, contributed to or required to be contributed to, as the case
may be, by the Company or an ERISA Affiliate or under which the Company or
any ERISA Affiliate may incur any liability, and (C) covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(ii) Code. "Code" shall mean the Internal Revenue Code of 1986,
----
as amended.
(iii) Employee Plans. "Employee Plans" shall mean all Benefit
--------------
Arrangements, Pension Plans and Welfare Plans.
(iv) ERISA. "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended.
(v) ERISA Affiliate. "ERISA Affiliate" shall mean any entity
---------------
which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an
"affiliated service group" with, the Company as defined in Section 414(b),
(c), (m) or (o) of the Code or any partnership of which the Company or any
such entity is a general partner.
(vi) Multiemployer Plan. "Multiemployer Plan" shall mean any
------------------
"multiemployer plan," as defined in Section 3(37) or Section 4001(a)(3) of
ERISA,
14
<PAGE>
(A) which the Company or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, after September 25,
1980, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(vii) PBGC. "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation.
(viii) Pension Plan. "Pension Plan" shall mean any "employee
------------
pension benefit plan" as defined in Section 3(2) of ERISA (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing
Date, maintained, administered, contributed to or was required to
contribute to, or under which the Company or any ERISA Affiliate may incur
any liability and (B) which covers any employee or former employee of the
Company or any ERISA Affiliate (with respect to their relationship with
such entities).
(ix) Welfare Plan. "Welfare Plan" shall mean (A) any "employee
------------
welfare benefit plan" as defined in Section 3(1) of ERISA, (A) which the
Company or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or under which the Company or any ERISA
Affiliate may incur any liability and (B) which covers any employee or
former employee of the Company or any ERISA Affiliate (with respect to
their relationship with such entities).
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
--------------------------------------------------------------
Information. Schedule 3.18 contains a complete list of Employee Plans. True and
- -----------
complete copies of each of the following documents have been delivered by the
Company to Buyer: (i) each Welfare Plan and Pension Plan (and, if applicable,
related trust agreements) and all amendments thereto, all written
interpretations thereof and written descriptions thereof which have been
distributed to the Company's employees and all annuity contracts or other
funding instruments, (ii) each Employee Plan and written interpretations thereof
and written descriptions thereof which have been distributed to the Company's
employees (including descriptions of the number and level of employees covered
thereby) and a complete description of any Employee Plan which is not in
writing, (iii) the most recent determination or opinion letter issued by the
Internal Revenue Service with respect to each Pension Plan and each Welfare
Plan, (iv) for the three most recent plan years, Annual Reports on Form 5500
Series required to be filed with any governmental agency for each Pension Plan,
(v) all actuarial reports (if any) prepared for the last three plan years for
each Pension Plan, (vi) a description of complete age, salary, service and
related data as of the last day of the last plan year for employees and former
employees of the Company, and (vii) a description setting forth the amount of
any liability of the Company as of the Closing Date for payments more than
thirty
15
<PAGE>
(30) calendar days past due with respect to each Welfare Plan which covers or
has covered employees or former employees of the Company.
(c) Representations. Except as set forth in Schedule 3.18, the
---------------
Existing Shareholders and the Company represents and warrants as follows:
(i) Pension Plans
-------------
(A) There is no Pension Plans which is subject to Title IV
of ERISA or which is a "defined benefit plan" as defined in Section
414(j) of the Code. No "accumulated funding deficiency" (for which an
excise tax is due or would be due in the absence of a waiver) as
defined in Section 412 of the Code or as defined in Section 302(a)(2)
of ERISA, whichever may apply, has been incurred with respect to any
Pension Plan with respect to any plan year, whether or not waived.
Neither the Company nor any ERISA Affiliate has failed to pay when due
any "required installment", within the meaning of Section 412(m) of
the Code and Section 302(e) of ERISA, whichever may apply, with
respect to any Pension Plan. Neither the Company nor any ERISA
Affiliate is subject to any lien imposed under Section 412(n) of the
Code or Section 302(f) of ERISA, whichever may apply, with respect to
any Pension Plan. Neither the Company nor any ERISA Affiliate has any
liability for unpaid contributions with respect to any Pension Plan.
(B) Neither the Company nor any ERISA Affiliate is required
to provide security to a Pension Plan which covers or has covered
employees or former employees of the Company under Section 401(a)(29)
of the Code.
(C) Each Pension Plan and each related trust agreement,
annuity contract or other funding instrument is qualified and tax-
exempt under the provisions of Code Sections 401(a) and 501(a) and has
been so qualified during the period from its adoption to date.
(D) Each Pension Plan, each related trust agreement, annuity
contract or other funding instrument presently complies and has been
maintained in compliance with its terms and, both as to form and in
operation, with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such plans,
including without limitation ERISA and the Code.
16
<PAGE>
(ii) Multiemployer Plans. There are no Multiemployer Plans.
--------------------
(iii) Welfare Plans
-------------
(A) Each Welfare Plan has been maintained in compliance
with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Welfare Plan, including
without limitation ERISA and the Code.
(B) None of the Company, any ERISA Affiliate or any Welfare
Plan has any present or future obligation to make any payment to, or
with respect to any present or former employee of the Company or any
ERISA Affiliate pursuant to, any retiree medical benefit plan, or
other retiree Welfare Plan, and no condition exists which would
prevent the Company from amending or terminating any such benefit plan
or Welfare Plan.
(C) Each Welfare Plan which is a "group health plan," as
defined in Section 607(1) of ERISA, has been operated in compliance
with provisions of Part 6 of Title I, Subtitle B of ERISA and Sections
162(k) and 4980B of the Code at all times.
(iv) Benefit Arrangements. Each Benefit Arrangement has been
--------------------
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Benefit Arrangement, including without limitation the
Code. Except as set forth in the Disclosure Schedule, and except as
provided by law, the employment of all persons presently employed or
retained by the Company is terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan (or
---------------------------------
trust or other funding vehicle pursuant thereto) is subject to any tax
under Code Section 511.
(vi) Deductibility of Payments. There is no contract, agreement,
-------------------------
plan or arrangement covering any employee or former employee of the Company
(with respect to its relationship with such entities) that, individually or
collectively, provides for the payment by the Company of any amount (i)
that is not deductible under Section 162(a)(1) or 404 of the Code or (ii)
that is an "excess parachute payment" pursuant to Section 280G of the Code.
(viii) Fiduciary Duties and Prohibited Transactions. Neither
--------------------------------------------
the Company nor any plan fiduciary of any Welfare Plan or Pension Plan has
engaged in
17
<PAGE>
any transaction in violation of Sections 404 or 406 of ERISA or
any "prohibited transaction," as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section
4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of
Part 4 of Title I, Subtitle B of ERISA. The Company has not knowingly
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by
any plan fiduciary of any Welfare Plan or Pension Plan and has not been
assessed any civil penalty under Section 502(l) of ERISA.
(ix) Validity and Enforceability. Each Welfare Plan, Pension
---------------------------
Plan, related trust agreement, annuity contract or other funding instrument
and Benefit Arrangement which covers or has covered employees or former
employees of the Company (with respect to their relationship with such
entities) is legally valid and binding and in full force and effect.
(x) Litigation. There is no action, order, writ, injunction,
----------
judgment or decree outstanding or claim, suit, litigation, proceeding,
arbitral action, governmental audit or investigation relating to or seeking
benefits under any Employee Plan that is pending, threatened or anticipated
against the Company, any ERISA Affiliate or any Employee Plan.
(xi) No Amendments. Neither the Company nor any ERISA Affiliate
-------------
has any announced plan or legally binding commitment to create any
additional Employee Plans which are intended to cover employees or former
employees of the Company or to amend or modify any existing Employee Plan.
(xii) No Other Material Liability. No event has occurred in
---------------------------
connection with which the Company or any ERISA Affiliate or any Employee
Plan, directly or indirectly, could be subject to any material liability
(A) under any statute, regulation or governmental order relating to any
Employee Plans or (B) pursuant to any obligation of the Company to
indemnify any person against liability incurred under any such statute,
regulation or order as they relate to the Employee Plans.
(xiii) Unpaid Contributions. Neither the Company nor any ERISA
--------------------
Affiliate has any liability for unpaid contributions under Section 515 of
ERISA with respect to any Pension Plan or Welfare Plan.
(xiv) Insurance Contracts. Neither the Company nor any Employee
-------------------
Plan holds as an asset of any Employee Plan any interest in any annuity
contract, guaranteed investment contract or any other investment or
insurance contract issued by an insurance company that is the subject of
bankruptcy, conservatorship or rehabilitation proceedings.
18
<PAGE>
(xv) No Acceleration or Creation of Rights. Neither the
-------------------------------------
execution and delivery of this Agreement or other related agreements by the
Company nor the consummation of the transactions contemplated hereby or the
related transactions will result in the acceleration or creation of any
rights of any person to benefits under any Employee Plan (including,
without limitation, the acceleration of the vesting or exercisability of
any stock options, the acceleration of the vesting of any restricted stock,
the acceleration of the accrual or vesting of any benefits under any
Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
3.19. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.19, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(i) the Company, (ii) all partnerships, joint ventures and other entities
or organizations in which the Company was at any time or is a partner,
joint venturer, member or participant and (iii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by the Company or to which the Company has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage,
19
<PAGE>
transportation, generation, manufacture, or other release or threatened
release of, Hazardous Substances or otherwise dangerous substances, wastes,
pollution or materials (whether, gas, liquid or solid), the preservation or
protection of waterways, groundwater, drinking water, air, wildlife, plants
or other natural resources, or the health and safety of persons or
property, including without limitation protection of the health and safety
of employees. Environmental Laws shall include, without limitation, the
Federal Insecticide, Fungicide, Rodenticide Act, Resource Conservation &
Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local
law, each as amended.
(v) "Environmental Conditions" means the introduction into
the environment of any pollution, including, without limitation, any
contaminant, irritant or pollutant or other Hazardous Substance (whether or
not upon any Facility or former Facility or other property and whether or
not such pollution constituted at the time thereof a violation of any
Environmental Law as a result of any Release of any kind whatsoever of any
Hazardous Substance) as a result of which the Company has or may become
liable to any person or by reason of which any Facility, former Facility or
any of the assets of the Company may suffer or be subjected to any lien.
(b) Notice of Violation. The Company has not received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
The Company has not received notice of any other claim, demand or Action by any
individual or entity alleging any actual or threatened injury or damage to any
person, property, natural resource or the environment arising from or relating
to any Release or threatened Release of any Hazardous Substances at, on, under,
in, to or from any Facilities or former Facilities, or in connection with any
operations or activities of the Company.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions in any way relating to the business of the Company or
at any Facility or former Facility.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of the Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by the
20
<PAGE>
Company or any attorney, environmental consultant or engineer engaged for such
purpose, have been delivered to HDA or its representatives and a list of all
such reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included in Schedule 3.19
hereto.
(e) Indemnification Agreements. Except as disclosed on Schedule
--------------------------
3.19(e), the Company is not a party, whether as a direct signatory or as
successor, assign or third party beneficiary, or otherwise bound, to any lease
or other contract (excluding insurance policies disclosed on the Schedule) under
which the Company is obligated by or entitled to the benefits of, directly or
indirectly, any representation, warranty, indemnification, covenant, restriction
or other undertaking concerning environmental conditions.
(f) Releases or Waivers. The Company has not released any other
-------------------
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. The Company has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in compliance with all Environmental Laws.
3.20. Certain Business Relationships with the Company. Except as set
-----------------------------------------------
forth on Schedule 3.20, none of the Existing Shareholders of the Company owning
more than 5% of its outstanding voting securities have been involved in any
business arrangement or relationship with the Company within the past 12 months,
and none of such Existing Shareholders own any assets, tangible or intangible,
which are used in the business of the Company.
3.21. Undisclosed Liabilities. The Company has no liabilities or
-----------------------
obligations, whether accrued, absolute, contingent or otherwise except (i) to
the extent reflected or reserved for on the Balance Sheets, (ii) liabilities or
obligations incurred in the normal and ordinary course of business of the
Company since June 30, 1998, (iii) liabilities or obligations disclosed in
Schedule 3.21 hereto and in the other Schedules attached hereto, or (iv)
liabilities or obligations disclosed elsewhere in this Agreement.
3.22. Insurance. Schedule 3.22 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided, loss
experience history by line of coverage, and whether occurrence or claims made)
maintained by the Company on its respective (i) businesses, (ii) assets or (iii)
employees at any time since December 31, 1987. All insurance coverage applicable
to the Company or its respective businesses or assets is in full force and
effect, insures the Company in reasonably sufficient amounts against all risks
usually insured against by persons operating similar businesses or
21
<PAGE>
properties of similar size in the localities where such businesses or properties
are located, provides coverage as may be required by applicable regulation and
by any and all contracts to which the Company is a party and has been issued by
insurers of recognized responsibility. There is no default under any such
coverage nor has there been any failure to give notice or present any claim
under any such coverage in a due and timely fashion. There are no outstanding
unpaid premiums except in the ordinary course of business and no notice of
cancellation or nonrenewal of any such coverage has been received. Except as set
forth on Schedule 3.22, there are no provisions in such insurance policies for
retroactive or retrospective premium adjustments. There are no outstanding
performance bonds covering or issued for the benefit of the Company. There are
no facts upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. No insurer has advised the
Company that it intends to reduce coverage, increase premiums or fail to renew
existing policy or binder.
3.23. Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheets, and all accounts receivable arising since the date of the
Balance Sheets, represent bona fide claims of the Company against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. Said accounts receivable are subject to no
defenses, counterclaims or rights of setoff and are fully collectible in the
ordinary course of business consistent with past practice without cost in
collection efforts therefor, except to the extent of the appropriate reserves
for bad debts on accounts receivable as set forth on the Balance Sheets and, in
the case of accounts receivable arising since the date of the Balance Sheets, to
the extent of a reasonable reserve rate for bad debts on accounts receivable
which is not greater than the rate reflected by the reserve for bad debts on the
Balance Sheets.
3.24. Inventory. Schedule 3.24 contains a complete and accurate list
---------
of the addresses at which all inventory as set forth on the Balance Sheets is
located. The inventory as set forth on the Balance Sheets or arising since the
date of the Balance Sheets was acquired and has been maintained in accordance
with the regular business practices of the Company, consists of new and unused
items of a quality and quantity usable or saleable in the ordinary course of
business, and is valued at the lower or cost or market on a FIFO basis. None of
such inventory is obsolete, unusable, slow-moving, damaged or unsaleable in the
ordinary course of business, except for such items of inventory which have been
written down to realizable market value, or for which adequate reserves have
been provided in the Balance Sheets.
3.25. Payments. The Company has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of the Company, which
is, or may be with the passage of time or discovery, illegal under any federal,
state or local laws of the United States (including, without limitation, the
U.S. Foreign Corrupt Practices' Act) or any other country having jurisdiction.
The Company has not participated,
22
<PAGE>
directly or indirectly, in any boycotts orother similar practices affecting any
of its actual or potential customers and has at all times done business in an
open and ethical manner.
3.26. Customers, Distributors and Suppliers. Schedule 3.26 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of the Company's (i) ten
largest (in terms of dollar volume) customers, distributors and other agents and
representatives during the Company's last fiscal year, showing the approximate
total sales in dollars by the Company to such customer during such fiscal year;
and (ii) ten largest (in terms of dollar purchases) suppliers during the
Company's last fiscal year, showing the approximate total purchases in dollars
by the Company from such supplier during such fiscal year. Since the date of the
Balance Sheets, there has been no adverse change in the business relationship of
the Company with any customer, distributor or supplier named on Schedule 3.26.
The Company has not received any communication from any customer, distributor or
supplier named on Schedule 3.26 of any intention to terminate or materially
reduce purchases from or supplies to the Company.
3.27. Investment. The Existing Shareholders (i) understand that the
----------
Common and Series A Preferred Stock has not been, and will not be as of the
Closing Date, registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (ii) is acquiring
the Common and Series A Preferred Stock solely for its own account for
investment purposes, and not with a view to the distribution thereof, (iii) has
received information concerning Holdings and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Common and Series A Preferred Stock, and (iv) is able to
bear the economic risk and lack of liquidity inherent in holding the Common and
Series A Preferred Stock.
3.28. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Company or any Existing Shareholder in this Agreement, nor any
document, exhibit, statement, certificate or Schedule heretofore or hereinafter
furnished to HDA or its representatives pursuant hereto, or in connection with
the transactions contemplated hereby, including, without limitation, the
Schedules, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained therein not misleading. The Company and the Existing
Shareholders have disclosed all events, conditions and facts materially
affecting the business, prospects and financial conditions of the Company.
3.29. Expenses Paid. The costs and expenses already paid by the
-------------
Company which are to be borne by the Existing Shareholders pursuant to Section
9.1 total $87,395.
23
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HDA AND HOLDINGS
HDA and Holdings represent and warrant to the Company and the Existing
Shareholders as follows:
4.1. Corporate Organization and Standing. Each of Holdings and HDA is
-----------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and each has all requisite corporate
power and authority to execute and deliver this Agreement, the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized,
-------------
executed and delivered by each of Holdings and HDA, and is the valid and binding
obligation of each of Holdings and HDA, enforceable against each of them in
accordance with its terms, except as enforcement may be limited by equitable
principles limiting the right to obtain specific performance or other equitable
remedies, or by applicable bankruptcy or insolvency laws and related decisions
affecting creditors' rights generally.
4.3. No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (i) result in the acceleration
of, or the creation in any party of any right to accelerate, terminate, modify
or cancel any indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which Holdings or HDA is a party or by which it
is bound or to which any of its assets is subject, (ii) conflict with or result
in a breach of or constitute a default under any provision of its Articles of
Incorporation or Bylaws (or other charter documents), or a default under or
violation of any material restriction, lien, encumbrance or any contract to
which Holdings or HDA is a party or by which it is bound or to which any of its
assets is subject or result in the creation of any lien or encumbrance upon any
of said assets, (iii) violate or result in a breach of or constitute a default
under any judgment, order, decree, rule or regulation of any court or
governmental agency to which Holdings or HDA is subject, or (iv) violate,
conflict with or result in a breach of any applicable federal or state rule or
regulation.
4.4. Stock. The shares of Common Stock and Series A Preferred Stock
-----
issued to the Existing Shareholders pursuant to this Agreement will be validly
issued, fully paid and nonassessable.
4.5. Offering Memorandum. The final offering memorandum dated July
-------------------
28, 1998, relating to HDA's high-yield debt offering, as of its date, did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
24
<PAGE>
4.6. Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Schedule 4.6 and except for transactions contemplated by this Agreement, since
June 30, 1998, there has not been any change in the business, financial
condition or results of operations of Holdings and its subsidiaries which has or
would reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Holdings and its subsidiaries taken as a whole.
4.7. Capitalization of Holdings and HDA. The authorized capital
----------------------------------
stock of Holdings consists of 250,000 shares of Common Stock and 850,000 shares
of Series A Preferred Stock. Following the consummation of the transactions
contemplated by this Agreement, 106,245 shares of Common Stock and 434,752.534
shares of Series A Preferred Stock, respectively, are outstanding, all of which
shares have been duly authorized, validly issued and are fully paid and non-
assessable. There are no preemptive rights on the part of any holder of any
class of securities of Holdings. Holdings owns all of the outstanding capital
stock of HDA. The authorized capital stock of HDA consists of 250,000 shares of
Common Stock, 40,000 shares of Series A Preferred Stock and 810,000 shares of
Series B Preferred Stock. As of the date of this Agreement, 94,229 shares of
Common Stock, no shares of Series A Preferred Stock and 382,372.711 shares of
Series B Preferred Stock, respectively, are outstanding, all of which shares
have been duly authorized, validly issued and are fully paid and non-assessable.
There are no preemptive rights on the part of any holder of any class of
securities of HDA.
4.8. Financial Statements.
--------------------
(a) The audited combined balance sheets of City Truck & Trailer
Parts, Inc. and its affiliates ("City") and Stone Heavy Duty, Inc. ("Stone," and
together with City, the "Predecessors") dated December 31, 1997 and 1996,
respectively (the "Predecessor Balance Sheets" and the "1996 Predecessor Balance
Sheets," respectively), were prepared in accordance with GAAP consistently
applied and fairly present in all material respects the financial condition of
the Predecessors as of their respective dates. As of the dates of the respective
Predecessor Balance Sheets, none of the Predecessors had any liabilities of any
nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due, which should have been recorded or reserved for on
the Predecessor Balance Sheets in accordance with GAAP and were not so recorded
or reserved.
(b) The audited combined statements of operations, statements of
changes in shareholder's equity and statements of cash flows of the Predecessors
for the fiscal years ended December 31, 1997 and 1996, respectively, were
prepared in accordance with GAAP consistently applied and fairly present in all
material respects the results of operations, changes in shareholder's equity and
cash flows of the Predecessors for each such period.
4.9. Stockholder Agreement; Other Agreements Relating to Holdings'
------------------------------------------------------------
Capital Stock. Except as set forth in the Stockholders'
-------------
Agreement, (i) there are no preemptive or similar rights on the part of any
holder of any class of securities of Holdings and (ii) no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
25
<PAGE>
Holdings, contingently or otherwise, to issue, sell or otherwise cause to be
outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares have been issued and
outstanding by Holdings to any seller of a business to Holdings as a portion of
the purchase price therefor. No stockholder has a "put" right requiring Holdings
to repurchase any of its shares. The Stockholder's Agreement dated September 30,
1998 is the only agreement among HDA or Holdings and any of their respective
stockholders (or, to the knowledge of Holdings, among any of the stockholders)
relating to the transfer, voting or liquidity of Holdings capital stock. All
outstanding shares of Class B Preferred Stock and Common Stock of HDA were
issued either (i) for cash at the prices of $100 per share and $1.00 per share,
respectively, or (ii) for property in transactions in which the stock issued by
HDA was valued at the same prices set forth in clause (i).
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Company, the Existing Shareholders and HDA each covenant with the
others as follows:
5.1. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein,the Parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement or the Ancillary Agreements (as defined), (ii) to execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the Parties agree to use their
respective best efforts (A) to obtain all necessary waivers, consents and
approvals from other parties (including, without limitation, governmental
entities) to the consummation of the transactions contemplated by this
Agreement; (B) to obtain all necessary Permits as are required to be obtained
under any regulations; (C) to defend all Actions challenging this Agreement or
the consummation of the transactions contemplated hereby; (D) to lift or rescind
any injunction or restraining order or other court order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby; (E)
to give all notices to, and make all registrations and filings with third
parties, including, without limitation, submissions of information requested by
governmental authorities; and (F) to fulfill all conditions to this Agreement.
If not previously done, within five (5) calendar days after the execution and
delivery of this Agreement, the Parties shall make all filings required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if
required.
26
<PAGE>
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of the Company, or of any shares of capital stock of the Company or any
merger, consolidation, liquidation, dissolution or similar transaction involving
the Company (each such transaction being referred to herein as a "Proposed
Acquisition Transaction") other than with (i) another Party hereto and its
representatives (ii) as required by law, or (iii) employees of the Company
regarding such employees' possible investments in Holdings. The Company shall
not, directly or indirectly, through any officer, director, employee,
representative, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) or entity relating to any Proposed Acquisition
Transaction. The Company represents that it is not now engaged in discussions
or negotiations with any party other than HDA with respect to any of the
foregoing.
(b) Notification. The Company and the Existing Shareholders will
------------
immediately notify HDA if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any information is requested with
respect to any Proposed Acquisition Transaction and notify HDA of the identity
of the prospective purchaser or soliciting party.
5.3. Disclosures. Except as required by law or occurring after the
-----------
Closing, none of the Parties, without the prior written consent of the other
Parties, will make any press release or any similar public announcement
concerning the transactions contemplated hereby.
5.4. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, the Company and the Existing Shareholders shall give prompt notice
to HDA of (a) the occurrence, or failure to occur, of any event which occurrence
or failure would be likely to cause any representation or warranty contained in
this Agreement or in any Exhibit or Schedule hereto to be untrue or inaccurate
in any material respect and (b) any material failure of the Company or the
Existing Shareholders, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or any
Exhibit or Schedule hereto; provided, however, that such disclosure shall not be
-------- -------
deemed to cure any breach of a representation, warranty, covenant or agreement
or to satisfy any condition. The Company and the Existing Shareholders shall
promptly notify HDA of any default, the threat or commencement of any Action, or
any development that occurs before the Closing that could in any way materially
affect the Company, its assets or its business.
27
<PAGE>
5.5. Investigation by HDA and Its Representatives.
--------------------------------------------
(a) The Company shall, and shall cause its officers, directors,
employees and agents, to afford HDA and its representatives complete access at
all reasonable times to the Company's Facilities, officers, employees, agents,
attorneys, accountants, properties, books and records, and contracts, and shall
furnish HDA and its representatives, all financial, operating and other data and
information as HDA through its respective representatives, may reasonably
request, including unaudited consolidated balance sheets and the related
statements of income, retained earnings and cash flow for each month from the
date hereof through the Closing Date within 15 calendar days after the end of
each month, which financial statements shall (a) be true, correct and complete,
(b) be in accordance with the books and records of the Company and (c)
accurately set forth the assets, liabilities and financial condition, results of
operations and other information purported to be set forth therein in accordance
with GAAP consistently applied.
(b) HDA shall have the right to conduct due diligence of the Owned
and Leased Real Property, to confirm that all such Owned and Leased Real
Property are in compliance with environmental and zoning laws and the Americans
with Disabilities Act of 1990. The Company shall, at its expense, order Phase I
site assessment reports and, if necessary, Phase II site assessment reports for
the Owned and Leased Real Property, and such environmental assessments shall be
performed by environmental consultants approved by HDA, in accordance with
standard ASPM quality review standards. The Existing Shareholders shall be
liable for any environmental remediation or underground storage tank removal, if
necessary.
5.6. Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, except as contemplated by this Agreement, or as consented to
by HDA in writing, operate its businesses in the ordinary course of business and
in accordance with past practice and will not take any action inconsistent with
this Agreement or with the consummation of the Closing. Without limiting the
generality of the foregoing, the Company shall not, except as specifically
contemplated by this Agreement or as consented to by HDA in writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
contract or lease, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and, without limiting the generality of the
foregoing, the Company will produce, maintain and sell inventory consistent with
its past practices;
(d) incur any liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other liability;
28
<PAGE>
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of the Company in effect on the date hereof that are described
on the Schedules) or with respect to any increase of benefits payable under
its severance or termination pay policies or agreements in effect on the
date hereof or increase in any manner the compensation or fringe benefits
of any employee or pay any benefit not required by any existing Employee
Plan or policy;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers or the
termination of existing officers;
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
any employee, except for any such amendment as may be required to comply
with applicable Regulations; or
(iv) fail to maintain all Employee Plans in accordance with
applicable Regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock in excess of the $130,000 bonus
payout to the Existing Shareholders in September of 1998;
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of
the Insurance Policies may be suspended, impaired or canceled;
(j) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business; or
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, worn-out or obsolete or destroyed assets;
29
<PAGE>
(1) make any loans or advances to any partnership, firm or
corporation, except for expenses incurred in the ordinary course of business;
(m) make any income tax election or settlement or compromise with
tax authorities;
(n) fail to comply with all regulations applicable to it, its assets
and its business;
(o) intentionally do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its best efforts to (i) retain its employees and
(ii) maintain its business so that such employees will remain available to it on
and after the Closing Date, (iii) maintain existing relationships with
suppliers, customers and others having business dealings with it, and (iv)
otherwise preserve the goodwill of its business so that such relationships and
goodwill will be preserved on and after the Closing Date; or
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Tax Matters.
-----------
(a) The Company shall timely prepare and file, or cause to be
prepared and filed, with the appropriate authorities all Tax Returns of the
Company for all taxable periods of the Company ending on or prior to the Closing
Date ("Preclosing Periods"). The Company shall deliver such Tax Returns to HDA
or its representatives and obtain HDA's consent thereto, which consent shall not
be unreasonably withheld or delayed, prior to the filing thereof. The Existing
Shareholders shall timely pay, or cause to be paid, when due all Taxes relating
to the periods covered by such Tax Returns and not accrued on the Balance
Sheets.
(b) The Company shall prepare or complete, or cause to be prepared
or completed, and timely filed, or cause to be timely filed, all Tax Returns of
the Company required to be filed after the Closing Date and, subject to Section
5.7(c) hereof, shall timely pay, or cause to be timely paid, when due, all Taxes
relating to such Tax Returns in accordance with all applicable laws and in a
manner consistent with the principles set forth in clause (i) of the next
succeeding sentence. Except as provided in Section 5.7(a), with respect to Tax
Returns of the Company not filed prior to the Closing Date that relate to a
taxable period that ends on or prior to or includes the Closing Date, such Tax
Returns shall be prepared or completed by the Company in a manner consistent
with the prior practice of the Company, and in a manner that does not
30
<PAGE>
distort taxable income (e.g., by accelerating income to a period or periods
----
prior to the Closing Date or deferring deductions to a period or periods after
the Closing Date).
(c) Although the Company, as the taxpayer or in connection with
filing the Tax Returns specified in Section 5.7(b) above, may be required to pay
Taxes relating to time periods ending on or before the Closing Date ("Pre-
Closing Taxes"), it is the intention of the Parties that, to the extent such
Pre-Closing Taxes (including any penalties, interest or additions to Tax) were
not fully accrued on the Closing Balance Sheet, the Existing Shareholders will
be responsible for such Pre-Closing Taxes either by payment of such Pre-Closing
Taxes themselves or pursuant to this Section 5.7.
(d) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding ("Tax Proceeding"). The Existing Shareholders
shall have the sole right to control, conduct, and otherwise represent the
interests of the Company in any such Tax Proceeding; provided, however, that
-------- -------
without the prior written approval of HDA, which approval shall not be
unreasonably withheld or delayed, the Existing Shareholders shall not agree or
consent to compromise or settle any issue or claim arising in any such Tax
Proceeding to the extent that any such compromise, settlement, consent or
agreement could have an adverse effect on HDA for any period ending after the
Closing Date.
(e) Neither HDA nor any affiliate of HDA shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to the Company relating to Taxes for
which the Existing Shareholders may be liable hereunder. Promptly after the
reasonable request of the Existing Shareholders, at the sole expense of the
Existing Shareholders, HDA shall, or cause the Company, to file any amended Tax
Return or claim for Tax refund relating to Taxes for which the Existing
Shareholders may be liable hereunder, provided that such amended Tax Returns or
--------
claims shall be prepared in a manner consistent with the principles set forth in
Section 5.7(b) and, in the reasonable determination of HDA, shall conform to
applicable laws and regulations. If HDA or any affiliate of HDA shall receive a
Tax refund relating to a period or transaction for which the Existing
Shareholders are liable hereunder, HDA shall, within 30 days after receipt of
such Tax refund, remit such Tax refund (including any interest received on such
Tax refund and net of (i) any Tax cost relating to the receipt of such Tax
refund and (ii) any unreimbursed cost or expense incurred in obtaining such Tax
refund), to the Existing Shareholders. For purposes of this Section 5.7, the
term "Tax refund" shall include a reduction in Tax or the use of an overpayment
as a credit or other Tax offset, and the receipt of a refund shall be deemed to
be realized upon the earliest to occur of (i) the date on which HDA has actual
knowledge that a payment due to the relevant taxing authority (for which HDA
would be responsible under this Agreement) has been offset by such a refund and
(ii) the receipt of cash.
31
<PAGE>
(a) (f) After the date hereof, HDA and the Company shall provide
each other and the Existing Shareholders, with such cooperation and information
relating to the Company as either party reasonably may request in (i) filing any
Tax Return, amended Tax Return or claim for Tax refund, (ii) determining any Tax
liability or a right to a Tax refund, (iii) conducting or defending any
proceeding in respect of Taxes or (iv) effectuating the terms of this Agreement.
The Parties and the Company shall retain all Tax Returns, schedules and work
papers, and all material records and other documents relating thereto, until the
expiration of the statute of limitations (and, to the extent notified by any
party, any extensions thereof) of the taxable years to which such Tax Returns
and other documents relate and until the final determination of any Tax in
respect of such years. Any information obtained under this Section 5.7 shall be
kept confidential, except as may be otherwise necessary in connection with
filing any Tax Return, amended Tax Return, or claim for Tax refund, determining
any Tax liability or right to a Tax refund, or in conducting or defending any
proceedings in respect of Taxes.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HDA AND HOLDINGS
The obligations of HDA and Holdings under this Agreement are subject
to the fulfillment prior to or at the Closing of each of the following
conditions, any one or more of which may be waived by HDA.
6.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that HDA has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2. Representations and Warranties. All representations and
------------------------------
warranties of the Company and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.3. Performance of Agreements. The Company and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
it pursuant to the terms hereof on or prior to the Closing Date.
6.4. Compliance Certificate. The Company and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by its
respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
32
<PAGE>
6.5. Material Changes. There shall not have been any Material Adverse
----------------
Effect from the date hereof to the Closing Date.
6.6. Opinion of Counsel. HDA shall have received the opinion of
------------------
Parrett, Porto, Parese & Colwell, P.C., counsel for the Company and the Existing
Shareholders, in the form set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect.
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than HDA: (i) employment agreements, containing non-competition clauses, by and
between HDA and each of Anthony N. Vingiano and Gary Vingiano, substantially in
the form attached hereto as Exhibit A (the "Employment Agreements"); (ii) non-
competition agreements by and between HDA and each of Anthony N. Vingiano and
Gary Vingiano containing non-competition clauses identical to the non-
competition clauses contained in the Employment Agreements; (iii) a consulting
agreement, containing non-competition clauses, by and between HDA and Anthony A.
Vingiano, substantially in the form attached hereto as Exhibit B; (iv) Joinders
to a Stockholders' Agreement for Holdings substantially in the form attached
hereto as Exhibit C; and (v) an escrow agreement in substantially the form
attached hereto as Exhibit D (the "Escrow Agreement") with Chase Trust Company
of California (the "Escrow Agent").
6.9. Due Diligence. HDA, together with its representatives, shall
-------------
have completed to its full satisfaction, its due diligence investigation
described in Section 5.5(a) and (b).
6.10 Investment Affidavit. The Existing Shareholders shall have
--------------------
delivered to HDA or its representatives, their respective affidavits, dated the
Closing Date, executed on their behalf by their respective duly authorized
representatives, as to their financial position and the business experience of
the individuals directing their execution and performance of this Agreement.
6.11 Shareholder Releases. The Existing Shareholders shall have
--------------------
delivered to HDA or its representatives a release, dated the Closing Date, of
any outstanding claims, other than those set forth on Schedule 1.1, that the
Existing Shareholders and their respective affiliates may have against the
Company.
33
<PAGE>
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANY
AND THE EXISTING SHAREHOLDERS
The obligations of the Company and the Existing Shareholders under
this Agreement are subject to the fulfillment prior to the Closing of each of
the following conditions, any one or more of which may be waived by the Company
and the Existing Shareholders:
7.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement shall have been issued
and remain in effect.
7.2. Representations and Warranties. Except as otherwise contemplated
------------------------------
by this Agreement, all representations and warranties of HDA and Holdings
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date.
7.3. Performance of Agreements; Instruments of Transfer. HDA and
--------------------------------------------------
Holdings shall have fully performed in all material respects all obligations,
agreements, conditions and commitments required to be fulfilled by HDA and
Holdings on or prior to the Closing Date and shall have tendered to the Company
and the Existing Shareholders the documents, instruments and certificates
required by Article 7 hereof.
7.4. Compliance Certificates. HDA and Holdings shall have delivered
-----------------------
to the Company and the Existing Shareholders its certificate, dated the Closing
Date, executed on its behalf by its President or a Vice President, as to the
fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5. Ancillary Agreements. The condition set forth in Section 6.8
--------------------
shall be satisfied, except that such documents shall be signed by all parties
other than the Existing Shareholders and/or entities controlled by them.
7.6. Opinion of Counsel. The Company and the Existing Shareholders
------------------
shall have received the opinion of Latham & Watkins, counsel for Holdings and
HDA, in the form set forth in Schedule 7.6 hereto.
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1. Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article VIII, the Existing Shareholders will jointly and
severally indemnify, defend and hold
34
<PAGE>
HDA and its respective stockholders,subsidiaries, officers, directors,
employees, agents, successors and assigns, (such indemnified persons are
collectively hereinafter referred to as "HDA's Indemnified Persons"), harmless
from and against any and all loss, liability, damage (excluding consequential,
indirect special, exemplary and punitive damages) or deficiency (including
interest, penalties, judgments, costs of preparation and investigation, and
reasonable attorneys' fees) (collectively, "Losses") that HDA's Indemnified
Persons may suffer, sustain, incur or become subject to arising out of or due
to: (a) any inaccuracy of any representation of the Company or any Existing
Shareholder in this Agreement or in any Schedule hereto; (b) the breach of any
warranty of the Company or any Existing Shareholder in this Agreement or any
Schedule hereto, (c) environmental liabilities, or (d) the nonfulfillment of any
covenant, undertaking, agreement or other obligation of the Company or any
Existing Shareholder under this Agreement or any Schedule hereto, not otherwise
waived by HDA. "Losses" as used herein is not limited to matters asserted by
third parties, but includes Losses incurred or sustained in the absence of third
party claims. Payment is not a condition precedent to recovery of
indemnification for Losses.
8.2. Indemnification by HDA and Holdings. Subject to the provisions
-----------------------------------
of this Article VIII, HDA and Holdings agree to indemnify, defend and hold the
Existing Shareholders and their respective heirs, representatives, successors
and assigns (such persons are hereinafter collectively referred to as the
"Existing Shareholders' Indemnified Persons"), harmless from and against any and
all Losses that the Existing Shareholders' Indemnified Persons may suffer,
sustain, incur or become subject to arising out of or due to: (a) any inaccuracy
of any representation of HDA or Holdings in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of HDA or Holdings in this Agreement or
any Schedule hereto; and (c) the nonfulfillment of any covenant, undertaking,
agreement or other obligation of HDA or Holdings under this Agreement or any
Schedule hereto, not otherwise waived by the Existing Shareholders.
8.3. Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article VIII shall survive the Closing Date
and shall remain in full force and effect for one (1) year thereafter; provided,
however, that the representations and warranties set forth in Section 3.11
relating to tax matters and Section 3.18 relating to employee benefits matters
shall survive for the length of the applicable statute of limitations and that
the representations and warranties set forth in Section 3.4 relating to
capitalization of the Company and Section 3.5 relating to title to the Shares
will survive the Closing Date in perpetuity.
8.4. Threshold; Deductible. Except as provided in this Section 8.4,
---------------------
no HDA's Indemnified Person or Company's Indemnified Person shall be entitled to
any recovery in accordance with this Article VIII unless and until the amount of
such Losses suffered, sustained or incurred by such party, or to which such
party becomes subject, by reason of such inaccuracy, breach or nonfulfillment
exceeds $50,000 and then only to the extent of such excess. Except for
35
<PAGE>
willful and intentional fraud, liability for breach of representations and
warranties under this Agreement shall not exceed the Purchase Price, except that
liability of the Existing Shareholders for breach of the representations and
warranties contained in Section 3.4 (Capitalization of the Company), Section 3.5
(Title to Shares), Section 3.11 (Tax Matters) and Section 3.18 (Employee Benefit
Plans; Employment Agreements) shall not be subject to the $50,000 deductible or
the Purchase Price ceiling.
8.5. Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.3 and 8.4 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.6 Indemnification Payments. At the Closing, HDA deposit into
------------------------
escrow, in accordance with the terms and conditions of the Escrow Agreement,
2,289 shares of Common Stock and 9,977.109 shares of Series A Preferred Stock
(the "Escrow Stock") of the Purchase Price to serve as partial security for the
indemnification obligations, if any, of the Company and the Existing
Shareholders under this Agreement; provided, however, that the Existing
--------
Shareholders may satisfy any such indemnification obligations in cash rather
than in Escrow Stock. To the extent the Existing Shareholders elect to satisfy
indemnification obligations under this Agreement in cash rather than Escrow
Stock, HDA will direct the Escrow Agent to release to the Existing Shareholders
a number of shares of Escrow Stock equal in value to the amount of such cash
payment (to be valued as set forth in the Escrow Agreement). The Escrow
Agreement
36
<PAGE>
will provide that at the end of the one year survival period set forth in
Section 8.3 above the Escrow Agent will deliver the Escrow Stock to the Existing
Shareholders, less any shares of Common Stock or Series A Preferred Stock
previously paid out of the Escrow Amount to HDA and less a number of shares
equal in value to any amount which is the subject of an unresolved, disputed or
pending claim (to be valued as set forth in the Escrow Agreement), in accordance
with the terms and conditions of the Escrow Agreement.
ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, each
--------
Party shall bear its own expenses and costs incurred by it in preparing,
negotiating and closing this Agreement, except that the Existing Shareholders
will also bear all expenses and costs incurred by the Company.
9.2. Notices. All notices, requests, demands and other
-------
communications given hereunder (collectively, "Notices") shall be in writing and
delivered personally or by overnight courier to the Parties at the following
addresses or sent by telecopier or telex, with confirmation received, to the
telecopy specified below:
If to the Company, at
Mr. Anthony N. Vingiano
Truckparts, Inc.
269 State Street
North Haven, Connecticut 06473
Attn.: Anthony N. Vingiano
With a Copy to:
Parrett, Porto, Parese & Colwell, P.C.
357 Whitney Avenue
New Haven, Connecticut 06511
Attn.: Michael D. Amato, Esq.
37
<PAGE>
If to Holdings or HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, IL 60015
Attn.: John Greisch
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
And:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn.: Elizabeth A. Blendell, Esq.
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the subject matter hereof and
supersedes all prior negotiations, agreements and understandings, whether
written or oral, of the Parties.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6. Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This
38
<PAGE>
Agreement may be amended only by written agreement of the Parties hereto, duly
executed and delivered by an authorized representative of each of the Parties
hereto.
9.7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Connecticut
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8. Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9. No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than the Company,
HDA and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10 Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase includes (i) actual knowledge of any officer,
director or shareholder of the Company and any employee of the Company whose job
duties include the subject matter in
39
<PAGE>
question and (ii) such knowledge which, based on facts of which each of such
foregoing individuals is aware, would be known to a reasonable person in similar
circumstances.
(Signature Page Follows)
40
<PAGE>
IN WITNESS WHEREOF, City, HDA, Truckparts, each of the Existing
Shareholders and Seller Representative have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John Greisch
-----------------------------------------
Name: John Greisch
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
HDA PARTS SYSTEM, INC.
By: /s/ John Greisch
-----------------------------------------
Name: John Greisch
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
TRUCKPARTS, INC.
By: /s/ Anthony A. Vingiano
-----------------------------------------
Name: Anthony A. Vingiano
---------------------------------------
Title: President
--------------------------------------
THE VINGIANO FAMILY LIMITED
PARTNERSHIP
By: /s/ Anthony N. Vingiano
-----------------------------------------
Name: Anthony N. Vingiano
---------------------------------------
Title: G.P.
--------------------------------------
S-1
<PAGE>
ANTHONY N. VINGIANO SPRAY TRUST
By: /s/ Theresa Vingiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
TRACEY A. VINGIANO SPRAY TRUST
By: /s/ Theresa Vengiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
GARY D. VINGIANO SPRAY TRUST
By: /s/ Theresa Vingiano
-----------------------------------------
Name: Theresa F. Vingiano
---------------------------------------
Title: Trustee
--------------------------------------
/s/ Anthony N. Vingiano
___________________________________
Anthony N. Vingiano, individually
/s/ Gary D. Vingiano
___________________________________
Gary D. Vingiano, individually
S-2
<PAGE>
ANNEX A
The Existing Shareholders
The Vingiano Family Limited Partnership
Anthony N. Vingiano Spray Trust
Tracey A. Vingiano Spray Trust
Gary D. Vingiano Spray Trust
Anthony N. Vingiano
Gary D. Vingiano
A-1
<PAGE>
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.
AND
HDA PARTS SYSTEM, INC.
AND
ASSOCIATED BRAKE SUPPLY, INC.
AND
THE SHAREHOLDERS OF ASSOCIATED BRAKE SUPPLY, INC.
JANUARY 11, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. PURCHASE AND SALE................................................................... 1
1.1 Purchase Price.......................................................................... 1
--------------
1.2 Post-Closing Purchase Price Adjustment.................................................. 2
--------------------------------------
ARTICLE II. CLOSING............................................................................. 3
2.1 Closing................................................................................. 3
-------
2.2 Sale of Capital Stock of the Company.................................................... 3
------------------------------------
2.3 Payment of Purchase Price............................................................... 3
-------------------------
2.4 Section 338(h)(10) Election............................................................. 4
---------------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE EXISTING SHAREHOLDERS....................................................... 4
3.1 Corporate Organization and Standing..................................................... 4
-----------------------------------
3.2 Authorization........................................................................... 4
-------------
3.3 No Conflict or Violation................................................................ 5
------------------------
3.4 Capitalization of the Company........................................................... 5
-----------------------------
3.5 Subsidiaries............................................................................ 5
------------
3.6 Title to Shares......................................................................... 5
---------------
3.7 Facilities.............................................................................. 6
----------
3.8 Financial Statements.................................................................... 7
--------------------
3.9 Books and Records....................................................................... 8
-----------------
3.10 Litigation.............................................................................. 8
----------
3.11 Licenses and Permits: Compliance with Laws.............................................. 9
------------------------------------------
3.12 Tax Matters............................................................................. 9
-----------
3.13 Brokers, Finders........................................................................ 10
----------------
3.14 Absence of Certain Changes.............................................................. 11
--------------------------
3.15 Material Contracts...................................................................... 12
------------------
3.16 Proprietary Rights...................................................................... 14
------------------
3.17 Labor Matters........................................................................... 14
-------------
3.18 Consents................................................................................ 15
--------
3.19 Employee Benefit Plans: Employment Agreements........................................... 15
---------------------------------------------
3.20 Compliance with Environmental Laws...................................................... 18
----------------------------------
3.21 Certain Business Relationships with the Company......................................... 20
-----------------------------------------------
3.22 Undisclosed Liabilities................................................................. 20
-----------------------
3.23 Insurance............................................................................... 21
---------
3.24 Accounts Receivable..................................................................... 21
-------------------
3.25 Inventory............................................................................... 21
---------
3.26 Payments................................................................................ 22
--------
3.27 Customers............................................................................... 22
---------
3.28 Computer Systems........................................................................ 22
----------------
3.29 Investment Intent: Accredited Investors: Suitability and Sophistication................. 22
-----------------------------------------------------------------------
3.30 Material Misstatements Or Omissions..................................................... 24
-----------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND
HDA................................................................................. 24
4.1 Corporate Organization and Standing....................................................... 24
-----------------------------------
4.2 Authorization............................................................................. 24
-------------
4.3 No Conflict or Violation.................................................................. 24
------------------------
4.4 Capitalization of Holdings and HDA........................................................ 25
----------------------------------
4.5 Subsidiaries of HDA....................................................................... 25
-------------------
4.6 HDA Financial Statements.................................................................. 25
------------------------
4.7 Brokers, Finders.......................................................................... 25
---------------
4.8 Stock..................................................................................... 25
-----
4.9 Investment................................................................................ 26
----------
4.10 Stockholders' Agreement: Other Agreements Relating to
-----------------------------------------------------
Holdings Capital Stock.................................................................. 26
----------------------
4.11 Sufficient Funds.......................................................................... 26
----------------
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-
CLOSING COVENANTS................................................................... 26
5.1 Further Assurances........................................................................ 26
------------------
5.2 No Solicitation and Confidentiality....................................................... 27
-----------------------------------
5.3 Disclosures............................................................................... 27
-----------
5.4 Notification of Certain Matters........................................................... 27
-------------------------------
5.5 Investigation by HDA and Its Representatives.............................................. 28
--------------------------------------------
5.6 Conduct of Business....................................................................... 28
-------------------
5.7 Tax Matters............................................................................... 30
-----------
5.8 Termination of This Agreement............................................................. 35
-----------------------------
5.9 Directors' and Officers' Insurance........................................................ 35
----------------------------------
5.11 Transfer of Certain Assets................................................................ 36
--------------------------
5.12 Guarantees of Facility Leases............................................................. 36
-----------------------------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HOLDINGS AND HDA.................................................... 36
6.1 No Injunctive Proceedings................................................................. 36
-------------------------
6.2 Evidence of Acquisition of Onyx Capital Stock............................................. 36
---------------------------------------------
6.3 Representations and Warranties............................................................ 37
------------------------------
6.4 Performance of Agreements................................................................. 37
-------------------------
6.5 Compliance Certificate.................................................................... 37
----------------------
6.6 Stock Certificates........................................................................ 37
------------------
6.7 Stock Books............................................................................... 37
-----------
6.8 Officers and Directors.................................................................... 37
----------------------
6.9 Opinion of Counsel........................................................................ 37
------------------
6.10 Consents; Etc............................................................................. 37
-------------
6.11 Ancillary Agreements...................................................................... 37
--------------------
6.12 Nonforeign Affidavit...................................................................... 38
--------------------
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY
THE COMPANY AND THE EXISTING SHAREHOLDERS........................................... 38
7.1 No Injunctive Proceedings................................................................. 38
-------------------------
7.2 Representations and Warranties............................................................ 38
------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.3 Performance of Agreements: Instruments of Transfer.......................................... 38
--------------------------------------------------
7.4 Compliance Certificates..................................................................... 38
-----------------------
7.5 Ancillary Agreements........................................................................ 38
--------------------
7.6 Opinion of Counsel.......................................................................... 38
------------------
7.7 Consents; Etc............................................................................... 38
-------------
7.8 Release from Guaranties..................................................................... 39
-----------------------
ARTICLE VIII. INDEMNIFICATION...................................................................... 39
8.1 Indemnification by the Existing Shareholders................................................ 39
--------------------------------------------
8.2 Indemnification by HDA...................................................................... 39
----------------------
8.3 Survival of Representations, Warranties and Covenants....................................... 39
-----------------------------------------------------
8.4 Threshold: Deductible: Maximum.............................................................. 40
------------------------------
8.5 Notice and Opportunity to Defend............................................................ 40
--------------------------------
8.6 Indemnification Payments................................................................... 40
------------------------
8.7 Insurance and Tax Effect.................................................................... 41
------------------------
8.8 Certain Additional Limitations on Indemnification........................................... 41
-------------------------------------------------
ARTICLE IX. MISCELLANEOUS........................................................................ 41
9.1 Expenses.................................................................................... 41
--------
9.2 Notices..................................................................................... 41
-------
9.3 Counterparts............................................................................... 43
------------
9.4 Entire Agreement............................................................................ 43
----------------
9.5 Headings.................................................................................... 43
--------
9.6 Assignment; Amendment of Agreement.......................................................... 43
----------------------------------
9.7 Governing Law............................................................................... 43
-------------
9.8 Further Assurances.......................................................................... 43
------------------
9.9 No Third-Party Rights....................................................................... 43
---------------------
9.10 Non-Waiver.................................................................................. 43
----------
9.11 Severability................................................................................ 43
------------
9.12 Incorporation of Exhibits and Schedules..................................................... 44
---------------------------------------
9.13 Knowledge................................................................................... 44
---------
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January
11, 1999, is entered into by and among City Truck Holdings, Inc., a Delaware
corporation ("Holdings"), HDA Parts System, Inc., an Alabama corporation
("HDA"), Associated Brake Supply, Inc., a California corporation (the
"Company"), and each of the shareholders identified on Annex A hereto
(individually, an "Existing Shareholder" and collectively, the "Existing
Shareholders"). Holdings, HDA, the Company and the Existing Shareholders are
referred to herein as each a "Party" and collectively, the "Parties."
RECITALS
WHEREAS, the Existing Shareholders own all of the capital stock of the
Company;
WHEREAS, the Company owns all of the capital stock of Associated Truck
Parts of Nevada, Inc., a Nevada corporation ("Associated Nevada"), Freeway Truck
Parts of Washington, Inc., a Washington corporation ("Freeway"), Associated
Truck Center, Inc., a California corporation ("ATC"), and Onyx Distribution,
Inc., a California corporation ("Onyx" and, together with Associated Nevada,
Freeway and ATC, each an "ABS Subsidiary" and collectively, the "ABS
Subsidiaries"); and
WHEREAS, HDA desires to acquire all of the capital stock of the
Company;
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price.
--------------
(a) Total Purchase Price. Upon the terms and subject to the
--------------------
conditions set forth herein, subject to the adjustments in Section 1.2, HDA will
purchase from the Existing Shareholders all of the capital stock of the Company
for an aggregate price (the "Purchase Price") determined as follows: (i) cash in
an amount equal to $42,659,869.83, payable by wire transfer of immediately
available funds to the Existing Shareholders (the "Estimated Cash Purchase
Price"); (ii) 11,445 shares of Common Stock of Holdings, par value $.0l per
share (the "Common Stock"); and (iii) 49,885.546 shares of Series A Preferred
Stock of Holdings, par value $.0l per share (the "Series A Preferred Stock").
(b) Borrowed Money Debt. For purposes of this Agreement, "Borrowed
-------------------
Money Debt" means the amount of all indebtedness of the Company set forth on
Schedule 1.1 and similar indebtedness for borrowed money of the Company and the
ABS Subsidiaries.
<PAGE>
1.2 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) Closing Balance Sheet. HDA will prepare at its expense a combined
---------------------
balance sheet of the Company and the ABS Subsidiaries dated the Closing Date
(the "Closing Balance Sheet"), prepared from the books and records of the
Company and the ABS Subsidiaries and prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied. Notwithstanding
the foregoing, the Closing Balance Sheet will not reflect any liability for
Taxes (as defined) resulting from any of the transactions contemplated by this
Agreement. HDA will also prepare calculations, as of the Closing Date based on
the Closing Balance Sheet, of Borrowed Money Debt ("Closing Borrowed Money
Debt") and Net Working Capital (as defined on Schedule 1.1 hereto) ("Closing Net
Working Capital"), which calculations shall be prepared on a basis consistent
with the Borrowed Money Debt and Net Working Capital calculations reflected on
Schedule 1.1 hereto, respectively; provided, however, that Closing Net Working
Capital shall in any event also include as a current asset loans receivable in
the aggregate amount of $1,224,256 (the "Shareholder Loans") attributable to the
Existing Shareholders' loan accounts that were outstanding and not repaid at the
Closing. HDA will deliver such Closing Balance Sheet and such calculations to
the Existing Shareholders as soon as possible but in any event within 45 days
after the Closing.
(b) Closing Balance Sheet Notice.
----------------------------
(i) Within 30 days of the receipt of the Closing Balance Sheet
and the calculations of the Closing Borrowed Money Debt and Closing Net
Working Capital, the Existing Shareholders will deliver to HDA a written
notice certifying that either (A) they agree with such Closing Balance
Sheet and calculations or (B) they disagree with such Closing Balance Sheet
and calculations, in which case they will also provide therewith a
reasonably detailed written report stating the basis for disagreement with
such Closing Balance Sheet and such calculations (the "Closing Balance
Sheet Notice"). The Parties shall provide reasonable access to their and
their respective accountants' work papers and personnel and to such
historical financial information as the Existing Shareholders shall
reasonably request in order to review such Closing Balance Sheet and
prepare such calculations.
(ii) If the Closing Balance Sheet Notice is not timely given as
described in Section 1.2(b)(i), the Closing Balance Sheet and the
calculations of the Closing Borrowed Money Debt and Closing Net Working
Capital shall be final, binding and conclusive upon the Parties. If HDA
disagrees with the Closing Balance Sheet Notice as described in Section
1.2(b)(i)(B), and if the disagreement is not resolved by mutual agreement
among the Parties within 30 days following delivery of the Closing Balance
Sheet Notice, such dispute will be resolved by a "Big 5" accounting firm
("BFAF"), other than PricewaterhouseCoopers LLP, selected by mutual
agreement of HDA and the Existing Shareholders. The costs of resolving such
a dispute shall be borne equally by HDA and the Existing Shareholders.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute that
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Balance
Sheet and the calculations of the Closing Borrowed Money Debt and Closing
Net Working Capital only with respect to the issues raised in the Closing
Balance Sheet Notice
2
<PAGE>
and only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 1.2(a) above. The decision of
the BFAF shall be final and binding on HDA and the Existing Shareholders in
the absence of manifest error.
(c) Post-Closing Adjustment. Within two business days after a final
-----------------------
resolution by the BFAF of such disagreements as may arise out of the review of
the Closing Balance Sheet in accordance with Section 1.2(b) above, and an
appropriate adjustment to the Closing Balance Sheet and the calculations of the
Closing Borrowed Money Debt and Closing Net Working Capital to reflect such
resolution, or, if Section 1.2(b)(i)(A) or the first sentence of Section 1
.2(b)(ii) applies, two business days after delivery of, or expiration of the
period for delivering, the Closing Balance Sheet Notice (as applicable), the
actual cash portion of the Purchase Price will be determined. If the Closing
Borrowed Money Debt is less than $11,515,130.17, the difference and interest
thereon will be due and payable to the Existing Shareholders by HDA; however, to
the extent the Closing Borrowed Money Debt is more than $11,515,130.17, the
excess and interest thereon will be due and payable to HDA by the Existing
Shareholders. If the Closing Net Working Capital is less than $15,300,000, the
difference and interest thereon will be due and payable to HDA by the Existing
Shareholders; however, to the extent the Closing Net Working Capital is more
than $15,700,000, the excess and interest thereon will be due and payable to the
Existing Shareholders by HDA. The net effect of any adjustments to the Estimated
Cash Purchase Price pursuant to the preceding two sentences shall be promptly
paid to the Existing Shareholders by HDA, or to HDA by the Existing Shareholders
(as the case may be). Any amounts payable pursuant to this paragraph shall bear
interest from the Closing Date through the date of payment at an annual rate
equal to LIBOR as reported in The Wall Street Journal on the Closing Date.
(d) Repayment of Shareholder Loans. David S. Seewack and Robin E.
------------------------------
Seewack, Trustees of the Seewack Family Trust dated November 19, 1997 (the
"Seewack Trust"), and Scott Spiwak and Jill Spiwak, Trustees of the Spiwak
Family Trust dated May 4, 1990 (the "Spiwak Trust"), will repay or will cause to
be repaid to the Company no later than the date on which any amounts that may be
payable pursuant to Section 1.2(c) above would be due $738,252 and $486,004,
respectively, plus interest computed in accordance with the last sentence of
Section 1.2(c) above, in repayment of the Shareholder Loans. HDA may, at its
option, cause the Company to offset the amount of the Shareholder Loans against
the amounts, if any, that are due to the Existing Shareholders pursuant to
Section 1.2(c) above.
ARTICLE II.
CLOSING
2.1 Closing. The closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 10:00 a.m., local time, on January 11, 1999 (the
"Closing Date") at the offices of Jones, Day, Reavis & Pogue, 77 West Wacker,
Chicago, Illinois 60601. The place of the Closing and the Closing Date may be
varied by agreement among the Parties.
2.2 Sale of Capital Stock of the Company. On the terms and subject to
------------------------------------
the conditions of this Agreement, on the Closing Date, the Existing Shareholders
shall sell, transfer and assign to HDA, and HDA shall purchase and acquire from
the Existing Shareholders, all of the capital stock of the Company.
3
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2.3 Payment of Purchase Price. At the Closing, (a) HDA shall wire
-------------------------
transfer the Estimated Cash Purchase Price in immediately available funds in the
amounts and to the bank accounts designated by the Existing Shareholders on
Annex B hereto; provided, however, (i) there shall be subtracted from the amount
-------- -------
of the wire transfer to the Spiwak Family Trust $53,018.18 in full satisfaction
of Scott Spiwak's indebtedness to the Company under the promissory notes
specified in Schedule 3.15 and (ii) there shall be subtracted from the amount of
the wire transfers to each of the Seewack Family Trust and the Spiwak Family
Trust $26,147.22 in full consideration of the assignment by the Company to David
Seewack and Scott Spiwak of that certain Demand Note dated May 10, 1998 executed
by Robert Adams in favor of the Company in the principal amount of $50,000; and
(b) Holdings shall issue and sell, and the Existing Shareholders shall purchase
from Holdings, for no additional consideration, the number of validly issued,
fully paid and non-assessable shares of Common Stock and Series A Preferred
Stock included in the Purchase Price set forth opposite each such Existing
Shareholder's name on Annex B hereto; provided, however, that such shares of
-------- -------
Common Stock and Series A Preferred Stock shall be delivered to the Common Stock
Escrow Agent (as defined) and Preferred Stock Escrow Agent (as defined) pursuant
to Section 8.6 hereof.
2.4 Section 338(h)(10) Election. At the Closing, the Existing
---------------------------
Shareholders shall deliver to HDA such duly executed documents, forms and
consents as HDA shall deem to be reasonably necessary to effect an election (a
"Section 338(h)(10) Election") pursuant to Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations thereunder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE EXISTING SHAREHOLDERS
The Company and the Existing Shareholders represent and warrant to
Holdings and HDA as follows, except as set forth in a disclosure schedule
("Schedule") attached hereto and made a part hereof, the number of each Schedule
corresponding to the Section number to which it refers:
3.1 Corporate Organization and Standing. The Company is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own
or lease its properties and to carry on its business as presently conducted.
Each of the ABS Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to own or lease its properties
and to carry on its business as presently conducted. Each of the Company and the
ABS Subsidiaries has delivered to HDA or its representatives complete and
correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Each of the Company and the ABS
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business as now
being conducted by it or the property owned or leased by it makes such
qualification necessary, except where a failure to be so duly qualified and in
good standing could not reasonably be expected to have a Material Adverse Effect
(as defined). All jurisdictions in which the Company or any ABS Subsidiary is
qualified to do business as a foreign corporation are listed on Schedule 3.1.
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3.2 Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action. This Agreement, and the Ancillary
Agreements will be, duly executed and delivered by the Company and the Existing
Shareholders, and are (or will be, as the case may be) the legal, valid and
binding obligations of the Company and the Existing Shareholders, enforceable
against them in accordance with their respective terms.
3.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement and the Ancillary Agreements, nor (subject to obtaining the
consents listed on Schedule 3.18) the consummation of the transactions
contemplated hereby or thereby, will (a) violate, conflict with or result in or
constitute a default under or result in the termination or the acceleration of,
or the creation in any party of any right (whether or not with notice or lapse
of time or both) to declare a default, accelerate, terminate or cancel any
indenture, contract, lease, sublease, loan agreement, note or other agreement,
obligation or liability ("Contractual Obligation") to which the Company, any ABS
Subsidiary or any Existing Shareholder is a party or by which it, he or she is
bound or to which its, his or her assets are subject or result in the creation
of any lien or encumbrance upon any of said assets, (b) violate, conflict with
or result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws (or other organizational documents) of the
Company, any ABS Subsidiary or any Existing Shareholder, (c) violate, conflict
with or result in a breach of or constitute a default under any judgment, order,
decree, rule or regulation of any court or governmental agency to which the
Company, any ABS Subsidiary or any Existing Shareholder is subject or (d)
violate, conflict with or result in a breach of any applicable rule or
regulation of any federal, state, local or other governmental authority.
3.4 Capitalization of the Company. The authorized capital stock of
-----------------------------
the Company consists of 10,000 shares of capital stock, without par value ("ABS
Common Stock"). As of the date of this Agreement, 400 shares of ABS Common Stock
are outstanding, all of which shares have been duly authorized, validly issued
and are fully paid and non-assessable and are owned in the aggregate by the
Existing Shareholders (the "Shares"). There are (a) no preemptive or similar
rights on the part of any holder of any class of securities of the Company,
except as provided in the Company's Articles of Incorporation, and (b) no
options, warrants, conversion or other rights, agreements or commitments of any
kind obligating the Company, contingently or otherwise, to issue, sell or
otherwise cause to be outstanding any shares of its capital stock of any class
or any securities convertible into or exchangeable for any such shares.
3.5 Subsidiaries. Except for the capital stock of the ABS
------------
Subsidiaries, the Company does not own any capital stock of, or other securities
evidencing an equity interest in, any corporation, partnership or other entity.
All of the issued and outstanding shares of capital stock of the ABS
Subsidiaries have been duly authorized, validly issued, are fully paid and non-
assessable and are, or will be as of the Closing Date, owned by the Company,
free and clear of any claims, liens, security interests, options, changes,
restrictions and interests of others whatsoever. There are no options, warrants,
conversions or other rights, agreements or commitments of any kind obligating
any ABS Subsidiary, contingently or otherwise, to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares. Except as set forth on
Schedule 3.5, the Company has not, at any time within the past five years,
repurchased, redeemed or otherwise acquired any shares of capital stock of any
ABS Subsidiary.
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3.6 Title to Shares. The Existing Shareholders have, and at the
---------------
Closing will have, good and valid title to the Shares owned by them, free and
clear of any claims, liens, security interests, options, charges, restrictions
and interests of others whatsoever. Upon delivery to HDA at the Closing of
certificates representing the Shares owned by the Existing Shareholders, duly
endorsed by them for transfer to HDA, HDA will obtain good and valid title to
such Shares, free and clear of any claims, liens, security interests, options,
charges, restrictions and interests of others whatsoever except for any
restrictions created by HDA. There are no voting trusts, proxies, or other
agreements or understandings to which the Company or any Existing Shareholder is
a party with respect to the voting, dividend rights or disposition of any of the
Shares. The Existing Shareholders have no obligation, absolute or contingent, to
any other person or entity to issue, sell or otherwise dispose of any capital
stock of the Company or to effect any merger, consolidation, reorganization or
other business combination of the Company or to enter into any agreement with
respect thereto.
3.7 Facilities. Schedule 3.7 contains a complete and accurate list of
----------
all real property owned or leased in connection with the business of the Company
and the ABS Subsidiaries ("Real Property"), identifying which are owned ("Owned
Real Property") and which are leased or subleased ("Leased Real Property"), and
accurate and complete copies of preliminary title reports covering all of the
Owned Real Property ("Preliminary Title Reports"). The Owned Real Property and
the Leased Real Property are sometimes hereinafter referred to collectively as
the "Facilities" and individually as a "Facility".
(a) Owned Real Property. Each of the Company and the ABS Subsidiaries
-------------------
has good and marketable fee simple title to all Owned Real Property, free and
clear of all encumbrances, except for taxes and assessments that are not yet due
and payable, matters disclosed by the Preliminary Title Reports, and building
codes and zoning ordinances, which do not materially interfere with the present
use of the property ("Permitted Encumbrances"). Notwithstanding the foregoing,
the Company and the Existing Shareholders specifically represent and warrant to
Holdings and HDA that the indebtedness secured by the deed of trust in favor of
CMP Partners, L.P., as disclosed in the Preliminary Title Report for the
Facility in Huntington Park, California, has been paid in full and will be
released of record within 30 days following the Closing Date. Each of the
Company and the ABS Subsidiaries enjoys peaceful and undisturbed possession of
all Owned Real Property.
(b) Actions. There are no pending or, to the best knowledge of the
-------
Company, threatened (i) condemnation proceedings or other actions, claims,
suits, litigation, proceedings, notices of violation, inquiry or investigations
from any governmental body, or (ii) actions, claims, suits, litigation or
proceedings from any other party, in each case relating to the title to or
physical condition of any of the Facilities or to any improvements constructed
thereon (collectively, "Actions").
(c) Leases or Other Agreements. Except as set forth on Schedule 3.7,
--------------------------
there are no leases, subleases, licenses, occupancy agreements, options, rights,
concessions or other agreements or arrangements, written or oral, granting to
any person the right to purchase, use or occupy any Owned Real Property or any
portion thereof, or interest in any Owned Real Property.
(d) Facility Leases and Leased Real Property. With respect to each of
----------------------------------------
its Leased Real Property, the Company or an ABS Subsidiary is the sole lessee or
sublessee and such lessee or sublessee has an unencumbered interest in the
leasehold estate related thereto. Each of the
6
<PAGE>
Company and the ABS Subsidiaries enjoys peaceful and undisturbed possession of
all of its Leased Real Property. To the best knowledge of the Company, each
Facility lease or sublease is valid, binding and enforceable in accordance with
its terms. None of the Company or the ABS Subsidiaries is in default in any
material respect under any Facility lease or sublease, and, to the best
knowledge of the Company, no event or condition exists that with notice or lapse
of time or both would constitute a default in any material respect by the
Company or any ABS Subsidiary under any Facility lease or sublease. True,
correct and complete copies of all leases and subleases listed on Schedule 3.7,
including all amendments, modifications, written waivers or supplemental
agreements thereto, have been delivered to, or made available for inspection by,
HDA or its representatives.
(e) All Facilities are supplied with utilities (including, without
limitation, water, sewage, disposal, electricity, gas and telephone) and other
services necessary for the operation of such Facilities as currently operated,
and, to the best of the Company's knowledge, there is no condition which would
reasonably be expected to result in the termination of the present access from
any Facility to such utility services.
(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by the Company or the ABS Subsidiaries at the Facilities are (i)
insured to the extent and in a manner customary in the industry, (ii) free from
any known structural or other material defects, (iii) in good operating
condition and repair, subject to ordinary wear and tear, and (iv) not in need of
maintenance, repair or correction except for ordinary routine maintenance and
repair, the cost of which would not be material.
(g) No Special Assessment. Except as may be disclosed in the
---------------------
Preliminary Title Reports, none of the Company or the ABS Subsidiaries has
received written notice of any special assessment relating to any Facility or
any portion thereof and, to the best knowledge of the Company, there is no
pending or threatened special assessment.
3.8 Financial Statements.
--------------------
(a) The reviewed balance sheet and statements of income,
stockholders' equity and cash flows of the Company at and for the fiscal year
ended December 26, 1997 and the internally prepared unaudited balance sheets and
statements of income, stockholders' equity and cash flows of the Company at and
for the fiscal years ended December 31, 1996 and 1995 were prepared in
accordance with GAAP consistently applied and fairly present the financial
condition and results of operations of the Company as of their respective dates
and for each such period. As of the date of each such balance sheet, the Company
had no liabilities of any nature, whether absolute, accrued, asserted or
unasserted or contingent or whether due or to become due that should have been
recorded or reserved for on such balance sheet in accordance with GAAP and were
not so recorded or reserved.
(b) The internally prepared unaudited balance sheets and statements
of income of Associated Nevada at and for the fiscal years ended August 31,
1998, 1997 and 1996 were prepared in accordance with GAAP consistently applied
and fairly present the financial condition and results of operations of
Associated Nevada as of their respective dates and for each such period. As of
the date of each such balance sheet, Associated Nevada had no liabilities of any
nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due that
7
<PAGE>
should have been recorded or reserved for on such balance sheet in accordance
with GAAP and were not so recorded or reserved.
(c) The reviewed balance sheets and statements of income of ATPM,
Inc. and subsidiary at and for the fiscal years ended September 30, 1996 and
1995 and the internally prepared unaudited balance sheet and statement of income
of ATPM, Inc. and subsidiary at and for the fiscal year ended September 30, 1997
were prepared in accordance with GAAP consistently applied and fairly present
the financial condition and results of operations of ATPM, Inc. and subsidiary
as of their respective dates and for each such period. As of the date of each
such balance sheet, ATPM, Inc. and subsidiary had no liabilities of any nature,
whether absolute, accrued, asserted or unasserted or contingent or whether due
or to become due that should have been recorded or reserved for on such balance
sheet in accordance with GAAP and were not so recorded or reserved.
(d) The internally prepared unaudited balance sheets and statements
of income of Onyx at and for the fiscal years ended December 31, 1997 and 1996
and the compiled balance sheet and statement of income of Onyx at and for the
fiscal year ended December 31, 1995 were prepared in accordance with GAAP
consistently applied and fairly present the financial condition and results of
operations of Onyx as of their respective dates and for each such period. As of
the date of each such balance sheet, Onyx had no liabilities of any nature,
whether absolute, accrued, asserted or unasserted or contingent or whether due
or to become due that should have been recorded or reserved for on such balance
sheet in accordance with GAAP and were not so recorded or reserved.
(e) The unaudited consolidated combined balance sheet (the "Unaudited
Balance Sheet") and statements of income of the Company and the ABS Subsidiaries
at and for the eleven months ended November 30, 1998, were prepared in
accordance with GAAP (for interim reporting) consistently applied and fairly
present the consolidated financial condition and results of operations of the
Company and the ABS Subsidiaries as of their date and for such period (except in
respect of normal and recurring year-end adjustments) and are consistent with
the financial statements described in Section 3.8(a).
(f) Copies of the financial statements described in Section 3.8(a)-
(e) have been provided to HDA or its representatives.
3.9 Books and Records. Each of the Company and the ABS Subsidiaries
-----------------
has made and kept and given HDA and its representatives access to books and
records and accounts, which fairly reflect the activities of the Company and the
ABS Subsidiaries. The minute books of the Company and the ABS Subsidiaries
accurately and adequately reflect all meetings and written consents of the
shareholders, board of directors and committees of the board of directors of the
Company and the ABS Subsidiaries. The copies of the stock book records of the
Company and the ABS Subsidiaries are true, correct and complete, and accurately
reflect all transactions effected in the Company's and each ABS Subsidiary's
stock interests through and including the date hereof. None of the Company or
the ABS Subsidiaries has engaged in any transaction, maintained any bank account
or used any corporate funds except for the transactions, bank accounts and funds
which have been and are reflected in the normally maintained books and records
of the Company and the ABS Subsidiaries, all of which have been provided or made
available to HDA or its representatives.
8
<PAGE>
3.10 Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the knowledge of the Company, threatened against
the Company or any ABS Subsidiary or the directors or officers of the Company
or, to the knowledge of the Company, the agents or employees of the Company or
any ABS Subsidiary (in their capacity as such), or any properties or rights of
the Company or any ABS Subsidiary. There are no orders, writs, injunctions or
decrees currently in force against the Company or the directors or officers of
the Company or, to the knowledge of the Company, the agents or employees of the
Company or any ABS Subsidiary (in their capacity as such) with respect to the
conduct of the Company's or any ABS Subsidiary's business.
3.11 Licenses and Permits: Compliance with Laws. Schedule 3.11 sets
------------------------------------------
forth a complete list of all material licenses, franchises, permits, occupancy
certificates, approvals and other governmental authorizations (collectively,
"Licenses and Permits") held by the Company or any ABS Subsidiary. Each of the
Company and the ABS Subsidiaries owns, holds or possesses all Licenses and
Permits necessary or appropriate to entitle it to use its corporate name as
presently used, to own or lease, operate and use its assets and properties as
presently owned or leased, operated and used and to carry on and conduct its
business and operations as presently carried on and conducted. None of the
Company or the ABS Subsidiaries is in violation of or default under any Licenses
or Permits or any judgment, order, writ, injunction or decree of any court or
administrative agency issued against it or any law, ordinance, rule or
regulation applicable to it. The Company's and each ABS Subsidiary's conduct of
its business has been for the last five years, and is, in compliance in all
material respects with all applicable laws, statutes, ordinances and
regulations. None of the Company or the ABS Subsidiaries has received within the
last five years any written notice asserting a failure to comply with any law,
statute, ordinance, regulation, rule or order of any foreign, federal, state or
local government or any other governmental department or agency.
3.12 Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and (ii) "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) Each of the Company and the ABS Subsidiaries have timely filed,
or caused to be timely filed, all Tax Returns that they were required to file.
All such Tax Returns were correct and complete in all respects. All Taxes owed
by the Company and each of the ABS Subsidiaries (whether or not shown on any Tax
Return) have been paid. None of the Company or the ABS Subsidiaries currently is
the beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Company and
the ABS Subsidiaries do not file Tax Returns that they are or may be subject to
taxation by that jurisdiction. There are no liens on any of the assets of the
Company or any of the ABS Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax.
9
<PAGE>
(c) Each of the Company and the ABS Subsidiaries withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party.
(d) There is no dispute or claim concerning any Tax liability of the
Company or any of the ABS Subsidiaries either (i) claimed or raised by any
authority in writing or (ii) of which the Company has knowledge. To the
knowledge of the Company, each of the ABS Subsidiaries and each Existing
Shareholder, no audit or examination of any Tax Return is currently in progress,
and neither the Company nor any ABS Subsidiary has received notice of any
proposed audit or examination. Each of the Company and the ABS Subsidiaries has
furnished to HDA or its representatives correct and complete copies of all
federal income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company and each ABS Subsidiary with
respect to years ended on or before December 26, 1997. Neither the Company nor
any ABS Subsidiary has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
(e) None of the Company or the ABS Subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations (or any
comparable state income tax provision). None of the Company or the ABS
Subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
None of the Company or the ABS Subsidiaries is a party to any Tax allocation,
sharing or indemnity agreement. None of the Company or the ABS Subsidiaries (i)
has been a member of an affiliated group of corporations filing a consolidated
federal income Tax Return or (ii) has liability for the Taxes of any person
under Treasury Regulation Sec. 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise.
Schedule 3.12 hereto sets forth all material elections (e.g., accelerated
depreciation, Sec. 263(a) regarding the allocation of overhead to inventory, and
LIFO election for inventory accounting) in effect as of the date hereof with
respect to Taxes affecting the Company or any of the ABS Subsidiaries.
(f) The unpaid Taxes of the Company and each ABS Subsidiary did not
exceed the reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the most recent Balance Sheets of the Company and each ABS
Subsidiary, respectively. The Company and each ABS Subsidiary have made
provision, in conformity with GAAP consistently applied, on their respective
Balance Sheets and the interim financial statements for the payment of all Taxes
which may subsequently become due.
(g) The Company has been a validly electing S corporation within the
meaning of Section 1361 and 1362 of the Code at all times since September 1,
1994 and the Company will be a validly electing S corporation up to and
including the Closing.
(h) Onyx has been a validly electing (i) S corporation within the
meaning of Section 1361 and 1362 of the Code or (ii) "qualified subchapter S
subsidiary" within the meaning of Section 1361 and 1362 of the Code at all times
since January 1, 1997 and Onyx will be a validly electing S corporation or a
qualified subchapter S subsidiary up to and including the Closing.
10
<PAGE>
(i) Associated Nevada has been a validly electing "qualified
subchapter S subsidiary" within the meaning of Section 1361(b)(3)(B) of the
Code at all times since September 1, 1998 and Associated Nevada will be a
qualified subchapter S subsidiary up to and including the Closing.
3.13 Brokers, Finders. None of the Company or the ABS Subsidiaries
----------------
has retained any broker or finder in connection with the transactions
contemplated herein, and none of the Company or the ABS Subsidiaries is
obligated or has agreed to pay any brokerage or finder's commission, fee or
similar compensation with respect to such transactions.
3.14 Absence of Certain Changes. Since December 26, 1997, each of the
--------------------------
Company and the ABS Subsidiaries has conducted its business in the ordinary
course, and there has not occurred with respect to the Company or any ABS
Subsidiary:
(a) any material adverse effect on the business, operations, assets,
results of operations or financial condition of the Company and the ABS
Subsidiaries, taken as a whole ("Material Adverse Effect");
(b) any revaluation of assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable;
(c) any payment, discharge or satisfaction of any liabilities or
obligations, other than in the ordinary course of business or as required by the
terms of such liabilities or obligations;
(d) any incurrence of liabilities, except liabilities incurred in the
ordinary course of business, or increase or change in any assumptions underlying
or methods of calculating, any doubtful account contingency or other reserves;
(e) any capital expenditure exceeding $25,000, the execution of any
lease or the incurring of any obligation to make any capital expenditure or
execute any lease other than in the ordinary course of business;
(f) the failure to pay or satisfy when due any liability, except
where the failure would not have a Material Adverse Effect;
(g) any assets (whether real, personal or mixed, tangible or
intangible) of the Company or any ABS Subsidiary becoming subject to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind, except (i) in the ordinary course of business, (ii) minor
imperfections of title that do not detract in any material respect from the
value of any of the assets affected or impact the operations of the Company and
the ABS Subsidiaries and (iii) liens for taxes not yet due and payable;
(h) any cancellation or waiver of any material claims or rights of
value, or any sale, lease, transfer, assignment, distribution or other
disposition of any material assets for consideration exceeding $25,000, except
for sales of inventory in the ordinary course of business or any disposal of any
material assets for any amount;
11
<PAGE>
(i) any entry into, amendment, cancellation or termination of any
material contract, commitment, agreement, lease, transaction or Permit relating
to assets or the business of the Company and the ABS Subsidiaries that is not in
the ordinary course of business, including, without limitation, any employment
or consulting agreements;
(j) any bonus paid or promised, an increase in the base compensation,
or other payment or loan to any director, officer or employee, whether now or
hereafter payable or granted (other than payment of bonuses to any employee not
to exceed 5% of such employee's base compensation and increases in base
compensation not to exceed 10% per annum in any such case, in the ordinary
course consistent in timing and amount with past practices), or entry into or
variation of the terms of any employment or incentive agreement with any such
person;
(k) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the financial
condition, results of operations or business or the relationships between the
employees of the Company or any ABS Subsidiary and the management of the Company
or any ABS Subsidiary;
(l) any change in any method of accounting or keeping books of
account or accounting practices other than changes necessary to conform to
changes in GAAP;
(m) any damage, destruction or loss of any material asset, whether or
not covered by insurance;
(n) the issuance, delivery or sale of any equity securities, or
alteration in terms of any outstanding securities issued by it or any increase
in its indebtedness for borrowed money (other than borrowings from its
shareholders or under its revolving credit facility in the ordinary course of
business);
(o) the declaration, payment or setting aside for payment of any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of ABS
Common Stock or the capital stock of any ABS Subsidiary, or the creation of any
securities convertible into or exchangeable for any shares of ABS Common Stock
or the capital stock of any ABS Subsidiary or any options, warrants or other
rights to purchase or subscribe to any of the foregoing (except for (i) deemed
distributions as an offset to certain indebtedness as of December 26, 1997 of
the Existing Shareholders to the Company in the amount of $330,624, (ii)
distributions to the Existing Shareholders out of the Company's 1998 S
corporation earnings in an amount not to exceed $2,000,000 and (iii) since June
30, 1998, distributions to the Existing Shareholders not to exceed $500,000 in
amounts necessary to pay taxes);
(p) the consummation or adoption of any plan of liquidation or
resolutions providing for the liquidation, dissolution, merger, consolidation or
other reorganization of the Company or any ABS Subsidiary; or
(q) an agreement to do any of the things described in the preceding
clauses (a) - (p) other than as expressly contemplated by this Agreement and the
Ancillary Agreements.
3.15 Material Contracts. Schedule 3.15 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which the Company or
any ABS Subsidiary or, in the case
12
<PAGE>
of Section 3.15(g), any Existing Shareholder, is a party. As used in this
Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business
entailing payments by the Company or any ABS Subsidiary in excess of $25,000;
(b) all leases or other agreements under which the Company or any ABS
Subsidiary is a lessor or lessee of any machinery, equipment, vehicle or other
tangible personal property owned by a third party and used in the business of
the Company or any ABS Subsidiary, which entails annual payments, in the case of
any such lease or agreement, in excess of $10,000;
(c) all options with respect to any property, real or personal, other
than (i) purchase options for equipment not in excess of(A) $10,000 in any one
case or (B) $50,000 in the aggregate, and (ii) renewal or expansion options
which may be contained in the Facility leases and subleases listed on Schedule
3.7, whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business of the Company and which are not cancelable on not more than 30
calendar days notice and without cancellation penalties or severance payments,
in the case of any such contract, in excess of $10,000;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to the Company or any ABS Subsidiary in a
principal amount (or with maximum availability) in excess of $10,000;
(f) all contracts and agreements to which the Company or any ABS
Subsidiary is a party and which are (i) outstanding contracts with its officers,
employees, agents, consultants, advisors, salespeople, sales representatives,
distributors, sales agents or dealers other than contracts that by their terms
are cancelable by the Company or any ABS Subsidiary with notice of not more than
30 days and without cancellation penalties or severance payments, in the case of
any such contract, in excess of $10,000, (ii) collective bargaining agreements
of the Company or any ABS Subsidiary that relate to the business of the Company
or any ABS Subsidiary and (iii) pension, profit-sharing, bonus, retirement,
stock option or employee benefit plans or other similar plans or arrangements of
the Company or any ABS Subsidiary;
(g) any covenant not to compete or similar restriction on the
activities of the Company, any ABS Subsidiary, any Existing Shareholder or, to
the knowledge of the Company, any current officer or key employee of the Company
or any ABS Subsidiary;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $25,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $25,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by the Company or
any ABS Subsidiary.
13
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Except as disclosed on Schedule 3.3 or 3.18, none of the Material Contracts
requires the consent of any third person in connection with the execution and
delivery of this Agreement or the Ancillary Agreements or the consummation by
the Company or the Existing Shareholders of the transactions contemplated herein
and therein (the "Required Consents"). The Company has made or will make
available to HDA or its representatives true and correct copies of all Material
Contracts prior to the Closing, including all amendments and supplements
thereto. To the Company's knowledge, each Material Contract listed on Schedule
3.15 that represents a promissory note payable to the Company or any ABS
Subsidiary is subject to no defense, counterclaim or right of setoff and is
fully collectible in the ordinary course of business without cost in collection
efforts therefor.
3.16 Proprietary Rights.
------------------
(a) Schedule 3.16 lists all of the material patents, trademarks
(whether registered or unregistered), service marks, trade names, service names,
brand names, logos and registered copyrights (collectively, the "Proprietary
Rights") currently used by the Company and the ABS Subsidiaries in connection
with their businesses. Schedule 3.16 also sets forth: (i) for each patent, the
number, normal expiration date and subject matter for each country in which such
patent has been issued, or, if applicable, the application number, date of
filing and subject matter for each country, (ii) for each registered trademark,
the application serial number or registration number, the class of goods covered
and the expiration date for each country in which a trademark has been
registered and (iii) for each registered copyright, the number and date of
filing for each country in which a copyright has been filed. True and correct
copies of all patents (including all pending applications) owned, controlled,
created or used by or on behalf of the Company or the ABS Subsidiaries or in
which the Company or the ABS Subsidiaries has any interest whatsoever have been
provided to HDA or its representatives.
(b) None of the Company or the ABS Subsidiaries has any obligation to
compensate any person for the use of any of the Proprietary Rights listed on
Schedule 3.16 and none of the Company or the ABS Subsidiaries has granted to any
person any license, option or other rights to use in any manner any of such
Proprietary Rights, whether requiring the payment of royalties or not.
(c) The Company and/or the ABS Subsidiaries owns or controls or has a
valid right to use each of the Proprietary Rights listed on Schedule 3.16, and
such Proprietary Rights will not cease to be valid rights of such Company or ABS
Subsidiary by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. None of the Company or the ABS Subsidiaries has
received any notice of invalidity or infringement of any rights of others with
respect to the trademarks listed on Schedule 3.16. No other person (i) to the
Company's knowledge, has the right to use any of the trademarks listed on
Schedule 3.16 on the goods on which they are now being used either in identical
form or in such near resemblance thereto as to be likely, when applied to the
goods of any such person, to cause confusion with such trademarks or to cause a
mistake or to deceive, (ii) has notified the Company or any ABS Subsidiary in
writing that it is claiming any ownership of or right to use the Proprietary
Rights listed on Schedule 3.16 or (iii) to the knowledge of the Company, is
infringing upon any such Proprietary Rights in any way. To the Company's
knowledge, the Company's and each ABS Subsidiary's use of any such Proprietary
Rights does not as of the date hereof conflict with, infringe upon or otherwise
violate the valid rights of any third party in or to such Proprietary Rights,
and no Action has been instituted against or notices received by the
14
<PAGE>
Company or any ABS Subsidiary that are presently outstanding, alleging that such
Company's or ABS Subsidiary's use of the Proprietary Rights infringes upon or
otherwise violates any rights of a third party in or to such Proprietary Rights.
3.17 Labor Matters. None of the Company or the ABS Subsidiaries is a
-------------
party to any labor agreement with respect to its employees with any labor
organization, union, group or association, and there are no employee unions (nor
any other similar labor or employee organizations) that currently represent the
Company's employees under local statutes, custom or practice. None of the
Company or the ABS Subsidiaries has experienced any attempt by organized labor
or its representatives to make it conform to demands of organized labor relating
to its employees or to enter into a binding agreement with organized labor that
would cover the employees of the Company. There is no labor strike or labor
disturbance pending or, to the knowledge of the Company, threatened against the
Company or any ABS Subsidiary, nor is any grievance currently being overtly
asserted, and none of the Company or the ABS Subsidiaries has experienced a work
stoppage or other labor difficulty within the last five years, and is not, and
has not at any time within the last five years, engaged in any unfair labor
practice. Without limiting the foregoing, each of the Company and the ABS
Subsidiaries is in compliance in all material respects with the Immigration
Reform and Control Act of 1986 and maintains a current Form I-9, as required by
such Act, in the personnel file of each employee hired after November 9, 1986.
3.18 Consents. No consent, approval, authorization, order, filing,
--------
registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by the
Company, any ABS Subsidiary or any Existing Shareholder in connection with the
execution and delivery of this Agreement, the Ancillary Agreements or the
consummation by the Company and the Existing Shareholders of the transactions
contemplated herein and therein, except for (a) the filings required to be made
by the Parties under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (b) consents required under the Facility leases and
subleases as set forth on Schedule 3.18, (c) consents listed on Schedule 3.18
that are required to be made or obtained after the Closing under Licenses and
Permits and (d) filings, registrations, licenses and permits listed on Schedule
3.18 generally applicable to businesses similar to those of the Company and the
ABS Subsidiaries required to be obtained or made by the Company or the ABS
Subsidiaries after the Closing in the ordinary course of business as a result of
the consummation of the transactions contemplated hereby.
3.19 Employee Benefit Plans: Employment Agreements.
---------------------------------------------
(a) P1ans. Schedule 3.19 sets forth a true, complete and accurate
-----
list of: (i) any and all severance or employment agreements with any current or
former director, officer or employee; (ii) any and all severance programs or
policies; (iii) any and all plans or arrangements relating to current or former
directors, officers or employees containing change in control provisions; (iv)
any agreements, plans, policies or arrangements (including, without limitation,
collective bargaining agreements or consulting agreements) established,
maintained or contributed to by the Company or any ABS Subsidiary for the
benefit of any of the Company's or the ABS Subsidiaries' current or former
directors, officers or employees, including bonus, incentive compensation, stock
ownership, stock option, stock appreciation, stock purchase, phantom stock,
vacation, retirement, insurance, severance, supplemental unemployment,
disability, death benefit, hospitalization, medical, workers compensation,
pension, profit-sharing or deferred compensation plans; or any employee welfare
and employee pension benefit plans (as such terms are defined in Sections 3(1)
15
<PAGE>
and 3(2), respectively of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) (singularly, "Employee Benefit Plan" and collectively,
"Employee Benefit Plans"); and (v) all plans that would be Employee Benefit
Plans, except that they have been terminated on or before the date hereof
("Terminated Employee Benefit Plans").
(b) Pension and Welfare Benefit Plans. With respect to the Employee
---------------------------------
Benefit Plans and Terminated Employee Benefit Plans, each as described on
Schedule 3.19:
(i) each Employee Benefit Plan is in compliance with the
requirements provided by any and all statutes, orders or governmental rules
or regulations currently in effect and applicable to such Employee Benefit
Plans, including but not limited to ERISA and the Code, and each Employee
Benefit Plan has been administered in accordance with its terms;
(ii) each of the Company's and the ABS Subsidiaries' ERISA Plans
(which term shall have the meaning set forth in Section 3(3) of the ERISA
with respect to employee benefit plans maintained or contributed to by the
Company or any ABS Subsidiary that currently cover employees and are subject
to ERISA) that is intended to be qualified pursuant to Code (S) 401(a) and
Code (S) 501(a) has received a determination letter from the IRS covering
the Tax Reform Act of 1986, as amended, that such ERISA Plans are so
qualified and each trust established in connection with any such plan is
exempt from federal income taxation and nothing (either in form or
operation) has since occurred from the date of the last favorable
determination letter to cause the loss of such ERISA Plans' or trusts'
qualification;
(iii) there has been no failure to timely file or distribute any
required report or description of such ERISA Plans (including without
limitation the IRS Form 5500 Annual Return/Report, summary annual report and
summary plan description);
(iv) there has been no failure to give any notices required by
ERISA or the Code or any other state or federal law or any ruling or
regulation of any state or federal administrative agency with respect to
such Employee Benefit Plans;
(v) all required contributions for all periods ending prior to
Closing (including periods from the first day of the current plan year to
Closing) will be made to such Employee Benefit Plans prior to the Closing
Date by the Company or any ABS Subsidiary;
(vi) none of the Company or the ABS Subsidiaries has taken any
action directly or indirectly that obligates the Company to institute,
modify or change any Employee Benefit Plan, any change in the manner in
which contributions are made or the basis on which such contributions are
determined;
(vii) all insurance premiums have been paid in full, subject only
to normal retrospective adjustments in the ordinary course, with regard to
such Employee Benefit Plans for policy years or other applicable policy
periods ending on or before Closing;
(viii) with respect to each Employee Benefit Plan, the Company and
the ABS Subsidiaries are not liable for excise taxes in connection with any
prohibited
16
<PAGE>
transactions (as defined in ERISA (S) 406 or Code (S) 4975); no penalty,
fine, tax, action, suit, grievance, arbitration or other manner of
litigation, or claim (other than routine claims for benefits made in the
ordinary course of plan administration for which plan administrative review
procedures have not been exhausted) are pending, threatened or imminent
against or with respect to such Employee Benefit Plans, the Company, any ABS
Subsidiary or any fiduciary (as defined in ERISA (S) 3(21)) of such Employee
Benefit Plans (including any action, suit, grievance, arbitration or other
manner of litigation, or claim regarding conduct which allegedly interferes
with the attainment of rights under such plans) for which the Company or the
ABS Subsidiaries could be liable; the Company does not have any knowledge of
any facts that would give rise to or could give rise to any penalty, fine,
tax, action, suit, grievance, arbitration or other manner of litigation, or
claim, and none of the Company or the ABS Subsidiaries has incurred any lien
under Section 401(a)(29) or any liability for any tax or civil penalty
imposed by Section 4971 or 4976 of the Code or Section 502 of ERISA and no
condition or set of circumstances exists that presents a risk to the Company
or any ABS Subsidiary of incurring any such lien or liability;
(ix) except as disclosed on Schedule 3.19, no Employee Benefit
Plan is (A) a "defined benefit" plan (as defined in Section 3(35) of ERISA,
nor was any Terminated Employee Benefit Plan such a "defined benefit" plan,
(B) a "multiemployer plan" within the meaning of Section 3(37) of ERISA, (C)
a "multiple employer" or a "multiple employer welfare arrangement" within
the meaning of Section 413(c) of the Code or Section 3(40) of ERISA,
respectively, or (D) a "welfare benefit fund" as defined in Section 419(e)
of the Code;
(x) the Company is not subject to any liability under Title IV
of ERISA, including, without limitation, any withdrawal liability on behalf
of a multiemployer plan;
(xi) none of the Company or the ABS Subsidiaries or any of their
directors, officers, employees or any other fiduciary has any liability for
a material breach of fiduciary responsibility imposed by ERISA for failure
to comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of such Employee Benefit
Plans;
(xii) except as disclosed on Schedule 3.19, none of such Employee
Benefit Plans has been completely or partially terminated within the five
years before Closing;
(xiii) except as disclosed on Schedule 3.19, no current or former
employee of the Company or any ABS Subsidiary will be entitled to any
payment, additional benefits or any acceleration of the time of payment or
vesting of any benefits under any Employee Benefit Plan as a result of the
transactions contemplated by this Agreement (either alone or in conjunction
with any other event such as a termination of employment) and no trustee
under any "rabbi trust" or similar arrangement in connection with any
Employee Benefit Plan will be entitled to payment as a result of the
transactions contemplated by this Agreement;
(xiv) there is no pending or threatened audit or investigation
involving such Employee Benefit Plans (other than routine claims for
benefits), and no qualification
17
<PAGE>
defect has been corrected with respect to any Employee Benefit Plans under
any IRS corrective program set forth in IRS Revenue Procedure 98-22;
(xv) no Employee Benefit Plan provides medical, life or other
welfare benefits (whether or not insured), with respect to current or former
employees after retirement or other termination of service (other than
coverage mandated by applicable law). With respect to any contract or
arrangement with an insurance company providing funding under any Employee
Benefit Plan, there is no material liability for any retroactive rate
adjustment. Except as disclosed on Schedule 3.19, each of the Company and
the ABS Subsidiaries has the right to amend or terminate their participation
with respect to each Employee Benefit Plan. Each Employee Benefit Plan that
is a "group health plan," as defined in Section 5000 of the Code has been
operated in accordance with Section 4980B of the Code, Section 9801 and the
secondary payor requirements of Section 1862(b) of the Social Security Act;
and
(xvi) No amounts have been accumulated as reserves or for the
purpose of prefunding medical expenses under the Sheakley Pension
Administration, Inc. Flexible Benefits Trust ("Flexible Benefits Trust"),
and the Company has not taken a tax deduction under Code sections 419, 419A
or any other Code provision with respect to any such reserves or prefunded
amounts. The Company has not treated the Flexible Benefits Trust as tax
exempt under Code section 501(a) and has no tax liability or any other
liability for noncompliance with any Laws or governmental regulations with
respect to its participation in the Flexible Benefits Trust.
(c) No corporation, trade or business (other than the Company and the
ABS Subsidiaries themselves) is required, together with the Company and the ABS
Subsidiaries, to be treated as a single employer for purposes of Section 414(b),
(c), (m) or (o) of the Code.
3.20 Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section 3.20,
-----------
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Company" for the purposes of this Section, shall include
(A) the Company and the ABS Subsidiaries, (B) all partnerships, joint
ventures and other entities or organizations in which the Company or any ABS
Subsidiary was at any time or is a partner, joint venturer, member or
participant and (C) all predecessor or former corporations, partnerships,
joint ventures, organizations, businesses or other entities, whether in
existence as of the date hereof or at any time prior to the date hereof, the
assets or obligations of which have been acquired or assumed by the Company
or any ABS Subsidiary or to which the Company or any ABS Subsidiary has
succeeded.
(ii) "Release" shall mean and include any existing or previously
existing spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment or the workplace of any hazardous substance or otherwise as
defined in any Environmental Law.
18
<PAGE>
(iii) "Hazardous Substance" shall mean any pollutant, contaminant,
chemical, waste and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitable or flammable chemical or chemical compound or hazardous
substance, material or waste, whether solid, liquid or gas, including,
without limitation, any quantity of asbestos in any form, urea formaldehyde,
PCB's, radon gas, crude oil or any fraction thereof, all forms of natural
gas, petroleum products or by-products or derivatives, radioactive substance
or material, pesticide waste waters, sludges, slag and any other substance,
material or waste that is subject to regulation, control or remediation
under any Environmental Laws.
(iv) "Environmental Laws" shall mean all laws, statutes,
regulations, rules, ordinances, by-laws, orders or determinations of any
governmental or judicial authority at the federal, state or local level,
whether existing as of the date hereof, previously enforced, or subsequently
enacted which regulate or relate to the protection or clean-up of the
environment, the use, treatment, storage, transportation, generation,
manufacture, processing, distribution, handling or disposal of, or emission,
discharge or other release or threatened release of Hazardous Substances or
otherwise dangerous substances, wastes, pollution or materials (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater, drinking water, air, wildlife, plants or other natural
resources, or the health and safety of persons or property, including,
without limitation, protection of the health and safety of employees.
Environmental Laws shall include, without limitation, the Federal
Insecticide, Fungicide and Rodenticide Act, Resource Conservation & Recovery
Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act and the Hazardous
Materials Transportation Act.
(v) "Environmental Conditions" means the introduction into the
environment, whether or not yet discovered, of any Hazardous Substance
(whether or not upon any Facility or former Facility or other property and
whether or not such pollution constituted at the time thereof a violation of
any Environmental Law as a result of any Release of any kind whatsoever of
any Hazardous Substance) as a result of which the Company has or may become
liable to any person or by reason of which any Facility, former Facility or
any of the assets of the Company or any ABS Subsidiary may suffer or be
subjected to any lien or as a result of which the Company or any ABS
Subsidiary or HDA could incur any damage, loss, cost, expense, claim,
demand, order or liability to a third party (including, without limitation,
any governmental authority).
(b) Notice of Violation. None of the Company or the ABS Subsidiaries
-------------------
has received a written notice of alleged, actual or potential responsibility
for, or any written inquiry concerning, and knows of no investigation regarding,
(i) any Release or threatened Release of any Hazardous Substance at any
location, whether at the Facilities, the former Facilities or otherwise or (ii)
an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
None of the Company or the ABS Subsidiaries has received written notice of any
other claim, demand or Action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or former
Facilities, or in connection with any operations or activities of the Company or
any ABS Subsidiary.
19
<PAGE>
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports that are in the possession or control of the Company or any ABS
Subsidiary, of all environmental audits or assessments which have been conducted
at any Facility or former Facility within the past five years, either by the
Company or any attorney, environmental consultant or engineer engaged for such
purpose, have been delivered to HDA or its representatives and a list of all
such reports, audits and assessments and any other similar report, audit or
assessment of which the Company has knowledge is included in Schedule 3.20
hereto.
(e) Indemnification Agreements. None of the Company or the ABS
--------------------------
Subsidiaries is a party, whether as a direct signatory or as successor, assign
or third party beneficiary, or otherwise bound, to any lease or other contract
(excluding insurance policies disclosed on Schedule 3.20) under which the
Company or any ABS Subsidiary is obligated by or entitled to the benefits of
directly or indirectly, any representation, warranty, indemnification, covenant,
restriction or other undertaking concerning Environmental Conditions.
(f) Releases or Waivers. None of the Company or the ABS Subsidiaries
-------------------
has released any other person from any claim under any Environmental Law or
waived any rights concerning any Environmental Condition.
(g) Notices, Warnings and Records. Each of the Company and the ABS
-----------------------------
Subsidiaries has given all notices and warnings, made all reports, and has kept
and maintained all records required by and in compliance with all Environmental
Laws.
(h) Compliance. None of the Company or the ABS Subsidiaries has ever
----------
violated and is presently in compliance with all Environmental Laws.
(i) Hazardous Material. None of the Company or the ABS Subsidiaries
------------------
has generated, manufactured, refined, transported, treated, disposed, stored,
handled, transferred, produced or processed any Hazardous Material in violation
of Environmental Laws.
(j) Underground Storage Tanks. There are no underground storage tanks
-------------------------
at any Facility owned or operated by the Company or any ABS Subsidiary. None of
the Company or the ABS Subsidiaries owns or operates any underground storage
tanks, whether currently in use or formerly used.
(k) Asbestos Containing Material. There is no asbestos containing
----------------------------
material at any Facility owned or operated by the Company or any ABS Subsidiary
that is in a condition that would require abatement.
(l) Liens. No lien has been imposed on any Facility pursuant to any
-----
Environmental Law.
3.21 Certain Business Relationships with the Company. Other than in
-----------------------------------------------
their capacities as officers, directors and shareholders of the Company and the
ABS Subsidiaries, none
20
<PAGE>
of the Existing Shareholders owning more than 5% of the Company's outstanding
voting securities have been involved in any business arrangement or relationship
with the Company within the past 12 months, and none of such Existing
Shareholders own any material assets, tangible or intangible, that are used in
the business of the Company or any ABS Subsidiary.
3.22 Undisclosed Liabilities. None of the Company or the ABS
-----------------------
Subsidiaries has any liabilities or obligations, whether accrued, absolute,
contingent or otherwise except (a) to the extent reflected or reserved for on
the Unaudited Balance Sheet or the notes thereto, (b) liabilities or obligations
incurred in the normal and ordinary course of business of the Company or any ABS
Subsidiary since October 31, 1998, (c) liabilities or obligations disclosed in
Schedule 3.22 hereto and in the other Schedules attached hereto, (d) liabilities
or obligations disclosed elsewhere in this Agreement, (e) executory obligations
under contracts and other contractual or employment arrangements not requiring
disclosure in the Unaudited Balance Sheet under GAAP and (f) liabilities and
obligations arising from normal year-end adjustments.
3.23 Insurance. Schedule 3.23 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided) maintained by
the Company or any ABS Subsidiary on their respective (a) businesses, (b) assets
or (c) employees at any time since December 31, 1995. All insurance coverage
applicable to the Company or any ABS Subsidiary or their respective businesses
or assets is in full force and effect, insures the Company or any ABS Subsidiary
in the amounts shown on Schedule 3.23 or properties of similar size in the
localities where such businesses or properties are located, provides coverage as
may be required by applicable regulation and by any and all Material Contracts
to which the Company or any ABS Subsidiary is a party and has been issued by
insurers of recognized responsibility. There is no default under any such
coverage nor has there been any failure to give notice or present any claim of
which the Company has knowledge under any such coverage in a due and timely
fashion. There are no premiums for any such insurance that are past due and no
notice of cancellation or nonrenewal of any such coverage has been received. All
products liability, general liability and workers' compensation insurance
policies maintained by the Company or any ABS Subsidiary have been occurrence
policies and not claims made policies. To the Company's knowledge, there are no
outstanding performance bonds covering or issued for the benefit of the Company
or any ABS Subsidiary. No insurer has advised the Company in writing that it
intends to reduce coverage, increase premiums or fail to renew any existing
policy or binder.
3.24 Accounts Receivable. The accounts receivable set forth on the
-------------------
Unaudited Balance Sheet, and all accounts receivable existing on the date
hereof, represent bona fide claims of the Company and the ABS Subsidiaries
against debtors for sales, services performed or other charges arising on or
before the date hereof, and all the goods delivered and services performed which
gave rise to said accounts were delivered or performed in accordance with the
applicable orders, contracts or customer requirements. To the Company's
knowledge, said accounts receivable are subject to no defenses, counterclaims or
rights of setoff and are fully collectible in the ordinary course of business
without cost in collection efforts therefor, except to the extent of the
appropriate reserves for bad debts on accounts receivable as set forth on the
Unaudited Balance Sheet and, in the case of accounts receivable existing on the
date hereof, to the extent of a reasonable reserve rate for bad debts on
accounts receivable that is not greater than the rate reflected by the reserve
for bad debts on the Unaudited Balance Sheet.
21
<PAGE>
3.25 Inventory. Schedule 3.25 contains a complete and accurate list
---------
of the addresses at which all inventory as set forth on the Unaudited Balance
Sheet, and all inventory acquired since the date of the Unaudited Balance Sheet,
is located. The inventory as set forth on the Unaudited Balance Sheet or arising
since the date of the Unaudited Balance Sheet was acquired and has been
maintained in accordance with the regular business practices of the Company and
the ABS Subsidiaries, consists of new, unused and remanufactured items of a
quality and quantity usable or saleable in the ordinary course of business, and
is valued at the lower of cost or market on a FIFO basis. None of such
inventory is obsolete, unusable, damaged or unsaleable in the ordinary course of
business, except for such items of inventory which have been written down to
realizable market value, or for which adequate reserves have been provided in
the Unaudited Balance Sheet.
3.26 Payments. None of the Company or the ABS Subsidiaries has,
--------
directly or indirectly, paid or delivered any fee, commission or other sum of
money or item or property, however characterized, to any finder, agent, client,
customer, supplier, government official or other party, in the United States or
any other country, which is in any manner related to the business, assets or
operations of the Company, which is illegal under any federal, state or local
laws of the United States (including, without limitation, the U.S. Foreign
Corrupt Practices' Act) or any other country having jurisdiction. None of the
Company or the ABS Subsidiaries has participated, directly or indirectly, in any
boycotts or other similar practices affecting any of its actual or potential
customers.
3.27 Customers Distributors and Suppliers. Schedule 3.27 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of the Company and the
ABS Subsidiaries' ten largest (in terms of dollar volume) (a) customers,
distributors and other agents and representatives during the Company's or such
ABS Subsidiary's last fiscal year, showing the approximate total sales in
dollars by the Company and the ABS Subsidiaries to such customer during such
fiscal year; and (b) suppliers during the Company's or such ABS Subsidiary's
last fiscal year, showing the approximate total purchases in dollars by the
Company and the ABS Subsidiaries from such supplier during such fiscal year.
Since December 26, 1997, there has been no adverse change in the business
relationship of the Company or any ABS Subsidiary with any customer, distributor
or supplier named on Schedule 3.27. None of the Company or the ABS Subsidiaries
has received any communication from any customer, distributor or supplier named
on Schedule 3.27 of any intention to terminate or materially reduce purchases
from or supplies to the Company or any ABS Subsidiary.
3.28 Computer Systems. The computer systems used in the Company's and
----------------
the ABS Subsidiaries' businesses are capable of the following before, during or
after January 1, 2000 ("Year 2000 Compliant"): (a) handling date information
involving all and any dates before, during or after January 1, 2000, including
accepting input, providing output and performing date calculations in whole or
in part; (b) operating, accurately without interruption on and in respect of any
and all dates before, during or after January 1, 2000 and without any change in
performance; (c) responding to and processing two digit year input without
creating any ambiguity as to the century; and (d) storing and providing date
input information without creating any ambiguity as to the century. The Company
and the ABS Subsidiaries have not been notified in writing by any of their key
vendors or suppliers that such persons' computer systems are not Year 2000
Compliant.
22
<PAGE>
3.29 Investment Intent: Accredited Investors: Suitability and
--------------------------------------------------------
Sophistication.
- --------------
(a) The Common Stock and Series A Preferred Stock to be purchased by
the Existing Shareholders hereunder are being purchased for their own account
and not with the view to, or for resale in connection with, any distribution or
public offering thereof within the meaning of the Securities Act of 1933 (the
"Securities Act") except in compliance with the Securities Act. Each of the
Existing Shareholders understands that the Common Stock and Series A Preferred
Stock have not been registered under the Securities Act by reason of their
issuance in transactions exempt from the registration and prospectus delivery
requirements of the Securities Act, the availability of which exemption or
exemptions depends upon, among other things, the bona fide nature of the
investment intent as expressed herein. Each of the Existing Shareholders
acknowledges that shares of Common Stock or Series A Preferred Stock originally
issued, any shares of Common Stock or Series A Preferred Stock issued upon any
direct or indirect transfer of any such security, each certificate for shares of
Common Stock issued upon the conversion of any shares of Series A Preferred
Stock and each certificate issued upon the direct or indirect transfer of any
such shares of Common Stock shall be stamped or otherwise imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR PURSUANT TO
THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT
IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A
UNDER SUCH ACT OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT, PROVIDED THAT IN A TRANSACTION
PURSUANT TO (iii) ABOVE, IF REQUESTED BY THE ISSUER HEREOF,
AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE IS FURNISHED TO SUCH ISSUER STATING THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OTHER CONDITIONS AS SET FORTH IN THE STOCKHOLDERS'
AGREEMENT, DATED AS OF SEPTEMBER 30, 1998, AS AMENDED, BY
AND AMONG THE STOCKHOLDERS OF CITY TRUCK HOLDINGS, INC. AND
CITY TRUCK HOLDINGS, INC.
Whenever the legend requirements imposed by this Section 3.29(a) shall terminate
or a holder shall provide an opinion of counsel stating that such legend is no
longer required, the respective holders of the securities for which such legend
requirements have terminated shall be entitled to receive from Holdings
certificates without such legend. In the event any disagreement arises regarding
whether the legend requirement imposed by this Section 3.29(a) has terminated,
the holders of such securities shall be entitled to receive from Holdings
certificates without such legend if any such holder
23
<PAGE>
provides Holdings with a written opinion of counsel stating that such legend is
no longer necessary or required.
(b) Each of the Existing Shareholders is an "accredited investor" as
such term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(c) Each of the Existing Shareholders has (i) such knowledge and
experience in financial and business matters that it is capable of independently
evaluating the risks and merits of purchasing the Common Stock and Series A
Preferred Stock, (ii) independently evaluated the risks and merits of purchasing
the Common Stock and Series A Preferred Stock and (iii) sufficient financial
resources to bear the loss of its entire investment in such securities.
3.30 Material Misstatements Or Omissions. The representations and
-----------------------------------
warranties of the Company and the Existing Shareholders in this Agreement, and
the other documents, exhibits, certificates or Schedules heretofore or
hereinafter furnished to Holdings or HDA or their representatives pursuant
hereto, including, without limitation, the Schedules, when taken as a whole, do
not or will not contain any untrue statement of a material fact, or omit to
state any material fact necessary to make the statements or facts contained
therein not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA
Holdings and HDA represent and warrant to the Company and the Existing
Shareholders as follows:
4.1 Corporate Organization and Standing. Each of Holdings and HDA is
-----------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own or lease its properties and to carry on its business as
presently conducted. Each of Holdings and HDA has delivered to the Existing
Shareholders or their representatives complete and correct copies of its
Certificate or Articles of Incorporation and Bylaws (or other charter documents)
and all amendments thereto. Each of Holdings and HDA is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business as now being conducted by it or the property
owned or leased by it makes such qualification necessary, except where a failure
to be so duly qualified and in good standing could not reasonably be expected to
have a material adverse effect on the business, operations, assets, results of
operations or financial condition of Holdings, HDA and the HDA Subsidiaries (as
defined), taken as a whole.
4.2 Authorization. This Agreement, the Ancillary Agreements and the
-------------
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of HDA and Holdings. This Agreement has
been, and the Ancillary Documents will be, duly executed and delivered by HDA
and Holdings, and are (or will be, as the case may be) the legal, valid and
binding obligations of HDA and Holdings, enforceable against them in accordance
with their respective terms.
4.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement and the Ancillary Agreements, nor (subject to obtaining the
consents listed on
24
<PAGE>
Schedule 4.3) the consummation of the transactions contemplated hereby or
thereby will (a) violate, conflict with or result in or constitute a default
under or result in the termination or the acceleration of, or the creation in
any party of any right (whether or not with notice or lapse of time or both) to
declare a default, accelerate, terminate or cancel any Contractual Obligation to
which Holdings, HDA or any of their subsidiaries is a party or by which any of
them is bound or to which any of their assets are subject or result in the
creation of any lien or encumbrance upon any of said assets, (b) violate,
conflict with or result in a breach of or constitute a default under any
provision of the Certificate or Articles of Incorporation or Bylaws of Holdings
or HDA, (c) violate, conflict with or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which Holdings or HDA is subject or (d) violate, conflict
with or result in a breach of any applicable rule or regulation of any federal,
state, local or other governmental authority.
4.4 Capitalization of Holdings and HDA. The authorized capital stock
----------------------------------
of Holdings consists of 250,000 shares of Common Stock and 850,000 shares of
Series A Preferred Stock. As of the date hereof, 106,245 shares of Common Stock
and 434,752.534 shares of Series A Preferred Stock, respectively, are
outstanding, all of which shares have been duly authorized, validly issued and
are fully paid and nonassessable. There are no preemptive rights on the part of
any holder of any class of securities of Holdings. Holdings owns all of the
outstanding capital stock of HDA, and Holdings does not own any capital stock
of, or other securities evidencing an equity interest in, any other corporation,
partnership or other entity. There are no preemptive rights on the part of any
holder of any class of securities of HDA.
4.5 Subsidiaries of HDA. Except for the corporations, partnerships
-------------------
and other entities set forth on Schedule 4.5 (the "HDA Subsidiaries"), HDA does
not own any capital stock of, or other securities evidencing an equity interest
in, any corporation, partnership or other entity. All of the issued and
outstanding shares of capital stock of the HDA Subsidiaries have been duly
authorized, validly issued, are fully paid and non-assessable and are owned by
HDA, free and clear of any claims, liens, security interests, options, changes,
restrictions and interests of others whatsoever. There are no options, warrants,
conversions or other rights, agreements or commitments of any kind obligating
any HDA Subsidiary, contingently or otherwise, to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
4.6 HDA Financial Statements. The audited consolidated balance sheet
------------------------
and statements of income, stockholders' equity and cash flows of HDA and its
subsidiaries at and for the fiscal year ended December 31, 1997 (the "HDA
Audited Financial Statements") were prepared in accordance with GAAP
consistently applied and fairly present the consolidated financial condition and
results of operations of HDA and its subsidiaries as of their date and for such
period. As of December 31, 1997, HDA and its subsidiaries had no liabilities of
any nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due that should have been recorded or reserved for on
such balance sheet in accordance with GAAP and were not so recorded or reserved.
The unaudited consolidated balance sheet and statements of income, stockholders
equity and cash flows of HDA and its subsidiaries at and for the ten months
ended October 31, 1998, were prepared in accordance with GAAP consistently
applied and fairly present the consolidated financial condition and results of
operations of HDA and its subsidiaries as of their date and for such period and
are consistent with the HDA Audited Financial Statements. Copies of the
financial
25
<PAGE>
statements described in this Section 4.6 have been provided to the Existing
Shareholders or their representatives.
4.7 Brokers. Finders. None of Holdings, HDA or the HDA Subsidiaries
----------------
has retained any broker or finder, nor is obligated or has agreed to pay any
brokerage or finder's commission, fee or similar compensation, in connection
with the transactions contemplated herein, except for the fees payable to an
affiliate of Brentwood Associates Buyout Fund II, L.P.
4.8 Stock. The shares of Common Stock and Series A Preferred Stock to
-----
be issued to the Existing Shareholders pursuant to this Agreement are duly
authorized and, when paid for in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable.
4.9 Investment. Holdings and HDA (a) understand that the ABS Common
----------
Stock and the capital stock of the ABS Subsidiaries have not been, and will not
be as of the Closing Date, registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions from transactions not involving any public offering, (b)
are acquiring the ABS Common Stock solely for their own account for investment
purposes and not with a view to distribution thereof, (c) are each an
"accredited investor" (as defined under the federal securities laws), (d) have
received information concerning ABS Subsidiaries and have had the opportunity to
obtain additional information as desired in order to evaluate the merits and
risks inherent in holding the ABS Common Stock and (e) are able to bear the
economic risk and lack of liquidity inherent in holding the ABS Common Stock.
4.10 Stockholders' Agreement: Other Agreements Relating to Holdings
--------------------------------------------------------------
Capital Stock. Except as set forth in the Stockholders' Agreement dated
- -------------
September 30, 1998, as amended (the "Stockholders' Agreement"), as of the date
hereof, (a) there are no preemptive or similar rights on the part of any holder
of any class of securities of Holdings and (b) no options, warrants, conversion
or other rights, agreements or commitments of any kind obligating Holdings,
contingently or otherwise, to issue, sell or otherwise cause to be outstanding
any shares of its capital stock of any class or any securities convertible into
or exchangeable for any such shares have been issued and are outstanding by
Holdings to any seller of a business to Holdings as a portion of the purchase
price therefor. No stockholder of Holdings has a "put" right requiring Holdings
to repurchase any of its shares. The Stockholders' Agreement is the only
agreement among HDA or Holdings and any of their respective stockholders (or, to
the knowledge of Holdings, among any of the stockholders) relating to the
transfer, voting or liquidity of Holdings' capital stock.
4.11 Sufficient Funds. Either HDA or Holdings has sufficient funds
-----------------
available (through existing credit arrangements or otherwise) to pay the cash
portion of the Purchase Price pursuant to this Agreement and to pay all fees and
expenses related to the transactions contemplated by this Agreement for which
HDA or Holdings is responsible.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING COVENANTS
Holdings, HDA, the Company and the Existing Shareholders each covenant
with the others as follows:
26
<PAGE>
5.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, both before and after the Closing (provided
nothing in this Section 5.1 shall obligate the Existing Shareholders to make any
payments after the Closing, unless otherwise expressly provided for in this
Agreement), (a) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement or the Ancillary Agreements, (b) to execute any documents, instruments
or conveyances of any kind that may be reasonably necessary or advisable to
carry out any of the transactions contemplated hereunder and (c) to cooperate
with each other in connection with the foregoing. Without limiting the
foregoing, the Parties agree to use their respective reasonable best efforts (i)
to obtain all necessary waivers, consents and approvals from other parties
(including, without limitation, governmental entities) to the consummation of
the transactions contemplated by this Agreement; (ii) to obtain all necessary
Permits as are required to be obtained under any regulations; (iii) to defend
all Actions challenging this Agreement or the consummation of the transactions
contemplated hereby; (iv) to lift or rescind any injunction or restraining order
or other court order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; (v) to give all required
notices to, and make all required registrations and filings with, third parties,
including, without limitation, submissions of information requested by
governmental authorities; and (vi) to fulfill all conditions to this Agreement.
If not previously done, within five calendar days after the execution and
delivery of this Agreement, the Parties shall make all filings required under
the HSR Act.
5.2 No Solicitation and Confidentiality.
-----------------------------------
(a) From the date hereof through the Closing, none of the Parties nor
their representatives (including, without limitation, investment bankers,
attorneys and accountants) shall, directly or indirectly, enter into, solicit,
initiate or continue any discussions or negotiations with, or encourage or
respond to any inquiries or proposals by, or participate in any negotiations
with, or provide any information to, or otherwise cooperate in any other way
with, any corporation, partnership, person or other entity or group, concerning
any sale of all or a portion of the Company, or of any shares of capital stock
of the Company or any ABS Subsidiary or any merger, consolidation, liquidation,
dissolution or similar transaction involving the Company or any ABS Subsidiary
(each such transaction being referred to herein as a "Proposed Acquisition
Transaction") other than with (i) another Party hereto and its representatives
or (ii) as required by law. The Company shall not, directly or indirectly,
through any officer, director, employee, representative, agent or otherwise,
solicit, initiate or encourage the submission of any proposal or offer from any
person (including, without limitation, a "person" as defined in Section 1
3(d)(3) of the Securities Exchange Act of 1934) or entity relating to any
Proposed Acquisition Transaction. The Company and each of the Existing
Shareholders represents that it is not now engaged in discussions or
negotiations with any party other than Holdings and HDA with respect to any of
the foregoing.
(b) Notification. The Company and the Existing Shareholders will
------------
immediately notify HDA if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any information is requested with
respect to any Proposed Acquisition Transaction and notify HDA of the identity
of the prospective purchaser or soliciting party and any other information
relating to such inquiry or proposal known to the Company, any ABS Subsidiary or
any Existing Shareholder.
27
<PAGE>
5.3 Disclosures. Prior to the Closing, except as may be required by
-----------
law (subject to the other Parties' right to review and comment on the
formulation of the published material), including federal or state securities
laws, none of the Parties, and no affiliate of any Party, without the prior
written consent of the other Parties, will make any press release or any similar
public announcement concerning the transactions contemplated hereby.
5.4 Notification of Certain Matters. From the date hereof through the
-------------------------------
Closing, the Company and the Existing Shareholders shall give prompt notice to
HDA of (a) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement, any Ancillary Agreement or in any Exhibit or Schedule hereto to
be untrue or inaccurate in any material respect without regard to the
materiality limitations set forth in any such representation or warranty and (b)
any material failure of the Company or the Existing Shareholders, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement, any Ancillary Agreement or any Exhibit or Schedule
hereto; provided, however, that, subject to Section 8.8, such disclosure shall
--------- -------
not be deemed to cure any breach of a representation, warranty, covenant or
agreement or to satisfy any condition. The Company and the Existing Shareholders
shall promptly notify HDA of any default, the threat or commencement of any
Action, or any development that occurs before the Closing, that could have a
Material Adverse Effect.
5.5 Investigation by HDA and Its Representatives. The Company shall,
--------------------------------------------
and shall cause its officers, directors, employees and agents, to afford HDA and
its representatives access at all reasonable times during normal business hours,
upon reasonable notice, to the Company's or any ABS Subsidiary's Facilities,
officers, employees, agents, attorneys, accountants, properties, books and
records, and contracts, and shall furnish HDA and its representatives, all
available financial, operating and other data and information as HDA through its
respective representatives, may reasonably request, including unaudited
consolidated balance sheets and the related statements of income, retained
earnings and cash flow for each month from the date hereof through the Closing
Date within 25 calendar days after the end of each month, which financial
statements shall (a) be true, correct and complete, (b) be in accordance with
the books and records of the Company and (c) accurately set forth the assets,
liabilities and financial condition, results of operations and other information
purported to be set forth therein in accordance with GAAP consistently applied.
5.6 Conduct of Business. From the date hereof through the Closing,
-------------------
the Company shall, and shall cause each ABS Subsidiary to, except as
contemplated by this Agreement, or as consented to by HDA in writing, operate
their businesses in the ordinary course of business and in accordance with past
practice and not take any action inconsistent with this Agreement or with the
consummation of the Closing. Without limiting the generality of the foregoing,
the Company shall not, and shall cause each ABS Subsidiary not to, except as
specifically contemplated by this Agreement or as consented to by HDA in
writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
Material Contract, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and except
28
<PAGE>
for asset dispositions for consideration of less than $25,000 in the aggregate.
Without limiting the generality of the foregoing, the Company and each ABS
Subsidiary will produce, maintain and sell inventory consistent with its past
practices;
(d) guarantee the obligations of others or indemnify others or,
except in the ordinary course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of the Company or any ABS Subsidiary in effect on the date hereof
that are described on the Schedules) or with respect to any increase of
benefits payable under its severance or termination pay policies or
agreements in effect on the date hereof or increase in any manner the
compensation or benefits of any employee except in the ordinary course of
business consistent with past practice or pay any benefit not required by
any existing Employee Benefit Plan or policy;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers
or the termination of existing officers;
(iii) adopt, enter into or amend any Employee Benefit Plan,
agreement (including, without limitation, any collective bargaining or
employment agreement), trust, fund or other arrangement for the benefit or
welfare of any employee, except for any such amendment as may be required to
comply with applicable regulations; or
(iv) fail to maintain in all material respects all Employee
Benefit Plans in accordance with applicable regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof other than Onyx;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock except for (i) distributions to the
Existing Shareholders out of the Company's 1998 S corporation earnings in an
amount not to exceed $500,000 and in amounts necessary to pay the Existing
Shareholders' Tax liability with respect to such earnings, and (ii)
distributions to the shareholders of Onyx out of Onyx's 1998 S corporation
earnings in an amount not to exceed such earnings;
(h) fail to expend funds in accordance with budgeted capital
expenditures or commitments;
(i) willingly allow or permit to be done, any act by which any of the
insurance policies listed on Schedule 3.23 may be suspended, impaired or
canceled;
(j) (i) fail to pay its accounts payable in the ordinary course of
business or other liabilities when due; or
29
<PAGE>
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, wornout or obsolete or destroyed assets;
(l) make any loans or advances to any partnership, firm, corporation
or, except for expenses incurred and advances made in the ordinary course of
business, any individual;
(m) make any income tax election or settlement or compromise with tax
authorities;
(n) fail to comply in all material respects with all regulations
applicable to it, its assets and its business;
(o) intentionally do any other act which would cause any
representation or warranty of the Company or the Existing Shareholders in this
Agreement to be or become untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its reasonable best efforts to (i) retain its key
employees and (ii) maintain its business so that such employees will remain
available to it on and after the Closing Date, (iii) maintain existing
relationships with material suppliers, customers and others having business
dealings with it and (iv) otherwise preserve the goodwill of its business so
that such relationships and goodwill will be preserved on and after the Closing
Date; or
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited under this Section 5.6.
5.7 Tax Matters.
-----------
(a) As used in this Section 5.7, the following terms have the
following meanings:
"C Corporation" shall have the meaning set forth in Section 136
-------------
1(a)(2) of the Code.
"Income Tax" means any income, alternative or add-on minimum tax,
----------
gross income, gross receipts, franchise, profits, including estimated taxes
relating to any of the foregoing, or other similar tax or other like assessment
or charge of similar kind whatsoever, except Other Taxes, together with any
interest and any penalty, addition to tax or additional amount imposed by any
federal, state, local or foreign governmental authority (a "Taxing Authority")
responsible for the imposition of any such Tax (domestic or foreign).
"Indemnified Party" shall mean the party (or parties) being
-----------------
indemnified under this Section 5.7.
30
<PAGE>
"Indemnifying Party" shall mean the party (or parties) providing
------------------
indemnity under this Section 5.7.
"Other Tax" means any sales, use, ad valorem, business license,
---------
withholding, payroll, employment, excise, stamp, transfer, recording,
occupation, premium, property, value added, custom duty, severance, windfall
profit tax, license, or other tax, governmental fee or other similar assessment
or charge, together with any interest and any penalty, addition to tax or
additional amount imposed by any Taxing Authority responsible for the imposition
of any such Tax (domestic or foreign); but specifically excluding Income Taxes.
"S Corporation" shall have the meaning set forth in Section 136l(a)(l)
-------------
of the Code.
"S Corporation Taxable Income" shall mean taxable income (or loss) of
----------------------------
the Company from all sources during the period the Company was an S Corporation
through and including the close of business on the last day of the S Short Year
of the Company.
"S Short Year" shall mean the period January 1, 1999 through the close
------------
of business on the Closing Date.
"S Termination Year" shall have the meaning set forth in Section
------------------
1362(e)(4) of the Code.
"Tax" means Income Tax and Other Taxes as the context requires.
---
(b) The Company and each of the Existing Shareholders will join with
HDA in making an election under Section 338(h)(l0) of the Code (and any
corresponding election under state, local and foreign tax law) with respect to
the purchase and sale of the stock of the Company hereunder (a "Section
338(h)(l0) Election"). The Existing Shareholders will include any income, gain,
loss, deduction, or other tax item resulting from the Section 338(h)(l0)
Election on their Tax Returns to the extent required by applicable law. The
Company and the ABS Subsidiaries shall be liable for all Taxes due by them with
respect to the Section 338(h)(l0) Election. Holdings, HDA, the Company and the
ABS Subsidiaries will indemnify and hold harmless the Existing Shareholders such
that their Tax liability from the transactions contemplated by this Agreement
(including, without limitation, from any indemnity payments pursuant to this
sentence) will be the same as if no Section 338(h)(l0) Election were made.
(c) HDA and the Existing Shareholders agree that the Purchase Price
and the liabilities of the Company (plus other relevant items) will be allocated
to the assets of the Company and its qualified subchapter S subsidiaries for all
purposes. The Parties agree to cooperate fully in connection with the
preparation of an allocation schedule and to share such schedule in a manner
that permits the timely filing of any applicable Tax Returns. HDA, the Company,
the ABS Subsidiaries and the Existing Shareholders will file all Tax Returns in
a manner consistent with such allocation.
(d) The Company and the Existing Shareholders will not revoke the
Company's or Onyx's election to be taxed as an S corporation within the meaning
of Sections 1361 and 1362 of the Code. The Company, Associated Nevada and the
Existing Shareholders will not revoke Associated Nevada's election to be a
qualified subchapter S subsidiary within the meaning of Section 1361(b)(3)(B) of
the Code. None of the Company, Onyx or the Existing Shareholders will take or
31
<PAGE>
allow any action, other than the sale of the Company's stock pursuant to this
Agreement, that would result in the termination of the Company's or Onyx's
status as a validly electing S corporation within the meaning of Sections 1361
and 1362 of the Code.
(e) The Existing Shareholders shall timely prepare and file, or cause
to be prepared and filed, Internal Revenue Service Form 1120S (and any analogous
state or local Tax Returns) for the Company and Onyx in accordance with Section
1362(e) of the Code for the taxable year ended December 31, 1998 and for the S
Short Year and Internal Revenue Service Schedules K-1 for the S Short Year. Such
Tax Returns shall be prepared or completed by the Existing Shareholders in a
manner consistent with the prior practice of the Company or Onyx, as the case
may be, (including elections and accounting methods and conventions) and in a
manner that does not distort taxable income. The Existing Shareholders shall
permit HDA to review and comment on such Tax Returns prior to filing and shall
obtain HDA's consent prior to filing such Tax Returns, which consent shall not
be unreasonably withheld or delayed, prior to the filing thereof. An authorized
officer of the Company and Onyx, respectively, shall sign such Tax Returns, as
required under applicable law, following consent by HDA. The Existing
Shareholders shall include any income, gain, loss, deduction or other tax items
for such periods on their Tax Returns in a manner consistent with the Schedules
K-1 and timely pay, or cause to be paid, when due all Taxes relating to the
periods covered by such Tax Returns.
(f) Holdings and HDA hereby indemnify and agree to hold each Existing
Shareholder harmless from, against and in respect of any federal and state
Income Tax liability (including interest and penalties), if any, incurred by
each such Existing Shareholder resulting from a final determination of an
adjustment (by reason of an amended return, claim for refund, audit or
otherwise) to the Company's taxable income (or loss) resulting in a decrease in
the taxable income (or increase in tax loss) of any member of the consolidated
group of which Holdings or HDA is the common parent and a corresponding increase
in the federal or state, as the case may be, taxable income (or decrease in tax
loss) of such Existing Shareholder with respect to such Existing allocable
share of S Corporation Taxable Income; provided, however, that the amount of
-------- -------
payments made by Holdings or HDA pursuant to this Section 5.7(f) to the Existing
Shareholders shall not exceed the amount of refund (including interest) or tax
liability reduction at whatever time received by Holdings or HDA or any member
of the respective consolidated group with respect to taxable income allocated to
such Existing Shareholder shifted from a C Corporation taxable year to an S
Corporation taxable year.
(g) The Existing Shareholders, jointly and severally, hereby
indemnify and agree to hold Holdings and HDA harmless from, against and in
respect of any federal and state Income Tax liability (including interest and
penalties), if any, from a final determination of an adjustment (by reason of an
amended return, claim for refund, audit or otherwise) to the Existing
Shareholders' taxable income resulting in a decrease in the Existing
Shareholders' S Corporation Taxable Income (or increase in tax loss) and a
corresponding increase in the federal or state, as the case may be, income tax
liability (or decrease in tax loss) of the Company; provided, however, the
-------- -------
amount of any such indemnified tax liability shall be reduced by an amount equal
to the refund of state income tax, including interest, received by the Company,
Holdings or HDA for state income taxes paid by the Company with respect to any
taxable income shifted from an S Corporation taxable year to a C Corporation
taxable year of the Company that is subject to indemnification hereunder;
provided further that the amount of the payments made by the Existing
- -------- -------
Shareholders pursuant to this Section 5.7(g) to Holdings or HDA shall not exceed
the amount of refund (including interest) or tax
32
<PAGE>
liability reduction (as if such refund (including interest) or tax liability
reductions were computed by applying the highest marginal corporate tax rate, as
opposed to the individual Existing Shareholder's marginal tax rate, to the
amount of shifted income) at whatever time received by the Existing Shareholders
with respect to taxable income shifted from an S Corporation taxable year to a C
Corporation taxable year.
(h) HDA shall prepare or complete, or cause to be prepared or
completed, and timely filed, or cause to be timely filed, all Tax Returns of the
Company and the ABS Subsidiaries required to be filed after the Closing Date
(other than the Tax Returns specified in Section 5.7(d) hereof) and, subject to
Section 5.7(i) hereof, shall timely pay, or cause to be timely paid, when due,
all Taxes relating to such Tax Returns as well as any corporate-level Tax
liability shown on the Tax Returns specified in Section 5.7(e) hereof. With
respect to Tax Returns of the Company and the ABS Subsidiaries not filed prior
to the Closing Date (other than the Tax Returns specified in Section 5.7(e)
hereof) that relate to a taxable period that ends on or prior to or includes the
Closing Date, such Tax Returns shall be prepared or completed by HDA in a manner
consistent with the prior practice of the Company.
(i) Although the Company or any of the ABS Subsidiaries, as the
taxpayer or in connection with filing the Tax Returns specified in Section
5.7(e) above, may be required to pay (i) Income Taxes relating to time periods
ending on or before the Closing Date (the "Pre-Closing Period") and (ii) Other
Taxes for any Straddle Period (as defined) that is allocated pursuant to this
Section 5.7(i) to the Pre-Closing Period (such liabilities collectively, the
"Pre-Closing Taxes) it is the intention of the Parties that, to the extent such
Pre-Closing Taxes (including any penalties, interest or additions to Tax) were
not fully accrued on the Closing Balance Sheets, the Existing Shareholders will
be responsible for such Pre-Closing Taxes, excluding Income Taxes relating to
the S Short Year. In the case of any Tax period that includes but does not end
on the Closing Date (a "Straddle Period"), Taxes of the Company and each of the
ABS Subsidiaries shall be allocated to the Pre-Closing Period using an interim
closing of the books method assuming that such Tax period ended at the close of
the Closing Date, except that (i) exceptions, allowances or deductions that are
calculated on an annual basis shall be apportioned on a per diem basis and (ii)
real property, personal property and intangibles and other similar Taxes shall
be allocated in accordance with the principals of Section 164(d) of the Code.
The Existing Shareholders shall indemnify, defend and hold HDA, the Company
and each ABS Subsidiary harmless from and against any and all liability for Pre-
Closing Taxes to the extent such Pre-Closing Taxes were not fully accrued on the
Closing Balance Sheets, excluding Income Taxes relating to the S Short Year.
(j) All gains, transfer, sales, use, bulk sales, recording,
registration, documentary, stamp and other Taxes that may result from, or be
incurred in connection with, the transactions contemplated by this Agreement
("Conveyance Taxes") shall be paid one-half by HDA and one-half by the Existing
Shareholders when due, and the party required by applicable law will file all
necessary Tax Returns and other documentation with respect to such Conveyance
Taxes, and, if required by applicable law, the other parties will, and will
cause their affiliates to, join in the execution of any such Tax Returns and
other documentation. The expense of such filings shall be paid one-half by HDA
and one-half by the Existing Shareholders (other than general and administrative
expenses).
(k) The Existing Shareholders shall indemnify, defend and hold HDA,
the Company and each ABS Subsidiary harmless from and against any and all
liability arising out of a
33
<PAGE>
breach or inaccuracy of any representation or warranty contained in Section 3.12
with respect to Income Taxes and any and all liability for reasonable legal,
accounting and appraisal fees and expenses with respect to any liability for
Taxes described above in Section 5.7.
(l) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under, or as a result of, a Tax proceeding ("Tax Proceeding"). The
Existing Shareholders shall have the sole right to control, conduct, and
otherwise represent the interests of the Company in any such Tax Proceeding;
provided, however, that without the prior written approval of HDA, which
- -------- -------
approval shall not be unreasonably withheld or delayed, the Existing
Shareholders shall not agree or consent to compromise or settle any issue or
claim arising in any such Tax Proceeding to the extent that any such compromise,
settlement, consent or agreement could have a material adverse effect on HDA for
any period ending after the Closing Date.
(m) Neither HDA nor any affiliate of HDA shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to the Company or any ABS Subsidiary
relating to Taxes for which the Existing Shareholders may be liable hereunder.
Promptly after the reasonable request of the Existing Shareholders, at the sole
expense of the Existing Shareholders, HDA shall, or cause the Company to, file
any amended Tax Return or claim for Tax refund relating to Taxes for which the
Existing Shareholders may be liable hereunder, provided that such amended Tax
--------
Returns or claims shall be prepared in a manner consistent with the prior
practice of the Company (including elections and accounting methods and
conventions) and, in the reasonable determination of HDA, shall conform to
applicable laws and regulations. If HDA or any affiliate of HDA shall receive a
Tax refund relating to a period or transaction for which the Existing
Shareholders are liable hereunder, HDA shall, within 30 days after receipt of
such Tax refund, remit such Tax refund (including any interest received on such
Tax refund and net of any unreimbursed cost or expense incurred in obtaining
such Tax refund), to the Existing Shareholders. For purposes of this Section
5.7, the term "Tax refund" shall include a reduction in Tax or the use of an
overpayment as a credit or other Tax offset, and the receipt of a refund shall
be deemed to be realized upon the earliest to occur of (i) the date on which HDA
has actual knowledge that a payment due to the relevant taxing authority (for
which HDA would be responsible under this Agreement) has been offset by such a
refund and (ii) the receipt of cash.
(n) After the date hereof, HDA and the Company shall provide each
other and the Existing Shareholders, with such cooperation and information
relating to the Company and any ABS Subsidiary as either party reasonably may
request in (i) filing any Tax Return, amended Tax Return or claim for Tax
refund, (ii) determining any Tax liability or a right to a Tax refund, (iii)
conducting or defending any proceeding in respect of Taxes or (iv) effectuating
the terms of this Agreement. The Parties and the Company shall retain all Tax
Returns, schedules and work papers, and all material records and other documents
relating thereto, until the expiration of the statute of limitations (and, to
the extent notified by any party, any extensions thereof) of the taxable years
to which such Tax Returns and other documents relate and until the final
determination of any Tax in respect of such years. Any information obtained
under this Section 5.7 shall be kept confidential, except as may be otherwise
necessary in connection with filing any Tax Return, amended Tax Return, or claim
for Tax refund, determining any Tax liability or right to a Tax refund, or in
conducting or defending any proceedings in respect of Taxes.
34
<PAGE>
(o) The obligations of the parties set forth in this Section 5.7
shall be unconditional and absolute and shall remain in effect until the date
that is 90 days after the expiration of the relevant statute of limitations
applicable to the Taxes at issue, giving effect to all valid waivers or
extensions thereof. Claims for indemnification arising under or with respect to
Section 3.12 or this Section 5.7 may not be made unless notice of such claims
has been given on or prior to the date that is 90 days after the expiration of
the relevant statute of limitations applicable to the Taxes at issue, giving
effect to all valid waivers or extensions thereof.
(p) The Indemnified Party shall provide the Indemnifying Party with a
statement calculating in reasonable detail the amount of any payment required
under this Section 5.7 and the Indemnifying Party shall make any payment within
15 days after receipt of notice from the Indemnified Party.
(q) All rights and obligations of the parties hereto with respect to
Income Taxes, including rights of either party to indemnification with respect
to Income Taxes, shall be governed exclusively by the provisions of this Section
5.7, and in particular, the provisions of Article VIII shall not apply to
obligations arising under this Section 5.7 with respect to Income Taxes. All
rights and obligations with respect to Other Taxes, including the rights of
either party to indemnification with respect to Other Taxes, shall be governed
by Article VIII.
(r) The Indemnifying Party shall be subrogated to all the rights of
recovery that the Indemnified party may have against any person or organization
in respect of the Tax liabilities for which the Indemnifying Party is providing
indemnity. Such right of subrogation shall not exceed the amount paid by the
Indemnifying Party to the Indemnified Party. The Indemnified Party shall execute
and deliver instruments and papers and do whatever else is reasonably necessary
to secure such rights of subrogation for the Indemnifying Party. The Indemnified
Party shall provide all reasonable assistance as requested by the Indemnifying
Party in order for the Indemnify Party to pursue such rights of subrogation.
5.8 Termination of This Agreement. Except with respect to provisions
-----------------------------
that expressly survive the termination of this Agreement, this Agreement may be
terminated:
(a) by the mutual agreement of Holdings, HDA, the Company and the
Existing Shareholders, provided such termination is set forth in writing
--------
executed by each Party;
(b) by Holdings and HDA (provided neither Holdings nor HDA is in
material breach of this Agreement), if any of the conditions specified in
Article VI hereof shall not have been met by January 31, 1999 and shall not have
been waived in writing by Holdings and HDA; or
(c) by the Company and the Existing Shareholders (provided neither
the Company nor any Existing Shareholder is in material breach of this
Agreement), if any of the conditions specified in Article VII hereof shall not
have been met by January 31, 1999 and shall not have been waived in writing by
the Company and the Existing Shareholders.
If this Agreement is terminated as provided herein, no Party shall have any
liability or further obligation to any other Party under the terms of this
Agreement or otherwise; provided, however, if such termination shall result from
-------- -------
the willful breach by the non-terminating Party of any representation or
warranty, or the failure of the non-terminating Party to perform a covenant of
this
35
<PAGE>
Agreement, such party shall be fully liable for any and all damages incurred or
suffered by the other parties as a result of such failure.
5.9 Directors' and Officers' Insurance. Holdings and HDA shall
----------------------------------
provide David Seewack and Scott Spiwak with directors' and officers' insurance
coverage to the extent such coverage is provided to similarly situated directors
or officers of Holdings, HDA or any of their subsidiaries.
5.10 Extension of Certain Insurance Coverage. Holdings and HDA shall
---------------------------------------
purchase, or cause the Company to purchase, five-year tail coverage, a five-year
extension of coverage or a five-year extended reporting period for the
employment practices liability insurance policy specified in Schedule 3.23 (the
"EPLI Policy") or insurance providing substantially similar coverage; provided
that in no event shall Holdings, HDA or the Company be required to purchase
insurance at a cost in excess of 150% of the premiums paid by the Company with
respect to the EPLI Policy. Subject to the preceding proviso, such tail
coverage, extension of coverage or extended reporting periods shall (a) provide,
for the benefit of the Company and all other persons currently covered under the
EPLI Policy, coverage of substantially similar scope as that currently provided
by the EPLI Policy, (b) be issued by an insurance carrier (or carriers) of
substantially similar or better BEST rating as the current issuer of the EPLI
Policy and (c) provide substantially similar coverage for any incidents,
occurring on or prior to the Closing Date, that the EPLI Policy would cover if a
valid claim with respect thereto was made during the policy period.
5.11 Transfer of Certain Assets. Prior to or simultaneously with the
--------------------------
Closing, the Company will transfer and assign to Leo Spiwak all of its right,
title and interest in the automobiles identified on Schedule 5.11 hereto.
5.12 Guarantees of Facility Leases. To the extent that on or before
-----------------------------
the Closing Date any of David Seewack, Jay Kalish, Scott Spiwak or Leo Spiwak
(collectively, the Guarantors") have not been released from their respective
obligations as guarantors under any of the Facility leases, or as to Leo Spiwak,
from his obligation as co-obligor under the leases for the Company's National
City, California Facilities, Holdings and HDA shall use their best efforts to
obtain such releases as soon as reasonably possible after the Closing Date.
Holdings and HDA's best efforts shall include the substitution of Holdings or
HDA as guarantors of the Facility leases in lieu of the Guarantors. HDA further
agrees to indemnify, defend and hold harmless the Guarantors and their
respective heirs, representatives, successors and assigns (such persons are
hereinafter collectively referred to as the "Guarantors' Indemnified Persons")
from and against any and all Losses (as defined in Section 8.1) that the
Guarantors' Indemnified Persons suffer, sustain or incur or become subject to or
arising out of or due to the Facility leases from and after the Closing Date, by
reason of having guaranteed the contractual obligations of the Company under the
Facility leases or otherwise.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE
TRANSACTIONS BY HOLDINGS AND HDA
The obligations of Holdings and HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by Holdings and HDA.
36
<PAGE>
6.1 No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
6.2 Evidence of Acquisition of Onyx Capital Stock. The Existing
---------------------------------------------
Shareholders shall have delivered to HDA or its representatives satisfactory
evidence of the Existing Shareholders' acquisition of the shares of capital
stock of Onyx not owned by the Existing Shareholders as of the date hereof on or
prior to the Closing Date.
6.3 Representations and Warranties. All representations and
------------------------------
warranties of the Company and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, except as otherwise contemplated by this Agreement.
6.4 Performance of Agreements. The Company and the Existing
-------------------------
Shareholders shall have performed in all material respects all obligations,
agreements and commitments required to be fulfilled by any of them pursuant to
the terms hereof on or prior to the Closing Date.
6.5 Compliance Certificate. Each of the Company and the Existing
----------------------
Shareholders shall have delivered to HDA or its representatives, a certificate,
dated the Closing Date, executed on its behalf by its duly authorized
representative, as to the fulfillment of the conditions set forth in Sections
6.3 and 6.4 hereof.
6.6 Stock Certificates. The Existing Stockholders shall deliver to
------------------
HDA certificates representing all of the Shares, together with duly executed
transfer powers in favor of HDA.
6.7 Stock Books. HDA shall have received the stock books, stock
-----------
ledgers, minute books and corporate seals (if any) of the Company and each ABS
Subsidiary.
6.8 Officers and Directors. HDA shall have received the written
----------------------
resignation of all officers and directors of the Company and each ABS Subsidiary
in office immediately prior to the Closing.
6.9 Opinion of Counsel. HDA shall have received the opinion of Irell
------------------
& Manella LLP, counsel for the Company and the Existing Shareholders, in
substantially the form set forth in Schedule 6.9 hereto.
6.10 Consents; Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities, including all
Required Consents, necessary to be obtained prior to the Closing in connection
with the consummation by the Existing Shareholders or the Company of the Closing
shall have been obtained and be in full force and effect, except where a failure
to obtain an authorization, consent or approval is a result of a breach by
Holdings or HDA. The waiting period applicable to the transactions contemplated
under the HSR Act shall have terminated or expired.
6.11 Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been duly executed and delivered by all parties thereto
other than Holdings
37
<PAGE>
or HDA: (a) non-competition agreements by and between HDA and each of David
Seewack and Scott Spiwak, substantially in the form attached hereto as Exhibit
A, (b) Joinders to the Stockholders' Agreement substantially in the form
attached hereto as Exhibit B, (c) an escrow agreement (the "Common Stock Escrow
Agreement") by and among Holdings, HDA, the Existing Shareholders and Chase
Manhattan Bank and Trust Company, National Association, as "Common Stock Escrow
Agent" substantially in the form attached hereto as Exhibit C with respect to
the shares of Common Stock included in the Purchase Price under Section 1.1 and
(d) an escrow agreement (the "Preferred Stock Escrow Agreement") by and among
Holdings, HDA, the Existing Shareholders and Chase Manhattan Bank and Trust
Company, National Association, as "Preferred Stock Escrow Agent" substantially
in the form attached hereto as Exhibit D with respect to the shares of Series A
Preferred Stock included in the Purchase Price under Section 1.1.
6.12 Nonforeign Affidavit. Each Existing Shareholder shall furnish to
--------------------
HDA an affidavit stating, under penalty of perjury, its United States taxpayer
identification number and that it is not a foreign person pursuant to Section
1445(b)(2) of the Code.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY
THE COMPANY AND THE EXISTING SHAREHOLDERS
The obligations of the Company and the Existing Shareholders under
this Agreement are subject to the fulfillment prior to the Closing of each of
the following conditions, any one or more of which may be waived by the Company
and the Existing Shareholders:
7.1 No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency that prevents the consummation of the
transactions that are the subject of this Agreement shall have been issued and
remain in effect.
7.2 Representations and Warranties. All representations and
------------------------------
warranties of Holdings and HDA contained in this Agreement shall be true and
correct in all material respects as of the Closing Date, except as otherwise
contemplated by this Agreement.
7.3 Performance of Agreements; Instruments of Transfer. Holdings and
--------------------------------------------------
HDA shall have performed in all material respects all obligations, agreements,
and commitments required to be fulfilled by Holdings and HDA on or prior to the
Closing Date.
7.4 Compliance Certificates. Each of Holdings and HDA shall have
-----------------------
delivered to the Company and the Existing Shareholders its certificate, dated
the Closing Date, executed on its behalf by its President or a Vice President,
as to the fulfillment of the conditions set forth in Sections 7.2 and 7.3
hereof.
7.5 Ancillary Agreements. The Ancillary Agreements shall have been
--------------------
executed and delivered by all parties thereto other than the Existing
Shareholders or entities controlled by them.
38
<PAGE>
7.6 Opinion of Counsel. The Existing Shareholders shall have received
------------------
the opinion of Jones, Day, Reavis and Pogue, special counsel for Holdings and
HDA, in substantially the form set forth in Schedule 7.6 hereto.
7.7 Consents; Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary to be
obtained prior to the Closing in connection with the consummation by Holdings or
HDA the Closing shall have been obtained and be in full force and effect, except
where a failure to obtain an authorization, consent or approval is a result of a
breach by the Company or the Existing Shareholders. The waiting period
applicable to the transactions contemplated hereby under the HSR Act shall have
terminated or expired.
7.8 Release from Guaranties. David Seewack, Jay Kalish, Scott Spiwak
-----------------------
and Leo Spiwak shall have been released from all of their obligations as
guarantors of Contractual Obligations of the Company, other than with respect to
Facility leases, which shall be governed by the provisions of Section 5.12
hereof.
ARTICLE VIII.
INDEMNIFICATION
8.1 Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article VIII, the Existing Shareholders will jointly and
severally indemnify, defend and hold harmless Holdings, HDA and their respective
stockholders, subsidiaries, officers, directors, employees, agents, successors
and assigns (such indemnified persons are collectively hereinafter referred to
as "HDA's Indemnified Persons") from and against any and all loss, liability,
damage (excluding consequential, indirect special, exemplary and punitive
damages) or deficiency (including interest, penalties, judgments, costs of
preparation and investigation, and reasonable attorneys' fees) (collectively,
"Losses") that HDA's Indemnified Persons suffer, sustain, incur or become
subject to arising out of or due to: (a) any inaccuracy of any representation of
the Company or any Existing Shareholder in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of the Company or any Existing
Shareholder in this Agreement or any Schedule hereto or (c) the nonfulfillment
of any covenant, agreement or other obligation of the Company or any Existing
Shareholder under this Agreement, not otherwise waived by HDA. "Losses" as used
herein is not limited to matters asserted by third parties, but includes Losses
incurred or sustained in the absence of third party claims.
8.2 Indemnification by HDA. Subject to the provisions of this
----------------------
Article VIII, HDA agrees to indemnify, defend and hold harmless the Existing
Shareholders and their respective heirs, representatives, successors and assigns
(such persons are hereinafter collectively referred to as the "Existing
Shareholders' Indemnified Persons") from and against any and all Losses that the
Existing Shareholders' Indemnified Persons suffer, sustain, incur or become
subject to arising out of or due to: (a) any inaccuracy of any representation of
HDA in this Agreement or in any Schedule hereto; (b) the breach of any warranty
of HDA in this Agreement or any Schedule hereto; and (c) the nonfulfillment of
any covenant, agreement or other obligation of HDA under this Agreement, not
otherwise waived by the Existing Shareholders.
8.3 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations and warranties of the Parties contained in this
Agreement or in any document
39
<PAGE>
delivered pursuant hereto and the Parties' right to indemnity in accordance with
this Article VIII shall survive the Closing Date and shall remain in full force
and effect for eighteen months thereafter; provided, however, that the
-------- -------
representations and warranties set forth in Section 3.12 relating to tax matters
and Section 3.19 relating to employee benefits matters shall survive for the
length of the applicable statute of limitations; provided further that the
-------- -------
representations in Sections 3.4, 3.5, 3.6, 4.4 and 4.5 shall survive
indefinitely. All covenants and agreements contained in this Agreement shall
survive the Closing Date indefinitely until, by their respective terms, they are
no longer operative. No claims for indemnification under clauses (a) and (b) of
Section 8.1 or clauses (a) and (b) of Section 8.2 shall be made after the date
on which the applicable representation or warranty upon which such claim was
based ceases to survive pursuant to this Section 8.3; provided, however, that
-------- -------
the expiration of any representation or warranty under this Section 8.3 shall
not affect any claim for indemnification made in good faith prior to the date of
such expiration.
8.4 Threshold; Deductible Maximum. No HDA's Indemnified Person or
-----------------------------
Existing Shareholders' Indemnified Person shall be entitled to any recovery in
accordance with clauses (a) and (b) of Section 8.1 or clauses (a) and (b) of
Section 8.2 unless and until the amount of such Losses suffered, sustained or
incurred by such party, or to which such party becomes subject, by reason of
such inaccuracy or breach exceeds $500,000 in the aggregate, whereupon HDA's
Indemnified Persons or the Existing Shareholders' Indemnified Persons, as the
case may be, shall be entitled to indemnification under this Article VIII only
for the amount of Losses in excess of such amount up to a maximum amount of
$10,000,000.
8.5 Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves any
claim, or the commencement of any action or proceeding, by a third person (a
"Third Party Claim"), the Indemnitee shall give the Indemnitor written notice of
such claim or the commencement of such action or proceeding. Delay or failure to
so notify the Indemnitor shall only relieve the Indemnitor of its obligations to
the extent, if at all, that it is prejudiced by reasons of such delay or
failure. The Indemnitor shall have a period of 30 days within which to respond
thereto. The Indemnitor may, within such 30-day period, elect to undertake full
responsibility for the defense or compromise of such Third Party Claim. Such
defense will be conducted by reputable attorneys retained by the Indemnitor at
the Indemnitor's cost and expense. If the Indemnitor fails to assume the defense
of such matter within said 30-day period, the Indemnitee against which such
matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake the defense of such matter on behalf of
the Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and
its counsel in the defense against any such Third Party Claim. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld. The Indemnitor and
the Indemnity shall cooperate in determining the validity of any Third Party
Claim for any Loss for which a claim of indemnification may be made hereunder.
Each party shall also use all reasonable efforts to minimize all Losses.
40
<PAGE>
8.6 Indemnification Payments. At the Closing, Holdings will deliver
------------------------
certificates representing the shares of Common Stock and Series A Preferred
Stock included in the Purchase Price under Section 1.1 to the Common Stock
Escrow Agent and the Preferred Stock Escrow Agent to be held by the Common Stock
Escrow Agent and the Preferred Stock Escrow Agent, respectively, for eighteen
months pursuant to the terms of the Common Stock Escrow Agreement and the
Preferred Stock Escrow Agreement, respectively, and to serve as partial security
for the indemnification obligations and post-Closing Purchase Price adjustment
obligations of the Existing Shareholders under this Agreement. Any
indemnification obligations of the Existing Shareholders under this Article VIII
shall be satisfied (a) first, out of the property held by the Preferred Stock
Escrow Agent pursuant to the terms of the Preferred Stock Escrow Agreement, (b)
second, out of the property held by the Common Stock Escrow Agent pursuant to
the terms of the Common Stock Escrow Agreement and (c) third, by payment of cash
by the Existing Shareholders.
8.7 Insurance and Tax Effect. The amount of any Loss for which
------------------------
indemnification is provided under Section 8.1 or 8.2 shall be (a) net of any
amounts recovered by the indemnified party under insurance policies with respect
to such Loss and (b) reduced to take account of any net Tax benefit (if any)
actually realized by the indemnified party arising from the incurrence or
payment of such Loss.
8.8 Certain Additional Limitations on Indenmnifcation.
-------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, no Party shall have
any liability on account of a breach or inaccuracy in a representation or
warranty pursuant to clauses (a) and (b) of Section 8.1 or clauses (a) and (b)
of Section 8.2, to the extent that (a) the matter or event which causes the
inaccuracy or breach first arose prior to the Closing Date (either before or
after the date of this Agreement), (b) the Party had no knowledge of such matter
or event as of the date of this Agreement, (c) such matter or event is disclosed
to the other Party or Parties in a revised Schedule delivered prior to the
Closing Date and (d) the other Party or Parties shall have elected to proceed
with the Closing. No supplement or amendment of any Schedule made pursuant to
this Section 8.8 shall be deemed to cure for purposes of Section 6.3 or Section
7.2 any breach of any representation or warranty made in this Agreement unless
the other Party or Parties specifically waive such breach in writing.
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses. Except as otherwise set forth in this Agreement, HDA or
--------
Holdings shall pay all costs and expenses incurred by them or on their behalf,
and with respect to costs and expenses incurred by the Existing Shareholders,
the Company or any ABS Subsidiary on the Existing Shareholders', the Company's
or any ABS Subsidiary's behalf to the extent incurred and reflected on the
Closing Balance Sheet or paid prior to the Closing, shall be paid by the
Company, and any such costs and expenses incurred thereafter shall be paid by
the Existing Shareholders, in connection with this Agreement and the
transactions contemplated hereby, including fees and expenses of their financial
consultants, accountants and legal counsel.
9.2 Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the Parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
41
<PAGE>
If to the Company, at:
Associated Brake Supply, Inc.
17010 South Main Street
Gardena, California 90248-3126
Attn.: David Seewack and Scott Spiwak
Telecopy No.: (310) 217-6401
With a Copy to:
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067-4276
Attn.: Kenneth R. Heitz
Telecopy No.: (310) 203-7199
If to any Existing Shareholder, at the address or telecopier number of
such Existing Shareholder set forth on Annex B hereto.
With a Copy to:
Irell & Manella LLP
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067-4276
Attn.: Kenneth R. Heitz
Telecopy No.: (310) 203-7199
If to Holdings or HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attn.: John J. Greisch
Telecopy No.: (847) 444-1096
WITH a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
Telecopy No.: (310) 477-1011
42
<PAGE>
And
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attn.: Timothy J. Melton
Telecopy No.: (312) 782-8585
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3 Counterparts. This Agreement may be executed simultaneously in one
------------
or more counterparts, and by different parties hereto in separate counterparts,
each of which when executed shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
9.4 Entire Agreement. This Agreement, the other written agreements
----------------
entered into on the date hereof or referenced herein, the Confidentiality
Agreement, dated as of August 3, 1998, between HDA and the Company, and the
provisions under the heading "Non-Interference" in the Letter of Intent, dated
September 25, 1998, between HDA and the Company, constitute the entire agreement
of the Parties with respect to the subject matter hereof and supersedes all
prior negotiations, agreements and understandings, whether written or oral, of
the Parties.
9.5 Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6 Assignment: Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Delaware
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8 Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9 No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than Holdings, HDA,
the Company and the Existing Shareholders, and no person shall assert any rights
as third-party beneficiary hereunder.
43
<PAGE>
9.10 Non Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12 Incorporation of Exhibits and Schedules. (a) The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
(b) Disclosure of an item on one Schedule shall be deemed to be
disclosure on any other Schedule, or with regard to any other representation or
warranty, to which such disclosure relates with reasonable obviousness. The
Company and the Existing Shareholders have attempted to be overinclusive in
creating the Schedules and, consequently, the language of the Agreement, and not
the items disclosed on any Schedule, should be used in determining the
appropriate standard for disclosure.
9.13 Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase includes actual knowledge, after reasonable
inquiry, of any officer, director or shareholder of the Company and any employee
of the Company whose job duties include the supervision of the subject matter in
question.
[signature page follows]
44
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John P. Miller
----------------------------------------
Name: John P. Miller
Title: Vice President of Finance,
Chief Financial Officer and Secretary
HDA PARTS SYSTEM, INC.
By: /s/ John P. Miller
---------------------------------------
Name: John P. Miller
Title: Vice President of Finance,
Chief Financial Officer and Secretary
ASSOCIATED BRAKE SUPPLY, INC.
By: /s/ David S. Seewack
---------------------------------------
Name: David S. Seewack
Title: Chief Executive Officer
THE SEEWACK FAMILY TRUST
By: /s/ David S. Seewack
---------------------------------------
David S. Seewack, Trustee
By: /s/ Robin E. Seewack
---------------------------------------
Robin E. Seewack, Trustee
THE SPIWAK FAMILY TRUST
By: /s/ Scott Spiwak
---------------------------------------
Scott Spiwak, Trustee
By: /s/ Jill Beth Spiwak
---------------------------------------
Jill Beth Spiwak, Trustee
S-1
<PAGE>
ANNEX A
THE EXISTING SHAREHOLDERS
Name Shares Owned
---- ------------
The Seewack Family Trust 200
The Spiwak Family Trust 200
A-1
<PAGE>
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
BY AND AMONG
CITY TRUCK HOLDINGS, INC.
AND
HDA PARTS SYSTEM, INC.
AND
THE SHAREHOLDERS OF
TISCO, INC. AND TISCO OF REDDING, INC.
JANUARY 12, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. PURCHASE AND SALE......................................... 1
1.1 Purchase Price................................................. 1
--------------
1.2 Post-Closing Purchase Price Adjustment......................... 2
--------------------------------------
ARTICLE II. CLOSING................................................... 3
2.1 Closing........................................................ 3
-------
2.2 Sale of Capital Stock of the Companies......................... 3
--------------------------------------
2.3 Payment of Purchase Price...................................... 3
-------------------------
2.4 Section 338(h)(10) Election.................................... 3
---------------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE
EXISTING SHAREHOLDERS..................................... 3
3.1 Corporate Organization and Standing............................ 3
-----------------------------------
3.2 Authorization.................................................. 4
-------------
3.3 No Conflict or, Violation...................................... 4
--------------------------
3.4 Capitalization of the Companies................................ 4
--------------------------------
3.5 Title to Shares................................................ 5
---------------
3.6 Facilities..................................................... 6
----------
3.7 Financial Statements........................................... 8
--------------------
3.8 Books and Records.............................................. 9
-----------------
3.9 Litigation..................................................... 9
----------
3.10 Licenses and Permits: Compliance with Laws..................... 9
------------------------------------------
3.11 Tax Matters.................................................... 10
-----------
3.12 Brokers, Finders............................................... 11
----------------
3.13 Absence of Certain Changes..................................... 11
--------------------------
3.14 Material Contracts............................................. 15
------------------
3.15 Proprietary Rights............................................. 16
------------------
3.16 Labor Matters.................................................. 18
-------------
3.17 Consents....................................................... 18
--------
3.18 Employee Benefit Plans: Employment Agreements.................. 18
---------------------------------------------
3.19 Compliance with Environmental Laws............................. 21
----------------------------------
3.20 Certain Business Relationships with the Company................ 25
-----------------------------------------------
3.21 Undisclosed Liabilities........................................ 25
-----------------------
3.22 Insurance...................................................... 25
---------
3.23 Accounts Receivable............................................ 26
-------------------
3.24 Inventory...................................................... 26
---------
3.25 Payments....................................................... 26
--------
3.26 Customers...................................................... 27
---------
3.27 Computer Systems............................................... 27
----------------
3.28 Investment Intent: Accredited Investors; Suitability
----------------------------------------------------
and Sophistication............................................. 27
------------------
3.29 Material Misstatements Or Omissions............................ 29
-----------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA......... 29
4.1 Corporate Organization and Standing............................ 29
-----------------------------------
4.2 Authorization.................................................. 29
-------------
4.3 No Conflict or Violation....................................... 29
------------------------
4.4 Capitalization of Holdings and HDA............................. 30
----------------------------------
4.5 Subsidiaries of HDA............................................ 30
-------------------
4.6 HDA Financial Statements....................................... 30
------------------------
4.7 Stock.......................................................... 30
-----
4.8 Investment..................................................... 31
----------
4.9 Sufficient Funds............................................... 31
----------------
ARTICLE V. POST-CLOSING COVENANTS..................................... 31
5.1 Further Assurances............................................. 31
------------------
5.2 Tax Matters.................................................... 32
-----------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY HOLDINGS
AND HDA.................................................... 36
6.1 No Injunctive Proceedings...................................... 36
-------------------------
6.2 Representations and Warranties................................. 36
------------------------------
6.3 Performance of Agreements...................................... 36
-------------------------
6.4 Compliance Certificate......................................... 36
----------------------
6.5 Stock Certificates............................................. 36
------------------
6.6 Stock Books.................................................... 36
-----------
6.7 Officers and Directors......................................... 36
----------------------
6.8 Opinion of Counsel............................................. 36
------------------
6.9 Consents, Etc.................................................. 36
--------------
6.10 Ancillary Agreements........................................... 36
--------------------
6.11 Nonforeign Affidavit........................................... 37
--------------------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE
EXISTING SHAREHOLDERS...................................... 37
7.1 No Injunctive Proceedings...................................... 37
-------------------------
7.2 Representations and Warranties................................. 37
------------------------------
7.3 Performance of Agreements: Instruments of Transfer............. 37
--------------------------------------------------
7.4 Compliance Certificates........................................ 37
-----------------------
7.5 Ancillary Agreements........................................... 37
--------------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING................... 38
8.1 Indemnification by the Existing Shareholders................... 38
--------------------------------------------
8.2 Indemnification by Holdings and HDA............................ 38
-----------------------------------
8.3 Survival of Representations, Warranties and Covenants.......... 39
-----------------------------------------------------
8.4 Threshold...................................................... 39
---------
8.5 Notice and Opportunity to Defend............................... 39
--------------------------------
8.6 Indemnification Payments....................................... 39
------------------------
8.7 Tax Effect..................................................... 40
----------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX. MISCELLANEOUS................................................ 40
9.1 Expenses....................................................... 40
--------
9.2 Notices........................................................ 40
-------
9.3 Counterparts................................................... 41
------------
9.4 Entire Agreement............................................... 41
----------------
9.5 Headings....................................................... 41
--------
9.6 Assignment: Amendment of Agreement............................. 41
----------------------------------
9.7 Governing Law.................................................. 42
-------------
9.8 Further Assurances............................................. 42
------------------
9.9 No Third-Party Rights.......................................... 42
---------------------
9.10 Non-Waiver..................................................... 42
----------
9.11 Severability................................................... 42
------------
9.12 Incorporation of Exhibits and Schedules........................ 42
---------------------------------------
9.13 Knowledge...................................................... 42
---------
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January
12, 1999, is entered into by and among City Truck Holdings, Inc., a Delaware
corporation ("Holdings"), HDA Parts System, Inc., an Alabama corporation
("HDA"), the shareholder of Tisco, Inc., a California corporation ("Tisco"),
identified on Annex A hereto (the "Existing Tisco Shareholder") and each of the
shareholders of Tisco of Redding, Inc., a California corporation ("Redding" and,
together with Tisco, the "Companies"), identified on Annex B hereto
(individually, an "Existing Redding Shareholder" and collectively, the "Existing
Redding Shareholders"). The Existing Tisco Shareholder and the Existing Redding
Shareholders are referred to herein as each an "Existing Shareholder" and
collectively, the "Existing Shareholders." Holdings, HDA and the Existing
Shareholders are referred to herein as each a "Party" and collectively, the
"Parties."
RECITALS
WHEREAS, the Existing Shareholders own all of the capital stock of the
Companies;
WHEREAS, HDA desires to acquire all of the capital stock of the
Companies;
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price. Upon the terms and subject to the conditions set
--------------
forth herein, HDA will purchase from the Existing Shareholders all of the
capital stock of the Companies for an aggregate price (the "Purchase Price")
determined as follows: (a) cash in an amount equal to (i) $5,750,000 (Five
Million Seven Hundred Fifty Thousand Dollars), (ii) (A) minus the amount (if
-----
any) by which the distributions made by Tisco or Redding to the Existing Tisco
Shareholder or any Existing Redding Shareholder or any persons related directly
or indirectly by blood or marriage to the Existing Tisco Shareholder or any
Existing Redding Shareholder (the "Related Party Distributions") between July
31, 1998 and Closing (as defined) is greater than $630,000 (representing the
aggregate of $390,000 attributable to Taxes (as defined) relating to income of
the Companies paid or estimated to be payable by the Existing Shareholders for
fiscal 1998 and $240,000 attributable to Taxes relating to income of the
Companies paid or estimated to be payable by the Existing Shareholders for the
period between October 1, 1998 and the Closing (such estimated amount, the
"Estimated Existing Shareholders' Taxes")) or (B) plus the amount (if any) by
----
which the Related Party Distributions between July 31, 1998 and Closing is less
than $630,000, payable by wire transfer in immediately available funds to the
Existing Shareholders (the "Estimated Cash Purchase Price"), (b) 1,717 shares of
Common Stock of Holdings, par value $.01 per share (the "Common Stock"), and (c)
7,482.232 shares of Series A Preferred Stock of Holdings, par value $.0l per
share (the "Series A Preferred Stock"). The Purchase Price shall be allocated
among the Existing Shareholders in the manner specified in Annex C. The Taxes
relating to income of the Companies for the period between October 1, 1998 and
the Closing shall include Taxes on income recognized
<PAGE>
by the Companies as a result of the election pursuant to Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder contemplated hereby.
1.2 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) Tax Returns. The Existing Shareholders will prepare at their
-----------
expense draft schedules of Taxes relating to income of the Companies payable by
the Existing Shareholders for fiscal 1998 and for the period October 1, 1998 to
the Closing Date (as defined) (the "Draft Tax Obligations"). The Existing
Shareholders will deliver such Draft Tax Obligations to HDA as soon as possible
but in any event within 75 days after the Closing.
(b) Tax Notice.
----------
(i) Within 30 days after the receipt of the Draft Tax Obligations,
HDA will deliver to the Existing Shareholders a written notice certifying
that either (A) it agrees with the Draft Tax Obligations or (B) it
disagrees with the Draft Tax Obligations, in which case it will provide
therewith a reasonably detailed written report stating the basis for
disagreement with the Draft Tax Obligations (the "Tax Notice"). The
Existing Shareholders shall provide reasonable access to their respective
accountants' work papers and personnel and to such historical financial
information as HDA shall reasonably request in order to review the Draft
Tax Obligations.
(ii) If the Tax Notice is not timely given as described in Section 1
.2(b)(i), the Draft Tax Obligations furnished by the Existing Shareholders
to HDA pursuant to Section 1.2(a) shall be final, binding and conclusive
upon the Parties. If HDA disagrees with such Draft Tax Obligations as
described in Section 1.2(b)(i)(B), and if the disagreement is not resolved
by mutual agreement among the Parties within 30 days following delivery of
the Tax Notice, such dispute will be resolved by a "Big 5" accounting firm
("BFAF"), other than PricewaterhouseCoopers LLP, selected by mutual
agreement of HDA and the Existing Shareholders. The costs of resolving such
a dispute shall be borne equally by HDA and the Existing Shareholders.
(iii) Upon appointment of a BFAF, such BFAF in consultation with the
Parties shall establish a schedule for resolution of the dispute that is
reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Draft Tax
Obligations only with respect to the issues raised in the Tax Notice. The
decision of the BFAF shall be final and binding on HDA and the Existing
Shareholders in the absence of manifest error.
(c) Post-Closing Adjustment. Within two business days after a final
-----------------------
resolution by the BFAF of such disagreements as may arise out the review of the
Draft Tax Obligations in accordance with Section 1.2(b) above, and an
appropriate adjustment to the Draft Tax Obligations to reflect such resolution,
or if Section 1.2(b)(i)(A) or the first sentence of Section 1.2(b)(ii)
applies, two business days after delivery of, or expiration of the period for
delivering, the Tax Notice (as applicable), the actual cash portion of the
Purchase Price (the "Cash Purchase Price") will be determined based on the
Existing Shareholders' Taxes (as adjusted pursuant to this sentence, if
applicable) instead of the Estimated Existing Shareholders' Taxes, and to the
extent that the Estimated Cash Purchase Price was less than the Cash Purchase
Price, the difference and interest
2
<PAGE>
thereon due to the Existing Shareholders will promptly be paid to the Existing
Shareholders by HDA. Similarly, to the extent the Estimated Cash Purchase Price
was more than the Cash Purchase Price, the excess and interest thereon will be
promptly returned by the Existing Shareholders to HDA. Any amounts payable
pursuant to this paragraph shall bear interest from the Closing Date through the
date of payment at an annual rate equal to LIBOR as reported in The Wall Street
Journal on the Closing Date.
ARTICLE II.
CLOSING
2.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be held at 10:00 a.m. local time on January 12, 1999 (the
"Closing Date") at the offices of Jones, Day, Reavis & Pogue, 77 West Wacker,
Chicago, Illinois 60601. The place of the Closing and the Closing Date may be
varied by agreement among the parties.
2.2 Sale of Capital Stock of the Companies. On the terms and subject
--------------------------------------
to the conditions of this Agreement, on the Closing Date, the Existing
Shareholders shall sell, transfer and assign to HDA, and HDA shall purchase and
acquire from the Existing Shareholders, all of the capital stock of the
Companies.
2.3 Payment of Purchase Price. At the Closing, (a) HDA shall wire
-------------------------
transfer the Cash Purchase Price in immediately available funds in the amounts
and to the bank accounts designated by the Existing Shareholders on Annex C
hereto (less $500,000 (Five Hundred Thousand Dollars) to be delivered to the
Escrow Agent (as defined) pursuant to Section 8.6 hereof) and (b) Holdings shall
issue and sell, and the Existing Tisco Shareholder shall purchase from Holdings,
the number of shares of Common Stock and Series A Preferred Stock set opposite
each such Existing Shareholder's name on Annex C hereto.
2.4 Section 338(h)(l0) Election. The Existing Shareholders shall
---------------------------
deliver to HDA such duly executed documents, forms and consents as HDA shall
deem to be reasonably necessary to effect an election pursuant to Section
338(h)(l0) of the Code and the regulations thereunder.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE EXISTING SHAREHOLDERS
The Existing Tisco Shareholder with respect to Tisco, and the Existing
Redding Shareholders, jointly and severally with respect to Redding, represent
and warrant to Holdings and HDA as follows, except as set forth in a disclosure
schedule ("Schedule") attached hereto and made a part hereof, the number of each
Schedule corresponding to the Section number to which it refers:
3.1 Corporate Organization and Standing. (a) Tisco is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own
or lease its properties and to carry on its business as presently conducted.
Tisco has delivered to HDA or its representatives complete and correct copies of
its Articles of Incorporation and Bylaws (or other charter documents) and all
amendments
3
<PAGE>
thereto. Tisco is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business as now
being conducted by it or the property owned or leased by it makes such
qualification necessary, except where a failure to be so duly qualified and in
good standing could not reasonably be expected to have a material adverse effect
on the business, operations, assets, results of operations or financial
condition of Tisco, all of which are listed on Schedule 3.1(a). Tisco does not
own, and has not at any time within the past five years owned, any capital stock
of, or other securities or interests evidencing an equity interest in, any
corporation, partnership, limited liability company or other entity.
(b) Redding is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all requisite
corporate power and authority to own or lease its properties and to carry on its
business as presently conducted. Redding has delivered to HDA or its
representatives complete and correct copies of its Articles of Incorporation and
Bylaws (or other charter documents) and all amendments thereto. Redding is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of the business as now being conducted by
it or the property owned or leased by it makes such qualification necessary,
except where a failure to be so duly qualified and in good standing could not
reasonably be expected to have a material adverse effect on the business,
operations, assets, results of operations or financial condition of Redding, all
of which are listed on Schedule 3.1(b). Redding does not own, and has not at any
time within the past five years owned, any capital stock of, or other securities
or interests evidencing an equity interest in, any corporation, partnership,
limited liability company or other entity.
3.2 Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined), and the transactions contemplated hereby and thereby have been duly
authorized (in the case of non-natural persons). This Agreement has been, and
the Ancillary Agreements will be, duly executed and delivered by the Existing
Shareholders party thereto, and are (or will be, as the case may be) the legal,
valid and binding obligations of the Existing Shareholders party thereto,
enforceable against them in accordance with their terms.
3.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (a) violate, conflict with or
result in or constitute a default under or result in the termination or the
acceleration of, or the creation in any party of any right (whether or not with
notice or lapse of time or both) to declare a default, accelerate, terminate or
cancel any indenture, contract, lease, sublease, loan agreement, note or other
agreement, obligation or liability ("Contractual Obligation") to which the
Companies or any Existing Shareholder is a party or by which it, he or she is
bound or to which its, his or her assets are subject or result in the creation
of any lien or encumbrance upon any of said assets, (b) violate, conflict with
or result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws (or other organizational documents) of Tisco
or Redding, (c) violate, conflict with or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Companies or any Existing Shareholder is
subject or (d) violate, conflict with or result in a breach of any applicable
rule or regulation of any federal, state, local or other governmental authority.
3.4 Capitalization of the Companies. (a) The authorized capital stock
----------------- -------------
of Tisco consists of 100,000 shares of capital stock, without par value ("Tisco
Common Stock"). As of the
4
<PAGE>
date of this Agreement, 25,000 shares of Tisco Common Stock are outstanding, all
of which shares have been duly authorized, validly issued and are fully paid and
non-assessable and are owned by the Existing Tisco Shareholder (the "Tisco
Shares"). There are (x) no preemptive or similar rights on the part of any
holder of any class of securities of Tisco and (y) no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
Tisco, contingently or otherwise, to issue, sell or otherwise cause to be
outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
(b) The authorized capital stock of Redding consists of 500,000 shares
of capital stock, without par value ("Redding Common Stock"). As of the date of
this Agreement, 127 shares of Redding Common Stock are outstanding, all of which
shares have been duly authorized, validly issued and are fully paid and non-
assessable and are owned in the aggregate by the Existing Redding Shareholders,
and individually by the person and entity in the amounts specified on Annex B
hereto (the "Redding Shares"). There are (x) no preemptive or similar rights on
the part of any holder of any class of securities of Redding and (y) no options,
warrants, conversion or other rights, agreements or commitments of any kind
obligating Redding, contingently or otherwise, to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
3.5 Title to Shares. (a) The Existing Tisco Shareholder has, and at
---------------
Closing will have, good and valid title to the Tisco Shares owned by it, free
and clear of any claims, liens, security interests, options, charges,
restrictions and interests of others whatsoever. Upon delivery to HDA at the
Closing of certificates representing the Tisco Shares owned by the Existing
Tisco Shareholder, duly endorsed by it for transfer to HDA, HDA will obtain good
and valid title to such Tisco Shares, free and clear of any claims, liens,
security interests, options, charges, restrictions and interests of others
whatsoever except for any restrictions created by HDA. There are no voting
trusts, proxies, or other agreements or understandings to which Tisco or the
Existing Tisco Shareholder is a party with respect to the voting, dividend
rights or disposition of any of the Tisco Shares. The Existing Tisco Shareholder
has no obligation, absolute or contingent, to any other person or entity to
issue, sell or otherwise dispose of any capital stock of Tisco or to effect any
merger, consolidation, reorganization or other business combination of Tisco or
to enter into any agreement with respect thereto.
(b) The Existing Redding Shareholders have, and at Closing will have,
good and valid title to the Redding Shares owned by them, free and clear of any
claims, liens, security interests, options, charges, restrictions and interests
of others whatsoever. Upon delivery to HDA at the Closing of certificates
representing the Redding Shares owned by the Existing Redding Shareholders, duly
endorsed by them for transfer to HDA, HDA will obtain good and valid title to
such Redding Shares, free and clear of any claims, liens, security interests,
options, charges, restrictions and interests of others whatsoever except for any
restrictions created by HDA. There are no voting trusts, proxies, or other
agreements or understandings to which Redding or any Existing Redding
Shareholder is a party with respect to the voting, dividend rights or
disposition of any of the Redding Shares. The Existing Redding Shareholders have
no obligation, absolute or contingent, to any other person or entity to issue,
sell or otherwise dispose of any capital stock of Redding or to effect any
merger, consolidation, reorganization or other business combination of Redding
or to enter into any agreement with respect thereto.
5
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3.6 Facilities. Schedule 3.6(a) contains a complete and accurate
----------
list of all real property used in connection with the business of Tisco ("Tisco
Real Property"), all of which is leased ("Tisco Leased Real Property"), Tisco
does not own any real property. Schedule 3.6(b) contains a complete and accurate
list of all real property used in connection with the business of Redding
("Redding Real Property"), all of which is leased ("Redding Leased Real
Property"), Redding does not own any real property.
(a) Actions. (i) There are no pending or, to the best knowledge of
-------
Tisco, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Tisco Actions") relating to any facility located on the Tisco
Real Property.
(ii) There are no pending or, to the best knowledge of Redding,
threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Redding Actions") relating to any facility located on the
Redding Real Property.
(b) Leases or Other Agreements. (i) Other than the oral leases
--------------------------
identified on Schedule 3.6(a) between Tisco and the owner(s) of the Tisco Real
Property, there are no leases, subleases, licenses, occupancy agreements,
options, rights, concessions or other agreements or arrangements, written or
oral, granting to any person the right to purchase, use or occupy any Tisco
Facility or any Tisco Real Property or any portion thereof, or interest in any
such Tisco Facility or Tisco Real Property.
(ii) Other than the oral lease identified on Schedule 3.6(b) between
Redding and the owner(s) of the Redding Real Property, there are no leases,
subleases, licenses, occupancy agreements, options, rights, concessions or other
agreements or arrangements, written or oral, granting to any person the right to
purchase, use or occupy any Redding Facility or any Redding Real Property or any
portion thereof, or interest in any such Redding Facility or Redding Real
Property.
(c) Facility Leases and Leased Real Property. (i) With respect to
----------------------------------------
each Tisco Facility lease, Tisco has an unencumbered interest in the leasehold
estate. Tisco enjoys peaceful and undisturbed possession of all Tisco Leased
Real Property. Each Tisco Facility lease is valid, binding and enforceable in
accordance with its terms. Tisco is not in default under any Tisco Facility
lease or sublease, and no event or condition exists that with notice or lapse of
time or both would constitute a default by Tisco under any Tisco Facility lease
or sublease.
(ii) With respect to each Redding Facility lease, Redding has an
unencumbered interest in the leasehold estate. Redding enjoys peaceful and
undisturbed possession of all Redding Leased Real Property. Each Redding
Facility lease is valid, binding and enforceable in accordance with its terms.
Redding is not in default under any Redding Facility lease or sublease, and no
event or condition exists that with notice or lapse of time or both would
constitute a default by Redding under any Redding Facility lease or sublease.
(d) Certificate of Occupancy. (i) All Tisco Facilities have
------------------------
received all required approvals of governmental authorities (including, without
limitation, permits and a certificate of occupancy or similar certificate
permitting lawful occupancy of the Tisco Facilities) required in
6
<PAGE>
connection with the operation thereof and are and have been operated and
maintained in accordance with applicable regulations in all material respects.
(ii) All Redding Facilities have received all required approvals of
governmental authorities (including, without limitation, permits and a
certificate of occupancy or similar certificate permitting lawful occupancy of
the Redding Facilities) required in connection with the operation thereof and
are and have been operated and maintained in accordance with applicable
regulations in all material respects.
(e) Utilities. (i) All Tisco Facilities are supplied with utilities
---------
(including, without limitation, water, sewage, disposal, electricity, gas and
telephone) and other services necessary for the operation of such Tisco
Facilities as currently operated, and there is no condition which would
reasonably be expected to result in the termination of the present access from
any Tisco Facility to such utility services.
(ii) All Redding Facilities are supplied with utilities (including,
without limitation, water, sewage, disposal, electricity, gas and telephone) and
other services necessary for the operation of such Redding Facilities as
currently operated, and there is no condition which would reasonably be expected
to result in the termination of the present access from any Redding Facility to
such utility services.
(f) Improvements, Fixtures and Equipment. (i) The improvements
------------------------------------
constructed on the Tisco Facilities, including, without limitation, all
leasehold improvements, and all fixtures and equipment and other tangible assets
owned, leased or used by Tisco at the Tisco Facilities are (A) insured to the
extent and in a manner customary in the industry, (B) structurally sound with no
known material defects, (C) in good operating condition and repair, subject to
ordinary wear and tear, (D) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost of which would not
be material, (E) sufficient for the operation of Tisco as presently conducted
and (F) in conformity with all applicable regulations.
(ii) The improvements constructed on the Redding Facilities,
including, without limitation, all leasehold improvements, and all fixtures and
equipment and other tangible assets owned, leased or used by Redding at the
Redding Facilities are (A) insured to the extent and in a manner customary in
the industry, (B) structurally sound with no known material defects, (C) in good
operating condition and repair, subject to ordinary wear and tear, (D) not in
need of maintenance, repair or correction except for ordinary routine
maintenance and repair, the cost of which would not be material, (E) sufficient
for the operation of Redding as presently conducted and (F) in conformity with
all applicable regulations.
(g) No Special Assessment. (i) Tisco has not received notice of any
---------------------
special assessment relating to any Tisco Facility or any portion thereof, and
there is no pending or threatened special assessment.
(ii) Redding has not received notice of any special assessment
relating to any Redding Facility or any portion thereof, and there is no pending
or threatened special assessment.
7
<PAGE>
3.7 Financial Statement.
-------------------
(a) The unaudited balance sheet and statements of income,
stockholders' equity and cash flows of Tisco at and for the fiscal year ended
September 30, 1998 were prepared in accordance with GAAP consistently applied
(except that certain footnote disclosures have been omitted) and fairly present
the financial condition and results of operations of Tisco as of its date and
for such period. Tisco has no liabilities of any nature, whether absolute,
accrued, asserted or unasserted or contingent or whether due or to become due
that should have been recorded or reserved for on such balance sheet and were
not so recorded or reserved.
(b) The unaudited balance sheet and statements of income,
stockholders' equity and cash flows of Redding at and for the fiscal year ended
September 30, 1998 were prepared in accordance with GAAP consistently applied
(except that certain footnote disclosures have been omitted) and fairly present
the financial condition and results of operations of Redding as of its date and
for such period. Redding has no liabilities of any nature, whether absolute,
accrued, asserted or unasserted or contingent or whether due or to become due
that should have been recorded or reserved for on such balance sheet and were
not so recorded or reserved.
(c) The compiled balance sheets and statements of income,
stockholders' equity and cash flows of Tisco at and for the fiscal years ended
September 30, 1997 and 1996 were prepared in accordance with GAAP consistently
applied and fairly present the financial condition of Tisco as of their
respective dates and for each such period. Tisco has no liabilities of any
nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due that should have been recorded or reserved for on
any such balance sheet and were not so recorded or reserved.
(d) The compiled balance sheets and statements of income,
stockholders' equity and cash flows of Redding at and for the fiscal years ended
September 30, 1997 and 1996 were prepared in accordance with GAAP consistently
applied and fairly present the financial condition of Redding as of their
respective dates and for each such period. Redding has no liabilities of any
nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due that should have been recorded or reserved for on
any such balance sheet and were not so recorded or reserved.
(e) The unaudited balance sheet and statements of income,
stockholders' equity and cash flows of Tisco at and for the two months ended
November 30, 1998 were prepared in accordance with GAAP consistently applied
(except that certain footnote disclosures have been omitted) and fairly present
the financial condition and results of operations of Tisco as of its date and
for such period and are consistent with the financial statements described in
Sections 3.7(a) and (c).
(f) The unaudited balance sheet and statements of income,
stockholders' equity and cash flows of Redding at and for the two months ended
November 30, 1998 were prepared in accordance with GAAP consistently applied
(except that certain footnote disclosures have been omitted) and fairly present
the financial condition and results of operations of Redding as of its date and
for such period and are consistent with the financial statements described in
Sections 3.7(b) and (d).
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<PAGE>
(g) Copies of the financial statements described in Section 3.7(a)-
(f) have been provided to HDA or its representatives.
3.8 Books and Records. (a) Tisco has made and kept and given HDA and
-----------------
its representatives access to books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of Tisco. The
minute books of Tisco accurately and adequately reflect all action taken by the
shareholders, board of directors and committees of the board of directors of
Tisco. The copies of the stock book records of Tisco are true, correct and
complete, and accurately reflect all transactions effected in Tisco's equity
interests through and including the date hereof. Tisco has not engaged in any
transaction, maintained any bank account or used any corporate funds except for
the transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of Tisco, all of which have been
provided or made available to HDA and its representatives.
(b) Redding has made and kept and given HDA and its representatives
access to books and records and accounts, which, in reasonable detail,
accurately and fairly reflect the activities of Redding. The minute books of
Redding accurately and adequately reflect all action taken by the shareholders,
board of directors and committees of the board of directors of Redding. The
copies of the stock book records of Redding are true, correct and complete, and
accurately reflect all transactions effected in Redding's stock interests
through and including the date hereof. Redding has not engaged in any
transaction, maintained any bank account or used any corporate funds except for
the transactions, bank accounts and funds which have been and are reflected in
the normally maintained books and records of Redding, all of which have been
provided or made available to HDA and its representatives.
3.9 Litigation. (a) There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of Tisco, threatened against
Tisco or the directors, officers, agents or employees of Tisco (in their
capacity as such), or any properties or rights of Tisco. There are no orders,
writs, injunctions or decrees currently in force against Tisco or the directors,
officers, agents or employees of Tisco (in their capacity as such) with respect
to the conduct of Tisco's business.
(b) There is no claim, action, suit, proceeding, or investigation
pending or, to the best knowledge of Redding, threatened against Redding or the
directors, officers, agents or employees of Redding (in their capacity as such),
or any properties or rights of Redding. There are no orders, writs, injunctions
or decrees currently in force against Redding or the directors, officers, agents
or employees of Redding (in their capacity as such) with respect to the conduct
of Redding's business.
3.10 Licenses and Permits: Compliance with Laws. (a) Schedule 3.10(a)
------------------------------------------
sets forth a complete list of all licenses, franchises, permits, approvals and
other governmental authorizations (collectively, "Tisco Licenses and Permits")
held by Tisco. Tisco owns, holds or possesses all Tisco Licenses and Permits
necessary or appropriate to entitle it to use its corporate name, to own or
lease, operate and use its assets and properties and to carry on and conduct its
business and operations as presently conducted. Tisco is not in violation of or
default under any Tisco Licenses or Permits or any judgment, order, writ,
injunction or decree of any court or administrative agency issued against it or
any law, ordinance, rule or regulation applicable to it. Tisco's conduct of its
business has been and is in compliance with all applicable laws, statutes,
ordinances and regulations. Tisco has not received any notice asserting a
failure to comply with any law, statute, ordinance, regulation, rule
9
<PAGE>
or order of any foreign, federal, state or local government or any other
governmental department or agency.
(b) Schedule 3.10(b) sets forth a complete list of all licenses,
franchises, permits, approvals and other governmental authorizations
(collectively, "Redding Licenses and Permits") held by Redding, Redding owns,
holds or possesses all Redding Licenses and Permits necessary or appropriate to
entitle it to use its corporate name, to own or lease, operate and use its
assets and properties and to carry on and conduct its business and operations as
presently conducted. Redding is not in violation of or default under any Redding
Licenses or Permits or any judgment, order, writ, injunction or decree of any
court or administrative agency issued against it or any law, ordinance, rule or
regulation applicable to it. Redding's conduct of its business has been and is
in compliance with all applicable laws, statutes, ordinances and regulations.
Redding has not received any notice asserting a failure to comply with any law,
statute, ordinance, regulation, rule or order of any foreign, federal, state or
local government or any other governmental department or agency.
3.11 Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and (ii) "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) Each Company has timely filed, or caused to be timely filed, all
Tax Returns that they were required to file. All such Tax Returns were correct
and complete in all respects. All Taxes owed by each Company (whether or not
shown on any Tax Return) have been paid. Neither Company currently is the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where either Company
does not file Tax Returns that they are or may be subject to taxation by that
jurisdiction. There are no liens on any of the assets of either Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(c) Each Company withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(d) There is no dispute or claim concerning any Tax liability of
either Company either (i) claimed or raised by any authority in writing or (ii)
of which such Company has knowledge. To the knowledge of each Company and each
Existing Shareholder, no audit or examination of any Tax Return is currently in
progress, and neither Company has received notice of any proposed audit or
examination. Each Company has furnished to HDA or its representatives correct
and complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by either Company with
respect to the last five fiscal
10
<PAGE>
years. Neither Company has waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) Neither Company has filed a consent under Section 341(f) of the
Code concerning collapsible corporations (or any comparable state income tax
provision). Neither Company has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. Neither Company is a party to any Tax allocation, sharing or
indemnity agreement. Neither Company (i) has been a member of an affiliated
group of corporations filing a consolidated federal income Tax Return or (ii)
has liability for the Taxes of any person under Treasury Regulation Sec. 1.1
502-6 (or any similar provision of state, local or foreign law), as a transferee
or successor, by contract, or otherwise. Schedule 3.11 hereto sets forth all
material elections (e.g., accelerated depreciation, Sec. 263(a) regarding the
allocation of overhead to inventory, and LIFO election for inventory
accounting) in effect as of the date hereof with respect to Taxes affecting
either Company.
(f) The unpaid Taxes of each Company did not exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of such
Company's balance sheet at November 30, 1998. Each Company has made provision,
in conformity with GAAP consistently applied, on their respective compiled
balance sheet disclosed in Section 3.7(b) and (c), and the Companies have made
provisions on the most recent consolidated interim financial statements for the
payment of all Taxes which may subsequently become due.
(g) (i) Tisco has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times since October 1, 1989
and will be an S corporation up to and including the Closing Date.
(ii) Redding has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times during its existence
and will be an S corporation up to and including the Closing Date.
3.12 Brokers. Finders. Neither Tisco nor Redding has retained any
----------------
broker or finder in connection with the transactions contemplated herein, and is
not obligated and has not agreed to pay any brokerage or finder's commission,
fee or similar compensation.
3.13 Absence of Certain Changes.
--------------------------
(a) Since September 30, 1998, Tisco has conducted its business in
the ordinary course and there has not occurred with respect to Tisco:
(i) any material adverse effect on the business, operations,
assets, results of operations, financial condition or prospects of Tisco
("Tisco Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable;
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<PAGE>
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities
incurred in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure exceeding $5,000, the execution of
any lease or the incurring of any obligation to make any capital
expenditure or execute any lease other than in the ordinary course of
business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Tisco Material Adverse Effect;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) of Tisco becoming subject to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except
in the ordinary course of business;
(viii) the failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets, business and
goodwill of Tisco's suppliers, customers, distributors and others having
business relations with it;
(ix) the disposition or lapsing of any Tisco Proprietary Rights
(as defined below) or any disposition or disclosure to any person of any
Tisco Proprietary Rights not heretofore a matter of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of inventory in the
ordinary course of business, or any disposal of any material assets for any
amount;
(xi) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or permit which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(xii) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than increases
in base compensation not to exceed 5% per annum in the ordinary course
consistent in timing and amount with past practices), or entry into or
variation of the terms of any employee benefit plan, or employment or
incentive agreement with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business of Tisco or the
relationships between the employees of Tisco and the management of Tisco;
12
<PAGE>
(xiv) any change in any method of accounting or keeping books
of account or accounting practices other than changes necessary to conform
to changes in GAAP;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance;
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money;
(xvii) the declaration, payment or setting aside for payment of
any dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
Tisco Common Stock, or the creation of any securities convertible into or
exchangeable for any shares of Tisco Common Stock or any options, warrants
or other rights to purchase or subscribe to any of the foregoing (except an
amount not to exceed the lesser of (A) the amount of Tisco's undistributed
S corporation earnings for fiscal 1998 and for the period between October
1, 1998 and the Closing and (B) $390,000);
(xviii) the consummation or adoption of any plan of liquidation
or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of Tisco;
(xix) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Tisco Material Adverse Effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
(b) Since September 30, 1998, Redding has conducted its business in
the ordinary course and there has not occurred with respect to Redding:
(i) any material adverse effect on the business, operations,
assets, results of operations, financial condition or prospects of Redding
("Redding Material Adverse Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities
incurred in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
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<PAGE>
(v) any capital expenditure exceeding $5,000, the execution
of any lease or the incurring of any obligation to make any capital
expenditure or execute any lease other than in the ordinary course of
business;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Redding Material Adverse Effect;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) of Redding becoming subject to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except
in the ordinary course of business;
(viii) the failure to carry on diligently the business in the
ordinary course so as to preserve for HDA the assets, business and goodwill
of Redding's suppliers, customers, distributors and others having business
relations with it;
(ix) the disposition or lapsing of any Redding Proprietary
Rights (as defined below) or any disposition or disclosure to any person of
any Redding Proprietary Rights not heretofore a matter of public knowledge;
(x) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of inventory in the
ordinary course of business, or any disposal of any material assets for any
amount;
(xi) an amendment, cancellation or termination of any
contract, commitment, agreement, lease, transaction or permit relating to
assets or the business or entry into any contract, commitment, agreement,
lease, transaction or permit that is not in the ordinary course of
business, including, without limitation, any employment or consulting
agreements;
(xii) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than increases
in base compensation not to exceed 5% per annum in the ordinary course
consistent in timing and amount with past practices), or entry into or
variation of the terms of any employee benefit plan, or employment or
incentive agreement with any such person;
(xiii) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business of Redding or the
relationships between the employees of Redding and the management of
Redding;
(xiv) any change in any method of accounting or keeping books
of account or accounting practices other than changes necessary to conform
to changes in GAAP;
(xv) any material damage, destruction or loss of any asset,
whether or not covered by insurance;
14
<PAGE>
(xvi) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money;
(xvii) the declaration, payment or setting aside for payment any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
Redding Common Stock, or the creation of any securities convertible into or
exchangeable for any shares of Redding Common Stock or any options,
warrants or other rights to purchase or subscribe to any of the foregoing
(except an amount not to exceed the lesser of (A) the amount of Redding's
undistributed S corporation earnings for fiscal 1 99& and for the period
between October 1, 1998 and the Closing or (B) $240,000);
(xviii) the consummation or adoption of any plan of liquidation
or resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of Redding;
(xix) the existence of any other event or condition which, in
any one case or in the aggregate, has been or might reasonably be expected
to have a Redding Material Adverse Effect; or
(xx) an agreement to do any of the things described in the
preceding clauses (i) - (xix) other than as expressly provided for herein.
3.14 Material Contracts. Schedule 3.14 attached hereto sets forth a
------------------
complete and correct list of all the Material Contracts to which Tisco or
Redding or, in the case of Section 3.14(g), any Existing Shareholder, is a
party. As used in this Agreement, "Material Contracts" means:
(a) all such contracts not made in the ordinary course of business;
(b) all such leases or other agreements under which Tisco or Redding
is a lessor or lessee of any real property or any machinery, equipment, vehicle
or other tangible personal property owned by a third party and used in the
business of Tisco or Redding, which entails annual payments, in the case of any
such lease or agreement, in excess of $5,000;
(c) all such options with respect to any property, real or personal,
whether Tisco Redding is the grantor or grantee thereunder;
(d) all such distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to
Tisco's or Redding's assets or business and that are not cancelable on not more
than 30 days notice and without cancellation penalties or severance payments, in
the case of any such contract or group of contracts, in excess of
$5,000;
(e) all such mortgages, indentures, security agreements, pledges,
notes, loan agreements or guaranties relating to Tisco or Redding;
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(f) all such contracts and agreements to which Tisco or Redding is a
party and which are (i) outstanding contracts with its officers; employees,
agents, consultants, advisors, salespeople, sales representatives, distributors,
sales agents or dealers of Tisco or Redding other than contracts which by their
terms are cancelable by Tisco or Redding with notice of not more than 30 days
and without cancellation penalties or severance payments; in the case of any
such contract or group of contracts, in excess of $5,000; (ii) collective
bargaining agreements and (iii) pension, profit-sharing, bonus, retirement,
stock option or employee benefit plans or other similar plans or arrangements of
Tisco or Redding;
(g) any covenant not to compete or similar restriction on Tisco or
Redding or any Existing Tisco Shareholder or Existing Redding Shareholder;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $5,000 or more after the
date of this Agreement, including; without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by Tisco or
Redding.
The Existing Shareholders have furnished to HDA or its representatives true and
correct copies of all Material Contracts, including all amendments and
supplements thereto.
3.15 Proprietary Rights.
------------------
(a) (i) Schedule 3.15(a)(i) lists the material patents, trademarks
(whether registered or unregistered), service marks, trade names, service names,
brand names, logos and copyrights (collectively, the "Tisco Proprietary Rights")
for Tisco. Schedule 3.15(a)(i) also sets forth: (A) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (B) for each trademark, the application serial
number or registration number; the class of goods covered and the expiration
date for each country in which a trademark has been registered and (C) for each
copyright, the number and date of filing for each country in which a copyright
has been filed. The Tisco Proprietary Rights listed in Schedule 3.15(a)(i) are
all those used by Tisco in connection with its businesses. True and correct
copies of all patents (including all pending applications) owned, controlled,
created or used by or on behalf of Tisco or in which Tisco has any interest
whatsoever have been provided to HDA or its representatives.
(ii) Schedule 3.15(a)(ii) lists the material patents, trademarks
(whether registered or unregistered), service marks, trade names, service names;
brand names, logos and copyrights (collectively, the "Redding Proprietary
Rights") for Redding. Schedule 3.15(a)(ii) also sets forth: (A) for each patent,
the number, normal expiration date and subject matter for each country in which
such patent has been issued, or, if applicable, the application number, date of
filing and subject matter for each country, (B) for each trademark, the
application serial number or registration number, the class of goods covered and
the expiration date for each country in which a trademark has been registered
and (C) for each copyright, the number and date of filing for each country in
which a copyright has been filed. The Redding Proprietary Rights listed in
Schedule 3.15(a)(ii) are all those used by Redding in connection with its
businesses. True and correct copies of all patents (including
16
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all pending applications) owned, controlled, created or used by or on behalf of
Redding or in which Redding has any interest whatsoever have been provided to
HDA or its representatives.
(b) (i) Tisco has no obligation to compensate any person for the use
of any such Tisco Proprietary Rights nor has Tisco granted to any person any
license, option or other rights to use in any manner any of its Tisco
Proprietary Rights, whether requiring the payment of royalties or not.
(ii) Redding has no obligation to compensate any person for the use
of any such Redding Proprietary Rights nor has Redding granted to any person any
license, option or other rights to use in any manner any of its Redding
Proprietary Rights, whether requiring the payment of royalties or not.
(c) (i) Tisco owns or has a valid right to use each of the Tisco
Proprietary Rights, and the Tisco Proprietary Rights will not cease to be valid
rights of Tisco by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. Tisco has not received any notice of invalidity or infringement
of any rights of others with respect to such trademarks. Tisco has taken all
reasonable and prudent steps to protect the Tisco Proprietary Rights from
infringement by any other person. No other person (i) has the right to use any
Tisco Proprietary Rights, (ii) has notified Tisco that it is claiming any
ownership of or right to use such Tisco Proprietary Rights or (iii) to the best
knowledge of Tisco, is infringing upon any such Tisco Proprietary Rights in any
way. Tisco's use of any Tisco Proprietary Rights does not and will not conflict
with, infringe upon or otherwise violate the valid rights of any third party in
or to such Tisco Proprietary Rights, and no action has been instituted against
or notices received by Tisco that are presently outstanding, alleging that
Tisco's use of the Tisco name and its variations used in the Tisco business
infringes upon or otherwise violates any rights of a third party in or to such
Tisco Proprietary Rights. There are not, and it is reasonably expected that
after the Closing there will not be, any restrictions on right of Tisco to sell
products manufactured or remanufactured by Tisco in connection with the
operation of its business.
(ii) Redding owns or has a valid right to use each of the Redding
Proprietary Rights, and the Redding Proprietary Rights will not cease to be
valid rights of Redding by reason of the execution, delivery and performance of
this Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. Redding has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. Redding
has taken all reasonable and prudent steps to protect the Redding Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any Redding Proprietary Rights, (ii) has notified Redding that it is
claiming any ownership of or right to use such Redding Proprietary Rights or
(iii) to the best knowledge of Redding, is infringing upon any such Redding
Proprietary Rights in any way. Redding's use of any Redding Proprietary Rights
does not and will not conflict with, infringe upon or otherwise violate the
valid rights of any third party in or to such Redding Proprietary Rights, and no
action has been instituted against or notices received by Redding that are
presently outstanding, alleging that Redding's use of the Redding name and its
variations used in the Redding business infringes upon or otherwise violates any
rights of a third party in or to such Redding Proprietary Rights. There are not,
and it is reasonably expected that after the Closing there will not be, any
17
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restrictions on right of Redding to sell products manufactured or remanufactured
by Redding in connection with the operation of its business.
3.16 Labor Matters. (a) Tisco is not a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. Tisco has not
experienced any attempt by organized labor or its representatives to make it
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of
Tisco. There is no labor strike or labor disturbance pending or, to the best
knowledge of Tisco, threatened against Tisco; nor is any grievance currently
being asserted, and Tisco has not experienced a work stoppage or other labor
difficulty, and is not and has not engaged in any unfair labor practice. Without
limiting the foregoing, Tisco is in compliance with the Immigration Reform and
Control Act of 1986 and maintains a current Form I-9, as required by such Act,
in the personnel file of each employee hired after November 9, 1986.
(b) Redding is not a party to any labor agreement with respect to
its employees with any labor organization, union, group or association, and
there are no employee unions (nor any other similar labor or employee
organizations) under local statutes, custom or practice. Redding has not
experienced any attempt by organized labor or its representatives to make it
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of
Redding. There is no labor strike or labor disturbance pending or, to the best
knowledge of Redding, threatened against Redding, nor is any grievance currently
being asserted, and Redding has not experienced a work stoppage or other labor
difficulty, and is not and has not engaged in any unfair labor practice. Without
limiting the foregoing, Redding is in compliance with the Immigration Reform and
Control Act of 1986 and maintains a current Form I-9, as required by such Act,
in the personnel file of each employee hired after November 9, 1986.
3.17 Consents. (a) No consent, approval, authorization, order,
--------
filing, registration or qualification (each, a "Tisco Consent") of or with any
court, governmental authority or third person is required to be made or obtained
by Tisco in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Existing Tisco Shareholder of
the transactions contemplated herein and therein.
(b) No consent, approval, authorization, order, filing, registration
or qualification (each a "Redding Consent") of or with any court, governmental
authority or third person is required to be made or obtained by Redding in
connection with the execution and delivery of this Agreement, the Ancillary
Agreements or the consummation by the Existing Redding Shareholders of the
transactions contemplated herein and therein.
3.18 Employee Benefit Plans: Employment Agreements.
---------------------------------------------
(a) Plans. (i) Schedule 3.18(a)(i) sets forth a true, complete and
-----
accurate list of: (A) any and all severance or employment agreements with any
current or former director, officer or employee; (B) any and all severance
programs or policies; (C) any and all plans or arrangements relating to current
or former directors, officers or employees containing change in control
provisions; (D) any agreements, plans, policies or arrangements (including,
without limitation, collective bargaining agreements or consulting agreements)
established, maintained or contributed to by Tisco
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for the benefit of any of Tisco's current or former directors, officers or
employees, including bonus, incentive compensation, stock ownership, stock
option, stock appreciation, stock purchase, phantom stock, vacation, retirement,
insurance, severance, supplemental unemployment, disability, death benefit,
hospitalization, medical, workers compensation, pension, profit-sharing or
deferred compensation plans; or any employee welfare and employee pension
benefit plans (as such terms are defined in Sections 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (singularly, a "Tisco Employee Benefit Plan" and collectively, the
"Tisco Employee Benefit Plans"); and (E) all Tisco Employee Benefit Plans,
except those disclosed above, previously established, maintained or contributed
to by Tisco, or any one of them acting alone ("Tisco Terminated Employee Benefit
Plans").
(ii) Schedule 3.18(a)(ii) sets forth a true, complete and accurate
list of: (A) any and all severance or employment agreements with any current or
former director, officer or employee; (B) any and all severance programs or
policies; (C) any and all plans or arrangements relating to current or former
directors, officers or employees containing change in control provisions; (D)
any agreements, plans, policies or arrangements (including, without limitation,
collective bargaining agreements or consulting agreements) established,
maintained or contributed to by Redding for the benefit of any of Redding's
current or former directors, officers or employees, including bonus, incentive
compensation, stock ownership, stock option, stock appreciation, stock purchase,
phantom stock, vacation, retirement, insurance, severance, supplemental
unemployment, disability, death benefit, hospitalization, medical, workers
compensation, pension, profit-sharing or deferred compensation plans; or any
employee welfare and employee pension benefit plans (as such terms are defined
in Sections 3(1) and 3(2), respectively, of ERISA) (singularly, a "Redding
Employee Benefit Plan" and collectively, the "Redding Employee Benefit Plans");
and (E) all Redding Employee Benefit Plans, except those disclosed above,
previously established, maintained or contributed to by Redding, or any one of
them acting alone ("Redding Terminated Employee Benefit Plans").
(b) Pension and Welfare Benefit Plans. With respect to the Tisco
---------------------------------
Employee Benefit Plans and Tisco Terminated Employee Benefit Plans, each as
described on Schedule 3.18(a)(i), and with respect to the Redding Employee
Benefit Plans and Redding Terminated Employee Benefit Plans, each as described
on Schedule 3.18(a)(ii):
(i) each Tisco and Redding Employee Benefit Plan is in compliance
with the requirements provided by any and all statutes, orders or governmental
rules or regulations currently in effect and applicable to such Tisco and
Redding Employee Benefit Plans, including but not limited to ERISA and the Code,
and each Tisco and Redding Employee Benefit Plan has been administered in
accordance with its terms;
(ii) with respect to Tisco's and Redding's employee welfare benefit
plans, as applicable, any trust related to such ERISA Plans (which term shall
have the meaning set forth in Section 3(3) of the ERISA with respect to employee
benefit plans maintained or contributed to by Tisco or Redding, as applicable,
or any of their respective affiliates that currently cover employees and are
subject to ERISA) has been determined to be tax-exempt by the IRS pursuant to
Code (S) 501(c)(9) and nothing has occurred since the time of such
determination to cause the loss of such trust's tax-exempt status. Each ERISA
Plan intended to be qualified pursuant to Code (S) 401(a) and Code (S) 501(a)
is qualified under Code (S) 401(a) and Code (S) 501(a) and has received a
determination letter from the IRS covering the Tax Reform Act of 1986, as
amended, that such
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ERISA Plans are so qualified and each trust established in connection with any
such plan is exempt from federal income taxation and nothing (either in form or
operation) has since occurred from the date of the last favorable determination
letter to cause the loss of such ERISA Plans' or trusts' qualification;
(iii) all required reports and descriptions of such ERISA Plans
(including without limitation the IRS Form 5500 Annual Return/Report, summary
annual report and summary plan description) have been timely filed and
distributed;
(iv) any notices required by ERISA or the Code or any other state
or federal law or any ruling or regulation of any state or federal
administrative agency with respect to such Tisco and Redding Employee Benefit
Plans have been appropriately given;
(v) all required contributions for all periods ending prior to
Closing (including periods from the first day of the current plan year to
Closing) will be made to such Tisco and Redding Employee Benefit Plans prior to
the Closing Date by Tisco or Redding, as applicable;
(vi) Tisco or Redding, as applicable, has not taken any action
directly or indirectly that obligates Tisco or Redding, as applicable, to
institute, modify or change any Tisco or Redding Employee Benefit Plan, any
change in the manner in which contributions are made or the basis on which such
contributions are determined;
(vii) all insurance premiums have been paid in full, subject only
to normal retrospective adjustments in the ordinary course, with regard to such
Tisco and Redding Employee Benefit Plans for policy years or other applicable
policy periods ending on or before Closing;
(viii) with respect to each such Tisco and Redding Employee Benefit
Plan, Tisco or Redding, as applicable, and their respective affiliates have not
engaged in any prohibited transactions (as defined in ERISA (S) 406 or Code (S)
4975), no penalty, fine, tax, action, suit, grievance, arbitration or other
manner of litigation, or claim (other than routine claims for benefits made in
the ordinary course of plan administration for which plan administrative review
procedures have not been exhausted) are pending, threatened or imminent against
or with respect to such Tisco and Redding Employee Benefit Plans, Tisco or
Redding, as applicable, or any respective fiduciary (as defined in ERISA (S)
3(21)) of such Tisco and Redding Employee Benefit Plans (including any action,
suit, grievance, arbitration or other manner of litigation, or claim regarding
conduct which allegedly interferes with the attainment of rights under such
plans); neither Tisco or Redding, as applicable, nor any respective fiduciary
with respect to such plans has any knowledge of any facts that would give rise
to or could give rise to any penalty, fine, tax, action, suit, grievance,
arbitration or other manner of litigation, or claim, and Tisco or Redding, as
applicable, has not incurred any lien under Section 401 (a)(29) or any material
liability for any tax or civil penalty imposed by Section 4971 or 4976 of the
Code or Section 502 of ERISA and no condition or set of circumstances exists
that presents a risk to Tisco or Redding, as applicable, of incurring any such
lien or liability;
(ix) no Tisco or Redding Employee Benefit Plan is (A) a "defined
benefit" plan (as defined in Section 3(35) of ERISA, nor was any Terminated
Employee Benefit Plan such a "defined benefit" plan, (B) a "multiemployer plan"
within the meaning of Section 3(37) of ERISA, (C) a "multiple employer" or a
"multiple employer welfare arrangement" within the meaning of
20
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Section 413(c) of the Code or Section 3(40) of ERISA, respectively, or (D) a
"welfare benefit fund" as defined in Section 419(e) of the Code;
(x) Tisco or Redding, as applicable, is not subject to any
liability under Title IV of ERISA, including without limitation any withdrawal
liability on behalf of a multiemployer plan;
(xi) none of Tisco or Redding, as applicable, or any of their
respective directors, officers, employees or any other fiduciary has any
liability for a material breach of fiduciary responsibility imposed by ERISA for
failure to comply with ERISA or the Code for any action or failure to act in
connection with the administration or investment of such Tisco and Redding
Employee Benefit Plans;
(xii) except as disclosed on Schedule 3.18(a)(i) or Schedule
3.1 8(a)(ii), none of such Tisco and Redding Employee Benefit Plans has been
completely or partially terminated;
(xiii) no current or former employee of Tisco or Redding, as
applicable, will be entitled to any payment, additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Tisco
or Redding Employee Benefit Plan as a result of the transactions contemplated by
this Agreement and no trustee under any "rabbi trust" or similar arrangement in
connection with any Tisco or Redding Employee Benefit Plan will be entitled to
payment as a result of the transactions contemplated by this Agreement;
(xiv) there is no pending or threatened investigation or audit
against or involving such Tisco and Redding Employee Benefit Plans by any
governmental agency or other third party; and
(xv) no Tisco or Redding Employee Benefit Plan provides medical,
life or other welfare benefits (whether or not insured), with respect to current
or former employees after retirement or other termination of service (other than
coverage mandated by applicable law). With respect to any contract or
arrangement with an insurance company providing funding under any Tisco or
Redding Employee Benefit Plan, there is no material liability for any
retroactive rate adjustment. Except as disclosed on Schedule 3.18(a)(i) or
Schedule 3.18(a)(ii), Tisco or Redding, as applicable, has the right to amend or
terminate their participation with respect to each Tisco and Redding Employee
Benefit Plan. Each Tisco and Redding Employee Benefit Plan that is a "group
health plan," as defined in Section 5000 of the Code has been operated in
accordance with Section 4980B of the Code, Section 9801 and the secondary payor
requirements of Section 1862(b) of the Social Security Act.
3.19 Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.19, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, used in the singular or the plural depending on the
reference.
(i) "Tisco," for the purposes of this Section, shall include
(A) Tisco, (B) all partnerships, joint ventures and other entities or
organizations in which Tisco was at any time or is a partner, joint
venturer, member or participant and (C) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities,
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whether in existence as of the date hereof or at any time prior to the date
hereof, the assets or obligations of which have been acquired or assumed by
Tisco or to which Tisco has succeeded.
(ii) "Redding," for the purposes of this Section, shall include
(A) Redding, (B) all partnerships, joint ventures and other entities or
organizations in which Redding was at any time or is a partner, joint
venturer, member or participant and (C) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by Redding or to which Redding has succeeded.
(iii) "Release" shall mean and include any existing or
previously existing spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment or the workplace of any hazardous substance, and/or
otherwise as defined in any Environmental Law.
(iv) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(v) "Environmental Laws" shall mean all laws, statutes,
regulations, rules, ordinances, by-laws, orders or determinations of any
governmental or judicial authority at the federal, state or local level,
whether existing as of the date hereof, previously enforced, or
subsequently enacted which regulate or relate to the protection or clean-up
of the environment, the use, treatment, storage, transportation,
generation, manufacture, processing, distribution, handling or disposal of,
or emission, discharge or other release or threatened release of Hazardous
Substances or otherwise dangerous substances, wastes, pollution or
materials (whether, gas, liquid or solid), the preservation or protection
of waterways, groundwater, drinking water, air, wildlife, plants or other
natural resources, or the health and safety of persons or property,
including, without limitation, protection of the health and safety of
employees. Environmental Laws shall include, without limitation, the
Federal Insecticide, Fungicide, Rodenticide Act, Resource Conservation &
Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Alr
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act and the Hazardous
Materials Transportation Act.
(vi) "Environmental Conditions" means the introduction into the
environment, whether or not yet discovered, of any pollution, including,
without limitation, any contaminant, irritant or pollutant or other
Hazardous Substance (whether or not upon any Tisco Facility or Redding
Facility or former Tisco Facility or Redding Facility or other property and
whether or not such pollution constituted at the time thereof a violation
of any
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Environmental Law as a result of any Release of any kind whatsoever of any
Hazardous Substance) as a result of which Tisco or Redding has or may
become liable to any person or by reason of which any Tisco Facility or
Redding Facility, former Tisco Facility or Redding Facility or any of the
assets of Tisco or Redding may suffer or be subjected to any lien or as a
result of which Tisco or Redding or HDA could incur any damage, loss,
cost, expense, claim, demand, order or liability to a third party
(including, without limitation, any governmental authority).
(b) Notice of Violation. (i) Tisco has not received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (A) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Tisco Facilities, the former Tisco Facilities or
otherwise or (B) an alleged violation of or non-compliance with the conditions
of any permit required under any Environmental Law or the provisions of any
Environmental Law. Tisco has not received notice of any other claim, demand or
action by any individual or entity alleging any actual or threatened injury or
damage to any person, property, natural resource or the environment arising from
or relating to any Release or threatened Release of any Hazardous Substances at,
on, under, in, to or from any Tisco Facilities or former Tisco Facilities, or in
connection with any operations or activities of Tisco.
(ii) Redding has not received a notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, (A) any Release
or threatened Release of any Hazardous Substance at any location, whether at the
Redding Facilities, the former Redding Facilities or otherwise or (B) an alleged
violation of or non-compliance with the conditions of any permit required under
any Environmental Law or the provisions of any Environmental Law. Redding has
not received notice of any other claim, demand or action by any individual or
entity alleging any actual or threatened injury or damage to any person,
property, natural resource or the environment arising from or relating to any
Release or threatened Release of any Hazardous Substances at, on, under, in, to
or from any Redding Facilities or former Redding Facilities, or in connection
with any operations or activities of Redding.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions.
(d) Environmental Audits or Assessments. (i) True, complete and
----------------------- -----------
correct copies of the written reports, and all parts thereof, including any
drafts of such reports if such drafts are in the possession or control of Tisco,
of all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by Tisco or any
attorney, environmental consultant or engineer engaged for such purpose, have
been delivered to HDA or its representatives and a list of all such reports,
audits and assessments and any other similar report, audit or assessment of
which Tisco has knowledge is included in Schedule 3.19(d)(i) hereto.
(ii) True, complete and correct copies of the written reports, and all
parts thereof, including any drafts of such reports if such drafts are in the
possession or control of Redding, of all environmental audits or assessments
which have been conducted at any Facility or former Facility within the past
five years, either by Redding or any attorney, environmental consultant or
engineer engaged for such purpose, have been delivered to HDA or its
representatives and a list of all such reports, audits and assessments and any
other similar report, audit or assessment of which Redding has knowledge is
included in Schedule 3.19(d)(ii) hereto.
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(e) Indemnification Agreements. (i) Tisco is not a party, whether as
--------------------------
a direct signatory or as successor, assign or third party beneficiary, or
otherwise bound, to any lease or other contract (excluding insurance policies
disclosed on Schedule 3.22) under which Tisco is obligated by or entitled to the
benefits of directly or indirectly, any representation, warranty,
indemnification, covenant, restriction or other undertaking concerning
environmental conditions.
(ii) Redding is not a party, whether as a direct signatory or as
successor, assign or third party beneficiary, or otherwise bound, to any lease
or other contract (excluding insurance policies disclosed on the Schedule) under
which Redding is obligated by or entitled to the benefits of directly or
indirectly, any representation, warranty, indemnification, covenant,
restriction or other undertaking concerning environmental conditions.
(f) Releases or Waivers. (i) Tisco has not released any other person
-------------------
from any claim under any Environmental Law or waived any rights concerning any
Environmental Condition.
(ii) Redding has not released any other person from any claim under
any Environmental Law or waived any rights concerning any Environmental
Condition.
(g) Notices, Warnings and Records. (i) Tisco has given all notices
-----------------------------
and warnings, made all reports, and has kept and maintained all records required
by and in compliance with all Environmental Laws.
(ii) Redding has given all notices and warnings, made all reports, and
has kept and maintained all records required by and in compliance with all
Environmental Laws.
(h) Compliance. (i) Tisco has never violated and is presently in
----------
compliance with all Environmental Laws;
(ii) Redding has never violated and is presently in compliance with
all Environmental Laws.
(i) Hazardous Material. (i) Tisco has not generated, manufactured,
------------------
refined, transported, treated, disposed, stored, handled, transferred, produced
or processed any Hazardous Material.
(ii) Redding has not generated, manufactured, refined, transported,
treated, disposed, stored, handled, transferred, produced or processed any
Hazardous Material.
(j) Underground Storage Tanks. (i) There are no underground storage
-------------------------
tanks at any Tisco Facility owned or operated by Tisco. Tisco does not own or
operate any underground storage tanks, whether currently in use or formerly
used.
(ii) There are no underground storage tanks at any Redding Facility
owned or operated by Redding. Redding does not own or operate any underground
storage tanks, whether currently in use or formerly used.
(k) Asbestos Containing Material. (i) There is no asbestos containing
----------------------------
material at any Tisco Facility owned or operated by Tisco.
24
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(ii) There is no asbestos containing material at any Redding Facility
owned or operated by Redding.
(1) Liens. (i) No lien has been imposed on any Tisco Facility pursuant
-----
to any Environmental Law.
(ii) No lien has been imposed on any Redding Facility pursuant to any
Environmental Law.
3.20 Certain Business Relationships with the Company. (a) Except as
-----------------------------------------------
disclosed on Schedule 3.20(a), neither the Existing Tisco Shareholder nor any of
its affiliates has been involved in any business arrangement or relationship
with Tisco within the past 12 months, and neither the Existing Tisco Shareholder
nor any of its affiliates owns any assets, tangible or intangible, that are used
in the business of Tisco.
(b) Except as disclosed on Schedule 3.20(b), none of the Existing
Redding Shareholders has been involved in any business arrangement or
relationship with Redding within the past 12 months, and none of such Existing
Redding Shareholders owns any assets, tangible or intangible, that are used in
the business of Redding.
3.21 Undisclosed Liabilities. (a) Tisco has no liabilities or
-----------------------
obligations, whether accrued, absolute, contingent or otherwise except (i) to
the extent reflected or reserved for on its balance sheet at November 30, 1998,
(ii) liabilities or obligations incurred in the normal and ordinary course of
business of Tisco since November 30, 1998, (iii) liabilities or obligations
disclosed in Schedule 3.21(a) hereto and in the other Schedules attached hereto
or (iv) liabilities or obligations disclosed elsewhere in this Agreement.
(b) Redding has no liabilities or obligations, whether accrued,
absolute, contingent or otherwise except (i) to the extent reflected or reserved
for on its balance sheet at November 30, 1998, (ii) liabilities or obligations
incurred in the normal and ordinary course of business of Redding since November
30, 1998, (iii) liabilities or obligations disclosed in Schedule 3.21(b) hereto
and in the other Schedules attached hereto or (iv) liabilities or obligations
disclosed elsewhere in this Agreement.
3.22 Insurance. Schedule 3.22 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage provided, loss
experience history by line of coverage) maintained by Tisco or Redding, as
applicable, on their respective (a) businesses, (b) assets or (c) employees at
any time since December 31, 1992. All insurance coverage applicable to Tisco or
Redding, as applicable, or their respective businesses or assets is in full
force and effect, insures Tisco or Redding, as applicable, in reasonably
sufficient amounts. There is no default under any such coverage nor has there
been any failure to give notice or present any claim under any such coverage in
a due and timely fashion. There are no premiums for any such insurance that are
due or past due and no notice of cancellation or nonrenewal of any such coverage
has been received. All products liability, general liability and workers'
compensation insurance policies maintained by Tisco or Redding, as applicable,
have been occurrence policies and not claims made policies. There are no
outstanding performance bonds covering or issued for the benefit of
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Tisco or Redding, as applicable. No insurer has advised Tisco or Redding, as
applicable, that it intends to reduce coverage, increase premiums or fail to
renew any existing policy or binder.
3.23 Accounts Receivable. The accounts receivable set forth on
-------------------
Tisco's and Redding's balance sheets at November 30, 1998, and all accounts
receivable arising since November 30, 1998, represent bona fide claims of Tisco
or Redding, as applicable, against debtors for sales, services performed or
other charges arising on or before the date hereof, and all the goods delivered
and services performed which gave rise to said accounts were delivered or
performed in accordance with the applicable orders, contracts or customer
requirements. Said accounts receivable are, except to the extent of the
appropriate reserves for bad debts on accounts receivable as set forth on such
balance sheets, subject to no defenses, counterclaims or rights of setoff and
are fully collectible in the ordinary course of business without cost in
collection efforts therefor and, in the case of accounts receivable arising
since the date of such balance sheets, to the extent of a reasonable reserve
rate for bad debts on accounts receivable which is not greater than the rate
reflected by the reserve for bad debts on such balance sheets.
3.24 Inventory. Schedule 3.24 contains a complete and accurate list
---------
of the addresses at which all inventory as set forth on Tisco's and Redding's
balance sheets at November 30, 1998, and all inventory acquired since November
30, 1998, is located. The inventory as set forth on such balance sheets or
arising since November 30, 1998 was acquired and has been maintained in
accordance with the regular business practices of Tisco or Redding, as
applicable, consists of new, unused and remanufactured items of a quality and
quantity usable or saleable in the ordinary course of business, and is valued at
the lower of cost or market on a FIFO basis. None of such inventory is obsolete,
unusable, damaged or unsaleable in the ordinary course of business, except for
inventory that has been written down to realizable market value, or for which
adequate reserves have been provided in such balance sheets.
3.25 Payments. (a) Tisco has not, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of Tisco, that is, or
may be with the passage of time or discovery, illegal under any federal, state
or local laws of the United States (including, without limitation, the U.S.
Foreign Corrupt Practices' Act) or any other country having jurisdiction. Tisco
has not participated, directly or indirectly, in any boycotts or other similar
practices affecting any of its actual or potential customers and has at all
times done business in an open and ethical manner.
(b) Redding has not, directly or indirectly, paid or delivered any
fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of Redding, that is, or
may be with the passage of time or discovery, illegal under any federal, state
or local laws of the United States (including, without limitation, the U.S.
Foreign Corrupt Practices' Act) or any other country having jurisdiction.
Redding has not participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers and has at
all times done business in an open and ethical manner.
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3.26 Customers, Distributors and Suppliers. (a) Schedule 3.26(a) sets
-------------------------------------
forth a complete and accurate list of the names and addresses of Tisco's (i) ten
largest (in terms of dollar volume) customers, distributors and other agents and
representatives during Tisco's last fiscal year, showing the approximate total
sales in dollars by Tisco to such customer during such fiscal year; and (ii)
suppliers during Tisco's last fiscal year, showing the approximate total
purchases in dollars by Tisco from such supplier during such fiscal year. Since
September 30, 1998, there has been no adverse change in the business
relationship of Tisco with any customer, distributor or supplier named on
Schedule 3.26(a). Tisco has not received any communication from any customer,
distributor or supplier named on Schedule 3.26(a) of any intention to terminate
or materially reduce purchases from or supplies to Tisco.
(b) Schedule 3.26(b) sets forth a complete and accurate list of the
names and addresses of Redding's (i) ten largest (in terms of dollar volume)
customers, distributors and other agents and representatives during Redding's
last fiscal year, showing the approximate total sales in dollars by Redding to
such customer during such fiscal year; and (ii) suppliers during Redding's last
fiscal year, showing the approximate total purchases in dollars by Redding from
such supplier during such fiscal year. Since September 30, 1998, there has been
no adverse change in the business relationship of Redding with any customer,
distributor or supplier named on Schedule 3.26(b). Redding has not received any
communication from any customer, distributor or supplier named on Schedule
3.26(b) of any intention to terminate or materially reduce purchases from or
supplies to Redding.
3.27 Computer Systems. (a) The computer systems used in Tisco's
----------------
business are capable of the following before, during or after January 1, 2000
("Year 2000 Compliant"): (i) handling date information involving all and any
dates before, during or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (ii)
operating, accurately without interruption on and in respect of any and all
dates before, during or after January 1, 2000 and without any change in
performance; (iii) responding to and processing two digit year input without
creating any ambiguity as to the century; and (iv) storing and providing date
input information without creating any ambiguity as to the century. Tisco has
not been notified in writing by any of its key vendors or suppliers that such
persons' computer systems are not Year 2000 Compliant.
(b) The computer systems used in Redding's business are capable of
the following before, during or after January 1, 2000 ("Year 2000 Compliant"):
(i) handling date information involving all and any dates before, during or
after January 1, 2000, including accepting input, providing output and
performing date calculations in whole or in part; (ii) operating, accurately
without interruption on and in respect of any and all dates before, during or
after January 1, 2000 and without any change in performance; (iii) responding to
and processing two digit year input without creating any ambiguity as to the
century; and (iv) storing and providing date input information without creating
any ambiguity as to the century. Redding has not been notified in writing by any
of its key vendors or suppliers that such persons' computer systems are not Year
2000 Compliant.
3.28 Investment Intent; Accredited Investors; Suitability and
--------------------------------------------------------
Sophistication.
- --------------
(a) The Common Stock and Series A Preferred Stock to be purchased by
the Existing Tisco Shareholder hereunder are being purchased for its own account
and not with the view to, or for resale in connection with, any distribution or
public offering thereof within the meaning
27
<PAGE>
of the Securities Act of 1933 (the "Securities Act") except in compliance with
the Securities Act. The Existing Tisco Shareholder understands that the Common
Stock and Series A Preferred Stock have not been registered under the Securities
Act by reason of their issuance in transactions exempt from the registration and
prospectus delivery requirements of the Securities Act, the availability of
which exemption or exemptions depends upon, among other things, the bona fide
nature of the investment intent as expressed herein. The Existing Tisco
Shareholder acknowledges that shares of Common Stock or Series A Preferred Stock
originally issued, any shares of Common Stock or Series A Preferred Stock issued
upon any direct or indirect transfer of any such security, each certificate for
shares of Common Stock issued upon the conversion of any shares of Series A
Preferred Stock and each certificate issued upon the direct or indirect transfer
of any such shares of Common Stock shall be stamped or otherwise imprinted with
a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 NOR PURSUANT TO THE SECURITIES OR
"BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED,
EXCEPT PURSUANT TO (i) A REGISTRATION
STATEMENT WITH RESPECT TO SUCH SECURITIES THAT
IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR
RULE 144A UNDER SUCH ACT OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT,
PROVIDED THAT IN A TRANSACTION PURSUANT TO
(iii) ABOVE, IF REQUESTED BY THE ISSUER
HEREOF, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO SUCH ISSUER STATING THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT IS AVAILABLE. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AND OTHER CONDITIONS AS SET FORTH IN THE
STOCKHOLDERS' AGREEMENT, DATED AS OF SEPTEMBER
30, 1998, AS AMENDED, BY AND AMONG THE
STOCKHOLDERS OF CITY TRUCK HOLDINGS, INC. AND
CITY TRUCK HOLDINGS, INC.
Whenever the legend requirements imposed by this Section 3.28(a) shall terminate
or a holder shall provide an opinion of counsel stating that such legend is no
longer required, the respective holders of the securities for which such legend
requirements have terminated shall be entitled to receive from Holdings
certificates without such legend. In the event any disagreement arises regarding
whether the legend requirement imposed by this Section 3.28(a) has terminated,
the holders of such securities shall be entitled to receive from Holdings
certificates without such legend if any such holder provides Holdings with a
written opinion of counsel stating that such legend is no longer necessary or
required.
(b) The Existing Tisco Shareholder is an "accredited investor" as such
term is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act.
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<PAGE>
(c) The Existing Tisco Shareholder has (i) such knowledge and
experience in financial and business matters that it is capable of independently
evaluating the risks and merits of purchasing the Common Stock and Series A
Preferred Stock, (ii) independently evaluated the risks and merits of purchasing
the Common Stock and Series A Preferred Stock and (iii) sufficient financial
resources to bear the loss of its entire investment in such securities.
3.29 Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by any Existing Shareholder in this Agreement, nor any document,
exhibit, statement, certificate or Schedule heretofore or hereinafter furnished
to HDA or its representatives pursuant hereto, or in connection with the
transactions contemplated hereby, including, without limitation, the Schedules,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND HDA
Holdings and HDA represent and warrant to the Existing Shareholders as
follows:
4.1 Corporate Organization and Standing. Each of Holdings and HDA is
-----------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own or lease its properties and to carry on its business as
presently conducted. Each of Holdings and HDA has delivered to the Existing
Shareholders or their representatives complete and correct copies of its
Certificate or Articles of Incorporation and Bylaws (or other charter documents)
and all amendments thereto. Each of Holdings and HDA is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business as now being conducted by it or the property
owned or leased by it makes such qualification necessary, except where a failure
to be so duly qualified and in good standing could not reasonably be expected to
have a material adverse effect on the business, operations, assets, results of
operations or financial condition of Holdings, HDA and the HDA Subsidiaries (as
defined), taken as a whole.
4.2 Authorization. This Agreement, the Ancillary Agreements and the
-------------
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of HDA and Holdings. This Agreement has
been, and the Ancillary Documents will be, duly executed and delivered by HDA
and Holdings, and are (or will be, as the case may be) the legal, valid and
binding obligations of HDA and Holdings, enforceable against them in accordance
with their respective terms.
4.3 No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement and the Ancillary Agreements, nor (subject to obtaining the
consents listed on Schedule 4.3) the consummation of the transactions
contemplated hereby or thereby will (a) violate, conflict with or result in or
constitute a default under or result in the termination or the acceleration of,
or the creation in any party of any right (whether or not with notice or lapse
of time or both) to declare a default, accelerate, terminate or cancel any
Contractual Obligation to which Holdings, HDA or any of their subsidiaries is a
party or by which any of them is bound or to which any of their assets are
subject or result in the creation of any lien or encumbrance upon any of said
assets, (b) violate, conflict with or result in a breach of or constitute a
default under any provision of the
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<PAGE>
Certificate or Articles of Incorporation or Bylaws of Holdings or HDA, (c)
violate, conflict with or result in a breach of or constitute a default under
any judgment, order, decree, rule or regulation of any court or governmental
agency to which Holdings or HDA is subject or (d) violate, conflict with or
result in a breach of any applicable rule or regulation of any federal, state,
local or other governmental authority.
4.4 Capitalization of Holdings and HDA. The authorized capital stock
----------------------------------
of Holdings consists of 250,000 shares of Common Stock and 850,000 shares of
Series A Preferred Stock. As of the date hereof, _______ shares of Common Stock
and _______ shares of Series A Preferred Stock, respectively, are outstanding,
all of which shares have been duly authorized, validly issued and are fully paid
and nonassessable. There are no preemptive rights on the part of any holder of
any class of securities of Holdings. Holdings owns all of the outstanding
capital stock of HDA, and Holdings does not own any capital stock of, or other
securities evidencing an equity interest in, any other corporation, partnership
or other entity. There are no preemptive rights on the part of any holder of any
class of securities of HDA. As of the date hereof, there are no outstanding
options or warrants obligating Holdings or HDA to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
4.5 Subsidiaries of HDA. Except for the corporations, partnerships
-------------------
and other entities set forth on Schedule 4.5 (the "HDA Subsidiaries"), HDA does
not own any capital stock of, or other securities evidencing an equity interest
in, any corporation, partnership or other entity. All of the issued and
outstanding shares of capital stock of the HDA Subsidiaries have been duly
authorized, validly issued, are fully paid and non-assessable and are owned by
HDA, free and clear of any claims, liens, security interests, options, changes,
restrictions and interests of others whatsoever. There are no options, warrants,
conversions or other rights, agreements or commitments of any kind obligating
any HDA Subsidiary, contingently or otherwise, to issue, sell or otherwise cause
to be outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
4.6 HDA Financial Statements. The audited consolidated balance sheet
------------------------
and statements of income, stockholders' equity and cash flows of HDA and its
subsidiaries at and for the fiscal year ended December 31, 1997 (the "HDA
Audited Financial Statements") were prepared in accordance with GAAP
consistently applied and fairly present the consolidated financial condition and
results of operations of HDA and its subsidiaries as of their date and for such
period. As of December 31, 1997, HDA and its subsidiaries had no liabilities of
any nature, whether absolute, accrued, asserted or unasserted or contingent or
whether due or to become due that should have been recorded or reserved for on
such balance sheet in accordance with GAAP and were not so recorded or reserved.
The unaudited consolidated balance sheet and statements of income, stockholders
equity and cash flows of HDA and its subsidiaries at and for the ten months
ended October 31, 1998, were prepared in accordance with GAAP consistently
applied and fairly present the consolidated financial condition and results of
operations of HDA and its subsidiaries as of their date and for such period and
are consistent with the HDA Audited Financial Statements. Copies of the
financial statements described in this Section 4.6 have been provided to the
Existing Shareholders or their representatives. Except for the assets and
liabilities reflected on the unaudited consolidated balance sheet of HDA and its
subsidiaries at October 31, 1998, Holdings has no material assets or
liabilities.
4.7 Stock. The shares of Common Stock and Series A Preferred Stock to
-----
be issued to the Existing Shareholders pursuant to this Agreement are duly
authorized and, when paid
30
<PAGE>
for in accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable.
4.8 Investment. Holdings and HDA (a) understand that the Tisco
----------
Shares and the Redding Shares have not been, and will not be as of the Closing
Date, registered under the Securities Act, or under any state securities laws,
and are being offered and sold in reliance upon federal and state exemptions
from transactions not involving any public offering, (b) are acquiring the Tisco
Shares and the Redding Shares solely for their own account for investment
purposes and not with a view to distribution thereof, (c) are each an
"accredited investor" (as defined under the federal securities laws), (d) have
received information concerning the Companies and have had the opportunity to
obtain additional information as desired in order to evaluate the merits and
risks inherent in holding the Tisco Shares and the Redding Shares and (e) are
able to bear the economic risk and lack of liquidity inherent in holding the
Tisco Shares and the Redding Shares.
4.9 Sufficient Funds. Either HDA or Holdings has sufficient funds
----------------
available (through existing credit arrangements or otherwise) to pay the cash
portion of the Purchase Price pursuant to this Agreement and to pay all fees and
expenses related to the transactions contemplated by this Agreement for which
HDA or Holdings is responsible.
ARTICLE V.
POST-CLOSING COVENANTS
The Existing Shareholders and HDA each covenant with the others as
follows:
5.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, after the Closing, (a) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (c) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the Parties agree
to use their respective best efforts (i) to obtain all necessary waivers,
consents and approvals from other parties (including, without limitation,
governmental entities) to the consummation of the transactions contemplated by
this Agreement; (ii) to obtain all necessary Permits as are required to be
obtained under any regulations; (iii) to defend all Actions challenging this
Agreement or the consummation of the transactions contemplated hereby; (iv) to
lift or rescind any injunction or restraining order or other court order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby; (v) to give all notices to, and make all registrations and
filings with third parties, including, without limitation, submissions of
information requested by governmental authorities; and (vi) to fulfill all
conditions to this Agreement.
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5.2 Tax Matters.
-----------
(a) Each Company and each of the Existing Shareholders will join with
HDA in making an election under Section 338(h)(10) of the Code (and any
corresponding election under state, local and foreign tax law) with respect to
the purchase and sale of the stock of the Companies hereunder (a "Section
338(h)(10) Election"). HDA shall be responsible for the preparation and filing
of all Section 338 Forms (as hereinafter defined) in accordance with the
applicable tax laws and terms of this Agreement and the Existing Shareholders
shall cooperate fully in the preparation and filing of such Section 338(h)(10)
Elections.
(b) "Section 338 Forms" means all returns, documents, statements, and
other forms that are required to be submitted to any federal, state, county or
other local Tax authority in connection with a Section 338(h)(10) Election.
Section 338 Forms shall include, without limitation, any "statement of section
338 election" and IRS Form 8023-A (together with any schedules or attachments
thereto) that are required pursuant to Treas. Reg. section 1.338-1 or any
successor provisions.
(c) The Existing Shareholders will pay any income taxes attributable
to the Section 338(h)(10) Election and will include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
their Tax Returns to the extent required by applicable law; provided, however,
--------- -------
that HDA shall pay any Tax imposed on the Companies pursuant to Section 1374 of
the Code and any Tax imposed on the Companies pursuant to the California Revenue
and Taxation Code Section 23151, Section 23501 or Section 23802 in connection
with the consummation of the transactions contemplated by this Agreement.
(d) HDA and the Existing Shareholders agree that the Purchase Price
and the liabilities of the Companies (plus other relevant items) will be
allocated to the assets of the Companies for all purposes. The Parties agree to
cooperate fully in connection with the preparation of an allocation schedule and
to share such schedule in a manner that permits the timely filing of any
applicable Tax Returns. HDA, Tisco, Redding and the Existing Shareholders will
file all Tax Returns in a manner consistent with such allocation.
(e) (i) Tisco and the Existing Tisco Shareholder will not revoke
Tisco's election to be taxed as an S corporation within the meaning of Sections
1361 and 1362 of the Code. Tisco and the Existing Tisco Shareholder will not
take or allow any action, other than the sale of Tisco's stock pursuant to this
Agreement, that would result in the termination of Tisco's status as a validly
electing S corporation within the meaning of Sections 1361 and 1362 of the Code.
(ii) Redding and the Existing Redding Shareholders will not revoke
Redding's election to be taxed as an S corporation within the meaning of
Sections 1361 and 1362 of the Code. Redding and the Existing Redding
Shareholders will not take or allow any action, other than the sale of Redding's
stock pursuant to this Agreement, that would result in the termination of
Redding's status as a validly electing S corporation within the meaning of
Sections 1361 and 1362 of the Code.
(f) (i) The Existing Tisco Shareholder shall timely prepare and file,
or cause to be prepared and filed, Internal Revenue Service Form 1120S (and any
analogous state or local Tax Returns) for Tisco in accordance with Section
1362(e) of the Code for the year ending September 30, 1998 and for the period
October 1, 1998 through the Closing Date (the "S Short Year") and Internal
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<PAGE>
Revenue Service Schedules K-1 for the tax year ending September 30, 1998 and for
the S Short Year. Such Tax Returns shall be prepared or completed by the
Existing Tisco Shareholder in a manner consistent with the prior practice of
Tisco (including elections and accounting methods and conventions) and in a
manner that does not distort taxable income. The Existing Tisco Shareholder
shall permit HDA to review and comment on such Tax Returns prior to filing and
shall obtain HDA's consent prior to filing such Tax Return, which consent shall
not be unreasonably withheld or delayed, prior to the filing thereof. The
Existing Tisco Shareholder shall include any income, gain, loss, deduction or
other tax items for such periods on their Tax Returns in a manner consistent
with the Schedules K-1 and timely pay, or cause to be paid, when due all
individual Taxes relating to the periods covered by such Tax Returns.
(ii) The Existing Redding Shareholders shall timely prepare and file,
or cause to be prepared and filed, Internal Revenue Service Form 1120S (and any
analogous state or local Tax Returns) for Redding in accordance with Section
1362(e) of the Code for the year ending September 30, 1998 and for the period
October 1, 1998 through the Closing Date (the "S Short Year") and Internal
Revenue Service Schedules K-1 for the tax year ending September 30, 1998 and for
the S Short Year. Such Tax Returns shall be prepared or completed by the
Existing Redding Shareholders in a manner consistent with the prior practice of
Redding (including elections and accounting methods and conventions) and in a
manner that does not distort taxable income. The Existing Redding Shareholders
shall permit HDA to review and comment on such Tax Returns prior to filing and
shall obtain HDA's consent prior to filing such Tax Return, which consent shall
not be unreasonably withheld or delayed, prior to the filing thereof. The
Existing Redding Shareholders shall include any income, gain, loss, deduction or
other tax items for such periods on their Tax Returns in a manner consistent
with the Schedules K-1 and timely pay, or cause to be paid, when due all
individual Taxes relating to the periods covered by such Tax Returns.
(g) HDA shall prepare or complete, or cause to be prepared or
completed, and timely filed, or cause to be timely filed, all Tax Returns of the
Companies required to be filed after the Closing Date (other than the Tax
Returns specified in Section 5.2(f) hereof) and, subject to Section 5.2(g)
hereof, shall timely pay, or cause to be timely paid, when due, all Taxes
relating to such Tax Returns. With respect to Tax Returns of the Companies not
filed prior to the Closing Date (other than the Tax Returns specified in Section
5.2(f) hereof) that relate to a taxable period that ends on or prior to or
includes the Closing Date, such Tax Returns shall be prepared or completed by
HDA in a manner consistent with the prior practice of Tisco or Redding, as the
case may be.
(h) Subject to Section 5.2(c), the Existing Tisco Shareholder shall
indemnify, defend, and hold HDA and Tisco harmless from and against: any and all
liabilities for Taxes of Tisco for all taxable periods ending on or before the
Closing Date (the "Pre-Closing Tax Period") and for the portion of any Taxes of
Tisco for any Straddle Period (as hereinafter defined) that is allocated
(pursuant to Section 5.2(j)) to the Pre-Closing Tax Period (such liabilities
collectively, "Pre-Closing Tax Liabilities"); provided, however, that the amount
of the Exiting Tisco Shareholder's indemnity obligation for Taxes pursuant to
this Section 5.2(h) shall be reduced to the extent that the aggregate reserves
for Taxes reflected on Tisco's balance sheet at November 30, 1998 exceeds the
aggregate liability for Taxes for the Pre-Closing Tax Period and not paid prior
to the close thereof.
(i) Subject to Section 5.2(c), the Existing Redding Shareholders
shall indemnify, defend, and hold HDA and Redding harmless from and against: any
and all liabilities for Taxes of
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Redding for all taxable periods ending on or before the Closing Date (the "Pre-
Closing Tax Period") and for the portion of any Taxes of Redding for any
Straddle Period (as hereinafter defined) that is allocated (pursuant to Section
5.2(j)) to the Pre-Closing Tax Period (such liabilities collectively, "Pre-
Closing Tax Liabilities"); provided, however, that the amount of the Exiting
Redding Shareholders' indemnity obligation for Taxes pursuant to this Section
5.2(i) shall be reduced to the extent that the aggregate reserves for Taxes
reflected on Redding's balance sheet at November 30, 1998 exceeds the aggregate
liability for Taxes for the Pre-Closing Tax Period and not paid prior to the
close thereof.
(j) In the case of any taxable period that includes but does not end
on the Closing Date (a "Straddle Period"), Taxes of the Companies for the
Straddle Period shall be allocated to the Pre-Closing Tax Period using an
interim-closing-of-the-books method assuming that such taxable period ended at
the close of the Closing Date, except that (i) exemptions, allowances or
deductions that are calculated on an annual basis (such as the deduction for
depreciation) shall be apportioned on a per-diem basis and (ii) real property,
personal property, intangibles and other similar Taxes shall be allocated in
accordance with the principles of Section 164(d) of the Code.
(k) Any gains, transfer, sales, use, bulk sales, recording,
registration, documentary, stamp and other Taxes that may result from or be
incurred in connection with the transactions contemplated by this Agreement
("Conveyance Taxes") shall be paid by the Party liable therefor under applicable
law. Such Party shall indemnify, defend, and hold the other Party harmless from
and against any and all liabilities for Conveyance Taxes.
(1) The Existing Tisco Shareholder with respect to Tisco and the
Existing Redding Shareholders, severally but not jointly with respect to
Redding, shall indemnify, defend and hold HDA, Tisco and Redding harmless from
and against any and all liability for Taxes or other Losses arising out of a
breach or inaccuracy of any representation or warranty contained in Section
3.11. HDA shall provide the Existing Shareholders with a statement calculating
in reasonable detail the Existing Shareholders' indemnification obligation.
(m) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding ("Tax Proceeding"). The Existing Tisco
Shareholder or the Existing Redding Shareholder, as the case may be, shall have
the sole right to control, conduct, and otherwise represent the interests of
Tisco or Redding in any such Tax Proceeding; provided, however, that without the
-------- -------
prior written approval of HDA, which approval shall not be unreasonably withheld
or delayed, no Existing Shareholders shall agree or consent to compromise or
settle any issue or claim arising in any such Tax Proceeding to the extent that
any such compromise, settlement, consent or agreement could have an adverse
effect on HDA for any period ending after the Closing Date.
(n) Neither HDA nor any affiliate of HDA shall, without the prior
written consent of the Existing Tisco Shareholder or the Existing Redding
Shareholders, as the case may be, which consent shall not be unreasonably
withheld or delayed, file or cause to be filed, any amended Tax Return or claim
for Tax refund with respect to Tisco or Redding relating to Taxes for which any
Existing Shareholder may be liable hereunder. Promptly after the reasonable
request of an Existing Shareholder, at the sole expense of the Existing Tisco
Shareholder or the Existing Redding Shareholder, as the case may be, HDA shall,
or cause Tisco or Redding to, file any amended Tax
34
<PAGE>
Return or claim for Tax refund relating to Taxes for which any Existing
Shareholder may be liable hereunder, provided that such amended Tax Returns or
--------
claims shall be prepared in a manner consistent with the prior practice of Tisco
or Redding (including elections and accounting methods and conventions) and, in
the reasonable determination of HDA, shall conform to applicable laws and
regulations. If HDA or any affiliate of HDA shall receive a Tax refund relating
to a period or transaction for which any Existing Shareholder is liable
hereunder, HDA shall, within 30 days after receipt of such Tax refund, remit
such Tax refund (including any interest received on such Tax refund and net of
(i) any Tax cost relating to the receipt of such Tax refund and (ii) any
unreimbursed cost or expense incurred in obtaining such Tax refund), to the
Existing Shareholders. For purposes of this Section 5.2 the term "Tax refund"
shall include a reduction in Tax or the use of an overpayment as a credit or
oilier Tax offset, and the receipt of a refund shall be deemed to be realized
upon the earliest to occur of(i) the date on which HDA has actual knowledge that
a payment due to the relevant taxing authority (for which HDA would be
responsible under this Agreement) has been offset by such a refund and (ii) the
receipt of cash.
(o) After the date hereof, HDA and the Existing Shareholders shall
provide each other with such cooperation and information relating to the
Companies as either party reasonably may request in (i) filing any Tax Return,
amended Tax Return or claim for Tax refund, (ii) determining any Tax liability
or a right to a Tax refund, (iii) conducting or defending any proceeding in
respect of Taxes or (iv) effectuating the terms of this Agreement. The Parties
shall retain all Tax Returns, schedules and work papers, and all material
records and other documents relating thereto, until the expiration of the
statute of limitations (and, to the extent notified by any party, any extensions
thereof) of the taxable years to which such Tax Returns and other documents
relate and until the final determination of any Tax in respect of such years.
Any information obtained under this Section 5.2 shall be kept confidential,
except as may be otherwise necessary in connection with filing any Tax Return,
amended Tax Return, or claim for Tax refund, determining any Tax liability or
right to a Tax refund, or in conducting or defending any proceedings in respect
of Taxes.
(P) The obligations of the Parties set forth in this Section 5.2 shall
be unconditional and absolute and shall remain in effect until the date that is
90 days after the expiration of the relevant statute of limitations applicable
to the Taxes at issue, giving effect to all valid waivers or extensions thereof
Claims for indemnification arising under or with respect to Section 3.11 or
this Section 5.2 may not be made unless notice of such claims has been given on
or prior to the date that is 90 days after the expiration of the relevant
statute of limitations applicable to the Taxes at issue, giving effect to all
valid waivers or extensions thereof.
(q) All rights and obligations of the parties hereto with respect to
Taxes, including all rights or either party to indemnification with respect to
Taxes, shall be governed exclusively by the provisions of this Section 5.2 and
3.11, and in particular, the provisions of Article VIII shall not apply to
obligations arising under this Section 5.2.
35
<PAGE>
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HOLDINGS AND HDA
The obligations of Holdings and HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by Holdings and HDA.
6.1 No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions that are the subject of this Agreement shall have been issued and
remain in effect.
6.2 Representations and Warranties. All representations and
------------------------------
warranties of the Existing Shareholders contained in this Agreement shall be
true and correct as of the Closing Date, except as otherwise contemplated by
this Agreement.
6.3 Performance of Agreements. The Existing Shareholders shall have
------------------------
performed in all material respects all obligations, agreements and commitments
required to be fulfilled by them pursuant to the terms hereof on or prior to the
Closing Date.
6.4 Compliance Certificate. The Existing Shareholders shall have
----------------------
delivered to HDA or its representatives, their respective certificates, dated
the Closing Date, executed on its behalf by its respective duly authorized
representatives, as to the fulfillment of the conditions set forth in Sections
6.2 and 6.3 hereof.
6.5 Stock Certificates. The Existing Stockholders shall deliver to
------------------
HDA certificates representing all of the Tisco Shares and Redding Shares,
together with duly executed stock transfer powers in favor of HDA.
6.6 Stock Books. HDA shall have received the stock books, stock
-----------
ledgers, minute books and corporate seals (if any) of the Companies.
6.7 Officers and Directors. HDA shall have received the written
----------------------
resignation of all officers and directors of the Companies in office immediately
prior to the Closing.
6.8 Opinion of Counsel. HDA shall have received the opinion of
------------------
O'Brien Watters & Davis, LLP, counsel for the Companies and the Existing
Shareholders, in the form set forth in Schedule 6.8 hereto.
6.9 Consents, Etc. All authorizations, consents or approvals of any
-------------
and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect. Copies of all such authorizations, consents or
approvals shall have been delivered to HDA or its representatives.
6.10 Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been duly executed and delivered by all parties thereto
other than HDA; (a) non-competition agreements by and between HDA and each of
Gregory D. Mathis and
36
<PAGE>
Ernie Linton, substantially in the form attached hereto as Exhibit A; (b)
Joinders to a Stockholders' Agreement for Holdings substantially in the form
attached hereto as Exhibit B; (c) an escrow agreement (the "Escrow Agreement")
by and among Holdings, HDA, the Existing Shareholders and Chase Manhattan Bank
and Trust Company, National Association, as "Escrow Agent," substantially in the
form attached hereto as Exhibit C; (d) leases between HDA and the owner of the
Tisco Real Property, substantially in the form attached hereto as Exhibit D; and
(e) a lease between HDA and the owner of the Redding Real Property,
substantially in the form attached hereto as Exhibit E.
6.11 Nonforeign Affidavit. Each Existing Shareholder shall furnish to
--------------------
HDA an affidavit, stating, under penalty of perjury, its United States taxpayer
identification number and that it is not a foreign person, pursuant to Section
1445(b)(2) of the Code.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY THE EXISTING SHAREHOLDERS
The obligations of the Existing Shareholders under this Agreement are
subject to the fulfillment prior to the Closing of each of the following
conditions, any one or more of which may be waived by the Existing Shareholders:
7.1 No Injunctive Proceedings. No preliminary or permanent injunction
-------------------------
or other order (including a temporary restraining order) of any state or federal
court or other governmental agency which prevents the consummation of the
transactions which are the subject of this Agreement shall have been issued and
remain in effect.
7.2 Representations and Warranties. All representations and
------------------------------
warranties of Holdings and HDA contained in this Agreement shall be true and
correct as of the Closing Date, except as otherwise contemplated by this
Agreement.
7.3 Performance of Agreements; Instruments of Transfer. Holdings and
--------------------------------------------------
HDA shall have performed in all material respects all obligations, agreements
and commitments required to be fulfilled by Holdings and HDA pursuant to the
terms hereof on or prior to the Closing Date.
7.4 Compliance Certificates. Each of Holdings and HDA shall have
-----------------------
delivered to the Existing Shareholders a certificate, dated the Closing Date,
executed on its behalf by its President or a Vice President, as to the
fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5 Ancillary Agreements. The Ancillary Agreements shall have been
--------------------
executed and delivered by all parties thereto other than the Existing
Shareholders or affiliates of them.
7.6. Releases from Guaranties. Each party listed as a guarantor on
------------------------
Schedule 7.6 shall have been released from all of its obligations as a guarantor
of the Contractual Obligation of Tisco or Redding, as applicable, identified on
Schedule 7.6.
37
<PAGE>
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1 Indemnification by the Existing Shareholders. (a) Subject to the
--------------------------------------------
provisions of this Article VIII, the Existing Tisco Shareholder will indemnify,
defend and hold harmless HDA and its stockholders, subsidiaries, affiliates,
officers, directors, employees, agents, successors and assigns, (such
indemnified persons are collectively hereinafter referred to as "HDA's
Indemnified Persons") from and against any and all loss, liability, damage
(excluding consequential, indirect special, exemplary and punitive damages) or
deficiency (including interest, penalties, judgments, costs of preparation and
investigation, and reasonable attorneys' fees) (collectively, "Losses") that
HDA's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (i) any inaccuracy of any representation of any
Existing Tisco Shareholder in this Agreement or in any Schedule hereto; (ii) the
breach of any warranty of any Existing Tisco Shareholder in this Agreement or
any Schedule hereto; (iii) environmental liabilities; (iv) the nonfulfillment of
any covenant, undertaking, agreement or other obligation of any Existing Tisco
Shareholder under this Agreement or any Schedule hereto, not otherwise waived by
HDA; or (v) Tisco's participation in and/or withdrawal from the Commonwealth
Benefit Plan and Associated Trusts or any successor arrangement or trust
(including without limitation any election to withdrawal in the one-time exit
strategy pursuant to the terms of a settlement approved by the court in the
matter of Williams v. Evans & Sons. Inc., Case No. CV95-8360 DT (RMCx) and
------------------------------
consolidated cases). "Losses" as used herein is not limited to matters asserted
by third parties, but includes Losses incurred or sustained in the absence of
third party claims. Payment is not a condition precedent to recovery of
indemnification for Losses.
(b) Subject to the provisions of this Article VIII, the Existing
Redding Shareholders will jointly and severally indemnify, defend and hold
harmless HDA's Indemnified Persons from and against any and all Losses that
HDA's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (i) any inaccuracy of any representation of any
Existing Redding Shareholder in this Agreement or in any Schedule hereto; (ii)
the breach of any warranty of any Existing Redding Shareholder in this Agreement
or any Schedule hereto; (iii) environmental liabilities; or (iv) the
nonfulfillment of any covenant, undertaking, agreement or other obligation of
any Existing Redding Shareholder under this Agreement or any Schedule hereto,
not otherwise waived by HDA. Payment is not a condition precedent to recovery of
indemnification for Losses. In no event, however, shall the liability of Ernie
Linton for indemnification under this Section 8.1(b) exceed the proceeds
received by him from the sale of Redding Shares under this Agreement.
8.2 Indemnification by Holdings and HDA. Subject to the provisions of
-----------------------------------
this Article VIII, Holdings and HDA agree to indemnified, defend and hold the
Existing Shareholders and their respective heirs, representatives, successors
and assigns (such persons are hereinafter collectively referred to as the
"Existing Shareholders' indemnified Persons"), harmless from and against any
and all Losses that the Existing Shareholders' Indemnified Persons may suffer,
sustain, incur or become subject to arising out of or due to: (a) any inaccuracy
of any representation of Holdings or HDA in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of Holdings or HDA in this Agreement or
any Schedule hereto; and (c) the nonfulfillment of any covenant, undertaking,
agreement or other Obligation of Holdings or HDA under this Agreement or any
Schedule hereto, not otherwise waived by the Existing Shareholders.
38
<PAGE>
8.3 Survival of Representations. Warranties and Covenants The several
-----------------------------------------------------
representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article VIII shall survive the Closing Date
and shall remain in full force and effect for 18 months thereafter whereupon
they will terminate and have no further force or effect; provided, however, that
the representations and warranties set forth in Section 3.11 relating to tax
matters and Section 3.18 relating to employee benefits matters shall survive for
the length of the applicable statute of limitations; provided further that the
-------- -------
representations and warranties set forth in Sections 3.4, 3.5, 4.4 and 4.7 shall
survive indefinitely.
8.4 Threshold. No HDA's Indemnified Person or Existing Shareholders'
---------
Indemnified Person shall be entitled to any recovery in accordance with this
Article VIII (except with respect to Section 8.1 (a)(v))unless and until the
amount of such Losses suffered, sustained or incurred by such party, or to which
such party becomes subject, by reason of such inaccuracy, breach or
nonfulfillment exceeds $75,000 in the aggregate, whereupon HDA's Indemnified
Persons or the Existing Shareholders' Indemnified Persons, as the case may be,
shall be entitled to indemnification under this Article VIII (subject to the
provisions of Section 8.1(b)) only for the amount of Losses in excess of such
amount up to a maximum amount of $6,500,000.
8.5 Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.3 and 8.4 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemniter's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and
its counsel in the defense against any such asserted liability. In any event,
the Indemnitee shall have the right to participate at its own expense in the
defense of such asserted liability. Any compromise of such asserted liability by
the Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.6 Indemnification Payments. At the Closing, HDA will deliver by
------------------------
wire transfer of immediately available funds $500,000 (Five Hundred Thousand
Dollars) of the Cash Purchase Price to the Escrow Agent to be held by the Escrow
Agent for 18 months pursuant to the terms of the Escrow Agreement and to serve
as partial security for the indemnification obligations of the
39
<PAGE>
Existing Shareholders under this Agreement. Any indemnification obligations of
the Existing Shareholders under this Article VIII shall be first satisfied by
amounts held by the Escrow Agent pursuant to the terms of the Escrow Agreement.
8.7 Tax Effect. The calculation of any amounts payable pursuant to
---------
Sections 8.1 and 8.2 shall take into account any actual decrease in the
liability of the indemnified party for income taxes arising as a result of
reporting the Loss on any income tax return for the taxable period in which such
Loss is incurred or paid. To the extent such Loss does not result in an actual
decrease in the liability of the indemnified party for income taxes in the
taxable period in which such Loss is incurred or paid but the indemnified party
reasonably believes will result in such a decrease in any of the two subsequent
taxable year following the taxable period in which such Loss was incurred or
paid, the indemnifying party shall promptly transfer to the indemnified party
the entire amount of such decrease at the time such decrease is in fact
realized, whether by paying less income taxes or receiving a refund. If any
decrease in the income tax liability of such indemnified party that is taken
into account in computing the indemnification obligations of an indemnifying
party is subsequently disallowed in a determination (as defined in Section
1313(a) of the Code), the additional income taxes then payable by the
indemnified party as a result of such disallowance shall be a Loss giving rise
to an indemnification payment hereunder. Any payments made pursuant to Sections
8.1 or 8.2 will be treated by HDA and the Existing Shareholders as an adjustment
to the Purchase Price for United States federal income tax purposes.
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses. Except as otherwise set forth in this Agreement, HDA or
--------
Holdings shall pay all costs and expenses incurred by them or on their behalf,
and the Existing Shareholders shall pay all costs and expenses incurred by any
Existing Shareholder or either Company on such Existing Shareholder's or
Company's behalf, in connection with this Agreement and the transactions
contemplated hereby, including fees and expenses of their financial consultants,
accountants and legal counsel.
9.2 Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the Parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to any Existing Shareholder, at the address or telecopier number of
such Existing Shareholder set forth on Annex A or B hereto.
With a Copy to:
O'Brien Watters & Davis, LLP
P.O. BOX 3759
Santa Rosa, California 95402
Attn.: Daniel E. Davis
Telecopy No.: (707) 544-2861
40
<PAGE>
If to Holdings or HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attn.: John J. Greisch
Telecopy No.: (847) 444-1096
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
Telecopy No.: (310) 477-1011
And:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attn.: Timothy J. Melton
Telecopy No.: (312) 782-8585
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3 Counterparts. This Agreement may be executed simultaneously
------------
in one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4 Entire Agreement. This Agreement and the other written agreements
----------------
entered into on the date hereof constitute the entire agreement of the Parties
with respect to the subject matter hereof and thereof and supersede all prior
negotiations, agreements and understandings, whether written or oral, of the
Parties.
9.5 Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6 Assignment: Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This
41
<PAGE>
Agreement may be amended only by written agreement of the Parties hereto, duly
executed and delivered by an authorized representative of each of the Parties
hereto.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Delaware
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
9.8 Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9 No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than Holdings, HDA,
the Companies and the Existing Shareholders, and no person shall assert any
rights as third-party beneficiary hereunder.
9.10 Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12 Incorporation of Exhibits and Schedules. (a) The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
(b) Disclosure of an item on one Schedule shall be deemed to be
disclosure on any other Schedule, or with regard to any other representation or
warranty, to which such disclosure relates with reasonable obviousness.
9.13 Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase includes actual knowledge, after reasonable
inquiry, of any officer, director or shareholder of Tisco or Redding, as the
case may be, and any employee of Tisco or Redding, as the case may be, whose job
duties include the subject matter in question.
42
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(Signature Page Follows)
43
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
BY: /s/ John P. Miller
----------------------------------
Name: John P. Miller
Title: Vice President of Finance,
Chief Financial Officer and
Secretary
HDA PARTS SYSTEM, INC.
By: /s/ John P. Miller
----------------------------------
Name: John P. Miller
Title: Vice President of Finance,
Chief Financial Officer and
Secretary
THE MATHIS FAMILY REVOCABLE LIVING TRUST
/s/ Gregory D. Mathis
BY: ---------------------------------
GREGORY D. MATHIS, TRUSTEE
/s/ Susan M. Mathis
BY: ---------------------------------
SUSAN M. MATHIS, TRUSTEE
/s/ Ernie Linton
-------------------------------------
ERNIE LINTON
S-1
<PAGE>
ANNEX A
THE EXISTING TISCO SHAREHOLDER
Name Shares
---- ------
The Mathis Family Revocable Living Trust 25,000
A-1
<PAGE>
ANNEX B
THE EXISTING REDDING SHAREHOLDERS
Name Shares
---- ------
The Mathis Family Revocable Living Trust 100
Ernis Linton 27
B-1
<PAGE>
EXHIBIT 10.10
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is entered into by and
between HD AMERICA, INC. ("Licensor") and City Truck & Trailer Parts, Inc.
("Licensee") this 6/th/ day of July 1998 (the "Effective Date").
W I T N E S S E T H:
-------------------
A. Licensor is the owner of the intellectual property rights, including
rights in trademark, service mark, trade name, and copyright, associated
with the mark HDA PARTS SYSTEM (the "Trademark").
B. Licensor has applied to register the Trademark in the Principal Register
of the United States Patent and Trademark Office.
C. Licensee desires to take a license to use the Trademark, and Licensor
desires to grant Licensee a license to use the Trademark, all in
accordance with the term and conditions as are set forth herein.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
herein contained, and other good and valuable consideration (the receipt,
adequacy and sufficiency of which are hereby acknowledged by the parties by
their execution hereof), the parties agree as follows:
1. OWNERSHIP OF TRADEMARK AND GOODWILL. Licensee acknowledges that the
Trademark and the goodwill associated therewith is owned and will continue to be
owned by Licensor. Nothing in this Agreement shall give Licensee any right,
title or interest in the Trademark other than the right to use such Trademark in
accordance with the terms of the license granted hereunder. Licensee agrees
that it will not challenge Licensor's ownership of the Trademark, the validity
thereof, or in any manner oppose Licensor's application to register the mark,
nor will Licensee move to cancel the registration of the same.
2. GRANT OF LICENSE; TERRITORIAL USE. Effective as of the day hereof and
until the termination of this Agreement as provided for herein, Licensor hereby
grants to Licensee and Licensee accepts from Licensor an exclusive, royalty-free
and revocable license to use the Trademark within the United States, Canada and
Mexico. Licensor specifically reserves unto itself the right to assign or enter
into other licenses for use of any or all of the Trademark outside of the United
States, Canada and Mexico. Licensee acknowledges and agrees that the Trademark
is licensed "AS IS." Licensee may not assign or sublicense its rights or duties
pursuant to this Agreement. Nothing herein may be construed to grant a license
to Licensee for the use of any mark confusingly similar to the Trademark;
furthermore, the following marks owned by Licensor are specifically excluded
from this grant of license: HDA, HD America, HD America Inc. and Heavy Duty
America, and any marks confusingly similar thereto.
1
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3. CONSIDERATION FOR LICENSE. Licensee shall pay all costs and expenses
associated with registering the Trademark, including attorney's fees within 30
days of receipt of an invoice from Licensor for such costs, expenses and
attorney's fees. Licensee also agrees to place its purchases of parts from
Licensor's vendors through the Licensor's purchasing programs and covenants and
agrees not to interfere with any purchasing agreements or relationships between
Licensor and any of its vendors, including, but not limited to, negotiating or
entering into any purchasing agreements with Licensor's vendors that do not
include Licensor as a party.
4. USE OF TRADEMARK; QUALITY OF TRADEMARKED GOODS AND SERVICES. Licensee
shall use its best efforts to preserve the existing standard of quality
associated with and goodwill generated by the Trademark.
Licensor is aware of the current standards of quality used by Licensee and
agrees that these are sufficient to protect the Trademark. Licensee agrees that
it will only sell products and services consistent with these current standards.
From time to time, Licensor can request reasonable samples of goods and services
sold under the Trademark to ensure quality.
In the event that a particular use of the Trademark by Licensee is deemed
objectionable by Licensor (at the sole discretion of the Licensor), Licensee
shall cease said use immediately upon written notification by Licensor and
Licensee will undertake any reasonable corrective action when requested by
Licensor.
5. TERMINATION OF LICENSE. This Agreement will automatically terminate
in the event that Licensee ceases to use the Trademark for any reason. In
addition, Licensor may terminate this Agreement at any time following Licensee's
breach of any term herein, including, but not limited to Licensee's failure to
maintain the current standards of quality, in accordance with the 60 day cure
period set forth as follows:
Following the breach of any term contained in this Agreement, Licensor
shall promptly notify Licensee of said breach. Licensee shall have 60 days from
receipt of notice to cure said breach to the satisfaction of Licensor. If the
breach is not cured to the satisfaction of Licensor, Licensor may terminate the
Agreement.
Upon termination, all rights and privileges granted such Licensee with
respect to the Trademark shall terminate and all rights in the Trademark and the
goodwill connected therewith shall remain the property of Licensor.
Upon termination of this Agreement for any reason, Licensee shall forthwith
discontinue the use of the Trademark and any mark confusingly similar thereto,
including, but not limited to the words H D A PARTS SYSTEM, and shall not
thereafter operate or do business under any name or in any manner that might
tend to give the general public the impression that it is affiliated with the
Licensor. Upon termination of this Agreement for any reason, Licensee shall
take such action as may be necessary to cancel any assumed name or equivalent
registration which contains any name or mark identical, or confusingly similar
with the Trademark, or any other name, trademark or
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service mark of Licensor, and Licensee shall furnish Licensor with proof
of discharge of this obligation within thirty (30) days following the
termination as a Licensee.
6. GENERAL PROVISIONS
6.1. AMENDMENT AND MODIFICATION. No amendment, modification, supplement,
termination, consent or waiver of any provision of this Agreement, nor consent
to any departure therefrom, will in any event be effective unless the same is in
writing and is signed by the party against whom enforcement of the same is
sought. Any waiver of any provision of this Agreement and any consent to any
departure from the terms of any provision of this Agreement is to be effective
only in the specific instance and for the specific purpose for which given.
6.2. COUNTERPARTS. This Agreement may be executed by the parties on
any number of separate counterparts and via facsimile copies, and all such
counterparts so executed constitute one agreement binding on all the parties
notwithstanding that all the parties are not signatories to the same
counterpart.
6.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, letters of intent, understandings, negotiations
and discussions of the parties, whether oral or written.
6.4. FURTHER ASSURANCES. The parties will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purpose of this Agreement.
6.5. NO JOINT VENTURE OR PARTNERSHIP. The parties agree that nothing
contained herein is to be construed as making the parties joint venturers or
partners; furthermore, Licensee shall refrain from using the Trademark or making
any other representation that may indicate that such a relationship exists.
6.6. SUCCESSORS AND ASSIGNS. All provisions of this Agreement are
binding upon, inure to the benefit of, and are enforceable by or against, the
parties and their respective heirs, executors, administrators or other legal
representatives and permitted successors and assigns.
6.7. THIRD-PARTY BENEFICIARY. This Agreement is solely for the
benefit of the parties and their respective successors and permitted assigns,
and no other person or entity has any right, benefit, priority or interest
under, or because of the existence of, this Agreement.
6.8. SIGNATORY WARRANTY. Each person executing this Agreement
warrants that such person is authorized to do so on behalf of the party for whom
the person signs this Agreement.
6.9. VOID OR UNENFORCEABLE CLAUSES. Should one or more clauses of
this Agreement be held to be void or unenforceable for any reason by any court
of competent jurisdiction, such clause or clauses shall be deemed to be
separable in such jurisdiction and the remainder of this Agreement
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shall be deemed to be valid and in full force and effect and the terms of
this Agreement shall be equitably adjusted so as to compensate the
appropriate party for any consideration lost because of the elimination of
such clause or clauses. It is the intent and expectation of each of the
parties that each provision of this Agreement will be honored, carried out
and enforced as written. Consequently, each of the parties agree that any
provisions of this Agreement sought to be enforced in any proceeding
hereunder shall, at the election of the party seeking enforcement and
notwithstanding the availability of an adequate remedy at law, be enforced
by specific performance.
6.10. WAVIER. Any waiver by either party of any breach by the other
shall not be deemed to be a wavier of any other or subsequent breach nor an
estoppel to enforce its rights in respect of any other or subsequent breach.
This Agreement shall not be waived, altered or rescinded, in whole or in part,
except by a writing signed by the party making the waiver or an officer of such
party as the case may be. This Agreement constitutes the sole agreements
between the parties with respect to the use of Licensor's trademarks and
embodies all prior agreement and negotiations with respect to the use of said
trademarks. There are no representations of any kind except as contained
herein.
6.11. APPLICABLE STATE LAW. Except as specifically agreed otherwise
herein, this agreement shall be deemed made when accepted by the Licensor and
shall be governed by and interpreted in accordance with the laws of the State of
Missouri and the federal trademark laws of the United States.
6.12. FUTURE AMENDMENTS. This Agreement shall be deemed to be
amended form time to time as may be necessary to bring any of its provisions
into conformity with valid applicable laws or regulations. This Agreement may
only be otherwise modified or amended by a written instrument signed by both
Licensor and Licensee.
6.13. LITIGATION. In the event any person who is not a licensee of
the Licensor uses or infringes the Trademark, the Licensee shall control all
litigation and shall be the sole judge as to whether or not suit shall be
instituted, prosecuted or settled, the terms of settlement, and whether or not
any other action is taken. Licensor will provide all necessary and useful
cooperation in connection therewith. Licensee and Licensor shall promptly
notify each other of any such use or infringement of which they become aware.
Licensor agrees not to sue Licensee for trademark infringement arising out of
use of the Trademark permitted by this Agreement.
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IN WITNESS WHEREOF, the parties hereby cause their respective
representatives to execute this Agreement.
HD AMERICA, INC. ("LICENSOR")
By: /s/ Patrick P Biermann
Name: PATRICK P BIERMANN
Title: PRESIDENT
CITY TRUCK & TRAILER PARTS, INC. ("LICENSEE")
By: /s/ John J. Greisch
Name: JOHN J. GREISCH
Title: CHIEF EXECUTIVE OFFICER
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CORPORATE DEVELOPMENT AND
ADMINISTRATIVE SERVICES AGREEMENT
This Corporate Development and Administrative Services Agreement,
dated as of May 29, 1998, is entered into between Brentwood Private Equity LLC,
a Delaware limited liability company ("BPE") and City Truck and Trailer Parts,
Inc., an Alabama corporation (the "Company"). For and in consideration of the
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
1. SERVICES AND RESOURCES.
-- -----------------------
(a) BPE will assist materially in the corporate development activities of
the Company and contribute to the administration of the business growth efforts
of Company by providing the following services to Company:
(i) assistance in analyzing, structuring and negotiating the terms of
investments and acquisitions;
(ii) researching, identifying, contacting, meeting and negotiating with
prospective sources of debt and equity financing;
(iii) preparing, coordinating and conducting presentations to prospective
sources of debt and equity financing;
(iv) assistance in structuring and establishing the terms of debt and
equity financing; and
(v) assistance and advice in connection with the preparation of Company's
financial and operating plans.
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(b) In rendering the services described above, BPE may do, or cause others
to do, all things that in the good faith judgment of BPE are necessary, proper
or desirable to discharge the aforementioned duties and responsibilities,
including, without limitation, employing the services of any other person or
persons (including administrative and support services personnel of other
entities associated with BPE) and paying to any such other person or persons
such amounts as BPE may deem reasonable and appropriate in the circumstances and
as may be approved by Company from time to time.
2. REIMBURSEMENT AND COMPENSATION.
------------------------------
(a) Reimbursement. As partial consideration for the services to be
-------------
provided pursuant to Section 1 hereof, Company agrees that it shall pay to BPE
or another party designated by BPE, in reimbursement of fees and expenses
incurred or advanced by or on behalf of BPE or any persons or entities
associated with BPE (collectively, the "Brentwood Entities"), the following:
(i) all travel and reasonable fees and expenses incurred from time to time
in performing the services described in Section 1 hereof;
(ii) all reasonable fees and costs of legal counsel and accountants and all
reasonable out-of-pocket expenses incurred in connection with the Brentwood
Entities' investment in Company, including, without limitation, all reasonable
fees and expenses incurred with respect to (A) the formation, organization and
initial capitalization of the Company and (B) the negotiation, documentation and
consummation of those matters described in clause (A) of this paragraph (ii),
including the negotiation and preparation of this Agreement;
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(iii) all reasonable fees and expenses (recurring and nonrecurring)
incurred hereinafter in connection with all investments of the Brentwood
Entities in the Company, including, without limitation, all reasonable fees and
expenses incurred with respect to (A) requested waivers of any rights of any
Brentwood Entity or Brentwood Entities' investors (collectively, the " Brentwood
Investors") relating to, or the consent of any Brentwood Investor to,
contemplated acts of Company (whether or not granted or obtained), (B)
preparation and distribution to Brentwood Investors of financial statements, tax
returns and other information or reports relating to such Brentwood Investors'
interests in the Company (including the reasonable fees and costs of accountants
and other experts incurred in connection therewith) and (C) customary
maintenance and monitoring activities associated with the Brentwood Investors'
interests in Company; and
(iv) all reasonable fees and expenses (recurring and nonrecurring)
incurred hereafter in connection with (A) any direct or indirect contribution of
capital to, investment in or financing of Company by any Brentwood Investor, (B)
any sale, distribution or other transfer of, or any alteration of, any direct or
indirect Company interest of any Brentwood Investor, including, without
limitation, the sale of all or a part of the business or assets of Company or
the merger, consolidation or recapitalization of Company, and (C) compliance
with all applicable Federal, state and local laws, rules and regulations with
respect to the matters described in paragraphs (i) through (iii) above and in
this paragraph (iv).
Company shall reimburse to BPE all amounts pursuant to this Section
2.1 in cash promptly upon receipt of a written statement setting forth in
reasonable detail the fees and expenses for which BPE is seeking reimbursement.
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(b) Compensation. As partial consideration for the services to be provided
------------
pursuant to Section 1 hereof, Company shall pay to BPE, or another party
designated by BPE, a monitoring fee (the "Monitoring Fee") from the "Monitoring
Fee Commencement Date" through the last day of the term of this Agreement. The
"Monitoring Fee Commencement Date" will be the earlier of (i) the date on which
95% of the aggregate amount committed to be invested by the partners of
Brentwood Associates Buyout Fund II, L.P. (the "Fund") has been invested by the
Fund or (ii) January 3, 2001. The amount of the Monitoring Fee shall be an
amount equal to one percent (1%) per annum of the aggregate amount of debt and
equity investment of or by Brentwood Investors in Company. The Monitoring Fee
shall be payable semiannually in advance (i) on or before January 10 of each
year with respect to the half year beginning on January 1 of such year and (ii)
on or before July 10 of each year with respect to the half year beginning on
July 1 of such year. The Monitoring Fee for any partial period shall be
prorated on the basis of the ratio that the total number of days in the half
year during which the obligation to pay the Monitoring Fee is effective under
this Agreement bears to 182. To the extent that any portion of the Monitoring
Fee for the final half year has been prepaid but has not been earned, BPE shall
cause the unearned portion (determined by the method set forth in the
immediately preceding sentence) of such payment to be refunded to Company.
Subject only to the immediately preceding sentence, all amounts paid under this
Section 2.2 shall be nonrefundable. The initial semiannual Monitoring Fee to be
paid pursuant to this Section 2.2 shall be calculated based upon the aggregate
amount of debt and equity investment of or by Brentwood Investors outstanding on
the Monitoring Fee Commencement Date, and thereafter such semiannual payments
shall be calculated based upon the average of the aggregate amounts of such debt
and
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equity outstanding during each of the six months of the immediately preceding
half year payment period.
(c) As partial compensation for the financial advisory services to be
provided pursuant to Section 1 hereof, Company shall pay to BPE, or another
party designated by BPE, an advisory fee equal to one and one-half percent (1
1/2%) of the aggregate amount of all capital investments (excluding maintenance
capital investments in existing facilities or equipment of the Company and its
subsidiaries solely for the general upkeep and repair of those facilities and
equipment) made by the Company and of all amounts paid by the Company in
connection with any acquisitions. Such fee shall be payable concurrently with
the making of any such investment or the closing of any such acquisition.
3. GENERAL.
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This Agreement (i) constitutes the entire agreement and supersedes all
other prior and contemporaneous agreements and undertakings both written and
oral, among the parties hereto with regard to the specific subject matter
hereof; (ii) is not intended to confer upon any person any rights or remedies
hereunder or with respect to the subject matter hereof except as specifically
provided in this Agreement; (iii) shall not be assigned by operation of law or
otherwise; (iv) may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all such counterparts shall together constitute
a single agreement; and (v) may be amended only by a written instrument executed
by or on behalf of the parties hereto.
4. CONSTRUCTION.
------------
All Section and paragraph titles or captions contained in this
Agreement are for convenience of reference only and shall not affect the meaning
or interpretation of any provision
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<PAGE>
of this Agreement. All terms used in this Agreement include, where appropriate,
the singular as well as the plural and the masculine, feminine and neuter
genders. The words "herein", "hereof" and "hereunder", and other words of
similar import, refer to this Agreement as a whole and not to any particular
Section, paragraph or other subdivision; and all Section, paragraph and other
subdivision references contained herein refer to Sections, paragraphs and other
subdivisions hereof unless another agreement or instrument is specifically
referenced. Use herein of the term "or" is not intended to be exclusive, unless
the context clearly requires. All provisions hereof apply to successive events
and transactions. Time is of the essence for each and every term and condition
of this Agreement in which time is a factor.
5. SEVERABILITY.
------------
If any term or provision of this Agreement or the application thereof
to any circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions of
this Agreement or the application of such terms and provisions to circumstances
other than those as to which it is held invalid or enforceable.
6. TERM.
----
This Agreement shall terminate upon the first to occur of (i) the date
of termination of this Agreement set forth in a written instrument executed by
the parties hereto expressly terminating this Agreement and (ii) the first to
occur of (A) the closing of an acquisition of Company through an asset purchase,
merger or sale of 80% (in value) or more of
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the outstanding equity securities of Company in which the consideration is all
cash or (B) the final distribution in liquidation of Company following the
dissolution of Company.
7. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the internal laws, and not the laws of conflicts of laws, of the State of
Delaware. Each of the parties to this Agreement hereby irrevocably and
unconditionally (i) agrees to be subject to, and hereby consents and submits to,
the jurisdiction of the courts of the State of Delaware and of the federal
courts sitting in the State of Delaware, (ii) to the extent such party is not
otherwise subject to service of process in the State of Delaware, hereby
appoints The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801, as such party's agent in the State of Delaware for acceptance of legal
process and (iii) agrees that service made on such agent shall have the same
legal force and effect as if served upon such party personally within the State
of Delaware.
[Signature Page to Follow]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement with the intent to be legally bound, all as of the date first above
set forth.
CITY TRUCK AND TRAILER PARTS, INC.
By:/s/ William L. Clayton
________________________________
William L. Clayton
President
BRENTWOOD PRIVATE EQUITY LLC
By:/s/ Christopher A. Laurence
________________________________
Christopher A. Laurence
Managing Member
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Exhibit 10.12
STOCK CONTRIBUTION AGREEMENT
This Stock Contribution Agreement (the "Agreement"), dated as of
August 27, 1998, is by and among the parties identified on the signature page
hereto (collectively, the "Stockholders") and City Truck Holdings, Inc., a
Delaware corporation ("Holdings").
RECITALS
--------
A. Each of the Stockholders owns shares of Common Stock, par
value $.01 per share ("Company Common Stock"), and Series B Preferred Stock, par
value $.01 per share ("Company Series B Preferred Stock," and, together with
Company Common Stock, "Company Stock"), of HDA Parts System, Inc., an Alabama
corporation (the "Company").
B. The parties to this Agreement desire that each of the
Stockholders contribute, upon the terms and subject to the conditions of this
Agreement, all of his or its shares of Company Common Stock and Company Series B
Preferred Stock to Holdings in exchange for an equal number of shares of Common
Stock, par value $.01 per share, of Holdings ("Holdings Common Stock, and Series
A Preferred Stock, par value $.01 per share, of Holdings ("Holdings Series A
Preferred Stock," and, together with Holdings Common Stock, "Holdings Stock").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Contribution of Common Stock. Upon the terms and subject to
----------------------------
the conditions contained herein, each of the Stockholders, severally and not
jointly, agrees to contribute and deliver to Holdings that number of shares of
Company Stock and Company Series B Preferred Stock owned by him or it, in
exchange for an equal number of shares of Holdings Common Stock and Holdings
Series A Preferred Stock. Such contribution shall be made at such place and
time as Holdings may designate.
Furthermore, to the extent any Stockholder is entitled to acquire
additional shares of Company Stock such Stockholder hereby agrees that he will
accept in lieu thereof, subject to the conditions of this Agreement, the
Holdings Stockholders' Agreement (as defined below) and any applicable stock
purchase agreement, an equivalent number of shares of Holdings Common Stock
and/or Holdings Series A Preferred Stock.
2. Ownership of Company Common Stock. Each Stockholder represents
---------------------------------
and warrants, severally and not jointly:
(a) Such Stockholder owns beneficially and of record, and has
marketable title to, the Company Stock being contributed by him or it, free and
clear of all Encumbrances (excluding the obligations of each Stockholder under
the Stockholders' Agreement (as defined)), and such Stockholder has full right,
power and authority to contribute all of such shares of Company Stock to
Holdings. As used in this Agreement, "Encumbrance"
<PAGE>
means any claim, lien, pledge, option, charge, security interest, conditional
sales agreement or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement in the nature thereof.
(b) Such Stockholder has no commitment or legal obligation, absolute
or contingent, to any other person or firm other than Holdings to, directly or
indirectly, sell, assign, transfer or effect a sale of any shares of Company
Stock owned by such Stockholder, or to enter into any agreement or cause the
entering into of an agreement with respect to any of the foregoing (excluding
the obligations of each Stockholder under the Stockholders' Agreement).
(c) Authorization. Such Stockholder has full power and authority to
-------------
execute, deliver and perform its obligations under this Agreement. The
execution and delivery of this Agreement has been duly and validly authorized,
and all necessary action has been taken, to make this Agreement a valid and
binding obligation of such Stockholder, enforceable in accordance with its
terms, except that the enforcement thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
(d) Receipt of Information. Such Stockholder has received and
----------------------
reviewed this Agreement and all exhibits and schedules hereto; and the
Stockholder has received all such information as it deems necessary and
appropriate to enable it to evaluate the financial risk inherent in making an
investment in Holdings Stock and has received satisfactory and complete
information concerning the business and financial condition of Holdings in
response to all inquiries in respect thereof.
3. Existing Agreements. Upon the terms and subject to the
-------------------
conditions contained herein each of the parties hereto agrees that all existing
stock purchase agreements relating to the Stockholders' ownership of Company
Stock shall remain in effect with respect to the Stockholders' ownership of
Holdings Stock as if such Holdings Stock were the Company Stock referred to
therein and as if Holdings were named as the Company therein.
4. Holdings Stockholders' Agreement. Each Stockholder agrees
--------------------------------
that, as a condition to receipt of Holdings Stock in exchange for his or its
contribution of Company Stock to Holdings, such Stockholder will become a party
to Holdings Stockholders' Agreement (the "Holdings Stockholders Agreement") in
the form attached as Exhibit A. The Holdings Stockholders' Agreement is
identical in all respects to the Company's Amended and Restated Stockholders'
Agreement except for (i) the name of Holdings in lieu of the name of the
Company, (ii) references to Holdings Series A Preferred Stock replace and are in
lieu of references to any shares of preferred stock of the Company, (iii) a new
provision regarding prompt notice of any amendment to the Stockholders'
Agreement to each stockholder who has not yet consented in writing; and (iv) a
new provision regarding expiration of registration rights in cases where the
shares of Holdings are sold pursuant to a registration statement or Rule 144 of
the Act (as defined) or are eligible for sale under Rule 144. The Holdings
Stockholders' Agreement supersedes the Amended and Restated Stockholders
Agreement of the Company in
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<PAGE>
all respects. A Stockholders' signature on this Agreement shall also
constitute his or its execution of the Holdings Stockholders' Agreement.
5. Investment Representations; Securities Laws. Each Stockholder
-------------------------------------------
hereby represents and warrants to Holdings and to each other Stockholder as
follows:
(a) The Stockholder is acquiring Holdings Stock to be acquired
hereunder for investment, for its own account, and not as a nominee or
agent for any other person, firm or corporation, and not with a view to the
sale or distribution of all or any part thereof, and it has no present
intention of selling, granting participation in, or otherwise distributing
any of the Holdings Stock. The Stockholder does not have any contract,
undertaking, agreement or arrangement with any person, firm or corporation
to sell, transfer or grant participation to such person, firm or
corporation, with respect to any of the Holdings Stock.
(b) The Stockholder understands that the Holdings Stock will not
be registered under the Securities Act of 1933, as amended (the "Act"), in
part based upon an exemption from the registration predicated on the
accuracy and completeness of its representations and warranties appearing
herein. The Stockholder understands and acknowledges that, as a result, it
will not be permitted to sell, transfer or assign any shares of the
Holdings Stock until they are registered or an exemption from the
registration and prospectus delivery requirements of the Act is available.
The Stockholder acknowledges that there is no assurance that such an
exemption from registration will ever be available or that the Holdings
Stock will ever be able to be sold.
(c) The Stockholder does not require the assistance of an
investment advisor or other purchaser representative to participate in the
transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment in Holdings, has the ability to bear
the economic risks of its investment for an indefinite period of time and
has been furnished with and has had access to such information as would be
made available in the form of a registration statement under the Act
together with such additional information as is necessary to verify the
accuracy of the information supplied and to have all questions answered by
Holdings.
6. Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, each of the parties hereto agrees, (a) to use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective and transactions contemplated by this Agreement, (b) to execute
any documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (c) to cooperate with each other in connection with the
foregoing.
7. Legends. All certificates evidencing the shares of Holdings
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Stock transferred to the Stockholders hereunder shall bear substantially the
following legends:
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a. "The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the "Act").
These securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under such
Act."
b. "The securities represented by this certificate are subject
to the provisions of a Stockholders' Agreement and may not be pledged,
hypothecated, encumbered or transferred, sold or otherwise disposed of,
except as therein provided. A copy of such agreement is on file at the
office of the Company."
8. Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or if deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail:
a. if to any Stockholder, addressed to such Stockholder at its
address shown on the stock register maintained by Holdings, or at such
other address as such Stockholder may specify by written notice to
Holdings, or
b. if to Holdings, at c/o HDA Parts Systems, Inc., 520 Lake
Cook Road, Deerfield, Illinois, Attention: John Greisch, or at such other
address as Holdings may specify by written notice to the Stockholders, with
a copy to Christopher A. Laurence, Brentwood Associates, 11150 Santa Monica
Boulevard, Suite 1200, Los Angeles, California 90025
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The address for the purposes of this Section
8, may be changed by giving written notice of such change in the manner provided
herein for giving notice. Unless and until such written notice is received, the
address provided herein shall be deemed to continue in effect for all purposes
hereunder.
9. Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
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10. Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
11. Modification, Amendment and Waiver. No modification,
----------------------------------
amendment or waiver of any provision of this Agreement shall be effective
against Holdings or any Stockholder unless approved in writing, by such party
and Holdings. The failure at any time to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of any of the parties thereafter to enforce each and every
provision hereof in accordance with its terms.
12. Integration. This Agreement, together with Exhibit A
-----------
hereto, constitutes the entire agreement of the parties with respect to the
subject matter hereof and thereof, and, except as expressly indicated herein,
supersedes all prior agreements related to said subject matter.
13. Headings and Pronouns. The headings of the sections and
---------------------
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement. Whenever used herein,
words importing the singular shall include the plural and words importing the
masculine shall include the feminine and neuter, and vice versa, unless the
context otherwise requires.
14. Choice of Law. This Agreement shall be construed,
-------------
interpreted and the rights of the parties determined in accordance with the laws
of the State of Delaware (without reference to the choice of law provisions of
Delaware law).
15. Multiple Counterparts. This Agreement may be executed in
---------------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Stock Contribution
Agreement (and, by execution hereof, the Stockholders' Agreement of Holdings) of
even date herewith, to be duly executed as of the day and year first above
written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John J. Greisch
--------------------------------------
John J. Greisch
President and Chief Executive Officer
BABF CITY CORP.
By: /s/ Christopher A. Laurence
--------------------------------------
Christopher A. Laurence
President
THE DELTON LANE CLAYTON TRUST
dated November 1, 1990
By: /s/ Neil Bailey
--------------------------------------
Neil Bailey as Trustee
THE DIEDRA ELAINE CLAYTON TRUST
dated November 1, 1990
By: /s/ Neil Bailey
--------------------------------------
Neil Bailey as Trustee
THE WILLIAM LARRY CLAYTON
GRANDCHILDREN'S TRUST
dated April 30, 1997
By: /s/ Neil Bailey
--------------------------------------
Neil Bailey as Trustee
6
<PAGE>
/s/ William L. Clayton
--------------------------------------
WILLIAM L. CLAYTON
/s/ Charles Roy Johnson
--------------------------------------
CHARLES ROY JOHNSON
/s/ James T. Stone
--------------------------------------
JAMES T. STONE
/s/ Fred A. Stone Jr.
--------------------------------------
FRED A. STONE, JR.
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO Funds Management Corporation
general partner
By: /s/ Ivy Dedes
--------------------------------------
Name: Ivy Dedes
Title: Vice President
BANKAMERICA INVESTMENT CORPORATION
By: /s/ Dennis P. McCrary
--------------------------------------
Name:
Title:
MIG PARTNERS VII
By: /s/ Dennis P. McCrary
--------------------------------------
Name:
Title:
7
<PAGE>
THE 311 FUND, LLC
By: /s/ Robert C. Byczek
--------------------------------------
Name: Robert C. Byczek
Title: Managing Director
/s/ A. Keith McLemore
--------------------------------------
A. KEITH MCLEMORE
/s/ John J. Greisch
--------------------------------------
JOHN J. GREISCH
/s/ John P. Miller
--------------------------------------
JOHN P. MILLER
8
<PAGE>
EXHIBIT A
FORM OF STOCKHOLDERS' AGREEMENT OF CITY
TRUCK HOLDINGS, INC.
<PAGE>
EXHIBIT 10.13
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), dated as of September
30, 1998, is made and entered into by and among the parties listed on the
signature pages attached hereto (the "Stockholders") and City Truck Holdings,
Inc., a Delaware corporation (the "Company").
RECITALS
--------
WHEREAS, the Stockholders, owning 100% of the outstanding shares of
Common Stock of the Company, par value $.01 per share ("Company Common Stock"),
and 100% of the outstanding shares of Series A Preferred Stock of the Company,
par value $.01 per share ("Company Preferred Stock" and, together with the
Company Common Stock, the "Company Stock"), desire to enter into this Agreement
for the purpose of regulating certain aspects of their relationship on and after
the date hereof;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section I. Authorization.
-------------
Each Stockholder hereby represents and warrants to the Company and to
each other that (i) such Stockholder has full power and authority to execute,
deliver and perform such Stockholder's obligations under this Agreement and (ii)
the execution and delivery of this Agreement has been duly and validly
authorized, and all necessary action has been taken, to make this Agreement a
valid and binding obligation of such Stockholder, enforceable in accordance with
its terms, except that the enforcement thereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law).
Section II. Certain Covenants of the Company.
--------------------------------
When it is first legally required to do so, the Company will register
the Company Common Stock under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), will keep such registration effective and
will timely file such information, documents and reports as the Securities and
Exchange Commission (the "Commission") may require or prescribe under Section 13
of the Exchange Act, including the rules of the Commission promulgated
thereunder. From and after the effective date of any registration statement
filed by the Company under the Securities Act of 1933, as amended (the "Act"),
the Company will timely file such information, documents and reports as the
Commission may require under Section 13 or 15(d) (whichever is applicable) of
the Exchange Act, including the rules of the Commission promulgated thereunder.
Immediately upon becoming subject to the reporting requirements of either
Section 13 or 15(d) of the Exchange Act, the Company will forthwith upon request
furnish any Stockholder (i) a written statement by the Company that it has
complied with such reporting requirements, (ii) a copy of the most recent annual
or quarterly report of the Company filed by the Company with the Commission, and
(iii) such other reports
<PAGE>
and documents filed by the Company with the Commission as such Stockholder may
reasonably request. The Company acknowledges and agrees that the purposes of the
requirements contained in this Section II are to enable any such Stockholder to
comply with the current public information requirements contained in Commission
Rule 144 and Rule 144A under the Act should such Stockholder ever wish to
dispose of any Company Stock without registration under the Act in reliance upon
Rule 144 or Rule 144A (or any other similar exemptive provision). In addition,
the Company will take such other measures and file such other information,
documents and reports, as shall hereafter be required by the Commission as a
condition to the availability of Rule 144 and Rule 144A under the Act (or any
similar exemptive provision hereafter in effect).
Section III. Rights of First Refusal.
-----------------------
A. Before any shares of Company Stock, or any beneficial interest
therein, may be sold, transferred or assigned (including transfer by operation
of law or sale in the event of a foreclosure) or pledged, hypothecated or
encumbered by any of the Stockholders (a "Selling Stockholder") (except to a
bank or other lending institution to secure loans extended by such bank or other
lending institution for any purpose, which bank or other lending institution,
prior to such pledge, hypothecation or encumbrance, agrees in writing to be
bound by the provisions of this Agreement and delivers written notice of such
agreement to the Company), except as otherwise provided herein, such shares
shall first be offered to the Company and other Stockholders owning the same
class or series of Company Stock (the "Applicable Class Stockholders") in the
manner set forth below. Any purported transfer in violation of the provisions
of this Section III shall be void and ineffective, and shall not operate to
transfer any interest in or title to the shares of Company Stock to the
purported transferee.
B. The Selling Stockholder shall deliver a notice (the "Notice") to
the Company stating (i) his bona fide intention to sell or transfer such shares,
(ii) the number of shares proposed to be sold or transferred (the "Noticed
Shares"), (iii) the price for which it is proposed to sell or transfer the
Noticed Shares (in the case of a transfer not involving a sale, such price shall
be deemed to be fair market value of the Noticed Shares as determined pursuant
to Section III.D hereof) and the terms of payment of that price and other terms
and conditions of sale, and (iv) the name and address of the proposed purchaser
or transferee. A Selling Stockholder shall not effect, or attempt to effect,
any sale or other transfer for value of the Company Stock other than for money
or an obligation to pay money.
C. For a period of thirty (30) days after receipt of the Notice, the
Company (or its assignee or assignees other than BABF City Corp. ("BABF") or an
Affiliate (as defined in Section IV.E) thereof (any such assignee being called a
"Permitted Assignee")) shall have the option, but not the obligation, to
purchase all, but not less than all, of the Noticed Shares. If the Company
(including its Permitted Assignee or Permitted Assignees) elects not to purchase
all the Noticed Shares, it shall give written notice within the thirty (30) day
period following receipt of the Notice, and, for a period of twenty (20) days
after receipt of the aforementioned notice from the Company, the other
Applicable Class Stockholders have the option, but not the obligation to
purchase all but not less than all of the Noticed Shares (which purchase shall
be, unless otherwise agreed upon by the Applicable Class Stockholders, pro rata
--------
in proportion to the number of shares of such class or series held by each
Applicable Class Stockholder that elects to purchase the Noticed Shares) on the
same terms and conditions as set forth in the Notice. The price per share
2
<PAGE>
of the Noticed Shares purchased pursuant to this Section III.C shall be, in the
case of a sale, the price per share as set forth in the Notice and, in the case
of a transfer not involving a sale, the fair market value of such shares
determined pursuant to Section III.D hereof, and the purchase shall be in all
other material respects on the same terms and subject to the same conditions as
those set forth in the Notice.
D. In the case of a transfer of shares of Company Stock not involving
a sale, the fair market value of the shares shall be determined in good faith by
the Company's Board of Directors, which determination will be final and binding
upon all parties and persons claiming under or through them. Anything in this
Section III.D to the contrary notwithstanding, if a Selling Stockholder is not
satisfied with the determination of fair market value, such Stockholder may
elect not to proceed with the proposed transfer of shares of Company Stock not
involving a sale and retain such shares under this Agreement.
E. If the Company (including its Permitted Assignee or Permitted
Assignees) or the other Applicable Class Stockholders, as applicable, do not
elect to purchase all of the shares of Company Stock to which the Notice refers
as provided in Section III.B hereof, then none of such shares shall be purchased
(unless the Selling Stockholder elects otherwise), and the Selling Stockholder
may sell or transfer all (but not less than all) of such shares (less any shares
which it has elected to sell pursuant to the election permitted in the first
parenthetical of this section III.E) to the purchaser or transferee named in the
Notice at, in the case of a sale, the price specified in the Notice or at a
higher price, provided that such sale or transfer is consummated within five (5)
months of the date of the Notice to the Company.
F. Notwithstanding subsections A through E of this Section III,
neither the Company nor any Stockholder shall have any rights under this Section
III: (i) in connection with and at any time subsequent to the closing of an
underwritten public offering of Company Common Stock pursuant to a registration
statement declared effective under the Act following which the Company Common
Stock is listed on a national securities exchange or The Nasdaq Stock Market; or
(ii) at any time after any transfer of equity securities of the Company in
connection with a sale or business combination involving the Company, whether
such sale or business combination is effected by merger, consolidation, sale of
assets or sale or exchange of stock representing one hundred percent (100%) of
the voting power of the Company Stock (in terms of number of votes for the
election of directors).
Section IV. Tag-Along Rights.
----------------
A. If BABF or any of its respective Affiliates (as hereinafter
defined) or any assignee or transferee of BABF or any such Affiliate
(collectively, the "Selling Group"), at any time or from time to time, enters
into an agreement (whether oral or written) to transfer, sell or otherwise
dispose of, directly or indirectly (a "Tag-Along Sale"), any shares of the
Company Preferred Stock or Company Common Stock or any interest therein, then,
in addition to the rights set forth in Section III, each other Stockholder shall
have the right, but not the obligation, to participate in such Tag-Along Sale
(and to displace the Selling Group to the extent of such participation) by
selling up to such Stockholder's pro rata share (in proportion to the number of
--------
shares of such class or series held by each Applicable Class Stockholder) of the
number of shares of Company Preferred Stock or Company Common Stock (the
"Stockholders' Allotment") equal
3
<PAGE>
to the product of (i) the total number of shares of Company Preferred Stock or
Company Common Stock proposed to be sold or otherwise disposed of by the Selling
Group in the Tag-Along Sale multiplied by (ii) a fraction, the numerator of
which shall equal the aggregate number of shares of Company Preferred Stock or
Company Common Stock owned by Stockholders who have elected to participate in
such Tag-Along Sale immediately prior to the Tag-Along Sale and the denominator
of which shall equal the sum of: (A) the aggregate number of shares of Company
Preferred Stock or Company Common Stock owned by members of the Selling Group
who have elected to participate in such Tag-Along Sale immediately prior to Tag-
Along Sale; and (B) the aggregate number of shares of such class of Company
Preferred Stock or Company Common Stock owned by Stockholders (other than
members of the Selling Group) who have elected to participate in such Tag-Along
Sale immediately prior to the Tag-Along Sale. Notwithstanding the foregoing
references to "Company Common Stock" and "Company Preferred Stock," each other
Stockholder shall only have the right to include shares of Company Stock of the
same class or classes as that being sold by the Selling Group. If the Selling
Group is selling more than one class of stock, the provisions of this Section IV
shall apply separately to each such class.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Selling Group; provided,
--------
however, that all selling Stockholders shall share pro rata, based upon the
- ------- --------
number of shares of each class or series of Company Stock being sold by each (i)
in any indemnity liabilities to the purchaser in the Tag-Along Sale (other than
representations as to unencumbered ownership of and ability to transfer the
shares being sold in the Tag-Along Sale ("Title Representations"), which shall
be the sole responsibility of such other seller) and (ii) in any escrow for the
purpose of satisfying any such indemnity liabilities. Notwithstanding the prior
sentence, if BABF and its Affiliates are collectively selling more than two-
thirds of their total Company Preferred Stock or Company Common Stock in the
Tag-Along Sale, then the provisos in the second paragraph of Section V.A shall
apply to the Tag-Along Sale to limit the obligations of any Stockholder other
than BABF and its Affiliates participating in the Tag-Along Sale.
B. The foregoing notwithstanding, Section IV.A hereof shall not apply
to (i) any transfer, sale or other disposition of shares of Company Preferred
Stock or Company Common Stock solely among BABF and its Affiliates for a price
not in excess of the original purchase price of such shares and (ii) any
distribution by BABF to Brentwood Associates Buyout Fund II, L.P., its sole
stockholder and (iii) any subsequent distributions by such stockholder to its
partners.
C. The Selling Group members participating in a Tag-Along Sale or a
representative of the Selling Group (the "Selling Group Representative," which
shall be BABF until the other Stockholders are notified of the name and address
of a successor representative) shall promptly provide each Stockholder with
written notice (the "Tag-Along Sale Notice") not more than 60 nor less than 20
days prior to the proposed date of the Tag-Along Sale (the "Tag-Along Sale
Date"). In order to facilitate the prompt delivery of the Tag-Along Sale
Notices, the Company hereby covenants to provide the Selling Group members
participating in a Tag-Along Sale or the Selling Group Representative, as the
case may be, access to the stock record books of the Company. Each Tag-Along
Sale Notice shall set forth: (i) the name and address of each proposed
transferee or purchaser of shares of Company Preferred Stock or
4
<PAGE>
Company Common Stock in the Tag-Along Sale; (ii) the name and address of each
Selling Group member participating in the Tag-Along Sale and the number of
shares of Company Preferred Stock or Company Common Stock proposed to be
transferred or sold by each such Selling Group member; (iii) the proposed amount
and form of consideration to be paid for such shares and the terms and
conditions of payment offered by each proposed transferee or purchaser, (iv) the
aggregate number of shares of Company Preferred Stock or Company Common Stock
held of record as of the close of business on the date of the Tag-Along Sale
Notice (the "Tag-Along Notice Date") by the Stockholder to whom the notice is
sent and the aggregate number of such Stockholder's shares of Company Preferred
Stock or Company Common Stock outstanding on the Tag-Along Notice Date; (v) the
aggregate number of shares of Company Preferred Stock or Company Common Stock
held of record as of the Tag-Along Notice Date by the Selling Group; (vi) the
maximum number of shares of Company Preferred Stock or Company Common Stock (the
"Stockholder's Allotment") that the Stockholder to whom the notice is sent is
entitled to include in the Tag-Along Sale assuming each Stockholder elected to
participate in the Tag-Along Sale and elected to sell the maximum number of
shares owned by each such Stockholder; (vii) the number of shares of each class
of Company Preferred Stock or Company Common Stock constituting the
Stockholders' Allotment; (viii) confirmation that the proposed purchaser or
transferee has been informed of the "Tag-Along Rights" provided for herein and
has agreed to purchase shares of Company Stock in accordance with the terms
hereof; (ix) the Tag-Along Sale Date and (x) confirmation that, with respect to
the shares of Company Preferred Stock or Company Common Stock to be acquired by
the proposed transferee or purchaser, the proposed transferee or purchaser
agrees in writing to be bound by, and covenants that each transferee of all such
shares shall be bound by, the provisions of this Agreement as if it were a
member of the Selling Group.
Each Stockholder shall provide written notice (or oral notice
confirmed in writing) (the "Tag-Along Notice") of such Stockholder's election to
participate in the Tag-Along Sale to the member(s) of the Selling Group
participating in the Tag-Along Sale, or, at such Stockholder's option, to the
Selling Group Representative, no less than 10 days prior to the Tag-Along Sale
Date. The Tag-Along Notice shall set forth the number of shares of Company
Preferred Stock or Company Common Stock, if any, that such Stockholder desires
to include in the Tag-Along Sale (which shall not exceed such Stockholder's
Allotment). The Tag-Along Notice shall also specify the aggregate number of
additional shares of Company Preferred Stock or Company Common Stock owned of
record as of the Tag-Along Notice Date by such Stockholder, if any, which such
Stockholder desires also to include in the Tag-Along Sale ("Additional Shares")
in the event that all Stockholders do not elect to participate in the Tag-Along
Sale or do not elect to sell or dispose of the entire amount of their
Stockholder's Allotment. In such event, the Selling Group member(s)
participating in the Tag-Along Sale shall apportion the aggregate number of
Additional Shares to Stockholders whose Tag-Along Notices specified an amount of
Additional Shares, which apportionment shall be on a pro rata basis among such
--------
Stockholders in accordance with the number of Additional Shares specified by all
such Stockholders in their Tag-Along Notices.
The participating members of the Selling Group shall determine the
aggregate number of shares of Company Preferred Stock or Company Common Stock to
be sold by each participating Stockholder in any given Tag-Along Sale in
accordance with the terms hereof, and the Tag-Along Notices given by the
Stockholders shall constitute their binding respective
5
<PAGE>
agreements to sell such shares on the terms and conditions applicable to such
sale (including the requirements of this Section IV). If the proposed transferee
or purchaser does not purchase all of such shares on the same terms and
conditions applicable to the members of the Selling Group (except as otherwise
provided herein) then none shall be purchased.
If a Tag-Along Notice from a Stockholder is not received by the
members of the Selling Group participating in the Tag-Along Sale or by the
Selling Group Representative, as the case may be, within the 10-day period
specified above, the Selling Group members shall have the right to sell or
otherwise transfer the number of shares of Company Preferred Stock or Company
Common Stock specified in the Tag-Along Sale Notice to the proposed purchaser or
transferee without any participation by such Stockholder, but only on the terms
and conditions stated in such Tag-Along Sale Notice and only if such sale occurs
on a date within five business days of the Tag-Along Sale Date.
D. The provisions of this Section IV shall apply regardless of the
form of consideration received in the Tag-Along Sale.
E. "Affiliate" of a specified person means any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person and, in the case of a person who is an
individual, shall include (i) members of such specified person's immediate
family (as defined in instruction 2 of Item 404(a) of Regulation S-K promulgated
by the Securities and Exchange Commission) and (ii) trusts whose trustee and
beneficiaries include only such specified person or members of such person's
immediate family as determined in accordance with the foregoing clause (i). For
the purposes of this definition, "control," when used with respect to any
person, means the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. An Affiliate of BABF shall also include
any general partner of the sole stockholder BABF and any principal, director,
executive officer, member, manager, partner or beneficial owner of more than 10%
of the equity interest of any such general partner of BABF.
F. The provisions of this Section IV shall terminate on the earlier
to occur of (i) in connection with and at any time subsequent to the closing of
an underwritten public offering of Company Common Stock pursuant to a
registration statement declared effective under the Act following which the
Company Common Stock is listed on a national securities exchange or The Nasdaq
Stock Market; or (ii) at any time after any transfer of equity securities of the
Company in connection with a sale or business combination involving the Company,
whether such sale or business combination is effected by merger, consolidation,
sale of assets or sale or exchange of stock representing one hundred percent
(100%) of the voting power of the Company Stock (in terms of number of votes for
the election of directors).
Section V. Drag-Along Rights.
-----------------
A. In the event the Selling Group determines to accept an offer from
an unaffiliated third person (other than any Affiliate of a member of the
Selling Group) to acquire 100% of the outstanding shares of Company Stock, then,
subject to Section V.C below, at the
6
<PAGE>
option of the Selling Group, each of the other Stockholders shall sell, and
shall cause any Affiliate of such Stockholder to sell, all shares of Company
Stock held by such Stockholder or such Affiliate pursuant to such offer to
purchase (the "Drag-Along Sale"). All holders of Company Stock (i) shall receive
in such Drag-Along Sale the same consideration per share of each class of
Company Stock, shall be subject to the same terms and conditions of sale and
shall otherwise be treated equally or, where appropriate, pro rata based upon
--------
the number of shares of such class of Company Stock held by each Stockholder,
and (ii) shall execute such documents and take such actions, including the
voting of shares or the acting by written consent, as may be reasonably required
by the Selling Group Representative in order to effect the Drag-Along Sale.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Drag-Along Sale by the Selling Group; provided,
--------
however, that all selling Stockholders shall share pro rata, based upon the
- ------- --------
number of shares of each class of Company Stock being sold by each, in any
escrow or holdback (which shall be limited to 20% of the cash consideration
received by all Stockholders with respect to the shares of Company Preferred
Stock and Company Common Stock) established for satisfying indemnity liabilities
to the purchaser in the Drag-Along Sale (other than Title Representations, which
shall be the sole responsibility of each seller); provided, further that each
-------- -------
Stockholder's sharing obligation hereunder with respect to such indemnity or
other liabilities shall be limited to such escrow or holdback except for the
Title Representations. In no circumstance whatsoever hereunder shall any
recourse be had to such Stockholder, whether by levy or execution, or under any
law, or by the enforcement of any assessment or penalty or otherwise, it being
understood that the sole recourse for enforcing such Stockholder's obligation
shall be to such escrow or holdback, except for the Title Representations. Any
amount returned to selling Stockholders from such escrow or holdback shall be
returned pro rata in proportion to the number of shares of Common Stock held by
--------
them.
The consideration for such Drag-Along Sale may be in any form;
provided, however, that such consideration must include cash (exclusive of cash
- -------- -------
deposited in escrow or holdback) in an amount sufficient to allow each
participant in the Drag-Along Sale to pay its federal and state taxes on the
transaction at assumed rates equal to the highest applicable federal and state
rates.
B. The Selling Group members participating in a Drag-Along Sale or
the Selling Group Representative shall promptly provide each Stockholder with
written notice (the "Sale Notice") not more than 60 nor less than 20 days prior
to the date of the Drag-Along Sale (the "Drag-Along Sale Date"). Each Sale
Notice shall set forth: (i) the name and address of each proposed transferee or
purchaser of shares of Company Stock in the Drag-Along Sale; (ii) the proposed
amount and form of consideration to be paid for such shares and the terms and
conditions of payment offered by each proposed transferee or purchaser, (iii)
confirmation that the proposed purchaser or transferee has been informed of the
"Drag-Along Rights" provided for herein and has agreed to purchase shares of
Company Stock in accordance with the terms hereof; and (iv) the Drag-Along Sale
Date.
C. The provisions of this Section V shall apply regardless of the
form of consideration received in the Drag-Along Sale, and if any non-cash
consideration is proposed in the Drag-Along Sale to each member of the Selling
Group, each Stockholder shall accept such
7
<PAGE>
Stockholder's pro rata share of such non-cash consideration for Company Stock
--- ----
based upon such Stockholder's proportional ownership of shares of each class of
Company Stock. The provisions of this Section V shall also apply to any exchange
of Company Preferred Stock for, or reclassification of Company Preferred Stock
into Company Common Stock, as if such transaction were a sale subject to this
Section V.
D. The provisions of this Section V shall terminate on the earlier to
occur of (i) in connection with and at any time subsequent to the closing of an
underwritten public offering of Company Common Stock pursuant to a registration
statement declared effective under the Act following which the Company Common
Stock is listed on a national securities exchange or The Nasdaq Stock Market; or
(ii) at any time after any transfer of equity securities of the Company in
connection with a sale or business combination involving the Company, whether
such sale or business combination is effected by merger, consolidation, sale of
assets or sale or exchange of stock representing one hundred percent (100%) of
the voting power of the Company Stock (in terms of number of votes for the
election of directors).
Section VI. Registration Rights.
-------------------
Each of the Stockholders shall have the registration rights
("Registration Rights") set forth in Exhibit A hereto, which Exhibit A is hereby
incorporated herein as if set forth in full in this Agreement.
Section VII. Exempt Transfers.
----------------
The provisions of Section III shall not apply to a transfer by a
Stockholder, either during such Stockholder's lifetime or on death by will or
intestacy, to (i) the Company or any subsidiary thereof: (ii) such Stockholder's
ancestors, descendants, spouse, brothers, sisters, nephews or nieces, (iii) any
custodian, guardian, or trustee for the account or benefit of such Stockholder
or such Stockholder's ancestors, descendants, spouse, brothers, sisters, nephews
or nieces; (iv) any organization which is exempt from federal income taxation
under the provisions of Section 501(c)(3) of the Internal Revenue Code;
provided, however, that the aggregate number of shares of Company Stock
- -------- -------
transferred by such Stockholder pursuant to the provisions of this clause (iv)
shall not exceed 10% of the shares of Company Stock owned by such Stockholder as
of the date of this Agreement; (v) a trustee or custodian of a trust described
in Section 401(a) or (h) of the Internal Revenue Code, or an Individual
Retirement Account or custodial account within the meaning of Section 408(a) or
(h) of the Internal Revenue Code, for the benefit of such Stockholder; or (vi)
in the case of a Stockholder which is an entity, to person(s) or entity(s)
controlling, controlled by or under common control with such Stockholder and, if
such transfer was to a controlling Stockholder or Stockholders, any further
transfer by any such Stockholder to an entity controlled by it (and for purposes
of this clause (vi) only, "control" and correlative terms mean ownership,
directly or indirectly, of at least 66 2/3% of the voting securities of the
applicable entity)or, in the case of a partnership, to another partnership with
the same general partner or under common control with the general partner of the
transferor partnership, so long as the transferee partnership was not formed for
the purpose of acquiring or holding the transferred securities); provided,
--------
however, that the transferee pursuant to clause (ii), (iii), (iv), (v) or (vi)
- -------
shall receive and hold such shares subject to the provisions of this Agreement
and there shall be no further transfer of such shares except in accordance
herewith; and provided further, that the
-------- -------
8
<PAGE>
transferee shall acknowledge and agree, in a writing satisfactory to the
Company, to be bound by the terms of this Agreement and shall execute and
deliver to the Company a letter to such effect.
Section VIII. Restriction on Public Sale.
--------------------------
Anything to the contrary herein notwithstanding, in the event that the
Company files a registration statement with respect to an underwritten public
offering under the Act in which any class of the Company's equity securities is
offered, no Stockholder shall effect any public sale or distribution (except
pursuant to said registration statement) of any of the shares of Company Stock
(which shares, for the purposes of this Section VIII, shall include any and all
voting securities received by such Stockholder as a stock dividend, stock split
or other recapitalization or similar distribution on or in respect of the shares
of Company Stock) or any of the Company's other equity securities, or of any
securities convertible into or exchangeable for such securities, during the
period beginning ten (10) days before the filing of such registration statement
with the Commission and ending on the later of ninety (90) days after such
registration statement has become effective or ten (10) days after it has been
withdrawn. After the completion of two (2) underwritten public offerings of the
Company's equity securities, this Section VIII shall cease to apply to any
Stockholder who, at the time of any subsequent registration, is not an officer,
director or stockholder required to be named by the Company in a registration
statement on Form S-1 promulgated by the Commission.
Section IX. Register of Securities; Removal of Restrictions on Transfer;
------------------------------------------------------------
Legends; Board of Directors.
---------------------------
A. Register of Securities. The Company or its duly appointed agent
----------------------
shall maintain separate registers for the shares of Preferred Stock and the
shares of Common Stock, in which it shall register the issue and sale of all
such respective shares. The Company may issue stop transfer instructions to
such agent and make similar notations in such register to ensure that all
transfers of such securities are made in accordance with the provisions of this
Agreement. All transfers of such securities shall be recorded on the register
maintained by the Company or its agent, and the Company shall be entitled to
regard the registered holder of such securities as the actual holder thereof
until the Company or its agent is required to record a transfer of such
securities on its register.
B. Removal of Transfer Restrictions. Any legend endorsed on a
--------------------------------
certificate evidencing shares of Company Stock and the stop transfer
instructions and record notations with respect to such shares shall be removed,
and the Company shall issue a certificate without such legend to the holder of
such shares in the event that (i) such shares have been sold pursuant to an
effective registration statement under the Act, (ii) a notification under
Regulation A under the Act is in effect with respect thereto, or (iii) such
shares have been sold under Rule 144 or Rule 144A under the Act.
C. Legends. All certificates evidencing the shares of Company Stock
-------
subject to this Agreement shall bear substantially the following legends:
(i) "The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the "Act").
These
9
<PAGE>
securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under such
Act."
(ii) "The securities represented by this certificate are subject
to restrictions on transfer, including, but not limited to, a right of
first refusal, tag-along rights, drag-along rights and certain other rights
in favor of certain stockholders, all as set forth in a Stockholders'
Agreement, as amended from time to time, between the issuer corporation and
the registered holder, or its predecessor in interest, a copy of which is
on file at the principal office of the issuer corporation and will be
furnished upon request to the holder of record of the shares represented by
this certificate."
(iii) Any legend required to be placed thereon by any applicable
state securities law.
Section X. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of this Agreement shall be inadequate and that, in
the event of any such breach or violation, the Company and the Stockholders
shall be entitled to injunctive relief in addition to any other remedy, at law
or in equity, to which any such party may be entitled.
Section XI. Violation of Transfer Provisions.
--------------------------------
The Company shall not be required (i) to transfer on its books any
shares of Company Stock which shall have been sold, transferred, assigned or
pledged in violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such shares of Company Stock or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred in violation of this Agreement.
Section XII. Governance; Board of Directors.
------------------------------
A. Board of Directors. Larry Clayton ("Clayton"), or in the event of
------------------
Clayton's death or disability rendering him incapable of performing his duties
as a director, Delton Clayton (together with Clayton, the "Clayton Director")
and James T. Stone ("Stone") shall each be entitled to be a member of the Board
of Directors (the "Board") as long as (i) in the case of the Clayton Director,
Clayton and his Affiliates own in the aggregate at least 45% of the Company
Common Stock held by the Stockholders, other than BABF and its Affiliates, on
May 29, 1998, and (ii) in the case of Stone, Stone and his Affiliates own in the
aggregate at least 45% of the Company Common Stock issued to them on the date on
which they first acquire any Company Common Stock. In addition, such number of
people designated by BABF (the "Brentwood Directors") as will constitute a
majority of the Board shall be entitled to be members of the Board as long as
BABF owns at least as many shares of Common Stock as it owns upon its initial
execution of this Agreement.
10
<PAGE>
B. Elections to Board. The Stockholders shall take appropriate
------------------
actions, including the voting of shares or the acting by written consent, to
cause the election of the Clayton Director, Stone and the Brentwood Directors to
become effective on the date of this Agreement. The Stockholders shall vote all
of the shares owned or held of record by them at all annual and special meetings
of the stockholders of the Company called or held for the purpose of filling
positions on the Board of Directors, and in each written consent executed in
lieu of such a meeting of stockholders, and each party hereto shall take all
actions otherwise necessary, to ensure (to the extent within the parties'
collective control) the election of the Clayton Director, Stone and the
Brentwood Directors to the Board for the applicable periods set forth in Section
XII.A.
C. Initial Public Offering. Notwithstanding the foregoing, the
-----------------------
parties agree to reconsider the composition of the Board as a whole and the
desirability of any voting arrangements at the time of an initial public
offering of Company Stock; provided, however, that no party will have any
-------- -------
liability for failure to reach an agreement as a result of such reconsideration.
Section XIII. [Intentionally left blank.]
Section XIV. Affiliate Transactions.
----------------------
"Affiliate Transaction" shall mean (i) any sale, lease, transfer or
other disposition by the Company or any of its subsidiaries of any of their
respective properties or assets to, (ii) any purchase of property or assets by
the Company or any of its subsidiaries from, (iii) any investment by the Company
or any of its subsidiaries in, (iv) any agreement by the Company or any of its
subsidiaries with or for the benefit of, or (v) any other transaction between
the Company or any of its subsidiaries and, an Affiliate of the Company or any
subsidiary of the Company. The following Affiliate Transactions are permitted
by this Agreement: (i) the Corporate Development and Administrative Services
Agreement to be entered into between the Company and Brentwood Private Equity
LLC, (ii) the transactions contemplated in the Stock Purchase Agreement, dated
May 29, 1998, among BABF, the Company, the Affiliates and Merger Subsidiaries of
the Company named therein, and the former shareholders and members of the
Company, its Affiliates and its Merger Subsidiaries, including the execution of
(x) a management services agreement with an entity controlled by Larry Clayton
and Delton Clayton, (y) this Agreement and the actions contemplated herein, and
(z) leases dated the date of the original Stockholders' Agreement dated as of
May 29, 1998, for real property owned by the former shareholders, and (iii)
transactions of a similar nature to those described in (i) and (ii) above
(including commercial lease agreements) with respect to the proposed transaction
by and between the Company and Stone Heavy Duty, Inc. Prior to an initial
public offering of Company Common Stock, all other Affiliate Transactions shall
be subject to the approval of BABF and the disinterested directors in favor of
whose election Clayton voted.
Section XV. [Intentionally left blank.]
Section XVI. General Provisions.
------------------
11
<PAGE>
A. After-Acquired Shares. All of the provisions of this Agreement
---------------------
shall apply to (i) all of the shares of Company Stock now owned or which may be
transferred hereafter to, or owned by, any Stockholder and (ii) all securities
and instruments (A) received by a Stockholder as a dividend on or other payment
made to holders of Company Stock, or (B) issued in connection with a split of
Company Stock or as a result of any exchange for or reclassification of Company
Stock or a reorganization, recapitalization, consolidation or merger. In
addition, any person or entity who does not presently own but subsequently
acquires newly-issued shares of Company Stock or securities convertible into or
exercisable or exchangeable for Company Stock may become a party to and bound by
this Agreement to such extent as the Company and such person or entity may
agree.
B. Rights and Obligations of Transferees. If a Stockholder transfers
-------------------------------------
any or all of its shares of Company Stock to any person, such person and each
subsequent transferee shall have the same rights hereunder as are given to the
Stockholder, and shall be subject to the same obligations as are imposed upon
the Stockholder by the terms hereof (and all references herein to a Stockholder
shall include such transferee), unless otherwise provided herein. The Company
will not record any transfer of Company Stock that was made in violation of any
provision of this Agreement.
C. Owner of Stockholder Shares. The person in whose name shares of
---------------------------
Company Stock are registered in the stock books of the Company may be treated as
the owner thereof for all purposes, including without limitation, for the giving
of notices under this Agreement.
D. Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended or if deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail:
(i) if to any Stockholder, addressed to such Stockholder at its
address shown on the stock register maintained by the Company, or at such
other address as such Stockholder may specify by written notice to the
Company, or
(ii) if to the Company, c/o HDA Parts System, Inc., 520 Lake
Cook Road, Deerfield, Illinois 60015, Attention: John Greisch, or to such
other address as the Company may specify by written notice to the
Stockholders, with a copy to BABF City Corp., c/o Brentwood Associates,
11150 Santa Monica Boulevard, Suite 1200, Los Angeles, CA 90025,
Attention: Christopher A. Laurence.+
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section XIII.D. may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the address provided herein shall be deemed to continue in effect
for all purposes hereunder.
12
<PAGE>
E. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware. Each of the parties to this Agreement hereby irrevocably
and unconditionally (i) agrees to be subject to, and hereby consents and submits
to, the jurisdiction of the courts of the State of Delaware and of the federal
courts sitting in the State of Delaware, (ii) to the extent such party is not
otherwise subject to service of process in the State of Delaware, hereby
appoints The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801, as such party's agent in the State of Delaware for acceptance of legal
process and (iii) agrees that service made on such agent shall have the same
legal force and effect as if served upon such party personally within the State
of Delaware.
F. Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
G. Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
H. Modification, Amendment and Waiver. Except as expressly provided
----------------------------------
below, this Agreement may be modified, amended or waived by holders of a
majority of the Company Stock. Modifications or amendments which make only
clarifying changes may be made by the Company acting alone. Each Stockholder
will receive prompt notice of any amendment to the Agreement for which the
Stockholder has not already consented in writing. Modifications or amendments
that materially increase any Stockholder's obligations hereunder or deprive any
Stockholder of the realization in all material respects of any material benefit
granted herein or any benefit granted herein to such Stockholder by name or
grant a benefit to any Stockholder by name or are not applicable pro rata to all
--- ----
Stockholders shall not be effective against any adversely affected Stockholder
without such Stockholder's written consent. The failure at any time to enforce
any of the provisions of this Agreement shall in no way be construed as a waiver
of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms.
I. Integration. This Agreement, together with Exhibit A hereto
-----------
constitutes the entire agreement of the parties with respect to the subject
matter hereof and thereof and supersedes all prior agreements and negotiations
with respect thereto.
J. Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
13
<PAGE>
K. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John J. Greisch
-------------------------------------------
John J. Greisch
President and Chief Executive Officer
BABF CITY CORP.
By: /s/ Christopher A. Laurence
-------------------------------------------
CHRISTOPHER A. LAURENCE
PRESIDENT
THE DELTON LANE CLAYTON TRUST
DATED NOVEMBER 1, 1990
By: /s/ Neil Bailey
-------------------------------------------
NEIL BAILEY AS TRUSTEE
THE DIEDRA ELAINE CLAYTON TRUST
DATED NOVEMBER 1, 1990
By: /s/ Neil Bailey
-------------------------------------------
NEIL BAILEY AS TRUSTEE
THE WILLIAM LARRY CLAYTON GRANDCHILDREN'S TRUST
DATED APRIL 30, 1997
By: /s/ Neil Bailey
-------------------------------------------
NEIL BAILEY AS TRUSTEE
/s/ William L. Clayton
-------------------------------------------
WILLIAM L. CLAYTON
S-1
<PAGE>
/s/ Charles Roy Johnson
-------------------------------------------
CHARLES ROY JOHNSON
/s/ James T. Stone
-------------------------------------------
JAMES T. STONE
/s/ Fred A. Stone, Jr.
-------------------------------------------
FRED A. STONE, JR.
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO Funds Management Corporation
general partner
By: /s/ Ivy Dodes
----------------------------------------
Name: IVY DODES
Title: Vice President
BANKAMERICA INVESTMENT CORPORATION
By: Dennis P. McCray
----------------------------------------
Name:
Title:
MIG PARTNERS VII
By: Dennis P. McCray
----------------------------------------
Name:
Title:
THE 311 FUND, LLC
By: /s/ Robert C. Byczek
----------------------------------------
Name: Robert C. Byczek
Title: Managing Director
/s/ A. Keith McLemore
-------------------------------------------
A. KEITH MCLEMORE
S-2
<PAGE>
/s/ John J. Greisch
-------------------------------------------
JOHN J. GREISCH
/s/ John P. Miller
-------------------------------------------
JOHN P. MILLER
S-3
<PAGE>
Exhibit A
REGISTRATION RIGHTS
Section 1. Definitions. Terms defined in the foregoing Stockholders'
-----------
Agreement (the "Agreement") are used as therein defined unless otherwise defined
in this Exhibit A. In addition, the following terms shall have the meanings
indicated:
"Commission" means the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
Section 2. Rights of Stockholder. If at any time the Company
---------------------
proposes to register (other than a registration (i) on Form S-8 or any successor
form thereto or (ii) of securities for the purpose of consummating any
acquisition by the Company including a registration on Form S-4 or any successor
form thereto) any public offering of shares of its common stock under the
Securities Act, the Company will give written notice to each Stockholder of its
intention so to do at least twenty (20) days prior to the filing of the
registration statement.
A. In the event of an underwritten public offering:
(1) If the representative of the underwriters participating in the
sale and distribution of the Company's securities covered by said registration
statement agrees that a number of shares of outstanding Company Common Stock in
addition to those shares to be registered on behalf of the Company (the
"Permissible Secondary Shares") may be included in the offering covered by the
registration statement, the Company's notice shall afford each Stockholder an
opportunity to elect to include in such filing all or any part of the shares of
the Company Common Stock then owned by Stockholder. Stockholder shall have
fifteen (15) days after receipt of the Company' notice to notify the Company in
writing of the number of shares of the Company Common Stock (the "Elected
Shares") which Stockholder elects to include in the offering. The Elected
Shares shall be included in the offering to the extent permitted by the
representative of the underwriters described above. If the aggregate number of
Elected Shares that Stockholder and any other holders of securities of the
Company possessing registration rights desire to include in such filing exceeds
the number of Permissible Secondary Shares, then Stockholder shall, subject to
any priority available to other holders of securities, be entitled to include
that number of shares of Company Common Stock that bears the same ratio to the
number of Permissible Secondary Shares as the number of Elected Shares of the
Company Common Stock that Stockholder desires to include bears to the number of
Elected Shares that all eligible holders of securities desire to include. Such
representative may increase or decrease the number of Permissible Secondary
Shares at any time until all shares of the Company Common Stock included in such
registration shall have been sold by such underwriters.
15
<PAGE>
(2) The inclusion in such filing of shares of Company Common Stock
shall be upon the condition that Stockholder sell his shares of Company Common
Stock to the underwriters on the same terms and conditions as the Company and
other selling holders.
(3) The Company shall afford Stockholder the right to participate in
each underwritten registration of Company Common Stock.
B. In the event of a public offering which is not underwritten:
(1) Stockholder shall have fifteen (15) days after receipt of the
Company's notice to notify the Company in writing of the number of shares of
Company Common Stock that are owned by him which Stockholder elects to include
in the offering.
(2) The Company will furnish to Stockholder so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as Stockholder may
reasonably request.
(3) The Company will use its best efforts to register or qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as Stockholder shall request, and do any and
all other acts and things that may be reasonably necessary or advisable to
enable Stockholder to consummate the disposition in such jurisdictions of the
shares of Company Common Stock covered by the registration statement; provided,
--------
however, that the Company shall not be obligated, by reason thereof, to qualify
- -------
as a foreign corporation or file any general consent to service of process under
the laws of any such jurisdiction or subject itself to taxation as doing
business in any such jurisdiction.
(4) The Company shall notify Stockholder when the registration
statement covering the offering of the shares of Company Common Stock to be
registered has been filed with the Commission under the Securities Act and when
it has been made effective by order of the Commission.
Section 3. Obligations of Stockholder. To include any shares of
--------------------------
Company Common Stock in any registration, Stockholder shall:
(1) Cooperate with the Company in preparing each such registration and
execute all such agreements as any representative of the underwriters may deem
reasonably necessary in favor of the underwriters;
(2) Promptly supply the Company with all information, documents,
representations and agreements as the underwriters or the Company may deem
reasonably necessary in connection with such registration; and
(3) In the case of an underwritten public offering, agree in writing
not to sell or transfer any shares of the Company Stock not included in such
registration during the period beginning ten (10) days prior to the filing and
ending up to one hundred eighty (180) days after the effective date of such
registration (or such shorter "lock-up" required by the underwriters of the
Company's officers and directors generally) without the underwriters' or the
Company's consent.
16
<PAGE>
Section 4. Completion of Offering Not Required. Anything herein to
-----------------------------------
the contrary notwithstanding, the Company shall have no obligation to
Stockholder if the Board of Directors of the Company determines, for any reason,
not to complete any proposed public offering of its securities.
Section 5. Registration Expenses. The costs and expenses (other than
---------------------
underwriting discount or commission and other than fees and disbursements of
counsel for any Stockholder) of all registrations and qualifications under the
Securities Act, and of all other actions that the Company is required to take or
effect pursuant to this Exhibit A, shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, costs
of special audits incident to or required by any such registration, fees and
disbursements of counsel for the Company).
Section 6. Indemnification by the Company. In the event of any
------------------------------
registration under the Securities Act of any offering including shares of
Company Common Stock, the Company hereby agrees to indemnify and hold harmless
Stockholder and each other person, if any, who controls Stockholder within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which Stockholder or such controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which shares of
Company Common Stock were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any failure or alleged failure of the Company to
comply with any applicable statute, rule or regulation in connection with the
registration statement or the offering, and will reimburse Stockholder for any
legal or other expenses reasonably incurred by Stockholder in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding; provided, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in conforming
with written information furnished by Stockholder in his capacity as such
specifically for use in the preparation thereof.
Section 7. Indemnification by Stockholder. In the event of any
------------------------------
registration under the Securities Act of any offering including shares of
Company Common Stock, Stockholder hereby agrees to indemnify and hold harmless
the Company, and each other person, if any, who controls the Company within the
meaning of the Securities Act and each other person (including each underwriter,
and each other person, if any, who controls such underwriter) who participates
in the offering of such Company Common Stock against any losses, claims, damages
or liabilities, joint or several, to which the Company, such controlling person
or participating person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which an offering of such Company Common Stock was
registered under the Securities Act, in any preliminary prospectus or final
prospectus contained therein, or in any
17
<PAGE>
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such controlling person or participating person
for any legal or other expenses reasonably incurred by the Company or such
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or proceeding; provided that
--------
Stockholder will be liable in any such case to the extent, and only to the
extent, that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, said preliminary or final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by Stockholder in his capacity as such
specifically for use in the preparation thereof; and provided that no
Stockholder shall be liable under this Section for any amount in excess of the
total price at which the shares of such Stockholder were sold to the public, net
of underwriting discounts and commissions.
Section 8. Procedure for Indemnification. Promptly after receipt by
-----------------------------
any party entitled to indemnification under Section 6 or 7 (the "Indemnified
Party") of notice of the commencement of any proceeding (including any
governmental investigation) in respect of which indemnity may be sought pursuant
thereto, such Indemnified Party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to such indemnifying
party of the commencement of such action; provided, however, that the failure to
-------- -------
so notify the indemnifying party will not relieve the indemnifying party from
any liability under this Agreement except to the extent that such failure or
delay materially prejudices the indemnifying party with respect to the defense
of such claims. The indemnifying party shall assume the defense thereof,
jointly with any other indemnifying party similarly notified, with counsel
selected by such indemnifying party, that is reasonably satisfactory to the
Indemnified Party, and shall assume the payment of all fees and expenses. In
any such proceeding, any Indemnified Party shall have the right to retain its
own counsel and to participate in such proceeding, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (i) the
indemnifying party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
indemnifying party and representation of both parties by the same counsel would,
in the opinion of counsel to the Indemnified Party, be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred (but not more frequently
than monthly). In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The indemnifying party shall be entitled to settle any such action (in which
event the Indemnified Party shall take all action reasonably necessary to effect
such settlement) except that the Indemnifying Party may not settle any such
action, without the consent of the Indemnified Party, if the terms of such
settlement include any express or implied admission of culpability by the
Indemnified Party. The indemnifying party shall give the Indemnified Party not
less than twenty (20) days prior written notice of any proposed settlement,
together with true and correct copies of any proposed agreements relating
thereto.
18
<PAGE>
Section 9. Contribution. If the indemnification provided for herein
------------
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each indemnifying party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities, as between the Company on the one hand and each Stockholder
participating in a registration on the other, in such proportion as is
appropriate to reflect the relative fault of and benefits to the Company and
each such participating Stockholder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of each such participating Stockholder
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, no participating Stockholder
shall be required to contribute any amount in excess of the amount by which the
total price at which the shares of such Stockholder were sold to the public, net
of underwriting discounts and commissions, exceeds the amount of any damages
which such Stockholder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty or such fraudulent misrepresentation. Each participating
Stockholder's obligation to contribute pursuant to this Section 9 is several and
not joint and is in the proportion that the proceeds of the offering received by
such Stockholder bears to the total proceeds of the offering received by all
such Stockholders.
Section 10. Expiration of Rights. Notwithstanding anything herein to
--------------------
the contrary, no Stockholder shall have any rights to include any shares in a
registration statement which (i) have already been sold pursuant to a
registration statement or pursuant to Rule 144 under the Securities Act or (ii)
may be sold pursuant to Rule 144(k) under the Securities Act, if the Company has
advised the Stockholder that it is willing to instruct the transfer agent for
the shares to remove any restrictive legend or legends necessary in connection
with such sale.
19
<PAGE>
Exhibit 10.14
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 1, 1998, by and between City Truck and Trailer Parts, Inc., an Alabama
corporation (the "Company") and John J. Greisch ("Purchaser" or "you"). As used
herein, Purchaser shall include Northern Trust Company, as custodian for John J.
Greisch IRA (the "IRA") to the extent the IRA purchases shares hereunder, which
will be evidence by a number of shares set forth under the IRA's signature on
the signature page hereof.
RECITALS
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, (x) 6,602 shares (the "Common Shares") of
the Company's authorized but unissued Common Stock, par value $.01 per share
(the "Common Stock") and (y) 6,983.976 shares (the "Preferred Shares") of the
Company's authorized but unissued Series B Preferred Stock, par value $.01 per
share (the "Preferred Stock"), all upon the terms and conditions specified
herein. The Common Shares and Preferred Shares are hereinafter sometimes called
the "Shares." Of the Common Shares, 5,000 such Common Shares are subject to the
vesting provisions contained herein and are sometimes referred to herein as the
"Vesting Common Shares."
The Company desires to have, and Purchaser is willing to grant to the
Company, the right and option to repurchase the Common Shares and Preferred
Shares upon the terms and conditions contained herein.
It is a condition precedent to the obligations of the Company under
this Agreement that Purchaser enter into that certain Amended and Restated
Stockholders' Agreement dated June 19, 1998 (the "Stockholders' Agreement")
among the Company, Brentwood Associates Buyout Fund II, L.P. (the
"Partnership"), BABF City Corp. and the other shareholders of the Company.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Purchase and Sale; Closing.
--------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell to
-----------------
Purchaser, and Purchaser hereby agrees to purchase from the Company on the
Closing Date, a total of 6,602 Common Shares and 6,983.976 Preferred Shares in
exchange for $1.00 per Common Share and $100.00 per Preferred Share. Of Common
Shares being purchased hereunder by Purchaser, 2,500 are Eligible Time
Accelerated Stock ("ETA Stock").
(b) The Closing. The consummation of the purchase and sale of the
-----------
Common Shares and Preferred Shares to be initially purchased hereunder (the
"Closing") shall occur as of the date of this Agreement or at such other time as
the parties may agree (the "Closing Date"). At the Closing, the Company shall
deliver to Purchaser certificates evidencing the shares of Common Stock and
Preferred Stock purchased hereunder by Purchaser, against payment of the
specified consideration therefor; provided, however, that certificates
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evidencing the Common
<PAGE>
Shares purchased hereunder by the Purchaser shall be deposited with the Escrow
Agent pursuant to Section 5 hereof.
2. Vesting of the Common Stock.
---------------------------
(a) 12.5% of the Vesting Common Shares shall become vested as of the
last day of each fiscal year of the Company (the "Fiscal Year End Date")
commencing with fiscal 1998, e.g. fiscal years 1998, 1999, 2000, 2001, 2002,
2003, 2004 and 2005, subject to the earlier vesting of ETA Stock as described
below.
All Common Stock (in excess of the 12.5% of the Vesting Common Stock
scheduled to vest in any such year) which vests as ETA Stock under Section 2(b)
will first reduce the Vesting Common Shares then scheduled to vest as of the
Fiscal Year End Date in 2005; and will thereafter reduce in inverse order the
Vesting Common Shares scheduled to vest as of the Fiscal Year End Date in years
2002 through 2004.
(b) Annex A, attached hereto and incorporated herein by reference,
includes vesting provisions, performance criteria (the "Performance Criteria")
for each of the periods set forth below for the ETA Stock and an example of
vesting which is applicable to ETA Stock which is eligible for accelerated
vesting. If the Company meets the Performance Criteria for fiscal 1998, 25% of
the ETA Stock shall become vested effective as of the Fiscal Year End Date in
1998; if the Company meets the Performance Criteria for fiscal 1999, an
additional 25% of the ETA Stock shall become vested effective as of the Fiscal
Year End Date in 1999; if the Company meets the Performance Criteria for fiscal
2000, an additional 25% of the ETA Stock shall become vested effective as of the
Fiscal Year End Date in 2000; and if the Company meets the Performance Criteria
for fiscal 2001, an additional 25% of the ETA Stock shall become vested
effective as of the Fiscal Year End Date in 2001. (Each of fiscal 1998, 1999,
2000 and 2001 is referred to herein as a "Performance Year.") Notwithstanding
the foregoing, the Company will be deemed to meet the Performance Criteria for
1998 regardless of actual results.
Annex A also includes more detailed vesting provisions applicable to
the ETA Stock, including "Catch Up Vesting" provisions.
(c) The foregoing notwithstanding, with respect to Purchaser, no
Vesting Common Shares or ETA Stock shall become vested unless Purchaser has been
continuously employed by the Company, or any parent or subsidiary of the
Company, from the Closing Date until, in the case of Vesting Common Shares, each
respective date on which the Vesting Common Shares are scheduled to vest and, in
the case of ETA Stock, each respective date on which the ETA Stock is eligible
to vest; provided, however, that if there is a Termination of Employment (as
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defined below):
(i) a pro rata portion of any Vesting Common Shares which are
--- ----
scheduled to vest and are not ETA Stock shall become vested immediately upon
---
Termination of Employment (such pro rata portion being equal to the ratio of the
--- ----
number of days of employment during the fiscal year in question to 365); and
(ii) if the termination of Employment occurs during a Performance
Year, and if, as of the date of Termination of Employment (the "Termination
Date"), EBITDA
2
<PAGE>
for the fiscal year to date ("Year to Date EBITDA") as of the last full month
preceding the Termination Date equaled or exceeded Plan EBITDA (as defined in
Annex A) for such period, then a pro rata portion (determined as in Section
--- ----
2(c)(i)) of the ETA Stock eligible to vest with respect to such Performance Year
shall become vested as of the Termination Date. (It is understood that the
determination of whether these shares of ETA Stock will vest will not
necessarily be able to be calculated as of the Termination Date, but once the
calculation is made, if any such shares do in fact vest, they shall be deemed to
have vested as of the Termination Date).
(d) As used herein, "Termination of Employment" shall mean the time
when the employee-employer relationship between Purchaser and the Company is
terminated for any reason whatsoever, with or without cause. For purposes of
this Section 2(d), and elsewhere in this Agreement in the context of employment,
the term "Company" shall mean a subsidiary or parent of the Company if Purchaser
is then employed by such subsidiary or parent; provided, however, that neither a
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transfer of Purchaser from the employ of the Company to the employ of such
subsidiary or parent nor the transfer of Purchaser from the employ of such
subsidiary or parent to the employ of the Company shall be deemed a Termination
of Employment.
(e) Anything in this Agreement to the contrary notwithstanding, if the
Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), all Vesting Common Shares not yet vested
which were not previously repurchased by the Company pursuant to Section 3 shall
vest immediately prior to the Acquisition closing date.
The proceeds of the Acquisition attributable to all of the Vesting
Common Shares outstanding on the closing date of the Acquisition which were not
vested in accordance with this Agreement prior to the acceleration of vesting
pursuant to Section 2(e) (the "Escrowed Acquisition Proceeds"), shall be
deposited with the Escrow Agent and will be distributed to Purchaser one year
after the Acquisition closing date, if, but only if, Purchaser is then an
employee of the Company or the acquiring entity; provided, however, (i) if
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Purchaser is not offered the opportunity to continue in the employ of the
Company or to become an employee of the acquiring entity (or a subsidiary or
parent thereof) (the Company and such entities are each called the "Successor
Employer") after the Acquisition closing date, in either case in a position
which would not be grounds for Purchaser to terminate his employment for "Good
Reason", then the Escrowed Acquisition Proceeds shall be distributed to
Purchaser immediately following the Acquisition closing date or (ii) if
Purchaser terminates his employment for "Good Reason" or is terminated by the
Successor Employer, then the Escrowed Acquisition Proceeds shall then be
distributed to Purchaser. Any Escrowed Acquisition Proceeds not so distributed
to Purchaser shall be paid to the other shareholders or former shareholders of
the Company in accordance with their interests. As used herein, "Good Reason"
shall exist if, without Purchaser's express written consent, (i) the Successor
Employer shall materially reduce the nature, scope, level or extent of
Purchaser's responsibilities from the nature, scope, level or extent of such
responsibilities immediately prior to the Acquisition or shall fail to provide
Purchaser with adequate office facilities and support services to perform such
responsibilities; (ii) the Successor Employer shall reduce Purchaser's salary
below that in effect as of the date of this Agreement (or as of the Acquisition,
if greater); (iii) the Successor Employer shall require Purchaser to relocate
his principal business office or his principal place of residence more than 20
miles from his office or
3
<PAGE>
place of residence, as the case may be, prior to the Acquisition; or (iv) the
Successor Employer shall fail to continue in effect any cash or stock-based
incentive or bonus plan, retirement plan, welfare benefit plan or other benefit
plan, program or arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant selected by Successor Employer) of all
such compensation, retirement and benefit plans, programs and arrangements
provided to Purchaser is not materially less than their aggregate value as of
the date of this Agreement (or as of the Acquisition, if greater).
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to
purchase any or all of the Vesting Common Shares that have not vested as
provided in Section 2 at a purchase price of $1.00 per share (the "Option
Price") upon a Termination of Employment on the terms and conditions hereinafter
provided.
(b) In addition to the rights set forth in Section 3(a), prior to an
initial public offering of Common Stock, the Company shall have the
unconditional right and option to purchase any and or all of the Vesting Common
Shares that have vested, at a per share purchase price equal to the Fair Market
Value thereof (the "Fair Market Value Price") upon a Termination of Employment
on the terms and conditions hereinafter provided. The Company's right and
option set forth in Sections 3(a) and 3(b) is referred to herein as the
"Purchase Option."
(c) The determination of whether ETA Stock has vested or has failed to
vest shall be made as of the date the Termination of Employment occurs with no
credit for the Company's performance in any subsequent Performance Years, and
there will be no "Catch Up Vesting."
The Purchase Option, if exercised, must be exercised no later than 60
days after a Termination of Employment. The Purchase Option may be exercised in
whole or in part. Any Common Stock which becomes subject to the Purchase Option
as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Common Stock shall at any time thereafter be subject
to the Purchase Option.
(d) The Purchase Option shall be exercised by written notice signed by
an officer of the Company and delivered or mailed to Purchaser as provided in
Section 15(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon such delivery or mailing.
Amounts due to Purchaser from the Company as a result of exercise of the
Purchase Option shall be payable in cash promptly after exercise of the Purchase
Option or, in the case of ETA Stock and/or "Catch Up Vesting", as soon as
reasonably practical after determination of whether or not any applicable
Performance Criteria were met.
(e) As used herein, "Fair Market Value" shall mean the fair market
value of a share of Common Stock, representing the price a willing buyer would
pay and at which at willing seller would sell, neither under any compulsion or
duress. Initially, the parties shall attempt to
4
<PAGE>
agree on Fair Market Value for a period of thirty (30) days. If they are unable
to reach agreement, each of them shall within ten (10) days nominate an
independent appraiser skilled in valuing securities similar to the Common Stock,
and the two appraisers so nominated shall appoint a third appraiser within ten
(10) days. The third appraiser shall determine Fair Market Value, and such
determination shall be conclusive and binding on all parties. The Company shall
bear any costs of all three appraisers.
(f) In addition to the above, if there is a Termination of Employment,
the Company will have the option to purchase, and you will have the right to
require the Company to purchase, all or any portion of your Shares other than
Vesting Common Shares, pro rata in proportion to ratio of Common Shares to
--- ----
Preferred Shares in which such Shares (other than Vesting Common Shares) were
originally issued. The purchase price for Common Shares will be Fair Market
Value. The purchase price for Preferred Shares will be $100 per share, plus
accrued and unpaid dividends to the date of repurchase. Notwithstanding the
foregoing, the Company will not be obligated to purchase any Shares to the
extent such purchase would cause a default under its credit agreement, indenture
or other agreements for borrowed money.
4. No Employment Agreement.
-----------------------
(a) Nothing contained in this Agreement, or in any other agreement
entered into by the Company and Purchaser in connection with this Agreement, (i)
obligates the Company, or any subsidiary or parent of the Company, to continue
to employ Purchaser in any capacity whatsoever, or (ii) prohibits or restricts
the Company (or any such subsidiary or parent) from terminating the employment
of Purchaser at any time or for any reason whatsoever, with or without cause,
and Purchaser hereby acknowledges and agrees that neither the Company nor any
other person has made any representations or promises whatsoever to Purchaser
concerning Purchaser's employment or continued employment by the Company. In
the event of any Termination of Employment, Purchaser shall have the rights set
forth in this Agreement and no more, except as provided by law or in equity.
(b) Subject to Section 4(a):
(i) you shall be the Company's President and Chief Executive
Officer. Your base salary will be $275,000, to be reviewed annually by the Board
of Directors. You will be eligible to receive an annual performance bonus
(targeted at 50% of your base salary (pro rated for 1998 based on a start date
of June 1, 1998) if certain performance criteria mutually agreed upon by you and
the Board of Directors prior to the beginning of the year are achieved),
although at the discretion of the Board of Directors, you may be eligible for
additional performance bonuses based upon higher mutually agreed upon
objectives. Notwithstanding the foregoing, for 1998, the Company will pay you a
minimum performance bonus equal to the pro rated portion of your target bonus
for the year. Upon a Termination of Employment, the Company will pay you in cash
a lump sum severance package equal to twelve months' base salary for the fiscal
year in question and will at its expense continue your health insurance benefits
as in effect immediately prior to such Termination of Employment for 12 months.
In addition, if Year to Date EBITDA through the last full month before your
Termination Date is at least 100% of Plan EBITDA for such period, you will also
be paid a pro rata portion of your target bonus for the year in which the
--- ----
termination occurs, but you will not receive any other
5
<PAGE>
bonus regardless of whether the Performance Criteria or any other criteria were
or are ultimately met with respect to any fiscal period. Benefits will include
health insurance, nominal life insurance, business club membership and an
automobile lease allowance, all consistent with those generally available in
entities organized by the Partnership;
(ii) so long as there has been no Termination of Employment, you
shall be nominated as a member of the Company's board of directors. You
acknowledge that initially representatives of the Partnership and other
individuals selected by it in consultation with you will constitute a majority
of the board of directors and that a general partner of the Partnership's
general partner will serve as Chairman of the Board; and
(c) You acknowledge that the Company has entered into or intends to
enter into a Corporate Development and Administrative Services Agreement with an
affiliate of the Partnership providing for the payment of substantial fees, in a
form which has been provided to you.
5. Escrow of Shares. As security for the faithful performance of the
----------------
terms of this Agreement and to ensure the availability for delivery of the
unvested Common Shares in case of an exercise of the Purchase Option, Purchaser
shall deliver to and deposit with the escrow agent (the "Escrow Agent") named in
the Joint Escrow Instructions executed concurrently herewith (the "Joint Escrow
Instructions"), 10 stock assignments duly endorsed (with date and number of
shares blank) together with the certificate or certificates evidencing the
shares of Common Stock purchased hereunder by Purchaser. Such documents are to
be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the
terms of the Joint Escrow Instructions, which shall be executed by Purchaser and
the Company and delivered to the Escrow Agent concurrently with the execution of
this Agreement. As promptly as practicable after each vesting date under this
Agreement (but, with respect to ETA Stock, only after the Company is able to
determine whether or not the applicable Performance Criteria have been met), the
Company shall notify Purchaser and the Escrow Agent in writing of the aggregate
vesting and non-vesting to that date of Common Shares and ETA Stock, and the
Escrow Agent shall, within 30 days after receipt of such notice, deliver to
Purchaser certificates representing that number of Purchaser's Common Shares
that such notice states have become vested (less such shares, the certificates
for which have been previously delivered). From time to time, upon written
request of the Company, the Escrow Agent shall deliver to the Company
certificates representing that number of Common Shares which the Company shall
have purchased upon exercise of the Purchase Option, unless Purchaser objects in
the manner provided in the Joint Escrow Instructions.
In the case of any conflict or inconsistency between this Section 5
and the Joint Escrow Instructions, the Joint Escrow Instructions shall control.
6. Change in Capitalization. If from time to time during the term of
------------------------
this Agreement (i) there is any dividend of cash or property or rights to
acquire same, any liquidating dividend of cash and/or property, or any stock
dividend or stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) there is (a) any consolidation,
merger or sale of all, or substantially all, of the assets of the Company or (b)
a Drag-Along Sale pursuant to the Stockholders' Agreement, then in such event
any and all new,
6
<PAGE>
substituted or additional securities or other property to which Purchaser may
become entitled by reason of his ownership of Common Shares shall immediately
become subject to this Agreement and shall assume the same status with respect
to vesting as the Common Shares upon which such dividend was paid or in
substitution for which such additional securities or property were distributed.
Any cash or cash equivalents received pursuant to this Section 6 shall be
invested in conservative, short-term interest bearing securities, and interest
earned thereon shall likewise assume the same status as to vesting. While the
total Option Price for all Common Shares subject to the Purchase Option shall
remain the same after each such event, the Option Price per Common Share upon
exercise of the Purchase Option shall be proportionately or otherwise
appropriately adjusted as determined in good faith by the Board of Directors of
the Company.
7. Purchaser Representations and Agreements. Purchaser hereby
----------------------------------------
represents and warrants, and agrees with, the Company as set forth below.
(a) Purchaser has full power and authority to execute, deliver and
perform his obligations under this Agreement and this Agreement is a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except that the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the shares of Holdings Stock being
purchased pursuant to this Agreement or to become an employee of the Company or
any of its subsidiaries, and Purchaser will not enter into any such agreement or
restriction.
(b) Purchaser has received and reviewed this Agreement and all annexes
and schedules hereto, including the Stockholders' Agreement and all schedules
and exhibits attached hereto and thereto, and has received all such business,
financial and other information as he deems necessary and appropriate to enable
him to evaluate the financial risk inherent in making an investment in the
Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his own
funds or property for investment, for his own account, and not as a nominee or
agent for any other person, firm or corporation, and not with a view to the sale
or distribution of all or any part thereof, and he has no present intention of
selling, granting participation in, or otherwise distributing any of the Shares.
Except as provided herein or pursuant to the Stockholders' Agreement, Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person, firm or corporation to sell, transfer or grant participation to such
person, firm or corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery
7
<PAGE>
requirements of the Act is available, and (iii) there is no assurance that such
an exemption from registration will ever be available or that the Shares will
ever be able to be sold.
(e) Purchaser agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under the
Act or unless and until (i) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) he shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Shares under the Act or applicable state securities
laws, or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the Company shall have
waived, expressly and in writing, the provisions of clauses (i) and (ii) of this
subsection.
(f) Purchaser does not require the assistance of an investment advisor
or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of his
investment in the Company, has the ability to bear the economic risks of its
investment for an indefinite period of time and has been furnished with and had
access to such information as is necessary to verify the accuracy of the
information supplied and to have all questions answered by the Company.
8. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Purchaser as set forth below.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement have been duly and
validly authorized, and all necessary corporate action has been taken to make
this Agreement a valid and binding obligation of the Company, enforceable in
accordance with its terms, except that the enforcement thereof may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(c) When issued and paid for by Purchaser as provided for herein, the
Shares will be duly and validly issued, fully paid and non-assessable.
9. Conditions of Parties' Obligations.
----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Common Shares are also subject to the fulfillment
prior to or concurrently with the Closing of the conditions set forth below.
8
<PAGE>
(a) The representations and warranties of the Purchaser and the
Company shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if
any, which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
(c) Purchaser shall have received copies of such supporting documents
as Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by
the Stockholders' Agreement, which Stockholders' Agreement is hereby
incorporated herein as if set forth in full in this Agreement.
10. Restriction on Sale or Transfer. Except as provided herein, none
-------------------------------
of the Common Shares that have not vested pursuant hereto (or any beneficial
interest therein) shall be sold, transferred, assigned or pledged (including
transfer by operation of law) and any attempt to make any such sale, transfer,
assignment or pledge shall be null and void and of no effect.
11. Legends. In addition to any legends required by the
-------
Stockholders' Agreement, the certificates representing the shares of Common
Stock purchased pursuant to this Agreement will bear a legend in substantially
the following form:
"The shares represented by this certificate are subject to repurchase
under certain circumstances by the issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
------------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or violation, the Company or Purchaser, as the
case may be, shall be entitled to injunctive relief in addition to any other
remedy, at law or in equity, to which he or it may be entitled.
13. Violation of Transfer Provisions. The Company shall not be
---------------------------------
required (a) to transfer on its books any Common Shares which shall have been
sold, transferred, assigned or pledged in violation of any of the provisions of
this Agreement or (b) to treat as owner of such Common Shares or to accord the
right to vote or to pay dividends to any purported transferee of Common Shares
in violation of any of the provisions of this Agreement.
14. Covenant Regarding 83(b) Election. Purchaser hereby covenants
---------------------------------
and agrees that he will make an election pursuant to Treasury Regulation 1.83-2
with respect to the
9
<PAGE>
Common Shares and will furnish the Company with a copy of the form of election
Purchaser has filed and evidence that such an election has been filed in a
timely manner.
15. General Provisions.
------------------
(a) No Assignments. Except as specifically provided to the contrary
--------------
in this Agreement, neither party shall transfer, assign or encumber any of its
or his rights, privileges, duties or obligations under this Agreement without
the prior written consent of the other party, and any attempt to so transfer,
assign or encumber shall be void; provided, however, that the Company may assign
-------- -------
this Agreement and its rights hereunder in connection with a sale of all of the
stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended (including by reputable overnight delivery services
which shall be deemed to have effected personal delivery) or by telecopy,
receipt of which is acknowledged by the telecopy number set forth below for the
applicable addressee, or if deposited, postage prepaid, registered or certified
mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address shown
on the stock register maintained by the Company, or at such other address as
Purchaser may specify by written notice to the Company, or
(ii) if to the Company, addressed to City Truck and Trailer Parts,
Inc., c/o Christopher A. Laurence, Brentwood Associates, 11150 Santa Monica
Boulevard, Suite 1200 Los Angeles, California 90025, or at such other address as
the Company may specify by written notice to the Purchaser.
Each such notice, request, consent and other communication shall be
deemed to have been given upon receipt thereof as set forth above or, if sooner,
three days after deposit as described above. The addresses for the purposes of
this Section 15(b) may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
(d) Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
10
<PAGE>
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Purchaser unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
(g) Integration. This Agreement constitutes the entire agreement of
-----------
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with
------------
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
COMPANY:
CITY TRUCK AND TRAILER PARTS, INC.
By: /s/ Christopher A. Laurence
---------------------------------
Name: Christopher A. Laurence
----------------------------
Title: Vice President
---------------------------
PURCHASER:
/s/ John J. Greisch
- --------------------------
John J. Greisch
1,602 shares of common stock, none of which are Vesting Common Shares
3,733.976 shares of Preferred Stock
NORTHERN TRUST COMPANY, custodian for
John J. Greisch IRA
/s/ Thomas A. Hayman
- --------------------------------------
By: Vice President
------------------------------------
5,000 shares of common stock, all of which are Vesting Common Shares
3,250 shares of Preferred Stock
12
<PAGE>
Annex A
-------
CITY TRUCKS AND TRAILER PARTS, INC.
PERFORMANCE CRITERIA
AND VESTING EXAMPLE
--------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions and vesting example with respect to the vesting of ETA Stock, which
is a part of the Common Shares to be acquired by Purchaser pursuant to the Stock
Purchase Agreement between the Company and the Purchaser (the "Agreement").
Capitalized terms used herein and not defined have the meanings ascribed to them
in the Agreement.
As stated in Section 2(b) of the Agreement, 25% of the ETA Stock shall
become eligible for vesting as of the end of each of fiscal year from fiscal
1998 through fiscal 2001 (each of such full fiscal years being defined in the
Agreement as a Performance Year). Each installment of ETA Stock when it becomes
eligible for vesting is hereinafter referred to as the "Eligible ETA Stock."
For each Performance Year, the amount of Eligible ETA Stock that shall
become vested (effective as of the end of the fiscal year) will be determined by
comparing the Company's actual EBITDA (as defined below) as of the end of such
fiscal year (as determined from its audited financial statements) to Plan EBITDA
(as defined below) for such fiscal year. The percentage of Eligible ETA Stock
that shall become vested at the end of each Performance Year shall be as set
forth in the following table:
Actual EBITDA as a % Percentage of Eligible
of Plan ETA Stock that
EBITDA shall become vested
--------- -------------------
less than 85.00% 0%
88.75% 30%
92.50% 60%
96.25% 80%
100% 100%
Vesting between the percentages listed in the table above will be
linearly interpolated.
If the Company fails to achieve the dollar amount of Plan EBITDA
required to vest 100% of the Eligible ETA Stock in any one Performance Year, but
in the immediately following Performance Year the Company's actual EBITDA
exceeds Plan EBITDA, the Company shall add the dollar amount by which the
Company's EBITDA exceeds Plan EBITDA in such Performance Year to the Company's
EBITDA for the Performance Year immediately prior thereto and vest the
additional Eligible ETA Stock that would have vested in that Performance Year
with the addition of the dollar amount carried back; provided that there are
--------
limitations in the Agreement in the case of termination of employment and
acquisitions of the
13
<PAGE>
Company. Such vesting for the earlier Performance Year is referred to herein as
"Catch Up Vesting."
In the event of an Acquisition, any Eligible ETA Stock which shall
have failed to vest as a result of the Company's failure to achieve the dollar
amount of Plan EBITDA required to vest 100% of the then Eligible ETA Stock shall
become subject to the Company's Purchase Option in Section 3 of the Agreement.
"EBITDA" means, for any fiscal year, consolidated pre-tax income plus
interest expense (including non-cash interest, amortization of original issue
discount and the interest component of capital leases) on indebtedness,
depreciation and amortization of goodwill, covenants not to compete and similar
intangibles, all as determined in accordance with generally accepted accounting
principles and as reflected in the Company's audited consolidated financial
statements..
"Plan EBITDA" means, for each Performance Year, the dollar amount of
EBITDA set forth in the Operating Plan approved by the Board of Directors. Plan
EBITDA will be adjusted from time to time as may be mutually agreed upon to
reflect the expected contribution to EBITDA of acquisitions or major corporate
projects.
14
<PAGE>
JOINT ESCROW INSTRUCTIONS
July 7, 1998
Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Dear Sir or Madam:
As the person identified herein as Escrow Agent for City Trucks and
Trailer Parts, Inc. (the "Company"), a Delaware corporation, and the undersigned
holder of common stock, par value $.01 per share, of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Purchase Agreement
(the "Agreement") dated as of July 1, 1998, in accordance with the following
instructions:
1. In the event the Company, or any assignee of the Company (referred
to collectively herein as the "Company"), shall elect to exercise the Purchase
Option (as defined and described in the Agreement), the Company shall give to
the Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price and the time for a closing hereunder at the
principal office of the Company, which time shall not be less than 20 days after
the date of such written notice. Unless you shall have received written notice
from Purchaser at least five days prior to the date specified for the closing
objecting to consummation of the transaction, Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Purchaser shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you
any certificate or certificates representing shares which were not so purchased
and remain subject to these Joint Escrow Instructions.
3. Purchaser does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any required filings with all other governmental or
regulatory bodies.
<PAGE>
4. This escrow shall terminate upon termination of the Purchase
Option with respect to all Common Shares under the Agreement. Within ten days
after each date of vesting under Sections 2(a) and 2(b) of the Agreement, the
Company shall notify you and Purchaser in writing of the number of shares which
have vested on that date. Within 20 days after your receipt of such notice, you
shall deliver to Purchaser a certificate or certificates evidencing the shares
which have so vested. Promptly following any exercise of the Purchase Option,
you shall deliver to Purchaser a certificate or certificates representing the
number of shares of stock not theretofore repurchased by the Company pursuant to
such exercise of the Purchase Option which have vested (less such shares as have
been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Purchaser, you shall deliver all of same to Purchaser and shall be discharged
from all further obligations hereunder. The Company hereby authorizes you at
any time and from time to time after the date hereof to comply with a written
request from Purchaser, a copy of which you shall deliver to the Company, and
unless the Company shall have given you written notice of its objection to such
request within 30 days following its receipt thereof, to deliver to Purchaser a
certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of our own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction. For purposes of this paragraph 8, an objection made pursuant to
paragraph 1 by the Purchaser shall not be deemed a warning.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder or thereunder.
2
<PAGE>
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attention: Christopher A. Laurence
Notice to Purchaser shall be sent to the address set forth below
Purchaser's signature.
Escrow Agent: Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the
3
<PAGE>
compensation paid pursuant to paragraph 10 hereof, shall be borne by the
Company, and the Company hereby agrees to indemnify and hold you free and
harmless in respect of all claims, actions, demands, liabilities, losses, costs,
fees and expenses incurred by you in the performance
4
<PAGE>
of your duties hereunder; provided, however, that this indemnity shall not
extend to conduct which has been determined, by a final judgment of a court of
competent jurisdiction, to have been grossly negligent or to have constituted
intentional misconduct.
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
19. This instrument may be executed in counterpart with the same
effect as if all parties had signed the same document. All such counterparts
shall be deemed an original, shall be construed together and shall constitute
one and the same instrument.
Very truly yours,
CITY TRUCK AND TRAILER PARTS, INC.
By: _________________________
Name:
Title:
PURCHASER:
____________________________
JOHN J. GREISCH
ADDRESS:
2636 CHEASAPEAKE LANE
NORTHBROOK, ILLINOIS 60062
ESCROW AGENT:
___________________________
NAME: MARK KIMURA
5
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of July 1, 1998 (the "Agreement"), the undersigned hereby
sells, assigns and transfers unto the person identified as Escrow Agent in the
Agreement all rights and interests in ___________________ shares of Common Stock
of City Truck and Trailer Parts, Inc. (the "Company"), an Alabama corporation,
represented by Stock Certificate No. _______________ herewith (the
"Certificate"), which Certificate was deposited by the undersigned with the
Escrow Agent pursuant to the Joint Escrow Instructions (as defined in the
Agreement) among the undersigned, the Company and such Escrow Agent, such
Certificate standing in the undersigned's name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated:______________, ___
_____________________________
JOHN J. GREISCH
<PAGE>
Exhibit 10.15
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 10, 1998, by and between HDA Parts System, Inc. (formerly City Truck and
Trailer Parts, Inc.), an Alabama corporation (the "Company") and John P. Miller
("Purchaser" or "you").
RECITALS
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, (x) 1,729 shares (the "Common Shares") of
the Company's authorized but unissued Common Stock, par value $.01 per share
(the "Common Stock") and (y) 997.710 shares (the "Preferred Shares") of the
Company's authorized but unissued Series B Preferred Stock, par value $.01 per
share (the "Preferred Stock"), all upon the terms and conditions specified
herein. The Common Shares and Preferred Shares are hereinafter sometimes called
the "Shares." Of the Common Shares, 1,500 such Common Shares are subject to
certain vesting provisions contained herein and are referred to herein as the
"Vesting Common Shares." The remaining 229 Common Shares and the Preferred
Shares are collectively the "Additional Equity" and are also subject to certain
vesting provisions contained herein.
The Company desires to have, and Purchaser is willing to grant to the
Company, the right and option to repurchase the Common Shares and Preferred
Shares upon the terms and conditions contained herein. The Additional Equity
shall not be transferred to Purchaser until July 28, 1998.
It is a condition precedent to the obligations of the Company under
this Agreement that Purchaser enter into that certain Amended and Restated
Stockholders' Agreement dated June 19, 1998 (the "Stockholders' Agreement")
among the Company, Brentwood Associates Buyout Fund II, L.P. (the
"Partnership"), BABF City Corp. and the other shareholders of the Company.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Purchase and Sale; Closing.
--------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell to
-----------------
Purchaser, and Purchaser hereby agrees to purchase from the Company, a total of
1,729 Common Shares and 997.710 Preferred Shares in exchange for $1.00 per
Common Share and $.01 per Preferred Share. Of Vesting Common Shares being
purchased hereunder by Purchaser, 750 are Eligible Time Accelerated Stock ("ETA
Stock").
(b) The Closing. The consummation of the purchase and sale of the
-----------
Common Shares and Preferred Shares to be initially purchased hereunder (the
"Closing") shall occur as of the date of this Agreement or at such other time as
the parties may agree (the "Closing Date"). At the Closing, the Company shall
deliver to Purchaser certificates evidencing the shares of Common Stock and
Preferred Stock purchased hereunder by Purchaser, against payment of the
specified consideration therefor; provided, however, that certificates
-------- -------
evidencing the Common
<PAGE>
Shares purchased hereunder by the Purchaser shall be deposited with the Escrow
Agent pursuant to Section 5 hereof.
2. Vesting of the Common and Preferred Stock.
-----------------------------------------
(a) 12.5% of the Vesting Common Shares shall become vested as of the
last day of each fiscal year of the Company (the "Fiscal Year End Date")
commencing with fiscal 1998 (e.g. fiscal years 1998, 1999, 2000, 2001, 2002,
2003, 2004 and 2005, subject to the earlier vesting of ETA Stock as described
below.
All Common Stock (in excess of the 12.5% of the Vesting Common Stock
scheduled to vest in any such year) which vests as ETA Stock under Section 2(b)
will first reduce the Vesting Common Shares then scheduled to vest as of the
Fiscal Year End Date in 2005; and will thereafter reduce in inverse order the
Vesting Common Shares scheduled to vest as of the Fiscal Year End Date in years
2002 through 2004.
(b) Annex A, attached hereto and incorporated herein by reference,
includes vesting provisions, performance criteria (the "Performance Criteria")
for each of the periods set forth below for the ETA Stock and an example of
vesting which is applicable to ETA Stock which is eligible for accelerated
vesting. If the Company meets the Performance Criteria for fiscal 1998, 25% of
the ETA Stock shall become vested effective as of the Fiscal Year End Date in
1998; if the Company meets the Performance Criteria for fiscal 1999, an
additional 25% of the ETA Stock shall become vested effective as of the Fiscal
Year End Date in 1999; if the Company meets the Performance Criteria for fiscal
2000, an additional 25% of the ETA Stock shall become vested effective as of the
Fiscal Year End Date in 2000; and if the Company meets the Performance Criteria
for fiscal 2001, an additional 25% of the ETA Stock shall become vested
effective as of the Fiscal Year End Date in 2001. (Each of fiscal 1998, 1999,
2000 and 2001 is referred to herein as a "Performance Year.") Notwithstanding
the foregoing, the Company will be deemed to meet the Performance Criteria for
1998 regardless of actual results.
Annex A also includes more detailed vesting provisions applicable to
the ETA Stock, including "Catch Up Vesting" provisions.
(c) 33.33% of the shares of Additional Equity shall become vested as
of the last day of each fiscal year of the Company commencing with fiscal 1998,
e.g. fiscal years 1998, 1999 and 2000.
(d) The foregoing notwithstanding, with respect to Purchaser, no
Vesting Common Shares, ETA Stock or shares of Additional Equity shall become
vested unless Purchaser has been continuously employed by the Company, or any
parent or subsidiary of the Company, from the Closing Date until, in the case of
Vesting Common Shares and shares of Additional Equity, each respective date on
which the Vesting Common Shares or shares of Additional Equity are scheduled to
vest and, in the case of ETA Stock, each respective date on which the ETA Stock
is eligible to vest; provided, however, that if there is a Termination of
-------- -------
Employment (as defined below):
(i) a pro rata portion of any Vesting Common Shares which are
--- ----
scheduled to vest and are not ETA Stock shall become vested immediately upon
---
Termination of
2
<PAGE>
Employment (such pro rata portion being equal to the ratio of the number of days
--- ----
of employment during the fiscal year in question to 365);
(ii) all the shares of Additional Equity shall become vested
immediately upon any involuntary Termination of Employment; and
(iii) if the termination of Employment occurs during a Performance
Year, and if, as of the date of Termination of Employment (the "Termination
Date"), EBITDA for the fiscal year to date ("Year to Date EBITDA") as of the
last full month preceding the Termination Date equaled or exceeded Plan EBITDA
(as defined in Annex A) for such period, then a pro rata portion (determined as
--- ----
in Section 2(d)(i)) of the ETA Stock eligible to vest with respect to such
Performance Year shall become vested as of the Termination Date. (It is
understood that the determination of whether these shares of ETA Stock will vest
will not necessarily be able to be calculated as of the Termination Date, but
once the calculation is made, if any such shares do in fact vest, they shall be
deemed to have vested as of the Termination Date).
(e) As used herein, "Termination of Employment" shall mean the time
when the employee-employer relationship between Purchaser and the Company is
terminated for any reason whatsoever, with or without cause. For purposes of
this Section 2(e), and elsewhere in this Agreement in the context of employment,
the term "Company" shall mean a subsidiary or parent of the Company if Purchaser
is then employed by such subsidiary or parent; provided, however, that neither a
-------- -------
transfer of Purchaser from the employ of the Company to the employ of such
subsidiary or parent nor the transfer of Purchaser from the employ of such
subsidiary or parent to the employ of the Company shall be deemed a Termination
of Employment.
(f) Anything in this Agreement to the contrary notwithstanding, if the
Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), (i) all Vesting Common Shares not yet vested
which were not previously repurchased by the Company pursuant to Section 3 shall
vest immediately prior to the Acquisition closing date.
The proceeds of the Acquisition attributable to all of the Vesting
Common Shares outstanding on the closing date of the Acquisition which were not
vested in accordance with this Agreement prior to the acceleration of vesting
pursuant to Section 2(f) (the "Escrowed Acquisition Proceeds"), shall be
deposited with the Escrow Agent and will be distributed to Purchaser one year
after the Acquisition closing date, if, but only if, Purchaser is then an
employee of the Company or the acquiring entity; provided, however, (i) if
-------- -------
Purchaser is not offered the opportunity to continue in the employ of the
Company or to become an employee of the acquiring entity (or a subsidiary or
parent thereof) (the Company and such entities are each called the "Successor
Employer") after the Acquisition closing date, in either case in a position
which would not be grounds for Purchaser to terminate his employment for "Good
Reason", then the Escrowed Acquisition Proceeds shall be distributed to
Purchaser immediately following the Acquisition closing date or (ii) if
Purchaser terminates his employment for "Good Reason" or is terminated by the
Successor Employer, then the Escrowed Acquisition Proceeds shall then be
distributed to Purchaser. Any Escrowed Acquisition Proceeds not so distributed
to Purchaser shall be paid to the other shareholders or former shareholders of
the Company in accordance with
3
<PAGE>
their interests. As used herein, "Good Reason" shall exist if, without
Purchaser's express written consent, (i) the Successor Employer shall materially
reduce the nature, scope, level or extent of Purchaser's responsibilities from
the nature, scope, level or extent of such responsibilities immediately prior to
the Acquisition or shall fail to provide Purchaser with adequate office
facilities and support services to perform such responsibilities; (ii) the
Successor Employer shall reduce Purchaser's salary below that in effect as of
the date of this Agreement (or as of the Acquisition, if greater); (iii) the
Successor Employer shall require Purchaser to relocate his principal business
office or his principal place of residence more than 20 miles from his office or
place of residence, as the case may be, prior to the Acquisition; or (iv) the
Successor Employer shall fail to continue in effect any cash or stock-based
incentive or bonus plan, retirement plan, welfare benefit plan or other benefit
plan, program or arrangement, unless the aggregate value (as computed by an
independent employee benefits consultant selected by Successor Employer) of all
such compensation, retirement and benefit plans, programs and arrangements
provided to Purchaser is not materially less than their aggregate value as of
the date of this Agreement (or as of the Acquisition, if greater).
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to
purchase any or all of the Vesting Common Shares that have not vested as
provided in Section 2 at a purchase price of $1.00 per share (the "Option
Price") upon a Termination of Employment on the terms and conditions hereinafter
provided.
(b) In addition to the rights set forth in Section 3(a), prior to an
initial public offering of Common Stock, the Company shall have the
unconditional right and option to purchase any and or all of the Vesting Common
Shares that have vested, at a per share purchase price equal to the Fair Market
Value thereof (the "Fair Market Value Price") upon a Termination of Employment
on the terms and conditions hereinafter provided. The Company's right and
option set forth in Sections 3(a) and 3(b) is referred to herein as the
"Purchase Option."
(c) The determination of whether ETA Stock has vested or has failed to
vest shall be made as of the date the Termination of Employment occurs with no
credit for the Company's performance in any subsequent Performance Years, and
there will be no "Catch Up Vesting.".
The Purchase Option, if exercised, must be exercised no later than 60
days after a Termination of Employment. The Purchase Option may be exercised in
whole or in part. Any Common Stock which becomes subject to the Purchase Option
as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Common Stock shall at any time thereafter be subject
to the Purchase Option.
(d) The Purchase Option shall be exercised by written notice signed by
an officer of the Company and delivered or mailed to Purchaser as provided in
Section 15(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon
4
<PAGE>
such delivery or mailing. Amounts due to Purchaser from the Company as a result
of exercise of the Purchase Option shall be payable in cash promptly after
exercise of the Purchase Option or, in the case of ETA Stock and/or "Catch Up
Vesting", as soon as reasonably practical after determination of whether or not
any applicable Performance Criteria were met.
(e) As used herein, "Fair Market Value" shall mean the fair market
value of a share of Common Stock, representing the price a willing buyer would
pay and at which at willing seller would sell, neither under any compulsion or
duress. Initially, the parties shall attempt to agree on Fair Market Value for
a period of thirty (30) days. If they are unable to reach agreement, each of
them shall within ten (10) days nominate an independent appraiser skilled in
valuing securities similar to the Common Stock, and the two appraisers so
nominated shall appoint a third appraiser within ten (10) days. The third
appraiser shall determine Fair Market Value, and such determination shall be
conclusive and binding on all parties. The Company shall bear any costs of all
three appraisers.
(f) In addition to the above, if there is a voluntary Termination of
Employment prior to full vesting of the Additional Equity, the Company will have
the option to purchase, and you will have the right to require the Company to
purchase, all or any portion of your unvested Additional Equity, pro rata in
--- ----
proportion to ratio of Common Shares to Preferred Shares in which such Shares
(other than Vesting Common Shares) were originally issued. The purchase price
for Common Shares will be $1.00. The purchase price for Preferred Shares will
be $.01 per share. Notwithstanding the foregoing, the Company will not be
obligated to purchase any Shares to the extent such purchase would cause a
default under its credit agreement, indenture or other agreements for borrowed
money.
4. No Employment Agreement.
-----------------------
(a) Nothing contained in this Agreement, or in any other agreement
entered into by the Company and Purchaser in connection with this Agreement, (i)
obligates the Company, or any subsidiary or parent of the Company, to continue
to employ Purchaser in any capacity whatsoever, or (ii) prohibits or restricts
the Company (or any such subsidiary or parent) from terminating the employment
of Purchaser at any time or for any reason whatsoever, with or without cause,
and Purchaser hereby acknowledges and agrees that neither the Company nor any
other person has made any representations or promises whatsoever to Purchaser
concerning Purchaser's employment or continued employment by the Company. In
the event of any Termination of Employment, Purchaser shall have the rights set
forth in this Agreement and no more, except as provided by law or in equity.
(b) Subject to Section 4(a):
(i) you shall be the Company's Vice President of Finance and
Chief Financial Officer. Your base salary will be $165,000, to be reviewed
annually by the Board of Directors. You will be eligible to receive an annual
performance bonus (targeted at 40% of your base salary (pro rated for 1998) if
certain performance criteria mutually agreed upon by you and the Board of
Directors prior to the beginning of the year are achieved), although at the
discretion of the Board of Directors, you may be eligible for additional
performance bonuses based upon higher mutually agreed upon objectives.
Notwithstanding the foregoing, for 1998, the Company
5
<PAGE>
will pay you a minimum performance bonus equal to the pro rated portion of your
target bonus for the year. Upon a Termination of Employment, the Company will
pay you in cash a lump sum severance package equal to twelve months' base salary
for the fiscal year in question and will at its expense continue your health
insurance benefits as in effect immediately prior to such Termination of
Employment for 12 months. In addition, if Year to Date EBITDA through the last
full month before your Termination Date is at least 100% of Plan EBITDA for such
period, you will also be paid a pro rata portion of your target bonus for the
--- ----
year in which the termination occurs, but you will not receive any other bonus
regardless of whether the Performance Criteria or any other criteria were or are
ultimately met with respect to any fiscal period. Benefits will include health
insurance, nominal life insurance and an automobile allowance of $500 per month,
all consistent with those generally available in entities organized by the
Partnership. You shall also receive a lump sum payment of $35,000 when you begin
work;
(c) You acknowledge that the Company has entered into a Corporate
Development and Administrative Services Agreement with an affiliate of the
Partnership providing for the payment of substantial fees, in a form which has
been provided to you.
5. Escrow of Shares. As security for the faithful performance of the
----------------
terms of this Agreement and to ensure the availability for delivery of the
unvested Common Shares in case of an exercise of the Purchase Option, Purchaser
shall deliver to and deposit with the escrow agent (the "Escrow Agent") named in
the Joint Escrow Instructions executed concurrently herewith (the "Joint Escrow
Instructions"), 10 stock assignments duly endorsed (with date and number of
shares blank) together with the certificate or certificates evidencing the
shares of Common Stock purchased hereunder by Purchaser. Such documents are to
be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the
terms of the Joint Escrow Instructions, which shall be executed by Purchaser and
the Company and delivered to the Escrow Agent concurrently with the execution of
this Agreement. As promptly as practicable after each vesting date under this
Agreement (but, with respect to ETA Stock, only after the Company is able to
determine whether or not the applicable Performance Criteria have been met), the
Company shall notify Purchaser and the Escrow Agent in writing of the aggregate
vesting and non-vesting to that date of Common Shares and ETA Stock, and the
Escrow Agent shall, within 30 days after receipt of such notice, deliver to
Purchaser certificates representing that number of Purchaser's Common Shares
that such notice states have become vested (less such shares, the certificates
for which have been previously delivered). From time to time, upon written
request of the Company, the Escrow Agent shall deliver to the Company
certificates representing that number of Common Shares which the Company shall
have purchased upon exercise of the Purchase Option, unless Purchaser objects in
the manner provided in the Joint Escrow Instructions.
In the case of any conflict or inconsistency between this Section 5
and the Joint Escrow Instructions, the Joint Escrow Instructions shall control.
6. Change in Capitalization. If from time to time during the term of
------------------------
this Agreement (i) there is any dividend of cash or property or rights to
acquire same, any liquidating dividend of cash and/or property, or any stock
dividend or stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) there is (a) any consolidation,
merger or sale of all, or substantially all, of the assets of the Company or (b)
a
6
<PAGE>
Drag-Along Sale pursuant to the Stockholders' Agreement, then in such event any
and all new, substituted or additional securities or other property to which
Purchaser may become entitled by reason of his ownership of Common Shares shall
immediately become subject to this Agreement and shall assume the same status
with respect to vesting as the Common Shares upon which such dividend was paid
or in substitution for which such additional securities or property were
distributed. Any cash or cash equivalents received pursuant to this Section 6
shall be invested in conservative, short-term interest bearing securities, and
interest earned thereon shall likewise assume the same status as to vesting.
While the total Option Price for all Common Shares subject to the Purchase
Option shall remain the same after each such event, the Option Price per Common
Share upon exercise of the Purchase Option shall be proportionately or otherwise
appropriately adjusted as determined in good faith by the Board of Directors of
the Company.
7. Purchaser Representations and Agreements. Purchaser hereby
----------------------------------------
represents and warrants, and agrees with, the Company as set forth below.
(a) Purchaser has full power and authority to execute, deliver and
perform his obligations under this Agreement and this Agreement is a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except that the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the shares of Holdings Stock being
purchased pursuant to this Agreement or to become an employee of the Company or
any of its subsidiaries, and Purchaser will not enter into any such agreement or
restriction.
(b) Purchaser has received and reviewed this Agreement and all annexes
and schedules hereto, including the Stockholders' Agreement and all schedules
and exhibits attached hereto and thereto, and has received all such business,
financial and other information as he deems necessary and appropriate to enable
him to evaluate the financial risk inherent in making an investment in the
Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his own
funds or property for investment, for his own account, and not as a nominee or
agent for any other person, firm or corporation, and not with a view to the sale
or distribution of all or any part thereof, and he has no present intention of
selling, granting participation in, or otherwise distributing any of the Shares.
Except as provided herein or pursuant to the Stockholders' Agreement, Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person, firm or corporation to sell, transfer or grant participation to such
person, firm or corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until
7
<PAGE>
they are registered under the Act or an exemption from the registration and
prospectus delivery requirements of the Act is available, and (iii) there is no
assurance that such an exemption from registration will ever be available or
that the Shares will ever be able to be sold.
(e) Purchaser agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under the
Act or unless and until (i) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) he shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Shares under the Act or applicable state securities
laws, or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the Company shall have
waived, expressly and in writing, the provisions of clauses (i) and (ii) of this
subsection.
(f) Purchaser does not require the assistance of an investment advisor
or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of his
investment in the Company, has the ability to bear the economic risks of its
investment for an indefinite period of time and has been furnished with and had
access to such information as is necessary to verify the accuracy of the
information supplied and to have all questions answered by the Company.
8. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Purchaser as set forth below.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alabama and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement have been duly and
validly authorized, and all necessary corporate action has been taken to make
this Agreement a valid and binding obligation of the Company, enforceable in
accordance with its terms, except that the enforcement thereof may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(c) When issued and paid for by Purchaser as provided for herein, the
Shares will be duly and validly issued, fully paid and non-assessable.
9. Conditions of Parties' Obligations.
----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Common Shares are also subject to the fulfillment
prior to or concurrently with the Closing of the conditions set forth below.
8
<PAGE>
(a) The representations and warranties of the Purchaser and the
Company shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if
any, which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
(c) Purchaser shall have received copies of such supporting documents
as Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by
the Stockholders' Agreement, which Stockholders' Agreement is hereby
incorporated herein as if set forth in full in this Agreement.
10. Restriction on Sale or Transfer. Except as provided herein, none
-------------------------------
of the Common Shares that have not vested pursuant hereto (or any beneficial
interest therein) shall be sold, transferred, assigned or pledged (including
transfer by operation of law) and any attempt to make any such sale, transfer,
assignment or pledge shall be null and void and of no effect.
11. Legends. In addition to any legends required by the
-------
Stockholders' Agreement, the certificates representing the shares of Common
Stock purchased pursuant to this Agreement will bear a legend in substantially
the following form:
"The shares represented by this certificate are subject to repurchase
under certain circumstances by the issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
------------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or violation, the Company or Purchaser, as the
case may be, shall be entitled to injunctive relief in addition to any other
remedy, at law or in equity, to which he or it may be entitled.
13. Violation of Transfer Provisions. The Company shall not be
---------------------------------
required (a) to transfer on its books any Common Shares which shall have been
sold, transferred, assigned or pledged in violation of any of the provisions of
this Agreement or (b) to treat as owner of such Common Shares or to accord the
right to vote or to pay dividends to any purported transferee of Common Shares
in violation of any of the provisions of this Agreement.
14. Covenant Regarding 83(b) Election. Purchaser hereby covenants
---------------------------------
and agrees that he will make an election pursuant to Treasury Regulation 1.83-2
with respect to the
9
<PAGE>
Common Shares and will furnish the Company with a copy of the form of election
Purchaser has filed and evidence that such an election has been filed in a
timely manner.
15. General Provisions.
------------------
(a) No Assignments. Except as specifically provided to the contrary
--------------
in this Agreement, neither party shall transfer, assign or encumber any of its
or his rights, privileges, duties or obligations under this Agreement without
the prior written consent of the other party, and any attempt to so transfer,
assign or encumber shall be void; provided, however, that the Company may assign
-------- -------
this Agreement and its rights hereunder in connection with a sale of all of the
stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended (including by reputable overnight delivery services
which shall be deemed to have effected personal delivery) or by telecopy,
receipt of which is acknowledged by the telecopy number set forth below for the
applicable addressee, or if deposited, postage prepaid, registered or certified
mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address shown on
the stock register maintained by the Company, or at such other address as
Purchaser may specify by written notice to the Company, or
(ii) if to the Company, addressed to c/o Christopher A. Laurence,
Brentwood Associates, 11150 Santa Monica Boulevard, Suite 1200 Los Angeles,
California 90025, or at such other address as the Company may specify by written
notice to the Purchaser.
Each such notice, request, consent and other communication shall be
deemed to have been given upon receipt thereof as set forth above or, if sooner,
three days after deposit as described above. The addresses for the purposes of
this Section 15(b) may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
(d) Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
10
<PAGE>
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Purchaser unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
(g) Integration. This Agreement constitutes the entire agreement of
-----------
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with
------------
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
COMPANY:
HDA PARTS SYSTEM, INC.
By: /s/ John J. Greisch
--------------------------------
Name: John J. Greisch
------------------------------
Title: President and CEO
-----------------------------
PURCHASER:
/s/ John P. Miller
______________________________
John P. Miller
12
<PAGE>
Annex A
-------
CITY TRUCKS AND TRAILER PARTS, INC.
PERFORMANCE CRITERIA
AND VESTING EXAMPLE
-------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions and vesting example with respect to the vesting of ETA Stock, which
is a part of the Common Shares to be acquired by Purchaser pursuant to the Stock
Purchase Agreement between the Company and the Purchaser (the "Agreement").
Capitalized terms used herein and not defined have the meanings ascribed to them
in the Agreement.
As stated in Section 2(b) of the Agreement, 25% of the ETA Stock shall
become eligible for vesting as of the end of each of fiscal year from fiscal
1998 through fiscal 2001 (each of such full fiscal years being defined in the
Agreement as a Performance Year). Each installment of ETA Stock when it becomes
eligible for vesting is hereinafter referred to as the "Eligible ETA Stock."
For each Performance Year, the amount of Eligible ETA Stock that shall
become vested (effective as of the end of the fiscal year) will be determined by
comparing the Company's actual EBITDA (as defined below) as of the end of such
fiscal year (as determined from its audited financial statements) to Plan EBITDA
(as defined below) for such fiscal year. The percentage of Eligible ETA Stock
that shall become vested at the end of each Performance Year shall be as set
forth in the following table:
<TABLE>
<CAPTION>
Actual EBITDA as a % Percentage of Eligible
of Plan ETA Stock that
EBITDA shall become vested
--------- -------------------
<S> <C>
less than 85.00% 0%
88.75% 30%
92.50% 60%
96.25% 80%
100% 100%
</TABLE>
Vesting between the percentages listed in the table above will be
linearly interpolated.
If the Company fails to achieve the dollar amount of Plan EBITDA
required to vest 100% of the Eligible ETA Stock in any one Performance Year, but
in the immediately following Performance Year the Company's actual EBITDA
exceeds Plan EBITDA, the Company shall add the dollar amount by which the
Company's EBITDA exceeds Plan EBITDA in such Performance Year to the Company's
EBITDA for the Performance Year immediately prior thereto and vest the
additional Eligible ETA Stock that would have vested in that Performance Year
with the addition of the dollar amount carried back; provided that there are
--------
limitations in the Agreement in the case of termination of employment and
acquisitions of the
13
<PAGE>
Company. Such vesting for the earlier Performance Year is referred to herein as
"Catch Up Vesting."
In the event of an Acquisition, any Eligible ETA Stock which shall
have failed to vest as a result of the Company's failure to achieve the dollar
amount of Plan EBITDA required to vest 100% of the then Eligible ETA Stock shall
become subject to the Company's Purchase Option in Section 3 of the Agreement.
"EBITDA" means, for any fiscal year, consolidated pre-tax income plus
interest expense (including non-cash interest, amortization of original issue
discount and the interest component of capital leases) on indebtedness,
depreciation and amortization of goodwill, covenants not to compete and similar
intangibles, all as determined in accordance with generally accepted accounting
principles and as reflected in the Company's audited consolidated financial
statements..
"Plan EBITDA" means, for each Performance Year, the dollar amount of
EBITDA set forth in the Operating Plan approved by the Board of Directors. Plan
EBITDA will be adjusted from time to time as may be mutually agreed upon to
reflect the expected contribution to EBITDA of acquisitions or major corporate
projects.
14
<PAGE>
JOINT ESCROW INSTRUCTIONS
July 10, 1998
Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Dear Sir or Madam:
As the person identified herein as Escrow Agent for HDA Parts System,
Inc. (the "Company"), an Alabama corporation, and the undersigned holder of
common stock, par value $.01 per share, and Series B Preferred Stock, par value
$.01 per share, of the Company (the "Purchaser"), you are hereby authorized and
directed to hold the documents delivered to you pursuant to the terms of that
certain Stock Purchase Agreement (the "Agreement") dated as of July 10, 1998, in
accordance with the following instructions:
1. In the event the Company, or any assignee of the Company (referred
to collectively herein as the "Company"), shall elect to exercise the Purchase
Option (as defined and described in the Agreement), the Company shall give to
the Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price and the time for a closing hereunder at the
principal office of the Company, which time shall not be less than 20 days after
the date of such written notice. Unless you shall have received written notice
from Purchaser at least five days prior to the date specified for the closing
objecting to consummation of the transaction, Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Purchaser shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you
any certificate or certificates representing shares which were not so purchased
and remain subject to these Joint Escrow Instructions.
3. Purchaser does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any transaction herein contemplated,
including but not limited to any required filings with all other governmental or
regulatory bodies.
<PAGE>
4. This escrow shall terminate upon termination of the Purchase
Option with respect to all Common Shares under the Agreement. Within ten days
after each date of vesting under Sections 2(a) and 2(b) of the Agreement, the
Company shall notify you and Purchaser in writing of the number of shares which
have vested on that date. Within 20 days after your receipt of such notice, you
shall deliver to Purchaser a certificate or certificates evidencing the shares
which have so vested. Promptly following any exercise of the Purchase Option,
you shall deliver to Purchaser a certificate or certificates representing the
number of shares of stock not theretofore repurchased by the Company pursuant to
such exercise of the Purchase Option which have vested (less such shares as have
been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Purchaser, you shall deliver all of same to Purchaser and shall be discharged
from all further obligations hereunder. The Company hereby authorizes you at
any time and from time to time after the date hereof to comply with a written
request from Purchaser, a copy of which you shall deliver to the Company, and
unless the Company shall have given you written notice of its objection to such
request within 30 days following its receipt thereof, to deliver to Purchaser a
certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of our own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction. For purposes of this paragraph 8, an objection made pursuant to
paragraph 1 by the Purchaser shall not be deemed a warning.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder or thereunder.
2
<PAGE>
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attention: Christopher A. Laurence
Notice to Purchaser shall be sent to the address set forth below
Purchaser's signature.
Escrow Agent: Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the
3
<PAGE>
compensation paid pursuant to paragraph 10 hereof, shall be borne by the
Company, and the Company hereby agrees to indemnify and hold you free and
harmless in respect of all claims, actions, demands, liabilities, losses, costs,
fees and expenses incurred by you in the performance
4
<PAGE>
of your duties hereunder; provided, however, that this indemnity shall not
extend to conduct which has been determined, by a final judgment of a court of
competent jurisdiction, to have been grossly negligent or to have constituted
intentional misconduct.
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
19. This instrument may be executed in counterpart with the same
effect as if all parties had signed the same document. All such counterparts
shall be deemed an original, shall be construed together and shall constitute
one and the same instrument.
Very truly yours,
HDA PARTS SYSTEM, INC.
By: _________________________
Name:
Title:
PURCHASER:
____________________________
John P. Miller
Address:
117 Tennyson
Wheaton, Illinois 60187
ESCROW AGENT:
___________________________
Name: Mark Kimura
5
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase
Agreement dated as of July 10, 1998 (the "Agreement"), the undersigned hereby
sells, assigns and transfers unto the person identified as Escrow Agent in the
Agreement all rights and interests in ___________________ shares of Common Stock
of HDA Parts System, Inc. (formerly City Truck and Trailer Parts, Inc.) (the
"Company"), an Alabama corporation, represented by Stock Certificate No.
_______________ herewith (the "Certificate"), which Certificate was deposited by
the undersigned with the Escrow Agent pursuant to the Joint Escrow Instructions
(as defined in the Agreement) among the undersigned, the Company and such Escrow
Agent, such Certificate standing in the undersigned's name on the books of the
Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated:______________, ___
_____________________________
JOHN P. MILLER
<PAGE>
EXHIBIT 10.16
STOCK PURCHASE, VESTING AND REPURCHASE AGREEMENT
This STOCK PURCHASE, VESTING AND REPURCHASE AGREEMENT (this
"Agreement") is entered into as of October 19, 1998, between City Truck
Holdings, Inc., a Delaware corporation (the "Company"), and A. William Cavalle
("Investor" or "you"). In consideration of the agreements contained herein, the
parties agree as follows:
1. Issuance. The Company agrees to issue to you, and you hereby
--------
purchase from the Company on the date hereof, 1,229 shares of the Company's
common stock ("Common Stock") for $1.00 per share in cash and 997.711 shares of
the Company's Series A Preferred Stock ("Preferred Stock") for $100 per share.
The shares of Common Stock and shares of Preferred Stock purchased pursuant to
this Agreement are collectively the "Shares." One Thousand (1,000) of the
Shares of Common Stock are subject to vesting (the "Vesting Shares") as set
forth in Section 2, and one-half of the Vesting Shares are Eligible Time
Accelerated Stock ("ETA Stock").
2. Vesting of the Shares.
---------------------
(a) 10% of the Vesting Shares shall become vested as of the last day
of each fiscal year of the Company (the "Fiscal Year End Date") from fiscal 1998
through fiscal 2002 and 16.66% of the Vesting Shares shall become vested as of
the Fiscal Year End Date of each of fiscal 2003, 2004 and 2005, subject to the
earlier vesting of ETA Stock as described below. All Vesting Shares (in excess
of the Vesting Shares scheduled to vest in any such year) which vests as ETA
Stock under Section 2(b) will reduce in inverse order the Vesting Shares
scheduled to vest, beginning with the Fiscal Year End Date in fiscal 2005.
(b) Annex A, attached hereto and incorporated herein by reference,
sets forth the vesting provisions and performance criteria (the "Performance
Criteria") for the ETA Stock. If the Company meets the Performance Criteria for
fiscal 1998, 1999, 2000, 2001 or 2002, 20.00% of the ETA Stock will vest as of
the Fiscal Year End Date of such year. (For example, if the Performance
Criteria for fiscal 1998 and 1999 were met, but no other Performance Criteria
were met, 40% of the ETA Stock would vest.)
If the Company does not achieve Plan EBITDA required to vest 100% of
an installment of ETA Stock in any one Performance Year, but in the immediately
following Performance Year the Company's actual EBITDA exceeds Plan EBITDA, the
Company will add the dollar amount by which the Company's EBITDA exceeds Plan
EBITDA in such Performance Year to the Company's EBITDA for the Performance Year
immediately prior thereto and vest the additional ETA Stock that would have
vested in that Performance Year with the addition of the dollar amount carried
back; subject to the limitations set forth elsewhere in this Agreement in the
case of termination of employment and acquisitions of the Company. Such vesting
for the earlier Performance Year is referred to herein as "Catch Up Vesting."
(c) Anything in this Agreement to the contrary notwithstanding, if
the Company is acquired by a third party or parties through an asset purchase,
merger or sale of more
<PAGE>
than 50% (in value) of the outstanding equity securities of the Company (an
"Acquisition"), (i) all Vesting Shares scheduled to vest pursuant to Section
2(a) in the calendar year in which the Acquisition is closed (and not previously
repurchased by the Company pursuant to Section 3) shall vest immediately prior
to the Acquisition closing date and (ii) if the calendar year in which the
Acquisition is scheduled to close is a Performance Year, all ETA Stock eligible
to vest in such year shall vest immediately prior to the Acquisition closing
date; provided, however, that such ETA Stock shall only vest if Year to Date
-------- -------
EBITDA as of the Acquisition closing date (or a date reasonably close and prior
thereto) equaled or exceeded 90% of year-to-such-date Plan EBITDA; and provided
--------
further that an initial public offering or other issuance of securities by the
- -------
Company shall not constitute an Acquisition.
(d) You will be entitled to "Catch Up Vesting" (as defined in Annex
A) with respect to all Vesting Shares eligible to vest in a Performance Year
prior to any Performance Year in which an Acquisition is closed if ETA Stock
vested for the year in which the Acquisition is scheduled to close pursuant to
Section 2(c). Shares of ETA Stock that are eligible for Catch Up Vesting but
that do not vest pursuant to the preceding sentence shall be subject to the
Company's Purchase Option provided in Section 3. In addition, the Company shall
have the right to purchase pursuant to Section 3 all shares of ETA Stock which
were eligible for accelerated vesting with respect to Performance Years prior to
the calendar year in which the Acquisition is closed which did not so accelerate
pursuant to Section 2(c) or Section 2(b) and Annex A.
(e) The proceeds of the Acquisition attributable to all unvested
Vesting Shares outstanding on the closing date of the Acquisition (other than
ETA Stock repurchased pursuant to the preceding sentence) (the "Escrowed
Acquisition Proceeds"), will be deposited with the Escrow Agent and will be
distributed to you one year after the Acquisition closing date, but only if you
are then an employee of the Company; provided that if (i) you are terminated at
--------
the time of or after the Acquisition or (ii) you are not offered a job with
commensurate salary and responsibilities by the acquiring entity (or a
subsidiary or parent thereof), then the Escrowed Acquisition Proceeds will be
distributed to you immediately.
(f) Anything in this Agreement to the contrary notwithstanding, all
unvested Vesting Shares shall vest immediately upon death or disability.
"Disability" means that you are totally physically disabled, as determined in
writing by your personal physician and, at the Company's option, confirmed by a
physician selected by the Company. You will allow any such physicians to
conduct such physical examinations and tests and to review such of your medical
records as he or they deem appropriate.
3. Company Purchase Option.
-----------------------
(a) If you voluntarily Terminate your Employment prior to December
31, 2002, the Company will have the unconditional right and option to purchase
any or all of your Vesting Shares (whether vested or unvested) for $1.00 per
share and you shall be released from the Covenant Not to Compete pursuant to
Section 4(b). As used in this Agreement, "Termination of Employment" means the
time when the employee-employer relationship
2
<PAGE>
between you and the Company is terminated for any reason whatsoever, with or
without cause, whether voluntary or involuntary. In this Agreement in the
context of employment, the term "Company" shall mean a subsidiary or parent of
the Company if you are then employed by such subsidiary or parent. "Terminate
your Employment" has a correlative meaning.
(b) If there is a Termination of Employment for any reason other than
a voluntary termination, you can choose either to (i) allow the Company the
unconditional right and option to purchase all of your Vesting Shares (whether
vested or unvested) for $1.00 per share and be released from the Covenant Not to
Compete pursuant to Section 4(b) or (ii) keep your Vesting Shares which are
vested and be subject to the Covenant Not to Compete pursuant to Section 4(b),
in which case the Company will have the unconditional right and option to
purchase the unvested Vesting Shares for $1.00 per share. The Company's right
and option set forth in Sections 3(a), 3(b) and 3(c) is referred to herein as
the "Purchase Option."
(c) In the event of an Acquisition, the Company may purchase for
$1.00 per share all shares of ETA Stock eligible for accelerated vesting in any
Performance Year prior to the calendar year in which the Acquisition is closed,
which did not accelerate and vest pursuant to Section 2.
(d) The Purchase Option, if exercised, must be exercised no later
than 60 days after a Termination of Employment, or the Vesting Shares subject
thereto will automatically be deemed vested. The Purchase Option may be
exercised in whole or in part. The Purchase Option will be effective when
delivered or mailed and must be exercised in writing and sent to Investor as
provided in Section 12(b) of this Agreement and to the Escrow Agent (as defined
in Section 6 hereof) as provided in the Joint Escrow Instructions. Amounts due
to you as a result of exercise of the Purchase Option shall be payable in cash
promptly after exercise of the Purchase Option or, in the case of ETA Stock
and/or "Catch Up Vesting," as soon as reasonably practical after determination
of whether or not any applicable Performance Criteria were met.
4. Covenant Not To Compete.
-----------------------
(a) Recitals. Investor acknowledges and agrees that he has technical
--------
expertise associated with the heavy duty truck parts business and related
businesses, all to the extent conducted by the Company as of the date of
termination of employment (the "Business") and is well known in the Business
community throughout the United States. In addition, Investor has valuable
business contacts with clients and potential clients of the Business and with
professionals in the Business. Furthermore, Investor's reputation and goodwill
are an integral part of his business success throughout the areas where the
Business is and will be conducted. If Investor deprives the Company of any of
his goodwill or in any manner uses his reputation and goodwill in competition
with the Company, the Company will be deprived of the benefits it has bargained
for pursuant to this Agreement. The Company would not have entered into this
Agreement but for Investor's Covenant Not To Compete.
(b) Covenant Not To Compete. During your employment by the Company
-----------------------
and for a period of twelve (12) months thereafter (the "Term"), you will not,
directly or indirectly, own (except through ownership of less than 5% of the
securities of a publicly traded
3
<PAGE>
company), manage, join, operate or control, or participate in the ownership,
management, operation or control of, or be connected as a director, officer,
employee, partner, consultant or otherwise with, or permit your name to be used
by or in connection with, any profit or non-profit business or organization
which is engaged in the Business in whole or in part, anywhere in the United
States so long as the Company carries on the Business therein.
(c) No Solicitation of Customers or Employees. Investor agrees that:
-----------------------------------------
(i) during the Term, Investor shall not, directly or indirectly,
divert or take away (or attempt to do so) from the Company or any affiliate of
the Company (including without limitation by divulging to any competitor or
potential competitor of the Company) any person, firm, corporation or other
entity who is or was a customer of Company or any subsidiary of Company or whose
identity is known to Investor at the date hereof or the date of Termination of
Employment as one whom the Company or any affiliate of the Company intends to
solicit, except in connection with any business endeavor which is not prohibited
by Section 4(b) hereof; and
(ii) during the Term, Investor shall not, directly or indirectly,
hire or offer employment to or seek to hire or offer employment (other than
employment with the Company or a subsidiary thereof) to any employee of the
Company or any subsidiary of the Company whose employment is continued by the
Company after the date hereof or any employee of any successor or affiliate of
the Company which is engaged in the Business, unless the Company first
terminates the employment of such employee or the Company gives its written
consent to such employment or offer of employment.
(d) Severability of Provisions. In the event that the provisions of
--------------------------
this Section 4 should ever be adjudicated by a court of competent jurisdiction
to exceed the time or geographic or other limitations permitted by applicable
law, then such provisions shall be deemed reformed to the maximum time or
geographic or other limitations permitted by applicable law, as determined by
such court in such action. Without limiting the foregoing, the covenants
contained herein shall be construed as separate covenants, covering their
respective subject matters, with respect to (i) each of the separate counties of
the state of California and other places in which Company or any of its
subsidiaries transacts any business, (ii) each business conducted by Company or
any of its subsidiaries, and (iii) the Company and its successors separately.
Each breach of the covenants set forth herein shall give rise to a separate and
independent cause of action.
(e) Injunctive Relief. Investor acknowledges that (i) the provisions
-----------------
of Section 4(b) and 4(c) and Section 9 are reasonable and necessary to protect
the legitimate interests of the Company, and (ii) any violation of Section 4(b)
or 4(c) or Section 9 will result in irreparable injury to the Company, the exact
amount of which will be difficult to ascertain, and that the remedies at law for
any such violation would not be reasonable or adequate compensation to the
Company for such a violation. Accordingly, you agree that if you violate the
provisions of Section 4(b) or 4(c) or Section 9, in addition to any other remedy
which may be available at law
4
<PAGE>
or in equity, the Company shall be entitled to specific performance and
injunctive relief, without posting bond or other security, and without the
necessity of proving actual damages.
(f) Other Agreement. The provisions of this Section 4 are in
---------------
addition to any Employee Confidentiality Agreement previously executed by you,
which remains in effect.
5. No Employment Agreement. Nothing contained in this Agreement (i)
-----------------------
obligates the Company, or any subsidiary or parent of the Company, to employ
Investor in any capacity whatsoever, or (ii) prohibits or restricts the Company
(or any such subsidiary or parent) from terminating the employment of Investor
at any time or for any reason whatsoever, with or without cause, and Investor
hereby acknowledges and agrees that neither the Company nor any other person has
made any representations or promises whatsoever to Investor concerning
Investor's employment or continued employment by the Company.
6. Escrow of Shares. As security and to ensure the availability for
----------------
delivery of Vesting Shares in case of an exercise of the Purchase Option,
Investor will deposit with the escrow agent (the "Escrow Agent") named in the
joint escrow instructions attached hereto as Annex B (the "Joint Escrow
Instructions"), certificates representing the Vesting Shares, together with 10
stock assignments duly endorsed in blank, a copy of which is attached hereto as
Annex C. Such documents are to be held by the Escrow Agent pursuant to the
Joint Escrow Instructions. In the case of any conflict or inconsistency between
this Section 6 and the Joint Escrow Instructions, the Joint Escrow Instructions
shall control.
7. Change in Capitalization. If from time to time during the term of
------------------------
this Agreement there is (i) any stock dividend or stock split or similar event
or (ii) any consolidation, merger or sale of all, or substantially all, of the
assets of the Company in which the consideration receivable by Investor consists
of securities, then in such event any and all new, substituted or additional
securities to which Investor may become entitled by reason of his ownership of
the Shares shall immediately become subject to this Agreement and shall assume
the same status with respect to vesting as the Shares upon which such dividend
was paid or in substitution for which such additional securities were
distributed. While the total price for all Shares subject to the Purchase
Option shall remain the same after each such event, the price per Share upon
exercise of the Purchase Option shall be appropriately adjusted by the Board of
Directors of the Company.
8. Investor Representations and Agreements. Investor hereby
---------------------------------------
represents and warrants, and agrees with, the Company as set forth below.
(a) Investor has full power and authority to execute, deliver and
perform his obligations under this Agreement and this Agreement is a valid and
binding obligation of Investor, enforceable in accordance with its terms.
Investor is not subject to any agreement not to compete or other restriction on
his ability to acquire the Shares being acquired pursuant to this Agreement or
to be an employee of the Company or any of its subsidiaries.
(b) Investor has reviewed this Agreement and the Stockholders'
Agreement (as defined) and all annexes, schedules and exhibits attached hereto
and thereto, and has received
5
<PAGE>
all such business, financial and other information as he deems necessary and
appropriate to enable him to evaluate the financial risk inherent in making an
investment in the Shares.
(c) Investor is acquiring the Shares acquired hereunder with his own
property for investment, for his own account, and not as a nominee or agent for
any other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof. Investor does not have any contract,
undertaking, agreement or arrangement with any person, firm or corporation to
sell, transfer or grant participation to such person, firm or corporation, with
respect to any of the Shares.
(d) Investor understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery requirements of the Act is available, and (iii) there is no
assurance that such an exemption from registration will ever be available or
that the Shares will ever be able to be sold.
(e) Investor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of his
investment in the Company, has the ability to bear the economic risks of its
investment for an indefinite period of time.
9. Restriction on Sale or Transfer. Except as provided herein, none
-------------------------------
of the Shares (whether vested or unvested) (or any beneficial interest therein)
shall be sold, transferred, assigned or pledged (including transfer by operation
of law) and any attempt to make any such sale, transfer, assignment or pledge
shall be null and void and of no effect. The Company shall not be required (a)
to transfer on its books any Shares which shall have been sold, pledged or
disposed of in violation of any of the provisions of this Agreement or (b) to
treat as owner of such Shares or to accord the right to vote or to pay dividends
to any purported transferee of Shares in violation of this Agreement.
10. Legends. In addition to any legends required by the
-------
Stockholders' Agreement, the certificates representing the Shares will bear
substantially the following legend:
"The shares represented by this certificate are subject to repurchase under
certain circumstances by the issuer pursuant to a Stock Purchase, Vesting
and Repurchase Agreement between the Issuer and the initial purchaser, to
which reference is made for a fuller description of such repurchase
rights."
11. Stockholders' Agreement; Covenant Regarding 83(b) Election. In
----------------------------------------------------------
connection with this Agreement, Investor agrees to become a party to the
Stockholders' Agreement dated as of September 30, 1998 among the Company and its
stockholders. Investor's signature on this Agreement shall also constitute his
or its signature on the Stockholders' Agreement. Investor also hereby covenants
and agrees that he will make an election pursuant to Treasury Regulation 1.83-2
with respect to the Shares and will furnish the Company with a copy
6
<PAGE>
of the form of election Investor has filed and evidence that such an election
has been filed in a timely manner.
12. General Provisions.
------------------
(a) No Assignments. Except as specifically provided to the contrary
--------------
in this Agreement, neither party shall transfer, assign or encumber any of its
or his rights, privileges, duties or obligations under this Agreement without
the prior written consent of the other party, and any attempt to so transfer,
assign or encumber shall be void; provided, however, that the Company may assign
-------- -------
this Agreement and its rights hereunder in connection with a sale of all of the
stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or by telecopy, receipt of which is
acknowledged by the telecopy number set forth below for the applicable
addressee, or if deposited, postage prepaid, registered or certified mail,
return receipt requested, in the United States mail:
(i) if to Investor, addressed to Investor at his address shown
on the stock register maintained by the Company, or at such other address
as Investor may specify by written notice to the Company, or
(ii) if to the Company, to it at c/o HDA Parts System, Inc., 520
Lake Cook Road, Deerfield, Illinois 60015, Attention: John Greisch, with a
copy to Brentwood Associates, 11150 Santa Monica Boulevard, Suite 1200, Los
Angeles, California 90025, Attention: Christopher A. Laurence, or at such
other address as the Company may specify by written notice to Investor.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof as set forth above or, if sooner, three
days after deposit as described above. The addresses for the purposes of this
Section 12(b) may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
(d) Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable
7
<PAGE>
or invalid term or provision with an enforceable and valid arrangement which in
its economic effect shall be as close as possible to the unenforceable or
invalid term or provision.
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment
----------------------------------
or waiver of any provision of this Agreement shall be effective against the
Company or Investor unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
(g) Integration. This Agreement constitutes the entire agreement of
-----------
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with
------------
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(Signature Page Follows)
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
(and, by execution hereof, the Stockholders' Agreement of the Company) to be
executed as of the date first above written.
CITY TRUCK HOLDINGS, INC.
By:-------------------------------------
John J. Greisch
President and Chief Executive Officer
INVESTOR
----------------------------------------
A. William Cavalle
9
<PAGE>
ANNEX A
CITY TRUCK HOLDINGS, INC.
PERFORMANCE CRITERIA
--------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions with respect to the vesting of ETA Stock, which is a part of the
Shares to be acquired by Investor pursuant to the Stock Purchase, Vesting and
Repurchase Agreement dated as of October 19, 1998 among the Company and Investor
(the "Agreement"). Capitalized terms used herein and not defined have the
meanings ascribed to them in the Agreement.
As stated in Section 2(b) of the Agreement, 20% of the ETA Stock shall
become eligible for vesting as of the end of each fiscal year from fiscal 1998
through fiscal 2002 (each of such full fiscal years being defined in the
Agreement as a Performance Year).
For each Performance Year, the amount of Eligible ETA Stock that shall
become vested (effective as of the end of the fiscal year) will be determined by
comparing the Company's actual EBITDA (as defined below) as of the end of such
fiscal year (as determined from its audited financial statements) to Plan EBITDA
(as defined below) for such fiscal year. The percentage of Eligible ETA Stock
that shall become vested at the end of each Performance Year shall be as set
forth in the following table:
<TABLE>
<CAPTION>
Actual EBITDA as a % Percentage of Eligible
of Plan ETA Stock that
EBITDA shall become vested
-------------------- -------------------
<S> <C>
less than 85.00% 0%
88.75% 30%
92.50% 60%
96.25% 80%
100% 100%
</TABLE>
Vesting between the percentages listed in the table above will be
linearly interpolated.
"EBITDA" means, for any fiscal year, consolidated pre-tax income plus
interest expense (including non-cash interest, amortization of original issue
discount and the interest component of capital leases) on indebtedness and
amortization of goodwill, covenants not to compete and similar intangibles, all
as determined in accordance with generally accepted accounting principles and as
reflected in the Company's audited consolidated financial statements.
"Plan EBITDA" means, for each Performance Year, the dollar amount of
EBITDA set forth in the Operating Plan developed by management and approved by
the Board of Directors. Plan EBITDA will be adjusted from time to time as may
be mutually agreed upon to reflect the expected contribution to EBITDA of
acquisitions or major corporate projects.
A-1
<PAGE>
ANNEX B
JOINT ESCROW INSTRUCTIONS
October 19, 1998
Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Dear Sir or Madam:
As the person identified herein as Escrow Agent for City Truck
Holdings, Inc. (the "Company"), a Delaware corporation, and the undersigned
holder of common stock, par value $.01 per share, of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Stock Purchase, Vesting
and Repurchase Agreement (the "Agreement") dated as of October 19, 1998, in
accordance with the following instructions:
1. In the event the Company, or any assignee of the Company (referred
to collectively herein as the "Company"), shall elect to exercise the Purchase
Option (as defined and described in the Agreement), the Company shall give to
the Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price and the time for a closing hereunder at the
principal office of the Company, which time shall not be less than 20 days after
the date of such written notice. Unless you shall have received written notice
from Purchaser at least five days prior to the date specified for the closing
objecting to consummation of the transaction, Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Purchaser shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you
any certificate or certificates representing shares which were not so purchased
and remain subject to these Joint Escrow Instructions.
3. Purchaser does hereby irrevocably constitute and appoint you as
his attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make such
securities negotiable and complete any
B-1
<PAGE>
transaction herein contemplated, including but not limited to any required
filings with all other governmental or regulatory bodies.
4. This escrow shall terminate upon termination of the Purchase
Option with respect to all Common Shares under the Agreement. Within ten days
after each date of vesting under Sections 2(a) and 2(b) of the Agreement, the
Company shall notify you and Purchaser in writing of the number of shares which
have vested on that date. Within 20 days after your receipt of such notice, you
shall deliver to Purchaser a certificate or certificates evidencing the shares
which have so vested. Promptly following any exercise of the Purchase Option,
you shall deliver to Purchaser a certificate or certificates representing the
number of shares of stock not theretofore repurchased by the Company pursuant to
such exercise of the Purchase Option which have vested (less such shares as have
been previously delivered).
5. If at the time of termination of this escrow you should have in
your possession any documents, securities or other property belonging to
Purchaser, you shall deliver all of same to Purchaser and shall be discharged
from all further obligations hereunder. The Company hereby authorizes you at
any time and from time to time after the date hereof to comply with a written
request from Purchaser, a copy of which you shall deliver to the Company, and
unless the Company shall have given you written notice of its objection to such
request within 30 days following its receipt thereof, to deliver to Purchaser a
certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing by the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in acting
or refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of our own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees or any
court. If you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such obedience or compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside vacated or found to have been entered without
jurisdiction. For purposes of this paragraph 8, an objection made pursuant to
paragraph 1 by the Purchaser shall not be deemed a warning.
B-2
<PAGE>
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder or thereunder.
10. You shall be entitled to employ such independent legal counsel
and other experts as you may deem necessary properly to advise in connection
with your obligations hereunder, may rely upon the advice of such counsel and
may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate
on the thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses, or at such other addresses as a party may designate by
ten (10) days' advance written notice to each of the other parties hereto.
Company: City Truck Holdings, Inc.
c/o HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attention: John J. Greisch
Notice to Purchaser shall be sent to the address set forth below
Purchaser's signature.
Escrow Agent: Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
B-3
<PAGE>
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of these Joint Escrow Instructions; you do not
become a party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred
by you in connection with the performance of your duties hereunder, including
without limitation the compensation paid pursuant to paragraph 10 hereof, shall
be borne by the Company, and the Company hereby agrees to indemnify and hold you
free and harmless in respect of all claims, actions, demands, liabilities,
losses, costs, fees and expenses incurred by you in the performance of your
duties hereunder; provided, however, that this indemnity shall not extend to
conduct which has been determined, by a final judgment of a court of competent
jurisdiction, to have been grossly negligent or to have constituted intentional
misconduct.
17. This instrument shall be governed by and construed in accordance
with the internal laws, and not the laws of conflict of law, of the State of
Delaware.
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
19. This instrument may be executed in counterpart with the same
effect as if all parties had signed the same document. All such counterparts
shall be deemed an original, shall be construed together and shall constitute
one and the same instrument.
Very truly yours,
CITY TRUCK HOLDINGS, INC.
By: _________________________
John J. Greisch
President and Chief Executive Officer
PURCHASER:
______________________________
A. WILLIAM CAVALLE
ADDRESS: c/o HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
ESCROW AGENT:
B-4
<PAGE>
___________________________
Mark Kimura
B-5
<PAGE>
ANNEX C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase,
Vesting and Repurchase Agreement dated as of October 19, 1998 (the "Agreement"),
the undersigned hereby sells, assigns and transfers unto the person identified
as Escrow Agent in the Agreement all rights and interests in ___________________
shares of Common Stock of City Truck Holdings, Inc. (the "Company"), a Delaware
corporation, represented by Stock Certificate No. _______________ herewith (the
"Certificate"), which Certificate was deposited by the undersigned with the
Escrow Agent pursuant to the Joint Escrow Instructions (as defined in the
Agreement) among the undersigned, the Company and such Escrow Agent, such
Certificate standing in the undersigned's name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the
Escrow Agent attorney to transfer such Common Stock on the books of the Company,
with full power of substitution in the premises.
Dated:___________, ___
_____________________________
A. William Cavalle
C-1
<PAGE>
Election Under Section 83(b)
----------------------------
The undersigned hereby makes an election pursuant to Section 83(b) of the
Internal Revenue Code with respect to the property described below and supplies
the following information in accordance with the Regulations promulgated
thereunder:
1. The name, address and taxpayer identification number of the
undersigned are:
A. William Cavalle
---------------------------
---------------------------
---------------------------
Social Security #----------------
2. Description of the property with respect to which the election is
being made:
1,000 shares of Common Stock, $.01 par value ("Common Stock"), of
City Truck Holdings, Inc. (the "Company").
3. The date on which the property was transferred is October 19,
1998. The taxable year to which this election relates is calendar year 1998.
4. Nature of restrictions to which the property is subject:
Pursuant to a Stock Purchase, Vesting and Repurchase Agreement
dated as of October 19, 1998 (a copy of which will be furnished to
the IRS upon request), 1,000 shares of Common Stock vest over ten
(10) years. Shares unvested upon a termination of employment may
be repurchased by the Company for $1.00 per share of Common Stock.
5. The fair market value of the time transfer (determined without
regard to any restrictions other than restrictions which by their terms will
never lapse) of the property with respect to which this election is being made
is $1.00 per share of Common Stock.
6. The amount paid by the taxpayer for said property is $1.00 per
share of Common Stock.
7. A copy of this Statement has been furnished to the Company.
Dated: October 19, 1998
____________________________
<PAGE>
A. William Cavalle
<PAGE>
EXHIBIT 10.17
FORM OF
STOCK PURCHASE, VESTING AND REPURCHASE AGREEMENT
This STOCK PURCHASE, VESTING AND REPURCHASE AGREEMENT (this
"Agreement") is entered into as of ________, between City Truck Holdings, Inc.,
a Delaware corporation (the "Company"), and _____________ ("Investor" or "you").
In consideration of the agreements contained herein, the parties agree as
follows:
1. Issuance. The Company agrees to issue to you, and you hereby
--------
purchase from the Company on the date hereof, _____ shares (the "Shares") of the
Company's common stock ("Common Stock") for $1.00 per share in cash. All of the
Shares are subject to vesting as set forth in Section 2, and one-half of the
Shares are Eligible Time Accelerated Stock ("ETA Stock").
2. Vesting of the Shares.
---------------------
(a) 10% of the Shares shall become vested as of the last day of each
fiscal year of the Company (the "Fiscal Year End Date") from fiscal 1998 through
fiscal 2002 and 16.66% of the Shares shall become vested as of the Fiscal Year
End Date of each of fiscal 2003, 2004 and 2005, subject to the earlier vesting
of ETA Stock as described below. All Shares (in excess of the Shares scheduled
to vest in any such year) which vests as ETA Stock under Section 2(b) will
reduce in inverse order the Shares scheduled to vest, beginning with the Fiscal
Year End Date in fiscal 2005.
(b) Annex A, attached hereto and incorporated herein by reference,
sets forth the vesting provisions and performance criteria (the "Performance
Criteria") for the ETA Stock. If the Company meets the Performance Criteria for
fiscal 1998, 1999, 2000, 2001 or 2002, 20.00% of the ETA Stock will vest as of
the Fiscal Year End Date of such year. (For example, if the Performance
Criteria for fiscal 1998 and 1999 were met, but no other Performance Criteria
were met, 40% of the ETA Stock would vest.)
If the Company does not achieve Plan EBITDA required to vest 100% of
an installment of ETA Stock in any one Performance Year, but in the immediately
following Performance Year the Company's actual EBITDA exceeds Plan EBITDA, the
Company will add the dollar amount by which the Company's EBITDA exceeds Plan
EBITDA in such Performance Year to the Company's EBITDA for the Performance Year
immediately prior thereto and vest the additional ETA Stock that would have
vested in that Performance Year with the addition of the dollar amount carried
back; subject to the limitations set forth elsewhere in this Agreement in the
case of termination of employment and acquisitions of the Company. Such vesting
for the earlier Performance Year is referred to herein as "Catch Up Vesting."
(c) Anything in this Agreement to the contrary notwithstanding, if
the Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), (i)
<PAGE>
all Shares scheduled to vest pursuant to Section 2(a) in the calendar year in
which the Acquisition is closed (and not previously repurchased by the Company
pursuant to Section 3) shall vest immediately prior to the Acquisition closing
date and (ii) if the calendar year in which the Acquisition is scheduled to
close is a Performance Year, all ETA Stock eligible to vest in such year shall
vest immediately prior to the Acquisition closing date; provided, however, that
-------- -------
such ETA Stock shall only vest if Year to Date EBITDA as of the Acquisition
closing date (or a date reasonably close and prior thereto) equaled or exceeded
90% of year-to-such-date Plan EBITDA; and provided further that an initial
-------- -------
public offering or other issuance of securities by the Company shall not
constitute an Acquisition.
(d) You will be entitled to "Catch Up Vesting" (as defined in Annex
A) with respect to all shares eligible to vest in a Performance Year prior to
any Performance Year in which an Acquisition is closed if ETA Stock vested for
the year in which the Acquisition is scheduled to close pursuant to Section
2(c). Shares of ETA Stock that are eligible for Catch Up Vesting but that do
not vest pursuant to the preceding sentence shall be subject to the Company's
Purchase Option provided in Section 3. In addition, the Company shall have the
right to purchase pursuant to Section 3 all shares of ETA Stock which were
eligible for accelerated vesting with respect to Performance Years prior to the
calendar year in which the Acquisition is closed which did not so accelerate
pursuant to Section 2(c) or Section 2(b) and Annex A.
(e) The proceeds of the Acquisition attributable to all unvested
Shares outstanding on the closing date of the Acquisition (other than ETA Stock
repurchased pursuant to the preceding sentence) (the "Escrowed Acquisition
Proceeds"), will be deposited with the Escrow Agent and will be distributed to
you one year after the Acquisition closing date, but only if you are then an
employee of the Company; provided that if (i) you are terminated at the time of
--------
or after the Acquisition or (ii) you are not offered a job with commensurate
salary and responsibilities by the acquiring entity (or a subsidiary or parent
thereof), then the Escrowed Acquisition Proceeds will be distributed to you
immediately.
(f) Anything in this Agreement to the contrary notwithstanding, all
unvested Shares shall vest immediately upon death or disability. "Disability"
means that you are totally physically disabled, as determined in writing by your
personal physician and, at the Company's option, confirmed by a physician
selected by the Company. You will allow any such physicians to conduct such
physical examinations and tests and to review such of your medical records as he
or they deem appropriate.
3. Company Purchase Option.
-----------------------
(a) If you voluntarily Terminate your Employment prior to December
31, 2002, the Company will have the unconditional right and option to purchase
any or all of your Shares (whether vested or unvested) for $1.00 per share and
you shall be released from the Covenant Not to Compete pursuant to Section 4(b).
As used in this Agreement, "Termination of Employment" means the time when the
employee-employer relationship between you and the Company is terminated for any
reason whatsoever, with or without cause, whether voluntary or involuntary. In
this Agreement in the context of employment, the term "Company" shall mean a
2
<PAGE>
subsidiary or parent of the Company if you are then employed by such subsidiary
or parent. "Terminate your Employment" has a correlative meaning.
(b) If there is a Termination of Employment for any reason other than
a voluntary termination, you can choose either to (i) allow the Company the
unconditional right and option to purchase all of your Shares (whether vested or
unvested) for $1.00 per share and be released from the Covenant Not to Compete
pursuant to Section 4(b) or (ii) to keep only your Shares which are vested and
be subject to the Covenant Not to Compete pursuant to Section 4(b), in which
case the Company will have the unconditional right and option to purchase the
unvested Shares for $1.00 per share. The Company's right and option set forth
in Sections 3(a), 3(b) and 3(c) is referred to herein as the "Purchase Option."
(c) In the event of an Acquisition, the Company may purchase for
$1.00 per share all shares of ETA Stock eligible for accelerated vesting in any
Performance Year prior to the calendar year in which the Acquisition is closed,
which did not accelerate and vest pursuant to Section 2.
(d) The Purchase Option, if exercised, must be exercised no later
than 60 days after a Termination of Employment, or the Shares subject thereto
will automatically be deemed vested. The Purchase Option may be exercised in
whole or in part. The Purchase Option will be effective when delivered or
mailed and must be exercised in writing and sent to Investor as provided in
Section 12(b) of this Agreement and to the Escrow Agent (as defined in Section 6
hereof) as provided in the Joint Escrow Instructions. Amounts due to you as a
result of exercise of the Purchase Option shall be payable in cash promptly
after exercise of the Purchase Option or, in the case of ETA Stock and/or "Catch
Up Vesting," as soon as reasonably practical after determination of whether or
not any applicable Performance Criteria were met.
4. Covenant Not To Compete.
-----------------------
(a) Recitals. Investor acknowledges and agrees that he has technical
--------
expertise associated with the heavy duty truck parts business and related
businesses, all to the extent conducted by the Company as of the date of
termination of employment (the "Business") and is well known in the Business
community throughout the United States. In addition, Investor has valuable
business contacts with clients and potential clients of the Business and with
professionals in the Business. Furthermore, Investor's reputation and goodwill
are an integral part of his business success throughout the areas where the
Business is and will be conducted. If Investor deprives the Company of any of
his goodwill or in any manner uses his reputation and goodwill in competition
with the Company, the Company will be deprived of the benefits it has bargained
for pursuant to this Agreement. The Company would not have entered into this
Agreement but for Investor's Covenant Not To Compete.
(b) Covenant Not To Compete. During your employment by the Company
-----------------------
and for a period of twelve (12) months thereafter (the "Term"), you will not,
directly or indirectly, own (except through ownership of less than 5% of the
securities of a publicly traded company), manage, join, operate or control, or
participate in the ownership, management,
3
<PAGE>
operation or control of, or be connected as a director, officer, employee,
partner, consultant or otherwise with, or permit your name to be used by or in
connection with, any profit or non-profit business or organization which is
engaged in the Business in whole or in part, anywhere in the United States so
long as the Company carries on the Business therein.
(c) No Solicitation of Customers or Employees. Investor agrees that:
-----------------------------------------
(i) during the Term, Investor shall not, directly or
indirectly, divert or take away (or attempt to do so) from the Company or any
affiliate of the Company (including without limitation by divulging to any
competitor or potential competitor of the Company) any person, firm, corporation
or other entity who is or was a customer of Company or any subsidiary of Company
or whose identity is known to Investor at the date hereof or the date of
Termination of Employment as one whom the Company or any affiliate of the
Company intends to solicit, except in connection with any business endeavor
which is not prohibited by Section 4(b) hereof; and
(ii) during the Term, Investor shall not, directly or
indirectly, hire or offer employment to or seek to hire or offer employment
(other than employment with the Company or a subsidiary thereof) to any employee
of the Company or any subsidiary of the Company whose employment is continued by
the Company after the date hereof or any employee of any successor or affiliate
of the Company which is engaged in the Business, unless the Company first
terminates the employment of such employee or the Company gives its written
consent to such employment or offer of employment.
(d) Severability of Provisions. In the event that the provisions of
--------------------------
this Section 4 should ever be adjudicated by a court of competent jurisdiction
to exceed the time or geographic or other limitations permitted by applicable
law, then such provisions shall be deemed reformed to the maximum time or
geographic or other limitations permitted by applicable law, as determined by
such court in such action. Without limiting the foregoing, the covenants
contained herein shall be construed as separate covenants, covering their
respective subject matters, with respect to (i) each of the separate counties of
the state of California and other places in which Company or any of its
subsidiaries transacts any business, (ii) each business conducted by Company or
any of its subsidiaries, and (iii) the Company and its successors separately.
Each breach of the covenants set forth herein shall give rise to a separate and
independent cause of action.
(e) Injunctive Relief. Investor acknowledges that (i) the provisions
-----------------
of Section 4(b) and 4(c) and Section 9 are reasonable and necessary to protect
the legitimate interests of the Company, and (ii) any violation of Section 4(b)
or 4(c) or Section 9 will result in irreparable injury to the Company, the exact
amount of which will be difficult to ascertain, and that the remedies at law for
any such violation would not be reasonable or adequate compensation to the
Company for such a violation. Accordingly, you agree that if you violate the
provisions of Section 4(b) or 4(c) or Section 9, in addition to any other remedy
which may be available at law or in equity, the Company shall be entitled to
specific performance and injunctive relief, without posting bond or other
security, and without the necessity of proving actual damages.
4
<PAGE>
(f) Other Agreement. The provisions of this Section 4 are in
---------------
addition to any Employee Confidentiality Agreement previously executed by you,
which remains in effect.
5. No Employment Agreement. Nothing contained in this Agreement (i)
-----------------------
obligates the Company, or any subsidiary or parent of the Company, to employ
Investor in any capacity whatsoever, or (ii) prohibits or restricts the Company
(or any such subsidiary or parent) from terminating the employment of Investor
at any time or for any reason whatsoever, with or without cause, and Investor
hereby acknowledges and agrees that neither the Company nor any other person has
made any representations or promises whatsoever to Investor concerning
Investor's employment or continued employment by the Company.
6. Escrow of Shares. As security and to ensure the availability for
----------------
delivery of Shares in case of an exercise of the Purchase Option, Investor will
deposit with the escrow agent (the "Escrow Agent") named in the joint escrow
instructions attached hereto as Annex B (the "Joint Escrow Instructions"),
certificates representing the Shares, together with 10 stock assignments duly
endorsed in blank, a copy of which is attached hereto as Annex C. Such
documents are to be held by the Escrow Agent pursuant to the Joint Escrow
Instructions. In the case of any conflict or inconsistency between this Section
6 and the Joint Escrow Instructions, the Joint Escrow Instructions shall
control.
7. Change in Capitalization. If from time to time during the term of
------------------------
this Agreement there is (i) any stock dividend or stock split or similar event
or (ii) any consolidation, merger or sale of all, or substantially all, of the
assets of the Company in which the consideration receivable by Investor consists
of securities, then in such event any and all new, substituted or additional
securities to which Investor may become entitled by reason of his ownership of
the Shares shall immediately become subject to this Agreement and shall assume
the same status with respect to vesting as the Shares upon which such dividend
was paid or in substitution for which such additional securities were
distributed. While the total price for all Shares subject to the Purchase
Option shall remain the same after each such event, the price per Share upon
exercise of the Purchase Option shall be appropriately adjusted by the Board of
Directors of the Company.
8. Investor Representations and Agreements. Investor hereby
---------------------------------------
represents and warrants, and agrees with, the Company as set forth below.
(a) Investor has full power and authority to execute, deliver and
perform his obligations under this Agreement and this Agreement is a valid and
binding obligation of Investor, enforceable in accordance with its terms.
Investor is not subject to any agreement not to compete or other restriction on
his ability to acquire the shares of Common Stock being acquired pursuant to
this Agreement or to be an employee of the Company or any of its subsidiaries.
(b) Investor has reviewed this Agreement and the Stockholders'
Agreement (as defined) and all annexes, schedules and exhibits attached hereto
and thereto, and has received
5
<PAGE>
all such business, financial and other information as he deems necessary and
appropriate to enable him to evaluate the financial risk inherent in making an
investment in the Common Stock.
(c) Investor is acquiring the Shares acquired hereunder with his own
property for investment, for his own account, and not as a nominee or agent for
any other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof. Investor does not have any contract,
undertaking, agreement or arrangement with any person, firm or corporation to
sell, transfer or grant participation to such person, firm or corporation, with
respect to any of the Shares.
(d) Investor understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery requirements of the Act is available, and (iii) there is no
assurance that such an exemption from registration will ever be available or
that the Shares will ever be able to be sold.
(e) Investor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of his
investment in the Company, has the ability to bear the economic risks of its
investment for an indefinite period of time.
9. Restriction on Sale or Transfer. Except as provided herein, none
-------------------------------
of the Shares (whether vested or unvested) (or any beneficial interest therein)
shall be sold, transferred, assigned or pledged (including transfer by operation
of law) and any attempt to make any such sale, transfer, assignment or pledge
shall be null and void and of no effect. The Company shall not be required (a)
to transfer on its books any Shares which shall have been sold, pledged or
disposed of in violation of any of the provisions of this Agreement or (b) to
treat as owner of such Shares or to accord the right to vote or to pay dividends
to any purported transferee of Shares in violation of this Agreement.
10. Legends. In addition to any legends required by the
-------
Stockholders' Agreement, the certificates representing the Shares will bear
substantially the following legend:
"The shares represented by this certificate are subject to repurchase under
certain circumstances by the issuer pursuant to a Stock Purchase, Vesting
and Repurchase Agreement between the Issuer and the initial purchaser, to
which reference is made for a fuller description of such repurchase
rights."
11. Stockholders' Agreement; Covenant Regarding 83(b) Election. In
----------------------------------------------------------
connection with this Agreement, Investor agrees to become a party to the
Stockholders' Agreement dated as of September 30, 1998 among the Company and its
stockholders. Investor's signature on this Agreement shall also constitute his
or its signature on the Stockholders' Agreement. Investor also hereby covenants
and agrees that he will make an election pursuant to Treasury Regulation 1.83-2
with respect to the Shares and will furnish the Company with a copy
6
<PAGE>
of the form of election Investor has filed and evidence that such an election
has been filed in a timely manner.
12. General Provisions.
------------------
(a) No Assignments. Except as specifically provided to the contrary
--------------
in this Agreement, neither party shall transfer, assign or encumber any of its
or his rights, privileges, duties or obligations under this Agreement without
the prior written consent of the other party, and any attempt to so transfer,
assign or encumber shall be void; provided, however, that the Company may assign
-------- -------
this Agreement and its rights hereunder in connection with a sale of all of the
stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or by telecopy, receipt of which is
acknowledged by the telecopy number set forth below for the applicable
addressee, or if deposited, postage prepaid, registered or certified mail,
return receipt requested, in the United States mail:
(i) if to Investor, addressed to Investor at his address shown
on the stock register maintained by the Company, or at such other address
as Investor may specify by written notice to the Company, or
(ii) if to the Company, to it at c/o HDA Parts System, Inc., 520
Lake Cook Road, Deerfield, Illinois 60015, Attention: John Greisch, with a
copy to Brentwood Associates, 11150 Santa Monica Boulevard, Suite 1200, Los
Angeles, California 90025, Attention: Christopher A. Laurence, or at such
other address as the Company may specify by written notice to Investor.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof as set forth above or, if sooner, three
days after deposit as described above. The addresses for the purposes of this
Section 12(b) may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
(d) Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable
7
<PAGE>
or invalid term or provision with an enforceable and valid arrangement which in
its economic effect shall be as close as possible to the unenforceable or
invalid term or provision.
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment
----------------------------------
or waiver of any provision of this Agreement shall be effective against the
Company or Investor unless approved in writing, and, in the case of the Company,
authorized by its Board of Directors. The failure at any time to enforce any of
the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of any of the parties thereafter
to enforce each and every provision hereof in accordance with its terms.
(g) Integration. This Agreement constitutes the entire agreement of
-----------
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with
------------
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(Signature Page Follows)
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
(and, by execution hereof, the Stockholders' Agreement of the Company) to be
executed as of the date first above written.
CITY TRUCK HOLDINGS, INC.
By:
--------------------------------------
John J. Greisch
President and Chief Executive Officer
INVESTOR
-----------------------------------------
Name:
9
<PAGE>
ANNEX A
CITY TRUCK HOLDINGS, INC.
PERFORMANCE CRITERIA
--------------------
This Annex A sets forth the Performance Criteria, detailed vesting
provisions with respect to the vesting of ETA Stock, which is a part of the
Shares to be acquired by Investor pursuant to the Stock Purchase, Vesting and
Repurchase Agreement dated as of ______________ among the Company and Investor
(the "Agreement"). Capitalized terms used herein and not defined have the
meanings ascribed to them in the Agreement.
As stated in Section 2(b) of the Agreement, 20% of the ETA Stock shall
become eligible for vesting as of the end of each fiscal year from fiscal 1998
through fiscal 2002 (each of such full fiscal years being defined in the
Agreement as a Performance Year).
For each Performance Year, the amount of Eligible ETA Stock that shall
become vested (effective as of the end of the fiscal year) will be determined by
comparing the Company's actual EBITDA (as defined below) as of the end of such
fiscal year (as determined from its audited financial statements) to Plan EBITDA
(as defined below) for such fiscal year. The percentage of Eligible ETA Stock
that shall become vested at the end of each Performance Year shall be as set
forth in the following table:
<TABLE>
<CAPTION>
Actual EBITDA as a % Percentage of Eligible
of Plan ETA Stock that
EBITDA shall become vested
---------------------- ----------------------
<S> <C>
less than 85.00% 0%
88.75% 30%
92.50% 60%
96.25% 80%
100% 100%
</TABLE>
Vesting between the percentages listed in the table above will be
linearly interpolated.
"EBITDA" means, for any fiscal year, consolidated pre-tax income plus
interest expense (including non-cash interest, amortization of original issue
discount and the interest component of capital leases) on indebtedness and
amortization of goodwill, covenants not to compete and similar intangibles, all
as determined in accordance with generally accepted accounting principles and as
reflected in the Company's audited consolidated financial statements.
"Plan EBITDA" means, for each Performance Year, the dollar amount of
EBITDA set forth in the Operating Plan developed by management and approved by
the Board of Directors. Plan EBITDA will be adjusted from time to time as may
be mutually agreed upon to reflect the expected contribution to EBITDA of
acquisitions or major corporate projects.
<PAGE>
Exhibit 10.18
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 30, 1998, by and between City Truck Holdings, Inc., a Delaware
corporation (the "Company") and Martin R. Reid. ("Purchaser" or "you").
RECITALS
A. The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, 858 shares of Common Stock, par value $.01
per share (the "Common Shares"), and 1995.422 shares of Series A Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company upon
the terms and conditions specified herein. The Common Shares and the Preferred
Shares are collectively referred to herein as the "Shares." Four Hundred (400)
of the Common Shares are subject to the vesting provisions contained herein and
are referred to herein as the "Vesting Common Shares." The remaining 458 Common
Shares and the 1995.422 Preferred Shares are not subject to the vesting
provisions contained herein.
B. The Company desires to have, and Purchaser is willing to grant to
the Company, the right and option to repurchase the Vesting Common Shares upon
the terms and conditions contained herein.
C. It is a condition precedent to the obligations of the Company
under this Agreement that Purchaser enter into that certain Stockholders'
Agreement (the "Stockholders' Agreement") among the Company and the other
stockholders of the Company.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
<PAGE>
1. Purchase and Sale; Closing.
--------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell
-----------------
to Purchaser, and Purchaser hereby agrees to purchase from the Company on the
Closing Date, such number of Common Shares for $1.00 per share in cash and such
number of Preferred Shares for $100 per share in cash.
(b) The Closing. The consummation of the purchase and sale of the
-----------
Shares to be initially purchased hereunder (the "Closing") shall occur on a date
mutually agreeable to the parties (the "Closing Date"). At the Closing, the
Purchaser shall deliver payment of the specified consideration, and the
certificates evidencing the Vesting Common Shares purchased hereunder by the
Purchaser shall be deposited with the Escrow Agent pursuant to Section 5 hereof.
2. Vesting of the Common Stock.
---------------------------
(a) 20.00% of the Vesting Common Shares shall become vested as of the
end of each fiscal year of the Company (the "Fiscal Year End Date") commencing
with fiscal 1998, e.g. fiscal years 1998, 1999, 2000, 2001 and 2002.
(b) The foregoing notwithstanding, no Vesting Common Shares shall
become vested unless Purchaser has served continuously as a director of the
Company until each respective date on which the Vesting Common Shares are
scheduled to vest; provided, however, that if there is a Termination (as defined
-------- -------
below), a pro rata portion of any Vesting Common Shares which are scheduled to
--- ----
vest in the fiscal year in which the Termination occurs shall become vested
immediately upon Termination (such pro rata portion being equal to the ratio of
--- ----
the number of days Purchaser served as a director during the fiscal year in
question to 365).
2
<PAGE>
(c) As used herein, "Termination" shall mean the time when the
Purchaser's position as a director of the Company is terminated for any reason
whatsoever, with or without cause.
(d) Anything in this Agreement to the contrary notwithstanding, if,
the Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), all Vesting Common Shares scheduled to vest
pursuant to Section 2(a) in the calendar year in which the Acquisition is closed
(and not previously repurchased by the Company pursuant to Section 3) shall vest
immediately prior to the Acquisition closing date.
3. Company Purchase Option.
-----------------------
(a) The Company shall have the unconditional right and option to
purchase any or all of the Vesting Common Shares that have not vested as
provided in Section 2 at a purchase price of $1.00 per share (the "Option
Price") upon a Termination on the terms and conditions hereinafter provided.
The Company's right and option set forth in this Section 3(a) is referred to
herein as the "Purchase Option."
(b) The Purchase Option, if exercised, must be exercised no later
than 60 days after a Termination. The Purchase Option may be exercised in whole
or in part. Any Vesting Common Shares which become subject to the Purchase
Option as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Vesting Common Shares shall at any time thereafter be
subject to the Purchase Option.
3
<PAGE>
(c) The Purchase Option shall be exercised by written notice signed
by an officer of the Company and delivered or mailed to Purchaser as provided in
Section 15(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon such delivery or mailing.
4. No Directorship Guaranteed. Nothing contained in this Agreement,
--------------------------
or in any other agreement entered into by the Company and Purchaser in
connection with this Agreement obligates the Company, or any subsidiary or
parent of the Company, to retain Purchaser as a director or in any capacity
whatsoever, and Purchaser hereby acknowledges and agrees that neither the
Company nor any other person has made any representations or promises whatsoever
to Purchaser concerning these matters. In the event of any Termination,
Purchaser shall have the rights set forth in this Agreement and no more.
5. Escrow of Shares. As security for the faithful performance of the
----------------
terms of this Agreement and to ensure the availability for delivery of the
Vesting Common Shares in case of an exercise of the Purchase Option, Purchaser
shall deliver to and deposit with the escrow agent (the "Escrow Agent") named in
the joint escrow instructions attached hereto as Annex A (the "Joint Escrow
Instructions"), 10 stock assignments duly endorsed (with date and number of
shares blank) in the appropriate form attached hereto as Annex B, together with
the certificate or certificates evidencing the Vesting Common Shares purchased
hereunder by Purchaser. Such documents are to be held by the Escrow Agent and
delivered by the Escrow Agent pursuant to the terms of the Joint Escrow
Instructions, which shall be executed by Purchaser and the Company and delivered
to the Escrow Agent concurrently with the execution of this Agreement. From
time
4
<PAGE>
to time, upon written request of the Company, the Escrow Agent shall deliver to
the Company certificates representing that number of Vesting Common Shares which
the Company shall have purchased upon exercise of the Purchase Option, unless
Purchaser objects in the manner provided in the Joint Escrow Instructions.
In the case of any conflict or inconsistency between this Section 5
and the Joint Escrow Instructions, the Joint Escrow Instructions shall control.
6. Change in Capitalization. If from time to time during the term of
------------------------
this Agreement (i) there is any dividend of cash or property or rights to
acquire same, any liquidating dividend of cash and/or property, or any stock
dividend or stock split or other change in the character or amount of any of the
outstanding securities of the Company, or (ii) there is (a) any consolidation,
merger or sale of all, or substantially all, of the assets of the Company or (b)
a Drag-Along Sale pursuant to the Stockholders' Agreement, then in such event
any and all new, substituted or additional securities or other property to which
Purchaser may become entitled by reason of his ownership of Vesting Common
Shares shall immediately become subject to this Agreement and shall assume the
same status with respect to vesting as the Vesting Common Shares upon which such
dividend was paid or in substitution for which such additional securities or
property were distributed. Any cash or cash equivalents received pursuant to
this Section 6 shall be invested in conservative, short-term interest bearing
securities, and interest earned thereon shall likewise assume the same status as
to vesting. While the total Option Price for all Vesting Common Shares subject
to the Purchase Option shall remain the same after each such event, the Option
Price per Vesting Common Share upon exercise of the Purchase Option shall be
5
<PAGE>
proportionately or otherwise appropriately adjusted as determined in good faith
by the Board of Directors of the Company.
7. Purchaser Representations and Agreements. Purchaser hereby
----------------------------------------
represents and warrants, and agrees with, the Company as set forth below.
(a) Purchaser has full power and authority to execute, deliver and
perform his obligations under this Agreement and this Agreement is a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except that the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the Shares being purchased pursuant to
this Agreement or to become an employee of the Company or any of its
subsidiaries, and Purchaser will not enter into any such agreement or
restriction.
(b) Purchaser has received and reviewed this Agreement and all
annexes and schedules hereto, including the Stockholders' Agreement and all
schedules and exhibits attached hereto and thereto, and has received all such
business, financial and other information as he deems necessary and appropriate
to enable him to evaluate the financial risk inherent in making an investment in
the Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his
own funds or property for investment, for his own account, and not as a nominee
or agent for any other
6
<PAGE>
person, firm or corporation, and not with a view to the sale or distribution of
all or any part thereof, and he has no present intention of selling, granting
participation in, or otherwise distributing any of the Shares. Except as
provided herein or pursuant to the Stockholders' Agreement, Purchaser does not
have any contract, undertaking, agreement or arrangement with any person, firm
or corporation to sell, transfer or grant participation to such person, firm or
corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery requirements of the Act is available, and (iii) there is no
assurance that such an exemption from registration will ever be available or
that the Shares will ever be able to be sold.
(e) Purchaser agrees that in no event will he make a disposition of
any Shares or any interest therein, unless such Shares are registered under the
Act or unless and until (i) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) he shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Shares under the Act or applicable state securities
laws, or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the
7
<PAGE>
Company shall have waived, expressly and in writing, the provisions of clauses
(i) and (ii) of this subsection.
(f) Purchaser does not require the assistance of an investment
advisor or other purchaser representative to participate in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of his
investment in the Company, has the ability to bear the economic risks of its
investment for an indefinite period of time and has been furnished with and had
access to such information as is necessary to verify the accuracy of the
information supplied and to have all questions answered by the Company.
8. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Purchaser as set forth below.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement have been duly and
validly authorized, and all necessary corporate action has been taken to make
this Agreement a valid and binding obligation of the Company, enforceable in
accordance with its terms, except that the enforcement thereof may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
8
<PAGE>
(c) When issued and paid for by Purchaser as provided for herein, the
Shares will be duly and validly issued, fully paid and non-assessable.
9. Conditions of Parties' Obligations.
----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Shares to be issued on the Closing Date are also
subject to the fulfillment prior to or concurrently with the Closing of the
conditions set forth below.
(a) The representations and warranties of the Purchaser and the
Company shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if
any, which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
(c) Purchaser shall have received copies of such supporting documents
as Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by
the Stockholders' Agreement, which Stockholders' Agreement is hereby
incorporated herein as if set forth in full in this Agreement.
9
<PAGE>
10. Restriction on Sale or Transfer. Except as provided herein, none
-------------------------------
of the Vesting Common Shares that are subject to repurchase by the Company or
any Investor (or any beneficial interest therein) shall be sold, transferred,
assigned or pledged (including transfer by operation of law) and any attempt to
make any such sale, transfer, assignment or pledge shall be null and void and of
no effect.
11. Legends. In addition to any legends required by the
-------
Stockholders' Agreement, the certificates representing the shares of Common
Stock purchased pursuant to this Agreement will bear a legend in substantially
the following form:
The shares represented by this certificate are subject to repurchase
under certain circumstances by the Issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or violation, the Company shall be entitled to
injunctive relief in addition to any other remedy, at law or in equity, to which
it may be entitled.
13. Violation of Transfer Provisions. The Company shall not be
--------------------------------
required (a) to transfer on its books any Vesting Common Shares which shall have
been sold, transferred, assigned or pledged in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Vesting Common
Shares or to accord the right to vote or to pay dividends to any purported
transferee of Vesting Common Shares in violation of any of the provisions of
this Agreement.
10
<PAGE>
14. Covenant Regarding 83(b) Election. Purchaser hereby covenants
---------------------------------
and agrees that he will make a timely election pursuant to Treasury Regulation
1.83-2 with respect to the Vesting Common Shares and will furnish the Company
with a copy of the form of election Purchaser has filed and evidence that such
an election has been filed in a timely manner.
15. General Provisions.
------------------
(a) No Assignments. Except as specifically provided to the contrary
--------------
in this Agreement, neither party shall transfer, assign or encumber any of its
or his rights, privileges, duties or obligations under this Agreement without
the prior written consent of the other party, and any attempt to so transfer,
assign or encumber shall be void; provided, however, that the Company may assign
-------- -------
this Agreement and its rights hereunder in connection with a sale of all of the
stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended (including by reputable overnight delivery
services which shall be deemed to have effected personal delivery) or by
telecopy, receipt of which is acknowledged by the telecopy number set forth
below for the applicable addressee, or if deposited, postage prepaid, registered
or certified mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address shown
on the stock register maintained by the Company, or at such other address
as Purchaser may specify by written notice to the Company, or
(ii) if to the Company, addressed to City Truck Holdings, Inc.,
c/o HDA Parts System, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015,
with a copy
11
<PAGE>
to: c/o Christopher A. Laurence, Brentwood Associates, 11150
Santa Monica Boulevard, Suite 1200 Los Angeles, California 90025, or at
such other address as the Company may specify by written notice to the
Purchaser.
Each such notice, request, consent and other communication shall be deemed to
have been given upon receipt thereof as set forth above or, if sooner, three
days after deposit as described above. The addresses for the purposes of this
Section 15(b) may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the addresses provided herein shall be deemed to continue in effect
for all purposes hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware.
(d) Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
12
<PAGE>
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment
----------------------------------
or waiver of any provision of this Agreement shall be effective against the
Company or Purchaser unless approved in writing, and, in the case of the
Company, authorized by its Board of Directors. The failure at any time to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms.
(g) Integration. This Agreement constitutes the entire agreement of
-----------
the parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with
------------
the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(Signature Page Follows)
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
COMPANY:
CITY TRUCK HOLDINGS, INC.
By: /s/ John J. Greisch
--------------------------------------
John J. Greisch
President and Chief Executive Officer
PURCHASER:
/s/ Martin R. Reid
-----------------------------------------
Martin R. Reid
14
<PAGE>
ANNEX A
JOINT ESCROW INSTRUCTIONS
SEPTEMBER 30, 1998
Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Los Angeles, California 90025
Re: Joint Escrow Instructions
-------------------------
Dear Sir or Madam:
As the person identified herein as Escrow Agent for City Truck Holdings,
Inc. (the "Company"), a Delaware corporation, and the undersigned holder of
common stock, par value $.01 per share, of the Company (the "Purchaser"), you
are hereby authorized and directed to hold the documents delivered to you
pursuant to the terms of that certain Stock Purchase Agreement (the "Agreement")
dated as of September 30, 1998, to which a copy of these Joint Escrow
Instructions is attached as Annex A, in accordance with the following
instructions:
1. In the event the Company, or any assignee of the Company (referred to
collectively herein as the "Company"), shall elect to exercise the Purchase
Option (as defined and described in the Agreement), the Company shall give to
the Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price and the time for a closing hereunder at the
principal office of the Company, which time shall not be less than 20 days after
the date of such written notice. Unless you shall have received written notice
from Purchaser at least five days prior to the date specified for the closing
objecting to consummation of the transaction, Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice including prompt
delivery of the stock certificate(s) representing the shares purchased. Any
objecting notice from Purchaser shall set forth in reasonable detail the basis
for his objections, but his failure to do so shall not affect your duties
hereunder.
2. At the closing you are directed to (i) date a stock certificate
assignment form or forms necessary for the transfer in question, (ii) fill in
the number of shares being transferred and (iii) deliver same together with the
certificate or certificates evidencing the shares to be transferred to the
Company, against the simultaneous delivery to you of the purchase price for the
number of shares of stock being purchased pursuant to the exercise of the
Purchase Option. Promptly after the closing, the Company shall deliver to you
any certificate or certificates representing shares which were not so purchased
and remain subject to these Joint Escrow Instructions.
3. Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all
<PAGE>
documents necessary or appropriate to make such securities negotiable and
complete any transaction herein contemplated, including but not limited to any
required filings with all other governmental or regulatory bodies.
4. This escrow shall terminate upon termination of the Purchase Option
with respect to all Common Shares under the Agreement. Within ten days after
each date of vesting under Sections 2(a) and 2(b) of the Agreement, the Company
shall notify you and Purchaser in writing of the number of shares which have
vested on that date. Within 20 days after your receipt of such notice, you
shall deliver to Purchaser a certificate or certificates evidencing the shares
which have so vested. Promptly following any exercise of the Purchase Option,
you shall deliver to Purchaser a certificate or certificates representing the
number of shares of stock not theretofore repurchased by the Company pursuant to
such exercise of the Purchase Option which have vested (less such shares as have
been previously delivered).
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged from all
further obligations hereunder. The Company hereby authorizes you at any time
and from time to time after the date hereof to comply with a written request
from Purchaser, a copy of which you shall deliver to the Company, and unless the
Company shall have given you written notice of its objection to such request
within 30 days following its receipt thereof, to deliver to Purchaser a
certificate for that many shares of stock as have become vested in accordance
with the terms of the Agreement (less such shares as have been previously
delivered).
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing by the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in acting or
refraining from acting in reliance upon any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of our own independent attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees or any court.
If you obey or comply with any such order, judgment or decree of any court, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such obedience or compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside vacated or found to have been entered without jurisdiction. For purposes
of this paragraph 8, an objection made pursuant to paragraph 1 by the Purchaser
shall not be deemed a warning.
2
<PAGE>
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder or thereunder.
10. You shall be entitled to employ such independent legal counsel and
other experts as you may deem necessary properly to advise in connection with
your obligations hereunder, may rely upon the advice of such counsel and may pay
such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall terminate on the
thirtieth day following receipt by the parties of your written notice of
resignation. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States mail, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
Company: c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attention: Christopher A. Laurence
Notice to Purchaser shall be sent to the address set forth below
Purchaser's signature.
Escrow Agent: Mark Kimura
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
3
<PAGE>
15. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of these Joint Escrow Instructions; you do not become a
party to the Agreement.
16. All liabilities, losses, costs, fees and disbursements incurred by you
in connection with the performance of your duties hereunder, including without
limitation the compensation paid pursuant to paragraph 10 hereof, shall be borne
by the Company, and the Company hereby agrees to indemnify and hold you free and
harmless in respect of all claims, actions, demands, liabilities, losses, costs,
fees and expenses incurred by you in the performance of your duties hereunder;
provided, however, that this indemnity shall not extend to conduct which has
been determined, by a final judgment of a court of competent jurisdiction, to
have been grossly negligent or to have constituted intentional misconduct.
17. This instrument shall be governed by and construed in accordance with
the internal laws, and not the laws of conflict of law, of the State of
Delaware.
18. This instrument shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
19. This instrument may be executed in counterpart with the same effect as
if all parties had signed the same document. All such counterparts shall be
deemed an original, shall be construed together and shall constitute one and the
same instrument.
Very truly yours,
CITY TRUCK HOLDINGS, INC.
By
--------------------------------------
John J. Greisch
President and Chief Executive Officer
PURCHASER:
----------------------------------------
Martin R. Reid
Address: 10801 E. Happy Valley Road, #44
Scottsdale, Arizona 85255-8174
ESCROW AGENT:
- ----------------------------
Name: Mark Kimura
4
<PAGE>
ANNEX B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Stock Purchase Agreement
dated as of September 30, 1998, (the "Agreement"), the undersigned hereby sells,
assigns and transfers unto the person identified as Escrow Agent in the
Agreement all rights and interests in shares of Common Stock of
----------------
City Truck Holdings, Inc. (the "Company"), a Delaware corporation, represented
by Stock Certificate No. herewith (the "Certificate"), which
-----------------
Certificate was deposited by the undersigned with the Escrow Agent pursuant to
the Joint Escrow Instructions (as defined in the Agreement) among the
undersigned, the Company and such Escrow Agent, such Certificate standing in the
undersigned's name on the books of the Company.
The undersigned does hereby irrevocably constitute and appoint the Escrow
Agent attorney to transfer such Common Stock on the books of the Company, with
full power of substitution in the premises.
Dated: 199
-----------, --
------------------------------
Martin R. Reid
<PAGE>
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 5, 1999, by and between City Truck Holdings, Inc., a Delaware corporation
(the "Company"), and John J. Greisch ("Purchaser" or "you").
RECITALS
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, 2,000 shares (the "Common Shares") of the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock") upon the terms and conditions set forth herein.
The Company desires to have, and Purchaser is willing to grant to the
Company, the right and option to repurchase the Common Shares under certain
circumstances upon the terms and conditions contained herein.
It is a condition precedent to the obligations of the Company under
this Agreement that Purchaser enter into (if he has not already) that certain
Stockholders' Agreement of even date herewith (the "Stockholders' Agreement")
among the Company, Brentwood Associates Buyout Fund II, L.P. (the
"Partnership"), the Purchaser and the Company's other stockholders.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Purchase and Sale; Closing.
--------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell to
-----------------
Purchaser, and Purchaser hereby agrees to purchase from the Company on the
Closing Date 2,000 Common Shares for $170 per share (total purchase price of
$340,000), payable $3,400 in cash and by
<PAGE>
delivery of Purchaser's promissory note in the form attached as Annex "A" (the
"Note") in the principal amount of $336,600.
(b) The Closing. The consummation of the purchase and sale of the Common
-----------
Shares (the "Closing") shall occur on the date of this Agreement or at such
other time as the parties may agree (the actual date being called the "Closing
Date"). At the Closing, the Company shall deliver to the Escrow Agent (as
defined in Section 5 below) the certificates evidencing the Common Shares
purchased hereunder by Purchaser.
2. Vesting of the Common Stock.
---------------------------
Twenty-five percent (25%) of the Common Shares shall become vested
as of each of December 31, 1999, 2000, 2001 and 2002. The foregoing
notwithstanding, no Common Shares shall become vested unless Purchaser has been
continuously employed by the Company, or any parent or subsidiary of the
Company, from the Closing Date until each respective date on which the Common
Shares are scheduled to vest; provided, however, that if there is a Termination
-------- -------
of Employment (as defined below), a pro rata portion of any Common Shares
--- ----
which are scheduled to vest during the calendar year in which the Termination of
Employment occurs shall become vested immediately upon Termination of Employment
(such pro rata portion being equal to the ratio of the number of days of
--- ----
employment during the year in question to 365)
(a) As used herein, "Termination of Employment" shall mean the time when
the employee-employer relationship between Purchaser and the Company is
terminated for any reason whatsoever, with or without cause. For purposes of
this Section 2(b), and elsewhere in this Agreement in the context of employment,
the term "Company" shall mean a subsidiary or
2
<PAGE>
parent of the Company if Purchaser is then employed by such subsidiary or
parent; provided, however, that neither a transfer of Purchaser from the employ
-------- -------
of the Company to the employ of such subsidiary or parent nor the transfer of
Purchaser from the employ of such subsidiary or parent to the employ of the
Company shall be deemed a Termination of Employment.
Anything in this Agreement to the contrary notwithstanding, if the
Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), all Common Shares not previously repurchased
by the Company pursuant to Section 3 shall vest immediately prior to the
Acquisition closing date.
(b) If the outstanding Common Stock of the Company is hereafter
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any stock split,
combination of shares, dividend payable in shares, recapitalization,
reclassification or other change, then appropriate adjustment shall be made in
the number and kind of shares acquired by the Purchaser pursuant to this
Agreement, notwithstanding the vesting and escrow requirements contained herein.
Any additional share certificates issued in favor of the Purchaser as a result
of any such adjustment with respect to any of Purchaser's shares then held by
the Escrow Agent pursuant to Section 5 hereof shall be deposited with the Escrow
Agent and held in accordance with the Escrow Agreement. In addition, upon the
occurrence of any of the foregoing events, appropriate adjustment shall be made,
if necessary, in the number, kind and/or price per share of the Shares to be
purchased pursuant to Section 1(c) hereof.
3. Company Purchase Option.
-----------------------
3
<PAGE>
(a) The Company shall have the unconditional right and option to purchase
any or all of the Vesting Common Shares that have not vested at a purchase price
of $170 per share (the "Option Price") upon a Termination of Employment on the
terms and conditions hereinafter provided.
(b) In addition to the rights set forth in Section 3(a), prior to an
initial public offering of Common Stock, the Company shall have the
unconditional right and option to purchase any and or all of the Vesting Common
Shares that have vested pursuant to this Agreement at a per share purchase price
equal to the Fair Market Value thereof (the "Fair Market Value Price") upon a
Termination of Employment on the terms and conditions hereinafter provided. The
Company's right and option set forth in Sections 3(a) and 3(b) is referred to
herein as the "Purchase Option."
The Purchase Option, if exercised, must be exercised no later than 60
days after a Termination of Employment. The Purchase Option may be exercised in
whole or in part. Any Common Stock which becomes subject to the Purchase Option
as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Common Stock shall at any time thereafter be subject
to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Purchaser as provided in
Section 16(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon such delivery or mailing.
Amounts due to Purchaser from the Company as a result of exercise of
4
<PAGE>
the Purchase Option shall be payable in cash (except as otherwies provided in
the Note)promptly after exercise of the Purchase Option or, in the case of ETA
Stock and/or "Catch Up Vesting", as soon as reasonably practical after
determination of whether or not any applicable Performance Criteria were met.
(d) As used herein, "Fair Market Value" shall mean the fair market value of
a share of Common Stock, representing the price a willing buyer would pay and at
which at willing seller would sell, neither under any compulsion or duress.
Initially, the parties shall attempt to agree on Fair Market Value for a period
of thirty (30) days. If they are unable to reach agreement, each of them shall
within ten (10) days nominate an independent appraiser skilled in valuing
securities similar to the Common Stock, and the two appraisers so nominated
shall appoint a third appraiser within ten (10) days. The third appraiser shall
determine Fair Market Value, and such determination shall be conclusive and
binding on all parties. Each party shall bear the costs, if any, of the
appraiser it nominates, and the parties shall share equally the costs of the
third appraiser, the Purchaser's share of which may be deducted by the Company
from any amounts payable to Purchaser if Purchaser has not otherwise paid his
portion of the third appraiser's costs.
4. Employment.
----------
Nothing contained in this Agreement, or in any other agreement entered
into by the Company and Purchaser in connection with this Agreement, (i)
obligates the Company, or any subsidiary or parent of the Company, to continue
to employ Purchaser in any capacity whatsoever, or (ii) prohibits or restricts
the Company (or any such subsidiary or parent) from terminating the employment
of Purchaser at any time or for any reason whatsoever, with or without cause,
and Purchaser hereby acknowledges and agrees that neither the Company nor any
5
<PAGE>
other person has made any representations or promises whatsoever to Purchaser
concerning Purchaser's employment or continued employment by the Company. In the
event of any Termination of Employment, Purchaser shall have the rights set
forth herein and in his Stock Purchase Agreement dated July 1, 1998 (the
"Original Stock Purchase Agreement"), and no more.
5. Escrow of Shares.
----------------
As security for the faithful performance of the terms of this Agreement
and for payment of the Note, and to ensure the availability for delivery of the
unvested Common Shares in case of an exercise of the Purchase Option, the Common
Shares will be deposited with a collateral/escrow agent (the "Agent"). The Agent
shall be the same one named in the joint escrow instructions executed
concurrently with your Original Stock Purchase Agreement, and you agree that the
terms of such joint escrow instructions also control with respect to the Common
Shares purchased pursuant to this Agreement. You also agree that the Agent may
use any of the stock assignments duly endorsed (with date and number of shares
blank) executed by you pursuant to your Original Stock Purchase Agreement
pursuant to the terms of those joint escrow instructions
6. Change in Capitalization.
-------------------------
If from time to time during the term of this Agreement (i) there is
any dividend of cash or property or rights to acquire same, any liquidating
dividend of cash and/or property, or any stock dividend or stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) there is (a) any consolidation, merger or sale of all, or
substantially all, of the assets of the Company or (b) a Drag-Along Sale
pursuant to the
6
<PAGE>
Stockholders' Agreement, then in such event any and all new, substituted or
additional securities or other property to which Purchaser may become entitled
by reason of his ownership of Common Shares shall immediately become subject to
this Agreement and shall assume the same status with respect to vesting as the
Common Shares upon which such dividend was paid or in substitution for which
such additional securities or property were distributed. Any cash or cash
equivalents received pursuant to this Section 6 shall be invested in
conservative, short-term interest bearing securities, and interest earned
thereon shall likewise assume the same status as to vesting. While the total
Option Price for all Common Shares subject to the Purchase Option shall remain
the same after each such event, the Option Price per Common Share upon exercise
of the Purchase Option shall be proportionately or otherwise appropriately
adjusted as determined in good faith by the Board of Directors of the Company.
7. Purchaser Representations and Agreements.
-----------------------------------------
Purchaser hereby represents and warrants, and agrees with, the
Company as set forth below.
(a) Purchaser has full power and authority to execute, deliver and perform
his obligations under this Agreement and this Agreement is a valid and binding
obligation of Purchaser, enforceable in accordance with its terms, except that
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the Shares being purchased pursuant to
this Agreement or to become an employee of the
7
<PAGE>
Company or any of its
subsidiaries, and Purchaser will not enter into any such agreement or
restriction.
(b) Purchaser has received and reviewed this Agreement and all annexes and
schedules hereto, including the Stockholders' Agreement and all schedules and
exhibits attached hereto and thereto, and has received all such business,
financial and other information as he deems necessary and appropriate to enable
his to evaluate the financial risk inherent in making an investment in the
Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his own
funds for investment, for his own account, and not as a nominee or agent for any
other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof, and he has no present intention of
selling, granting participation in, or otherwise distributing any of the Shares.
Except as provided herein or pursuant to the Stockholders' Agreement, Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person, firm or corporation to sell, transfer or grant participation to such
person, firm or corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery
8
<PAGE>
requirements of the Act is available, and (iii) there is no assurance
that such an exemption from registration will ever be available or that the
Shares will ever be able to be sold.
(e) Purchaser agrees that in no event will he make a disposition of any
Shares or any interest therein, unless such Shares are registered under the Act
or unless and until (i) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) he shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Shares under the Act or applicable state securities
laws, or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the Company shall have
waived, expressly and in writing, the provisions of clauses (i) and (ii) of this
subsection.
(f) Purchaser does not require the assistance of an investment advisor or
other purchaser representative to participate in the transactions contemplated
by this Agreement, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of his investment in
the Company, has the ability to bear the economic risks of its investment for an
indefinite period of time and has been furnished with and had access to such
information as is necessary to verify the accuracy of the information supplied
and to have all questions answered by the Company.
8. Covenants, Representations and Warranties of the Company.
--------------------------------------------------------
The Company hereby covenants, represents and warrants to Purchaser as
set forth below:
9
<PAGE>
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement by the Company have been
duly and validly authorized, and all necessary corporate action has been taken
to make this Agreement a valid and binding obligation of the Company,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(c) No approval, authorization, consent, permit or other order or action
of or filing with any bank or other lender, court, governmental department or
authority, commission, board, bureau, agency, or any other party or parties, nor
any compliance with any legally imposed waiting period, is required for the
execution and delivery by the Company of this Agreement, or the consummation by
the Company of the transactions contemplated hereby.
(d) The Company now has, and will continue to have, to and including the
date of Closing pursuant to this Agreement, the absolute right to sell, assign,
transfer and deliver the Shares pursuant to this Agreement, free and clear of
all claims, security interests, liens, pledges, charges, options, security
agreements or other agreements, arrangements, commitments, obligations or other
encumbrances of any kind (hereinafter collectively called "Claims"). Upon the
transfer of the Shares pursuant to the terms of this Agreement, the Purchaser
will have,
10
<PAGE>
except as otherwise expressly provided in this Agreement, good and marketable
title to and ownership of such Shares, free and clear of all Claims, and such
Shares are, and upon the Closing of this Agreement will be, duly authorized,
validly issued and outstanding and fully paid and nonassessable.
(e) To the best knowledge and belief of the Company, there is no action,
suit or proceeding pending or threatened against or affecting the Company in any
court or other governmental authority, or before any arbitrator of any kind,
which would adversely affect or prevent the execution and delivery by the
Company of this Agreement, or the consummation by the Company of the
transactions contemplated hereby.
9. Conditions of Parties' Obligations.
-----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Shares are also subject to the fulfillment prior to or
concurrently with the Closing of the conditions set forth below.
(a) The representations and warranties of the Purchaser and the Company
shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if any,
which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
11
<PAGE>
(c) Purchaser shall have received copies of such supporting documents as
Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by the
Stockholders' Agreement, which Stockholders' Agreement is hereby incorporated
herein as if set forth in full in this Agreement.
10. Restriction on Sale or Transfer.
--------------------------------
Except as provided herein, none of the Common Shares that have not
vested pursuant hereto (or any beneficial interest therein) shall be sold,
transferred, assigned or pledged (including transfer by operation of law) and
any attempt to make any such sale, transfer, assignment or pledge shall be null
and void and of no effect.
11. Legends.
--------
In addition to any legends required by the Stockholders' Agreement,
the certificates representing the shares of Common Stock purchased pursuant to
this Agreement will bear a legend in substantially the following form:
"The shares represented by this certificate are subject to repurchase
under certain circumstances by the issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
------------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or
12
<PAGE>
violation, the Company or Purchaser, as the case may be, shall be entitled to
injunctive relief in addition to any other remedy, at law or in equity, to which
he or it may be entitled.
13. Violation of Transfer Provisions.
---------------------------------
The Company shall not be required (a) to transfer on its books any
Common Shares which shall have been sold, transferred, assigned or pledged in
violation of any of the provisions of this Agreement or (b) to treat as owner of
such Common Shares or to accord the right to vote or to pay dividends to any
purported transferee of Common Shares in violation of any of the provisions of
this Agreement.
14. Covenant Regarding 83(b) Election.
----------------------------------
Purchaser hereby covenants and agrees that he will make an election
pursuant to Treasury Regulation 1.83-2 with respect to the Common Shares and
will furnish the Company with a copy of the form of election Purchaser has filed
and evidence that such an election has been filed in a timely manner.
15. Indemnification.
---------------
Each party hereto shall defend, hold harmless and indemnify the other
against and from any damage, loss, expense or liability, including reasonable
attorneys' fees, resulting from or arising out of the breach or default in the
performance by such party of any of the terms, covenants, representations,
warranties and conditions herein. This hold harmless and indemnification
obligation, together with the representations, warranties, covenants and
agreements of each party hereto, shall survive the termination of this Agreement
from any cause whatsoever.
16. General Provisions.
------------------
13
<PAGE>
(a) No Assignments. Except as specifically provided to the contrary in
--------------
this Agreement, neither party shall transfer, assign or encumber any of its or
his rights, privileges, duties or obligations under this Agreement without the
prior written consent of the other party, and any attempt to so transfer, assign
or encumber shall be void; provided, however, that the Company may assign this
-------- -------
Agreement and its rights hereunder in connection with an Acquisition of all of
the stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended (including by reputable overnight delivery services
which shall be deemed to have effected personal delivery) or by telecopy,
receipt of which is acknowledged by the telecopy number set forth below for the
applicable addressee, or if deposited, postage prepaid, registered or certified
mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address set forth on
the signature page hereto, or at such other address as Purchaser may specify by
written notice to the Company, or
(ii) if to the Company, addressed to City Truck Holdings, Inc., c/o
Christopher A, Laurence, Brentwood Associates, 11150 Santa Monica Boulevard,
Suite 1200 Los Angeles, California 90025, or at such other address as the
Company may specify by written notice to the Purchaser.
Each such notice, request, consent and other communication shall be
deemed to have been given upon receipt thereof as set forth above or, if sooner,
three days after deposit as
14
<PAGE>
described above. The addresses for the purposes of this Section 16(b) may be
changed by giving written notice of such change in the manner provided herein
for giving notice. Unless and until such written notice is received, the
addresses provided herein shall be deemed to continue in effect for all purposes
hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
(d) Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
(e) Parties in Interest. All of the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Purchaser unless (i) it is contained in a written document executed by the
Company and the Purchaser which specifically states that it is an amendment to
this Agreement, and, in the case of the Company,
15
<PAGE>
has been authorized by its Board of Directors. The failure at any time to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms.
(g) Integration. This Agreement constitutes the entire agreement of the
-----------
parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with the
------------
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(j) Attorneys' Fees. In the event of any controversy, claim or dispute
---------------
between the parties arising out of or relating to this Agreement, or the
enforcement of the provisions hereof, the substantially prevailing party shall
be entitled to recover its costs and expenses, including but not limited to
reasonable attorneys' fees incurred in connection herewith.
(k) Further Assurances. The parties agree to use their best efforts and
------------------
act in good faith in carrying out their obligations under this Agreement. The
parties also agree, without further consideration, to execute such further
instruments and to take such further actions as may be necessary or desirable to
carry out the purposes and intent of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the date first above written.
CITY TRUCK HOLDINGS, INC.
By
-------------------------------
Name:
----------------------------
Title:
----------------------------
PURCHASER:
- ----------------------------------
John J. Greisch
Address:
2636 Chesepeake Lane
Northbrook, Illinois 60062
17
<PAGE>
ANNEX A
-------
PROMISSORY NOTE
$336,600.00 Deerfield, Illinois
March 5, 1999
FOR VALUE RECEIVED, the undersigned, John J. Greisch (the "Maker")
promises to pay to City Truck Holdings, Inc., a Delaware corporation (the
"Company"), or order, the principal sum of Three Hundred Thirty-Six Thousand Six
Hundred Dollars ($336,600.00), with interest on the unpaid principal balance
from time to time outstanding, at the rate set forth below. The principal amount
of this Note and any accrued and unpaid interest under this Note, shall be due
and payable on or before the earlier of March 4, 2004, or the date on which the
indebtedness under this Note is accelerated as provided for under this Note.
This Note is issued in connection with that certain Stock Purchase Agreement of
even date herewith by and between the Company and Maker (the "Stock Purchase
Agreement"). Accrued and unpaid interest shall be payable annually on March 5
of each year and at all other times as set forth herein.
The unpaid principal balance on this Note shall bear interest at the
rate of five and 30/100 percent (5.3%) per annum.
All payments under this Note shall be made to the Company or its
order, in lawful money of the United States of America at the offices of the
Company at its then principal place of business or at such other place as the
Company or any holder hereof shall designate for such purpose from time to time.
This Note is secured pursuant to that certain Pledge Agreement of even date
herewith between the Company and Maker (the "Pledge Agreement").
This Note shall be prepaid as follows:
(a) This Note requires mandatory prepayments at the times and in the
amounts set forth in the Pledge Agreement. In addition, upon any other
disposition of any of the capital stock of the Company owned by Maker, an amount
equal to eighty percent (80%) of the gross cash proceeds of such disposition
shall be applied to prepay this Note. In addition, upon an Acquisition (as
defined in the Stock Purchase Agreement), this Note shall be prepaid in full.
Capitalized terms stated herein to be as defined in the Stock Purchase Agreement
shall have the meanings assigned therein or, if not defined therein the meanings
in the Original Stock Purchase Agreement (as such term is defined in the Stock
Purchase Agreement).
(b) An amount equal to thirty percent (30%) of any bonus paid to
Maker by the Company or any subsidiary in connection with Maker's employment
shall be applied to prepay this Note, and the Company is hereby expressly
authorized to offset (or cause any such subsidiary to offset) such amount
against any bonus otherwise payable Maker.
Annex A - 1
<PAGE>
(c) The Note shall be prepaid in full if Maker voluntarily
terminates his employment with the Company or any subsidiary of the Company.
(d) If Maker's employment by the Company or any subsidiary of the
Company is terminated by the Company or such subsidiary without "cause" (as
defined in the Stock Purchase Agreement), and if in connection with such
termination the Company elects to repurchase any of Maker's shares of common
stock of the Company pursuant to the Stock Purchase Agreement, the purchase
price for such repurchased shares may be offset by the Company against this
Note.
Each payment under this Note shall be applied in the following order:
(i) to the payment of costs and expenses provided for under this Note; (ii) to
the payment of accrued and unpaid interest; and (iii) to the payment of
outstanding principal. The Company and each holder hereof shall have the
continuing and exclusive right to apply or reverse and reapply any and all
payments under this Note.
This Note may be prepaid in whole or in part at any time, after five
days' written notice of Maker's intention to make any such prepayment, which
notice shall specify the date and amount of such prepayment. Any prepayment
shall be without penalty except that interest shall be paid to the date of
payment on the principal amount prepaid.
The occurrence of any of the following events shall constitute an
"Event of Default" hereunder: (a) failure of Maker to pay when due, whether at
its stated maturity, by declaration, acceleration, demand or otherwise, any
principal or interest due under this Note or under any other note, loan
agreement or obligation for borrowed money or for the unpaid purchase price for
goods or services; (b) (i) a court having jurisdiction in the premises shall
enter a decree or order of relief in respect of Maker in an involuntary case
under Title 11 of the United State Code entitled "Bankruptcy" (as now or
hereinafter in effect or any successor thereto, the "Bankruptcy Code") or any
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
which decree or order is not stayed; or any other similar relief shall be
granted under any applicable federal or state law; or (ii) an involuntary case
shall be commenced against Maker under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect; or the entry of a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, interim receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Maker or over all or a substantial part
of his property shall have been entered; or a warrant of attachment, execution
or similar process shall have been issued against any substantial part of the
property of Maker and, in the case of any event described in this clause (ii),
such an event shall have continued for thirty (30) days undismissed, bonded or
discharged; (c) Maker shall commence a voluntary case under the Bankruptcy Code
or any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or Maker shall make an assignment for the benefit of creditors; or
Maker shall be unable or fail, or shall admit in writing her inability to pay
her debts as such debts become due; or (d) a default shall occur under the
Pledge Agreement.
Upon the occurrence of an Event of Default, including, without
limitation, failure to make any principal or interest payment by the stated
maturity (whether by acceleration,
Annex A - 2
<PAGE>
required prepayment, notice of prepayment or otherwise) for such payment,
interest shall thereafter accrue on the entire unpaid principal balance under
this Note, including without limitation any delinquent interest which has been
added to the principal amount due under this Note pursuant to the terms hereof,
at the rate set forth herein plus two percent (2%) per annum (on the basis of a
365-day year and the actual number of days elapsed). In addition, upon the
occurrence of an Event of Default the holder of this Note may, at its option,
without notice to or demand upon Maker or any other party, declare immediately
due and payable the entire principal balance hereof together with all accrued
and unpaid interest thereon, plus any other amounts then owing pursuant to this
Note, whereupon the same shall be immediately due and payable. On each
anniversary of the date of any Event of Default and while such Event of Default
is continuing, all interest which has become payable and is then delinquent
shall, without curing the default under this Note by reason of such delinquency,
be added to the principal amount due under this Note, and shall thereafter bear
interest at the same rate as is applicable to principal, with interest on
overdue interest to bear interest, in each case to the fullest extent permitted
by applicable law, both before and after default, maturity, foreclosure,
judgment and the filing of any petition in a bankruptcy proceeding.
Notwithstanding anything in this Note to the contrary, in no event shall
interest be charged under this Note which would violate any applicable law, and
if the interest set forth in this Note would violate any law it shall be reduced
to an amount which would not violate any law.
No waiver or modification of any of the terms of this Note shall be
valid or binding unless set forth in a writing specifically referring to this
Note and signed by a duly authorized officer of the Company or any holder of
this Note, and then only to the extent specifically set forth therein.
If any Event of Default occurs, Maker and all guarantors and endorsers
hereof, and their successors and assigns, promise to pay any expenses, including
attorneys' fees, incurred by each holder hereof in collecting or attempting to
collect the indebtedness under this Note, whether or not any action or
proceeding is commenced. None of the provisions hereof and none of the holder's
rights or remedies under this Note on account of any past or future defaults
shall be deemed to have been waived by the holder's acceptance of any past due
payments or by any indulgence granted by the holder to Maker.
Maker and all guarantors and endorsers hereof, and their successors
and assigns, hereby waive presentment, demand, diligence, protest and notice of
every kind, and agree that they shall remain liable for all amounts due under
this Note notwithstanding any extension of time or change in the terms of
payment of this Note granted by any holder hereof, any change, alteration or
release of any property now or hereafter securing the payment hereof or any
delay or failure by the holder hereof to exercise any rights under this Note.
Maker and all guarantors and endorsers hereof, and their successors and assigns,
hereby waive the right to plead any and all statutes of limitation as a defense
to a demand under this Note to the full extent permitted by law.
This Note shall inure to the benefit of the Company, its successors
and assigns and shall bind the heirs, executors, administrators, successors and
assigns of Maker. Each reference herein to powers or rights of the Company
shall also be deemed a reference to the same power or right of such assignees,
to the extent of the interest assigned to them.
Annex A - 3
<PAGE>
In the event that any one or more provisions of this Note shall be
held to be illegal, invalid or otherwise unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
This Note shall be governed by and construed in accordance with the
laws of the State of Illinois, without giving effect to the principles thereof
relating to conflicts of law.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first written above.
--------------------------------------------
JOHN J. GREISCH
Annex A - 4
<PAGE>
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 5, 1999, by and between City Truck Holdings, Inc., a Delaware corporation
(the "Company"), and John P. Miller ("Purchaser" or "you").
RECITALS
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, 250 shares (the "Common Shares") of the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock") upon the terms and conditions set forth herein.
The Company desires to have, and Purchaser is willing to grant to the
Company, the right and option to repurchase the Common Shares under certain
circumstances upon the terms and conditions contained herein.
It is a condition precedent to the obligations of the Company under
this Agreement that Purchaser enter into (if he has not already) that certain
Stockholders' Agreement of even date herewith (the "Stockholders' Agreement")
among the Company, Brentwood Associates Buyout Fund II, L.P. (the
"Partnership"), the Purchaser and the Company's other stockholders.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Purchase and Sale; Closing.
---------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell to
-----------------
Purchaser, and Purchaser hereby agrees to purchase from the Company on the
Closing Date 250 Common Shares for $170 per share (total purchase price of
$42,500, payable $425 in cash and by delivery
<PAGE>
of Purchaser's promissory note in the form attached as Annex "A" (the "Note") in
the principal amount of $42,075.
(b) The Closing. The consummation of the purchase and sale of the Common
-----------
Shares (the "Closing") shall occur on the date of this Agreement or at such
other time as the parties may agree (the actual date being called the "Closing
Date"). At the Closing, the Company shall deliver to the Escrow Agent (as
defined in Section 5 below) the certificates evidencing the Common Shares
purchased hereunder by Purchaser.
2. Vesting of the Common Stock.
----------------------------
Twenty-five percent (25%) of the Common Shares shall become vested as
of each of December 31, 1999, 2000, 2001 and 2002. The foregoing
notwithstanding, no Common Shares shall become vested unless Purchaser has been
continuously employed by the Company, or any parent or subsidiary of the
Company, from the Closing Date until each respective date on which the Common
Shares are scheduled to vest; provided, however, that if there is a Termination
-------- -------
of Employment (as defined below), a pro rata portion of any Common Shares which
--- ----
are scheduled to vest during the calendar year in which the Termination of
Employment occurs shall become vested immediately upon Termination of Employment
(such pro rata being equal to the ratio of the number of days of employment
during the year in question to 365)
(a) As used herein, "Termination of Employment" shall mean the time when
the employee-employer relationship between Purchaser and the Company is
terminated for any reason whatsoever, with or without cause. For purposes of
this Section 2(b), and elsewhere in this Agreement in the context of employment,
the term "Company" shall mean a subsidiary or
2
<PAGE>
parent of the Company if Purchaser is then employed by such subsidiary or
parent; provided, however, that neither a transfer of Purchaser from the employ
-------- -------
of the Company to the employ of such subsidiary or parent nor the transfer of
Purchaser from the employ of such subsidiary or parent to the employ of the
Company shall be deemed a Termination of Employment.
Anything in this Agreement to the contrary notwithstanding, if the
Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), all Common Shares not previously repurchased
by the Company pursuant to Section 3 shall vest immediately prior to the
Acquisition closing date.
(b) If the outstanding Common Stock of the Company is hereafter increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any stock split,
combination of shares, dividend payable in shares, recapitalization,
reclassification or other change, then appropriate adjustment shall be made in
the number and kind of shares acquired by the Purchaser pursuant to this
Agreement, notwithstanding the vesting and escrow requirements contained herein.
Any additional share certificates issued in favor of the Purchaser as a result
of any such adjustment with respect to any of Purchaser's shares then held by
the Escrow Agent pursuant to Section 5 hereof shall be deposited with the Escrow
Agent and held in accordance with the Escrow Agreement. In addition, upon the
occurrence of any of the foregoing events, appropriate adjustment shall be made,
if necessary, in the number, kind and/or price per share of the Shares to be
purchased pursuant to Section 1(c) hereof.
3. Company Purchase Option.
------------------------
3
<PAGE>
(a) The Company shall have the unconditional right and option to purchase
any or all of the Vesting Common Shares that have not vested at a purchase price
of $170 per share (the "Option Price") upon a Termination of Employment on the
terms and conditions hereinafter provided.
(b) In addition to the rights set forth in Section 3(a), prior to an
initial public offering of Common Stock, the Company shall have the
unconditional right and option to purchase any and or all of the Vesting Common
Shares that have vested pursuant to this Agreement at a per share purchase price
equal to the Fair Market Value thereof (the "Fair Market Value Price") upon a
Termination of Employment on the terms and conditions hereinafter provided. The
Company's right and option set forth in Sections 3(a) and 3(b) is referred to
herein as the "Purchase Option."
The Purchase Option, if exercised, must be exercised no later than 60
days after a Termination of Employment. The Purchase Option may be exercised in
whole or in part. Any Common Stock which becomes subject to the Purchase Option
as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Common Stock shall at any time thereafter be subject
to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Purchaser as provided in
Section 16(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon such delivery or mailing.
Amounts due to Purchaser from the Company as a result of exercise of
4
<PAGE>
the Purchase Option shall be payable in cash (except as otherwies provided in
the Note)promptly after exercise of the Purchase Option or, in the case of ETA
Stock and/or "Catch Up Vesting", as soon as reasonably practical after
determination of whether or not any applicable Performance Criteria were met.
(d) As used herein, "Fair Market Value" shall mean the fair market value of
a share of Common Stock, representing the price a willing buyer would pay and at
which at willing seller would sell, neither under any compulsion or duress.
Initially, the parties shall attempt to agree on Fair Market Value for a period
of thirty (30) days. If they are unable to reach agreement, each of them shall
within ten (10) days nominate an independent appraiser skilled in valuing
securities similar to the Common Stock, and the two appraisers so nominated
shall appoint a third appraiser within ten (10) days. The third appraiser shall
determine Fair Market Value, and such determination shall be conclusive and
binding on all parties. Each party shall bear the costs, if any, of the
appraiser it nominates, and the parties shall share equally the costs of the
third appraiser, the Purchaser's share of which may be deducted by the Company
from any amounts payable to Purchaser if Purchaser has not otherwise paid his
portion of the third appraiser's costs.
4. Employment.
-----------
Nothing contained in this Agreement, or in any other agreement entered
into by the Company and Purchaser in connection with this Agreement, (i)
obligates the Company, or any subsidiary or parent of the Company, to continue
to employ Purchaser in any capacity whatsoever, or (ii) prohibits or restricts
the Company (or any such subsidiary or parent) from terminating the employment
of Purchaser at any time or for any reason whatsoever, with or without cause,
and Purchaser hereby acknowledges and agrees that neither the Company nor any
5
<PAGE>
other person has made any representations or promises whatsoever to Purchaser
concerning Purchaser's employment or continued employment by the Company. In
the event of any Termination of Employment, Purchaser shall have the rights set
forth herein and in his Stock Purchase Agreement dated July 10, 1998 (the
"Original Stock Purchase Agreement"), and no more.
5. Escrow of Shares.
-----------------
As security for the faithful performance of the terms of this
Agreement and for payment of the Note, and to ensure the availability for
delivery of the unvested Common Shares in case of an exercise of the Purchase
Option, the Common Shares will be deposited with a collateral/escrow agent (the
"Agent"). The Agent shall be the same one named in the joint escrow instructions
executed concurrently with your Original Stock Purchase Agreement, and you agree
that the terms of such joint escrow instructions also control with respect to
the Common Shares purchased pursuant to this Agreement. You also agree that the
Agent may use any of the stock assignments duly endorsed (with date and number
of shares blank) executed by you pursuant to your Original Stock Purchase
Agreement pursuant to the terms of those joint escrow instructions
6. Change in Capitalization.
-------------------------
If from time to time during the term of this Agreement (i) there is
any dividend of cash or property or rights to acquire same, any liquidating
dividend of cash and/or property, or any stock dividend or stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) there is (a) any consolidation, merger or sale of all, or
substantially all, of the assets of the Company or (b) a Drag-Along Sale
pursuant to the
6
<PAGE>
Stockholders' Agreement, then in such event any and all new, substituted or
additional securities or other property to which Purchaser may become entitled
by reason of his ownership of Common Shares shall immediately become subject to
this Agreement and shall assume the same status with respect to vesting as the
Common Shares upon which such dividend was paid or in substitution for which
such additional securities or property were distributed. Any cash or cash
equivalents received pursuant to this Section 6 shall be invested in
conservative, short-term interest bearing securities, and interest earned
thereon shall likewise assume the same status as to vesting. While the total
Option Price for all Common Shares subject to the Purchase Option shall remain
the same after each such event, the Option Price per Common Share upon exercise
of the Purchase Option shall be proportionately or otherwise appropriately
adjusted as determined in good faith by the Board of Directors of the Company.
7. Purchaser Representations and Agreements.
-----------------------------------------
Purchaser hereby represents and warrants, and agrees with, the Company
as set forth below.
(a) Purchaser has full power and authority to execute, deliver and perform
his obligations under this Agreement and this Agreement is a valid and binding
obligation of Purchaser, enforceable in accordance with its terms, except that
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the Shares being purchased pursuant to
this Agreement or to become an employee of the
7
<PAGE>
Company or any of its subsidiaries, and Purchaser will not enter into any such
agreement or restriction.
(b) Purchaser has received and reviewed this Agreement and all annexes and
schedules hereto, including the Stockholders' Agreement and all schedules and
exhibits attached hereto and thereto, and has received all such business,
financial and other information as he deems necessary and appropriate to enable
his to evaluate the financial risk inherent in making an investment in the
Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his own
funds for investment, for his own account, and not as a nominee or agent for any
other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof, and he has no present intention of
selling, granting participation in, or otherwise distributing any of the Shares.
Except as provided herein or pursuant to the Stockholders' Agreement, Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person, firm or corporation to sell, transfer or grant participation to such
person, firm or corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery
8
<PAGE>
requirements of the Act is available, and (iii) there is no assurance that such
an exemption from registration will ever be available or that the Shares will
ever be able to be sold.
(e) Purchaser agrees that in no event will he make a disposition of any
Shares or any interest therein, unless such Shares are registered under the Act
or unless and until (i) he shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) he shall have
furnished the Company with an opinion of counsel reasonably satisfactory in form
and content to the Company to the effect that (A) such disposition will not
require registration of such Shares under the Act or applicable state securities
laws, or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the Company shall have
waived, expressly and in writing, the provisions of clauses (i) and (ii) of this
subsection.
(f) Purchaser does not require the assistance of an investment advisor or
other purchaser representative to participate in the transactions contemplated
by this Agreement, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of his investment in
the Company, has the ability to bear the economic risks of its investment for an
indefinite period of time and has been furnished with and had access to such
information as is necessary to verify the accuracy of the information supplied
and to have all questions answered by the Company.
8. Covenants, Representations and Warranties of the Company.
---------------------------------------------------------
The Company hereby covenants, represents and warrants to Purchaser as
set forth below:
9
<PAGE>
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement by the Company have been
duly and validly authorized, and all necessary corporate action has been taken
to make this Agreement a valid and binding obligation of the Company,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(c) No approval, authorization, consent, permit or other order or action of
or filing with any bank or other lender, court, governmental department or
authority, commission, board, bureau, agency, or any other party or parties, nor
any compliance with any legally imposed waiting period, is required for the
execution and delivery by the Company of this Agreement, or the consummation by
the Company of the transactions contemplated hereby .
(d) The Company now has, and will continue to have, to and including the
date of Closing pursuant to this Agreement, the absolute right to sell, assign,
transfer and deliver the Shares pursuant to this Agreement, free and clear of
all claims, security interests, liens, pledges, charges, options, security
agreements or other agreements, arrangements, commitments, obligations or other
encumbrances of any kind (hereinafter collectively called "Claims"). Upon the
transfer of the Shares pursuant to the terms of this Agreement, the Purchaser
will have,
10
<PAGE>
except as otherwise expressly provided in this Agreement, good and marketable
title to and ownership of such Shares, free and clear of all Claims, and such
Shares are, and upon the Closing of this Agreement will be, duly authorized,
validly issued and outstanding and fully paid and nonassessable.
(e) To the best knowledge and belief of the Company, there is no action,
suit or proceeding pending or threatened against or affecting the Company in any
court or other governmental authority, or before any arbitrator of any kind,
which would adversely affect or prevent the execution and delivery by the
Company of this Agreement, or the consummation by the Company of the
transactions contemplated hereby .
9. Conditions of Parties' Obligations.
-----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Shares are also subject to the fulfillment prior to or
concurrently with the Closing of the conditions set forth below.
(a) The representations and warranties of the Purchaser and the Company
shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if any,
which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
11
<PAGE>
(c) Purchaser shall have received copies of such supporting documents as
Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by the
Stockholders' Agreement, which Stockholders' Agreement is hereby incorporated
herein as if set forth in full in this Agreement.
10. Restriction on Sale or Transfer.
--------------------------------
Except as provided herein, none of the Common Shares that have not
vested pursuant hereto (or any beneficial interest therein) shall be sold,
transferred, assigned or pledged (including transfer by operation of law) and
any attempt to make any such sale, transfer, assignment or pledge shall be null
and void and of no effect.
11. Legends.
--------
In addition to any legends required by the Stockholders' Agreement,
the certificates representing the shares of Common Stock purchased pursuant to
this Agreement will bear a legend in substantially the following form:
"The shares represented by this certificate are subject to repurchase
under certain circumstances by the issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
------------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or
12
<PAGE>
violation, the Company or Purchaser, as the case may be, shall be entitled to
injunctive relief in addition to any other remedy, at law or in equity, to which
he or it may be entitled.
13. Violation of Transfer Provisions.
---------------------------------
The Company shall not be required (a) to transfer on its books any
Common Shares which shall have been sold, transferred, assigned or pledged in
violation of any of the provisions of this Agreement or (b) to treat as owner of
such Common Shares or to accord the right to vote or to pay dividends to any
purported transferee of Common Shares in violation of any of the provisions of
this Agreement.
14. Covenant Regarding 83(b) Election.
----------------------------------
Purchaser hereby covenants and agrees that he will make an election
pursuant to Treasury Regulation 1.83-2 with respect to the Common Shares and
will furnish the Company with a copy of the form of election Purchaser has filed
and evidence that such an election has been filed in a timely manner.
15. Indemnification.
---------------
Each party hereto shall defend, hold harmless and indemnify the other
against and from any damage, loss, expense or liability, including reasonable
attorneys' fees, resulting from or arising out of the breach or default in the
performance by such party of any of the terms, covenants, representations,
warranties and conditions herein. This hold harmless and indemnification
obligation, together with the representations, warranties, covenants and
agreements of each party hereto, shall survive the termination of this Agreement
from any cause whatsoever.
16. General Provisions.
------------------
13
<PAGE>
(a) No Assignments. Except as specifically provided to the contrary in this
--------------
Agreement, neither party shall transfer, assign or encumber any of its or his
rights, privileges, duties or obligations under this Agreement without the prior
written consent of the other party, and any attempt to so transfer, assign or
encumber shall be void; provided, however, that the Company may assign this
-------- -------
Agreement and its rights hereunder in connection with an Acquisition of all of
the stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended (including by reputable overnight delivery services
which shall be deemed to have effected personal delivery) or by telecopy,
receipt of which is acknowledged by the telecopy number set forth below for the
applicable addressee, or if deposited, postage prepaid, registered or certified
mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address set forth on the
signature page hereto, or at such other address as Purchaser may specify by
written notice to the Company, or
(ii) if to the Company, addressed to City Truck Holdings, Inc., c/o
Christopher A, Laurence, Brentwood Associates, 11150 Santa Monica Boulevard,
Suite 1200 Los Angeles, California 90025, or at such other address as the
Company may specify by written notice to the Purchaser.
Each such notice, request, consent and other communication shall be
deemed to have been given upon receipt thereof as set forth above or, if sooner,
three days after deposit as
14
<PAGE>
described above. The addresses for the purposes of this Section 16(b) may be
changed by giving written notice of such change in the manner provided herein
for giving notice. Unless and until such written notice is received, the
addresses provided herein shall be deemed to continue in effect for all purposes
hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
(d) Severability. The parties hereto agree that the terms and provisions in
------------
this Agreement are reasonable and shall be binding and enforceable in accordance
with the terms hereof and, in any event, that the terms and provisions of this
Agreement shall be enforced to the fullest extent permissible under law. In the
event that any term or provision of this Agreement shall for any reason be
adjudged to be unenforceable or invalid, then such unenforceable or invalid term
or provision shall not affect the enforceability or validity of the remaining
terms and provisions of this Agreement, and the parties hereto hereby agree to
replace such unenforceable or invalid term or provision with an enforceable and
valid arrangement which in its economic effect shall be as close as possible to
the unenforceable or invalid term or provision.
(e) Parties in Interest. All of the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Purchaser unless (i) it is contained in a written document executed by the
Company and the Purchaser which specifically states that it is an amendment to
this Agreement, and, in the case of the Company,
15
<PAGE>
has been authorized by its Board of Directors. The failure at any time to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms.
(g) Integration. This Agreement constitutes the entire agreement of the
-----------
parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this Agreement
--------
have been inserted for convenience of reference only and do not constitute a
part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with the
------------
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(j) Attorneys' Fees. In the event of any controversy, claim or dispute
---------------
between the parties arising out of or relating to this Agreement, or the
enforcement of the provisions hereof, the substantially prevailing party shall
be entitled to recover its costs and expenses, including but not limited to
reasonable attorneys' fees incurred in connection herewith.
(k) Further Assurances. The parties agree to use their best efforts and act
------------------
in good faith in carrying out their obligations under this Agreement. The
parties also agree, without further consideration, to execute such further
instruments and to take such further actions as may be necessary or desirable to
carry out the purposes and intent of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the date first above written.
CITY TRUCK HOLDINGS, INC.
By
______________________________
Name:
___________________________
Title:
____________________________
PURCHASER:
_________________________________
John P. Miller
Address:
___________________________________
___________________________________
17
<PAGE>
ANNEX A
-------
PROMISSORY NOTE
$42,075.00 Deerfield, Illinois
March 5, 1999
FOR VALUE RECEIVED, the undersigned, John P. Miller (the "Maker")
promises to pay to City Truck Holdings, Inc., a Delaware corporation (the
"Company"), or order, the principal sum of Forty-Two Thousand Seventy-Five
Dollars ($42,075.00), with interest on the unpaid principal balance from time to
time outstanding, at the rate set forth below. The principal amount of this Note
and any accrued and unpaid interest under this Note, shall be due and payable on
or before the earlier of March 4, 2004, or the date on which the indebtedness
under this Note is accelerated as provided for under this Note. This Note is
issued in connection with that certain Stock Purchase Agreement of even date
herewith by and between the Company and Maker (the "Stock Purchase Agreement").
Accrued and unpaid interest shall be payable annually on March 5 of each year
and at all other times as set forth herein.
The unpaid principal balance on this Note shall bear interest at the
rate of five and 30/100 percent (5.3%) per annum.
All payments under this Note shall be made to the Company or its
order, in lawful money of the United States of America at the offices of the
Company at its then principal place of business or at such other place as the
Company or any holder hereof shall designate for such purpose from time to time.
This Note is secured pursuant to that certain Pledge Agreement of even date
herewith between the Company and Maker (the "Pledge Agreement").
This Note shall be prepaid as follows:
(a) This Note requires mandatory prepayments at the times and in the
amounts set forth in the Pledge Agreement. In addition, upon any other
disposition of any of the capital stock of the Company owned by Maker, an amount
equal to eighty percent (80%) of the gross cash proceeds of such disposition
shall be applied to prepay this Note. In addition, upon an Acquisition (as
defined in the Stock Purchase Agreement), this Note shall be prepaid in full.
Capitalized terms stated herein to be as defined in the Stock Purchase Agreement
shall have the meanings assigned therein or, if not defined therein the meanings
in the Original Stock Purchase Agreement (as such term is defined in the Stock
Purchase Agreement).
(b) An amount equal to thirty percent (30%) of any bonus paid to Maker
by the Company or any subsidiary in connection with Maker's employment shall be
applied to prepay this Note, and the Company is hereby expressly authorized to
offset (or cause any such subsidiary to offset) such amount against any bonus
otherwise payable Maker.
Annex A - 1
<PAGE>
(c) The Note shall be prepaid in full if Maker voluntarily terminates
his employment with the Company or any subsidiary of the Company .
(d) If Maker's employment by the Company or any subsidiary of the
Company is terminated by the Company or such subsidiary without "cause" (as
defined in the Stock Purchase Agreement), and if in connection with such
termination the Company elects to repurchase any of Maker's shares of common
stock of the Company pursuant to the Stock Purchase Agreement, the purchase
price for such repurchased shares may be offset by the Company against this
Note.
Each payment under this Note shall be applied in the following order:
(i) to the payment of costs and expenses provided for under this Note; (ii) to
the payment of accrued and unpaid interest; and (iii) to the payment of
outstanding principal. The Company and each holder hereof shall have the
continuing and exclusive right to apply or reverse and reapply any and all
payments under this Note.
This Note may be prepaid in whole or in part at any time, after five
days' written notice of Maker's intention to make any such prepayment, which
notice shall specify the date and amount of such prepayment. Any prepayment
shall be without penalty except that interest shall be paid to the date of
payment on the principal amount prepaid.
The occurrence of any of the following events shall constitute an
"Event of Default" hereunder: (a) failure of Maker to pay when due, whether at
its stated maturity, by declaration, acceleration, demand or otherwise, any
principal or interest due under this Note or under any other note, loan
agreement or obligation for borrowed money or for the unpaid purchase price for
goods or services; (b) (i) a court having jurisdiction in the premises shall
enter a decree or order of relief in respect of Maker in an involuntary case
under Title 11 of the United State Code entitled "Bankruptcy" (as now or
hereinafter in effect or any successor thereto, the "Bankruptcy Code") or any
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
which decree or order is not stayed; or any other similar relief shall be
granted under any applicable federal or state law; or (ii) an involuntary case
shall be commenced against Maker under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect; or the entry of a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, interim receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Maker or over all or a substantial part
of his property shall have been entered; or a warrant of attachment, execution
or similar process shall have been issued against any substantial part of the
property of Maker and, in the case of any event described in this clause (ii),
such an event shall have continued for thirty (30) days undismissed, bonded or
discharged; (c) Maker shall commence a voluntary case under the Bankruptcy Code
or any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or Maker shall make an assignment for the benefit of creditors; or
Maker shall be unable or fail, or shall admit in writing her inability to pay
her debts as such debts become due; or (d) a default shall occur under the
Pledge Agreement.
Upon the occurrence of an Event of Default, including, without
limitation, failure to make any principal or interest payment by the stated
maturity (whether by acceleration,
Annex A - 2
<PAGE>
required prepayment, notice of prepayment or otherwise) for such payment,
interest shall thereafter accrue on the entire unpaid principal balance under
this Note, including without limitation any delinquent interest which has been
added to the principal amount due under this Note pursuant to the terms hereof,
at the rate set forth herein plus two percent (2%) per annum (on the basis of a
365-day year and the actual number of days elapsed). In addition, upon the
occurrence of an Event of Default the holder of this Note may, at its option,
without notice to or demand upon Maker or any other party, declare immediately
due and payable the entire principal balance hereof together with all accrued
and unpaid interest thereon, plus any other amounts then owing pursuant to this
Note, whereupon the same shall be immediately due and payable. On each
anniversary of the date of any Event of Default and while such Event of Default
is continuing, all interest which has become payable and is then delinquent
shall, without curing the default under this Note by reason of such delinquency,
be added to the principal amount due under this Note, and shall thereafter bear
interest at the same rate as is applicable to principal, with interest on
overdue interest to bear interest, in each case to the fullest extent permitted
by applicable law, both before and after default, maturity, foreclosure,
judgment and the filing of any petition in a bankruptcy proceeding.
Notwithstanding anything in this Note to the contrary, in no event shall
interest be charged under this Note which would violate any applicable law, and
if the interest set forth in this Note would violate any law it shall be reduced
to an amount which would not violate any law.
No waiver or modification of any of the terms of this Note shall be
valid or binding unless set forth in a writing specifically referring to this
Note and signed by a duly authorized officer of the Company or any holder of
this Note, and then only to the extent specifically set forth therein.
If any Event of Default occurs, Maker and all guarantors and endorsers
hereof, and their successors and assigns, promise to pay any expenses, including
attorneys' fees, incurred by each holder hereof in collecting or attempting to
collect the indebtedness under this Note, whether or not any action or
proceeding is commenced. None of the provisions hereof and none of the holder's
rights or remedies under this Note on account of any past or future defaults
shall be deemed to have been waived by the holder's acceptance of any past due
payments or by any indulgence granted by the holder to Maker.
Maker and all guarantors and endorsers hereof, and their successors
and assigns, hereby waive presentment, demand, diligence, protest and notice of
every kind, and agree that they shall remain liable for all amounts due under
this Note notwithstanding any extension of time or change in the terms of
payment of this Note granted by any holder hereof, any change, alteration or
release of any property now or hereafter securing the payment hereof or any
delay or failure by the holder hereof to exercise any rights under this Note.
Maker and all guarantors and endorsers hereof, and their successors and assigns,
hereby waive the right to plead any and all statutes of limitation as a defense
to a demand under this Note to the full extent permitted by law.
This Note shall inure to the benefit of the Company, its successors
and assigns and shall bind the heirs, executors, administrators, successors and
assigns of Maker. Each reference herein to powers or rights of the Company
shall also be deemed a reference to the same power or right of such assignees,
to the extent of the interest assigned to them.
Annex A - 3
<PAGE>
In the event that any one or more provisions of this Note shall be
held to be illegal, invalid or otherwise unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
This Note shall be governed by and construed in accordance with the
laws of the State of Illinois, without giving effect to the principles thereof
relating to conflicts of law.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first written above.
------------------------------------
JOHN P. MILLER
Annex A - 4
<PAGE>
EXHIBIT 10.21
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
March 5, 1999, by and between City Truck Holdings, Inc., a Delaware corporation
(the "Company"), and Anthony William Cavalle ("Purchaser" or "you").
RECITALS
The Company desires to issue and sell to Purchaser, and Purchaser
desires to purchase from the Company, 250 shares (the "Common Shares") of the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock") upon the terms and conditions set forth herein.
The Company desires to have, and Purchaser is willing to grant to the
Company, the right and option to repurchase the Common Shares under certain
circumstances upon the terms and conditions contained herein.
It is a condition precedent to the obligations of the Company under
this Agreement that Purchaser enter into (if he has not already) that certain
Stockholders' Agreement of even date herewith (the "Stockholders' Agreement")
among the Company, Brentwood Associates Buyout Fund II, L.P. (the
"Partnership"), the Purchaser and the Company's other stockholders.
THEREFORE, in consideration of the premises and of the covenants and
conditions contained herein, the parties hereto agree as follows:
1. Purchase and Sale; Closing.
---------------------------
(a) Purchase and Sale. The Company hereby agrees to issue and sell to
-----------------
Purchaser, and Purchaser hereby agrees to purchase from the Company on the
Closing Date 250 Common Shares for $170 per share (total purchase price of
$42,500, payable $425 in cash and by delivery
<PAGE>
of Purchaser's promissory note in the form attached as Annex "A" (the "Note") in
the principal amount of $42,075.
(b) The Closing. The consummation of the purchase and sale of the Common
-----------
Shares (the "Closing") shall occur on the date of this Agreement or at such
other time as the parties may agree (the actual date being called the "Closing
Date"). At the Closing, the Company shall deliver to the Escrow Agent (as
defined in Section 5 below) the certificates evidencing the Common Shares
purchased hereunder by Purchaser.
2. Vesting of the Common Stock.
-----------------------------
Twenty-five percent (25%) of the Common Shares shall become vested as of
each of December 31, 1999, 2000, 2001 and 2002. The foregoing notwithstanding,
no Common Shares shall become vested unless Purchaser has been continuously
employed by the Company, or any parent or subsidiary of the Company, from the
Closing Date until each respective date on which the Common Shares are scheduled
to vest; provided, however, that if there is a Termination of Employment (as
-------- -------
defined below), a pro rata portion of any Common Shares which are scheduled to
--- ----
vest during the calendar year in which the Termination of Employment occurs
shall become vested immediately upon Termination of Employment (such pro rata
--- ----
portion being equal to the ratio of the number of days of employment during the
year in question to 365)
(a) As used herein, "Termination of Employment" shall mean the time when
the employee-employer relationship between Purchaser and the Company is
terminated for any reason whatsoever, with or without cause. For purposes of
this Section 2(b), and elsewhere in this Agreement in the context of employment,
the term "Company" shall mean a subsidiary or
2
<PAGE>
parent of the Company if Purchaser is then employed by such subsidiary or
parent; provided, however, that neither a transfer of Purchaser from the employ
-------- -------
of the Company to the employ of such subsidiary or parent nor the transfer of
Purchaser from the employ of such subsidiary or parent to the employ of the
Company shall be deemed a Termination of Employment.
Anything in this Agreement to the contrary notwithstanding, if the
Company is acquired by a third party or parties through an asset purchase,
merger or sale of more than 50% (in value) of the outstanding equity securities
of the Company (an "Acquisition"), all Common Shares not previously repurchased
by the Company pursuant to Section 3 shall vest immediately prior to the
Acquisition closing date.
(b) If the outstanding Common Stock of the Company is hereafter
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of any stock split,
combination of shares, dividend payable in shares, recapitalization,
reclassification or other change, then appropriate adjustment shall be made in
the number and kind of shares acquired by the Purchaser pursuant to this
Agreement, notwithstanding the vesting and escrow requirements contained herein.
Any additional share certificates issued in favor of the Purchaser as a result
of any such adjustment with respect to any of Purchaser's shares then held by
the Escrow Agent pursuant to Section 5 hereof shall be deposited with the Escrow
Agent and held in accordance with the Escrow Agreement. In addition, upon the
occurrence of any of the foregoing events, appropriate adjustment shall be made,
if necessary, in the number, kind and/or price per share of the Shares to be
purchased pursuant to Section 1(c) hereof.
3. Company Purchase Option.
-------------------------
3
<PAGE>
(a) The Company shall have the unconditional right and option to purchase
any or all of the Vesting Common Shares that have not vested at a purchase price
of $170 per share (the "Option Price") upon a Termination of Employment on the
terms and conditions hereinafter provided.
(b) In addition to the rights set forth in Section 3(a), prior to an
initial public offering of Common Stock, the Company shall have the
unconditional right and option to purchase any and or all of the Vesting Common
Shares that have vested pursuant to this Agreement at a per share purchase price
equal to the Fair Market Value thereof (the "Fair Market Value Price") upon a
Termination of Employment on the terms and conditions hereinafter provided. The
Company's right and option set forth in Sections 3(a) and 3(b) is referred to
herein as the "Purchase Option."
The Purchase Option, if exercised, must be exercised no later than 60
days after a Termination of Employment. The Purchase Option may be exercised in
whole or in part. Any Common Stock which becomes subject to the Purchase Option
as provided herein but with respect to which the Purchase Option is not
exercised in accordance with the terms hereof shall become fully vested upon
expiration of the period during which the Purchase Option with respect thereto
is effective, and no such Common Stock shall at any time thereafter be subject
to the Purchase Option.
(c) The Purchase Option shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to Purchaser as provided in
Section 16(c) of this Agreement and to the Escrow Agent (as defined in Section 5
hereof) as provided in the Joint Escrow Instructions (as defined in Section 5
hereof) and shall be effective immediately upon such delivery or mailing.
Amounts due to Purchaser from the Company as a result of exercise of
4
<PAGE>
the Purchase Option shall be payable in cash (except as otherwies provided in
the Note)promptly after exercise of the Purchase Option or, in the case of ETA
Stock and/or "Catch Up Vesting", as soon as reasonably practical after
determination of whether or not any applicable Performance Criteria were met.
(d) As used herein, "Fair Market Value" shall mean the fair market value
of a share of Common Stock, representing the price a willing buyer would pay and
at which at willing seller would sell, neither under any compulsion or duress.
Initially, the parties shall attempt to agree on Fair Market Value for a period
of thirty (30) days. If they are unable to reach agreement, each of them shall
within ten (10) days nominate an independent appraiser skilled in valuing
securities similar to the Common Stock, and the two appraisers so nominated
shall appoint a third appraiser within ten (10) days. The third appraiser shall
determine Fair Market Value, and such determination shall be conclusive and
binding on all parties. Each party shall bear the costs, if any, of the
appraiser it nominates, and the parties shall share equally the costs of the
third appraiser, the Purchaser's share of which may be deducted by the Company
from any amounts payable to Purchaser if Purchaser has not otherwise paid his
portion of the third appraiser's costs.
4. Employment.
-------------
Nothing contained in this Agreement, or in any other agreement entered
into by the Company and Purchaser in connection with this Agreement, (i)
obligates the Company, or any subsidiary or parent of the Company, to continue
to employ Purchaser in any capacity whatsoever, or (ii) prohibits or restricts
the Company (or any such subsidiary or parent) from terminating the employment
of Purchaser at any time or for any reason whatsoever, with or without cause,
and Purchaser hereby acknowledges and agrees that neither the Company nor any
5
<PAGE>
other person has made any representations or promises whatsoever to Purchaser
concerning Purchaser's employment or continued employment by the Company. In
the event of any Termination of Employment, Purchaser shall have the rights set
forth herein and in his Stock Purchase Agreement dated October 19, 1998 (the
"Original Stock Purchase Agreement"), and no more.
5. Escrow of Shares.
-----------------
As security for the faithful performance of the terms of this
Agreement and for payment of the Note, and to ensure the availability for
delivery of the unvested Common Shares in case of an exercise of the Purchase
Option, the Common Shares will be deposited with a collateral/escrow agent (the
"Agent"). The Agent shall be the same one named in the joint escrow
instructions executed concurrently with your Original Stock Purchase Agreement,
and you agree that the terms of such joint escrow instructions also control with
respect to the Common Shares purchased pursuant to this Agreement. You also
agree that the Agent may use any of the stock assignments duly endorsed (with
date and number of shares blank) executed by you pursuant to your Original Stock
Purchase Agreement pursuant to the terms of those joint escrow instructions
6. Change in Capitalization.
-------------------------
If from time to time during the term of this Agreement (i) there is
any dividend of cash or property or rights to acquire same, any liquidating
dividend of cash and/or property, or any stock dividend or stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) there is (a) any consolidation, merger or sale of all, or
substantially all, of the assets of the Company or (b) a Drag-Along Sale
pursuant to the
6
<PAGE>
Stockholders' Agreement, then in such event any and all new, substituted or
additional securities or other property to which Purchaser may become entitled
by reason of his ownership of Common Shares shall immediately become subject to
this Agreement and shall assume the same status with respect to vesting as the
Common Shares upon which such dividend was paid or in substitution for which
such additional securities or property were distributed. Any cash or cash
equivalents received pursuant to this Section 6 shall be invested in
conservative, short-term interest bearing securities, and interest earned
thereon shall likewise assume the same status as to vesting. While the total
Option Price for all Common Shares subject to the Purchase Option shall remain
the same after each such event, the Option Price per Common Share upon exercise
of the Purchase Option shall be proportionately or otherwise appropriately
adjusted as determined in good faith by the Board of Directors of the Company.
7. Purchaser Representations and Agreements.
-----------------------------------------
Purchaser hereby represents and warrants, and agrees with, the
Company as set forth below.
(a) Purchaser has full power and authority to execute, deliver and perform
his obligations under this Agreement and this Agreement is a valid and binding
obligation of Purchaser, enforceable in accordance with its terms, except that
the enforcement thereof may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). Purchaser is not subject to any agreement not to compete or other
restriction on his ability to acquire the Shares being purchased pursuant to
this Agreement or to become an employee of the
7
<PAGE>
Company or any of its subsidiaries, and Purchaser will not enter into any such
agreement or restriction.
(b) Purchaser has received and reviewed this Agreement and all annexes and
schedules hereto, including the Stockholders' Agreement and all schedules and
exhibits attached hereto and thereto, and has received all such business,
financial and other information as he deems necessary and appropriate to enable
his to evaluate the financial risk inherent in making an investment in the
Shares and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof.
(c) Purchaser is acquiring the Shares purchased hereunder with his own
funds for investment, for his own account, and not as a nominee or agent for any
other person, firm or corporation, and not with a view to the sale or
distribution of all or any part thereof, and he has no present intention of
selling, granting participation in, or otherwise distributing any of the Shares.
Except as provided herein or pursuant to the Stockholders' Agreement, Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person, firm or corporation to sell, transfer or grant participation to such
person, firm or corporation, with respect to any of the Shares.
(d) Purchaser understands and agrees that (i) the Shares will not be
registered under the Securities Act of 1933, as amended (the "Act"), in part
based upon an exemption from registration predicated on the accuracy and
completeness of his representations and warranties appearing herein and (ii) he
will not be permitted to sell, transfer or assign any of the Shares until they
are registered under the Act or an exemption from the registration and
prospectus delivery
8
<PAGE>
requirements of the Act is available, and (iii) there is no assurance that such
an exemption from registration will ever be available or that the Shares will
ever be able to be sold.
(e) agrees that in no event will he make a disposition of any Shares or
any interest therein, unless such Shares are registered under the Act or unless
and until (i) he shall have notified the Company of the proposed disposition and
shall have furnished the Company with a statement of the circumstances
surrounding the proposed disposition, and (ii) he shall have furnished the
Company with an opinion of counsel reasonably satisfactory in form and content
to the Company to the effect that (A) such disposition will not require
registration of such Shares under the Act or applicable state securities laws,
or (B) that appropriate action necessary for compliance with the Act and
applicable state securities laws has been taken, or (iii) the Company shall have
waived, expressly and in writing, the provisions of clauses (i) and (ii) of this
subsection.
(f) Purchaser does not require the assistance of an investment advisor or
other purchaser representative to participate in the transactions contemplated
by this Agreement, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of his investment in
the Company, has the ability to bear the economic risks of its investment for an
indefinite period of time and has been furnished with and had access to such
information as is necessary to verify the accuracy of the information supplied
and to have all questions answered by the Company.
8. Covenants, Representations and Warranties of the Company.
---------------------------------------------------------
The Company hereby covenants, represents and warrants to Purchaser as
set forth below:
9
<PAGE>
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement, to issue the Shares
and to perform its obligations hereunder.
(b) The execution and delivery of this Agreement by the Company have been
duly and validly authorized, and all necessary corporate action has been taken
to make this Agreement a valid and binding obligation of the Company,
enforceable in accordance with its terms, except that the enforcement thereof
may be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(c) No approval, authorization, consent, permit or other order or action
of or filing with any bank or other lender, court, governmental department or
authority, commission, board, bureau, agency, or any other party or parties, nor
any compliance with any legally imposed waiting period, is required for the
execution and delivery by the Company of this Agreement, or the consummation by
the Company of the transactions contemplated hereby.
(d) The Company now has, and will continue to have, to and including the
date of Closing pursuant to this Agreement, the absolute right to sell, assign,
transfer and deliver the Shares pursuant to this Agreement, free and clear of
all claims, security interests, liens, pledges, charges, options, security
agreements or other agreements, arrangements, commitments, obligations or other
encumbrances of any kind (hereinafter collectively called "Claims"). Upon the
transfer of the Shares pursuant to the terms of this Agreement, the Purchaser
will have,
10
<PAGE>
except as otherwise expressly provided in this Agreement, good and marketable
title to and ownership of such Shares, free and clear of all Claims, and such
Shares are, and upon the Closing of this Agreement will be, duly authorized,
validly issued and outstanding and fully paid and nonassessable.
(e) To the best knowledge and belief of the Company, there is no action,
suit or proceeding pending or threatened against or affecting the Company in any
court or other governmental authority, or before any arbitrator of any kind,
which would adversely affect or prevent the execution and delivery by the
Company of this Agreement, or the consummation by the Company of the
transactions contemplated hereby.
9. Conditions of Parties' Obligations.
-----------------------------------
The obligations of the Company to issue and sell, and of Purchaser to
purchase and pay for, the Shares are also subject to the fulfillment prior to or
concurrently with the Closing of the conditions set forth below.
(a) The representations and warranties of the Purchaser and the Company
shall be true and correct on and as of the Closing Date.
(b) All permits, consents, approvals, orders and authorizations, if any,
which the Company is required to obtain from, and all registrations,
qualifications, designations, declarations and filings which the Company is
required to make with, any state or Federal governmental authority of the United
States in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly obtained or made and shall be effective on and as of the Closing
Date.
11
<PAGE>
(c) Purchaser shall have received copies of such supporting documents as
Purchaser may reasonably request. The Company shall have received such
supporting documents as it may reasonably request to satisfy itself concerning
the representations of Purchaser.
(d) Purchaser shall have become a party to and agreed to be bound by the
Stockholders' Agreement, which Stockholders' Agreement is hereby incorporated
herein as if set forth in full in this Agreement.
10. Restriction on Sale or Transfer.
--------------------------------
Except as provided herein, none of the Common Shares that have not
vested pursuant hereto (or any beneficial interest therein) shall be sold,
transferred, assigned or pledged (including transfer by operation of law) and
any attempt to make any such sale, transfer, assignment or pledge shall be null
and void and of no effect.
11. Legends.
--------
In addition to any legends required by the Stockholders' Agreement,
the certificates representing the shares of Common Stock purchased pursuant to
this Agreement will bear a legend in substantially the following form:
"The shares represented by this certificate are subject to repurchase
under certain circumstances by the issuer pursuant to a Stock Purchase Agreement
between the Issuer and the initial purchaser, to which reference is made for a
fuller description of such repurchase rights."
12. Enforcement.
------------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of Section 10 hereof shall be inadequate and that,
in the event of any such breach or
12
<PAGE>
violation, the Company or Purchaser, as the case may be, shall be entitled to
injunctive relief in addition to any other remedy, at law or in equity, to which
he or it may be entitled.
13. Violation of Transfer Provisions.
---------------------------------
The Company shall not be required (a) to transfer on its books any
Common Shares which shall have been sold, transferred, assigned or pledged in
violation of any of the provisions of this Agreement or (b) to treat as owner of
such Common Shares or to accord the right to vote or to pay dividends to any
purported transferee of Common Shares in violation of any of the provisions of
this Agreement.
14. Covenant Regarding 83(b) Election.
----------------------------------
Purchaser hereby covenants and agrees that he will make an election
pursuant to Treasury Regulation 1.83-2 with respect to the Common Shares and
will furnish the Company with a copy of the form of election Purchaser has filed
and evidence that such an election has been filed in a timely manner.
15. Indemnification.
---------------
Each party hereto shall defend, hold harmless and indemnify the other
against and from any damage, loss, expense or liability, including reasonable
attorneys' fees, resulting from or arising out of the breach or default in the
performance by such party of any of the terms, covenants, representations,
warranties and conditions herein. This hold harmless and indemnification
obligation, together with the representations, warranties, covenants and
agreements of each party hereto, shall survive the termination of this Agreement
from any cause whatsoever.
16. General Provisions.
---------------------
13
<PAGE>
(a) No Assignments. Except as specifically provided to the contrary in
--------------
this Agreement, neither party shall transfer, assign or encumber any of its or
his rights, privileges, duties or obligations under this Agreement without the
prior written consent of the other party, and any attempt to so transfer, assign
or encumber shall be void; provided, however, that the Company may assign this
-------- -------
Agreement and its rights hereunder in connection with an Acquisition of all of
the stock of or all or substantially all of the assets of the Company.
(b) Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given and made and served either by personal delivery to the person
for whom it is intended (including by reputable overnight delivery services
which shall be deemed to have effected personal delivery) or by telecopy,
receipt of which is acknowledged by the telecopy number set forth below for the
applicable addressee, or if deposited, postage prepaid, registered or certified
mail, return receipt requested, in the United States mail:
(i) if to Purchaser, addressed to Purchaser at his address set forth on
the signature page hereto, or at such other address as Purchaser may specify by
written notice to the Company, or
(ii) if to the Company, addressed to City Truck Holdings, Inc., c/o
Christopher A, Laurence, Brentwood Associates, 11150 Santa Monica Boulevard,
Suite 1200 Los Angeles, California 90025, or at such other address as the
Company may specify by written notice to the Purchaser.
Each such notice, request, consent and other communication shall be
deemed to have been given upon receipt thereof as set forth above or, if sooner,
three days after deposit as
14
<PAGE>
described above. The addresses for the purposes of this Section 16(b) may be
changed by giving written notice of such change in the manner provided herein
for giving notice. Unless and until such written notice is received, the
addresses provided herein shall be deemed to continue in effect for all purposes
hereunder.
(c) Choice of Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws, and not the laws of conflicts of laws, of the
State of Delaware.
(d) Severability. The parties hereto agree that the terms and provisions
------------
in this Agreement are reasonable and shall be binding and enforceable in
accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which in its economic effect shall be as close
as possible to the unenforceable or invalid term or provision.
(e) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto.
(f) Modification, Amendment and Waiver. No modification, amendment or
----------------------------------
waiver of any provision of this Agreement shall be effective against the Company
or Purchaser unless (i) it is contained in a written document executed by the
Company and the Purchaser which specifically states that it is an amendment to
this Agreement, and, in the case of the Company,
15
<PAGE>
has been authorized by its Board of Directors. The failure at any time to
enforce any of the provisions of this Agreement shall in no way be construed as
a waiver of such provisions and shall not affect the right of any of the parties
thereafter to enforce each and every provision hereof in accordance with its
terms.
(g) Integration. This Agreement constitutes the entire agreement of the
-----------
parties with respect to the subject matter hereof and supersedes all prior
negotiations, understandings and agreements, written or oral.
(h) Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterpart with the
------------
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
(j) Attorneys' Fees. In the event of any controversy, claim or dispute
---------------
between the parties arising out of or relating to this Agreement, or the
enforcement of the provisions hereof, the substantially prevailing party shall
be entitled to recover its costs and expenses, including but not limited to
reasonable attorneys' fees incurred in connection herewith.
(k) Further Assurances. The parties agree to use their best efforts and
------------------
act in good faith in carrying out their obligations under this Agreement. The
parties also agree, without further consideration, to execute such further
instruments and to take such further actions as may be necessary or desirable to
carry out the purposes and intent of this Agreement.
[SIGNATURE PAGE TO FOLLOW]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the date first above written.
CITY TRUCK HOLDINGS, INC.
By______________________________
Name:___________________________
Title:____________________________
PURCHASER:
_________________________________
Anthony William Cavalle
Address:
___________________________________
___________________________________
17
<PAGE>
ANNEX A
-------
PROMISSORY NOTE
$42,075.00 Deerfield, Illinois
March 5, 1999
FOR VALUE RECEIVED, the undersigned, Anthony William Cavalle (the
"Maker") promises to pay to City Truck Holdings, Inc., a Delaware corporation
(the "Company"), or order, the principal sum of Forty-Two Thousand Seventy-Five
Dollars ($42,075.00), with interest on the unpaid principal balance from time to
time outstanding, at the rate set forth below. The principal amount of this Note
and any accrued and unpaid interest under this Note, shall be due and payable on
or before the earlier of March 4, 2004, or the date on which the indebtedness
under this Note is accelerated as provided for under this Note. This Note is
issued in connection with that certain Stock Purchase Agreement of even date
herewith by and between the Company and Maker (the "Stock Purchase Agreement").
Accrued and unpaid interest shall be payable annually on March 5 of each year
and at all other times as set forth herein.
The unpaid principal balance on this Note shall bear interest at the
rate of five and 30/100 percent (5.3%) per annum.
All payments under this Note shall be made to the Company or its
order, in lawful money of the United States of America at the offices of the
Company at its then principal place of business or at such other place as the
Company or any holder hereof shall designate for such purpose from time to time.
This Note is secured pursuant to that certain Pledge Agreement of even date
herewith between the Company and Maker (the "Pledge Agreement").
This Note shall be prepaid as follows:
(a) This Note requires mandatory prepayments at the times and in
the amounts set forth in the Pledge Agreement. In addition, upon any other
disposition of any of the capital stock of the Company owned by Maker, an amount
equal to eighty percent (80%) of the gross cash proceeds of such disposition
shall be applied to prepay this Note. In addition, upon an Acquisition (as
defined in the Stock Purchase Agreement), this Note shall be prepaid in full.
Capitalized terms stated herein to be as defined in the Stock Purchase Agreement
shall have the meanings assigned therein or, if not defined therein the meanings
in the Original Stock Purchase Agreement (as such term is defined in the Stock
Purchase Agreement).
(b) An amount equal to thirty percent (30%) of any bonus paid to
Maker by the Company or any subsidiary in connection with Maker's employment
shall be applied to prepay this Note, and the Company is hereby expressly
authorized to offset (or cause any such subsidiary to offset) such amount
against any bonus otherwise payable Maker.
Annex A - 1
<PAGE>
(c) The Note shall be prepaid in full if Maker voluntarily
terminates his employment with the Company or any subsidiary of the Company .
(d) If Maker's employment by the Company or any subsidiary of the
Company is terminated by the Company or such subsidiary without "cause" (as
defined in the Stock Purchase Agreement), and if in connection with such
termination the Company elects to repurchase any of Maker's shares of common
stock of the Company pursuant to the Stock Purchase Agreement, the purchase
price for such repurchased shares may be offset by the Company against this
Note.
Each payment under this Note shall be applied in the following order:
(i) to the payment of costs and expenses provided for under this Note; (ii) to
the payment of accrued and unpaid interest; and (iii) to the payment of
outstanding principal. The Company and each holder hereof shall have the
continuing and exclusive right to apply or reverse and reapply any and all
payments under this Note.
This Note may be prepaid in whole or in part at any time, after five
days' written notice of Maker's intention to make any such prepayment, which
notice shall specify the date and amount of such prepayment. Any prepayment
shall be without penalty except that interest shall be paid to the date of
payment on the principal amount prepaid.
The occurrence of any of the following events shall constitute an
"Event of Default" hereunder: (a) failure of Maker to pay when due, whether at
its stated maturity, by declaration, acceleration, demand or otherwise, any
principal or interest due under this Note or under any other note, loan
agreement or obligation for borrowed money or for the unpaid purchase price for
goods or services; (b) (i) a court having jurisdiction in the premises shall
enter a decree or order of relief in respect of Maker in an involuntary case
under Title 11 of the United State Code entitled "Bankruptcy" (as now or
hereinafter in effect or any successor thereto, the "Bankruptcy Code") or any
applicable bankruptcy, insolvency or similar law now or hereafter in effect,
which decree or order is not stayed; or any other similar relief shall be
granted under any applicable federal or state law; or (ii) an involuntary case
shall be commenced against Maker under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect; or the entry of a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, interim receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Maker or over all or a substantial part
of his property shall have been entered; or a warrant of attachment, execution
or similar process shall have been issued against any substantial part of the
property of Maker and, in the case of any event described in this clause (ii),
such an event shall have continued for thirty (30) days undismissed, bonded or
discharged; (c) Maker shall commence a voluntary case under the Bankruptcy Code
or any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or Maker shall make an assignment for the benefit of creditors; or
Maker shall be unable or fail, or shall admit in writing her inability to pay
her debts as such debts become due; or (d) a default shall occur under the
Pledge Agreement.
Upon the occurrence of an Event of Default, including, without
limitation, failure to make any principal or interest payment by the stated
maturity (whether by acceleration,
Annex A - 2
<PAGE>
required prepayment, notice of prepayment or otherwise) for such payment,
interest shall thereafter accrue on the entire unpaid principal balance under
this Note, including without limitation any delinquent interest which has been
added to the principal amount due under this Note pursuant to the terms hereof,
at the rate set forth herein plus two percent (2%) per annum (on the basis of a
365-day year and the actual number of days elapsed). In addition, upon the
occurrence of an Event of Default the holder of this Note may, at its option,
without notice to or demand upon Maker or any other party, declare immediately
due and payable the entire principal balance hereof together with all accrued
and unpaid interest thereon, plus any other amounts then owing pursuant to this
Note, whereupon the same shall be immediately due and payable. On each
anniversary of the date of any Event of Default and while such Event of Default
is continuing, all interest which has become payable and is then delinquent
shall, without curing the default under this Note by reason of such delinquency,
be added to the principal amount due under this Note, and shall thereafter bear
interest at the same rate as is applicable to principal, with interest on
overdue interest to bear interest, in each case to the fullest extent permitted
by applicable law, both before and after default, maturity, foreclosure,
judgment and the filing of any petition in a bankruptcy proceeding.
Notwithstanding anything in this Note to the contrary, in no event shall
interest be charged under this Note which would violate any applicable law, and
if the interest set forth in this Note would violate any law it shall be reduced
to an amount which would not violate any law.
No waiver or modification of any of the terms of this Note shall be
valid or binding unless set forth in a writing specifically referring to this
Note and signed by a duly authorized officer of the Company or any holder of
this Note, and then only to the extent specifically set forth therein.
If any Event of Default occurs, Maker and all guarantors and endorsers
hereof, and their successors and assigns, promise to pay any expenses, including
attorneys' fees, incurred by each holder hereof in collecting or attempting to
collect the indebtedness under this Note, whether or not any action or
proceeding is commenced. None of the provisions hereof and none of the holder's
rights or remedies under this Note on account of any past or future defaults
shall be deemed to have been waived by the holder's acceptance of any past due
payments or by any indulgence granted by the holder to Maker.
Maker and all guarantors and endorsers hereof, and their successors
and assigns, hereby waive presentment, demand, diligence, protest and notice of
every kind, and agree that they shall remain liable for all amounts due under
this Note notwithstanding any extension of time or change in the terms of
payment of this Note granted by any holder hereof, any change, alteration or
release of any property now or hereafter securing the payment hereof or any
delay or failure by the holder hereof to exercise any rights under this Note.
Maker and all guarantors and endorsers hereof, and their successors and assigns,
hereby waive the right to plead any and all statutes of limitation as a defense
to a demand under this Note to the full extent permitted by law.
This Note shall inure to the benefit of the Company, its successors
and assigns and shall bind the heirs, executors, administrators, successors and
assigns of Maker. Each reference herein to powers or rights of the Company
shall also be deemed a reference to the same power or right of such assignees,
to the extent of the interest assigned to them.
Annex A - 3
<PAGE>
In the event that any one or more provisions of this Note shall be
held to be illegal, invalid or otherwise unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
This Note shall be governed by and construed in accordance with the
laws of the State of Illinois, without giving effect to the principles thereof
relating to conflicts of law.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as
of the day and year first written above.
--------------------------------
ANTHONY WILLIAM CAVALLE
Annex A - 4
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
Actual Actual Actual Actual Actual Pro Forma
1994 1995 1996 1997 1998 1998
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss) from
continuing operations............ $4,029 $4,455 $4,348 $4,365 $ 601 $ 4,443
Rent............................ 780 1,043 1,116 1,131 1,630 3,296
Interest expense................ 77 106 722 841 6,519 17,577
------ ------ ------ ------ ------ -------
Adjusted income................... $4,886 $5,604 $6,186 $6,337 $8,750 $25,316
====== ====== ====== ====== ====== =======
Fixed Charges:
Interest expense and
amortization of debt
discount/premium............... $ 77 $ 106 $ 722 $ 841 $6,519 $17,577
Rental expense--20% of total.... 156 209 223 226 326 659
------ ------ ------ ------ ------ -------
Total applicable fixed
charges...................... $ 233 $ 315 $ 945 $1,067 $6,845 $18,236
====== ====== ====== ====== ====== =======
Ratio of earnings to fixed
charges.......................... 20.97 17.81 6.54 5.94 1.28 1.39
====== ====== ====== ====== ====== =======
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
City Truck and Trailer Parts of Alabama, Inc., an Alabama Corporation
City Truck and Trailer Parts of Alabama, L.L.C., an Alabama Limited Liability
Company
City Truck and Trailer Parts of Tennessee, Inc., a Tennessee Corporation
City Friction, Inc., an Alabama Corporation
Truck & Trailer Parts, Inc., a Georgia Corporation
Truckparts, Inc., a Connecticut Corporation
Associated Brake Supply, Inc., a California Corporation
Associated Truck Center, Inc., a California Corporation
Onyx Distribution, Inc., a California Corporation
Associated Truck Parts of Nevada, Inc., a Nevada Corporation
Freeway Truck Parts of Washington, Inc., a Washington Corporation
Tisco, Inc., a California Corporation
Tisco of Redding, Inc., a California Corporation
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our reports dated March 31, 1999, March 12, 1999, March 12, 1999, and December
30, 1998, on our audits of the financial statements and financial statement
schedule of City Truck Holdings, Inc, Stone Heavy Duty, Inc, Associated Brake
Supply, Inc. and Truck and Trailer, Inc., respectively. We also consent to the
references to our firm under the caption "Independent Accountants" and "Selected
Historical Financial and Operating Data".
PricewaterhouseCoopers LLP
Chicago, IL
April 8, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4
(No. 333-____) of our three reports, the first dated November 4, 1998, relating
to the September 30, 1998 financial statements of Connecticut Driveshaft, Inc.;
the second dated December 12, 1998 relating to the September 30, 1998 combined
financial statements of Tisco, Inc. and Tisco of Redding, Inc.; and the third
dated December 18, 1998 related to the September 30, 1997 and 1998 financial
statements of Truckparts, Inc.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
April 8, 1999
