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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 27, 1997
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REPUBLIC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-9787 73-1105145
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(Commission (IRS Employer
File Number) Identification No.)
450 East Las Olas Boulevard
Ft. Lauderdale, FL 33301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 713-5200
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N.A.
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(Former name or former address, if changed since last report)
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With respect to each contract, agreement or other document referred to
herein and filed with the Securities and Exchange Commission as an exhibit to
this report, reference is made to the exhibit for a more complete description
of the matter involved, and each such statement shall be deemed qualified in
its entirety by such reference.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 27, 1997, Republic Industries, Inc. (the "Company")
acquired in a merger transaction (the "Taormina Merger") all of the outstanding
shares of capital stock of Taormina Industries, Inc. ("Taormina"), which
provides waste collection services and owns and operates a materials recycling
facility. The Company issued an aggregate of approximately 7.4 million shares
of the Company's common stock, $.01 par value per share ("Common Stock"), in
this transaction, which will be accounted for under the pooling of interests
method of accounting. The Merger Agreement for the Taormina Merger is attached
hereto as Exhibit 2.1 and is incorporated herein by reference for all purposes.
On February 28, 1997, the Company acquired in merger transactions (the
"AAA Disposal Mergers") all of the outstanding shares of capital stock of AAA
Disposal Service, Inc. ("AAA Disposal"), which provide waste collection and
recycling services. The Company issued an aggregate of approximately 2.9
million shares of Common Stock in this transaction, which will be accounted for
under the pooling of interests method of accounting. The Merger Agreement for
the AAA Disposal Mergers is attached hereto as Exhibit 2.2 and is incorporated
herein by reference for all purposes.
On February 28, 1997, the Company acquired in merger transactions (the
"Wallace Mergers") all of the outstanding shares of capital stock of the
Wallace Automotive Group ("Wallace"), which own and operate three franchised
automotive dealerships. The Company issued an aggregate of approximately 1.7
million shares of Common Stock in this transaction, which will be accounted for
under the pooling of interests method of accounting. The Merger Agreement for
the Wallace Mergers is attached hereto as Exhibit 2.3 and is incorporated
herein by reference for all purposes.
On February 28, 1997, the Company acquired in merger transactions (the
"Maroone Merger") all of the outstanding shares of capital stock of the Maroone
Automotive Group ("Maroone"), which own and operate five franchised automotive
dealerships. The Company issued an aggregate of approximately 6.1 million
shares of Common Stock in this transaction, which will be accounted for under
the pooling of interests method of accounting. The Merger Agreement for the
Maroone Mergers is attached hereto as Exhibit 2.4 and is incorporated herein by
reference for all purposes.
On February 28, 1997, the Company acquired in merger transactions (the
"Kendall Mergers") all of the outstanding shares of capital stock of the
Kendall Automotive Group ("Kendall"), which own and operate two franchised
automotive dealerships. The Company issued an aggregate of approximately 1.2
million shares of Common Stock in this transaction, which will be accounted for
under the purchase method of accounting. The Merger Agreement for the Kendall
Mergers is attached hereto as Exhibit 2.5 and is incorporated herein by
reference for all purposes.
On February 28, 1997, the Company acquired in merger transactions (the
"York Mergers") all of the outstanding shares of capital stock of York Waste
Disposal, Inc. ("York"), which provide waste collection services. The Company
issued an aggregate of approximately 1.1 million shares of Common Stock in this
transaction, which will be accounted for under the purchase method of
accounting. The Merger Agreement for the York Mergers is attached hereto as
Exhibit 2.6 and is incorporated herein by reference for all purposes.
ITEM 5. OTHER EVENTS
REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION AND OTHER PURPOSES.
In connection with the consummation of certain acquisitions of
insignificant businesses which, in the aggregate, are significant, and in
accordance with Rule 3-05 of Regulation S-X, the Registrant is filing herewith
certain pro forma financial information relating to such consummated
acquisitions. In addition, the Registrant is filing herewith audited
supplemental consolidated financial statements which give retroactive effect to
the consummated acquisitions of National Car Rental System, Inc.; Maroone
Automotive Group; Wallace Automotive Group; Taormina Industries, Inc.; and
Carlisle Motors, Inc., all of which have been accounted for under the pooling of
interests method of accounting. Such financial information is attached hereto as
Exhibit 99 and incorporated herein by reference. Exhibit 99 is hereby
incorporated by reference into the Registrant's previously filed Registration
Statements on Forms S-3, file numbers 33-61649, 33-62489, 33-63735, 33-65289,
333-01757, 333-04269, 333-08479, 333-18009 and 333-20667, on Form S-4, file
number 333-17915 and on Forms S-8, file numbers 33-93742, 333-07623, 333-19453
and 333-20669.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements or combined financial statements of Taormina,
Wallace, Maroone and Kendall required by this Item 7(a) are incorporated
by reference herein by reference to Exhibit 99 attached hereto. The
financial statements with respect to AAA Disposal and York will be filed
by amendment within 60 days after March 14, 1997.
(b) Pro Forma Financial Information.
The pro forma financial information of Taormina, Wallace, Maroone and
Kendall required by this Item 7(b) are incorporated by reference to the
audited supplemental consolidated financial statements and the unaudited
condensed consolidated pro forma financial statements, both included in
Exhibit 99 attached hereto. The pro forma financial information with
respect to AAA Disposal and York will be filed by amendment within 60
days after March 14, 1997.
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ Michael S. Karsner
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Michael S. Karsner
Senior Vice President
and Chief Financial Officer
Date: March 14, 1997
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REPUBLIC INDUSTRIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number and
Description of Exhibit
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<S> <C>
1. None
2.1 Merger Agreement, dated as of February 3, 1997, among Republic
Industries, Inc., RI/T Merger Corp., Taormina Industries,
Inc., Taormina Revocable Inter Vivos Trust U/A/D July 26,
1983, Vincent Cosmo Taormina Revocable Inter Vivos Trust U/A/D
May 14, 1984, the C.V. Taormina Family Trust U/A/D September
16, 1980, William C. Taormina and Vincent C. Taormina
2.2 Merger Agreement, dated as of February 4, 1997 among Republic
Industries, Inc., certain wholly-owned subsidiaries of
Republic Industries, Inc., AAA Disposal Service, Inc., AAA
Commercial, Inc., AAA Recycling, Inc., AAA Maintenance, Inc.
and AAA Land and Building Co., Inc., Larry E. Edwards, the
Jeffrey L. Edwards Trust U/T/A/D April 3, 1989, the Kevin S.
Edwards Trust U/T/A/D April 3, 1989, the Mitchell G. Edwards
Trust U/T/A/D April 3, 1989, the Troy L. Edwards Trust U/T/A/D
April 3, 1989, and the Samantha L. Edwards U/T/A/D April 3,
1989
2.3 Merger and Reorganization Agreement, dated as of February 2,
1997 among Republic Industries, Inc., certain wholly-owned
subsidiaries of Republic Industries, Inc., Wallace Ford, Inc.,
Wallace Nissan, Inc., Wallace Dodge, Inc., Wallace Lincoln-
Mercury, Inc., Stuart Lincoln-Mercury, Inc., Bill Wallace
Enterprises, Inc. d/b/a Stuart Mitsubishi, Wallace Imports,
Inc., Mechanical Warranty Protection, Inc. and William L.
Wallace
2.4 Merger and Acquisition Agreement, dated as of January 12, 1997
among Republic Industries, Inc., certain wholly-owned
subsidiaries of Republic Industries, Inc., Maroone Chevrolet,
Inc., Maroone Oldsmobile, Inc., Maroone Isuzu, Inc., Maroone
Dodge, Inc., Al Maroone Ford, Inc., Maroone Car & Truck Rental
Company, Empire Warranty Corporation, Empire Warranty Holding
Company, Empire Service Agency, Inc., Quantum Premium Finance
Corporation, Alkit Enterprises, Inc., Maroone Management
Services, Limited, Maroone Dodge Pompano, Limited, Maroone
Chevrolet Ft. Lauderdale, Limited, Albert E. Maroone, Michael
E. Maroone, Katherine C. Maroone, Kathleen Hoctor, Patricia
Damoorgian, Faisal Ahmed, Maroone Isuzu, Inc., Floyd Clements
and Curtis L. Rodman
2.5 Merger Agreement, dated as of November 15, 1996 among Republic
Industries, Inc., RI/RB Merger Corp., RI/GFB Merger Corp., R&B
Holding Company d/b/a Kendall Toyota and Kendall KIA, G.F.B.
Enterprises, Inc. d/b/a Lexus of Kendall and Gerald F. Bean
2.6 Merger Agreement, dated as of February 4, 1997 among Republic
Industries, Inc., Republic Waste Companies Holding Co., RI/YWD
Merger Corp., York Waste Disposal, Inc., Scott R. Wagner,
Robert A. Kinsley, Patrick A. Kinsley, Jonathan R. Kinsley,
Christopher A. Kinsley, Timothy J. Kinsley and Robert Anthony
Kinsley
3. None
4. None
15. None
16. None
17. None
21. None
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Goldenberg, Rosenthal Friedlander, LLP
23.4 Consent of McGladrey & Pullen, LLP
24. None
27. None
99. Financial Information
</TABLE>
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EXHIBIT 2.1
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of February
3, 1997 by and among Republic Industries, Inc., a Delaware corporation
("Republic"); and RI/T Merger Corp., a California corporation and wholly-owned
subsidiary of Republic (the "Republic Merger Sub," and together with Republic,
the "Republic Companies"); Taormina Industries, Inc., a California corporation
(the "Company"); the Taormina Revocable Inter Vivos Trust under Agreement dated
July 26, 1983 and the Vincent Cosmo Taormina Revocable Inter Vivos Trust under
Agreement dated May 14, 1984 and the C.V. Taormina Family Trust under Agreement
dated September 16, 1980 ("C.V. Taormina Family Trust"), each a trust formed
under the laws of the State of California, which together constitute all of the
shareholders of the Company as of the date hereof (together, the "Shareholders":
the C.V. Taormina Family Trust to become a shareholder as a result of the
transaction contemplated by Section 5.17(b) hereof); and William C. Taormina and
Vincent C. Taormina (together, the "Taorminas"). Certain other capitalized terms
used herein are defined in Article XI and throughout this Agreement.
RECITALS
The Boards of Directors of Republic and the Company have determined
that it is in the best interests of their respective shareholders for Republic
to acquire the Company upon the terms and subject to the conditions set forth in
this Agreement. In order to effectuate the transaction, Republic has organized
the Republic Merger Sub as a wholly-owned subsidiary, and the parties have
agreed, subject to the terms and conditions set forth in this Agreement, to
merge the Republic Merger Sub with and into the Company so that the Company
continues as the surviving corporation. As a result, the Company will become a
wholly-owned subsidiary of Republic, and each of the Shareholders will be issued
certain shares of common stock of Republic.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement
and in accordance with the General Corporation Law of the State of California
(the "Corporations Code"), at the Effective Time (as defined below) Republic
Merger Sub shall be merged with and into the Company (the "Merger") pursuant to
the terms and conditions set forth in the Agreement of Merger annexed hereto as
Exhibit A (the "Agreement of Merger"). The terms and conditions of the Agreement
of Merger are incorporated herein by reference as if fully set forth herein. As
a result of the Merger, the separate corporate existence of Republic Merger Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation").
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1.2 The Closing. Subject to the terms and conditions of this Agreement,
the consummation of the Merger (the "Closing") shall take place as promptly as
practicable (and in any event within five (5) business days) after satisfaction
or waiver of the conditions set forth in Articles VI and VII, at the offices of
Republic's counsel, Akerman, Senterfitt & Eidson, P.A., Miami, Florida, or such
other time and place as the parties may otherwise agree. Each of the parties
shall use best efforts to take all actions necessary to attempt to cause the
Closing to occur on or before March 1, 1997.
1.3 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of the Company, Republic, Republic
Merger Sub, the Taorminas or the Shareholders:
(a) Pursuant to the Agreement of Merger, all of the shares of
common stock, par value $20.00 per share, of the Company (the "Company
Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive the greater
of (i) an aggregate of 6,511,935 shares of common stock, par value $.01
per share (the "Republic Common Stock") of Republic (adjusted, as
appropriate to reflect any stock split, reverse stock split or stock
dividend effected by Republic on or prior to the Effective Time); or
(ii) that number of shares of Republic Common Stock determined by
dividing Two Hundred Fifty-Two Million Four Hundred Thousand Dollars
($252,400,000) by the Average Closing Share Price, rounded off to the
nearest whole share (the greater of such amounts being referred to
herein as the "Merger Consideration"). For purposes of this Agreement,
"Average Closing Share Price" shall mean the average closing price of a
share of Republic Common Stock on the NASDAQ Stock Market for the five
(5) consecutive trading days which precede the second trading day which
is immediately prior to the Effective Date, as reported (absent
manifest error in the printing thereof) by the Wall Street Journal
(Eastern Edition), as thereafter adjusted, as appropriate, to reflect
any stock split, reverse stock split, or stock dividend effected by
Republic after the Effective Time. Notwithstanding anything to the
contrary in the foregoing, if all of the partnership interests in the
Blue Gum Partnership (as defined in Section 5.17) and the Landowner (as
defined therein) have not been acquired by the Company by the time of
Closing, then the Merger Consideration shall be reduced by a number of
shares of Republic Common Stock determined by dividing Five Million
Four Hundred Fifty Thousand Dollars ($5,450,000) by the lesser of (i)
$38.75 or (ii) the Average Closing Share Price.
(b) Each share of common stock of Republic Merger Sub issued
and outstanding at the Effective Time shall be converted into one share
of the common stock of the Surviving Corporation.
1.4 Filing of Agreement of Merger. At the time of the Closing, the
parties shall cause the Merger to be consummated by filing the duly executed
Agreement of Merger with the Secretary of State of the State of California in
accordance with the relevant provisions of the Corporations Code (the date and
time of such filing is referred to herein as the "Effective Date" or "Effective
Time").
1.5 Issuance of Republic Shares; Delivery of Certificates. At the
Effective Time, the Shareholders shall deliver the certificates representing all
issued and outstanding shares of Company Common Stock to Republic for
cancellation; and Republic shall issue to each Shareholder the shares of
Republic Common Stock issuable pursuant to Section 1.3, registered in
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the name of such Shareholder based on the number of shares of Company Common
Stock owned by such Shareholder on the Effective Date and shall deliver such
shares in the following manner: (a) Republic shall set aside and hold in
accordance with Article IX certificates for shares of Republic Common Stock
evidencing ten percent (10%) of the Merger Consideration (rounded to the nearest
whole share) (the "Held Back Shares"); and (b) Republic shall deliver to each
such Shareholder one or more certificates evidencing the balance of such shares
of Republic Common Stock. The shares of Republic Common Stock, including the
Held Back Shares, issuable by Republic in the Merger are sometimes referred to
herein as the "Republic Shares."
1.6 Accounting and Tax Treatment. The parties hereto acknowledge and
agree that the transactions contemplated hereby shall be treated as a pooling of
interest business combination by Republic for accounting purposes and as a
tax-free reorganization under Section 368 of the Code for tax purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to each of the Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereby, each of the
Republic Companies jointly and severally makes the following representations and
warranties to the Shareholders:
2.1 Corporate Status. Republic is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Republic Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. The Republic Merger Sub
is a wholly-owned subsidiary of Republic.
2.2 Corporate Power and Authority. Each of the Republic Companies has
the corporate power and authority to execute and deliver this Agreement, to
perform its respective obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all action
necessary to authorize its execution and delivery of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 Enforceability. This Agreement has been duly executed and delivered
by each of the Republic Companies and constitutes a legal, valid and binding
obligation of each of the Republic Companies, enforceable against each of the
Republic Companies in accordance with its terms, except as the same may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
2.4 Republic Common Stock. Upon consummation of the Merger and the
issuance and delivery of certificates representing the Republic Shares to the
Shareholders, the Republic Shares will be validly issued, fully paid and
non-assessable shares of Republic Common Stock. The Republic Shares will be
issued in accordance with all applicable federal and state securities laws and
in compliance with the rules of NASDAQ Stock Market-National Market.
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2.5 No Commissions. None of the Republic Companies has incurred
any obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.6 No Violation. The execution and delivery of this Agreement by the
Republic Companies and the performance by them of their respective obligations
hereunder and the consummation by them of the transactions contemplated by this
Agreement will not: (a) contravene any provision of the articles of
incorporation or bylaws of the Republic Companies; (b) violate or conflict with
any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any Governmental Authority or of any arbitration award
which is either applicable to, binding upon or enforceable against the Republic
Companies; (c) conflict with, result in any breach of, or constitute a default
(or an event which would, with the passage of time or the giving of notice or
both, constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any Contract which is applicable to, binding upon
or enforceable against the Republic Companies; (d) result in or require the
creation or imposition of any Lien upon or with respect to any of the property
or assets of the Republic Companies; or (e) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except any applicable
filings required under the HSR Act, and any SEC and other filings required to be
made by Republic.
2.7 SEC Filings. From January 1, 1996 through the date hereof, Republic
has duly and timely filed with the SEC all reports, proxy statements and other
information required to be filed by it under the Exchange Act (the "SEC
Filings"). The SEC Filings at the time of filing, did not contain any untrue
statement of a material fact or omit to state any material fact which is
necessary to make the information contained therein not misleading. Except as
disclosed in the SEC Filings prior to the date hereof, since September 30, 1996
to the date hereof, there has not been any material adverse change in the
business, financial position or results of operations of Republic.
2.8 California Laws. Republic acknowledges that it is familiar with
California Proposition 218 and with the California Integrated Waste Management
Act of 1989 (A.B. 939), and the impact such laws had or may have on the solid
waste industry in the State of California.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS,
THE TAORMINAS AND THE COMPANY
As a material inducement to each of the Republic Companies to enter
into this Agreement and to consummate the transactions contemplated hereby, each
of the Shareholders, the Taorminas and the Company jointly and severally makes
the following representations and warranties to Republic:
3.1 Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of California
and has the requisite power and authority to own or lease its properties and to
carry on its business as now being conducted. The Company is not legally
qualified to transact business as a foreign corporation in any jurisdiction and
the nature of its properties and the conduct of its business does not require
such qualification. All of the fictitious names under which the Company operates
its business are set forth on Schedule 3.1. The Company has fully complied with
all of the requirements of any statute
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governing the use and registration of fictitious names, and has the legal right
to use the names under which it operates its business. There is no pending or
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of the Company.
3.2 Power and Authority. The Company has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Company
has taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. Each of the Taorminas is an individual
residing in the State of California, and has the requisite competence and
authority to execute and deliver this Agreement, to perform his respective
obligations hereunder and to consummate the transactions contemplated hereby.
Each of the Shareholders is a grantor trust formed under the laws of the State
of California by the Taorminas, respectively, and each of the Taorminas, as the
respective trustees of the Shareholders, has the power and authority under his
or her respective trust agreement to execute and deliver this Agreement, to
cause the Shareholders to perform their respective obligations hereunder, and to
consummate the transactions contemplated hereby.
3.3 Enforceability. This Agreement has been duly executed and delivered
by the Company, the Shareholders and the Taorminas and constitutes the legal,
valid and binding obligation of each of them, enforceable against each of them
in accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
3.4 Capitalization. The Company has authorized 5,000 shares of common
stock, $20.00 par value per share, of which 790 shares are issued and
outstanding as of the date hereof, and no shares of which are held in treasury.
All of the issued and outstanding shares of capital stock of the Company (i)
have been duly authorized and validly issued and are fully paid and
non-assessable, (ii) were issued in compliance with all applicable state and
federal securities laws, and (iii) were not issued in violation of any
preemptive rights or rights of first refusal. No preemptive rights or rights of
first refusal exist with respect to the shares of capital stock of the Company
and no such rights arise by virtue of or in connection with the transactions
contemplated hereby. There are no outstanding or authorized rights, options,
warrants, convertible securities, subscription rights, conversion rights,
exchange rights or other agreements or commitments of any kind that could
require the Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital stock).
There are no outstanding stock appreciation, phantom stock, profit participation
or other similar rights with respect to the Company. There are no proxies,
voting rights or other agreements or understandings with respect to the voting
or transfer of the capital stock of the Company. The Company is not obligated to
redeem or otherwise acquire any of its outstanding shares of capital stock.
3.5 Shareholders of the Company. The Shareholders constitute all of
the holders of all issued and outstanding shares of capital stock of the Company
as of the date hereof. Each of the Taormina Revocable Inter Vivos Trust under
Agreement dated July 26, 1983 and the Vincent Cosmo Taormina Revocable Inter
Vivos Trust under Agreement dated May 14, 1984 own 395 shares of Company Common
Stock as of the date hereof, free and clear of all Liens, restrictions and
claims of any kind, except for a pledge of a total of 250 shares of Company
Common Stock to the Taormina's sister Arlene Taormina, as Trustee of the Arlene
Taormina Separate Property Trust (which will be released prior to the Closing).
As of the Closing, the C.V. Taormina Family
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Trust under Agreement dated September 16, 1980 will own less than 5% of the
total outstanding shares of the Company Common Stock, free and clear of all
Liens, restrictions and claims of any kind.
3.6 No Violation. The execution and delivery of this Agreement by the
Company, the Taorminas and the Shareholders, the performance by them of their
respective obligations hereunder and the consummation by them of the
transactions contemplated by this Agreement will not: (a) contravene any
provision of the articles of incorporation or bylaws of the Company; (b) violate
or conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against the Company, the Taorminas, the Shareholders or any of their respective
Affiliates; (c) conflict with, result in any breach of, or constitute a default
(or an event which would, with the passage of time or the giving of notice or
both, constitute a default) under, or give rise to a right to terminate, amend,
modify, abandon or accelerate, any Contract which is applicable to, binding upon
or enforceable against the Company, the Taorminas or Shareholders or any of
their respective Affiliates; (d) result in or require the creation or imposition
of any Lien upon or with respect to any of the property or assets of the
Company, the Taorminas, the Shareholders or any of their respective Affiliates;
or (e) require the consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, any court or tribunal or any
other Person, except any applicable filings required under the HSR Act, and any
SEC and other filings required to be made by Republic or as otherwise set forth
on Schedule 3.6. No statute, regulation, rule or other law related to "control
share acquisitions" or similar "antitakeover" legislation is applicable to the
transactions contemplated by this Agreement.
3.7 Records of the Company. The copies of the respective articles of
incorporation and bylaws of the Company which were provided to Republic are
true, accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company made available to Republic for
review were correct and complete in all material respects as of the date of such
review, no further entries have been made through the date of this Agreement,
such minute books contain the true signatures of the persons purporting to have
signed them. All material corporate actions taken by the Company have been duly
authorized or ratified. The stock ledgers of the Company, as previously made
available to Republic, contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of the Company.
3.8 Subsidiaries. The Company does not own, directly or indirectly, any
outstanding voting securities of or other interests in, or control, any other
corporation, partnership, joint venture or other business entity.
3.9 Financial Statements. Schedule 3.9 contains a copy of the audited
balance sheet of the Company as of December 31, 1995 and the related audited
statements of income and retained earnings and cash flows, for the fiscal year
ended on December 31, 1995, and the notes and schedules thereto, accompanied by
the unqualified report thereon of McGladrey & Pullen, LLP (the "Audited
Financial Statements"), and a copy of the unaudited balance sheet of the Company
as of December 31, 1996, and the related unaudited statements of income and
retained earnings and cash flows, for the fiscal year ended on December 31,
1996, certified by the chief financial officer of the Company (the "Unaudited
Financial Statements"). The balance sheet of the Company dated as of December
31, 1996, included in the Unaudited Financial Statements is referred to herein
as the "Current Balance Sheet," and the Audited Financial Statements and
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Unaudited Financial Statements are referred to herein as the "Financial
Statements." The Financial Statements fairly present the financial position of
the Company at each of the balance sheet dates and the results of operations and
cash flows for the periods covered thereby, and have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except as
specifically disclosed therein, and except, in the case of the Unaudited
Financial Statements, for normal year-end audit adjustments (and any adjustments
and reserves other than normal year-end audit adjustments as may be approved by
Republic, the creation of which shall not be deemed a violation of the
representations and warranties contained in Section 3.11) and the absence of
footnotes. The books and records of the Company are sufficient to permit an
audit in accordance with GAAP. There are no extraordinary items of income or
expense during the periods covered by the Financial Statements and the balance
sheets included in the Financial Statements do not reflect any writeup or
revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto.
3.10 Changes Since the Current Balance Sheet Date. Since the date of
the Current Balance Sheet of the Company, the Company has not: (a) issued any
capital stock or other securities; (b) except as set forth on Schedule 3.10,
made any distribution of or with respect to its capital stock or other
securities or purchased or redeemed any of its securities; (c) except as set
forth on Schedule 3.10, paid any bonus to or increased the rate of compensation
of any of its officers or salaried employees or amended any other terms of
employment of such persons; (d) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (e) made or obligated itself to make capital expenditures
out of the ordinary course of business consistent with past practice except for
purchases of real property, known as the Kraemer Boat Property, adjacent to the
Company's facilities in Anaheim for not more than $350,000; (f) made any payment
in respect of its liabilities other than in the ordinary course of business
consistent with past practice; (g) incurred any obligations or liabilities
(including any indebtedness) or entered into any transaction involving in excess
of $100,000 individually, or in excess of $250,000 in the aggregate for all such
transactions, out of the ordinary course of business, except for this Agreement
and the transactions contemplated hereby; (h) suffered any theft, damage,
destruction or casualty loss, not covered by insurance and for which a timely
claim was filed, in excess of $100,000 in the aggregate; (i) suffered any
extraordinary losses (whether or not covered by insurance); (j) waived,
canceled, compromised or released any rights having a value in excess of
$100,000 in the aggregate; (k) made or adopted any change in its accounting
practice or policies; (l) made any adjustment to its books and records other
than in respect of the conduct of its business activities in the ordinary course
consistent with past practice; (m) entered into any transaction with any
Affiliate; (n) entered into any written employment agreement; (o) terminated,
amended or modified any agreement involving an amount in excess of $100,000 out
of the ordinary course of business; (p) imposed any security interest or other
Lien on any of its assets other than in the ordinary course of business
consistent with past practice; (q) delayed paying any accounts payable which are
due and payable except to the extent being contested in good faith; (r) made or
pledged any charitable contribution other than in the ordinary course of
business consistent with past practice; (s) entered into any other transaction
or been subject to any event which has or is likely to have a Material Adverse
Effect on the Company; or (t) agreed to do or authorized any of the foregoing.
3.11 Liabilities of the Company. The Company does not have any
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
except: (a) to the extent reflected or taken into account in the Current Balance
Sheet and not heretofore paid or discharged; (b) to the extent specifically set
forth in or incorporated by express reference in any of the Schedules attached
hereto; (c) liabilities incurred in the ordinary course of business consistent
with past
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practice since the date of the Current Balance Sheet (none of which relates to
breach of contract, breach of warranty, tort, infringement or violation of law,
or which arose out of any action, suit, claim, governmental investigation or
arbitration proceeding); (d) normal year-end accruals (including, without
limitation, reasonable accruals for workers' compensation claims), which would
not be material in the aggregate, reclassifications and audit adjustments and
any other reserves and accruals created with the approval of Republic which
would be reflected on an audited financial statement; (e) liabilities incurred
in the ordinary course of business prior to the date of the Current Balance
Sheet which, in accordance with GAAP consistently applied, were not recorded
thereon and (f) leases being treated as operating leases and expenses rather
than being treated as capital leases. The aggregate amount of indebtedness for
borrowed money of the Company, including (i) principal and accrued but unpaid
interest, (ii) the present value of remaining payments on capitalized equipment
leases, and (iii) the debt (not in excess of $2,623,000 in the aggregate)
assumed in connection with the contribution to the Company of the Other Owned
Properties pursuant to Section 5.17 hereof, will not exceed $56,923,000 as of
the Effective Time. The Adjusted Total Stockholders' Equity of the Company will
be no less than $25,600,000, as of the Effective Time. As used herein, Adjusted
Total Stockholders' Equity shall mean the total stockholders' equity of the
Company determined in accordance with GAAP, consistently applied, but adjusted
as follows (except to the extent such adjustments have already been reflected in
total stockholders' equity of the Company):
(a) The legal and accounting fees and costs incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby (up to a maximum of $400,000) shall be added back to the Company's total
stockholders' equity;
(b) Any amounts reserved for in an audit of the Current
Balance Sheet for workers' compensation claims, environmental liabilities or any
other items, in each case which are approved by Republic in its sole discretion
(or in the case of additional workers' compensation accruals, in its reasonable
discretion), shall be added back to the Company's total stockholders' equity;
(c) The title and survey fees incurred by the Company pursuant
to Section 3.14 hereof shall be added back to the Company's total stockholders'
equity; and
(d) Adjusted Total Stockholders' Equity shall be calculated as
though the following transactions had never occurred (i.e., any impact on the
stockholders' equity of such transactions shall be reversed in calculating the
Company's stockholders' equity): (a) the transfer of Other Owned Property to the
Company and the assumption by the Company of up to $2,623,000 of liabilities
related to the Other Owned Property, (b) the transfer to the Company of the
interests in the Blue Gum Partnership (as defined in Section 5.17) and the
Landowner (as defined in Section 5.17), (c) the payment by the Company of up to
$5,450,000 to purchase the interest of Bobby Babajian, Jr. in the Blue Gum
Partnership (and to pay off all debts owed to Bobby Babajian, Jr. by Blue Gum
Partnership) and the interest of Bobby Babajian, Sr. in the Landowner and the
related acquisition of such interests, (d) the assumption and payoff of up to
$377,000 in indebtedness owed by the Blue Gum Partnership to Bobby Babajian,
Sr., (e) the return by Vincent Taormina of approximately $50,000 to the Company,
and (f) the deferred tax liability created by the termination of the
Corporation's "S" election at Closing.
3.12 Litigation. Except as set forth on Schedule 3.12, there is no
action, suit, or other legal or administrative proceeding or governmental
investigation pending, or to the Company's knowledge or either of the Taorminas'
knowledge, threatened, anticipated or contemplated against,
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by or affecting the Company, or any of its properties or assets, or affecting
the Shareholders or the Taorminas, or which questions the validity or
enforceability of this Agreement or the transactions contemplated hereby, and
there is no basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any Governmental Authority in any proceeding
to which the Company is or was a party which have not been complied with in full
or which continue to impose any material obligations on the Company.
3.13 Environmental Matters.
(a) Except as set forth on Schedule 3.13, the Company (as
defined in clause (h) below) is and has at all times been in material compliance
with all Environmental Laws (as defined in clause (h) below) governing its
business, operations, properties and assets, including, without limitation: (i)
all requirements relating to the Discharge (as defined in clause (h) below) and
Handling (as defined in clause (h) below) of Hazardous Substances (as defined in
clause (h) below) or other Waste (as defined in clause (h) below); (ii) all
requirements relating to notice, record keeping and reporting; (iii) all
requirements relating to obtaining and maintaining Licenses (as defined in
clause (h) below) for the ownership of its properties and assets and the
operation of its business as presently conducted, including Licenses relating to
the Handling and Discharge of Hazardous Substances and other Waste; and (iv) all
applicable writs, orders, judgements, injunctions, governmental communications,
decrees, informational requests or demands issued pursuant to, or arising under,
any Environmental Laws.
(b) There are no (and there is no reasonable basis for any)
non-compliance orders, warning letters, notices of violation (collectively
"Notices"), claims, suits, actions, judgments, penalties, fines, or
administrative or judicial investigations or proceedings (collectively
"Proceedings") pending or threatened against or involving the Company, or its
business, operations, properties, or assets, issued by any Governmental
Authority or third party with respect to any Environmental Laws or Licenses
issued to the Company thereunder in connection with, related to or arising out
of the ownership by the Company of its properties or assets or the operation of
its business, which have not been resolved to the satisfaction of the issuing
Governmental Authority or third party in a manner that would not impose any
obligation, burden or continuing liability on Republic or the Surviving
Corporation in the event that the transactions contemplated by this Agreement
are consummated, or which could have a Material Adverse Effect on the Company,
including, without limitation: (i) Notices or Proceedings related to the Company
being a potentially responsible party for a federal or state environmental
cleanup site or for corrective action under any applicable Environmental Laws;
(ii) Notices or Proceedings in connection with any federal or state
environmental cleanup site, or in connection with any real property or premises
where the Company has transported, transferred or disposed of other Waste; (iii)
Notices or Proceedings relating to the Company being responsible to undertake
any response or remedial actions or clean-up actions of any kind; or (iv)
Notices or Proceedings related to the Company being liable under any
Environmental Laws for personal injury, property damage, natural resource
damage, or clean up obligations.
(c) Except as set forth on Schedule 3.13, Company has not
Handled or Discharged, nor has it allowed or arranged for any third party to
Handle or Discharge, Hazardous Substances or other Waste to, at or upon: (i) any
location other than a site lawfully permitted to receive such Hazardous
Substances or other Waste; (ii) any real property currently or previously owned
or leased by the Company; or (iii) any site which, pursuant to any Environmental
Laws, (x) has been placed on the National Priorities List or its state
equivalent; or (y) the Environmental Protection Agency or the relevant state
agency or other Governmental Authority has notified the
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<PAGE> 10
Company that such Governmental Authority has proposed or is proposing to place
on the National Priorities List or its state equivalent. There has not occurred,
nor is there presently occurring, a Discharge, or threatened Discharge, of any
Hazardous Substance on, into or beneath the surface of, or adjacent to, any real
property currently or previously owned or leased by the Company in an amount
requiring a notice or report to be made to a Governmental Authority or in
violation of any applicable Environmental Laws.
(d) Schedule 3.13 identifies the operations and activities,
and locations thereof, which have been conducted or are being conducted by the
Company on any real property currently or previously owned or leased by the
Company which have involved the Handling or Discharge of Hazardous Substances.
(e) Schedule 3.13 identifies the locations to which the
Company has ever transferred, transported, hauled, moved, or disposed of Waste
and the types and volumes of Waste transferred, transported, hauled, moved, or
disposed of to each such location.
(f) Except as set forth on Schedule 3.13, the Company does not
use, nor has it used, any Aboveground Storage Tanks (as defined in clause (h)
below) or Underground Storage Tanks (as defined in clause (h) below), and there
are not now nor have there ever been any Underground Storage Tanks beneath any
real property currently or previously owned or leased by the Company that are
required to be registered under applicable Environmental Laws.
(g) Schedule 3.13 identifies: (i) all environmental audits,
assessments or occupational health studies undertaken by the Company or its
agents or, to the knowledge of the Company, undertaken by any Governmental
Authority, or any third party, relating to or affecting the Company or any real
property currently or previously owned or leased by the Company; (ii) the
results of any ground, water, soil, air or asbestos monitoring undertaken by the
Company or its agents or, to the knowledge of the Company, undertaken by any
Governmental Authority or any third party, relating to or affecting the Company
or any real property currently or previously owned or leased by the Company
which indicate the presence of Hazardous Substances at levels requiring a notice
or report to be made to a Governmental Authority or in violation of any
applicable Environmental Laws; (iii) all material written communications between
the Company and any Governmental Authority arising under or related to
Environmental Laws; and (iv) all outstanding citations issued under OSHA, or
similar state or local statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, relating to or affecting either the Company or any
real property currently or previously owned or leased by the Company.
(h) For purposes of this Section 3.13, the following terms
shall have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Aboveground Storage Tanks.
"Company" means the Company and any Affiliates.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further be defined
in any Environmental Law, into any medium including, without limitation, ground
water, surface water, soil or air.
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"Environmental Laws" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings, and changes or ordinances or judicial or administrative
interpretations thereof, or similar laws of foreign jurisdictions where the
Company conducts business, whether currently in existence or hereafter enacted
or promulgated, any of which govern (or purport to govern) or relate to
pollution, protection of the environment, public health and safety, air
emissions, water discharges, hazardous or toxic substances, solid or hazardous
waste or occupational health and safety, as any of these terms are or may be
defined in such statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings and changes or ordinances, or judicial or
administrative interpretations thereof, including, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C.
ss.9601, et seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq.
(collectively "RCRA"); the Hazardous Materials Transportation Act, as amended,
49 U.S.C. ss.1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. ss.1311,
et seq.; the Clean Air Act, as amended (42 U.S.C. ss.7401-7642); the Toxic
Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. ss.136-136y
("FIFRA"); the Emergency Planning and Community Right-to-Know Act of 1986 as
amended, 42 U.S.C. ss.11001, et seq. (Title III of SARA) ("EPCRA"); and the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.651, et
seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling, handling,
manufacturing or using, as any of such terms may further be defined in any
Environmental Law, of any Hazardous Substances or Waste.
"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, by-products,
pesticides, asbestos containing materials, petroleum or petroleum products, and
polychlorinated biphenyls, the presence of which requires investigation or
remediation under any Environmental Laws or which are or become regulated,
listed or controlled by, under or pursuant to any Environmental Laws, including,
without limitation, RCRA, CERCLA, the Hazardous Materials Transportation Act,
the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, FIFRA,
EPCRA and OSHA, or any similar state statute, or any future amendments to, or
regulations implementing such statutes, laws, ordinances, codes, rules,
regulations, orders, rulings, or decrees, or which has been or shall be
determined or interpreted at any time by any Governmental Authority to be a
hazardous or toxic substance regulated under any other statute, law, regulation,
order, code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits,
approvals and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing Underground Storage Tanks.
"Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes, liquid
wastes, recyclable materials, sludge, solid wastes, special
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wastes, used oils, white goods, and yard trash as those terms are defined under
any applicable Environmental Laws.
(i) Any matters contained in any reports or studies referenced
in Schedule 3.13 which have not been delivered to Republic's environmental
counsel prior to the date hereof shall not be deemed to be exceptions to the
representations and warranties contained in this Section 3.13. In addition, any
reserves or accruals for environmental liabilities that may have been, or may
be, created by the Company on its financial statements shall not reduce or
affect any indemnification obligation under Section 9.1 of the Shareholders or
the Taorminas with respect to such representations and warranties.
3.14 Real Estate.
(a) Schedule 3.14(a) sets forth the street address and legal
description of (A) each parcel of real estate owned by the Company as of the
date hereof (the "Company Owned Properties"), and (B) each parcel of real estate
owned by any Affiliate of the Company as of the date hereof and used in the
conduct of the business of the Company as of the date hereof, including all
parcels constituting the Blue Gum Property and Anaheim Truck Depot (the "Other
Owned Properties"). Schedule 3.14(a) also sets forth the name of the owner of
record of each of the parcels constituting the Other Owned Properties. With
respect to each parcel of the Company Owned Properties and the Other Owned
Properties (collectively, the "Owned Properties"):
(i) The Company or Affiliates of the Company
have good and marketable title to each parcel of Owned Properties, free and
clear of any Lien other than: (x) liens for real estate taxes not yet
delinquent; (y) recorded easements, covenants, and other restrictions which do
not materially impair the current use or occupancy of the property subject
thereto; and (z) encumbrances and restrictions, none of which materially impair
the current use or occupancy, which are described in the title insurance
policies relating to such properties which have been delivered to Republic, and
are listed on Schedule 3.14(a) or which are otherwise listed on Schedule
3.14(a), or which are otherwise reflected in the Current Balance Sheet and such
other covenants, conditions, easements and exceptions to title as Republic may
approve in writing (collectively, except for Deeds of Trust or Liens encumbering
Other Owned Properties, "Permitted Exceptions");
(ii) There are no pending or threatened
condemnation proceedings, suits or administrative actions relating to any of the
Owned Properties or other matters affecting adversely the current use or
occupancy thereof;
(iii) The legal descriptions for the parcels of
Owned Properties contained in the deeds thereof describe such parcels fully and
adequately; the buildings and improvements are located within the boundary lines
of the described parcels of land, are not in material violation of applicable
setback requirements, local comprehensive plan provisions, zoning laws and
ordinances (and none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), building code requirements, permits, licenses or
other forms of approval by any Governmental Authority, and do not encroach on
any easement which may burden the land; the land does not serve any adjoining
property for any purpose inconsistent with the use of the land; and the Owned
Properties are not located within any flood plain (such that a mortgagee would
require a mortgagor to obtain flood insurance) or subject to any similar type
restriction for which any permits or licenses necessary to the use thereof have
not been obtained;
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(iv) All facilities have received all approvals
of Governmental Authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been operated and
maintained in material compliance with applicable laws, ordinances, rules and
regulations;
(v) There are no Contracts granting to any
party or parties the right of use or occupancy of any portion of the parcels of
Company Owned Properties except leases entered into by the Company as the lessor
and Dartco Transmission Sales and Service Inc., Linnert Roofing, Inc.,
Medtronics Inc., Universal Alloy Corp. and Metal-Lite Inc., as lessees,
respectively, and there are no Contracts granting to any party other than the
Company the right of use or occupancy of any portion of the parcels of Other
Owned Properties;
(vi) Except as set forth in Schedule 3.14, there
are no outstanding options or rights of first refusal to purchase the parcels of
Owned Properties, or any portion thereof or interest therein;
(vii) There are no parties (other than the
Company) in possession of the parcels of Owned Properties, except as noted in
clause (v) above;
(viii) All facilities located on the parcels of
Owned Property are supplied with utilities and other services necessary for the
operation of such facilities, including gas, electricity, water, telephone,
sanitary sewer and storm sewer, all of which services are adequate in accordance
with all applicable laws, ordinances, rules and regulations, and are provided
via public roads or via permanent, irrevocable, appurtenant easements
benefitting the parcels of Owned Properties;
(ix) Each parcel of Owned Properties abuts on
and has direct, or indirect through another Owned Properties, vehicular access
to a public road, or has access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the parcel of Owned Properties; access to the
property is provided by paved public right-of-way with adequate curb cuts
available; and there is no pending or threatened termination of the foregoing
access rights; and
(x) No owner of a parcel of Owned Properties
has received notice of: (a) any condemnation proceeding with respect to any
portion of any parcel of Owned Properties or any access thereto; and no such
proceeding is contemplated by any Governmental Authority; or (b) any special
assessment which may affect any parcel of Owned Properties, and no such special
assessment is contemplated by any Governmental Authority.
(b) Schedule 3.14(b) sets forth a list of all leases, licenses
or similar agreements ("Leases") to which the Company is a party (copies of
which have previously been furnished to Republic), in each case, setting forth
(A) the lessor and lessee thereof and the date and term of each of the Leases,
and (B) the legal description, including street address, of each property
covered thereby, and (C) a brief description of the principal use of such
property by the Company (the "Leased Premises"). The Leases are in full force
and effect and have not been amended, and no party thereto is in material
default or breach under any such Lease. No event has occurred which, with the
passage of time or the giving of notice or both, would cause a material breach
of or default under any of such Leases. There is no material breach or
anticipated breach by any other party to such Leases. With respect to each such
Leased Premises:
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(i) The Company has valid leasehold interests
in the Leased Premises, free and clear of any Liens, covenants and easements or
title defects of any nature whatsoever;
(ii) The Leased Premises that are used in the
business of the Company are in the aggregate sufficient to satisfy the Company's
current normal business activities as conducted thereat;
(iii) Each of the Leased Premises: (a) has direct
access to public roads or access to public roads by means of a perpetual access
easement, such access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the Company's business as
presently conducted at such parcel; and (b) is served by all utilities in such
quantity and quality as are sufficient to satisfy the current normal business
activities as conducted at such parcel; and
(iv) The Company has not received notice of:
(a) any condemnation proceeding with respect to any portion of the Leased
Premises or any access thereto, and no such proceeding is contemplated by any
Governmental Authority; or (b) any special assessment which may affect any of
the Leased Premises, and no such special assessment is contemplated by any
Governmental Authority.
3.15 Good Title to and Condition of Assets.
(a) The Company has good and marketable title to all of its
Assets (as hereinafter defined), free and clear of any Liens or restrictions on
use except as set forth on Schedule 3.15. For purposes of this Agreement, the
term "Assets" means all of the properties and assets of the Company, other than
the Owned Properties and the Leased Premises, whether personal or mixed,
tangible or intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined) taken as a whole
currently in use or necessary for the business and operations of the Company are
in reasonable working condition for operations of the business. For purposes of
this Agreement, the term "Fixed Assets" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and fixtures used
by or located on the premises of the Company or set forth on the Current Balance
Sheet or acquired by the Company since the date of the Current Balance Sheet.
Schedule 3.15 lists the vehicles owned, leased or used by the Company. Other
than as set forth herein, the Assets are AS IS, WHERE IS, and without
representation as to merchantability or fitness for use.
3.16 Compliance with Laws.
(a) The Company is and has been in material compliance with
all laws, regulations and orders applicable to it, its business and operations
(as conducted by it now and in the past), the Assets, the Owned Properties and
the Leased Premises and any other properties and assets (in each case owned or
used by it now or in the past). Except for citations identified on Schedule
3.13, the Company has not been cited, fined or otherwise notified of any
asserted past or present failure to comply with any laws, regulations or orders
(except where such failure to comply has been cured to the satisfaction of the
relevant Governmental Authority), and no proceeding with respect to any such
violation is pending or, to the knowledge of the Company or either of the
Shareholders, threatened.
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(b) Neither the Company, nor any of its employees or agents,
has made any payment of funds in connection with the business of the Company
which is prohibited by law, and no funds have been set aside to be used in
connection with the business of the Company for any payment prohibited by law.
(c) The Company is and at all times has been in material
compliance with the terms and provisions of the Immigration Reform and Control
Act of 1986, as amended (the "Immigration Act"). With respect to each Employee
(as defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with the
Immigration Act is required, the Company has on file a true, accurate and
complete copy of: (i) each Employee's Form I-9 (Employment Eligibility
Verification Form); and (ii) all other records, documents or other papers
prepared, procured and/or retained by the Company pursuant to the Immigration
Act. The Company has not been cited, fined, served with a Notice of Intent to
Fine or with a Cease and Desist Order, nor has any action or administrative
proceeding been initiated or, to the knowledge of the Company or either of the
Shareholders, threatened against the Company, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to comply with
the Immigration Act.
(d) The Company is not subject to any Contract, decree or
injunction in which the Company is a party which restricts the continued
operation of any business of the Company or the expansion thereof to other
geographical areas, customers and suppliers or lines of business.
3.17 Labor and Employment Matters. Schedule 3.17 sets forth the name
and current rate of compensation of the employees of the Company having an
annual base salary in excess of $50,000. Except for Teamsters Local 396, which
represents approximately 300 drivers and other workers employed by the Company,
pursuant to the currently effective Collective Bargaining Agreements between the
Company and Teamsters Local 396 (collectively, the "CBA"), the Company is not a
party to or bound by any collective bargaining agreement or any other agreement
with a labor union. There has been no effort by any labor union during the 24
months prior to the date hereof to organize any employees of the Company into
one or more collective bargaining units, except Teamsters Local 952. Both the
Company and Teamsters Local 396 are currently in material compliance with the
terms and conditions of the CBA, and there is no pending or, to the knowledge of
the Company or either of the Taorminas, threatened grievances, disputes, or
arbitrations arising out of the CBA. The CBA was negotiated in good faith, at
arm's length, and was properly ratified and agreed to by the Company and the
Teamsters Local 396. Nothing in the CBA precludes the transactions contemplated
hereby provided notice is provided to the Teamsters 396, and such transactions
will not affect in any way the Company's rights or the Teamsters Local 396's
obligations as set forth in the CBA. The CBA does not violate any federal or
state law or the rights of any individuals created by federal or state law.
There is no pending or threatened labor dispute, strike or work stoppage which
affects or which may affect the business of the Company or which may interfere
with its continued operations. Neither the Company nor any agent, representative
or employee thereof has within the last 24 months committed any unfair labor
practice as defined in the National Labor Relations Act, as amended, and there
is no pending or threatened charge or complaint against the Company by or with
the National Labor Relations Board or any representative thereof. There has been
no strike, walkout or work stoppage involving any of the employees of the
Company during the 24 months prior to the date hereof. None of the Taorminas is
aware that any executive or key employee or group of employees has any plans to
terminate his, her or their employment with the Company as a result of the
Merger or otherwise. Schedule 3.17 identifies each contract, agreement or plan
of the following nature, whether formal or informal, and whether or not in
writing, to which the Company is a party or under which it has an obligation:
(a) employment agreements; (b) employee handbooks, policy
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statements and similar plans; (c) noncompetition agreements; and (d) consulting
agreements. The Company has complied in all material respects with applicable
federal and state laws, rules and regulations relating to employment, civil
rights and equal employment opportunities, including but not limited to, the
Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with
Disabilities Act, as amended.
3.18 Employee Benefit Plans.
(a) Employee Benefit Plans. Schedule 3.18 contains a list
setting forth each employee benefit plan or arrangement of the Company,
including but not limited to employee pension benefit plans, as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee
welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, whether or not described in Section 3(3) of ERISA, in
which employees, their spouses or dependents, of the Company participate
("Employee Benefit Plans") (true and accurate copies of which, together with the
most recent annual reports on Form 5500 and summary plan descriptions with
respect thereto, were furnished to Republic).
(b) Compliance with Law. With respect to each Employee Benefit
Plan: (i) except for routine benefit claims, each has been administered in all
material respects in compliance with its terms and with all applicable laws,
including, but not limited to, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"); (ii) no actions, suits, claims or disputes are pending,
or, to the knowledge of the Company or either of the Taorminas, threatened;
(iii) no audits, inquiries, reviews, proceedings, claims, or demands are pending
with any governmental or regulatory agency; (iv) except for routine benefit
claims, there are no facts which could give rise to any material liability in
the event of any such investigation, claim, action, suit, audit, review, or
other proceeding; (v) all material reports, returns, and similar documents
required to be filed with any governmental agency or distributed to any plan
participant have been duly or timely filed or distributed; and (vi) no
non-exempt "prohibited transaction" has occurred within the meaning of the
applicable provisions of ERISA or the Code.
(c) Qualified Plans. With respect to each Employee Benefit
Plan intended to qualify under Code Section 401(a), or 403(a) (i) the Internal
Revenue Service has issued a favorable determination letter, true and correct
copies of which have been furnished to Republic, that such plans are qualified
and exempt from federal income taxes; (ii) no such determination letter has been
revoked nor has revocation been threatened, nor has any amendment or other
action or omission occurred with respect to any such plan since the date of its
most recent determination letter or application therefor in any respect which
would adversely affect its qualification or materially increase its costs; (iii)
no such plan has been amended in a manner that would require security to be
provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable
event (within the meaning of Section 4043 of ERISA) has occurred, other than one
for which the 30-day notice requirement has been waived; (v) as of the Effective
Date, the present value of all liabilities that would be "benefit liabilities"
under Section 4001(a)(16) of ERISA if benefits described in Code Section
411(d)(6)(B) were included will not exceed the then current fair market value of
the assets of such plan (determined using the actuarial assumptions used for the
most recent actuarial valuation for such plan); (vi) all contributions to, and
payments from and with respect to such plans, which may have been required to be
made in accordance with such plans and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made; and (vii)
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all such contributions to the plans, and all payments under the plans (except
those to be made from a trust qualified under Section 401(a) of the Code) and
all payments with respect to the plans (including, without limitation, PBGC (as
defined below) insurance premiums) for any period ending before the Effective
Date that are not yet, but will be, required to be made are properly accrued and
reflected on the Current Balance Sheet.
(d) Multiemployer Plans. With respect to any multiemployer
plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan"): (i) all
contributions required to be made with respect to employees of the Company have
been timely paid; (ii) the Company has not incurred or is not expected to incur,
directly or indirectly, any withdrawal liability under ERISA with respect to any
such plan (whether by reason of the transactions contemplated by the Agreement
or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under
ERISA to each MPPA Plan, (B) the date as of which such amount was calculated,
and (C) the method for determining the withdrawal liability; and (iv) no such
plan is (or is expected to be) insolvent or in reorganization and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists or is expected to exist with respect to any
such plan.
(e) Welfare Plans. (i) The Company is not obligated under any
employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare
Plan") to provide medical or death benefits with respect to any employee or
former employee of the Company or its predecessors after termination of
employment; (ii) the Company has complied with the notice and continuation
coverage requirements of Section 4980B of the Code and the regulations
thereunder with respect to each Welfare Plan that is, or was during any taxable
year for which the statute of limitations on the assessment of federal income
taxes remains, open, by consent or otherwise, a group health plan within the
meaning of Section 5000(b)(1) of the Code; and (iii) there are no reserves,
assets, surplus or prepaid premiums under any Welfare Plan which is an Employee
Benefit Plan. Except for routine benefit claims, the consummation of the
transactions contemplated by this Agreement will not entitle any individual to
severance pay, and, will not accelerate the time of payment or vesting, or
increase the amount of compensation, due to any individual.
(f) Controlled Group Liability. Neither the Company, nor any
entity that would be aggregated with it under Code Section 414(b), (c), (m) or
(o): (i) has ever terminated or withdrawn from any employee benefit plan under
circumstances resulting (or expected to result) in liability to the Pension
Benefit Guaranty Corporation ("PBGC"), the fund by which the employee benefit
plan is funded, or any employee or beneficiary for whose benefit the plan is or
was maintained (other than routine claims for benefits); (ii) has any assets
subject to (or expected to be subject to) a lien for unpaid contributions to any
employee benefit plan; (iii) has failed to pay premiums to the PBGC when due;
(iv) is subject to (or expected to be subject to) an excise tax under Code
Section 4971; (v) has engaged in any transaction which would give rise to
liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated
Code Section 4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit Plans
obligates the Company to pay separation, severance, termination or similar
benefits solely as a result of any transaction contemplated by this Agreement or
solely as a result of a "change of control" (as such term is defined in Section
280G of the Code); (ii) all required or discretionary (in accordance with
historical practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Effective Date shall have
been made or properly accrued on
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the Current Balance Sheet or will be properly accrued on the books and records
of the Company as of the Effective Date; and (iii) none of the Employee Benefit
Plans has any unfunded liabilities which are not reflected on the Current
Balance Sheet or the books and records of the Company.
3.19 Tax Matters. All Tax Returns required to be filed prior to the
date hereof with respect to the Company or any of its income, properties,
franchises or operations have been timely filed, each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all such
Tax Returns are true and accurate in all material respects. All Taxes due and
payable by or with respect to the Company have been paid and are accrued on the
Current Balance Sheet or will be accrued on its books and records as of the
Closing. Except as set forth in Schedule 3.19 hereto: (i) no Tax Return has been
audited by the relevant taxing authority within the last four years; (ii) no
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Taxes has been asserted or assessed by any taxing
authority against the Company; (iii) the Company has not consented to extend the
time in which any Taxes may be assessed or collected by any taxing authority;
(iv) the Company has not requested or been granted an extension of the time for
filing any Tax Return to a date later than the Effective Time; (v) there is no
action, suit, taxing authority proceeding, or audit or claim for refund now in
progress, pending or threatened against or with respect to the Company regarding
Taxes; (vi) the Company has not made an election or filed a consent under
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign law) on or prior to the Effective Time; (vii) there are no Liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
the Company; (viii) the Company will not be required (A) as a result of a change
in method of accounting for a taxable period ending on or prior to the Effective
Date, to include any adjustment under Section 481(c) of the Code (or any
corresponding provision of state, local or foreign law) in taxable income for
any taxable period (or portion thereof) beginning after the Effective Time or
(B) as a result of any "closing agreement," as described in Section 7121 of the
Code (or any corresponding provision of state, local or foreign law), to include
any item of income or exclude any item of deduction from any taxable period (or
portion thereof) beginning after the Effective Time; (ix) after validly filing
its election in 1990 for "S" corporation status under the Code, the Company has
not been a member of an affiliated group (as defined in Section 1504 of the
Code) or filed or been included in a combined, consolidated or unitary income
Tax Return; (x) the Company is not a party to or bound by any tax allocation or
tax sharing agreement or has any current or potential contractual obligation to
indemnify any other Person with respect to Taxes; (xi) no taxing authority will
claim or assess any additional Taxes against the Company for any period for
which Tax Returns have been filed; (xii) the Company has not made any payments,
and will not become obligated (under any contract entered into on or before the
Effective Date) to make any payments, that will be non-deductible under Section
280G of the Code (or any corresponding provision of state, local or foreign
law); (xiii) the Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code (or any
corresponding provision of state, local or foreign law) during the applicable
period specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law); (xiv) no claim has ever been made by
a taxing authority in a jurisdiction where the Company does not file Tax Returns
that such company is or may be subject to Taxes assessed by such jurisdiction;
and (xv) the Company does not have any permanent establishment in any foreign
country, as defined in the relevant tax treaty between the United States of
America and such foreign country; (xvi) true, correct and complete copies of all
income and sales Tax Returns filed by or with respect to the Company for the
past three years have been furnished or made available to Republic; (xvii) the
Company will not be subject to any Taxes for the period ending at the Effective
Time for any period for which a Tax Return has not been filed imposed pursuant
to Section 1374 or Section 1375 of the Code (or any corresponding provision of
state, local or
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foreign law); (xviii) no sales or use tax, non-recurring intangibles tax,
documentary stamp tax or other excise tax (or comparable tax imposed by any
governmental entity) will be payable by Republic by virtue of the transactions
completed in this Agreement; and (xix) the Company has duly and validly filed an
election for "S" corporation status under the Code, and such "S" election has
not been revoked or terminated and neither the Company nor the Shareholders have
taken any action which would cause a termination of such "S" election.
3.20 Insurance. The Company is covered by valid, outstanding and
enforceable policies of insurance covering its respective properties, assets and
businesses against risks of the nature normally insured against by corporations
in the same or similar lines of business and in coverage amounts reasonable in
light of the Company's historical claims experience (the "Insurance Policies").
Such Insurance Policies are in full force and effect, and all premiums due
thereon have been paid. As of the Effective Time, each of the Insurance Policies
will be in full force and effect. None of the Insurance Policies will lapse or
terminate as a result of the transactions contemplated by this Agreement. The
Company has complied in all material respects with the provisions of such
Insurance Policies. The Company has not failed to give, in a timely manner, any
notice required under any of the Insurance Policies to preserve its rights
thereunder.
3.21 Receivables. All of the Receivables (as hereinafter defined) are
valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of the Company. All of the Receivables are good and
collectible receivables, without setoff or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the Current Balance Sheet
as reasonably adjusted since the date of the Current Balance Sheet in the
ordinary course of business consistent with past practice. For purposes of this
Agreement, the term "Receivables" means all receivables of the Company,
including, without limitation, all trade account receivables arising from the
provision of services, sale of inventory, notes receivable, and insurance
proceeds receivable.
3.22 Licenses and Permits. The Company possesses all material licenses
and required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including with
respect to the operation of each of the Owned Properties and Leased Premises.
All such Permits are valid and in full force and effect, the Company is in full
compliance with the respective requirements thereof, and no proceeding is
pending or, to the knowledge of the Company or either of the Taorminas,
threatened to revoke or amend any of them. None of such Permits is or will be
impaired or in any way affected by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
3.23 Adequacy of the Assets; Relationships with Customers and
Suppliers; Affiliated Transactions. The Assets, Owned Properties and Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of the Company in the manner in which
and to the extent to which such business is currently being conducted. No
current supplier to the Company of items essential to the conduct of its
business has threatened to terminate its business relationship with it for any
reason. Except for the Blue Gum Partnership and for the leases by the
Shareholders or the Taorminas of certain of the Other Owned Properties to the
Company, the Company does not have any direct or indirect interest in any
customer, supplier or competitor of the Company, or in any person from whom or
to whom the Company leases real or personal property as of the date hereof and
no officer, director or shareholder of the Company, nor any person related by
blood or marriage to any such person, nor any entity in which any such person
owns any beneficial interest, is a party to any Contract or transaction with the
Company or has any interest in any property used by the Company as of the date
hereof.
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3.24 Intellectual Property. The Company has full legal right, title and
interest in and to, or the right to use, all trademarks, service marks, trade
names, copyrights, know-how, patents, trade secrets, licenses (including
licenses for the use of computer software programs), and other intellectual
property used in the conduct of its business including, without limitation, the
"Program" defined below (the "Intellectual Property"). The conduct of the
business of the Company as presently conducted, and such conduct and such use
and exploitation of the Intellectual Property, does not infringe or
misappropriate in any material respect any rights held or asserted by any
Person, and to the Company's and each Shareholder's knowledge, no Person is
infringing on the Intellectual Property. No payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or, to the knowledge of the Company or either of the Shareholders,
threatened action for opposition, cancellation, declaration, infringement, or
invalidity, unenforceability or misappropriation or like claim, action or
proceeding. The Company owns all right, title and interest in and to the
accounting software program used by it and any copyrighted or copyrightable
source or object code, component, module, and documentation related thereto (the
"Program") free and clear of any liens or claims or right of any other Person
(including those employees and independent contractors who helped in the
development thereof or any upgrades, modifications and other versions thereto)
and has the sole and exclusive right to the use thereof. No payments to third
parties are required for the continued use of the Program.
3.25 Contracts. Schedule 3.25 sets forth a list of each Contract to
which the Company is a party or by which it or its properties and assets are
bound and which is material to its business, assets, properties or prospects
(the "Designated Contracts"), true and correct copies of which have been
provided to Republic. The copy of each Designated Contract furnished to Republic
is a true and complete copy of the document it purports to represent and
reflects all amendments thereto made through the date of this Agreement. The
Company has not violated any of the material terms or conditions of any
Designated Contract or any term or condition which would permit termination or
material modification of any Designated Contract, and all of the material
covenants to be performed by any other party thereto have been performed in all
material respects and there are no claims for breach or indemnification or
notice of default or termination under any Designated Contract. No event has
occurred which constitutes, or after notice or the passage of time, or both,
would constitute, a material default by the Company under any Designated
Contract, and to the knowledge of the Company and the Taorminas, no such event
has occurred which constitutes or would constitute a material default by any
other party. The Company is not subject to any liability or payment resulting
from renegotiation of amounts paid it under any Designated Contract. As used in
this Section, Designated Contracts shall include, without limitation: (a) loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements, equipment
financing obligations or guaranties, or other sources of contingent liability in
respect of any indebtedness or obligations to any other Person, or letters of
intent or commitment letters with respect to same; (b) contracts obligating the
Company to provide products or services for a period of one year or more,
excluding standard waste collection and disposal contracts entered into in the
ordinary course of business without material modification from the preprinted
forms used by the Company in the ordinary course of its business; (c) leases of
real property, and leases of personal property not cancelable without penalty on
notice of sixty (60) days or less or calling for payment of an annual gross
rental exceeding Fifty Thousand Dollars ($50,000.00); (d) distribution, sales
agency or franchise or similar agreements, or agreements providing for an
independent contractor's services, or letters of intent with respect to same;
(e) employment agreements, management service agreements, consulting agreements,
confidentiality agreements, non-competition agreements and
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any other agreements relating to any employee, officer or director of the
Company; (f) licenses, assignments or transfers of trademarks, trade names,
service marks, patents, copyrights, trade secrets or know how, or other
agreements regarding proprietary rights or intellectual property; (g) any
Contract relating to pending capital expenditures by the Company; and (h) other
material Contracts or understandings, irrespective of subject matter and whether
or not in writing, not entered into in the ordinary course of business by the
Company and not otherwise disclosed on the Schedules.
3.26 Customer Lists. Schedule 3.26 is a true, correct and
complete list of all existing customers of the Company who each individually
accounted for more than 1% of the Company's annual revenue in 1996.
3.27 Accuracy of Information Furnished. No representation, statement or
information made or furnished by the Company, the Taorminas, or the Shareholders
to Republic or any of Republic's representatives in this Agreement and the
various Schedules attached hereto and the other information and statements
referred to herein and previously furnished by the Company, the Taorminas, and
the Shareholders, contains or shall contain any untrue statement of a material
fact or omits or shall omit any material fact necessary to make the information
contained therein not misleading. The Company, the Taorminas, or the
Shareholders have provided Republic with true, accurate and complete copies of
all documents listed or described in the various Schedules attached hereto
(except for the items set forth on Schedule 3.13).
3.28 Investment Intent; Accredited Investor Status; Securities
Documents. Each of the Shareholders (and the C.V. Taormina Family Trust to the
extent it becomes a shareholder of the Company pursuant to Section 5.17(b)) is
acquiring the Republic Shares hereunder for its own account for investment and
not with a view to, or for the sale in connection with, any distribution of any
of the Republic Shares, except in compliance with applicable state and federal
securities laws. Each of the Shareholders and the Taorminas and Arlene Taormina
has had the opportunity to discuss the transactions contemplated hereby with
Republic and has had the opportunity to obtain such information pertaining to
the Republic Companies as has been requested, including but not limited to
filings made by Republic with the SEC under the Exchange Act. Each of the
Shareholders and the Taorminas and Arlene Taormina is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act, and has
such knowledge and experience in business or financial matters that they are
capable of evaluating the merits and risks of an investment in the Republic
Shares.
3.29 Bank Accounts; Business Locations. Schedule 3.29 sets forth all
accounts of the Company with any bank, broker or other depository institution,
and the names of all persons authorized to withdraw funds from each such
account. As of the date hereof, the Company has no office or place of business
other than as identified on Schedules 3.14(a) and 3.14(b) and the Company's
principal places of business and chief executive offices are indicated on
Schedule 3.14(a) or 3.14(b), and, except for equipment leased to customers in
the ordinary course of business, all locations where the equipment, inventory,
chattel paper and books and records of the Company is located as of the date
hereof are fully identified on Schedules 3.14(a) and 3.14(b).
3.30 Names; Prior Acquisitions. The Company has not changed its name or
used any assumed or fictitious name except as set forth on Schedule 3.1, or been
the surviving entity in a merger, acquired any business or changed its principal
place of business or chief executive office, within the past three years.
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3.31 No Commissions. Neither the Company, the Taorminas nor the
Shareholders has incurred any obligation for any finder's or broker's or agent's
fees or commissions or similar compensation in connection with the transactions
contemplated hereby.
3.32 Certain Accounting Matters. Neither the Company, the Taorminas nor
any of the Shareholders, nor any of their respective Affiliates, has taken or
agreed to take any action that (without regard to any action taken or agreed to
be taken by Republic or any of its Affiliates) would prevent Republic from
accounting for the transactions contemplated hereby as a pooling of interest
business combination.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, between the date of this Agreement and the Effective
Time, the business of the Company shall be conducted only in, and the Company
shall not take any action except in, the ordinary course of business, consistent
with past practice. The Company shall use its best efforts to preserve intact
its business organization, to keep available the services of its current
officers, employees and consultants, and to preserve its present relationships
with customers, suppliers and other persons with which it has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, the Company shall not, between the date of this
Agreement and the Effective Time, directly or indirectly, do or propose or agree
to do any of the following without the prior written consent of Republic:
(a) amend or otherwise change its articles of incorporation
or bylaws or equivalent organizational documents;
(b) (i) issue, sell, pledge, dispose of, or encumber, or,
authorize the issuance, sale, pledge, disposition, or encumbrance of any shares
of its capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest, of it (except the Company may issue
additional shares of Company Common Stock to the Shareholders in accordance with
Section 5.17 and 5.18); or (ii) sell, pledge, dispose of, or encumber, or
authorize the sale, pledge, disposition or encumbrance of its assets, tangible
or intangible, except in the ordinary course of business consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock or pay any bonuses to the Shareholders or the Taorminas;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or
shares of stock, by merger, consolidation, or acquisition of stock or assets)
any interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase of
stock or securities, contributions of capital or property transfer, or, except
in the ordinary course of business, consistent with past practice, purchase any
property
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or assets of any other Person (except as provided for in Sections 5.17 and
5.18); (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume (except as provided for in Sections 5.17 and 5.18),
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any Person, or make any loans or advances; or (iii) enter
into any Contract other than in the ordinary course of business, consistent with
past practice;
(f) increase the compensation payable or to become payable to
its officers or employees, or, except as presently bound to do, grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any of its directors, officers or other employees, or establish,
adopt, enter into or amend or take any action to accelerate any rights or
benefits which any collective bargaining, bonus, profit sharing, trust,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors, officers or
employees;
(g) take any action other than in the ordinary course of
business and in a manner consistent with past practice with respect to
accounting policies or procedures;
(h) pay, discharge or satisfy any existing claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(i) increase or decrease prices charged to its customers,
except for previously announced or contracted price changes, or take any other
action which might reasonably result in any material increase in the loss of
customers through non-renewal or termination of service contracts or other
causes;
(j) except in accordance with Section 5.17 and 5.18, enter
into any transaction with an Affiliate, whether or not in the ordinary course
of business; or
(k) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any representation or
warranty in Article III untrue or incorrect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 Compliance with Covenants. The Shareholders and the Taorminas
shall cause the Company to comply with all of the respective covenants of the
Company under this Agreement,
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and the Taorminas, as the respective trustees of the Shareholders, shall cause
the Shareholders to comply with all of their respective covenants under this
Agreement.
5.3 Cooperation. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of any exchange on which the Republic
Common Stock is listed or The Nasdaq Stock Market in connection with the
transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions.
5.4 HSR Act and Other Actions. Each of the parties hereto shall: (a)
make promptly (and in no event later than five (5) business days following the
date hereof) its respective filings, and thereafter make any other required
submissions, under the HSR Act, with respect to the transactions contemplated
hereby; and (b) use its reasonable best efforts to take, or cause to be taken,
all appropriate actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated herein, including, without limitation,
using its best efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of any Governmental Authority and
parties to Contracts with the Company as are necessary for the consummation of
the transactions contemplated hereby. Each of parties shall make on a prompt and
timely basis all governmental or regulatory notifications and filings required
to be made by it for the consummation of the transactions contemplated hereby.
The parties also agree to use best efforts to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the transactions
contemplated hereby and to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby.
5.5 Access to Information. From the date hereof to the Effective Time,
the Company shall (and shall cause its directors, officers, employees, auditors,
counsel and agents) to afford Republic and Republic's officers, employees,
auditors, counsel and agents reasonable access at all reasonable times to its
properties, offices, and other facilities, to its officers and employees and to
all books and records, and shall furnish such persons with all financial,
operating and other data and information as may be reasonably requested. No
information provided to or obtained by Republic shall affect any representation
or warranty in this Agreement.
5.6 Notification of Certain Matters. The Taorminas shall give prompt
notice to Republic of the occurrence or non-occurrence of any event which would
likely cause any representation or warranty contained herein to be untrue or
inaccurate, or any covenant, condition, or agreement contained herein not to be
complied with or satisfied.
5.7 Tax and Accounting Treatment. Republic, the Company, the Taorminas
and the Shareholders will use their respective best efforts to cause the Merger
to qualify as a reorganization under the provisions of Section 368(a) of the
Code and do not presently intend to take any action after the Merger is effected
to cause the Merger to lose its tax-free status. All parties hereto agree to
file the Agreement of Merger with its respective federal income tax returns for
the year in which the Merger is effective, if applicable, and to comply with the
reporting requirements of Treasury Regulation 1.368-3. In addition, the Company,
the Taorminas and the Shareholders shall not take any action after the date
hereof to cause the Merger contemplated hereby not to be accounted for as a
pooling of interests business combination.
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5.8 Confidentiality; Publicity. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof, or use or
disclose to any third party any information, documents or materials disclosed or
produced hereunder, without the prior consent of the other parties hereto. No
press release or other public announcement related to this Agreement or the
transactions contemplated hereby shall be issued by any party hereto without the
prior approval of the other parties, except that Republic may make such public
disclosure which it believes in good faith to be required by law or by the terms
of any listing agreement with or requirements of a securities exchange (in which
case Republic will consult with an officer of the Company prior to making such
disclosure). In the event of termination of this Agreement, the parties hereto
shall promptly return all documents, including all copies thereof.
5.9 No Other Discussions. The Company, the Shareholders, the Taorminas
and their respective Affiliates, employees, agents and representatives will not:
(a) initiate, encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale of
stock or otherwise); or (b) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions. The Taorminas
will immediately notify Republic if any third party attempts to initiate any
solicitation, discussion or negotiation with respect to any of the foregoing
transactions.
5.10 Restrictive Covenants. In order to assure that Republic will
realize the benefits of the Merger, each of the Taorminas jointly and severally
agrees with Republic that he will not after the Effective Time:
(a) for a period of six years as to Orange County, California,
and for a period of three years as to all other Counties listed below, directly
or indirectly, alone or as a partner, joint venturer, officer, director,
employee, consultant, agent, independent contractor or stockholder of any
company or business, engage in any business activity in Orange, San Bernardino,
Los Angeles, San Diego, Ventura, or Riverside Counties, California, which is
directly or indirectly in competition with the business conducted by the Company
at the Effective Time; provided, however, that, the beneficial ownership of less
than five percent (5%) of the shares of stock of any corporation having a class
of equity securities actively traded on a national securities exchange or
over-the-counter market shall not be deemed, in and of itself, to violate the
prohibitions of this Section;
(b) directly or indirectly: (i) induce any Person which is a
customer of or supplier to the Company at the Effective Time to patronize any
business directly or indirectly in competition with the business conducted by
the Company; (ii) canvass, solicit or accept from any Person which is a customer
of the Company, any such competitive business; or (iii) request or advise any
Person which is a customer of the Company at the Effective Time to withdraw,
curtail or cancel any such customer's or supplier's business with the Company or
its successors;
(c) directly or indirectly employ, or knowingly permit any
company or business directly or indirectly controlled by him, to employ, any
person who was employed by the Company at or within six months prior to the
Effective Time, or in any manner seek to induce any such person to leave his or
her employment (other than as to the Taorminas or Glenn Nygard); and
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(d) except for the benefit of the Company, directly or
indirectly, at any time following the Effective Time, in any way utilize,
disclose, copy, reproduce or retain in his possession the Company's proprietary
rights or records, including, but not limited to, any of its customer lists.
The Taorminas agree and acknowledge that the restrictions
contained in this Section are reasonable in scope of activity, duration of time,
and geographic area, and are necessary to protect Republic after the Effective
Time. If any provision of this Section as applied to any party or to any
circumstance is adjudged by a court to be invalid or unenforceable, the same
will in no way affect any other circumstance or the validity or enforceability
of this Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall have
the power to reduce the duration and/or area of such provision, and/or to delete
specific words or phrases, and in its reduced form, such provision shall then be
enforceable and shall be enforced. The parties agree and acknowledge that the
breach of this Section will cause irreparable damage to Republic and upon breach
of any provision of this Section, Republic shall be entitled to injunctive
relief, specific performance or other equitable relief; provided, however, that,
this shall in no way limit any other remedies which Republic may have
(including, without limitation, the right to seek monetary damages).
The provisions of this Section 5.10 are in addition to any
restrictive covenants set forth in any employment agreement entered into by
either of the Taorminas.
5.11 Due Diligence Review and Environmental Assessment. Republic shall
be entitled to conduct prior to Closing a due diligence review of the assets,
properties, books and records of the Company and an environmental assessment of
the Owned Properties and Leased Premises (hereinafter referred to as
"Environmental Assessment"). The Environmental Assessment may include, but not
be limited to, a physical examination of the Owned Properties or Leased
Premises, and any structures, facilities, or equipment located thereon, soil
samples, ground and surface water samples, storage tank testing, review of
pertinent records (including, but not limited to, off-site disposal records and
manifests), documents, and Licenses of the Company. The Company, the Taorminas,
the Shareholders and their Affiliates shall provide Republic or its designated
agents or consultants with the access to such property which Republic, its
agents or consultants require to conduct the Environmental Assessment. If the
Environmental Assessment identifies environmental conditions which requires
remediation, corrective action, or further evaluation under the Environmental
Laws or the modification of operational practices to come into compliance with
Environmental Laws or if the results of the Environmental Assessment or due
diligence review are otherwise not satisfactory to Republic in its sole
discretion, then Republic may elect not to close the transactions contemplated
by this Agreement in which case this Agreement shall be terminated. Republic's
failure or decision not to conduct any such Environmental Assessment shall not
affect any representation or warranty of the Company, the Taorminas or the
Shareholders under this Agreement.
5.12 Trading in Republic Common Stock. Except as otherwise expressly
consented to by Republic, from the date of this Agreement until the Effective
Time, neither the Company nor the Taorminas (nor any Affiliates thereof) will
directly or indirectly purchase or sell (including short sales) any shares of
Republic Common Stock in any transactions effected on The Nasdaq Stock Market or
otherwise.
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5.13 Employment Agreements. Republic or its assignee and each of
the Taorminas shall enter into an employment agreement in the form attached
hereto as Schedule 5.13.
5.14 Title Insurance and Surveys.
(a) Within 10 business days after the date of this Agreement,
the Company and the Shareholders shall obtain and deliver to Republic
commitments (the "Commitments") issued by Chicago Title Insurance Company (the
"Title Company") and dated not earlier than the date of this Agreement for the
issuance of an ALTA Owners Policy of Title Insurance (the "Title Policy") for
each of the Owned Properties in an aggregate amount of $20,000,000, together
with legible hard copies of all title exceptions reflected in the Commitments.
At Republic's option, the Company and Shareholders shall deliver copies of
previous owner policies or other title evidence sufficient for Republic to
obtain the Commitments directly from the Title Company. In either case, the
premium for the Title Policy shall be paid by the Company, and in the event the
Agreement contemplated hereby does not close, Republic shall pay up to $25,000
for the cost of obtaining the Commitments and the Surveys (as defined below).
The Title Policy shall be in the amount of $20,000,000, showing fee simple title
to the Owned Properties vested now or to be vested at or immediately prior to
the Closing in the Company subject only to Permitted Exceptions, (it being
agreed that the Shareholders shall cause any indebtedness secured by Deeds of
Trust or any liens encumbering Other Owned Properties in excess of $2,623,000 to
be satisfied or released prior to Closing). Within 3 business days following
delivery of the Commitments to Republic, Republic shall notify the Shareholders
of any exceptions in the Commitments which Republic maintains are not Permitted
Exceptions. The Commitments and the Title Policy to be issued by the Title
Company shall afford full "extended form coverage" and shall contain an ALTA
Zoning Endorsements 3.1 (if available), contiguity (where appropriate), and such
other endorsements as may be reasonably requested by Republic, excluding
nonimputation and creditors rights endorsements. At the Closing, the Company,
the Shareholders, their Affiliates and any other party owning an interest in
Other Owned Properties shall deliver such affidavits or other instruments as the
Title Company may reasonably require to provide the special endorsements
required hereunder. The Company and the Shareholders shall cause the Commitments
to be dated as of the Closing and to cause the Title Company to deliver the
Title Policy dated as of the Closing as directed by Republic as soon as
reasonably possible after the Closing.
(b) Within 20 days after the date of this Agreement but before
the Closing, the Company and the Shareholders shall use their best efforts to
deliver to Republic and the Title Company an as-built plat of survey of each of
the Owned Properties and the Leased Premises (the "Surveys") prepared by a
registered land surveyor or engineer, licensed in the respective states in which
such properties are located, dated on or after the date hereof, certified to
Republic, the Title Company, and such other entities as Republic may designate
in writing to the Company and the Shareholders prior to the Closing, and
conforming to current ALTA/ACSM Minimum Detail Requirements for Land Title
Surveys, sufficient to cause the Title Company to delete the standard printed
survey exception. Each Survey shall show access from the land to dedicated roads
and shall include a flood plain certification. Any survey may be a
recertification of a prior survey, provided that it meets the above-described
criteria. In the event that the necessary surveys cannot be obtained prior to
Closing, the Shareholders shall deliver such surveys to Republic, at the cost
and expense of the Company, as soon as practical thereafter, along with any
insurance coverages contemplated by Section 5.14(a) above which could not be
obtained due to the unavailability of such surveys prior to the Closing.
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(c) If (i) any Commitment discloses a title exception other
than a Permitted Exception (an "Unpermitted Exception") or (ii) any Survey
discloses any encroachment, overlap, boundary dispute, or gap or any other
matter which renders title to any of the Owned Properties unmarketable or
reflects that any utility service to the improvements or access thereto does not
lie wholly within the applicable parcel of real property, or within an
encumbered easement for the benefit of such parcel of real property or another
Owned Property, or reflects any other matter materially adversely affecting the
use or improvements of such parcel of real property or another Owned Property (a
"Survey Defect"), then the Shareholders, prior to the Closing with respect to
Surveys delivered prior to Closing, or to the extent Survey Defects appear on
Surveys delivered after Closing promptly thereafter, shall have the Unpermitted
Exception removed from such Commitment or the Survey Defect corrected or insured
over by an appropriate title insurance endorsement, all in a manner reasonably
satisfactory to Republic.
5.15 Shareholder and Director Vote. Each of the Shareholders, in
executing this Agreement, consents as a shareholder of the Company, and each of
the Taorminas, in executing this Agreement, consents as a director of the
Company, to the Merger and the transactions contemplated hereby, and waives
notice of any meeting in connection therewith and hereby releases and waives all
rights with respect to the transactions contemplated hereby under any agreements
relating to the sale, purchase or voting of stock of the Company.
5.16 Taormina Name. Republic agrees, upon request by the Taorminas, to
phase out as promptly as possible the use of the "Taormina" name in all aspects
of the conduct of the Company's business over a period of one year following the
date of such request, provided that nothing herein stated shall require the
Company or Republic to repaint any vehicles, containers or other equipment or
incur any other large expenditure of money. The Taorminas shall be entitled to
use the "Taormina" name for any business that is totally unrelated to the solid
waste management industry.
5.17 Anaheim Truck Depot. (a) The Taorminas and the Shareholders
represent and warrant that:
(A) Blue Gum Partnership is a California general partnership
("Blue Gum Partnership"), and the general partners of Blue
Gum Partnership are William C. Taormina, Vincent C.
Taormina, and Bobby Babajian, Jr. Blue Gum Partnership holds
a land lease from Landowner (as defined below) to certain
property known as the "Blue Gum Property" upon which is
situated the business known as "Anaheim Truck Depot," a
paved parking yard, and other improvements. As of the date
hereof, the Blue Gum Partnership subleases the property and
leases the improvements to the Company for a monthly rental
of $77,000 and the business known as Anaheim Truck Depot
sells fuel and provides maintenance services to the Company
and third parties.
(B) A California general partnership (herein referred to as
"Landowner") exists between (i) Bobby Babajian, Sr. and (ii)
Truck Haven, a California general partnership ("Truck
Haven") existing between William C. Taormina, Vincent C.
Taormina, and the C.V. Taormina Family Trust. Each of
William C. Taormina, Vincent C. Taormina, and the C.V.
Taormina Family Trust are general partners in Truck Haven,
with a one-third interest therein. Each of Bobby Babajian,
Sr. and Truck Haven are general partners
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in Landowner. Landowner owns title to the real estate
which is leased to the Blue Gum Partnership for a monthly
rental of $5,000.
(C) The Taorminas have voting control over the Blue Gum
Partnership, and otherwise have the sole and exclusive power
to direct the management, policies and assets of Blue Gum
Partnership.
(D) The Taorminas have voting control over Truck Haven, and have
voting control over Landowner, and otherwise have the sole
and exclusive power to direct the management, policies and
assets of each of Truck Haven and Landowner.
(b) Simultaneous with or prior to the Closing, the Taorminas
shall contribute their respective interests in Blue Gum Partnership to the
Company and the Taorminas and the C.V. Taormina Family Trust shall contribute
all of Truck Haven to the Company, in exchange solely for additional shares of
Company Common Stock.
(c) The Taorminas agree to use best efforts to cause the
Company to purchase and acquire (i) from Bobby Babajian, Jr., his
non-controlling interest in the Blue Gum Partnership, and (ii) from Bobby
Babajian, Sr., his non-controlling interest in Landowner and to cause the
Company to pay off all debts owed to Bobby Babajian, Jr. by Blue Gum
Partnership, provided, however, that completion of such purchases shall not be a
condition to Republic's obligations to close the Merger.
(d) The Taorminas, the Shareholders, and the Company agree
that not more than $5,450,000 of the aggregate purchase price paid to Bobby
Babajian, Jr. (as to his interest in Blue Gum Partnership, including repayment
of all debt owed to him by Blue Gum Partnership), and to Bobby Babajian, Sr. (as
to his interest in Landowner), shall be paid directly or indirectly by the
Company. Any portion of such aggregate purchase price in excess of $5,450,000
shall be paid by the Taorminas personally out of their own funds, and not by the
Company directly or indirectly.
(e) Upon contribution of all of the Blue Gum Partnership
interests to the Company, the Company shall assume and pay off, prior to
closing, not more than $377,000 of the indebtedness (which indebtedness is not
related to or secured by real estate upon which the Blue Gum Partnership does
business) owed by Blue Gum Partnership to Bobby Babajian, Sr.
(f) For purposes of this Agreement, the representations and
warranties of Article III of this Agreement shall apply to and shall be deemed
made by the Shareholders with respect to the assets, properties and operations
of Blue Gum Partnership and Landowner as of the date hereof and as of the
Closing pursuant to the Bringdown Certificate delivered pursuant to Section 6.1.
5.18 Other Leased Property. All of the leases of real estate listed on
Schedule 3.14(b) pursuant to which the Shareholders or the Taorminas are leasing
property to the Company shall be terminated prior to Closing, and all of such
leased property shall be contributed by the Shareholders or the Taorminas,
respectively, as the case may be, prior to Closing to the Company for no
consideration other than the issuance of additional shares of Company Common
Stock to the Shareholders. The Company agrees to assume no more than an
aggregate of $2,623,000 of indebtedness related to or encumbering such
contributed property, and the Shareholders and/or
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the Taorminas agree to pay off all indebtedness in excess of such amount and to
satisfy (at their expense) all encumbrances related to any such excess
indebtedness. If the Taorminas or the Shareholders pay off any such excess
indebtedness, then the Company shall issue additional shares of Company Common
Stock to the Shareholders based on the amount of such payoff.
5.19 Intellectual Property. Prior to Closing, the Taorminas shall
contribute to the Company all right, title and interest in and to any
Intellectual Property owned by them individually which is used by or otherwise
relates to the Company and its business and operations, including, without
limitation, any interest Taormina's may have in the patent relating to the
conveyors used in the Company's Materials Recycling Facility in Anaheim,
California, but excluding the "Taormina" name for which Republic has a
royalty-free license to continue to use subject to Section 5.16 (and which the
Taorminas shall be entitled to use in a manner consistent with Section 5.16).
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part by the
Republic Companies:
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Shareholders contained in
this Agreement shall be true and correct at and as of the Effective Time with
the same force and effect as though made at and as of that time except: (a) for
changes specifically permitted by or disclosed pursuant to this Agreement; and
(b) that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date. The Company and
the Shareholders shall have performed and complied with all of their respective
obligations required by this Agreement to be performed or complied with at or
prior to the Effective Time. The Company and the Shareholders shall have
delivered to the Republic Companies a certificate, dated as of the Effective
Date, duly signed (in the case of the Company, by its President), certifying
that such representations and warranties are true and correct and that all such
obligations have been complied with and performed (the "Bringdown Certificate").
6.2 No Material Adverse Change or Destruction of Property. Between the
date hereof and the Effective Time: (a) there shall have been no Material
Adverse Change to the Company; (b) there shall have been no adverse federal,
state or local legislative or regulatory change affecting in any material
respect the services, products or business of the Company; and (c) none of the
properties and assets of the Company shall have been damaged by fire, flood,
casualty, act of God or the public enemy or other cause (regardless of insurance
coverage for such damage) which damages may have a Material Adverse Effect
thereon, and there shall have been delivered to the Republic Companies a
certificate to that effect, dated the Effective Date and signed by or on behalf
of the Company and the Shareholders.
6.3 Corporate Certificate. The Shareholders shall have delivered to
the Republic Companies: (a) copies of the articles of incorporation and bylaws
of the Company as in effect immediately prior to the Effective Time; (b) copies
of resolutions adopted by the Board of Directors and Shareholders of the Company
authorizing the transactions contemplated by this
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Agreement; and (c) a certificate of good standing of the Company issued by the
Secretary of State of the State of California and each other state in which the
Company is qualified to do business as of a date not more than thirty days prior
to the Effective Date, certified in the case of subsections (a) and (b) of this
Section as of the Effective Date by the Secretary of each such company as being
true, correct and complete.
6.4 Opinion of Counsel. Republic shall have received an opinion dated
as of the Effective Date from counsel for the Company and the Shareholders, in
its typical format and subject to customary qualifications and assumptions, and
in form and substance reasonably acceptable to Republic, to the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and is authorized
to carry on the business now conducted by it and to own or lease the properties
now owned or leased by it;
(b) The Company has obtained all necessary authorizations and
consents of its Board of Directors and the Shareholders to effect the Merger;
(c) All issued and outstanding shares of capital stock of the
Company are owned by the Shareholders;
(d) This Agreement is a valid and binding obligation of the
Company, the Taorminas, and the Shareholders, and enforceable against the
Company, the Taorminas, and the Shareholders in accordance with its terms
(subject to the assumption that Florida law is identical to California law),
subject to customary limitations, such as bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or general equitable principles and provided that no opinion
shall be rendered as to Section 5.10 or Section 8.7(b), or as to choice of law.
6.5 Consents. The Company shall have received (and delivered copies to
the Republic of) consents to the transactions contemplated hereby and waivers of
rights to terminate or modify any material rights or obligations of the Company
from any Person from whom such consent or waiver is required under any Contract
or instrument as of a date not more than thirty days prior to the Effective
Date, or who, as a result of the transactions contemplated hereby, would have
such rights to terminate or modify such Contracts or instruments, either by the
terms thereof or as a matter of law.
6.6 Securities Laws. Republic shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the issuance of the Republic Shares, in connection with the
transactions contemplated hereby.
6.7 Pooling Letters. Republic shall have received from McGladrey &
Pullen, LLP, independent certified public accountants for the Company, a letter
dated the Effective Date, in form and substance acceptable to Republic,
confirming that, to their knowledge after due and diligent inquiry of
management, there have been no transactions or events with respect to the
Company which would, and the ownership structure and attributes of the Company
and the Shareholders would not, prescribe the transactions contemplated hereby,
if consummated, from being considered as a pooling of interests business
combination. Republic shall have received from Arthur Andersen LLP, a letter
dated the Effective Date, confirming that the transactions contemplated hereby,
if consummated, can properly be accounted for as a pooling of interests
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combination in accordance with GAAP and the criteria of Accounting Principles
Board Opinion No. 16 and the regulations of the SEC.
6.8 Acknowledgment of Pooling Restrictions and Receipt of SEC Filings.
At or prior to the Closing the Shareholders shall have delivered to Republic a
letter agreement acknowledging their status as Affiliates of the Company, their
agreement to comply with the "pooling of interests" restrictions, and their
receipt of SEC filings of Republic, in form and substance satisfactory to the
Republic Companies.
6.9 Company Common Stock. At the Closing, each of the Shareholders
shall have delivered to Republic all certificates evidencing the shares of
capital stock of the Company issued by them, free and clear of any Liens or
restrictions whatsoever, including, without limitation, any Lien in favor of the
Taorminas' sister Arlene Taormina, Trustee of the Arlene Taormina Property
Trust, or its or her successors or assigns.
6.10 Stock Powers. At the Closing, each of the Shareholders shall
have delivered to Republic, for use in connection with the Held Back Shares, ten
stock powers executed in blank, with signatures guaranteed.
6.11 No Adverse Litigation. There shall not be pending or threatened
any action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Merger or any other transaction contemplated hereby, and which, in the
judgment of Republic, makes it inadvisable to proceed with the Merger and other
transactions contemplated hereby.
6.12 Intentionally Omitted.
6.13 HSR Act Waiting Period. Any applicable HSR Act waiting period
shall have expired or been earlier terminated.
6.14 Due Diligence Review. Republic shall be satisfied with the
results of its due diligence review and Environmental Assessment pursuant to
Section 5.11.
6.15 Employment Agreements. The Taorminas shall have executed and
delivered the employment agreements referred to in Section 5.13.
6.16 Releases. Each of the Shareholders and Taorminas shall deliver
to Republic a release (collectively, the "Releases") in such form as is
reasonably satisfactory to Republic releasing all claims of any nature against
the Company, Blue Gum Partnership, and Truck Haven, if any, and any claims
arising out of the Merger and the transactions contemplated by this Agreement,
provided that such Release shall not cover (i) any rights of the Shareholders
against Republic under this Agreement, (ii) any employment benefits accrued in
the ordinary course of business consistent with past practice (such as vacation
time) or related rights under law (such as ERISA or COBRA), or (iii) any rights
under law to indemnification against third party claims arising with respect to
the Taorminas' service as officers, directors or agents of the Company.
6.17 Assignments. The Taorminas shall have executed and delivered the
assignments of the Intellectual Property referred to in Section 5.19.
6.18 Anaheim Truck Depot. If Blue Gum Partnership and the Landowner
have not been acquired in their entirety by the Company as of the time of
Closing, then Republic also shall have
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received copies of duly executed amendments to, or new, leases between Blue Gum
Partnership (as lessor) and the Company (as lessee) providing for the Company to
continue to use the real property and improvements owned by the Landowner and
Blue Gum Partnership, respectively, as of the date hereof (as the same may be
subsequently improved) for a term of fifteen (15) years through December 31,
2011, at a fixed monthly rental of One Thousand Dollars ($1,000) per month
payable to each of Blue Gum Partnership and Landowner together with the right to
continue to purchase fuel at a price of $0.05 per gallon over cost to the Blue
Gum Partnership, and the right to continue to purchase parts and maintenance
services from the Anaheim Truck Depot at the same rates being charged as of the
date hereof.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in whole or in part
by the Company and the Shareholders:
7.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of each of the Republic
Companies contained in this Agreement shall be true and correct at and as of the
Effective Time with the same force and effect as though made at and as of that
time except: (a) for changes specifically permitted by or disclosed pursuant to
this Agreement; and (b) that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. Each of the Republic Companies shall have performed and complied with all
of its obligations required by this Agreement to be performed or complied with
at or prior to the Effective Time. Each of the Republic Companies shall have
delivered to the Company and the Shareholders a certificate, dated as of the
Effective Date, and signed by an executive officer, certifying that such
representations and warranties are true and correct and that all such
obligations have been complied with and performed.
7.2 Republic Shares. At the Closing, Republic shall have issued all of
the Republic Shares and shall have delivered to the Shareholders: (a)
certificates representing the Republic Shares issued to them hereunder, other
than the Held Back Shares; and (b) copies of stock certificates representing the
Held Back Shares issued to them.
7.3 No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Merger or any other transaction contemplated hereby, and which in the
judgment of the Company and the Shareholders makes it inadvisable to proceed
with the Merger and other transactions contemplated hereby.
7.4 HSR Act Waiting Period. Any applicable HSR Act waiting period
shall have expired or been earlier terminated.
7.5 Opinion of Counsel. The Shareholders and the Taorminas shall have
received an opinion dated the Effective Date from counsel to Republic, in its
typical format, and subject to
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customary qualifications and assumptions, and in form and substance reasonably
acceptable to the Shareholders and the Taorminas, to the effect that:
(a) This Agreement is a valid and binding obligation of
Republic, and enforceable against Republic in accordance with its terms, subject
to customary limitations, such as bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the enforcement of creditors' rights
generally or general equitable principles, and provided that no opinion shall be
rendered as to Section 5.10 or Section 8.7(a), or as to choice of law.
(b) The Republic Shares have been validly issued, and are
fully paid and non-assessable.
7.6 Employment Agreements. Republic or its assignee shall have
executed and delivered the employment agreements referred to in Section 5.13.
7.7 No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred with respect to Republic and its subsidiaries, taken as
a whole, any material adverse change in their business, financial position, or
results of operations excluding events which affected the solid waste or
automotive industries generally in a like manner or which affected the economy
or stock markets generally.
ARTICLE VIII
REGISTRATION RIGHTS
The Shareholders shall have the following registration rights with
respect to the Republic Shares issued to them hereunder:
8.1 Registration Rights for Republic Shares; Filing of Registration
Statement. Republic will utilize reasonable best efforts to cause, as soon as
practicable following the Effective Time, a registration statement to be filed
under the Securities Act or an existing registration statement to be amended for
the purpose of registering the Republic Shares for resale on a continuous basis
from time to time by a Holder thereof (the "Registration Statement"). For
purposes of this Article, a person is deemed to be a "Holder" of Republic Shares
whenever such person is the record owner of Republic Shares. Thereafter Republic
will use reasonable best efforts to have the Registration Statement become
effective and cause the Republic Shares to be registered under the Securities
Act, and registered, qualified or exempted under the state securities laws of
such jurisdictions as any Holder reasonably requests, as soon as is reasonably
practicable. Notwithstanding the foregoing, Republic may delay filing a
Registration Statement, and may withhold efforts to cause the Registration
Statement to become effective, if Republic determines in good faith that such
registration might interfere with or affect the negotiation or completion of any
transaction that is being contemplated by Republic (whether or not a final
decision has been made to undertake such transaction) at the time the right to
delay is exercised, provided, however, that the maximum cumulative delay in
filing the Registration Statement and in withholding efforts to cause it to
become effective shall be no more than 45 days.
8.2 Expenses of Registration. Republic shall pay all expenses incurred
by Republic in connection with the registration, qualification and/or exemption
of the Republic Shares, including any SEC and state securities law registration
and filing fees, printing expenses, fees and
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disbursements of Republic's counsel and accountants, transfer agents' and
registrars' fees, fees and disbursements of experts used by Republic in
connection with such registration, qualification and/or exemption, and expenses
incidental to any amendment or supplement to the Registration Statement or
prospectuses contained therein. Republic shall not, however, be liable for any
sales, broker's or underwriting commissions upon sale by any Holder of any of
the Republic Shares.
8.3 Furnishing of Documents. Republic shall furnish to the Holders such
reasonable number of copies of the Registration Statement, such prospectuses as
are contained in the Registration Statement and such other documents as the
Holders may reasonably request in order to facilitate the offering of the
Republic Shares.
8.4 Amendments and Supplements. Republic shall prepare and promptly
file with the SEC and promptly notify the Holders of the filing of such
amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions if,
at the time when a prospectus relating to the Republic Shares is required to be
delivered under the Securities Act, any event shall have occurred as a result of
which any such prospectus or any other prospectus as then in effect would
include 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. Republic shall also advise the
Holders promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the SEC suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued. If, after a Registration Statement becomes effective, the Holders
desire that the Registration Statement be amended or Republic advises the
Holders that Republic considers it appropriate that the Registration Statement
(and all other registration statements of Republic then effective and
outstanding) be amended, the Holders shall suspend any further sales of the
Republic Shares until Republic advises the Holders that the Registration
Statement has been amended.
8.5 Duration. Republic shall maintain the effectiveness of the
Registration Statement until such time as Republic reasonably determines, based
on an opinion of counsel, that the Holders will be eligible to sell all of the
Shares then owned by the Holders without the need for continued registration of
the shares, in the three month period immediately preceding the termination of
the effectiveness of the Registration Statement. Republic's obligations
contained in Sections 8.1, 8.3 and 8.4 shall terminate on the second anniversary
of the Effective Date.
8.6 Further Information. If Republic Shares owned by a Holder are
included in any registration, such Holder shall furnish Republic such
information regarding itself as Republic may reasonably request and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
8.7 Indemnification.
(a) Republic will indemnify and hold harmless the Holders and
each person, if any, who controls a Holder within the meaning of the Securities
Act, from and against any and all losses, damages, liabilities, costs and
expenses to which the Holders or any such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities, costs or expenses are caused by any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any prospectus contained
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therein or any amendment or supplement thereto, or arise out of or 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, in light of the
circumstances under which they were made, not misleading; provided, however,
that, Republic will not be liable in any such case to the extent that any such
loss, claim, damage, liability, cost or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
so made in conformity with information furnished by or on behalf of any Holder
or such controlling person in writing specifically for use in the preparation
thereof.
(b) Each of the Holders, jointly and severally, will indemnify
and hold harmless Republic and each person, if any, who controls Republic within
the meaning of the Securities Act, from and against any and all losses, damages,
liabilities, costs and expenses to which Republic or any such controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein or any 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, in light of the circumstances under
which they were made, not misleading, to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information furnished by or
on behalf of any Holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have hereunder unless the indemnifying party has been
materially prejudiced thereby nor will such failure to so notify the
indemnifying party relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the defendants in
any action include both the indemnified party and the indemnifying party and
there is a conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (a) or (b) for
any legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless: (i) the indemnified party shall have employed counsel in
accordance with the provisions of the preceding sentence; (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action; or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
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(d) In the event any of the Republic Shares are sold by any
Holder or Holders in an underwritten public offering consented to by Republic,
Republic shall provide indemnification to the underwriters of such offering and
any person controlling any such underwriter on behalf of the Holder or Holders
making the offering; provided, however, that Republic shall not be required to
consent to any such underwriting or to provide such indemnification in respect
of the matters described in the proviso to the first sentence of Section 8.7(a).
ARTICLE IX
INDEMNIFICATION
9.1 Agreement by the Shareholders to Indemnify. The Shareholders
jointly and severally agree to indemnify and hold Republic harmless from and
against the aggregate of all expenses, losses, costs, deficiencies, liabilities
and damages (including, without limitation, related counsel and paralegal fees
and expenses) incurred or suffered by Republic arising out of or resulting from:
(a) any breach of a representation or warranty made by the Shareholders, the
Taorminas or the Company in or pursuant to this Agreement; (b) any breach of the
covenants or agreements made by the Shareholders, the Taorminas or the Company
in or pursuant to this Agreement; or (c) any inaccuracy in any certificate
delivered by the Shareholders, the Taorminas or the Company pursuant to this
Agreement (collectively, "Indemnifiable Damages"). With respect to the
measurement of Indemnifiable Damages, Republic shall have the right to be put in
the same after-tax consolidated financial position as it would have been in had
each of such representations and warranties been true and correct and had such
covenants and agreements been performed in full. Notwithstanding anything to the
contrary contained herein (other than the proviso at the end of this sentence),
Republic shall not be entitled to any Indemnifiable Damages unless the aggregate
of all Indemnifiable Damages exceeds Two Million Dollars ($2,000,000)
("Indemnification Threshold"), in which case Republic shall be entitled to (i)
the full amount of such Indemnifiable Damages if such Indemnifiable Damages
result from a breach of Section 4.1(c) or the representations as to total
indebtedness and Adjusted Total Stockholders Equity as provided in Section 3.11,
or (ii) the amount of such Indemnifiable Damages in excess of One Million
Dollars ($1,000,000) if the Indemnifiable Damages result from anything other
than a breach of Section 4.1(c) or such representations of Section 3.11;
provided however, that the Indemnification Threshold shall not apply with
respect to, and Republic shall be entitled to the full amount of any
Indemnifiable Damages resulting from any breach of representations set forth in
Section 3.5 hereof or any representations set forth in any factual certificate
delivered to Repulic relating to the share ownership of the Company. In the case
of any claim for Indemnifiable Damages, Republic agrees that it shall satisfy
such claim only out of the following, and in the following order: (i) first, out
of any Held Back Shares (or any Cash Collateral, as defined in Section 9.4
below) still held by Republic, (ii) second, out of any other Republic Shares (or
any shares of Republic Common Stock issued to the Shareholders in connection
with any stock split or stock dividend effected by Republic after the Effective
Time) which are still held by the Shareholders valued at a price equal to the
Average Closing Share Price, and (iii) third, out of any Proceeds received by
the Shareholders or the Taorminas on account of the sale of any of the Republic
Shares (or any shares of Republic Common Stock issued in connection with any
stock split or stock dividend effected by Republic after the Effective Time).
After such amounts have been exhausted, the Shareholders and the Taorminas shall
have no further liability for Indemnifiable Damages. As used in this Section
9.1, "Proceeds" shall mean (i) in the case of the sale at Fair Market Value of
any of the Republic Shares, the net proceeds received on account of such sale,
after deducting any
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commissions or other selling expenses paid in connection with such sale and any
taxes payable on account of such sale (assuming applicability of the maximum
long term capital gains tax rate in effect at the time of such sale, after
offsetting any reduction in the Shareholders' taxable income resulting from the
payment of the Indemnifiable Damages hereunder (assuming applicability of the
maximum marginal federal and state income tax rates)); and (ii) in the case of
the sale or transfer (by gift or otherwise) of any Republic Shares at less than
Fair Market Value, or for no cash proceeds (as in the case of a gift), the Fair
Market Value of such shares. As used in this Section 9.1, "Fair Market Value"
shall mean on any date the closing price of a share of Republic Common Stock on
the NASDAQ Stock Market for that day as reported (absent manifest error in the
printing thereof) by the Wall Street Journal (Eastern Edition). The
Shareholders' obligation to pay Republic all Indemnifiable Damages shall not be
diminished or impaired by the existence of any insurance policies or other right
to recover some or all of the Indemnifiable Damages from third parties. Republic
agrees to use its reasonable efforts to seek recovery under any applicable
insurance policies. The proceeds actually received by Republic, if any, under
such insurance policies, net of all of Republic's unrecovered costs and expenses
(including attorneys' fees and expenses) incurred in pursuing coverage under
such insurance policies, shall be paid by Republic to the Shareholders but only
to the extent that the Shareholders have actually paid to Republic the
Indemnifiable Damages relating to the matter for which such insurance proceeds
were paid to Republic.
9.2 Survival of Representations and Warranties. Each of the
representations and warranties made by the Shareholders and the Taorminas in
this Agreement or pursuant hereto shall survive for a period of one year after
the Effective Time. No claim for the recovery of Indemnifiable Damages may be
asserted by Republic against the Shareholders or the Taorminas after such
representations and warranties shall thus expire, provided, however, that claims
for Indemnifiable Damages first asserted within the applicable period shall not
thereafter be barred. Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each party shall have the right to
fully rely on the representations, warranties, covenants and agreements of the
other parties contained in this Agreement or in any other documents or papers
delivered in connection herewith. Each representation, warranty, covenant and
agreement of the parties contained in this Agreement is independent of each
other representation, warranty, covenant and agreement. Each of the
representations and warranties of Republic Merger Sub and of the Company shall
expire at the Effective Time. Each of the representations and warranties of
Republic shall survive for a period of one year after the Effective Time.
9.3 Procedures for Defense of Third Party Actions. Promptly after
receipt by Republic of notice of commencement of any action by a third party
(including service of a summons in connection with the serving of a lawsuit)
which could give rise to Indemnifiable Damages in excess of the Indemnification
Threshold (individually or in the aggregate with other claims for Indemnifiable
Damages) set forth in Section 9.1, or to Indemnifiable Damages for which no
Indemnification Threshold applies. Republic shall notify the Shareholders of the
commencement thereof to the extent that either of the Shareholders are otherwise
not in receipt of such notice of commencement themselves. The omission to so
notify the Shareholders will not relieve them from any liability which they may
have hereunder unless the Shareholders have been materially prejudiced thereby,
nor will such failure to so notify the Shareholders relieve them from any other
liability which they may have to Republic otherwise than hereunder. With respect
to any such action commenced by a third party, the Shareholders shall have the
right to participate in, and, to the extent that they may wish, jointly or
individually, to assume the defense thereof with counsel satisfactory to
Republic; provided, however if the defendants in any action include both
Republic (or any of its subsidiaries, including -- after Closing -- the Company)
and either or both of the
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Shareholders and there is a conflict of interest which would prevent counsel for
the Shareholders from also representing Republic (or its subsidiaries), then
Republic shall have the right to select separate counsel to participate in the
defense of such action on behalf of Republic (or its subsidiaries). After notice
from the Shareholders to Republic of their election to so assume the defense
thereof, the Shareholders will not be liable to Republic pursuant to the
provisions of Section 9.1 for the related counsel and paralegal fees and
expenses subsequently incurred by Republic (or its subsidiaries) in connection
with the defense thereof other than reasonable costs of investigation, unless
(i) Republic (or its subsidiaries) shall have employed counsel in accordance
with the provisions of the preceding sentence; (ii) the Shareholders shall not
have employed counsel satisfactory to Republic to represent Republic (or its
subsidiaries) within a reasonable time after notice of the commencement of the
action, or (iii) the Shareholders have authorized the employment of counsel for
Republic (or its subsidiaries) at the expense of the Shareholders.
Notwithstanding anything to the contrary in this Section 9.3, the Shareholders
shall have no right to settle or compromise any action for which they have
assumed the defense of to the extent the settlement or compromise involves any
injunctive or other equitable relief or otherwise involves any continuing
obligations of any nature against Republic or loss of rights of Republic (or any
of its subsidiaries or any of their respective directors, officers or
employees), and nothing stated in this Section 9.3 shall otherwise affect the
Shareholders' obligation to pay Republic all Indemnifiable Damages (other than
such related counsel and paralegal fees and expenses) pursuant to Section 9.1.
9.4 Security for the Shareholders' Indemnification Obligation. As
security for the agreement by the Shareholders to indemnify and hold Republic
harmless as described in this Article at the Closing, the Shareholders do hereby
grant a security interest in, pledge and instruct Republic to set aside and hold
certificates representing the Held Back Shares issued pursuant to this
Agreement. Republic may set off against the Held Back Shares (or against any
Cash Collateral (defined below)) any Indemnifiable Damages for which the
Shareholders may be responsible pursuant to this Agreement, subject, however, to
the following terms and conditions:
(a) Republic shall give written notice to the Shareholders of
any claim for Indemnifiable Damages or any other damages hereunder, which notice
shall set forth: (i) the amount of Indemnifiable Damages or other loss, damage,
cost or expense which Republic claims to have sustained by reason thereof; and
(ii) the basis of such claim;
(b) Such set off shall be effected on the later to occur on
the expiration of 30 days from the date of such notice (the "Notice of Contest
Period") or, if such claim is contested, the date the dispute is resolved, and
such set off shall be charged proportionally against the shares set aside;
(c) If, prior to the expiration of the Notice of Contest
Period, the Shareholders shall notify Republic in writing of an intention to
dispute the claim and if such dispute is not resolved within 30 days after
expiration of such period (the "Resolution Period"), then Republic may elect
that such dispute shall be resolved in accordance with Section 13.10 below;
(d) After the Held Back Shares are registered and any
restrictions on sale imposed under the Securities Act or otherwise are
terminated, the Shareholders may, not more than once during the twelve (12)
month period following the Effective Date, instruct Republic in writing to sell
some or all of the Held Back Shares and Republic shall utilize reasonable
efforts to promptly sell the Held Back Shares following such written instruction
and the net proceeds ("Cash Collateral") thereof shall be substituted for such
Held Back Shares in any set off to be
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made by Republic pursuant to any claim hereunder, subject to continued
compliance with any applicable SEC requirements dealing with pooling of
interests and other applicable regulations (any Cash Collateral shall be
deposited with a financial institution in such manner as Republic shall
reasonably determine necessary to retain its rights to the Cash Collateral as
security for any Indemnifiable Damages; provided that any Cash Collateral shall
be deposited in an interest bearing account or invested in United States
Government or Agency obligations reasonably acceptable to the Shareholders); and
e) For purposes of this Article, each share of Republic Common
Stock not sold as provided in clause (d) of this Section shall be valued at a
price equal to the Average Closing Share Price.
9.5 Voting of and Dividends on the Held Back Shares. Except with
respect to shares transferred pursuant to the foregoing right of setoff (and in
the case of such shares, until the same are transferred), all Held Back Shares
shall be deemed to be owned by the Shareholders and the Shareholders shall be
entitled to vote the same; provided, however, that, there shall also be
deposited with Republic subject to the terms of this Article, all shares of
Republic Common Stock issued to the Shareholders as a result of any stock
dividend or stock split and all cash issuable to the Shareholders as a result of
any cash dividend, with respect to the Held Back Shares (any such cash shall be
deemed "Cash Collateral" hereunder). All stock and cash issued or paid upon Held
Back Shares shall be distributed to the person or entity entitled to receive
such Held Back Shares together with such Held Back Shares.
9.6 Delivery of Held Back Shares and Cash Collateral. Republic agrees
to deliver to the Shareholders no later than the first anniversary of the
Effective Date any Held Back Shares and Cash Collateral then held by it unless
there then remains unresolved any claim for Indemnifiable Damages or other
damages hereunder as to which notice has been given, in which event any Held
Back Shares and Cash Collateral remaining on deposit after such claim shall have
been satisfied shall be returned to the Shareholders promptly after the time of
satisfaction.
9.7 Adjustment to Merger Consideration. All payments for
Indemnifiable Damages made pursuant to this Article shall be treated as
adjustments to the consideration granted in the Merger under Section 1.3 hereof.
9.8 No Bar. If the Held Back Shares and any Cash Collateral are
insufficient to set off any claim for Indemnifiable Damages made hereunder (or
have been delivered to the Shareholders prior to the making or resolution of
such claim), then Republic may take any action or exercise any remedy available
to it by appropriate legal proceedings to collect the Indemnifiable Damages
(subject to the limitations set forth in Section 9.1 above).
9.9 Remedies Exclusive; Waiver. The rights of the parties hereto as set
forth in this Agreement shall constitute their sole remedy under this Agreement,
except for all equitable rights and remedies to seek specific performance, or to
enjoin violation of, covenants for which monetary damages may be an inadequate
remedy, and for remedies which any of the parties may have as a result of a
claim for fraud. The Shareholders and the Taorminas hereby waive any rights to
contribution or any other similar rights they may have against the Company as a
result of their Agreement to Indemnify in this Article IX.
9.10 Taorminas Guaranty. The Taorminas hereby jointly and severally
guaranty the payment when due of any and all amounts due and payable by the
Shareholders to Republic
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pursuant to this Article IX, and guaranty the performance by the Shareholders of
their obligations under this Article IX.
ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after the Effective Time of the Republic Shares:
10.1 Disposition of Shares. The Shareholders represent and warrant that
the shares of Republic Common Stock being acquired by them hereunder are being
acquired and will be acquired for their own respective accounts and will not be
sold or otherwise disposed of, except pursuant to: (a) an exemption from the
registration requirements under the Securities Act, which does not require the
filing by Republic with the SEC of any registration statement, offering circular
or other document, in which case, the Shareholders shall first supply to
Republic an opinion of counsel (which counsel and opinions shall be satisfactory
to Republic) that such exception is available; or (b) an effective registration
statement filed by Republic with the SEC under the Securities Act.
10.2 Legend. The certificates representing the Republic Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER
THE ACT, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF
ANY STATE WITH RESPECT THERETO, OR IN ACCORDANCE WITH AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE,
AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
BY THE HOLDER WITHOUT COMPLIANCE WITH THE SECURITIES AND
EXCHANGE COMMISSION'S ACCOUNTING SERIES RELEASES 130 AND 135.
Republic may, unless a registration statement is in effect covering such shares,
place stop transfer orders with its transfer agents with respect to such
certificates in accordance with federal securities laws.
ARTICLE XI
DEFINITIONS
11.1 Defined Terms. As used herein, the following terms shall
have the following meanings:
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"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof, and with respect to the Company, the Blue
Gum Partnership and Landowner shall be deemed an Affiliate thereof.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to,
any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable law
or any jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects
which change (or effect) individually or in the aggregate, is
materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes imposed
by any federal, state, local or foreign governmental agency, and any
interest or penalties related thereto.
11.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) Unless otherwise expressly indicated herein, all matters
of an accounting nature in connection with this Agreement and the transactions
contemplated hereby shall be determined in accordance with GAAP applied on a
basis consistent with prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
(b) by Republic in the event of a material breach by the
Company or any of the Shareholders of any provision of this Agreement; or
(c) by the Company in the event of a material breach by
Republic of any provision of this Agreement;
(d) by either Republic or the Company if the Closing shall
not have occurred by May 31, 1997; or
(e) by Republic if the Merger Consideration shall have been
determined pursuant to Section 1.3(a)(ii) and the Average Closing Share Price
shall be Thirty-Four Dollars ($34.00) or less.
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12.2 Effect of Termination. Except for the provisions of Article IX
hereof, which shall survive any termination of this Agreement, in the event of
termination of this Agreement pursuant to Section 12.1, this Agreement shall
forthwith become void and of no further force and effect and the parties shall
be released from any and all obligations hereunder; provided, however, that the
provisions of Section 5.8 shall survive termination and continue in full force
and effect and that nothing herein shall relieve any party from liability for
damages resulting from the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement. If Republic
shall elect to terminate this Agreement pursuant to Section 12.1(e) above, then
Republic shall reimburse the Company and the Shareholders for all reasonable
legal and accounting costs and expenses incurred by them in connection with the
negotiation, execution and delivery of this Agreement and the preparation for
the Closing of the transactions contemplated by this Agreement, in each case,
upon presentation of reasonably detailed documentation thereof.
ARTICLE XIII
GENERAL PROVISIONS
13.1 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission if such transmission is confirmed by
delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall designate
in writing to the other party):
(a) if to any of the Republic Companies to:
Republic Industries, Inc.
450 East Las Olas Blvd., Suite 1200
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (305) 713-2120
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Attention: Jonathan L. Awner, Esq.
Telecopy: (305) 374-5095
(b) if to the Company, the Taorminas, and/or the
Shareholders to:
Taormina Industries, Inc.
1131 North Blue Gum Street
P.O. Box 309
Anaheim, California 92805
Attn: Glenn Nygard
Telecopy: (714) 238-3305
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with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, CA 92626
Attention: William J. Simpson, Esq.
Telecopy: (714) 979-1921
Notice shall be deemed given on the date sent if sent by overnight
delivery or facsimile transmission and on the date delivered (or the date of
refusal of delivery) if sent by certified or registered mail.
13.2 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
13.3 Expenses. Except as otherwise provided herein, the parties shall
pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated hereby. Republic
shall pay all filing fees of any party hereto under the HSR Act. Provided that
the Company remains in compliance with its representations as to total
indebtedness and net worth as set forth in Section 3.11 after accounting for any
such payments, the Company may pay up to an aggregate of $400,000 of the legal
fees of counsel and auditors to the Company and the Shareholders in connection
with the negotiation, execution and closing of the transactions contemplated by
this Agreement, but shall not in any event pay any expenses of the Shareholders
related to their personal tax or estate planning undertaken in connection
herewith or otherwise.
13.4 Amendment; Waiver. This Merger Agreement has been executed prior
to the Closing and is effective as of February 3, 1997, and does hereby amend
and restate that certain Merger Agreement executed and delivered on February 3,
1997 by each of the undersigned (other than the C.V. Taormina Family Trust under
Agreement dated September 16, 1980). This Agreement may not be modified,
amended, supplemented, canceled or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising, any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude the exercise of any other right, power or privilege. No waiver of any
breach of any provision shall be deemed to be a waiver of any preceding or
succeeding breach of the same or any other provision, nor shall any waiver be
implied from any course of dealing between the parties. No extension of time for
performance of any obligations or other acts hereunder or under any other
agreement shall be deemed to be an extension of the time for performance of any
other obligations or any other acts. The rights and remedies of the parties
under this Agreement are in addition to all other rights and remedies, at law or
equity, that they may have against each other.
13.5 Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable
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rights hereunder. Except as expressly provided herein, the rights and
obligations of this Agreement may not be assigned by the Company, or any
Shareholders without the prior written consent of Republic.
13.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
13.7 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
13.8 Governing Law; Interpretation. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Florida applicable to contracts executed and to be wholly performed within such
State.
13.9 Arm's Length Negotiations. Each party herein expressly represents
and warrants to all other parties hereto that: (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
13.10 Mandatory Arbitration. Any controversy or claim between or among
the parties hereto including, but not limited to, those arising out of or
relating to this Agreement or any related agreements or instruments, excluding
any claim based on or arising from an alleged intentional tort or fraud, shall
be determined by binding arbitration in Orange County, California in accordance
with the Federal Arbitration Act (of if not applicable, the applicable state
law), the Rules of Practice and Procedure for the Arbitration of Commercial
Disputes of Judicial Arbitration and Mediation Services, Inc. (J.A.M.S.), and
the "Special Rules" set forth below. In the event of any inconsistency, the
Special Rules shall control. Judgment upon any arbitration award may be entered
in any court having jurisdiction. Any party to this Agreement may bring an
action, including a summary or expedited proceeding, to compel arbitration of
any controversy or claim to which this Agreement applies in any court having
jurisdiction over such action.
(a) Special Rules. The arbitration shall be administered by
Endispute, Inc., d/b/a/ J.A.M.S./Endispute, who will appoint an arbitrator; if
J.A.M.S./Endispute is unable or legally precluded from administering the
arbitration, then the American Arbitration Association will serve. All
arbitration hearings will be commenced within ninety (90) days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional
sixty (60) days.
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<PAGE> 47
(b) Reservation of Rights. Nothing in this Agreement shall be
deemed to: (i) limit the applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this Agreement; or (ii) limit
the right of Republic or the Shareholders (A) to exercise self-help remedies
such as (but not limited to) setoff, in accordance with Section 9.4 hereof or
(B) to realize upon any security granted hereunder, or (C) to obtain from a
court provisional or ancillary remedies such as (but not limited to) injunctive
relief or the appointment of a receiver. No exercise of self-help remedies or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
[Signatures On Following Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware
corporation
By: /s/ Harris W. Hudson
---------------------------------------
Harris W. Hudson, Vice Chairman
RI/T MERGER CORP., a California corporation
By:/s/ Harris W. Hudson
----------------------------------------
Harris W. Hudson, President
TAORMINA INDUSTRIES, INC., a California
corporation
By:/s/ William C. Taormina
----------------------------------------
William C. Taormina, Chairman
/s/ William C. Taormina
-------------------------------------------
William C. Taormina, individually
/s/ Vincent C. Taormina
-------------------------------------------
Vincent C. Taormina, individually
[Signatures Continued On Following Page]
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<PAGE> 49
TAORMINA REVOCABLE INTER VIVOS
TRUST UNDER AGREEMENT DATED
JULY 26, 1983
By:/s/ William C. Taormina
--------------------------------
William C. Taormina, Trustee
VINCENT COSMO TAORMINA REVOCABLE
INTER VIVOS TRUST UNDER AGREEMENT
DATED MAY 14, 1984
By:/s/ Vincent C. Taormina
--------------------------------
Vincent C. Taormina, Trustee
C.V. TAORMINA FAMILY TRUST UNDER
AGREEMENT DATED
SEPTEMBER 16, 1980
By:/s/ Arlene Taormina
--------------------------------
Arlene Taormina, Trustee
49
<PAGE> 1
EXHIBIT 2.2
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of
February 4, 1997 by and among Republic Industries, Inc., a Delaware corporation
("Republic"); RI/ADI Merger Corp. ("RI/ADI"), RI/ACI Merger Corp. ("RI/ACI"),
RI/ARI Merger Corp. ("RI/ARI"), RI/AMI Merger Corp. ("RI/AMI"), and RI/ALB
Merger Corp. ("RI/ALB"), each a Virginia corporation and wholly-owned
subsidiary of Republic (sometimes hereinafter collectively referred to as the
"Republic Merger Subs," and together with Republic, the "Republic Companies");
and AAA Disposal Service, Inc. ("Disposal"), AAA Commercial, Inc.
("Commercial"), AAA Recycling, Inc. ("Recycling"), AAA Maintenance, Inc.
("Maintenance"), and AAA Land and Building Co., Inc. ("Land and Building"),
each a Virginia corporation; and Larry E. Edwards, a resident of the
Commonwealth of Virginia; and Darlene Norris, Tony Poehler, Winnie Poehler,
Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any of which is the
authorized signatory for the Jeffrey L. Edwards Trust U/T/A/D April 3, 1989;
Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven
M. Serio, CPA as Trustees any of which is the authorized signatory for the
Kevin S. Edwards Trust U/T/A/D April 3, 1989; Darlene Norris, Tony Poehler,
Winnie Poehler, Harry W. Mulford, Esq. and Steven M. Serio, CPA as Trustees any
of which is the authorized signatory for the Mitchell G. Edwards Trust U/T/A/D
April 3, 1989; Darlene Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford,
Esq. and Steven M. Serio, CPA as Trustees any of which is the authorized
signatory for the Troy L. Edwards Trust U/T/A/D April 3, 1989; and Darlene
Norris, Tony Poehler, Winnie Poehler, Harry W. Mulford, Esq. and Steven M.
Serio, CPA as Trustees any of which is the authorized signatory for the
Samantha L. Edwards Trust U/T/A/D April 3, 1989; who together constitute all of
the shareholders of the AAA Companies (together, the "Shareholders"). Certain
other capitalized terms used herein are defined in Article X and throughout
this Agreement.
RECITALS
The Boards of Directors of Republic and the AAA Companies (as such
term is defined in Article X hereof) have determined that it is in the best
interests of their respective shareholders for Republic to acquire the AAA
Companies upon the terms and subject to the conditions set forth in this
Agreement. In order to effectuate the transaction, Republic has organized the
Republic Merger Subs as wholly-owned subsidiaries, and the parties have agreed,
subject to the terms and conditions set forth in this Agreement, to merge the
Republic Merger Subs with and into the AAA Companies so that the AAA Companies
continue as the surviving corporations. As a result, the AAA Companies will
become wholly-owned subsidiaries of Republic, and each of the Shareholders
will be issued certain shares of common stock of Republic.
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<PAGE> 2
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 THE MERGERS. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined below), and pursuant to the terms
and conditions set forth in the Plans of Merger and Reorganization annexed
hereto as Exhibits A through E (the "Plans of Merger"), the Republic Merger
Subs will be merged with and into the AAA Companies (the "Mergers") as follows:
(a) RI/ADI will be merged with and into Disposal;
(b) RI/ACI will be merged with and into Commercial;
(c) RI/ARI will be merged with and into Recycling;
(d) RI/AMI will be merged with and into Maintenance; and
(e) RI/ALB will be merged with and into Land and Building.
The terms and conditions of the Plans of Merger are incorporated herein by
reference as if fully set forth herein. As a result of the Mergers, the
separate corporate existence of each of the Republic Merger Subs shall cease
and each of the AAA Companies shall continue as surviving corporations and
wholly-owned subsidiaries of Republic (the "Surviving Corporations").
1.2 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Mergers (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII
hereof, at the offices of Akerman, Senterfitt & Eidson, P.A. in Miami, Florida,
or such other time and place as the parties may otherwise agree.
1.3 PLANS OF MERGER. Pursuant to the Plans of Merger, an
aggregate of 2,916,667 shares of common stock, $0.01 par value per share, of
Republic ("Republic Common Stock") (the "Purchase Price") will be issued in the
Mergers in exchange for all of the issued and outstanding
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<PAGE> 3
shares of capital stock of each of the AAA Companies (the "AAA Companies
Capital Stock") as follows:
(a) 2,132,667 shares of Republic Common Stock will be
issued in exchange for all of the issued and outstanding shares of
common stock of Disposal;
(b) 459,375 shares of Republic Common Stock will be
issued in exchange for all of the issued and outstanding shares of
common stock of Commercial;
(c) 187,833 shares of Republic Common Stock will be
issued in exchange for all of the issued and outstanding shares of
common stock of Recycling;
(d) 99,458 shares of Republic Common Stock will be issued
in exchange for all of the issued and outstanding shares of common
stock of Maintenance; and
(e) 37,334 shares of Republic Common Stock will be issued
in exchange for all of the issued and outstanding shares of common
stock of Land and Building.
Notwithstanding the foregoing, if between the date of this Agreement and the
Effective Date, the outstanding shares of Republic Common Stock shall have been
changed into a different number of shares, or a different class, by reason of
any stock dividend, subdivision, reclassification, recapitalization, or split
(the "Change"), the Purchase Price shall be correspondingly adjusted to reflect
such Change. Notwithstanding the foregoing, the Purchase Price shall be reduced
by (i) all Indebtedness (as defined below) of the Company in excess of
$13,500,000.00, and (ii) the amount, if any, by which the Working Capital (as
defined below) of the AAA Companies is less than zero dollars ($0)
(collectively items (i) and (ii) are referred to herein as the "Purchase Price
Adjustment," which amount shall be calculated as of the Effective Date). The
amount of the Purchase Price Adjustment shall be divided by the Closing Sale
Price, and the quotient so calculated shall be deducted from the number of
shares of Republic Common Stock issued hereunder as of the Effective Date. For
purposes of determining the Purchase Price Adjustment, (i) "Indebtedness" shall
mean the aggregate amount of all indebtedness for borrowed money (excluding
interest), whether owed to a bank or any other Person, and remaining payments
on capitalized equipment leases, excluding any indebtedness incurred in the
ordinary course of business consistent with past practice; (ii) "Working
Capital" shall mean the difference, if any, between the Current Assets and the
Current Liabilities of the Company; (iii) "Current Assets" shall mean all
current assets determined in accordance with generally accepted accounting
principles; and (iv) "Current Liabilities" shall mean the current liabilities
(excluding the current portion of long-term indebtedness) determined in
accordance with generally accepted accounting principles.
1.4 FILING OF ARTICLES OF MERGER. At the time of the Closing, the
parties shall cause the Mergers to be consummated by filing duly executed
Articles of Merger (with a completed Plan
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<PAGE> 4
of Merger attached thereto) with the Clerk of the State Corporation Commission
of the Commonwealth of Virginia, in such form as Republic determines is
required by and is in accordance with the relevant provisions of the Virginia
Stock Corporation Act (the date and time of such filing is referred to herein
as the "Effective Date" or "Effective Time").
1.5 ISSUANCE OF REPUBLIC SHARES. At the Effective Time, by virtue
of the Mergers and without any further action on the part of the parties
hereto, Republic shall issue to each Shareholder duly executed certificates, in
valid form registered in such Shareholder's name, evidencing that number of
shares of Republic Common Stock determined, to the nearest whole share,
pursuant to the terms of each of the respective Plans of Merger based on the
number of shares of capital stock of each of the AAA Companies owned of record
by such Shareholder as set forth on Schedule 3.5 hereto.
1.6 DELIVERY OF CERTIFICATES. At the Closing, the Shareholders
shall deliver the certificates representing all of the issued and outstanding
shares of capital stock of each of the AAA Companies to Republic for
cancellation, and Republic shall deliver the certificates representing the
shares of Republic Common Stock issued pursuant to Section 1.5 in the following
manner: (i) Republic shall deliver to each such Shareholder one or more
certificates evidencing an aggregate of 2,625,000 shares of Republic Common
Stock, and (ii) Republic shall set aside and hold in accordance with Article IX
certificates evidencing 291,667 shares of Republic Common Stock (the "Held Back
Shares"). The shares of Republic Common Stock, including the Held Back Shares,
issuable by Republic in the Mergers are sometimes referred to herein as the
"Republic Shares". Any item in this Agreement requiring the withholding of or
release of Held Back Shares shall be read to require such withholding or
release to occur ratably among the Shareholders in proportion to their
ownership interest in the AAA Companies as set forth on Schedule 3.5 hereof.
1.7 PURCHASE PRICE ADJUSTMENT. The parties hereto hereby
acknowledge and agree that the Purchase Price Adjustment as of the Effective
Date is a mutually agreed upon good faith estimate (which estimated amount is
referred to herein as the "Estimated Amount"). Within 30 days after the
Effective Date, Republic shall prepare and deliver to the Shareholders a
determination (the "Determination") of the actual amount of the Purchase Price
Adjustment as of the Effective Date (which actual value is referred to herein
as the "Actual Amount") including the basis for such Determination. If, within
30 days after the date on which a Determination is delivered to the
Shareholders, the Shareholders shall not have given written notice to Republic
setting forth in detail any objection of the Shareholders to such
Determination, then such Determination shall be final and binding on the
parties hereto. In the event the Shareholders give written notice of any
objection to such Determination within the 30-day period, Republic and the
Shareholders shall use all reasonable efforts to resolve the dispute within the
30-day period following the receipt by Republic of the written notice from the
Shareholders. If the parties are unable to reach an agreement within such 30-
day period, the matter shall be submitted to a mutually agreed upon independent
firm of certified public accountants for determination of the
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<PAGE> 5
Actual Amount which shall be final and binding upon Republic and the
Shareholders. Republic and the Shareholders shall contribute equally to all
costs (including fees and expenses charged by the selected independent firm of
certified public accountants) in connection with the resolution of any such
dispute. If the Actual Amount is greater than the Estimated Amount, such
amount shall be deemed to be Indemnifiable Damages under Article IX hereof and
Republic may set off against the Held Back Shares the difference between the
Actual Amount and the Estimated Amount (assuming a value per share for purposes
of such calculation equal to the Closing Sale Price); provided, that any and
all such Indemnifiable Damages shall not be applied against or subject to the
Indemnification Threshold (as such term is defined in Article IX hereof), or
affect the determination thereof with respect to the Indemnifiable Damages.
1.8 ACCOUNTING AND TAX TREATMENT. The parties hereto intend that
the transactions contemplated hereby shall be treated as pooling of interest
business combinations by Republic for accounting purposes and as tax-free
reorganizations under Section 368 of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to each of the Shareholders to enter into
this Agreement and to consummate the transactions contemplated hereby, each of
the Republic Companies jointly and severally make the following representations
and warranties to the Shareholders:
2.1 CORPORATE STATUS. Republic is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of the Republic Merger Subs is a corporation duly organized, validly
existing and in good standing under the Commonwealth of Virginia. Each
Republic Merger Sub is a controlled subsidiary of Republic within the meaning
of Section 368 of the Code.
2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies
has the corporate power and authority to execute and deliver this Agreement, to
perform its respective obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all action
necessary to authorize its execution and delivery of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by each of the Republic Companies and constitutes a legal, valid and
binding obligation of each of the Republic Companies, enforceable against each
of the Republic Companies in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization,
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<PAGE> 6
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
2.4 REPUBLIC COMMON STOCK; REGISTRATION STATEMENT. Upon
consummation of the Mergers and the issuance and delivery of certificates
representing the Republic Shares to the Shareholders, and except for any Liens
imposed on such Republic Shares by any action or inaction of the Shareholders,
the Shareholders shall have good and marketable title to the Republic Shares
subject to the terms and conditions of Article IX hereof, and the Republic
Shares will be validly issued, fully paid and non-assessable shares of Republic
Common Stock. The Republic Shares will be issued pursuant to the prospectus,
dated December 18, 1996, as filed with the SEC on a registration statement on
Form S-4 (the "Registration Statement"), copies of which have been delivered to
the Shareholders in accordance with the requirements of the Securities Act.
Such Registration Statement has been declared effective and no stop order has
been issued suspending effectiveness of such Registration Statement. The
Republic Shares being issued in connection with the Mergers are less than one
percent of the outstanding shares of Republic Common Stock. Until the earlier
of (i) the date that all of the Republic Shares have been sold by the
Shareholders or (ii) the date that the Republic Shares may be sold under Rule
145(d)(3) under the Securities Act, Republic shall continue to make all filings
required to be made by it under the Exchange Act.
2.5 NO COMMISSIONS. None of the Republic Companies has incurred
any obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.6 TAX MATTERS. Republic does not know of any circumstances
relating to Republic or its Affiliates that would prevent the Mergers from
qualifying as reorganizations within the meaning of Section 368 of the Code,
provided that (except as set forth in this Section 2.6) Republic makes no
affirmative representations or warranties as to any circumstances relating to,
or any actions taken or agreed to be taken prior to the Effective Time by, the
AAA Companies that would prevent the Mergers from qualifying as
reorganizations within the meaning of Section 368 of the Code. Both at
execution and at Closing, Republic presently has no plan or intention (a) to
cause any of the AAA Companies or any permitted transferee therefrom to sell or
dispose of any of the assets or properties of any of the AAA Companies, except
for dispositions in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code, (b) to liquidate any of the AAA Companies,
(c) to merge any of the AAA Companies with or into another corporation or
corporations, (d) to sell or otherwise dispose of the stock of any of the AAA
Companies except for transfers of stock to a corporation or corporations
"controlled" (within the meaning of Section 368 of the Code) by Republic, or
(e) to cause any of the AAA Companies to issue additional shares of stock that
would result in Republic losing "control" (within the meaning of Section 368 of
the Code) of any of the AAA Companies. Both at execution and at Closing,
Republic currently intends to cause each of the AAA Companies to continue its
historic business or use a significant portion of its historic business assets
in a business following the Effective Time, and presently
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<PAGE> 7
does not intend to reacquire any of the Republic Common Stock issued in the
Mergers. Immediately prior to the Mergers, Republic will own all of the
outstanding stock of the Republic Merger Subs. Further, the assets and
liabilities of the Republic Merger Subs as of the time immediately preceding
the Closing will represent all of the assets and liabilities ever held by the
Republic Merger Subs.
2.7 NO VIOLATION. The execution and delivery of this Agreement by
the Republic Companies, the performance by the Republic Companies of their
obligations hereunder and the consummation by the Republic Companies of the
transactions contemplated by this Agreement will not (i) contravene any
provision of the articles of incorporation, as amended, or bylaws of the
Republic Companies or any subsidiary thereof, (ii) violate or conflict with any
law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment,
filing or order of any Governmental Authority or of any arbitration award which
is either applicable to, binding upon or enforceable against the Republic
Companies or any subsidiary thereof, (iii) conflict with, result in any breach
of, or constitute a default (or an event which would, with the passage of time
or the giving of notice or both, constitute a default) under, or give rise to a
right to terminate, amend, modify, abandon or accelerate, any material Contract
which is applicable to, binding upon or enforceable against the Republic
Companies or any subsidiary thereof, (iv) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets
of the Republic Companies or any subsidiary thereof, (v) give to any individual
or entity a right or claim against the Republic Companies or any subsidiary
thereof, which would have a Material Adverse Effect on the Republic Companies
or any subsidiary thereof, or (vi) require the consent, approval, authorization
or permit of, or filing with or notification to, any Governmental Authority,
any court or tribunal or any other Person, except (a) pursuant to the Exchange
Act and the Securities Act and applicable NASD inclusion requirements, (b)
filings required under the securities or blue sky laws of the various states,
(c) filings required under the HSR Act, or (d) any filings required to be made
by the AAA Companies or (e) any filings required to be made with respect to the
consummation of the Mergers.
2.8 REPORTS AND FINANCIAL STATEMENTS. Within the last three
years, except where failure to have done so did not and would not have a
Material Adverse Effect on Republic, Republic has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with the SEC, including, but not limited to Forms
10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic
Reports"). Republic has previously made available to the Shareholders copies
of all Republic Reports filed with the SEC since January 1, 1996, and with
respect to Republic Reports filed after the date of this Agreement until the
Effective Date, will promptly furnish to the Shareholders copies of each of the
Republic Reports filed with the SEC during such period. As of their respective
dates (but taking into account any amendments filed prior to the date of this
Agreement), the Republic Reports complied, or, with respect to Republic Reports
filed after the date of this Agreement, will comply, in all material respects
with all the rules and regulations promulgated by the SEC and did not contain,
or, with respect to Republic Reports filed after the date of this Agreement,
will not
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<PAGE> 8
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. The
financial statements of Republic included in the Republic Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied during the periods
presented (except, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal audit adjustments) the financial position of Republic and
its consolidated subsidiaries as of the date thereof and the results of their
operations and their cash flows for the periods then ended. Except as set
forth in the Republic Reports, Republic has no material liabilities or
obligations of any nature required by GAAP to be set forth on a consolidated
balance sheet of Republic and its consolidated subsidiaries or in the notes
thereto which individually or in the aggregate would have a Material Adverse
Effect on Republic.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Republic Reports filed and publicly available prior to the date of this
Agreement, and except as expressly contemplated by this Agreement, since the
date of the most recently filed Republic Report, Republic has conducted its
business only in the ordinary course, and there has not been: (i) any Material
Adverse Change in Republic's business, results of operation, or business
prospects in the aggregate; (ii) any damage, destruction or loss, whether or
not covered by insurance, that has had or is likely to have a Material Adverse
Effect on Republic in the aggregate; or (iii) any change in accounting methods,
principles or practices by Republic materially affecting its assets,
liabilities or business, except insofar as may have been required by a change
in generally accepted accounting principles.
2.10 LITIGATION. Except as disclosed in the Republic Reports
filed and publicly available prior to the date of this Agreement and except for
any such action which may be commenced by or on behalf of the AAA Companies or
the Shareholders, there is no suit, action or proceeding pending or in good
faith Threatened against Republic or any of its subsidiaries challenging the
acquisition by merger by Republic or the Republic Merger Subs of any shares of
any of the AAA Companies or any provision of this Agreement or seeking to
restrain or prohibit the consummation of the Mergers, or that, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect on Republic, nor is there any judgment, decree, injunction, rule or
order of any Governmental Authority or arbitrator outstanding against Republic
or any of its subsidiaries having, or which would reasonably be expected to
have, any such effect.
2.11 COMPLIANCE WITH LAWS. Except as disclosed in the Republic
Reports filed and publicly available prior to the date of this Agreement,
Republic and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, regulations, rules, judgments, decrees and orders of any
Governmental Authority applicable to its business or operations, except for
instances of possible noncompliance that, individually or in the aggregate,
would not have a Material Adverse Effect on Republic. Each of Republic and its
subsidiaries has in effect all permits
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and licenses, necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has occurred no
default under any such permit or license, except for the lack of permits or
licenses and for defaults under such permits or licenses which, individually
or in the aggregate, would not have a Material Adverse Effect on Republic.
None of such permits or licenses is or will be impaired or in any way affected
by the execution and delivery of this Agreement, or consummation of the
transactions contemplated hereby which would individually or in the aggregate
have a Material Adverse Effect on Republic.
2.12 CAPITALIZATION. The authorized capital stock of Republic
consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares
of preferred stock. As of January 24, 1997, (i) 299,412,227 shares of Republic
Common Stock were validly issued and outstanding, fully paid and nonassessable
and not issued in violation of any preemptive right of any stockholder of
Republic, and (ii) no shares of preferred stock were issued and outstanding.
The Republic Shares to be issued in the Mergers will be "voting stock" within
the meaning of Section 368 of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
As a material inducement to each of the Republic Companies to enter
into this Agreement and to consummate the transactions contemplated hereby,
each of the Shareholders jointly and severally makes the following
representations and warranties to Republic:
3.1 CORPORATE STATUS. Each of the AAA Companies is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has the requisite power and authority to own or
lease its properties and to carry on its business as now being conducted. Each
of the AAA Companies is legally qualified to transact business as a foreign
corporation in all jurisdictions where the nature of its properties and the
conduct of its business requires such qualification (all of which jurisdictions
are listed on Schedule 3.1) and is in good standing in each of the
jurisdictions in which it is so qualified. Each of the AAA Companies has fully
complied in all material respects with all of the requirements of any statute
governing the use and registration of fictitious names, and has the legal right
to use the names under which it operates its business. There is no pending or
in good faith Threatened proceeding for the dissolution, liquidation,
insolvency or rehabilitation of any of the AAA Companies.
3.2 POWER AND AUTHORITY. Each of the AAA Companies has the power
and authority to execute and deliver this Agreement, to perform its respective
obligations hereunder and to consummate the transactions contemplated hereby.
Each of the AAA Companies has taken all action necessary to authorize the
execution and delivery of this Agreement, the performance of
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its respective obligations hereunder and the consummation of the transactions
contemplated hereby. Each of the Shareholders has the requisite competence,
power and authority to execute and deliver this Agreement, to perform his or
its respective obligations hereunder and to consummate the transactions
contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by each of the AAA Companies and the Shareholders, and constitutes
the legal, valid and binding obligation of each of them, enforceable against
them in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, with respect to each
of the AAA Companies, (a) the number of authorized shares of each class of its
capital stock, (b) the number of issued and outstanding shares of each class of
its capital stock, and (c) the number of shares of each class of its capital
stock which are held in treasury. All of the issued and outstanding shares of
capital stock of each of the AAA Companies (i) have been duly authorized and
validly issued and are fully paid and non-assessable, (ii) were issued in
compliance with all applicable state and federal securities laws, and (iii)
were not issued in violation of any preemptive rights or rights of first
refusal. No preemptive rights exist except those that may exist under Virginia
law, which all the Shareholders hereby waive upon execution of this Agreement.
Except as set forth on Schedule 3.4, there are no other preemptive rights or
rights of first refusal which exist with respect to the shares of capital stock
of any of the AAA Companies and no such rights arise by virtue of or in
connection with the transactions contemplated hereby, and any and all such
rights shall be extinguished prior to the Effective Time. There are no
outstanding or authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require any of the AAA Companies to issue or
sell any shares of its capital stock (or securities convertible into or
exchangeable for shares of its capital stock). There are no outstanding stock
appreciation, phantom stock, profit participation or other similar rights with
respect to any of the AAA Companies. Except as set forth on Schedule 3.4,
there are no proxies, voting rights or other agreements or understandings with
respect to the voting or transfer of the capital stock of any of the AAA
Companies. None of the AAA Companies is obligated to redeem or otherwise
acquire any of its outstanding shares of capital stock.
3.5 SHAREHOLDERS OF THE AAA COMPANIES. Schedule 3.5 sets forth,
with respect to each of the AAA Companies, (a) the name, address and federal
taxpayer identification number of, and the number of outstanding shares of each
class of its capital stock owned by, each shareholder of record as of the close
of business on the date of this Agreement; and (b) the name, address and
federal taxpayer identification number of, and number of shares of each class
of its capital stock beneficially owned by, each beneficial owner of
outstanding shares of capital stock (to the extent that record and beneficial
ownership of any such shares are different). The Shareholders constitute
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all of the holders of all issued and outstanding shares of capital stock of
each of the AAA Companies, and each of the Shareholders owns such shares as is
set forth on Schedule 3.5, free and clear of all Liens, restrictions and claims
of any kind.
3.6 NO VIOLATION. Except as set forth on Schedule 3.6, the
execution and delivery of this Agreement by each of the AAA Companies and the
Shareholders, the performance by them of their respective obligations hereunder
and the consummation by them of the transactions contemplated by this Agreement
will not (i) contravene any provision of the articles of incorporation or
bylaws of any of the AAA Companies, (ii) violate or conflict with any law,
statute, ordinance, rule, regulation, decree, writ, injunction, judgment or
order of any Governmental Authority or of any arbitration award which is either
applicable to, binding upon or enforceable against any of the AAA Companies or
any of the Shareholders, (iii) conflict with, result in any breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to a right
to terminate, amend, modify, abandon or accelerate, any material Contract which
is applicable to, binding upon or enforceable against any of the AAA Companies
or any of the Shareholders, (iv) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
any of the AAA Companies, (v) require the consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Authority, any
court or tribunal or any other Person, except any applicable filings required
under the HSR Act, and any SEC and other filings required to be made by
Republic, or (vi) any filings required to be made with respect to the
consummation of the Mergers.
3.7 RECORDS OF THE AAA COMPANIES. The copies of the respective
articles of incorporation and bylaws of each of the AAA Companies are true,
accurate and complete and reflect all amendments made through the date of this
Agreement. The minute books for each of the AAA Companies are correct and
complete in all material respects, no further entries have been made through
the date of this Agreement, such minute books contain or as of the Effective
Time will contain the true signatures of the persons purporting to have signed
them, and such minute books contain an accurate record of all material
corporate actions of the shareholders and directors (and any committees
thereof) of each of the AAA Companies taken by written consent or at a meeting
since incorporation. All material corporate actions taken by each of the AAA
Companies have been duly authorized or ratified. All accounts, books, ledgers
and official and other records of each of the AAA Companies have been fully,
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies of any kind contained therein.
The stock ledgers of each of the AAA Companies contain or as of the Effective
Time will contain accurate and complete records of all issuances, transfers and
cancellations of shares of the capital stock of each of the AAA Companies.
3.8 SUBSIDIARIES. Except as set forth on Schedule 3.8, none of
the AAA Companies owns, directly or indirectly, any outstanding voting
securities of or other interests in, or controls, any other corporation,
partnership, joint venture or other business entity.
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3.9 FINANCIAL STATEMENTS. The Shareholders have delivered to
Republic the financial statements of each of the AAA Companies for the period
ended December 31, 1996, internally prepared by the AAA Companies, copies of
which are attached to Schedule 3.9 hereto (the "Financial Statements"). The
balance sheets of each of the AAA Companies dated as of December 31, 1996,
included in the Financial Statements are referred to herein as the "Current
Balance Sheets." The Financial Statements fairly present the financial
position of each of the AAA Companies at each of the balance sheet dates and
the results of operations for the periods covered thereby and have been
prepared consistent with the accounting methods of each of the AAA Companies.
The books and records of each of the AAA Companies fairly reflect its
transactions, properties, assets and liabilities consistent with the accounting
methods of each of the AAA Companies. Except as set forth in the Financial
Statements, there are no material special or non-recurring items of income or
expense during the periods covered by the Financial Statements and the balance
sheets included in the Financial Statements do not reflect any writeup or
revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date
of the Current Balance Sheets of each of the AAA Companies, none of the AAA
Companies has (i) issued any capital stock or other securities; (ii) made any
distribution of or with respect to its capital stock or other securities or
purchased or redeemed any of its securities except in the ordinary course of
business consistent with past practice and as set forth on Schedule 3.10; (iii)
paid any bonus to or increased the rate of compensation of any of its officers
or salaried employees or amended any other terms of employment of such persons
except in the ordinary course of business consistent with past practice; (iv)
sold, leased or transferred any of its properties or assets other than in the
ordinary course of business consistent with past practice; (v) made or
obligated itself to make capital expenditures out of the ordinary course of
business consistent with past practice; (vi) made any payment in respect of its
liabilities other than in the ordinary course of business consistent with past
practice; (vii) incurred any obligations or liabilities (including any
indebtedness) or entered into any transaction or series of transactions
involving in excess of $25,000 in the aggregate out of the ordinary course of
business, except for this Agreement and the transactions contemplated hereby;
(viii) suffered any theft, damage, destruction or casualty loss, not covered by
insurance and for which a timely claim was filed, in excess of $25,000 in the
aggregate; (ix) suffered any extraordinary losses (whether or not covered by
insurance); (x) waived, canceled, compromised or released any rights having a
value in excess of $25,000 in the aggregate; (xi) made or adopted any change in
its accounting practice or policies; (xii) made any adjustment to its books and
records other than in respect of the conduct of its business activities in the
ordinary course consistent with past practice; (xiii) entered into any
transaction with any Affiliate other than intercompany transactions in the
ordinary course of business consistent with past practice; (xiv) entered into
any employment agreement except in the ordinary course of business, consistent
with past practice; (xv) terminated, amended or modified any agreement
involving an amount in excess of $25,000; (xvi) imposed any security interest
or other Lien on any of its assets other than in the ordinary course of
business consistent with past practice; (xvii) delayed paying any accounts
payable which are due and payable except to the extent being contested in good
faith; (xviii) made
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or pledged any charitable contribution other than in the ordinary course of
business consistent with past practice; (xix) entered into any other
transaction or been subject to any event which has or may have a Material
Adverse Effect on any of the AAA Companies; or (xx) agreed to do or authorized
any of the foregoing.
3.11 LIABILITIES OF THE AAA COMPANIES. None of the AAA Companies
has any liabilities or obligations, whether accrued, absolute, contingent or
otherwise, except (a) to the extent reflected or taken into account in the
Current Balance Sheets and not heretofore paid or discharged, (b) to the extent
specifically set forth in or incorporated by express reference in any of the
Schedules attached hereto, (c) liabilities incurred in the ordinary course of
business consistent with past practice since the date of the Current Balance
Sheets (none of which relates to breach of contract, breach of warranty, tort,
infringement or violation of law, or which arose out of any action, suit,
claim, governmental investigation or arbitration proceeding), (d) normal
accruals, reclassifications, and audit adjustments which would be reflected on
an audited financial statement and which would not be material in the
aggregate, and (e) liabilities incurred in the ordinary course of business
prior to the date of the Current Balance Sheets which, were not recorded
thereon. The consolidated net worth of the AAA Companies determined in
accordance with the accounting practices of each of the AAA Companies will be
no less than $8,400,000, as of the Effective Time.
3.12 LITIGATION. Except as set forth in Schedule 3.12, there is no
action, suit, or other legal or administrative proceeding or governmental
investigation pending, in good faith Threatened against or affecting any of the
AAA Companies, or any of their properties or assets, or the Shareholders, or
which questions the validity or enforceability of this Agreement or the
transactions contemplated hereby. The Shareholders are not aware of any facts
that would give rise to any such actions not set forth on Schedule 3.12.
There are no outstanding orders, decrees or stipulations issued by any
Governmental Authority in any proceeding to which any of the AAA Companies is
or was a party which have not been complied with in full or which continue to
impose any material obligations on any of the AAA Companies.
3.13 ENVIRONMENTAL MATTERS.
(a) Each of the AAA Companies is and has at all
times been in full compliance with all Environmental Laws (as defined in clause
(h) below) governing its business, operations, properties and assets,
including, without limitation: (i) all requirements relating to the Discharge
(as defined in clause (h) below) and Handling (as defined in clause (h) below)
of Hazardous Substances (as defined in clause (h) below) or other Waste (as
defined in clause (h) below); (ii) all requirements relating to notice, record
keeping and reporting; (iii) all requirements relating to obtaining and
maintaining Licenses (as defined in clause (h) below) for the ownership of its
properties and assets and the operation of its business as presently conducted,
including Licenses relating to the Handling and Discharge of Hazardous
Substances and other Waste; and (iv) all applicable writs, orders, judgements,
injunctions, governmental communications, decrees,
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informational requests or demands issued pursuant to, or arising under, any
Environmental Laws.
(b) There are no (and there is no basis for any)
non-compliance orders, warning letters, notices of violation (collectively
"Notices"), claims, suits, actions, judgments, penalties, fines, or
administrative or judicial investigations or proceedings (collectively
"Proceedings") pending or in good faith Threatened against or involving any of
the AAA Companies, or its business, operations, properties, or assets, issued
by any Governmental Authority or third party with respect to any Environmental
Laws or Licenses issued to any of the AAA Companies thereunder in connection
with, related to or arising out of the ownership by any of the AAA Companies of
its properties or assets or the operation of its business, which have not been
resolved to the satisfaction of the issuing Governmental Authority or third
party in a manner that would not impose any obligation, burden or continuing
liability on Republic or any of the Surviving Corporations in the event that
the transactions contemplated by this Agreement are consummated, or which could
have a Material Adverse Effect on any of the AAA Companies, including, without
limitation: (i) Notices or Proceedings related to any of the AAA Companies
being a potentially responsible party for a federal or state environmental
cleanup site or for corrective action under any applicable Environmental Laws;
(ii) Notices or Proceedings in connection with any federal or state
environmental cleanup site, or in connection with any real property or premises
where any of the AAA Companies has transported, transferred or disposed of
other Waste; (iii) Notices or Proceedings relating to any of the AAA Companies
being responsible to undertake any response or remedial actions or clean-up
actions of any kind; or (iv) Notices or Proceedings related to any of the AAA
Companies being liable under any Environmental Laws for personal injury,
property damage, natural resource damage, or clean up obligations.
(c) None of the AAA Companies has Handled or Discharged,
nor has any of them allowed or arranged for any third party to Handle or
Discharge, Hazardous Substances or other Waste to, at or upon: (i) any location
other than a site lawfully permitted to receive such Hazardous Substances or
other Waste; (ii) any real property currently or previously owned or leased by
any of the AAA Companies; or (iii) any site which, pursuant to any
Environmental Laws, (x) has been placed on the National Priorities List or its
state equivalent; or (y) the Environmental Protection Agency or the relevant
state agency or other Governmental Authority has notified any of the AAA
Companies that such Governmental Authority has proposed or is proposing to
place on the National Priorities List or its state equivalent. There has not
occurred, nor is there presently occurring, a Discharge, or in good faith
Threatened Discharge, of any Hazardous Substance on, into or beneath the
surface of, or adjacent to, any real property currently or previously owned or
leased by any of the AAA Companies in an amount requiring a notice or report to
be made to a Governmental Authority or in violation of any applicable
Environmental Laws.
(d) Schedule 3.13 identifies the operations and
activities, and locations thereof, which have been conducted or are being
conducted by any of the AAA Companies on any real
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property currently or previously owned or leased by any of the AAA Companies
which have involved the Handling or Discharge of Hazardous Substances.
(e) Schedule 3.13 identifies the locations to which any
of the AAA Companies has ever transferred, transported, hauled, moved, or
disposed of Waste and the types and volumes of Waste transferred, transported,
hauled, moved, or disposed of to each such location.
(f) Except as set forth on Schedule 3.13, none of the AAA
Companies uses, nor has any of them used, any Aboveground Storage Tanks (as
defined in clause (h) below) or Underground Storage Tanks (as defined in clause
(h) below), and there are not now nor have there ever been any Underground
Storage Tanks beneath any real property currently or previously owned or leased
by any of the AAA Companies that are required to be registered under applicable
Environmental Laws.
(g) Schedule 3.13 identifies (i) all environmental
audits, assessments or occupational health studies undertaken by any of the AAA
Companies or any of their agents or, to the knowledge of any of the AAA
Companies, undertaken by any Governmental Authority, or any third party,
relating to or affecting the AAA Companies or any real property currently or
previously owned or leased by any of the AAA Companies; (ii) the results of any
ground, water, soil, air or asbestos monitoring undertaken by any of the AAA
Companies or any of their agents or, to the knowledge of any of the AAA
Companies, undertaken by any Governmental Authority or any third party,
relating to or affecting any of the AAA Companies or any real property
currently or previously owned or leased by any of the AAA Companies which
indicate the presence of Hazardous Substances at levels requiring a notice or
report to be made to a Governmental Authority or in violation of any applicable
Environmental Laws; (iii) all material written communications between any of
the AAA Companies and any Governmental Authority arising under or related to
Environmental Laws; and (iv) all outstanding citations issued under OSHA, or
similar state or local statutes, laws, ordinances, codes, rules, regulations,
orders, rulings, or decrees, relating to or affecting either any of the AAA
Companies or any real property currently or previously owned or leased by any
of the AAA Companies.
(h) For purposes of this Section 3.13, the following
terms shall have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Aboveground Storage
Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further
be defined in any Environmental Law, into any medium including,
without limitation, ground water, surface water, soil or
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air.
"Environmental Laws" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial
or administrative interpretations thereof, or similar laws of foreign
jurisdictions where any of the AAA Companies conducts business,
whether currently in existence or hereafter enacted or promulgated,
any of which govern (or purport to govern) or relate to pollution,
protection of the environment, public health and safety, air
emissions, water discharges, hazardous or toxic substances, solid or
hazardous waste or occupational health and safety, as any of these
regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendment and Reauthorization Act of 1986, 42
U.S.C. Section 9601, et seq. (collectively "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act
of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984,
42 U.S.C. Section 6901 et seq. (collectively "RCRA"); the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et
seq.; the Clean Water Act, as amended, 33 U.S.C. Section 1311, et
seq.; the Clean Air Act, as amended (42 U.S.C. Section 7401-7642);
the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601
et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act as
amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning
and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section
11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et
seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law, of any Hazardous Substances or
Waste.
"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi- solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental Laws or which are or become regulated, listed
or controlled by, under or pursuant to any Environmental Laws,
including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air
Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or any similar state
statute, or any future amendments to, or regulations implementing such
statutes, laws, ordinances, codes, rules, regulations,
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orders, rulings, or decrees, or which has been or shall be determined
or interpreted at any time by any Governmental Authority to be a
hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits,
approvals and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Underground Storage
Tanks.
"Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes,
construction and demolition debris, garbage, household wastes,
industrial solid wastes, liquid wastes, recyclable materials, sludge,
solid wastes, special wastes, used oils, white goods, and yard trash
as those terms are defined under any applicable Environmental Laws.
3.14 REAL ESTATE
(a) None of the AAA Companies owns any real property or
any interest therein except as set forth on Schedule 3.14(a) (the "Owned
Properties"), which Schedule sets forth the location and size of, and principal
improvements and buildings on, the Owned Properties, together with a list of
all title insurance policies relating to such properties, all of which policies
have previously been delivered or made available to Republic by the AAA
Companies. With respect to each such parcel of Owned Property except as set
forth on Schedule 3.14(a):
(i) One of the AAA Companies has good and
marketable title to each parcel of Owned Property, free and clear of
any Lien other than (x) liens for real estate taxes not yet due and
payable; (y) recorded easements, covenants, and other restrictions
which do not impair the current use, occupancy or value of the
property subject thereto, and (z) encumbrances and restrictions
described in the title insurance policies listed on Schedule 3.14(a);
(ii) There are no pending or in good faith
Threatened condemnation proceedings, suits or administrative actions
relating to the Owned Properties or other matters affecting adversely
the current use, occupancy or value thereof;
(iii) The legal descriptions for the parcels of
Owned Property contained in the deeds thereof describe such parcels
fully and adequately; the buildings and improvements are located
within the boundary lines of the described parcels of land, are not in
violation of applicable setback requirements, local
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comprehensive plan provisions, zoning laws and ordinances (and none of
the properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications), building code requirements, permits, licenses or
other forms of approval by any Governmental Authority, and do not
encroach on any easement which may burden the land; the land does not
serve any adjoining property for any purpose inconsistent with the use
of the land; and the Owned Properties are not located within any flood
plain (such that a mortgagee would require a mortgagor to obtain flood
insurance) or subject to restriction for which any permits or licenses
necessary to the use thereof have not been obtained;
(iv) All facilities have received all approvals of
Governmental Authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws,
ordinances, rules and regulations;
(v) There are no Contracts granting to any party
or parties ,other than the AAA Companies, the right of use or
occupancy of any portion of the parcels of Owned Property;
(vi) There are no outstanding options or rights of
first refusal to purchase the parcels of Owned Property, or any
portion thereof or interest therein;
(vii) There are no parties (other than the AAA
Companies) in possession of the parcels of Owned Property;
(viii) All facilities located on the parcels of
Owned Property are supplied with utilities and other services
necessary for the operation of such facilities, including gas,
electricity, water, telephone, sanitary sewer and storm sewer, all of
which services are adequate in accordance with all applicable laws,
ordinances, rules and regulations, and are provided via public roads
or via permanent, irrevocable, appurtenant easements benefitting the
parcels of Owned Property;
(ix) Each parcel of Owned Property abuts on and
has direct vehicular access to a public road, or has access to a
public road via a permanent, irrevocable, appurtenant easement
benefitting the parcel of Owned Property; access to the property is
provided by paved public right-of- way with adequate curb cuts
available; and there is no pending or in good faith Threatened
termination of the foregoing access rights;
(x) All improvements and buildings on the Owned
Property are
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in good repair and are safe for occupancy and use, free from termites
or other wood-destroying organisms; the roofs thereof are watertight;
and the structural components and systems (including plumbing,
electrical, air conditioning/heating, and sprinklers) are in good
working order and adequate for the use of such Owned Property in the
manner in which presently used; and
(xi) Except as between or among the AAA Companies,
there are no service contracts, management agreements or similar
agreements which affect the parcels of Owned Property.
(b) Schedule 3.14(b) sets forth a list of all leases,
licenses or similar agreements concerning real property ("Leases") to which any
of the AAA Companies is a party (copies of which have previously been furnished
to Republic), in each case, setting forth (A) the lessor and lessee thereof and
the date and term of each of the Leases, (B) the legal description, including
street address, of each property covered thereby, and (C) a brief description
(including size and function) of the principal improvements and buildings
thereon (the "Leased Premises"), all of which are within the property set-back
and building lines of the respective property. The Leases are in full force
and effect and have not been amended, and no party thereto is in default or
breach under any such Lease. No event has occurred which, with the passage of
time or the giving of notice or both, would cause a material breach of or
default under any of such Leases. There is no breach or anticipated breach by
any other party to such Leases. With respect to each such Leased Premises,
except as set forth on Schedule 3.14(b):
(i) The AAA Companies have valid leasehold
interests in the Leased Premises, free and clear of any Liens, or
title defects, not inured by the title policy regarding the subject
property, of any nature whatsoever;
(ii) The portions of the buildings located on the
Leased Premises that are used in the business of the AAA Companies are
each in good repair and condition, normal wear and tear excepted, and
are in the aggregate sufficient to satisfy the AAA Companies' current
and reasonably anticipated normal business activities as conducted
thereat;
(iii) Each of the Leased Premises (a) has direct
access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
current and reasonably anticipated normal transportation requirements
of the AAA Companies' business as presently conducted at such parcel;
and (b) is served by all utilities in such quantity and quality as are
sufficient to satisfy the current normal business activities as
conducted at such parcel; and
(iv) None of the AAA Companies has received notice
of (a) any
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condemnation proceeding with respect to any portion of the Leased
Premises or any access thereto, and no such proceeding is contemplated
by any Governmental Authority; or (b) any special assessment which may
affect any of the Leased Premises, and no such special assessment is
contemplated by any Governmental Authority.
3.15 GOOD TITLE TO AND CONDITION OF ASSETS
(a) Except as set forth on Schedule 3.15(a), each
of the AAA Companies has good and marketable title to all of its
Assets (as hereinafter defined), free and clear of any Liens or
restrictions on use. For purposes of this Agreement, the term
"Assets" means all of the properties and assets of each of the AAA
Companies, other than the Owned Properties and the Leased Premises,
whether personal or mixed, tangible or intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined)
currently in use or necessary for the business and operations of each
of the AAA Companies are in good operating condition, normal wear and
tear excepted, and have been maintained substantially in accordance
with all applicable manufacturer's specifications and warranties. For
purposes of this Agreement, the term "Fixed Assets" means all
vehicles, machinery, equipment, tools, supplies, leasehold
improvements, furniture and fixtures used by or located on the
premises of each of the AAA Companies or set forth on the Current
Balance Sheets or acquired by any of the AAA Companies since the date
of the Current Balance Sheets. Schedule 3.15(b) lists the vehicles
owned, leased or used by any of the AAA Companies, setting forth the
make, model, description of body and chassis, vehicle identification
number, and year of manufacture, and for each vehicle, whether it is
owned or leased, and if owned, the name of any lienholder and the
amount of the lien, and if leased, the name of the lessor and the
general terms of the lease, and, whether owned or leased, if it is
used to transport, transfer, handle, dispose or haul Waste materials.
3.16 COMPLIANCE WITH LAWS.
(a) Each of the AAA Companies is and has been in
compliance with all laws, regulations and orders applicable to it, its
business and operations (as conducted by it now and in the past), the
Assets, the Owned Properties and the Leased Premises and any other
properties and assets (in each case owned or used by it now or in the
past). Except as set forth on Schedule 3.16(a), none of the AAA
Companies has been cited, fined or otherwise notified of any asserted
past or present failure to comply with any laws, regulations or orders
and no proceeding with respect to any such violation is pending or in
good faith Threatened.
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(b) None of the AAA Companies, nor any of their
employees or agents, has made any payment of funds in connection with
the business of any of the AAA Companies which is prohibited by law,
and no funds have been set aside to be used in connection with the
business of any of the AAA Companies for any payment prohibited by
law.
(c) Each of the AAA Companies is and at all times
since 1994 has been in full compliance with the terms and provisions
of the Immigration Reform and Control Act of 1986, as amended (the
"Immigration Act"). With respect to each Employee (as defined in 8
C.F.R. 274a.1(f)) of any of the AAA Companies for whom compliance with
the Immigration Act is required, each of the AAA Companies has on file
a true, accurate and complete copy of (i) each Employee's Form I-9
(Employment Eligibility Verification Form) and (ii) all other records,
documents or other papers prepared, procured and/or retained by the
AAA Companies pursuant to the Immigration Act. None of the AAA
Companies has been cited, fined, served with a Notice of Intent to
Fine or with a Cease and Desist Order, nor has any action or
administrative proceeding been initiated or in good faith Threatened
against any of the AAA Companies, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to
comply with the Immigration Act.
(d) None of the AAA Companies is subject to any
Contract, decree or injunction in which any of the AAA Companies is a
party which restricts the continued operation of any business of any
of the AAA Companies or the expansion thereof to other geographical
areas, customers and suppliers or lines of business.
3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17 sets forth the
name, address, social security number and current rate of compensation of the
employees of each of the AAA Companies. None of the AAA Companies is a party
to or bound by any collective bargaining agreement or any other agreement with
a labor union, and there has been no effort by any labor union during the 24
months prior to the date hereof to organize any employees of any of the AAA
Companies into one or more collective bargaining units. There is no pending or
in good faith Threatened labor dispute, strike or work stoppage which affects
or which may affect the business of any of the AAA Companies or which may
interfere with its continued operations. None of the AAA Companies nor any
agent, representative or employee thereof has within the last 24 months
committed any unfair labor practice as defined in the National Labor Relations
Act, as amended, and there is no pending or in good faith Threatened charge or
complaint against any of the AAA Companies by or with the National Labor
Relations Board or any representative thereof. There has been no strike,
walkout or work stoppage involving any of the employees of any of the AAA
Companies during the 24 months prior to the date hereof. None of the
Shareholders is aware that
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any executive or key employee or group of employees has any plans to terminate
his, her or their employment with any of the AAA Companies as a result of the
Mergers or otherwise. Schedule 3.17 contains detailed information about each
contract, agreement or plan of the following nature, whether formal or
informal, and whether or not in writing, to which any of the AAA Companies is a
party or under which it has an obligation: (i) employment agreements, (ii)
employee handbooks, policy statements and similar plans, (iii) noncompetition
agreements and (iv) consulting agreements. Each of the AAA Companies since
1994 has complied with all applicable laws, rules and regulations relating to
employment, civil rights and equal employment opportunities, including, but not
limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and the
Americans with Disabilities Act, as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a
list setting forth each employee benefit plan or arrangement of each of the AAA
Companies, including but not limited to employee pension benefit plans, as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of
ERISA, employee welfare benefit plans, as defined in Section 3(1) of ERISA,
deferred compensation plans, stock option plans, bonus plans, stock purchase
plans, hospitalization, disability and other insurance plans, severance or
termination pay plans and policies, whether or not described in Section 3(3) of
ERISA, in which employees, their spouses or dependents, of the AAA Companies
participate ("Employee Benefit Plans") (true and accurate copies of which,
together with the most recent annual reports on Form 5500 and summary plan
descriptions with respect thereto, were furnished to Republic).
(b) Compliance with Law. With respect to each Employee
Benefit Plan (i) each has been administered in all material respects in
compliance with its terms and with all applicable laws, including, but not
limited to, ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) no actions, suits, claims or disputes are pending, or in good
faith Threatened; (iii) no audits, inquiries, reviews, proceedings, claims, or
demands are pending with any governmental or regulatory agency; (iv) there are
no facts which could give rise to any material liability in the event of any
such investigation, claim, action, suit, audit, review, or other proceeding;
(v) all material reports, returns, and similar documents required to be filed
with any governmental agency or distributed to any plan participant have been
duly or timely filed or distributed; and (vi) no "prohibited transaction" has
occurred within the meaning of the applicable provisions of ERISA or the Code.
(c) Qualified Plans. With respect to each Employee
Benefit Plan intended to qualify under Code Section 401(a) or 403(a) (i) the
Internal Revenue Service has issued a favorable determination letter, true and
correct copies of which have been furnished to Republic, that such
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plans are qualified and exempt from federal income taxes; (ii) no such
determination letter has been revoked nor has revocation been in good faith
Threatened, nor has any amendment or other action or omission occurred with
respect to any such plan since the date of its most recent determination letter
or application therefor in any respect which would adversely affect its
qualification or materially increase its costs; (iii) no such plan has been
amended in a manner that would require security to be provided in accordance
with Section 401(a)(29) of the Code; (iv) no reportable event (within the
meaning of Section 4043 of ERISA) has occurred, other than one for which the
30-day notice requirement has been waived; (v) as of the Effective Date, the
present value of all liabilities that would be "benefit liabilities" under
Section 4001(a)(16) of ERISA if benefits described in Code Section 411(d)(6)(B)
were included will not exceed the then current fair market value of the assets
of such plan (determined using the actuarial assumptions used for the most
recent actuarial valuation for such plan); (vi) all contributions to, and
payments from and with respect to such plans, which may have been required to
be made in accordance with such plans and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made; and (vii) all such
contributions to the plans, and all payments under the plans (except those to
be made from a trust qualified under Section 401(a) of the Code) and all
payments with respect to the plans (including, without limitation, PBGC (as
defined below) and insurance premiums) for any period ending before the
Effective Date that are not yet, but will be, required to be made are properly
accrued and reflected on the Current Balance Sheet.
(d) Multiemployer Plans. With respect to any
multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan")
(i) all contributions required to be made with respect to employees of any of
the AAA Companies have been timely paid; (ii) none of the AAA Companies has
incurred or is not expected to incur, directly or indirectly, any withdrawal
liability under ERISA with respect to any such plan (whether by reason of the
transactions contemplated by the Agreement or otherwise); (iii) Schedule 3.18
sets forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B) the
date as of which such amount was calculated, and (C) the method for determining
the withdrawal liability; and (iv) no such plan is (or is expected to be)
insolvent or in reorganization and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists or is expected to exist with respect to any such plan.
(e) Welfare Plans. (i) None of the AAA Companies is
obligated under any employee welfare benefit plan as described in Section 3(1)
of ERISA ("Welfare Plan") to provide medical or death benefits with respect to
any employee or former employee of any of the AAA Companies or any of their
predecessors after termination of employment; (ii) each of the AAA Companies
has complied with the notice and continuation coverage requirements of Section
4980B of the Code and the regulations thereunder with respect to each Welfare
Plan that is, or was during any taxable year for which the statute of
limitations on the assessment of federal income taxes remains, open, by consent
or otherwise, a group health plan within the meaning of Section 5000(b)(1) of
the Code; and (iii) there are no reserves, assets, surplus or prepaid premiums
under any Welfare Plan which is an Employee Benefit Plan. The consummation of
the transactions
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contemplated by this Agreement will not entitle any individual to severance
pay, and, will not accelerate the time of payment or vesting, or increase the
amount of compensation, due to any individual.
(f) Controlled Group Liability. None of the AAA
Companies, nor any entity that would be aggregated with any of them under Code
Section 414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from any
employee benefit plan under circumstances resulting (or expected to result) in
liability to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by
which the employee benefit plan is funded, or any employee or beneficiary for
whose benefit the plan is or was maintained (other than routine claims for
benefits); (ii) has any assets subject to (or expected to be subject to) a lien
for unpaid contributions to any employee benefit plan; (iii) has failed to pay
premiums to the PBGC when due; (iv) is subject to (or expected to be subject
to) an excise tax under Code Section 4971; (v) has engaged in any transaction
which would give rise to liability under Section 4069 or Section 4212(c) of
ERISA; or (vi) has violated Code Section 4980B or Section 601 through 608 of
ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit
Plans obligates any of the AAA Companies to pay separation, severance,
termination or similar benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change of control"
(as such term is defined in Section 280G of the Code); (ii) all required or
discretionary (in accordance with historical practices) payments, premiums,
contributions, reimbursements, or accruals for all periods ending prior to or
as of the Effective Date shall have been made or properly accrued on the
Current Balance Sheets or will be properly accrued on the books and records of
each of the AAA Companies as of the Effective Date; and (iii) none of the
Employee Benefit Plans has any unfunded liabilities which are not reflected on
the Current Balance Sheets or the books and records of each of the AAA
Companies.
3.19 TAX MATTERS. All Tax Returns required to be filed prior to
the date hereof with respect to each of the AAA Companies or any of their
income, properties, franchises or operations have been timely filed, each such
Tax Return has been prepared in compliance with all applicable laws and
regulations, and all such Tax Returns are true and accurate in all respects.
All Taxes due and payable by or with respect to each of the AAA Companies have
been paid or are accrued on the Current Balance Sheets or will be accrued on
each of their books and records as of the Closing. Except as set forth in
Schedule 3.19 hereto: (i) with respect to each taxable period of each of the
AAA Companies, either such taxable period has been audited by the relevant
taxing authority or the time for assessing or collecting Taxes with respect to
each such taxable period has closed and such taxable period is not subject to
review by any relevant taxing authority; (ii) no deficiency or proposed
adjustment which has not been settled or otherwise resolved for any amount of
Taxes has been asserted or assessed by any taxing authority against any of the
AAA Companies; (iii) none of the AAA Companies has consented to extend the time
in which any Taxes may be assessed or collected by any taxing authority; (iv)
none of the AAA Companies has requested or been granted an extension of the
time for filing any Tax Return to a date later than
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the Effective Time; (v) there is no action, suit, taxing authority proceeding,
or audit or claim for refund now in progress, pending or in good faith
Threatened against or with respect to any of the AAA Companies regarding Taxes;
(vi) none of the AAA Companies has made an election or filed a consent under
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign law) on or prior to the Effective Time; (vii) there are no Liens for
Taxes (other than for current Taxes not yet due and payable) upon any of the
assets of any of the AAA Companies; (viii) none of the AAA Companies will be
required (A) as a result of a change in method of accounting for a taxable
period ending on or prior to the Effective Date, to include any adjustment
under Section 481(c) of the Code (or any corresponding provision of state,
local or foreign law) in taxable income for any taxable period (or portion
thereof) beginning after the Effective Time or (B) as a result of any "closing
agreement," as described in Section 7121 of the Code (or any corresponding
provision of state, local or foreign law), to include any item of income or
exclude any item of deduction from any taxable period (or portion thereof)
beginning after the Effective Time; (ix) none of the AAA Companies has been a
member of an affiliated group (as defined in Section 1504 of the Code) or filed
or been included in a combined, consolidated or unitary income Tax Return; (x)
none of the AAA Companies is a party to or bound by any tax allocation or tax
sharing agreement or has any current or potential contractual obligation to
indemnify any other Person with respect to Taxes; (xi) no taxing authority will
claim or assess any additional Taxes against any of the AAA Companies for any
period for which Tax Returns have been filed; (xii) none of the AAA Companies
has made any payments, and as of or after Closing will not be obligated (under
any contract entered into on or before the Effective Date) to make any
payments, that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign law); (xiii) none of the AAA
Companies has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code (or any corresponding provision of
state, local or foreign law) during the applicable period specified in Section
897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or
foreign law); (xiv) no claim has ever been made by a taxing authority in a
jurisdiction where any of the AAA Companies does not file Tax Returns that such
company is or may be subject to Taxes assessed by such jurisdiction; and (xv)
none of the AAA Companies has any permanent establishment in any foreign
country, as defined in the relevant tax treaty between the United States of
America and such foreign country; (xvi) true, correct and complete copies of
all income and sales Tax Returns filed by or with respect to each of the AAA
Companies for the past three years have been furnished or made available to
Republic; (xvii) none of the AAA Companies will be subject to any Taxes for the
period ending at the Effective Time for any period for which a Tax Return has
not been filed imposed pursuant to Section 1374 or Section 1375 of the Code (or
any corresponding provision of state, local or foreign law); (xviii) no sales
or use tax, non-recurring intangibles tax, documentary stamp tax or other
excise tax (or comparable tax imposed by any governmental entity) will be
payable by Republic or any of the AAA Companies by virtue of the transactions
completed in this Agreement; and (xix) each of the AAA Companies has duly and
validly filed an election for "S" corporation status under the Code, and such
"S" election has not been revoked or terminated and none of the AAA Companies
nor the Shareholders have taken any action which would cause a termination of
such "S" election (excluding the transactions contemplated by this
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Agreement).
3.20 INSURANCE. Each of the AAA Companies is covered by valid,
outstanding and enforceable policies of insurance covering each of their
respective properties, assets and businesses against risks of the nature
normally insured against by corporations in the same or similar lines of
business and in coverage amounts typically and reasonably carried by such
corporations (the "Insurance Policies"). Such Insurance Policies are in full
force and effect, and all premiums due thereon have been paid. As of the
Effective Time, each of the Insurance Policies will be in full force and
effect. None of the Insurance Policies will lapse or terminate as a result of
the transactions contemplated by this Agreement. Each of the AAA Companies has
complied with the provisions of such Insurance Policies. Schedule 3.20
contains (i) a complete and correct list of all Insurance Policies and all
amendments and riders thereto (copies of which have been provided to Republic)
and (ii) a detailed description of each pending claim under any of the
Insurance Policies for an amount in excess of $50,000 that relates to loss or
damage to the properties, assets or businesses of any of the AAA Companies.
None of the AAA Companies has failed to give, in a timely manner, any notice
required under any of the Insurance Policies to preserve its rights thereunder.
3.21 LICENSES AND PERMITS. Each of the AAA Companies possesses all
licenses and required governmental or official approvals, permits or
authorizations (collectively, the "Permits") for each of their respective
businesses and operations, including with respect to the operation of each of
the Owned Properties and Leased Premises. All such Permits are valid and in
full force and effect, each of the AAA Companies is in full compliance with the
respective requirements thereof, and no proceeding is pending or in good faith
Threatened to revoke or amend any of them. None of such Permits is or will be
impaired or in any way affected by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
3.22 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties and Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of each of the AAA Companies in the
manner in which and to the extent to which such business is currently being
conducted. The AAA Companies does not have any direct or indirect interest in
any customer, supplier or competitor of the AAA Companies, or in any person
from whom or to whom the AAA Companies leases real or personal property.
Except as set forth on Schedule 3.22, no officer, director or shareholder of
the AAA Companies, nor any person related by blood or marriage to any such
person, nor any entity in which any such person owns any beneficial interest,
is a party to any Contract or transaction with the AAA Companies or has any
interest in any property used by the AAA Companies.
3.23 INTELLECTUAL PROPERTY. Each of the AAA Companies has full
legal right, title and interest in and to all trademarks, service marks, trade
names, copyrights, know-how, patents, trade secrets, licenses (including
licenses for the use of computer software programs), and other
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intellectual property used in the conduct of its business (the "Intellectual
Property"). The conduct of the business of each of the AAA Companies as
presently conducted, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or misappropriate
any rights held or asserted by any Person, and no Person is infringing on the
Intellectual Property. No payments are required for the continued use of the
Intellectual Property. None of the Intellectual Property has ever been
declared invalid or unenforceable, or is the subject of any pending or in good
faith Threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like
claim, action or proceeding.
3.24 CUSTOMER LISTS, CONTRACTS AND RECURRING REVENUE. All of the
customers listed on Schedule 3.24 are subject to valid and enforceable customer
contracts. True, correct and complete copies of such contracts have been made
available by the Shareholders to Republic. None of the AAA Companies has
violated any of the material terms or conditions of any of the Contracts, and
all of the covenants to be performed by any other party thereto have been fully
performed and there are no claims for breach or indemnification or notice of
default or termination thereunder. Schedule 3.24 lists all customers of the
AAA Companies that account for more than 1% of the AAA Companies' consolidated
annual revenue. The average gross monthly revenue determined in accordance
with the accounting methods of each of the AAA Companies collected by the AAA
Companies from all of the customers of the AAA Companies during the twelve (12)
month period ending December 31, 1996 (the "Test Period") was not less than
$2,600,000.00 net of any intercompany eliminations (the "Minimum Revenue").
The Shareholders agree that if the actual average gross monthly revenue
collected by the AAA Companies determined in accordance with the accounting
methods of each of the AAA Companies was less than the Minimum Revenue, then
Republic shall be given and allowed an offset to the Purchase Price (the
"Purchase Price Offset") equal to the difference between the Minimum Revenue
and the actual average gross monthly revenue collected during the Test Period,
multiplied by 41.4. The Purchase Price Offset shall be deemed to be
Indemnifiable Damages (as defined below) and may be set-off against the Held
Back Shares in the manner described in Article VIII. Such determination shall
be made within six months following the Effective Date. This multiplier will
be utilized for remedy purposes with respect to this Section 3.24 only.
3.25 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. No
written representation, statement or information made or furnished by the
Shareholders to Republic or any of Republic's representatives, including those
contained in this Agreement and the various Schedules attached hereto and the
other information and statements referred to herein and previously furnished by
the AAA Companies and the Shareholders, contains or shall contain any untrue
statement of a material fact or omits or shall omit any material fact necessary
to make the information contained therein not misleading. The Shareholders
have provided Republic with access to true, accurate and complete copies of all
documents listed or described in the various Schedules attached hereto.
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3.26 INVESTMENT INTENT; SECURITIES DOCUMENTS. Each of the
Shareholders is acquiring the Republic Shares hereunder for his or its own
account for investment and not with a view to, or for the sale in connection
with, any distribution of any of the Republic Shares, except in compliance with
applicable state and federal securities laws. Each of the Shareholders has had
the opportunity to discuss the transactions contemplated hereby with Republic
and has had the opportunity to obtain such information pertaining to the
Republic Companies as has been requested, including but not limited to filings
made by Republic with the SEC under the Exchange Act. Each of the Shareholders
acknowledge receiving a prospectus of Republic in accordance with the
requirements of the Securities Act.
3.27 BANK ACCOUNTS; BUSINESS LOCATIONS. Schedule 3.27 sets forth
all accounts of the AAA Companies with any bank, broker or other depository
institution, and the names of all persons authorized to withdraw funds from
each such account. As of the date hereof, none of the AAA Companies has any
office or place of business other than as identified on Schedules 3.14(a) and
3.14(b) and the AAA Companies' principal places of business and chief executive
offices are indicated on Schedule 3.14(a) or 3.14(b), and, except for equipment
leased to customers in the ordinary course of business, all locations where the
equipment, inventory, chattel paper and books and records of the AAA Companies
are located as of the date hereof are fully identified on Schedules 3.14(a) and
3.14(b).
3.28 NAMES; PRIOR ACQUISITIONS. All names under which the AAA
Companies do business as of the date hereof are specified on Schedule 3.28.
Except as set forth in Schedule 3.28, none of the AAA Companies has changed its
name or used any assumed or fictitious name, or been the surviving entity in a
merger, acquired any business or changed its principal place of business or
chief executive office, within the past three years.
3.29 NO COMMISSIONS. Except as set forth on Schedule 3.29, neither
the AAA Companies nor the Shareholders has incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
3.30 RECEIVABLES. All of the Receivables (as hereinafter defined)
are valid and legally binding, represent bona fide transactions and arose in the
ordinary course of business of each of the AAA Companies. All of the
Receivables are good and collectible receivables, and will be collected in full
in accordance with the terms of such receivables (and in any event within six
months following the Closing), without setoff or counterclaims, subject to the
allowance for doubtful accounts of an amount not to exceed 1% of revenue
collected by the AAA Companies from its customers. For purposes of this
Agreement, the term "Receivables" means all receivables of each of the AAA
Companies, including all trade account receivables arising from the provision
of services, sale of inventory, notes receivable, and insurance proceeds
receivable.
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ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGERS
4.1 CONDUCT OF BUSINESS BY THE AAA COMPANIES PENDING THE MERGERS.
The AAA Companies covenant and agree that, between the date of this Agreement
and the Effective Time, the business of each of the AAA Companies shall be
conducted only in, and each of the AAA Companies shall not take any action
except in, the ordinary course of business, consistent with past practice.
Each of the AAA Companies shall use all reasonable efforts to preserve intact
its business organization, to keep available the services of its current
officers, employees and consultants, and to preserve its present relationships
with customers, suppliers and other persons with which it has significant
business relations. By way of amplification and not limitation, except as
contemplated by this Agreement, none of the AAA Companies shall, between the
date of this Agreement and the Effective Time, directly or indirectly, do or
propose or agree to do any of the following without the prior written notice to
Republic:
(a) amend or otherwise change any of their articles of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or, authorize the
issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of
their capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital
stock, or any other ownership interest, of any of them or (ii) any of their
assets, tangible or intangible, except in the ordinary course of business
consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of their capital stock (except for distributions to any of the Shareholders
consistent with past practices of any of the AAA Companies);
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of their capital stock;
(e) (i) acquire (including, without limitation, for cash or shares
of stock, by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase of
stock or securities, contributions of capital or property transfer, or, except
in the ordinary course of business, consistent with past practice, purchase any
property or assets of any other Person, (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or endorse or
otherwise as an accommodation become responsible for, the obligations of any
Person, or make any loans or advances, or (iii) enter into any Contract other
than in the ordinary course of business, consistent with past practice;
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(f) except in the ordinary course of business consistent with past
practice, increase the compensation payable or to become payable to any of
their officers or employees, or, except as presently bound to do, grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any of their directors, officers or other employees, or
establish, adopt, enter into or amend or take any action to accelerate any
rights or benefits which any collective bargaining, bonus, profit sharing,
trust, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) take any action other than in the ordinary course of business
and in a manner consistent with past practice with respect to accounting
policies or procedures;
(h) pay, discharge or satisfy any existing claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in any of their financial statements,
as appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(i) except in the ordinary course of business consistent with past
practice, increase or decrease prices charged to any of their customers, except
for previously announced price changes, or take any other action which might
reasonably result in any material increase in the loss of customers through
non-renewal or termination of service contracts or other causes; or
(j) agree, in writing or otherwise, to take or authorize any of
the foregoing actions or any action which would make any representation or
warranty in Article III untrue or incorrect.
Notwithstanding the foregoing, the parties agree that the agreements or
arrangements set forth in Schedules 3.4 (relating to stock transfer restriction
agreements), 3.17 (relating to Larry E. Edwards' employment agreement and
salary continuation agreements) will be terminated at or prior to the Effective
Time so long as doing so will not adversely affect the poolability of the
transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the
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transactions contemplated hereby. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate actions, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated herein, including, without limitation, using all
reasonable efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of any Governmental Authority and
parties to Contracts with the AAA Companies as are necessary for the
consummation of the transactions contemplated hereby. In the event the
foregoing agreements of the parties shall result in the imposition of any fees,
costs or expenses after the Effective Time, Republic hereby agrees to pay all
such fees, costs and expenses and to indemnify and hold the Shareholder
harmless with respect to such fees, costs and expenses. Each of parties shall
make on a prompt and timely basis all governmental or regulatory notifications
and filings required to be made by it for the consummation of the transactions
contemplated hereby. The parties also agree to use all reasonable efforts to
defend all lawsuits or other legal proceedings challenging this Agreement or
the consummation of the transactions contemplated hereby and to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby.
Notwithstanding anything to the contrary set forth herein, with respect to (i)
the making of any required governmental or regulatory notifications and
filings, (ii) the defense of any lawsuit or other legal proceeding challenging
this Agreement or the consummation of the transactions contemplated hereby, and
(iii) the lifting or rescinding of any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, Republic and the Shareholders shall pay their
own fees and expenses, including their own counsel fees, incurred in
connection with any of the foregoing matters, whether such fees and expenses
arise prior to the consummation of the transactions contemplated hereby or
after the Effective Time. The Republic Companies will be solely responsible
for the defense of any Republic shareholder lawsuits challenging the
transactions contemplated by this Agreement or any governmental action which
challenges the transactions contemplated by this Agreement.
5.2 HSR ACT FILINGS. Each of the parties hereto shall make
promptly (and in no event later than ten (10) business days following the date
hereof) its respective filings, if any, and thereafter make any other required
submissions under the HSR Act, with respect to the transactions contemplated
hereby.
5.3 COMPLIANCE WITH COVENANTS. The Shareholders shall cause the
AAA Companies to comply with all of the respective covenants of the AAA
Companies under this Agreement.
5.4 COOPERATION. Each of the parties agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of any exchange on which the Republic
Common Stock is listed or The Nasdaq Stock Market in connection with the
transactions contemplated by this Agreement and to use their respective Best
Efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such
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transactions.
5.5 ACCESS TO INFORMATION. From the date hereof to the Effective
Date, the Shareholders shall in good faith cooperate with Republic to make
available to Republic and Republic's officers, employees, auditors, counsel and
agents copies of all books and records of the AAA Companies, and shall furnish
such persons with all financial, operating and other data and information as
may be requested. No information provided to or obtained by Republic shall
affect any representation or warranty in this Agreement. The Shareholders
shall provide Republic with reasonable access to its offices and other
facilities, provided that all visits and inspections to such offices and
facilities shall be conducted while accompanied by a Shareholder or a
representative of the Shareholders in a manner which does not suggest or
disclose the existence of this Agreement (or any agreement to sell stock or
assets) to employees or officers of the AAA Companies.
5.6 NOTIFICATION OF CERTAIN MATTERS. The parties shall give
prompt notice to the other of the occurrence or non-occurrence of any event
which would likely cause any representation or warranty contained herein to be
untrue or inaccurate, or any covenant, condition, or agreement contained herein
not to be complied with or satisfied.
5.7 TAX TREATMENT. The Republic Companies will use their
respective Best Efforts to cause the Mergers to qualify as reorganizations
under the provisions of Section 368(a) of the Code. The Republic Companies
will not and do not presently intend to take any action after the Mergers are
effected to cause the Mergers to lose their tax-free status, unless the
Shareholders of the AAA Companies take any actions that, individually or in the
aggregate, have the effect of disqualifying this transaction under the
provisions of Section 368 of the Code. All parties hereto agree to file the
Plans of Merger with each of their respective federal income tax returns for
the year in which the Mergers are effective, and to comply with the reporting
requirements of Treasury Regulation 1.368-3. The parties agree to use their
respective reasonable Best Efforts to contest, or to assist any other party
hereto who is contesting, the assertion by any Governmental Authority that any
of the Mergers failed to qualify as reorganization under Section 368 of the
Code.
5.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law
or as otherwise permitted or expressly contemplated herein, or as required (on
a confidential basis) in either party's due diligence investigation or in the
consummation of this transaction, or as otherwise set forth in those certain
Confidentiality and Non-Disclosure Agreements dated December 2, 1996 as amended
by the addendum dated January 27, 1997 by and between each of the AAA companies
and Republic, the terms of which are specifically incorporated herein by this
reference, no party hereto or their respective Affiliates, employees, agents
and representatives shall disclose to any third party this Agreement or the
subject matter or terms hereof without the prior consent of the other parties
hereto. No press release or other public announcement related to this
Agreement or the transactions contemplated hereby shall be issued by any party
hereto without the prior approval
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of the other parties until the Effective Date, except that Republic may make
such public disclosure which it believes in good faith to be required by law or
by the terms of any listing agreement with or requirements of a securities
exchange (in which case Republic will consult with an officer of the AAA
Companies prior to making such disclosure). Any of the provisions of this
Agreement notwithstanding, the provisions of this Section 5.8 shall survive
termination of this Agreement.
5.9 NO OTHER DISCUSSIONS. Unless and until this Agreement is
terminated pursuant to Article XI, the AAA Companies, the Shareholders, and
their respective Affiliates, employees, agents and representatives will not (i)
initiate, encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the AAA Companies (whether by merger, consolidation,
sale of stock or otherwise) or (ii) enter into any agreement or commitment
(whether or not binding) with respect to any of the foregoing transactions.
The Shareholders will immediately notify Republic if any third party attempts
to initiate any solicitation, discussion or negotiation with respect to any of
the foregoing transactions.
5.10 RESTRICTIVE COVENANTS. In order to assure that Republic will
realize the benefits of the Mergers, each of the Shareholders jointly and
severally agrees with Republic that he or it will not for a period of three
years from the Effective Time:
(a) directly or indirectly, alone or as a partner, joint
venturer, officer, director, employee, consultant, agent, independent
contractor or stockholder of any company or business, engage in any
business activity in any county of the Commonwealth of Virginia in
which the AAA Companies presently conduct business which is directly
or indirectly in competition with the business conducted by the AAA
Companies at the Effective Time; provided, however, that, (i) the
beneficial ownership of less than five percent (5%) of the shares of
stock of any corporation having a class of equity securities actively
traded on a national securities exchange or over-the-counter market
and (ii) the ownership or operation of, or other interests in, real
property shall not be deemed, in and of itself, to violate the
prohibitions of this Section;
(b) directly or indirectly (i) induce any Person which is
a customer of the AAA Companies at the Effective Time to patronize any
business directly or indirectly in competition with the business
conducted by the AAA Companies; (ii) canvass,solicit or accept from
any Person which is a customer of the AAA Companies, any such
competitive business; or (iii) request or advise any Person which is a
customer of the AAA Companies at the Effective Time to withdraw,
curtail or cancel any such customer's business with the AAA Companies
or any of their successors;
(c) except with respect to any trustee of any of the
Shareholders,
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directly or indirectly employ, or knowingly permit any company or
business directly or indirectly controlled by him, to employ, any
person who was employed by any of the AAA Companies at or within six
months prior to the Effective Time, or in any manner seek to induce
any such person to leave his or her employment; and
(d) directly or indirectly, at any time following the
Effective Time, in any way utilize, disclose, copy, reproduce or
retain in his possession any of the AAA Companies' proprietary rights
or records, including, but not limited to, any of its customer lists,
except as otherwise provided in Section 5.15.
The Shareholders agree and acknowledge that the restrictions contained in this
Section are reasonable in scope and duration and are necessary to protect
Republic after the Effective Time. If any provision of this Section as applied
to any party or to any circumstance is adjudged by a court to be invalid or
unenforceable, the same will in no way affect any other circumstance or the
validity or enforceability of this Agreement. If any such provision, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced
form, such provision shall then be enforceable and shall be enforced. The
parties agree and acknowledge that the breach of this Section will cause
irreparable damage to Republic and upon breach of any provision of this
Section, Republic shall be entitled to injunctive relief, specific performance
or other equitable relief; provided, however, that, this shall in no way limit
any other remedies which Republic may have (including, without limitation, the
right to seek monetary damages).
5.11 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic
shall be entitled to have conducted prior to Closing a due diligence review of
the assets, properties, books and records of each of the AAA Companies and an
environmental assessment of the Owned Properties and Leased Premises
(hereinafter referred to as "Environmental Assessment"). The Environmental
Assessment may include, but not be limited to, a physical examination of the
Owned Property or Leased Premises, and any structures, facilities, or equipment
located thereon, soil samples, ground and surface water samples, storage tank
testing, review of pertinent records, documents, and Licenses of each of the
AAA Companies. The Shareholders shall provide Republic or its designated
agents or consultants with the access to such property which Republic, its
agents or consultants require to conduct the Environmental Assessment. If the
Environmental Assessment identifies environmental contamination which requires
remediation or further evaluation under the Environmental, Health and Safety
Laws or if the results of the Environmental Assessment are otherwise not
satisfactory to Republic in its sole discretion, then Republic may elect not to
close the transactions contemplated by this Agreement in which case this
Agreement shall be terminated. Republic's failure or decision not to conduct
any such Environmental Assessment shall not affect any representation or
warranty of the Shareholders under this Agreement.
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5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise
expressly consented to by Republic, from the date of this Agreement until the
Effective Time, none of the AAA Companies or the Shareholders (nor any
Affiliates thereof) will directly or indirectly purchase or sell (including
short sales) any shares of Republic Common Stock in any transactions effected
on The Nasdaq Stock Market or otherwise.
5.13 RELEASE OF GUARANTIES. After the Effective Date, Republic
hereby covenants and agrees to (i) take promptly any and all actions necessary
to cause any and all personal guaranties by the Shareholders, with respect to
the Guaranteed Liabilities set forth in Schedule 5.13 (the "Guaranteed
Liabilities"), to be released by the holders of such guaranties; and (ii)
indemnify and hold the Shareholders harmless for any Guaranteed Liabilities
outstanding after the Effective Date, and any expenses, losses, deficiencies,
liabilities, and damages (including, without limitation, reasonable related
counsel fees, paralegal fees, and expenses) resulting from Republic's breach of
this Section 5.13.
5.14 DELIVERY OF QUALIFIED CERTIFICATE. Notwithstanding anything
to the contrary set forth herein, if any events shall have occurred which were
beyond the control of the AAA Companies or the Shareholders between the date of
this Agreement and the Effective Time which would prevent the AAA Companies and
the Shareholders from delivering to Republic the certificate(s) referred to in
Section 6.1 and 6.2 hereof without exception or qualification, the AAA
Companies and the Shareholders shall nevertheless deliver to Republic such
certificate with exceptions attached thereto (the "Qualified Certificate"). In
the event Republic shall receive a Qualified Certificate, Republic may in its
sole and absolute discretion (a) terminate this Agreement without penalty or
(b) waive such condition to effect the Mergers and close the transactions
contemplated pursuant to the terms of this Agreement. In the event Republic
elects to effect the Mergers, Republic hereby waives any right to bring a claim
for Indemnifiable Damages arising as a result of the exceptions set forth in
the Qualified Certificate; provided that Republic specifically reserves and may
assert any claim for Indemnifiable Damages (i) arising from any breach of the
representations and warranties of the Shareholders in this Agreement existing
as of the date of this Agreement, (ii) arising from any events which have
occurred between the date of this Agreement and the Effective Time which were
in the control of the AAA Companies or the Shareholders whether or not such
events have been disclosed to Republic in the Qualified Certificate, (iii)
arising from any events not disclosed to Republic, and (iv) arising from any
environmental remediation of the Leased Premises or Owned Properties.
5.15 AVAILABILITY OF RECORDS. After the Effective Date, Republic
hereby covenants and agrees, upon the receipt of written notice from the
Shareholders setting forth with reasonable specificity the basis and purpose of
the request, to provide to the Shareholders any records (i) necessary for
purposes of resolution of any audit of any Tax Return of the AAA Companies,
for, or of the Shareholders with respect to income attributable to any period
of the AAA Companies ending on or before the Effective Time, (ii) with respect
to any claim for Indemnifiable Damages hereunder, and (iii) any claim against
any Shareholder (whether in his or its capacity as a
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shareholder, officer or director), with respect to any period of time ending on
or before the Effective Time.
5.16 TAX AUDIT PRIOR TO THE EFFECTIVE TIME. In the event of any
audit by a taxing authority of any Tax Return of the AAA Companies for, or of
the Shareholders with respect to income attributable to, any period of the AAA
Companies ending on or before the Effective Time, Republic will promptly
provide the Shareholders with copies of all notices issued by the taxing
authority and received by Republic or the AAA Companies in connection
therewith. The Shareholders may, at their sole expense, defend any such audit,
and may assert or agree to accept any reasonable reporting position of
transactions required to be reflected in the Tax Return so audited to achieve
resolution of such audit, provided that in the event such position has an
adverse effect to Republic, Republic shall be fully indemnified and held
harmless by the Shareholders with respect to any damage, loss, cost or expense
(including, without limitation, reasonable attorneys' fees) incurred by
Republic as a result of such adverse position. Republic will have the right to
participate in any such audit at its own non-reimbursable expense and shall
receive from the Shareholders copies of all communications between the taxing
authority and Shareholders relevant to the Tax Returns or Taxes of the AAA
Companies. The provisions of Section 8.11 hereof shall be applicable with
respect to any dispute between the parties with respect to the amount of any
damage, loss, cost or expense incurred by Republic in connection with the terms
of this Section.
5.17 PREPARATION OF FINAL TAX RETURN; ALLOCATION OF INCOME. After
the Effective Date, Republic and the Shareholders hereby covenant and agree
that (i) Beers & Cutler, C.P.A. shall prepare the final Tax Return of the AAA
Companies for the year ending as a result of the Mergers, and (ii) any income
of the AAA Companies for the year ending as a result of the Mergers shall be
allocated on a closing of the books method in accordance with Section
1362(e)(6)(D) of the Code and no election to the contrary shall be made by the
AAA Companies under Treasury Regulations 1.1502- 76(b)(2)(ii)(D) of the Code.
5.18 SATISFACTION OF REAL PROPERTY INDEBTEDNESS. Within five (5)
business days from the Effective Time, Republic shall cause Land and Building
to fully pay and satisfy, in immediately available funds, that certain
indebtedness in the remaining principal amount not to exceed $2,600000.00 owed
by Land and Building to Larry E. Edwards with respect to that certain parcel of
real property located at 4619 West Ox Road, Fairfax, Virginia 22030.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Mergers shall
be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part by
the Republic Companies:
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6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Shareholders contained
in this Agreement shall be true and correct at and as of the Effective Time
with the same force and effect as though made at and as of that time except (i)
for changes specifically permitted by or disclosed pursuant to this Agreement,
and (ii) that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date. Each of
the AAA Companies and the Shareholders shall have performed and complied with
all of their respective obligations required by this Agreement to be performed
or complied with at or prior to the Effective Time. Each of the AAA Companies
and the Shareholders shall have delivered to the Republic Companies a
certificate, dated as of the Effective Date, duly signed (in the case of each
of the AAA Companies, by its President), certifying that such representations
and warranties are true and correct and that all such obligations have been
complied with and performed.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.
Between the date hereof and the Effective Time, (i) there shall have been no
Material Adverse Change to the AAA Companies, (ii) there shall have been no
adverse federal, state or local legislative or regulatory change affecting in
any material respect the services, products or business of any of the AAA
Companies, and (iii) none of the properties and assets of the AAA Companies
shall have been damaged by fire, flood, casualty, act of God or the public
enemy or other cause (regardless of insurance coverage for such damage) which
damages may have a Material Adverse Effect thereon, and there shall have been
delivered to the Republic Companies a certificate to that effect, dated the
Effective Date and signed by or on behalf of each of the AAA Companies and the
Shareholders.
6.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered
to the Republic Companies (i) copies of the articles of incorporation and
bylaws of each of the AAA Companies as in effect immediately prior to the
Effective Time, (ii) copies of resolutions adopted by the Board of Directors
and Shareholders of each of the AAA Companies authorizing the transactions
contemplated by this Agreement, and (iii) a certificate of good standing each
of the AAA Companies issued by the Secretary of State of the Commonwealth of
Virginia and each other state in which any of the AAA Companies is qualified to
do business as of a date not more than ten days prior to the Effective Date,
certified in the case of subsections (i) and (ii) of this Section as of the
Effective Date by the Secretary of each such company as being true, correct and
complete.
6.4 OPINION OF COUNSEL. The Republic Companies shall have
received an opinion dated as of the Effective Date from counsel for the AAA
Companies and the Shareholders, in form and substance acceptable to the
Republic Companies, with reasonable limitations acceptable to counsel for the
AAA Companies and the Shareholders, to the effect that:
(i) Each of the AAA Companies is a corporation
duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia and each is authorized to carry on the
business now conducted by each of
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them and to own or lease the properties now owned or leased by each of
them;
(ii) Each of the AAA Companies has obtained all
necessary authorizations and consents of each of their Board of
Directors and the Shareholders to effect each of the Mergers;
(iii) All issued and outstanding shares of capital
stock of each of the AAA Companies are owned as set forth on Schedule
3.5 hereto;
(iv) Such counsel does not have actual knowledge
that there is any litigation, proceeding or investigation pending or
in good faith Threatened which might result in any Material Adverse
Change in the properties, business or prospects or in the condition of
each of the AAA Companies, or which questions the validity of this
Agreement; and
(v) This Agreement is a valid and binding
obligation of each of the AAA Companies, and the Shareholders, and
enforceable against each of the AAA Companies and the Shareholders in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or general
equitable principles.
6.5 CONSENTS. The AAA Companies shall have received consents to
the transactions contemplated hereby and waivers of rights to terminate or
modify any material rights or obligations of any of the AAA Companies from any
Person from whom such consent or waiver is required as of a date not more than
ten days prior to the Effective Date, or who, as a result of the transactions
contemplated hereby, would have such rights to terminate or modify any such
material rights or obligations, either by the terms thereof or as a matter of
law.
6.6 SECURITIES LAWS. Republic shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the issuance of the Republic Shares, in connection with the
transactions contemplated hereby.
6.7 POOLING LETTERS. Republic shall have received from Beers &
Cutler, independent certified public accountants for each of the AAA Companies,
a letter dated the Effective Date, in form and substance acceptable to
Republic, confirming that, to their knowledge after due and diligent inquiry of
management, there have been no transactions or events with respect to any of
the AAA Companies which would, and the ownership structure and attributes of
any of the AAA Companies and the Shareholders would not, proscribe the
transactions contemplated hereby, if consummated, from being considered as
pooling of interests business combinations. Republic shall have received from
Arthur Andersen LLP, a letter dated the Effective Date, confirming that the
transactions contemplated hereby, if consummated, can properly be accounted for
as pooling
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of interests combinations in accordance with GAAP and the criteria of
Accounting Principles Board Opinion No. 16 and the regulations of the SEC.
6.8 ACKNOWLEDGMENT OF POOLING RESTRICTIONS AND RECEIPT OF SEC
FILINGS. At or prior to the Closing, the Shareholders shall have delivered to
Republic a letter agreement acknowledging "pooling of interests" restrictions
and receipt of SEC filings of Republic, in form and substance satisfactory to
the Republic Companies.
6.9 AAA COMPANIES CAPITAL STOCK. At the Closing, each of the
Shareholders shall have delivered to Republic all certificates evidencing the
shares of capital stock of each of the AAA Companies held by them.
6.10 STOCK POWERS. At the Closing, each of the Shareholders shall
have delivered to Republic, for use in connection with the Held Back Shares,
ten stock powers executed in blank, with signatures guaranteed.
6.11 NO ADVERSE LITIGATION. There shall not be pending or in good
faith Threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Mergers or any other transaction contemplated
hereby, and which, in the judgment of Republic, makes it inadvisable to proceed
with the Mergers and other transactions contemplated hereby.
6.12 BOARD APPROVAL. The Board of Directors of Republic shall have
authorized and approved this Agreement, the Mergers and transactions
contemplated hereby.
6.13 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period
shall have expired or been terminated.
6.14 DUE DILIGENCE REVIEW. Republic shall be satisfied with the
results of its due diligence review and Environmental Assessment pursuant to
Section 5.11.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE AAA COMPANIES AND THE SHAREHOLDERS
The obligations of the AAA Companies and the Shareholders to effect
the Mergers shall be subject to the fulfillment at or prior to the Effective
Time of the following conditions, any or all of which may be waived in whole or
in part by the AAA Companies and the Shareholders:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS.
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The representations and warranties of each of the Republic Companies contained
in this Agreement shall be true and correct in all material respects at and as
of the Effective Time with the same force and effect as though made at and as
of that time except (i) for changes specifically permitted by or disclosed
pursuant to this Agreement, and (ii) that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date. Each of the Republic Companies shall have performed
and complied with all of its obligations required by this Agreement to be
performed or complied in all material respects with at or prior to the
Effective Time. Each of the Republic Companies shall have delivered to the AAA
Companies and the Shareholders a certificate, dated as of the Effective Date,
and signed by an executive officer, certifying that such representations and
warranties are true and correct and that all such obligations have been
complied with and performed.
7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued
all of the Republic Shares and shall have delivered to the Shareholders (i)
certificates representing the Republic Shares issued to them hereunder, other
than the Held Back Shares, and (ii) copies of stock certificates representing
the Held Back Shares issued to them.
7.3 NO ADVERSE LITIGATION. There shall not be pending or in good
faith Threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Mergers or any other transaction contemplated
hereby, and which in the judgment of the AAA Companies and the Shareholders
makes it inadvisable to proceed with the Mergers and other transactions
contemplated hereby.
7.4 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period
shall have expired or been terminated.
7.5 OPINION OF REPUBLIC'S COUNSEL. The AAA Companies and the
Shareholders shall have received an opinion dated as of the Effective Date from
counsel for Republic, in form and substance acceptable to the AAA Companies and
the Shareholders, with reasonable limitations acceptable to Republic's counsel,
to the effect that:
(i) Republic is a corporation duly organized and existing
and in good standing under the laws of the State of Delaware and is
authorized to carry on the business now conducted by it and own or
lease the properties now owned or leased by it;
(ii) Republic has obtained all necessary authorizations
and consents of its Board of Directors to effect the transactions
contemplated hereunder;
(iii) Such counsel does not have actual knowledge that
there is any litigation, proceeding or investigation pending or in
good faith Threatened which might result in any Material Adverse
Change in the properties, business or prospects or in the condition of
Republic or which questions the validity of this Agreement;
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(iv) This Agreement is a valid and binding obligation of
Republic and enforceable against Republic in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally; and
(v) Upon consummation of the Mergers and the issuance and
delivery of certificates representing the Republic Shares to the
Shareholders, the Republic shares will be validly issued, fully paid
and non-assessable shares of Republic Common Stock.
7.6 No Material Adverse Change to Republic. Between the date
hereof and the Effective Time, there shall have been no Material Adverse Change
to Republic, taken as a whole.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The Shareholders
jointly and severally agree to indemnify and hold Republic harmless from and
against the aggregate of all expenses, losses, costs, deficiencies, liabilities
and damages (including, without limitation, related counsel and paralegal fees
and expenses) incurred or suffered by Republic (collectively, "Indemnifiable
Damages") arising out of or resulting from (i) any breach of a representation
or warranty made by the Shareholders in or pursuant to this Agreement, (ii) any
breach of the covenants or agreements made by the AAA Companies or any
Shareholder in or pursuant to this Agreement, (iii) any inaccuracy in any
certificate delivered by the AAA Companies or any Shareholder pursuant to this
Agreement, (iv) any Claim (as such term is defined in Section 8.5 hereof), or
(v) any matters set forth on Schedules 3.12, 3.29 and 3.19 attached hereto.
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, Republic shall have the right to be put
in the same pre-tax consolidated financial position as it would have been in
had each of the representations and warranties of the Shareholders hereunder
been true and correct and had the covenants and agreements of the AAA Companies
and the Shareholders hereunder been performed in full. Notwithstanding the
foregoing, after the Effective Time, the maximum liability of the Shareholders
for Indemnifiable Damages for any breach of the representations, warranties,
covenants and agreements hereunder shall not exceed in the aggregate the
Purchase Price (the "Indemnification Limitation"); provided, however, that any
Indemnifiable Damages resulting from or arising out of (i) any Claim (as
defined in Section 8.5) and (ii) any matters set forth in Schedules 3.12, 3.29
and 3.19, shall not be applied against or subject to the foregoing
Indemnification Limitation. Republic hereby agrees to use its, and cause its
subsidiaries to use their, reasonable efforts to mitigate any claim for
Indemnifiable Damages hereunder, including but not limited to seeking recovery
under applicable insurance policies or from third parties. Republic hereby
agrees to promptly deliver to the Shareholders any insurance proceeds received
by Republic or any of the AAA Companies after the Effective Time,
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pursuant to the provisions of any insurance policy of the AAA Companies in full
force and effect prior to the Effective Time, in connection with any claim for
Indemnifiable Damages for which Republic has received Indemnifiable Damages
with respect to any matters existing prior to the Effective Time.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholders in this Agreement or
pursuant hereto shall expire on the first anniversary of the Effective Time,
except that the representations and warranties contained in (i) Section 3.12
and 3.29, shall expire at the time the period of limitations expires for the
bringing of any claim, suit or action by any Person with respect to any matters
set forth in Schedule 3.12 or Schedule 3.29 hereof, and (ii) Section 3.19,
with respect to the audits more fully described in Schedule 3.19, shall expire
at the time the period of limitations (including any extensions thereof
pursuant to the delivery of waivers of the applicable period of limitations)
expires for the assessment or imposition by any Governmental Authority of
additional Taxes with respect to such audits (the "Claims Period"). No claim
for the recovery of Indemnifiable Damages for the breach of any of the
representations and warranties made by the Shareholders hereunder may be
asserted by Republic against the Shareholders after such representations and
warranties shall thus expire, provided, however, that claims for Indemnifiable
Damages first asserted within the Claims Period shall not thereafter be barred;
provided, however, such claims (except any claim for Indemnifiable Damages
arising from or related to any Claim), including, without limitation, claims
with respect to or against the Held Back Shares, shall be barred if arbitration
with respect to such claims is not filed within six (6) months after the
expiration of the Claims Period regardless of any otherwise applicable
limitations period. With respect to any claim for Indemnifiable Damages
hereunder, Republic shall give written notice to the Shareholders which notice
shall set forth (i) the amount of Indemnifiable Damages which Republic claims
to have sustained; and (ii) the basis of such claim with reasonable
specificity. Notwithstanding any knowledge of facts determined or determinable
by any party by investigation, each party shall have the right to fully rely on
the representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered in
connection herewith. Each representation, warranty, covenant and agreement of
the parties contained in this Agreement is independent of each other
representation, warranty, covenant and agreement. Each of the representations
and warranties of the Republic Companies shall survive for a period of one year
after the Effective Time.
8.3 SECURITY FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As
security for the agreement by the Shareholders to indemnify and hold Republic
harmless as described in this Article at the Closing, Republic shall set aside
and hold certificates representing the Held Back Shares issued pursuant to this
Agreement. The Shareholders hereby grant Republic a first priority security
interest in the Held Back Shares. Republic may set off against the Held Back
Shares any Indemnifiable Damages for which the Shareholders may be responsible
pursuant to this Agreement, subject, however, to the following terms and
conditions:
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(a) Republic shall give written notice to the Shareholders
of any claim for Indemnifiable Damages or any other damages hereunder,
which notice shall set forth (i) the amount of Indemnifiable Damages
or other loss, damage, cost or expense which Republic claims to have
sustained by reason thereof, and (ii) the basis of such claim with
reasonable specificity;
(b) Such set off shall be effected on the later to occur
on the expiration of 20 days from the date of such notice (the "Notice
of Contest Period") or, if such claim is contested, the date the
dispute is resolved, and such set off shall be charged againstthe Held
Back Shares;
(c) If, prior to the expiration of the Notice of Contest
Period, the Shareholders shall notify Republic in writing of an
intention to dispute the claim and if such dispute is not resolved
within 30 days after expiration of such period (the "Resolution
Period"), then such dispute shall be resolved pursuant to the terms of
Section 8.11 hereof;
(d) After any restrictions on sale imposed under the
Securities Act or otherwise are terminated, the Shareholders may, not
more than once during each twelve (12) month period in which Republic
holds the Held Back shares following the Effective Date, instruct
Republic in writing to sell some or all of the Held Back Shares and
the proceeds thereof shall be substituted for such Held Back Shares
and held in an interest bearing account as directed by the
Shareholders, subject to continued compliance with any applicable SEC
and other regulations. Republic shall not be liable for any loss or
damage incurred by the Shareholders arising from any delay in the sale
of such Held Back Shares following the Shareholders' instruction to
sell the Held Back Shares unless such delay shall be unreasonable in
nature.
(e) For purposes of this Article, the shares of Republic
Common Stock not sold as provided in clause (d) of this Section shall
be valued at the Closing Sale Price.
8.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES . Except with
respect to shares transferred pursuant to the foregoing right of setoff (and in
the case of such shares, until the same are transferred), all Held Back Shares
shall be deemed to be owned by the Shareholders and the Shareholders shall be
entitled to vote the same; provided, however, that, there shall also be
deposited with Republic subject to the terms of this Article, all shares of
Republic Common Stock issued to the Shareholders as a result of any stock
dividend or stock split and all cash issuable to the Shareholders as a result
of any cash dividend, with respect to the Held Back Shares. All stock and cash
issued or paid upon Held Back Shares shall be distributed to the person or
entity entitled to receive such Held Back Shares together with such Held Back
Shares.
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8.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to
the Shareholders no later than the first anniversary of the Effective Date (the
"Release Date") any Held Back Shares then held by it (or proceeds from the sale
of the Held Back Shares) unless there then remains unresolved any claim for
Indemnifiable Damages or other damages hereunder as to which notice has been
given, in which event any Held Back Shares remaining on deposit (or proceeds
from the sale of Held Back Shares) after such claim shall have been satisfied
shall be returned to the Shareholders promptly after the time of satisfaction.
Notwithstanding the foregoing provision, the parties hereto hereby agree that
following the Release Date, Republic shall continue to set aside and hold, in
accordance with this Article, 13,889 of the Held Back Shares (or the proceeds
from the sale of such Held Back Shares), or any remaining Held Back Shares then
held by Republic, (or the proceeds from the sale of any such remaining Held
Back Shares), as continued security (the "Continued Security") for the
Shareholders' obligation to indemnify and hold Republic harmless with respect
to the bringing of any claim, suit, or action (equitable or otherwise) (the
"Claim") in connection with, arising out of or from, or in any manner related
to that certain Property Settlement Agreement dated as of November 12, 1996, by
and between Larry E. Edwards and Mary G. Edwards, and any amendments thereto.
No later than the second anniversary of the Effective Date, Republic shall
promptly deliver 6,945 of the Continued Security then held by it (or the
proceeds from the sale of such Continued Security) to the Shareholders unless
there then remains unresolved any claim for Indemnifiable Damages with respect
to any Claim as to which notice has been given. No later than the third
anniversary of the Effective Date, Republic shall promptly deliver to the
Shareholders any Continued Security then held by it (or the proceeds from the
sale of such Continued Security) unless there then remains unresolved any claim
for Indemnifiable Damages with respect to any Claim as to which notice has been
given, in which event any Continued Security remaining on deposit (or proceeds
from the sale of such Continued Security), after any such Claim shall have been
satisfied, shall be returned to the Shareholders promptly after the time of
satisfaction.
8.6 ADJUSTMENT TO MERGER CONSIDERATION. All payments for
Indemnifiable Damages made pursuant to this Article shall be treated as
adjustments to the consideration granted in the Merger under Section 1.3
hereof.
8.7 NO BAR. If the Held Back Shares are insufficient to set off
any claim for Indemnifiable Damages made hereunder (or have been delivered to
the Shareholders prior to the making or resolution of such claim), then
Republic may take any action or exercise any remedy available to it by
appropriate legal proceedings to collect the Indemnifiable Damages.
8.8 INDEMNIFICATION THRESHOLD. Notwithstanding anything to the
contrary in this Agreement and any documents related thereto, the Shareholders
shall not be liable to Republic with respect to any claim for Indemnifiable
Damages unless the aggregate amount of all Indemnifiable Damages (excluding
claims for Indemnifiable Damages arising from or related to any Claim (as
defined in Section 8.5) or any matters set forth in Schedules 3.12, 3.29 and
3.19) incurred by Republic exceed an aggregate of $1,000,000.00 (the
"Indemnification Threshold"),
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in which case the Shareholders shall be liable for the total amount of such
Indemnifiable Damages in excess of such Indemnification Threshold.
Notwithstanding anything to the contrary set forth herein, the Shareholders
shall be responsible for the full amount of any claim for Indemnifiable Damages
arising from or related to any Claim and any matters set forth in Schedules
3.12, 3.29 and 3.19.
8.9 DEFENSE OF CLAIM. Promptly after receipt by Republic of
notice of the commencement of any Claim (as such term is defined in Section 8.5
hereof), Republic will, if a Claim is to be made against Republic or any of the
Surviving Corporations, promptly notify the Shareholders of the commencement
thereof and the Shareholders shall have the right, at their sole cost and
expense, to participate in, and, to the extent they may wish, assume the
defense of any such Claim, with counsel satisfactory to Republic; provided,
however, if the defendants of any Claim include Republic or any of the
Surviving Corporations and any of the Shareholders and there is a conflict of
interest which would prevent counsel for the Shareholders from also
representing Republic or any of the Surviving Corporations, Republic shall have
the right to select separate counsel to participate in the defense of any such
Claim on behalf of Republic or the Surviving Corporations. After notice from
the Shareholders to Republic of their election to assume the defense of any
Claim, the Shareholders will not be liable to Republic for any legal or other
expenses subsequently incurred by Republic in connection with the defense of
any Claim other than reasonable costs of investigation, unless (i) Republic
shall have employed counsel in accordance with the provisions of the preceding
sentence, (ii) the Shareholders shall not have employed counsel satisfactory to
Republic to represent Republic or the Surviving Corporations within a
reasonable time after the notice of the commencement of any Claim, or (iii) the
Shareholders have authorized the employment of counsel for Republic or the
Surviving Corporations at the expense of the Shareholders.
8.10 AGREEMENT BY REPUBLIC TO INDEMNIFY. Republic agrees to
indemnify and hold the Shareholders harmless from and against the aggregate of
all expenses, losses, costs, deficiencies, liabilities and damages (including,
without limitation, reasonable related counsel and paralegal fees and expenses)
incurred or suffered by the Shareholders (collectively, the "Shareholder
Indemnifiable Damages") resulting from or arising out of (i) any breach of a
representation or warranty made by Republic in or pursuant to this Agreement,
(ii) any breach of the covenants or agreements made by Republic in this
Agreement, or (iii) any inaccuracy in any certificate delivered by Republic
pursuant to this Agreement. Without limiting the generality of the foregoing
with respect to the measurement of Shareholder Indemnifiable Damages, the
Shareholders shall have the right to be put in the same pre-tax consolidated
financial position as they would have been in had each of the representations
and warranties of Republic hereunder been true and correct. No claim for the
recovery of Shareholder Indemnifiable Damages with respect to the breach of the
representations and warranties of the Republic Companies may be asserted by the
Shareholders against Republic after such representations and warranties shall
thus expire.
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8.11 ARBITRATION. Notwithstanding anything to the contrary set
forth herein, any claim for Indemnifiable Damages or Shareholder Indemnifiable
Damages hereunder shall be resolved by arbitration in the city or suburbs of
Wilmington, Delaware in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The arbitrators shall apply the laws of the
state as provided in Section 12.8 hereof in any such arbitration and any
judgment upon the award rendered by such arbitrators may be entered in any
court having jurisdiction over the parties. The arbitrators shall have the
authority to grant any remedies that would be available in any judicial
proceeding instituted to resolve any claim for Indemnifiable Damages or
Shareholder Indemnifiable Damages.
8.12 INDEMNIFICATION PROCEDURES. In the event that any claim for
which the AAA Companies or Shareholders may be liable to the Republic Companies
hereunder is asserted against the Republic Companies by a third party, with
respect to each such claim:
(a) The Republic Companies will with reasonable promptness give
notice to the Shareholders of such claim, specifying the nature of such claim
and the amount or the estimated amount thereof to the extent then feasible
(which estimate will not be conclusive of the final amount of such claim).
(b) The Shareholders will be consulted in good faith on all
material matters concerning the defense or settlement of such claim.
(c) In dealing with such claim, the Republic Companies and their
counsel will have a reasonable good faith duty to assess the merits of the
claim and act reasonably in defending such claim taking into account the
financial exposure of such claim to the Shareholders.
ARTICLE IX
SECURITIES LAW MATTERS
The Shareholders agree as follows with respect to the sale or other
disposition after the Effective Time of the Republic Shares:
9.1 DISPOSITION OF SHARES. The Shareholders represent and
warrant that the shares of Republic Common Stock being acquired by them
thereunder are being acquired and will be acquired for their own respective
accounts and will not be sold or otherwise disposed of, except (a) pursuant to
an exemption from the registration requirements under the Securities Act, (b)
in accordance with Rule 145(d) under the Securities Act, or (c) pursuant to an
effective registration statement filed by Republic with the SEC under the
Securities Act. To the extent the Shareholders comply with the provisions of
Rule 145(d) under the Securities Act in effecting sales of the Republic
Shares, Republic agrees to provide its transfer agent with appropriate
instructions and/or
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opinions of counsel in order for the Shareholders to sell, transfer and/or
dispose of the Republic Shares in accordance with Rule 145(d).
9.2 LEGEND. The certificates representing the Republic Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, (B) IN
ACCORDANCE WITH RULE 145(D) UNDER THE ACT, OR (C) IN ACCORDANCE WITH
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER
WITHOUT COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S
ACCOUNTING SERIES RELEASES 130 AND 135.
Republic may, unless a registration statement is in effect covering such shares
or unless the Shareholders comply with Rule 145(d), place stop transfer orders
with its transfer agent with respect to such certificates in accordance with
federal securities laws.
ARTICLE X
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the following terms
shall have the following meanings:
"AAA Companies" shall mean Disposal, Commercial, Recycling,
Maintenance, and Land and Building and any Affiliates thereof.
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as in effect
on the date hereof.
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"Best Efforts" means the efforts that an ordinary, reasonable,
prudent Person would use to achieve a result in similar circumstances;
provided, however, that an obligation to use Best Efforts does not
require a Person to take actions that would result in a Material
Adverse Change to such Person under the terms of this Agreement.
"Closing Sale Price" shall mean $36.00 per share of Republic
Common Stock issued pursuant to the terms hereof; provided, however,
that if between the date of this Agreement and the Effective Date, the
outstanding shares of Republic Common Stock shall have been changed
into a different number of shares, or a different class, by reason of
any Change (as such term is defined in Section 1.3 hereof), the
Closing Sale Price shall be correspondingly adjusted to reflect such
Change.
"Code" shall mean the Internal Revenue Code of 1986, and any
amendments thereto, and the treasury regulations promulgated
thereunder.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited
to, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable
law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
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"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties,
assets, liabilities, rights, obligations, operations, business or
prospects which change (or effect) individually or in the aggregate,
is materially adverse to such condition, properties, assets,
liabilities, rights, obligations, operations, business or prospects.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes
imposed by any federal, state, local or foreign governmental agency,
and any interest or penalties related thereto.
"Threatened" means with respect to any claim, suit,
proceeding, dispute, or other matter that a demand or statement has
been made (orally or in writing) or any notice has been given (orally
or in writing) that would lead an ordinary, reasonable, prudent Person
to conclude that such a claim, suit, proceeding, dispute, or other
matter may be asserted, commenced, taken, or otherwise pursued in the
future.
10.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other documents made
or delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
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(c) All matters of an accounting nature in connection
with this Agreement and the transactions contemplated hereby shall be
determined on a cash basis method of accounting.
(d) As used herein, the neuter gender shall also denote
the masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time:
(a) by mutual written consent of all of the parties
hereto at any time prior to the Closing; or
(b) by Republic in the event of a material breach by any
of the AAA Companies or any of the Shareholders of any provision of
this Agreement; or
(c) by the AAA Companies and the Shareholders in the
event of a material breach by Republic of any provision of this
Agreement; or
(d) by either Republic or the AAA Companies if the
Closing shall not have occurred by April 1, 1997.
11.2 EFFECT OF TERMINATION. In the event of termination
of this Agreement pursuant to Section 12.1, this Agreement shall forthwith
become void; provided, however, that nothing herein shall relieve any party
from liability for the willful and intentional breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by
certified or registered mail (first class postage pre-paid), guaranteed
overnight delivery, or facsimile transmission if such transmission is confirmed
by delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall
designate in writing to the other party):
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(a) IF TO ANY OF THE REPUBLIC COMPANIES TO:
Republic Industries, Inc.
450 East Las Olas Blvd., Suite 1200
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (954) 713-2120
WITH A COPY TO:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Attention: Jonathan L. Awner, Esq.
Telecopy: (305) 374-5095
(b) IF TO THE AAA COMPANIES AND/OR THE SHAREHOLDERS TO:
AAA Disposal Service, Inc.
4619 West Ox Road
Fairfax, VA 22030
Attn: Harry W. Mulford, General Counsel
Telecopy: (703) 803-1379
WITH A COPY TO:
The Mandell Law Firm A Professional Corporation
8133 Leesburg Pike, Suite 630
Vienna, VA 22182
Attention: Steve A. Mandell, Esq.
Telecopy: (703) 356-0005
Notice shall be deemed given on the date sent if sent by overnight
delivery or facsimile transmission and on the date delivered (or the date of
refusal of delivery) if sent by certified or registered mail.
12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits
and Schedules attached hereto), the Confidentiality and Non-Disclosure
Agreements dated December 2, 1996 as
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amended by the Addendum dated January 27, 1997, and other documents delivered
at the Closing pursuant hereto, contains the entire understanding of the
parties in respect of its subject matter and supersedes all prior agreements
and understandings (oral or written) between or among the parties with respect
to such subject matter. The Exhibits and Schedules constitute a part hereof as
though set forth in full above.
12.3 EXPENSES. Except as otherwise provided herein, the
parties shall pay their own fees and expenses, including their own counsel
fees, incurred in connection with this Agreement or any transaction
contemplated hereby. Republic hereby agrees to pay all applicable filing fees,
and counsel fees of Akin, Gump, et al, with respect to any required HSR Act
filings.
12.4 AMENDMENT; WAIVER. This Agreement may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by all parties. No failure to exercise, and no delay in
exercising, any right, power or privilege under this Agreement shall operate as
a waiver, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other
provision, nor shall any waiver be implied from any course of dealing between
the parties. No extension of time for performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts. The
rights and remedies of the parties under this Agreement are in addition to all
other rights and remedies, at law or equity, that they may have against each
other.
12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations
of this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall
be construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by any of the AAA Companies, or any of the
Shareholders without the prior written consent of Republic.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
12.7 INTERPRETATION. When a reference is made in this
Agreement to an article, section, paragraph, clause, schedule or exhibit, such
reference shall be deemed to be to this Agreement unless otherwise indicated.
The headings contained herein and on the schedules are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement or the schedules. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Time shall be of the essence in this
Agreement.
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12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall
be construed in accordance with and governed for all purposes by the laws of
the State of Delaware applicable to contracts executed and to be wholly
performed within such State.
12.9 JURISDICTION.
(a) Any suit, action or proceeding, equitable or otherwise,
against any of the AAA Companies or the Shareholders arising out of, or with
respect to, this Agreement or any judgment entered by any court in respect
thereof shall be brought in the courts of New Castle County, Delaware,
including the Delaware Chancery Courts located therein, or in the U.S. District
Court for the District of Delaware as Republic (in its sole discretion) may
elect, and the AAA Companies and the Shareholder hereby accept the nonexclusive
jurisdiction of those courts for the purpose of any suit, action or proceeding.
(b) In addition, each of the AAA Companies and the
Shareholders hereby irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
judgment entered by any court in respect thereof brought in New Castle County,
Delaware or the U.S. District Court for the District of Delaware, as selected
by Republic, and hereby further irrevocably waives any claim that any suit,
action or proceedings brought in New Castle County, Delaware or in such
District Court has been brought in an inconvenient forum.
12.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party
has had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
53
<PAGE> 54
RI/ADI MERGER CORP., a Virginia
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
RI/ACI MERGER CORP., a Virginia
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
RI/ARI MERGER CORP., a Virginia
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
RI/AMI MERGER CORP., a Virginia
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
(Signatures continued on following page)
54
<PAGE> 55
RI/ALB MERGER CORP., a Virginia
corporation
By: /s/ Richard L. Handley
-----------------------------------------
Richard L. Handley, Senior Vice President
AAA DISPOSAL SERVICE, INC., a Virginia
corporation
By: /s/ Larry E. Edwards
-----------------------------------------
Larry E. Edwards, President
AAA COMMERCIAL, INC., a Virginia corporation
By: /s/ Larry E. Edwards
-----------------------------------------
Larry E. Edwards, President
AAA RECYCLING, INC., a Virginia corporation
By: /s/ Larry E. Edwards
-----------------------------------------
Larry E. Edwards, President
AAA MAINTENANCE, INC., a Virginia
corporation
By: /s/ Larry E. Edwards
-----------------------------------------
Larry E. Edwards, President
(Signatures continued on following page)
55
<PAGE> 56
AAA LAND & BUILDING CO., INC., a
Virginia corporation
By: /s/ Larry E. Edwards
-----------------------------------------
Larry E. Edwards, President
/s/ Larry E. Edwards
-----------------------------------------
LARRY E. EDWARDS, individually
JEFFREY L. EDWARDS TRUST U/T/A/D APRIL 3.
1989
By: /s/ Stephen M. Serio CPA
-----------------------------------------
Stephen M. Serio, CPA, as Trustee
KEVIN S. EDWARDS TRUST U/T/A/D APRIL 3, 1989
By: /s/ Stephen M. Serio CPA
-----------------------------------------
Stephen M. Serio, CPA, as Trustee
MITCHELL G. EDWARDS TRUST U/T/A/D APRIL 3,
1989
By: /s/ Stephen M. Serio CPA
-----------------------------------------
Stephen M. Serio, CPA, as Trustee
TROY L. EDWARDS TRUST U/T/A/D APRIL 3, 1989
By: /s/ Stephen M. Serio CPA
-----------------------------------------
Stephen M. Serio, CPA, as Trustee
SAMANTHA L. EDWARDS TRUST
U/T/A/D APRIL 3, 1989
By: /s/ Stephen M. Serio CPA
-----------------------------------------
Stephen M. Serio, CPA, as Trustee
56
<PAGE> 1
EXHIBIT 2.3
MERGER AND REORGANIZATION AGREEMENT
This MERGER AND REORGANIZATION AGREEMENT (this "Agreement") is entered
into as of February 2, 1997 by and among (i) Republic Industries, Inc., a
Delaware corporation ("Republic"); (ii) RI/WF Merger Corp., a Florida
corporation, RI/WN Merger Corp., a Florida corporation, RI/WD Merger Corp., a
Florida corporation, RI/WLM Merger Corp., a Florida corporation, RI/SLM Merger
Corp., a Florida corporation, RI/BWE Merger Corp., a Florida corporation and
RI/MWP Merger Corp., a Florida corporation (the foregoing "Merger" corporations
are referred to herein collectively as the"Republic Subsidiaries" and
individually as a "Republic Subsidiary"); (iii) Wallace Ford, Inc., a Florida
corporation, Wallace Nissan, Inc., a Florida corporation, Wallace Dodge, Inc., a
Florida corporation, Wallace Lincoln-Mercury, Inc., a Florida corporation,
Stuart Lincoln-Mercury, Inc., a Florida corporation, Bill Wallace Enterprises,
Inc., d/b/a Stuart Mitsubishi, a Florida corporation ("WI"), Wallace Imports,
Inc., a Florida corporation, and Mechanical Warranty Protection, Inc., a Florida
corporation, (each referred to individually as an "Acquired Entity" and
collectively as the "Acquired Entities"); and (iv) William L. Wallace, the sole
shareholder of the Acquired Entities (the "Shareholder"). Republic and the
Republic Subsidiaries are sometimes referred to herein individually as a
"Republic Company" and collectively as the "Republic Companies".
RECITALS
A. Republic and the Acquired Entities desire to merge the automotive
operations of the Acquired Entities with Republic's automotive businesses.
B. Republic, the Republic Subsidiaries and the Acquired Entities have
determined that it is in the best interests of their respective shareholders for
Republic to acquire all of the issued and outstanding equity interests of the
Acquired Entities as provided herein in order to effectuate the acquisition of
the automotive dealerships and related businesses of the Acquired Entities
(other than WI), Republic has organized each Republic Subsidiary as a
wholly-owned subsidiary, and the parties have agreed, subject to the terms and
conditions set forth in this Agreement, to merge the respective Republic
Subsidiaries with and into the respective Acquired Entities so that the Acquired
Entities continue as surviving corporations of the respective mergers and as
wholly-owned subsidiaries of Republic, and, in the case of WI, to exchange all
of the outstanding stock of WI for shares of Republic common stock so that the
Shareholder will be issued certain shares of common stock of Republic as
provided herein in exchange for his respective issued and outstanding equity
interests in the Acquired Entities.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
MERGERS; SHARE EXCHANGE; RELATED TRANSACTIONS; CLOSING
1.1 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Mergers (as defined below) and the
other transactions contemplated hereby (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days after
the satisfaction or waiver of the conditions set forth in Articles VI and VII
hereof), at the offices of Akerman, Senterfitt & Eidson, P.A. in Miami,
Florida, or such other place and time as the parties may otherwise agree, and
the date of the Closing is referred to herein as the "Closing Date."
1.2 THE MERGERS AND SHARE EXCHANGE. The mergers described in
this Section are referred to herein collectively as the "Mergers" and
individually as a "Merger," and the share exchange described in this section is
referred to herein as the "Share Exchange". The surviving corporations of such
Mergers and WI after the Share Exchange are referred to herein collectively as
the "Surviving Corporations" and individually as a "Surviving Corporation."
(a) The Wallace Ford, Inc. Merger. Subject to the terms and
conditions of this Agreement, and in accordance with the Florida
Business Corporation Act (the "Florida Act"), at the Effective Time,
RI/WF Merger Corp. will be merged with and into Wallace Ford, Inc. with
Wallace Ford, Inc. being the Surviving Corporation in the Merger and
becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/WF Merger Corp. shall cease.
(b) The Wallace Nissan, Inc. Merger. Subject to the terms and
conditions of this Agreement, and in accordance with the Florida Act,
at the Effective Time, RI/WN Merger Corp. will be merged with and into
Wallace Nissan, Inc., with Wallace Nissan, Inc. being the Surviving
Corporation in the Merger and becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of RI/WN Merger Corp.
shall cease.
(c) The Wallace Dodge, Inc. Merger. Subject to the terms and
conditions of this Agreement, and in accordance with the Florida Act,
at the Effective Time, RI/WD Merger Corp. will be merged with and into
Wallace Dodge, Inc., with Wallace Dodge, Inc. being the Surviving
Corporation in the Merger and becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of RI/WD Merger Corp.
shall cease.
(d) The Wallace-Lincoln Mercury, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
Florida Act, at the Effective Time, RI/WLM Merger Corp. will be merged
with and into Wallace-Lincoln Mercury, Inc., with Wallace-Lincoln
Mercury, Inc. being the Surviving Corporation in the Merger and
becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/WLM Merger Corp. shall cease.
2
<PAGE> 3
(e) The Stuart Lincoln-Mercury, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
Florida Act, at the Effective Time, RI/SLM Merger Corp. will be merged
with and into Stuart Lincoln-Mercury, Inc., with Stuart
Lincoln-Mercury, Inc. being the Surviving Corporation in the Merger and
becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/SLM Merger Corp. shall cease.
(f) The Bill Wallace Enterprises, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
Florida Act, at the Effective Time, RI/BWE Merger Corp. will be merged
with and into Bill Wallace Enterprises, Inc., with Bill Wallace
Enterprises, Inc. being the Surviving Corporation in the Merger and
becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/BWE Merger Corp. shall cease.
(g) The Wallace Imports, Inc. Share Exchange. Subject to the
terms and conditions of this Agreement, at the Effective Time Republic
shall acquire from the Shareholder all of the issued and outstanding
shares of capital stock of WI in the Share Exchange in accordance with
the Florida Act, with WI becoming a wholly-owned subsidiary of
Republic.
(h) The Mechanical Warranty Protection, Inc. Merger. Subject
to the terms and conditions of this Agreement, and in accordance with
the Florida Act, at the Effective Time, RI/MWP Merger Corp. will be
merged with and into Mechanical Warranty Protection, Inc., with
Mechanical Warranty Protection, Inc. being the Surviving Corporation in
the Merger and becoming a wholly-owned subsidiary of Republic, and the
separate corporate existence of RI/MWP Merger Corp. shall cease.
1.3 SHAREHOLDER RECEIVABLES, PAYABLES. Prior to Closing, all debt
owed by the Shareholder to any of the Acquired Entities (estimated to have a
current aggregate balance of approximately $5,100,000), and all notes payable
by any of the Acquired Entities to the Shareholder or related parties
(estimated to have a current aggregate balance of approximately $1,650,000)
will be paid in full, and the Shareholder will obtain or deliver, as
appropriate, proper releases and satisfactions therefor in form satisfactory to
Republic.
1.4 PURCHASE PRICE; CONVERSION OF SECURITIES.
(a) Aggregate Consideration. For purposes of this Agreement,
"Aggregate Consideration" means the number of shares (rounded to the nearest
whole share) of common stock, par value $.01 per share, of Republic (the
"Republic Common Stock") determined by dividing (i) Fifty Five Million Dollars
($55,000,000) (the "Purchase Price"), minus (x) the Transaction Fees (as defined
below), if any, minus (y) the amount, if any, by which Working Capital (as
defined below) as of the Closing Date is less than Nine Million Nine Hundred
Thousand Dollars ($9,900,000) (items (x) and (y) are referred to herein as the
"Purchase Price Adjustment"), by (ii) $32.75 (the "Price per
3
<PAGE> 4
Share"). For purposes of determining the Purchase Price Adjustment, (i) "Working
Capital" shall mean the amount, if any, by which the aggregate of the Current
Assets of the Acquired Entities exceeds the aggregate of the Current Liabilities
of the Acquired Entities; (ii) "Current Assets" shall mean on a combined basis
all current assets of the Acquired Entities determined in accordance with GAAP;
and (iii) "Current Liabilities" shall mean on a combined basis the current
liabilities of the Acquired Entities determined in accordance with GAAP
(excluding any reserve for Chargebacks and any reserve for LIFO inventories).
"Transaction Fees" shall mean all legal, accounting, tax, consulting and
financial advisory and other fees and expenses, including any transfer taxes,
fees and expenses and the cost of title insurance, incurred, paid, or payable by
the Acquired Entities in connection with the transactions contemplated hereby.
(b) At the Effective Time, by virtue of the Mergers and the
Share Exchange and without any action on the part of the Acquired Entities,
Republic, the Republic Subsidiaries or the Shareholder, the outstanding shares
of capital stock of each of the Acquired Entities that is party to a Merger or
the Share Exchange shall be converted into the right to receive that portion of
the Aggregate Consideration determined as provided in Exhibit A hereto, which
Exhibit A shall be reasonably acceptable to Republic, shall be attached within
15 days of the date of this Agreement, and shall be incorporated into this
Agreement.
(c) Each share of common stock of each Republic Subsidiary
that is party to a Merger, issued and outstanding at the Effective Time shall be
converted into one share of the voting common stock of the Surviving Corporation
into which it is merged.
(d) Each share of common stock of WI shall be exchanged for
such number of shares of the voting common stock of Republic as is determined in
accordance with this Section 1.4.
1.5 TIMING OF PURCHASE PRICE ADJUSTMENT. At least two days prior
to the Closing Date, the Acquired Entities and Republic shall estimate by mutual
written agreement the amount of the Purchase Price Adjustment, if any, as of the
Closing Date for purposes of determining the number of Republic Shares to be
delivered by Republic to the Acquired Entities at Closing (which estimated
amount is referred to herein as the "Estimated Value"). Within 60 days after the
Closing Date, Republic shall prepare and deliver to the Acquired Entities (in
accordance with Section 13.1) a determination (the "Determination") of the
actual amount of the Purchase Price Adjustment as of the Closing Date (which
actual value is referred to herein as the "Actual Value"), which shall be
prepared on a basis consistent with the determination of the Estimated Value.
Republic shall also provide the Shareholder any supporting documentation for the
Determination. If, within 30 days after the date on which a Determination is
delivered to the Acquired Entities, the Acquired Entities shall not have given
written notice to Republic setting forth in detail any objection of the Acquired
Entities to such Determination, then such Determination shall be final and
binding on the parties hereto. In the event the Acquired Entities give written
notice of any objection to such Determination within the 30-day period, Republic
and the Acquired Entities shall use all reasonable efforts to resolve the
dispute within the 30-day period following the delivery of the written notice.
If the parties are unable to reach an agreement within such 30-day period, the
matter shall be submitted
4
<PAGE> 5
to Arthur Andersen LLP, a firm of independent certified public accountants, for
determination of the Actual Value which shall be final and binding upon Republic
and the Acquired Entities. Republic and the Shareholder shall contribute equally
to costs (including fees and expenses charged by Arthur Andersen LLP) in
connection with the resolution of any such dispute. The Shareholder hereby
represents and warrants that the Estimated Value will be accurate. If, as
finally determined, the Actual Value is greater than the Estimated Value,
Republic shall be entitled to set off against the Held Back Shares (as defined
in Section 1.9(c)) the difference between the Actual Value and the Estimated
Value (assuming a value per share for purposes of such calculation equal to the
Price per Share), which set off shall be deemed to be Indemnifiable Damages
under Article IX hereof, provided that the Indemnification Threshold (as defined
in Section 9.1) shall not be applicable to such setoff, and such setoff shall
not count against such Indemnification Threshold.
1.6 FILING OF MERGER AND SHARE EXCHANGE DOCUMENTS; EFFECTIVE
TIME. At the Closing, the parties shall cause the Mergers and the Share
Exchange to be consummated by executing and filing duly executed Articles of
Merger with respect to each of the Mergers and the Plan of Share Exchange with
respect to the Share Exchange with the Secretary of State of the State of
Florida in such form as Republic determines is required by and in accordance
with the relevant provisions of the Florida Act (the date and time of such
filings is referred to herein as the "Effective Date" or "Effective Time").
1.7 EFFECT OF THE MERGERS AND SHARE EXCHANGE. At the Effective
Time, the effect of the Mergers shall be as provided under the Florida Act.
Without limiting the generality of the foregoing, at the Effective Time:
(a) All property, rights, privileges, policies and franchises
of each Acquired Entity that is party to a Merger and the Republic
Subsidiary with which it is merged shall vest in the Surviving
Corporation of such Merger and all debts, liabilities and duties of
such Acquired Entity and the Republic Subsidiary with which it is
merged shall become the debts, liabilities and duties of the Surviving
Corporation of such Merger.
(b) The Articles of Incorporation and the Bylaws of each
Acquired Entity that is party to a Merger, as in effect immediately
prior to the Effective Time, shall remain its Articles of Incorporation
and Bylaws thereafter, unless and until amended in accordance with
their terms and as provided by law; and
(c) The directors of each Republic Subsidiary that is merged
in one of the Mergers at the Effective Time shall be the respective
directors and officers of the Acquired Entity into which it is merged,
each to hold a directorship or office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation of such
Merger, until their respective successors are duly elected and
qualified, and the parties listed on Schedule 1.7 shall be the
respective officers of the Surviving Corporations as identified on
Schedule 1.7; and
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<PAGE> 6
(d) The entire equity interest of WI shall be owned by
Republic, and the directors and officers of WI shall be appointed or
elected by Republic as identified on Schedule 1.7.
1.8 TAX AND ACCOUNTING TREATMENT. The parties hereto acknowledge
and agree that the Mergers and the Share Exchange contemplated hereby shall be
treated for accounting purposes as a pooling of interests business combination,
and are intended to be treated for tax purposes as tax-free reorganizations
under Section 368 of the Code.
1.9 PROCEDURE AT THE CLOSING. At the Closing, the parties agree
that the following shall occur:
(a) The Acquired Entities and the Shareholder shall have
satisfied each of the conditions set forth in Article VI and shall
deliver to Republic the documents, certificates, opinions, consents and
letters required by Article VI.
(b) The Republic Companies shall have satisfied each of the
conditions set forth in Article VII and shall deliver the documents,
certificates, consents and letters required by Article VII.
(c) Republic shall issue the shares of Republic Common Stock
issuable pursuant to Section 1.4. registered in the name of the
Shareholder and shall deliver such shares in the following manner: (i)
Republic shall set aside and hold in accordance with Section 9.3 stock
certificates representing shares of Republic Common Stock having a
value (based upon the Price per Share) equal to 10% of the Purchase
Price (the "Held Back Shares"), based on the Estimated Value, and (ii)
Republic shall deliver stock certificates representing the balance of
the shares of Republic Common Stock issuable in accordance with Section
1.4 to the Shareholder. The shares of Republic Common Stock issuable
pursuant to Section 1.4 including the Held Back Shares, are referred to
herein as the "Republic Shares."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to the Acquired Entities and the Shareholder
to enter into this Agreement and to consummate the transactions contemplated
hereby, the Republic Companies make the following representations and warranties
to the Acquired Entities and the Shareholder:
2.1 CORPORATE STATUS. Republic is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
authorized to do business in the State of Florida, and has the requisite power
and authority to own or lease its properties and to carry on its business as
presently conducted. Each Republic Subsidiary is a corporation duly organized,
validly
6
<PAGE> 7
existing and in good standing under the laws of the State of Florida, and is a
wholly-owned subsidiary of Republic. There is no pending or, to the knowledge of
Republic, threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of any of the Republic Companies.
2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has
the corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all corporate
action necessary to authorize its execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the Republic Companies and constitutes their legal, valid and binding
obligation enforceable against each of the Republic Companies in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Republic Shares as provided in this Agreement, the Republic Shares will be
validly issued, fully paid, non-assessable shares.
2.5 CAPITALIZATION. As of the date hereof, the authorized capital stock
of Republic consists of 500,000,000 shares of Republic Common Stock and
5,000,000 shares of preferred stock. As of January 15, 1997 (i) 251,015,811
shares of Republic Common Stock were validly issued and outstanding, and (ii) no
shares of preferred stock were issued or outstanding.
2.6 NO VIOLATION. The execution and delivery of this Agreement by the
Republic Companies, the performance by the Republic Companies of their
respective obligations hereunder and the consummation by the Republic Companies
of the transactions contemplated by this Agreement will not (a) contravene any
provision of the Certificates of Incorporation or Bylaws of the Republic
Companies, (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment, ruling or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon, or enforceable against the Republic Companies, (c) conflict
with, result in any breach of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a default)
under, or give rise to a right to terminate, amend, modify, abandon or
accelerate, any Contract which is applicable to, binding upon or enforceable
against the Republic Companies, (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the property or assets of
the Republic Companies, (e) give to any individual or entity a right or claim
against the Republic Companies, which would have a Material Adverse Effect on
Republic; or (f) require the consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority, any court or
tribunal or any other Person, except (i) pursuant to the Exchange Act and the
Securities Act and
7
<PAGE> 8
applicable inclusion requirements of Nasdaq, (ii) filings required under the
securities or blue sky laws of the various states, (iii) filings required under
the HSR Act, (iv) any filings or consents required to be made or obtained by the
Acquired Entities or the Shareholder or (v) any governmental permits or licenses
required to operate the dealerships and other businesses of the Acquired
Entities.
2.7 REPORTS AND FINANCIAL STATEMENTS. From January 1, 1996 to the date
hereof, except where failure to have done so did not and would not have a
Material Adverse Effect on Republic, Republic has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with the SEC, including, but not limited to Forms
10-K, Forms 10-Q, Forms 8-K and proxy statements (collectively, the "Republic
Reports"). Republic will furnish or make available to the Acquired Entities and
the Shareholder copies of all Republic Reports filed with the SEC since January
1, 1996 within five days of the date of this Agreement. As of their respective
dates (but taking into account any amendments filed prior to the date of this
Agreement), the Republic Reports complied in all material respects with all the
rules and regulations promulgated by the SEC and 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. The financial
statements of Republic included in the Republic Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP consistently applied during the periods presented (except,
as noted therein, or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal audit adjustments) the financial position of Republic and
its consolidated subsidiaries as of the date thereof and the results of their
operations and their cash flows for the periods then ended.
2.8 NO COMMISSIONS. Republic has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
2.9 TAX MATTERS. Republic has no current plan or intention to cause any
of the Surviving Corporations to issue additional shares of stock after the
Closing that would result in Republic's losing control of any of the Surviving
Corporations within the meaning of Section 368(c) of the Code. Republic has no
current plan or intention to liquidate, merge or sell or otherwise dispose of
the stock of any of the Surviving Corporations after the Closing, except for
transfers of stock or assets to an affiliated corporation or corporations (as
defined in Section 1504(a) of the Code), or sell or otherwise dispose of any of
the assets of any of the Surviving Corporations after the Closing, except for
dispositions in the ordinary course of business or transfers described in
Section 368(a)(2)(c) of the Code. Republic currently intends to cause, after the
Closing, each of the Surviving Corporations to continue its historic business or
use a significant portion of each Surviving Corporation's historic business
assets in a business.
8
<PAGE> 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE ACQUIRED ENTITIES AND THE SHAREHOLDER
As a material inducement to the Republic Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Acquired
Entities and the Shareholder, jointly and severally, make the following
representations and warranties to the Republic Companies:
3.1 CORPORATE STATUS. Each Acquired Entity is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the requisite power and authority to own or lease its properties
and to carry on its business as now being conducted. Each Acquired Entity is
legally qualified to do business as a foreign corporation in each of the
jurisdictions in which it is required to be so qualified, which represent all
jurisdictions where the nature of its properties and the conduct of its business
require such qualification, and is in good standing in each of the jurisdictions
in which it is so qualified. Each Acquired Entity has fully complied with all of
the requirements of any statute governing the use and registration of fictitious
names, and has the legal right to use the names under which it operates its
businesses. There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of any Acquired Entity.
3.2 POWER AND AUTHORITY. Each Acquired Entity has the corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. Each Acquired
Entity has taken all corporate action necessary to authorize the execution and
delivery of this Agreement, the performance of its obligations hereunder, and
the consummation of the transactions contemplated hereby. The Shareholder is an
individual residing in the State of Florida and has the requisite competence and
authority to execute and deliver this Agreement, to perform his obligations
hereunder and to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the Acquired Entities and by the Shareholder, and constitutes the
legal, valid and binding obligation of each of them, enforceable against each of
them in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, as of the date hereof,
with respect to each Acquired Entity, respectively, (a) the number of authorized
shares of each class of its capital stock, (b) the number of issued and
outstanding shares of each class of its capital stock and (c) the number of
shares of each class of its capital stock which are held in treasury. All of the
issued and outstanding shares of capital stock of each Acquired Entity (i) have
been duly authorized and validly issued and are fully paid and nonassessable,
(ii) were issued in compliance with all applicable state
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and federal securities laws and (iii) were not issued in violation of any
preemptive rights or rights of first refusal or similar rights. No preemptive
rights or rights of first refusal or similar rights exist with respect to any
shares of capital stock of any Acquired Entity and no such rights arise by
virtue of or in connection with the transactions contemplated hereby. There are
no outstanding or authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require any Acquired Entity to issue or sell
any shares of its capital stock (or securities convertible into or exchangeable
for shares of its capital stock). There are no outstanding stock appreciation,
phantom stock, profit participation or other similar rights with respect to any
Acquired Entity. There are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock of
any Acquired Entity. No Acquired Entity is obligated to redeem or otherwise
acquire any of its outstanding shares of capital stock.
3.5 SHAREHOLDER OF THE ACQUIRED ENTITIES. Schedule 3.5 sets forth, with
respect to each Acquired Entity (i) the name, address and federal taxpayer
identification number of the Shareholder, and the number of outstanding shares
of each class of its capital stock owned by the Shareholder as of the close of
business on the date of this Agreement; and (ii) the name, address and federal
taxpayer identification number of, and number of shares of each class of its
capital stock beneficially owned by each beneficial owner of outstanding shares
of capital stock (to the extent that record and beneficial ownership of any such
shares or interests are different). The Shareholder constitutes the record and
beneficial holder of all issued and outstanding shares of capital stock of the
Acquired Entities, and the Shareholder owns such shares as is set forth on
Schedule 3.5. free and clear of all Liens, restrictions and claims of any kind.
3.6 NO VIOLATION. Except for any approvals or consents required under
the Franchise Agreements (as defined in Section 3.25), the execution and
delivery of this Agreement by the Acquired Entities and the Shareholder, the
performance by the Acquired Entities and the Shareholder of their obligations
hereunder and the consummation by them of the transactions contemplated by this
Agreement will not (a) contravene any provision of the Articles of Incorporation
or Bylaws or other organizational or governing document of any Acquired Entity,
(b) violate or conflict with any law, statute, ordinance, rule, regulation,
decree, writ, injunction, judgment or order of any Governmental Authority or of
any arbitration award which is either applicable to, binding upon or enforceable
against any Acquired Entity or the Shareholder, (c) conflict with, result in any
breach of, or constitute a default (or an event which would, with the passage of
time or the giving of notice or both, constitute a default) under, or give rise
to a right of payment under or the right to terminate, amend, modify, abandon or
accelerate, any Contract which is applicable to, binding upon or enforceable
against any Acquired Entity or the Shareholder, (d) result in or require the
creation or imposition of any Lien upon or with respect to any of the properties
or assets of any Acquired Entity or the Shareholder, (e) give to any individual
or entity a right or claim against any Acquired Entity or the Shareholder or (f)
require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person, except any applicable filings required under the HSR Act by the Acquired
Entities, the Shareholder, and the
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Republic Companies, any SEC and other filings required to be made by the
Republic Companies, and any notifications or filings to the Florida Department
of Motor Vehicles.
3.7 RECORDS OF THE ACQUIRED ENTITIES. The copies of the Articles of
Incorporation, Bylaws and other documents and agreements of the Acquired
Entities which were provided to Republic are true, accurate, and complete and
reflect all amendments made through the date of this Agreement. The minute books
and other records of corporate actions for the Acquired Entities made available
to Republic for review were correct and complete as of the date of such review,
no further entries have been made through the date of this Agreement (except for
appropriate resolutions by the Boards of Directors of the Acquired Entities and
by the Shareholder approving the execution of this Agreement and the
consummation of its terms), such minute books and records contain the true
signatures of the persons purporting to have signed them, and such minute books
and records contain an accurate record of all corporate actions of the
shareholders and directors (and any committees thereof) of the Acquired Entities
taken by written consent or at a meeting or otherwise since incorporation or
formation. All corporate actions by the Acquired Entities have been duly
authorized or ratified. All accounts, books, ledgers and official and other
records of the Acquired Entities have been fully, properly and accurately kept
and are complete, and there are no inaccuracies or discrepancies of any kind
contained therein. The stock ledgers of the Acquired Entities, as previously
made available to Republic, contain accurate and complete records of all
issuances, transfers and cancellations of shares of the capital stock of the
Acquired Entities.
3.8 SUBSIDIARIES. The Acquired Entities do not, directly or indirectly,
own any outstanding voting securities of or other interests in, or control, any
other corporation, partnership, joint venture or other entity.
3.9 FINANCIAL STATEMENTS. Each of the Acquired Entities has delivered
to Republic the financial statements of such Acquired Entity for the fiscal
years ended December 31, 1995 and December 31, 1996 (collectively, the
"Financial Statements"), copies of which are attached to Schedule 3.9 hereto and
will, prior to the Closing Date, deliver to Republic combined audited financial
statements of the Acquired Entities as of December 31, 1996 audited by
Goldenberg Rosenthal Friedlander, LLP (the "Audited Financial Statements"). The
respective individual balance sheets of the Acquired Entities dated as of
December 31, 1996, included in the Financial Statements are referred to herein
as the "Current Balance Sheets." The Financial Statements fairly present the
financial position of the respective Acquired Entities at each of the balance
sheet dates and the results of operations for the periods covered thereby, and
have been prepared in accordance with GAAP consistently applied throughout the
periods indicated. The Audited Financial Statements will upon delivery fairly
present the combined financial position of the Acquired Entities at the balance
sheet dates, and the results of operations for the period covered thereby, and
the Audited Financial Statements will be prepared in accordance with GAAP
consistently applied throughout the period indicated. The books and records of
each of the Acquired Entities fully and fairly reflect all of its transactions,
properties, assets and liabilities. There are no material special or
non-recurring items of income or expense during the periods covered by the
Financial Statements, and the balance sheets included in the Financial
Statements do not reflect any write-up or revaluation increasing the book
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value of any assets. The Financial Statements reflect all adjustments necessary
for a fair presentation of the financial information contained therein. There
will be no material special or non-recurring items of income or expense during
the period covered by the Audited Financial Statements, and the balance sheet
included in the Audited Financial Statements will not upon delivery reflect any
write-up or revaluation increasing the book value of any assets.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date of
its Current Balance Sheet included in the Financial Statements, no Acquired
Entity has (a) issued, sold, pledged, disposed of, encumbered, or authorized the
issuance, sale, pledge, disposition, grant or encumbrance of any shares of its
capital stock or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock or any other ownership
interest of such Acquired Entity; (b) declared, set aside, made, or paid any
dividend or other distribution payable in cash, stock, property or otherwise of
or with respect to its capital stock or other securities, or reclassified,
combined, split, subdivided or redeemed, purchased or otherwise acquired,
directly or indirectly, any of its capital stock or other securities; (c) paid
any bonus to or increased the rate of compensation of any of its officers,
salaried employees or amended any other terms of employment or engagement of
such persons; (d) sold, leased or transferred any of its properties or assets or
acquired any properties or assets other than in the ordinary course of business
consistent with past practice; (e) made or obligated itself to make capital
expenditures out of the ordinary course of business consistent with past
practice; (f) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (g) except in the
ordinary course of business, incurred any obligations or liabilities (including,
without limitation, any indebtedness for borrowed money, issuance of any debt
securities, or the assumption, guarantee, or endorsement of the obligations of
any Person) or entered into any transaction or series of transactions involving
in excess of $25,000 in the aggregate, except for this Agreement and the
transactions contemplated hereby; (h) suffered any theft, damage, destruction or
casualty loss, whether or not covered by insurance, in excess of $25,000 in the
aggregate; (i) suffered any extraordinary losses (whether or not covered by
insurance); (j) waived, canceled, compromised or released any rights having a
value in excess of $25,000 in the aggregate; (k) made or adopted any change in
its accounting practice or policies; (l) made any adjustment to its books and
records other than in respect of the conduct of its business activities in the
ordinary course consistent with past practice; (m) entered into any transaction
with the Shareholder or any Affiliate of any of the Acquired Entities or the
Shareholder, (n) entered into any employment agreement that is not terminable at
Closing without any liability or obligation; (o) terminated, amended or modified
any agreement involving an amount in excess of $25,000 in the aggregate; (p)
imposed any security interest or other Lien on any of its assets other than in
the ordinary course of business consistent with past practice; (q) delayed
paying any account payable beyond 45 days following the date on which it is due
and payable except to the extent being contested in good faith; (r) made or
pledged any charitable contributions in excess of $25,000 in the aggregate; (s)
acquired (including, without limitation, for cash or shares of stock, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership or other business organization or division thereof or
any assets, or made any investment either by purchase of stock or securities,
contributions or property transfer of capital other than as permitted or
provided in this Agreement; (t) increased or decreased prices charged to
customers, except in the ordinary
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course of business consistent with past practice, materially increased or
decreased the average monthly New Parts and Accessories Inventory, Other Parts
and Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory,
other than in the ordinary course of business consistent with past practice,
ordered any New Vehicle Inventory from the Factory which would be inconsistent
with the prior practices of the Acquired Entity, or taken any actions which
might reasonably result in any material loss of customers; (u) entered into any
other transaction or been subject to any event which has or may reasonably be
expected to have a Material Adverse Effect on such Acquired Entity; or (v)
agreed to do or authorized any of the foregoing.
3.11 LIABILITIES. Except as set forth in Schedule 3.11, no Acquired
Entity has any liabilities or obligations, whether accrued, absolute, contingent
or otherwise, except (a) to the extent reflected on such Acquired Entity's
Current Balance Sheet and not heretofore paid or discharged, (b) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of such Acquired Entity's Current Balance Sheet (none of which relates
to breach of contract, breach of warranty, tort, infringement or violation of
law, or which arose out of any action, suit, claim, governmental investigation
or arbitration proceeding), and (c) liabilities incurred in the ordinary course
of business prior to the date of such Acquired Entity's Current Balance Sheet
which, in accordance with GAAP consistently applied, were not required to be
recorded thereon and which, in the aggregate, are not material (the liabilities
and obligations referenced in (a), (b) and (c) above and those accrued and
unpaid obligations of WI and Wallace Ford, Inc. described on Schedule 3.11 are
referred to as the "Designated Liabilities"). Schedule 3.11 lists all
indebtedness owed by any of the Acquired Entities, itemized with respect to each
Acquired Entity, to a bank or any other Person, including without limitation,
indebtedness for borrowed money (including principal and accrued but unpaid
interest) and capitalized equipment leases. Schedule 3.11 also lists, for each
Acquired Entity, the account numbers and names of each bank, broker or other
depository institution, and the names of all persons authorized to withdraw
funds from each such account.
3.12 LITIGATION. Except as provided in Schedule 3.12, there is no
action, suit or other legal or administrative proceeding or governmental
investigation pending, or, to the knowledge of the Acquired Entities and the
Shareholder, threatened, anticipated or contemplated (i) against, by or
affecting any Acquired Entity or the Shareholder (which, in the case of the
Shareholder, relates to or concerns any Acquired Entity or for which any
Acquired Entity may be responsible), or any Acquired Entity's properties or
assets, except for routine customer claims and complaints arising in the
ordinary course consistent with past practice which involve amounts less than
$10,000 individually or $100,000 in the aggregate, or (ii) which question the
validity or enforceability of this Agreement or the transactions contemplated
hereby, and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which any Acquired Entity is or was a party which have not been
complied with in full or which continue to impose any material obligations on
any Acquired Entity. Shareholder shall remain responsible for any matters listed
on Schedule 3.12 in which the Shareholder or any of the Acquired Entities is a
defendant, except, the Shareholder shall not be responsible for any routine
customer claims and complaints arising in the ordinary course consistent with
past practice which involve amounts less than $10,000 individually or $100,000
in the aggregate.
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3.13 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 3.13, each of the Acquired
Entities and the Shareholder are and have at all times been in full compliance
with all Environmental Laws governing its business, operations, properties and
assets, including, without limitation: (i) all requirements relating to the
Discharge and Handling of Hazardous Substances; (ii) all requirements relating
to notice, record keeping and reporting; (iii) all requirements relating to
obtaining and maintaining Licenses (as defined herein) for the ownership by each
of the Acquired Entities of its properties and assets and the operation of its
business as presently conducted or the ownership by the Acquired Entities and
use by the Acquired Entities of the Shareholder Owned Properties (as defined in
Section 3.14); and (iv) all applicable writs, orders, judgments, injunctions,
governmental communications, decrees, informational requests or demands issued
pursuant to, or arising under, any Environmental Laws.
(b) Except as set forth in Schedule 3.13, there are no (and,
to the best knowledge of the Shareholder and the Acquired Entities, there is no
basis for any) non-compliance orders, warning letters, notices of violation
(collectively "Notices"), claims, suits, actions, judgments, penalties, fines,
or administrative or judicial investigations of any nature or proceedings
(collectively "Proceedings") pending or threatened against or involving any of
the Acquired Entities, their businesses, operations, properties or assets or the
Shareholder Owned Properties, issued by any Governmental Authority or third
party with respect to any Environmental Laws or Licenses issued to any of the
Acquired Entities thereunder in connection with, related to or arising out of
the ownership by any of the Acquired Entities of its properties or assets or the
operation of its businesses or the ownership by the Shareholder and use by the
Acquired Entities of the Shareholder Owned Properties, which have not been
resolved to the satisfaction of the issuing Governmental Authority or third
party in a manner that would not impose any obligation, burden or continuing
liability on Republic or any Surviving Corporation in the event that the
transactions contemplated by this Agreement are consummated.
(c) Except as set forth in Schedule 3.13, none of the Acquired
Entities nor the Shareholder has at any time Handled or Discharged, nor has it
at any time allowed or arranged for any third party to Handle or Discharge,
Hazardous Substances to, at or upon: (i) any location other than a site lawfully
permitted to receive such Hazardous Substances; (ii) any parcel of real property
owned or leased at any time by any of the Acquired Entities (including, without
limitation, the Company Owned Properties (as defined in Section 3.14)) or any of
the Shareholder Owned Properties, except in compliance with applicable
Environmental Laws; or (iii) any site which, pursuant to CERCLA or any similar
state law (x) has been placed on the National Priorities List or its state
equivalent, or (y) the Environmental Protection Agency or any relevant state
agency has notified any of the Acquired Entities that it has proposed or is
proposing to place on the National Priorities List or its state equivalent.
There has not occurred, nor is there presently occurring, a Discharge, or
threatened Discharge of any Hazardous Substance on, into or directly beneath the
surface of any real property owned or leased at any time by any of the Acquired
Entities or the Shareholder Owned Properties.
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(d) Except as set forth in Schedule 3.13, none of the Acquired
Entities uses, nor has any of them used, any Aboveground Storage Tanks or
Underground Storage Tanks; there are not now nor have there ever been any
Underground Storage Tanks on any real property owned or leased at any time by
any of the Acquired Entities, or the Shareholder Owned Properties; and there has
been no Discharge from or rupture of any Aboveground Storage Tanks or
Underground Storage Tanks.
(e) Schedule 3.13 identifies (i) all environmental audits,
assessments or occupational health studies undertaken since January 1, 1994 and
to the knowledge of any of the Acquired Entities or the Shareholder, undertaken
by any Governmental Authority, or any third party, relating to or affecting any
of the Acquired Entities or Company Owned Properties or the Shareholder Owned
Properties since January 1, 1994; (ii) all ground, water, soil, air or asbestos
monitoring undertaken by any of the Acquired Entities or its agents or
representatives thereof or undertaken by any Governmental Authority or any third
party, relating to or affecting any of the Company Owned Properties or any real
property owned or leased at any time by any of the Acquired Entities or the
Shareholder Owned Properties since January 1, 1994; (iii) all Notices of
violation and notices of non-compliance issued to any of the Acquired Entities
or the Shareholder arising under or related to Environmental Laws and pertaining
to the Company Owned Properties or the Shareholder Owned Properties; and (iv)
all outstanding citations issued under OSHA, or similar state or local statutes,
laws, ordinances, codes, rules, regulations, orders, rulings or decrees,
relating to or affecting any of the Acquired Entities or any real property owned
or leased at any time by any of the Acquired Entities or the Shareholder Owned
Properties.
(f) For purposes of this Section, the following terms shall
have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Aboveground Storage
Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, migrating or emitting, as any of such terms may
further be defined in any Environmental Law, into or through any medium
including, without limitation, ground water, surface water, land, soil
or air.
"Environmental Laws" means all federal state, regional or
local statutes, laws rules, regulations, codes, ordinances, orders,
plans, injunctions, decrees, rulings, licenses, and changes thereto, or
judicial or administrative interpretations thereof, or similar laws,
whether currently in existence or hereafter enacted, issued, or
promulgated, any of which govern, purport to govern, or relate to
pollution, protection of the environment, public health and safety, air
emissions, water discharges, waste disposal, hazardous or toxic
substances, solid or hazardous waste, occupational, health and safety,
as any of these terms are or may be defined in such statutes, laws,
rules, regulations, codes, orders, ordinances, plans, injunctions,
decrees, rulings, licenses, and changes thereto, or judicial or
administrative
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interpretations thereof, including, without limitation: the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of
1986, 42 U.S.C. ss.9601, et seq. (herein, collectively, "CERCLA"); the
Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 and subsequent Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. ss.6901 et seq. (herein, collectively,
"RCRA"); the Hazardous Materials Transportation Act, as amended, 49
U.S.C. ss.1801, et seq., (the "Hazardous Materials Transportation
Act"); the Clean Water Act, as amended, 33 U.S.C. ss.1311, et seq. (the
"Clean Water Act"); the Clean Air Act, as amended, 42 U.S.C.
ss.7401-7642, (the "Clean Air Act"); the Toxic Substances Control Act,
as amended, 15 U.S.C. ss.2601 et seq. (the "Toxic Substances Control
Act"); the Federal Insecticide, Fungicide, and Rodenticide Act as
amended, 7 U.S.C. ss.136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended 42 U.S.C. ss.11001, et
seq. (Title III of SARA) ("EPCRA"); and the Occupational Safety and
Health Act of 1970, as amended, 29 U.S.C. ss.651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law.
"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental Laws or which are or become regulated, listed
or controlled by, under or pursuant to any Environmental Laws, or which
has been or shall be determined or interpreted at any time by any
Governmental Authority to be a hazardous or toxic substance regulated
under any other statute, law, regulation, order, code, rule, order, or
decree.
"Licenses" means all licenses, certificates, permits,
approvals, decrees and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order, ruling or decree governing Underground Storage
Tanks.
(g) Notwithstanding any other provision of this Agreement,
Environmental Costs incurred by Republic post-closing to correct any
matters addressed in Schedule 3.13 of this Agreement are Indemnifiable
Damages subject to Section 9.1 of the Agreement, as long as such
Environmental Costs relate to a Recognized Environmental Condition.
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3.14 REAL ESTATE.
(a) Schedule 3.14(a) contains the street addresses of, and
indicates the owner(s) of, any real property or any leasehold or other
interest therein (including without limitation any option or other
right or obligation to purchase any real property or any interest
therein) owned by any of the Acquired Entities as of the date hereof
(the "Company Owned Properties"). Except as listed on Schedule 3.14(b),
there has been no real property (or any interest therein) owned by any
of the Acquired Entities within the past five years that is not owned
by such Acquired Entity as of the date of this Agreement. Schedule
3.14(c) contains the legal descriptions and the street addresses of any
real property (or any interest therein) which was owned by the
Shareholder or any of his Affiliates (the "Shareholder Owned
Properties," and together with the Company Owned Properties, the "Owned
Properties"), and used in any Acquired Entity's business which has been
conveyed as additional contributions of capital, or otherwise conveyed,
to any Acquired Entity other than such real property interests listed
in Schedule 3.14(a). Schedule 3.14(a) also sets forth the location and
approximate size of, and description of the principal improvements and
buildings on, the Owned Properties, together with a list of all title
insurance policies and commitments relating to such properties, all of
which policies and commitments have previously been delivered or made
available to Republic by the Acquired Entities. With respect to each
such parcel of Owned Properties: (i) the Acquired Entity that owns such
parcel as indicated in the Schedules to this Section 3.14 has good and
marketable title, free and clear of any covenants, conditions,
easements and exceptions other than the Permitted Exceptions (as
defined in Section 5.15), and of any Lien other than liens for real
estate taxes not yet due and payable, (ii) there are no pending or, to
the knowledge of the Shareholder or the Acquired Entities, threatened
condemnation proceedings, suits or administrative actions relating to
the Owned Properties or other matters affecting adversely the current
use, occupancy or value thereof; (iii) the legal descriptions for the
Owned Properties contained in the deeds thereof describe such parcels
fully and adequately; (iv) except as provided on Schedule 3.14(d),
(each of which is a "Permitted Exception") the buildings and
improvements are located within the boundary lines of the described
parcels of land and are not in violation of applicable setback
requirements, local comprehensive plan provisions, zoning laws and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), building code requirements,
permits, licenses or other forms of approval, regulation or
restrictions by any Governmental Authority, and, other than perimeter
walls and fences owned by the Acquired Entities, do not encroach on any
easement which may burden the land; the land does not serve any
adjoining property for any purpose inconsistent with the use of the
land; and the Owned Properties are not located within any flood plain
or subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained; (v) all
facilities have received all material approvals of Governmental
Authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, ordinances, rules and
regulations; (vi) there are no Contracts granting to any party or
parties
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the right of use or occupancy of any portion of the Owned Properties,
and there are no parties (other than the Acquired Entities) in
possession of any of the Owned Properties; (vii) there are no
outstanding options or rights of first refusal or similar rights to
purchase any of the Owned Properties or any portion thereof or interest
therein, (viii) all facilities located on the Owned Properties are
supplied with utilities and other services necessary for their
operation, all of which services are adequate in accordance with all
applicable laws, ordinances, rules and regulations, and are provided
via public roads or via permanent, irrevocable, appurtenant easements
benefiting the Owned Properties; (ix) the Owned Properties abut on and
have adequate direct vehicular access to a public road and there is no
pending or, to the knowledge of the Shareholder or the Acquired
Entities, threatened termination of such access; and (x) all
improvements, buildings and systems on the Owned Properties are in good
repair, and safe for occupancy and use.
(b) Schedule 3.14(e) sets forth a list of all leases, licenses
or similar agreements to which any Acquired Entity is a party, which
are for the use or occupancy of real estate owned by a third party
("Leases") (copies of which have previously been furnished to
Republic), in each case, setting forth: (i) the lessor and lessee
thereof and the commencement date, term and renewal rights under each
of the Leases; (ii) the street address or legal description of each
property covered thereby; and (iii) a brief description (including
approximate size and function) of the principal improvements and
buildings thereon (the "Leased Premises"). The Leases are in full force
and effect and have not been amended except as disclosed in Schedule
3.14(e), and no party thereto is in default or breach under any such
Lease. No event has occurred which, with the passage of time or the
giving of notice or both, would cause a material breach of or default
under any of such leases. With respect to each such Leased Premises:
(i) the Acquired Entity that is the lessee has a valid leasehold
interest in the Leased Premises, which leasehold interest is free and
clear of any Liens, covenants and easements or title defects of any
nature whatsoever; (ii) the portions of the buildings located on the
Leased Premises that are used in the business of the Acquired Entity
are each in good repair and condition, normal wear and tear excepted,
and are in the aggregate sufficient to satisfy the Acquired Entity's
current and reasonably anticipated normal business activities as
conducted thereat; (iii) each of the Leased Premises (a) has direct
access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
current and reasonably anticipated normal transportation requirements
of the business presently conducted at such parcel; and (b) is served
by all utilities in such quantity and quality as are sufficient to
satisfy the current normal business activities conducted at such
parcel; and (iv) no Acquired Entity or the Shareholder has received
notice of (a) any condemnation proceeding with respect to any portion
of the Leased Premises or any access thereto, and no such proceeding
is, to the best knowledge of the Acquired Entities and the Shareholder,
contemplated by any Governmental Authority; or (b) any special
assessment which may affect any of the Leased Premises, and, to the
best knowledge of the Acquired Entities and the Shareholder, no such
special assessment is contemplated by any Governmental Authority.
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3.15 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS;
INVENTORY
(a) The Shareholder is not engaged in the Auto Business or the
Parts Business (as defined in Section 5.11) and does not own an interest in any
Person engaged in the Auto Business or the Parts Business, other than (A) the
Auto Business and Parts Business conducted by the Acquired Entities or (B) the
Shareholder's ownership interests in the Acquired Entities. The Acquired
Entities own and operate the motor vehicle dealerships (the "Dealerships")
listed on Schedule 3.15 at the locations set forth thereon, and each Dealership
is owned and operated by the Acquired Entity indicated in Schedule 3.15. Upon
the consummation of the transactions contemplated hereby, the Republic Companies
will have acquired and own all of the Acquired Entities' assets and operations
engaged in the Auto Business or Parts Business and related rights and interests.
Except as specifically disclosed in the Financial Statements, each Acquired
Entity has good and marketable title to all of its Assets free and clear of any
Liens. For purposes of this Agreement, the term "Assets" means all of the
properties and assets of any nature of the Acquired Entities.
(b) The Fixed Assets currently in use or necessary for the
business and operations of the Acquired Entities are in good operating
condition, normal wear and tear excepted, and have been maintained substantially
in accordance with all applicable manufacturer's specifications and warranties.
For purposes of this Agreement, the term "Fixed Assets" means all vehicles
(other than vehicles held as inventory), machinery, equipment, tools, supplies,
leasehold improvements, furniture and fixtures, owned, used by or located on the
premises of the Acquired Entities or set forth on the Current Balance Sheets or
acquired by the Acquired Entities since the date of the Current Balance Sheets.
(c) Except for such vehicles as are acquired as trade-ins in
the ordinary course of business and sold or to be sold wholesale, none of the
vehicles owned by the Acquired Entities as of the date hereof has been, or will
be on the Closing Date, salvaged or rebuilt or have any frame, flood or other
damage impairing its salability in the ordinary course of business, and with
respect to each vehicle, the Acquired Entities owning such vehicles have or will
have prior to the Closing Date on file true and correct odometer statements,
none of which indicate that the actual mileage is unknown.
3.16 COMPLIANCE WITH LAWS. Each of the Acquired Entities and the
Shareholder (as it relates to his ownership or operation of the Acquired
Entities) and his Affiliates has been in compliance in all material respects
with all laws, regulations and orders applicable to it, its business and
operations (as conducted by it now and in the past), the Assets, the Owned
Properties and the Leased Premises and any other properties and assets (in each
case owned or used by it now or in the past). Except as disclosed in Schedule
3.16, no Acquired Entity has been cited, fined or otherwise notified of any
asserted past or present failure to comply with any laws, regulations or orders
and no proceeding with respect to any such violation is pending or threatened.
Except for the Franchise Agreements, no Acquired Entity is subject to any
Contract, decree or injunction to which it is a party which restricts the
continued operation of any business or the expansion thereof to other
geographical areas, customers and suppliers or lines of business. No Acquired
Entity, nor any of their
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employees or agents, has made any payment of funds in connection with its
business which is prohibited by law, and no funds have been set aside to be
used in connection with its business for any payment prohibited by law. Each of
the Acquired Entities is and at all times has been in full compliance with the
terms and provisions of the Immigration Reform and Control Act of 1986, as
amended (the "Immigration Act"). With respect to each Employee (as defined in 8
C.F.R. 274a.1(f)) of the Acquired Entities for whom compliance with the
Immigration Act is required, the Acquired Entities have on file a true,
accurate and complete copy of (i) each Employee's Form I-9 (Employment
Eligibility Verification Form) and (ii) all other records, documents or other
papers prepared, procured and/or retained pursuant to the Immigration Act. None
of the Acquired Entities has been cited, fined, served with a Notice of Intent
to Fine or with a Cease and Desist Order, nor has any action or administrative
proceeding been initiated or threatened against any of the Acquired Entities,
by the Immigration and Naturalization Service by reason of any actual or
alleged failure to comply with the Immigration Act. Except as specifically
provided for in Section 3.12, and Schedule 3.12, the Shareholder and the
Acquired Entities shall remain responsible for and liable under any matters
disclosed in Schedule 3.16 subject to the terms and provisions of Article IX.
3.17 LABOR AND EMPLOYMENT MATTERS. No Acquired Entity is a party
to or bound by any collective bargaining agreement or any other agreement with
a labor union, and there has been no labor union prior to the date hereof
organizing any employees of the Acquired Entities into one or more collective
bargaining units. There is not now, and there has not been prior to the date
hereof, any actual or threatened labor dispute, strike or work stoppage which
affects or which may affect the business of the Acquired Entities or which may
interfere with their continued operations. No Acquired Entity, and no employee,
agent or representative thereof, has since the date of incorporation or
formation of such Acquired Entity committed any unfair labor practice as
defined in the National Labor Relations Act, as amended, and there is no
pending or threatened charge or complaint against any Acquired Entity by or
with the National Labor Relations Board or any representative thereof. There
has been no strike, walkout or work stoppage involving any of the employees of
any of the Acquired Entities prior to the date hereof. No executive or key
employee or group of employees has any plans to terminate his, her or their
employment with any Acquired Entity as a result of the transactions
contemplated hereby or otherwise. Each Acquired Entity has complied with
applicable laws, rules and regulations relating to employment, civil rights and
equal employment opportunities, including but not limited to, the Civil Rights
Act of 1964, the Fair Labor Standards Act, and the Americans with Disabilities
Act, all as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a list
setting forth each employee benefit plan or arrangement of each of the Acquired
Entities, including but not limited to employee pension benefit plans, as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA,
employee welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, material bonus plans, stock purchase
plans, hospitalization, disability and other insurance plans, severance or
termination pay plans and policies, whether or not described in
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Section 3(3) of ERISA, in which employees, their spouses or dependents, of any
of the Acquired Entities participate ("Employee Benefit Plans") (true and
accurate copies of which, together with the most recent annual reports on Form
5500 and summary plan descriptions with respect thereto, were furnished to
Republic).
(b) Compliance with Law. With respect to each Employee Benefit
Plan (i) each has been administered in all material respects in compliance with
its terms and with all applicable laws, including, but not limited to, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions,
suits, claims or disputes are pending, or threatened; (iii) no audits,
inquiries, reviews, proceedings, claims, or demands are pending with any
governmental or regulatory agency; (iv) there are no facts which could give rise
to any material liability in the event of any such investigation, claim, action,
suit, audit, review, or other proceeding; (v) all material reports, returns and
similar documents required to be filed with any governmental agency or
distributed to any plan participant have been duly or timely filed or
distributed; and (vi) no "prohibited transaction" has occurred within the
meaning of the applicable provisions of ERISA or the Code.
(c) Qualified Plans. With respect to each Employee Benefit
Plan intended to qualify under Code Section 401(a) or 403(a), (i) the Internal
Revenue Service has issued a favorable determination letter, true and correct
copies of which have been furnished to Republic, that such plans are qualified
and exempt from federal income taxes; (ii) no such determination letter has been
revoked nor has revocation been threatened, nor has any amendment or other
action or omission occurred with respect to any such plan since the date of its
most recent determination letter or application therefor in any respect which
would adversely affect its qualification or materially increase its costs; (iii)
no such plan has been amended in a manner that would require security to be
provided in accordance with Section 401(a)(29) of the code; (iv) no reportable
event (within the meaning of Section 4043 of ERISA) has occurred, other than one
for which the 30-day notice requirement has been waived; (v) as of the Effective
Date, the present value of all liabilities that would be "benefit liabilities"
under Section 4001(a)(16) of ERISA if benefits described in Code Section
411(d)(6)(B) were included will not exceed the then current fair market value of
the assets of such plan (determined using the actuarial assumptions used for the
most recent actuarial valuation for such plan); (vi) all contributions to, and
payments from and with respect to such plans, which may have been required to be
made in accordance with such plans and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made; and (vii) all such contributions
to the plans and all payments under the plans (except those to be made from a
trust qualified under Section 401(a) of the Code) and all payments with respect
to the plans (including without limitation PBGC (as defined below) and insurance
premiums) for any period ending before the Effective Date that are not yet, but
will be, required to be made are properly accrued and reflected on the Current
Balance Sheet.
(d) Multiemployer Plans. No Acquired Entity is or has been
obligated with respect to any multiemployer plan as described in Section
4001(a)(3) of ERISA ("MPPA Plan").
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(e) Welfare Plans. (i) No Acquired Entity is obligated under
any employee welfare benefit plan as described in Section 3(1) of ERISA
("Welfare Plan") to provide medical or death benefits with respect to any
employee or former employee of the Acquired Entities or their predecessors after
termination of employment; (ii) each Acquired Entity has complied with the
notice and continuation coverage requirements of Section 4980B of the Code and
the regulations thereunder with respect to each Welfare Plan that is, or was
during any taxable year for which the statute of limitations on the assessment
of federal income taxes remains open, by consent or otherwise, a group health
plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are
no reserves, assets, surplus or prepaid premiums under any Welfare Plan which is
an Employee Benefit Plan. The consummation of the transactions contemplated by
this Agreement will not entitle any individual to severance pay, and, will not
accelerate the time of payment or vesting, or increase the amount of
compensation due to any individual.
(f) Controlled Group Liability. No Acquired Entity nor any
entity that would be aggregated with any Acquired Entity under Code Section
414(b), (c), (m) or (o): (i) has ever terminated or withdrawn from an employee
benefit plan under circumstances resulting (or expected to result) in liability
to the Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the
employee benefit plan is funded, or any employee or beneficiary for whose
benefit the plan is or was maintained (other than routine claims for benefits);
(ii) has any assets subject to (or expected to be subject to) a lien for unpaid
contributions to any employee benefit plan; (iii) has failed to pay premiums to
the PBGC when due (iv) is subject to (or expected to be subject) an excise tax
under Code Section 4971; (v) has engaged in any transaction which would give
rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has
violated Code Section 4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit Plans
obligates any Acquired Entity to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change of control" (as such term is
defined in Section 280G of the Code); (ii) all required or discretionary (in
accordance with historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of the
Effective Date shall have been made or properly accrued on the Current Balance
Sheets or will be properly accrued on the books and records of the Acquired
Entities as of the Effective Date; and (iii) none of the Employee Benefit Plans
has any unfunded liabilities which are not reflected on the Current Balance
Sheets or the books and records of the Company.
3.19 TAX MATTERS. All Tax Returns required to be filed prior to the
date hereof with respect to any of the Acquired Entities or any of their
respective income, properties, franchises or operations have been timely filed,
each such Tax Return has been prepared in compliance with all applicable laws
and regulations, and all such Tax Returns are true and accurate in all respects.
All Taxes due and payable by or with respect to each Acquired Entity have been
paid or are accrued on the applicable Current Balance Sheet or will be accrued
on the Acquired Entity's books and records as of the Closing. Except as set
forth on Schedule 3.19: (i) with respect to each taxable period of each Acquired
Entity, either such taxable period has been audited by the relevant taxing
authority
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or the time for assessing or collecting Taxes with respect to each such taxable
period has closed and each taxable period is not subject to review by any
relevant taxing authority; (ii) no deficiency or proposed adjustment which has
not been settled or otherwise resolved for any amount of Taxes has been asserted
or assessed by any taxing authority against any Acquired Entity; (iii) no
Acquired Entity has consented to extend the time in which any Taxes may be
assessed or collected by any taxing authority; (iv) no Acquired Entity has
requested or been granted an extension of the time for filing any Tax Return to
a date later than the Closing; (v) there is no action, suit, taxing authority
proceeding, or audit or claim for refund now in progress, pending or threatened
against or with respect to any Acquired Entity regarding Taxes; (vi) no Acquired
Entity has made an election or filed a consent under Section 341(f) of the Code
(or any corresponding provision of state, local or foreign law) on or prior to
the Effective Date; (vii) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of any Acquired Entity; (viii) no
Acquired Entity will be required (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the Effective Date, to
include any adjustment under Section 481(c) of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Effective Date or (B) as a
result of any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local or foreign law), to include any item
of income or exclude any item of deduction from any taxable period (or portion
thereof) beginning after the Effective Date; (ix) no Acquired Entity has been a
member of an affiliated group (as defined in Section 1504 of the Code) or filed
or been included in a combined, consolidated or unitary income Tax Return; (x)
no Acquired Entity is a party to or bound by any tax allocation or tax sharing
agreement and has no current or potential contractual obligation to indemnify
any other Person with respect to Taxes; no taxing authority will claim or assess
any additional Taxes against any of the Companies for any period for which Tax
Returns have been filed; (xi) no taxing authority will claim or assess any
additional Taxes against any of the Acquired Entities for any period for which
Tax Returns have been filed; (xii) no Acquired Entity has made any payments or,
is or will become obligated (under any contract entered into on or before the
Closing) to make any payments, that will be non-deductible under Section 280G of
the Code (or any corresponding provision of state, local or foreign law); and
(xiii) no Acquired Entity has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code (or any
corresponding provision of state, local or foreign law) during the applicable
period specified in Section 897(c)(l)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law); (xiv) no claim has ever been made by
a taxing authority in a jurisdiction where any Acquired Entity does not file Tax
Returns that an Acquired Entity is or may be subject to Taxes assessed by such
jurisdiction; (xv) no Acquired Entity has any permanent establishment in any
foreign country, as defined in the relevant tax treaty between the United States
of America and such foreign country; (xvi) true, correct and complete copies of
all income and sales Tax Returns filed by or with respect to any Acquired Entity
for the past three years have been furnished or made available to Republic;
(xvii) no Acquired Entity will be subject to any Taxes, for the period ending at
the Closing for any period for which a Tax Return has not been filed, imposed
pursuant to Section 1374 or Section 1375 of the Code (or any corresponding
provision of state, local or foreign law); and (xviii) no sales or use tax will
be payable by any Acquired Entity or Republic or any Surviving Corporation or
transferee as a result of this transaction, and there will be no non-recurring
intangible tax,
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documentary stamp tax other than on the Republic Shares, or other excise tax (or
comparable tax imposed by any governmental entity) as a result of this
transaction. Each Acquired Entity has timely and properly filed an S corporation
election under the Code and under applicable state and local Tax law for its
first taxable year, and no such S election has been revoked or terminated and
neither the Acquired Entities nor the Shareholder has taken any action that
would cause a termination of such S election.
3.20 INSURANCE. Each Acquired Entity is covered by valid, outstanding
enforceable policies of insurance issued to it by reputable insurers covering
its properties, assets and business against risks of the nature normally insured
against by similar entities in the same or similar lines of business in coverage
amounts typically and reasonably carried by such entities (the "Insurance
Policies"). Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid through the date of this Agreement and will
be paid through the Effective Time. Each Acquired Entity has complied with the
provisions of such Insurance Policies applicable to it, and has provided
Republic copies of all Insurance Policies and all amendments and riders thereto.
Other than claims which may have been filed by an Acquired Entity with respect
to matters described in Schedule 3.12, and other than worker's compensation
claims filed by employees of an Acquired Entity in the ordinary course of
business which are covered by insurance, there is no pending claim under any of
the Insurance Policies for an amount in excess of $25,000 individually or
$100,000 in the aggregate, including any claim for loss or damage to the
properties, assets or business of any Acquired Entity. No Acquired Entity has
failed to give, in a timely manner, any notice required under any of the
Insurance Policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables are valid and legally binding,
represent bona fide transactions and arose in the ordinary course of business of
the Acquired Entities. All of the Receivables are good and collectible
receivables, and will be collected in accordance with past practice and the
terms of such receivables (and in any event within six months following the
Closing Date), without set off or counterclaims, subject to the allowance for
doubtful accounts, if any, set forth on the Current Balance Sheets, as
reasonably adjusted since the date of the Current Balance Sheets in the ordinary
course of business, consistent with GAAP. For purposes of this Agreement, the
term "Receivables" means all receivables of the Acquired Entities, including
without limitation all contracts in transit, manufacturer's warranty receivables
and all trade account receivables arising from the provision of services, sale
of inventory, notes receivable, and insurance proceeds receivable.
3.22 LICENSES AND PERMITS. Each Acquired Entity possesses all licenses
and required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including with
respect to the operations of each of the Owned Properties and Leased Premises.
Schedule 3.22 sets forth a true, complete and accurate list of all such Permits,
itemized for each Acquired Entity. All such Permits are valid and in full force
and effect, each Acquired Entity is in compliance with the respective
requirements thereof, and no proceeding is pending or threatened to revoke or
amend any of them. None of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
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3.23 ADEQUACY OF THE ASSETS: RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of each of the businesses of the Acquired Entities in
the manner in which and to the extent to which such business is currently being
conducted. No current supplier to the Acquired Entities of items material to the
conduct of their business has threatened to terminate its business relationship
with any of the Acquired Entities for any reason. No Acquired Entity has any
direct or indirect interest in any customer, supplier or competitor of any
Acquired Entity or in any person from whom or to whom the Acquired Entity leases
real or personal property. No officer, director or shareholder of any Acquired
Entity, nor any person related by blood or marriage to any such person, nor any
entity in which any such person owns any beneficial interest, is a party to any
Contract or transaction with the Acquired Entity or has any interest in any
property used by the Acquired Entity.
3.24 INTELLECTUAL PROPERTY. Each Acquired Entity has full legal right,
title and interest in and to all trademarks, service marks, trade names,
copyrights, know-how, patents, trade secrets, licenses (including licenses for
the use of computer software programs), and other intellectual property used in
the conduct of its business (the "Intellectual Property"). The conduct of the
business of the Acquired Entities as presently conducted, and the unrestricted
conduct and the unrestricted use and exploitation of the Intellectual Property,
does not infringe or misappropriate any rights held or asserted by any Person
and to the knowledge of the Acquired Entities and the Shareholder, no Person is
infringing on any Intellectual Property. No payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like claim,
action or proceeding.
3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to
which any Acquired Entity is a party or by which any of them or their properties
and assets are bound and which is material to any of their businesses, assets,
properties or prospects (the "Material Contracts"), true, correct and complete
copies of which have been provided to Republic, including without limitation all
franchise, sales and service, dealer and other agreements or undertakings (the
"Franchise Agreements") with the Ford Division of the Ford Motor Company, Nissan
Division of Nissan Motor Corporation in U.S.A., the Dodge Division of the
Chrysler Corporation, the Lincoln-Mercury division of Ford Motor Company, and
Mitsubishi Motor Sales of America, Inc. or any other automobile manufacturer or
distributor (collectively, the "Factories"). As indicated in Schedule 3.25,
certain Acquired Entities are parties to Franchise Agreements for each of the
Dealerships, which Franchise Agreements grant the Acquired Entities full rights
and privileges necessary to operate the Dealerships. The copy of each Material
Contract furnished to Republic is a true and complete copy of the document it
purports to represent and reflects all amendments thereto made through the date
of this Agreement. The Acquired Entities have not violated any of the terms or
conditions of any Material Contract or any term or condition which would permit
termination or material modification of any Material Contract, all of the
covenants to be performed by any other party thereto have been fully performed,
and there are no claims for breach or indemnification or notice of default or
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termination under any Material Contract. No event has occurred which
constitutes, or after notice or the passage of time, or both, would constitute,
a default by any Acquired Entity under any Material Contract, and no such event
has occurred which constitutes or would constitute a default by any other party.
No Acquired Entity is subject to any liability or payment resulting from
renegotiation of amounts paid under any Material Contract. As used in this
Section 3.25 Material Contracts shall include, without limitation, formal or
informal, written or oral, in each case which is material to any of the Acquired
Entities' business, assets, properties or prospects (a) loan agreements,
indentures, mortgages, pledges, hypothecations, deeds of trust, conditional sale
or title retention agreements, security agreements, equipment financing
obligations or guaranties, or other sources of contingent liability in respect
of any indebtedness or obligations to any other Person, or letters of intent or
commitment letters with respect to same (other than those which individually
provide for annual payments of less than $25,000 and which are cancelable
without penalty on notice of sixty (60) days or less); (b) contracts obligating
any Acquired Entity to provide products or services for a period of one year or
more, excluding standard warranty contracts entered into in the ordinary course
of its business without material modification from the preprinted forms used by
the Acquired Entities in the ordinary course of business, copies of which have
been supplied to Republic; (c) leases of real property; (d) leases of personal
property (other than those which individually provide for annual payments of
less than $25,000 and which are cancelable without penalty on notice of sixty
(60) days or less); (e) distribution, sales agency or franchise or similar
agreements, or agreements providing for an independent contractor's services, or
letters of intent with respect to same (other than those which individually
provide for annual payments of less than $25,000 and which are cancelable
without penalty on notice of sixty (60) days or less); (f) employment
agreements, management service agreements, consulting agreements,
confidentiality agreements, non-competition agreements, employee handbooks,
policy statements and any other agreements relating to any employee, officer or
director of the Acquired Entities; (g) licenses, assignments or transfers of
trademarks, trade names, service marks, patents, copyrights, trade secrets or
know how, or other agreements regarding proprietary rights or intellectual
property; (h) any contract relating to pending capital expenditures by the
Acquired Entities; (i) contracts obligating any Acquired Entity to purchase
vehicles, parts, accessories, supplies, equipment, oil, advertising, media and
media related services of any kind (other than those which individually provide
for annual payments of less than $25,000 and which are cancelable without
penalty on notice of thirty (30) days or less); (j) any non-competition
agreements restricting any Acquired Entity in any manner, and (k) other material
Contracts or understandings, irrespective of subject matter and whether or not
in writing, and not otherwise disclosed on the Schedules.
3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto or made or
furnished to Republic or its representatives by the Acquired Entities or the
Shareholder, contains or shall contain any untrue statement of a material fact
or omits or shall omit any material fact necessary to make the information
contained therein not misleading. The Acquired Entities have provided Republic
with true, accurate and complete copies of all documents listed or described in
the various Schedules attached hereto.
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3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. The Shareholder has had the opportunity to discuss the transactions
contemplated hereby with Republic and has had the opportunity to obtain such
information pertaining to Republic as has been requested, including but not
limited to filings made by Republic with the SEC under the Exchange Act. The
Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act, and has such knowledge and experience in
business or financial matters that he is capable of evaluating the merits and
risks of an investment in the Republic Shares. The Shareholder hereby represents
that he can bear the economic risk of losing his investment in the Republic
Shares and has adequate means for providing for his current financial needs and
contingencies. The Shareholder has received copies of all Republic Reports filed
with the SEC since January 1, 1996.
3.28 NO COMMISSIONS. No Acquired Entity nor the Shareholder has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
3.29 CERTAIN ACCOUNTING MATTERS. No Acquired Entity nor the
Shareholder, nor any of their Affiliates, has taken or agreed to take any action
that (without regard to any action taken or agreed to be taken by Republic or
any of its Affiliates) would prevent Republic from accounting for the
transactions contemplated hereby as pooling of interests business combinations
in accordance with GAAP and the criteria of Accounting Principles Board Opinion
No. 16 and the regulations of the SEC.
3.30 ADVERSE IMPACT OF ACTIONS OR PROPOSALS OF MANUFACTURERS. To the
knowledge of the Shareholder and each of the Acquired Entities, none of the
Factories nor any other dealer has taken or proposed to take any action that
could have an adverse impact on any of the Dealerships, including, but not
limited to, (i) relocating or closing any of the Dealerships, (ii) relocating
any other dealership or establishing or awarding a new franchise for a
dealership to a location that could have an adverse impact on any of the
Dealerships, or (iii) protesting any action taken or proposed to be taken by any
of the Dealerships. The Shareholder and the Acquired Entities have delivered to
Republic copies of any written documentation or proposals relating to the
foregoing, including any strategic plans of the Factories relating to
distribution, marketing, facilities or divisional image or alignment or any
documentation relating to specific plans or proposals with respect to any of the
Dealerships.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
4.1 CONDUCT OF BUSINESS BY THE ACQUIRED ENTITIES PENDING THE CLOSING.
The Acquired Entities and the Shareholder, jointly and severally, covenant and
agree that, except as otherwise specifically required by the terms of this
Agreement, between the date of this Agreement and the Effective Time, the
business of the Acquired Entities shall be conducted only in, and the Acquired
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Entities shall not take any action except in the ordinary course of business
consistent with past practice. The Acquired Entities and the Shareholder shall
each use its or his reasonable best efforts to preserve intact the Acquired
Entities' business organizations, to keep available the services of their
current officers, employees and consultants, and to preserve their present
relationships with customers, suppliers and other Persons with which they have
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, the Acquired Entities shall not,
between the date of this Agreement and the Effective Time, directly or
indirectly, do or propose or agree to do any of the following without the prior
written consent of Republic.
(a) amend or otherwise change its Articles of Incorporation,
Bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i)
any shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest, of it,
or (ii) any of its assets, tangible or intangible, except, in the case
of (ii), in the ordinary course of business consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except that the Acquired Entities
may make cash distributions only to the extent necessary to pay for the
Shareholder's tax liability for earnings of the Acquired Entities,
consistent with past practice in the ordinary course.
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or
shares of stock, by merger, consolidation or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or make any investment
either by purchase of stock or securities, contributions of capital or
property transfer or, except in the ordinary course of business
consistent with past practice, purchase any property or assets of any
other Person, (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except for its "floor plan" financing of
vehicle inventories in the ordinary course of business consistent with
past practice or (iii) modify, terminate, or enter into any Contract
other than as provided herein or in the ordinary course of business
consistent with past practice;
(f) increase the compensation payable or to become payable to
its officers or employees or, except as presently bound to do, grant
any severance or termination pay to, or
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enter into any employment or severance agreement with, any of its
directors, officers or employees, or establish, adopt, enter into or
amend or take any action to accelerate any rights or benefits which any
collective bargaining, bonus, profit sharing trust, compensation, stock
option, restricted stock pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust,
fund, policy or arrangement for the benefit of any directors, officers
or employees;
(g) take any action with respect to accounting policies or
procedures other than in the ordinary course of business and in a
manner consistent with past practices;
(h) pay, discharge or satisfy any existing claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of due
and payable liabilities reflected or reserved against in its financial
statements, as appropriate, or liabilities incurred after the date
thereof in the ordinary course of business and consistent with past
practice;
(i) increase or decrease prices charged to its customers,
except in the ordinary course of business consistent with past
practices, or take any other action which might reasonably result in
any material increase in the loss of customers; materially increase or
decrease the average monthly New or Other Parts and Accessories
Inventory, New Vehicle Inventory, or Other Vehicle Inventory, other
than in the ordinary course of business and in a manner consistent with
past practice; or order any New Vehicles from the Factory which would
be inconsistent with the prior ordering practices of the Acquired
Entities;
(j) enter into any transaction with the Shareholder or an
Affiliate thereof; or
(k) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any
representation or warranty in Article III untrue or incorrect in any
material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Shareholder shall cause the
Acquired Entities to comply with all of the covenants of the Acquired Entities
under this Agreement.
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5.3 COOPERATION. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation in connection with the transactions contemplated by this
Agreement and to use their respective best efforts to agree jointly on a method
to overcome any objections by any Governmental Authority to any such
transactions.
5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties
hereto shall (a) cooperate in the preparation and filing of, and take all
appropriate actions in connection with, the application to the Factories for
approval of the transactions contemplated hereby, and (b) use its reasonable
best efforts to take, or cause to be taken, all appropriate actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated herein, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to Contracts
with the Acquired Entities as are necessary for the consummation of the
transactions contemplated hereby. Each of the parties shall make on a prompt and
timely basis all governmental or regulatory notifications and filings required
to be made by it for the consummation of the transactions contemplated hereby.
The parties also agree to use reasonable best efforts to defend all lawsuits or
other legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby and to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby.
5.5 HSR ACT. Republic, the Acquired Entities and the Shareholder shall
make promptly (unless they have already made) their respective filings, if any,
and thereafter make any other required submissions, under the HSR Act, with
respect to the transactions contemplated hereby, and shall, if requested by
Republic, seek early termination of the applicable waiting period under the HSR
Act. Republic shall pay all filing fees required to be paid by the Acquired
Entities and the Shareholder in connection with any such filing under the HSR
Act.
5.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
the Acquired Entities and the Shareholder shall, and shall cause their
directors, officers, employees, auditors, counsel and agents to, afford Republic
and Republic's officers, employees, auditors, counsel and agents reasonable
access at all reasonable times to its properties, offices and other facilities,
to its officers and employees and to all books and records, and shall furnish
such persons with all financial, operating and other data and information as may
be requested. No information provided to or obtained by Republic shall affect
any representation or warranty in this Agreement. Following the Effective Time,
the Shareholder shall have reasonable access to the Acquired Entities' tax
records to prepare his own tax return.
5.7 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this
Agreement shall give prompt notice to the other parties of the occurrence or
non-occurrence of any event which would likely cause any representation or
warranty made by such party herein to be untrue or inaccurate or any covenant,
condition or agreement contained herein not to be complied with or satisfied
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(provided, however, that, any such disclosure shall not in any way be deemed to
amend, modify or in any way affect the representations, warranties and covenants
made by any party in or pursuant to this Agreement).
5.8 TAX AND ACCOUNTING TREATMENT. Republic, the Acquired Entities and
the Shareholder will use their respective reasonable best efforts to cause the
Mergers contemplated hereby to qualify as a reorganization under the provisions
of Section 368(a) of the Code and the Share Exchange to qualify as a
reorganization under Section 368(a)(1)(B) of the Code. All parties hereto agree
to file the Plans of Merger for the Mergers and the Plan of Share Exchange for
the Share Exchange with their respective federal income tax returns for the year
in which the Mergers and the Share Exchange are effective, and to comply with
the reporting requirements of Treasury Regulation 1.368-3. In addition,
Republic, the Acquired Entities and the Shareholder will not take any action
after the date hereof to cause the Merger and the Share Exchange contemplated
hereby not to be accounted for as a pooling of interests business combination.
5.9 CONFIDENTIALITY: PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement, the subject matter or terms hereof or any
confidential information or other proprietary knowledge concerning the business
or affairs of any other party which it may have acquired from such party in the
course of pursuing the transactions contemplated by this Agreement without the
prior consent of the other parties hereto; provided, that any information that
is otherwise publicly available, without breach of this provision, or has been
obtained from a third party without a breach of such third party's duties, shall
not be deemed confidential information. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the other
parties, except that Republic may make such public disclosure which it believes
in good faith to be required by law or by the terms of any listing agreement
with or requirements of Nasdaq (in which case Republic will consult with the
Acquired Entities prior to making such disclosure).
5.10 NO OTHER DISCUSSIONS. The Acquired Entities, the Shareholder and
their Affiliates, employees, agents and representatives will not (a) initiate,
encourage the initiation by others of discussions or negotiations with third
parties or respond to solicitations by third persons relating to any merger,
sale or other disposition of any substantial part of the assets, capital stock
(or derivatives thereof), business or properties of any Acquired Entities
(whether by merger, consolidation, sale of stock, sale of assets, or otherwise),
or (b) enter into any agreement or commitment (whether or not binding) with
respect to any of the foregoing transactions. The Acquired Entities and the
Shareholder will immediately notify Republic if any third party attempts to
initiate any solicitation, discussion, or negotiation with respect to any of the
foregoing transactions, and shall provide Republic with the name of such third
parties and the terms of any offers.
5.11 RESTRICTIVE COVENANTS. In order to assure that Republic will
realize the benefits of the transactions contemplated hereby, the Shareholder
agrees with Republic that he will not:
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(a) during the Restricted Period (defined below), other than
as an employee of Republic or its Affiliates, directly or indirectly,
alone or as a partner, joint venturer, officer, director, member,
employee, consultant, agent, independent contractor or stockholder of,
or lender to, any company or business, engage in selling, leasing, or
servicing any new or used vehicles (the "Auto Business") or in the
wholesale or retail supply of parts with respect thereto (the "Parts
Business") anywhere in the Restricted Territory (defined below);
provided, however, that, the beneficial ownership of less than five
percent (5%) of the shares of stock of any corporation having a class
of equity securities actively traded on a national securities exchange
or over-the-counter market shall not be deemed, in and of itself, to
violate the prohibitions of this Section;
(b) during the Restricted Period, directly or indirectly (i)
induce any Person which is a customer or supplier of any Acquired
Entity, Republic or any Affiliate of the Acquired Entities or Republic
to patronize any business directly or indirectly in competition with
the Auto Business or the Parts Business conducted by the Acquired
Entities, Republic or any Affiliate of the Acquired Entities or
Republic; (ii) canvass, solicit or accept from any Person which is a
customer of the Acquired Entities, Republic or any Affiliate of the
Acquired Entities or Republic, any such competitive business; or (iii)
request or advise any Person which is a customer or supplier of the
Acquired Entities, Republic or any Affiliate of the Acquired Entities
or Republic, or its or their successors, to withdraw, curtail or cancel
any such customer's business with any such entity;
(c) during the Restricted Period, directly or indirectly
employ, or knowingly permit any company or business directly or
indirectly controlled by him, to employ, any person who was employed by
the Acquired Entities, Republic or any Affiliate of the Acquired
Entities or Republic at or within the then prior six months, or in any
manner seek to induce any such person to leave his or her employment;
(d) during the Restricted Period, directly or indirectly, in
any way utilize, disclose, copy, reproduce or retain in his possession
any of the Acquired Entities' proprietary rights or records of the
Acquired Entities or Republic, including, but not limited to any
customer lists.
For purposes of this Section 5.11. (a) the "Restricted Period" shall mean the
period beginning on the Effective Time and ending on the later of (i) the fifth
anniversary of the Effective Time (the "Five-Year Restricted Period"), and (ii)
the second anniversary of the termination of the Shareholder's employment
following the Effective Time (the "Two-Year Restricted Period"), and (b) the
"Restricted Territory" shall mean (i) during the Two-Year Restricted Period,
anywhere in the United States, and (ii) during the Five-Year Restricted Period
(to the extent it extends longer than the Two Year Restricted Period), anywhere
within twenty-five (25) miles of any new or used automotive dealership owned or
operated by Republic or any Affiliate of Republic (including any AutoNation USA
used car superstore) at such time. The Shareholder agrees and acknowledges that
the restrictions contained in this Section 5.11 are reasonable in scope and
duration and are necessary
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to protect Republic and the Acquired Entities after the Effective Time. If any
provision of this Section 5.11, as applied to any party or to any circumstance,
is adjudged by a court to be invalid or unenforceable, the same will in no way
affect any other circumstance or the validity or enforceability of the remainder
of this Agreement. If any such provision, or any part thereof, is held to be
unenforceable because of the scope or duration of such provision or the
geographic area covered thereby, the parties agree that the court making such
determination shall have the power to reduce the scope, duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced
form, such provision shall then be enforceable and shall be enforced. The
parties agree and acknowledge that the breach of this Section 5.11 will cause
irreparable damage to Republic and upon breach of any provision of this Section
5.11, Republic shall be entitled to injunctive relief, specific performance or
other equitable relief, provided, however, that the foregoing remedies shall in
no way limit any other remedies which Republic may have (including, without
limitation, the right to seek monetary damages).
5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly
consented to in writing by Republic, from the date of this Agreement until the
Effective Time, neither the Acquired Entities, the Shareholder nor any of their
Affiliates will directly or indirectly purchase or sell (including short sales)
any shares of Republic Common Stock in any transactions effected on Nasdaq or
otherwise.
5.13 EMPLOYMENT OF SHAREHOLDER. At the Closing, Republic or its
assignee and the Shareholder shall enter into an employment agreement in the
form attached hereto as Schedule 5.13. The Shareholder shall use reasonable best
efforts to facilitate Republic and Chris Woods entering into a reasonably
acceptable employment arrangement.
5.14 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic, at
its expense, shall be entitled to conduct prior to Closing a due diligence
review of the assets, properties, books and records of the Acquired Entities and
an environmental assessment of the Owned Properties and Leased Premises
(hereinafter referred to as "Environmental Assessment"). The Environmental
Assessment may include, but not be limited to, a physical examination of the
Owned Properties and Leased Premises, and any structures, facilities, or
equipment located thereon, soil samples, ground and surface water samples,
storage tank testing, review of pertinent records (including but not limited to,
off-site disposal records and manifests), documents, and Licenses of the
Acquired Entities. The Acquired Entities shall provide Republic or its
designated agents or consultants with the access to such properties which
Republic, its agents or consultants require to conduct the Environmental
Assessment. If the Environmental Assessment identifies Recognized Environmental
Conditions (as defined by ASTM Standard Practice E-1527) which require
remediation or further evaluation under the Environmental Laws as defined in
Section 3.13(f) of this Agreement, then Republic shall notify the Acquired
Entities and the Shareholder in writing and the Acquired Entities and the
Shareholder shall be financially responsible for the remediation of all
Recognized Environmental Conditions which remediation is, may or would be
required by any appropriate governmental agency. Republic's failure or decision
not to conduct any such Environmental Assessment shall not affect any
representation or warranty of the Acquired Entities or the Shareholder under
this Agreement. Prior
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to Closing, the parties hereto shall agree on the appropriate actions (and the
cost thereof) to be taken with respect to any such Recognized Environmental
Conditions (provided further that in the event the parties do not agree prior to
Closing on which action is to be taken with respect to any such Recognized
Environmental Conditions, after Closing, Republic shall at its reasonable
discretion, determine the appropriate course of action (and the cost thereof)
with respect thereto). Such costs, being Environmental Costs, will be considered
Excluded Liabilities and be borne by the Shareholder as Indemnifiable Damages in
accordance with Article IX of this Agreement.
5.15 TITLE INSURANCE AND SURVEYS.
(a) Within ten (10) business days after the date of this
Agreement, the Acquired Entities and the Shareholder shall deliver copies of
previous owner policies or other title evidence sufficient to obtain commitments
(the "Commitments") to be issued by Shareholder's counsel as agent for
Attorneys' Title Insurance Fund (the "Title Company") for the issuance of an
ALTA Owners Policy of Title Insurance (10-17-92) (with Florida Modifications,
the "Title Policy") for each of the Owned Properties (and such of the Leased
Properties as Republic may designate) in an amount not to exceed the fair market
value of the Owned Properties. The premium for the Title Policy shall be paid by
the Shareholder. The Title Policy shall show fee simple title to the Owned
Properties vested now or to be vested at or immediately prior to the Closing in
the Acquired Entities subject only to current real estate Taxes not yet due and
payable as of the Effective Time, and such other covenants, conditions,
easements, and exceptions to title as Republic may approve in writing
(collectively, the "Permitted Exceptions"). The Permitted Exceptions shall
include, but shall not be limited to, mortgages or instruments securing any of
the Designated Liabilities, and such of the following matters as do not affect
the current use of the Owned Properties: (i) zoning restrictions imposed by
Governmental Authority (so long as there exists no violation of any such
restrictions by the use of or improvements on the Owned Properties), (ii)
restrictions and matters appearing on the Plat or otherwise common to the
subdivision, and (iii) utility easements that are not subject to any
encroachment by existing improvements on the Owned Properties (other than
perimeter walls and fences). The Commitments and the Title Policy to be issued
by the Title Company shall have all Standard and General Exceptions deleted so
as to afford full "extended form coverage" and shall contain contiguity (where
appropriate), survey, and such other endorsements as may be reasonably requested
by Republic, excluding nonimputation and creditors rights endorsements. At the
Closing, the Acquired Entities, the Shareholder and their Affiliates shall
deliver such affidavits or other instruments as the Title Company may reasonably
require to delete Standard and General Exceptions and to provide the special
endorsements required hereunder. The Acquired Entities and the Shareholder shall
cause the Commitments to be later-dated to cover the Closing and to cause the
Title Company to delete all Schedule B-1 requirements and all Standard
Exceptions in the Commitment at the Closing as directed by Republic.
(b) Within 20 days after the date of this Agreement but before
the Closing, the Acquired Entities and the Shareholder shall deliver to Republic
and the Title Company an as-built survey of each of the Owned Properties and the
Leased Premises (the "Surveys") prepared by a registered land surveyor or
engineer, licensed in the respective states in which such properties are
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located, dated on or after the date hereof, certified to Republic, the Title
Company, and such other entities as Republic may designate in writing to the
Acquired Entities and the Shareholder within such 20-day period prior to the
Closing, and conforming to current ALTA/ACSM Minimum Detail Requirements for
Land Title Surveys, sufficient to cause the Title Company to delete the standard
printed survey exception. Each Survey shall show access from the land to
dedicated roads and shall include a flood plain certification. Any survey may be
a recertification of a prior survey, provided that it meets the above-described
criteria.
(c) If (i) any Commitment discloses a title exception other
than a Permitted Exception (an "Unpermitted Exception") or (ii) any Survey
discloses any encroachment, overlap, boundary dispute, or gap or any other
matter which renders title to any of the Owned Properties unmarketable or
reflects that any utility service to the improvements or access thereto does not
lie wholly within the applicable parcel of real property, or within an
encumbered easement for the benefit of such parcel of real property, or reflects
any other matter adversely affecting the use or improvements of such parcel of
real property (a "Survey Defect"), then the Acquired Entities and the
Shareholder, prior to the Closing, shall exercise reasonable best efforts to
have the Unpermitted Exception removed from such Commitment or the Survey Defect
corrected or insured over by an appropriate title insurance endorsement, all in
a manner satisfactory to Republic. Should the Shareholder fail to release said
Unpermitted Exception or correct or insure over a Survey Defect in a manner
satisfactory to Republic, Republic may, at its option, (i) terminate and render
this Agreement null and void, or (ii) close on the transactions contemplated by
this Agreement, in which case, any damages incurred by Republic or the Acquired
Entities, as a result of such Unpermitted Exception or the Survey Defect shall
be considered Indemnifiable Damages under Article IX but shall not be included
in nor deducted from the Indemnification Threshold, provided, however, that if
the cost of releasing such Unpermitted Exception or correcting or insuring over
such Survey Defect would be reasonably determined by Republic and the
Shareholder to exceed ten percent (10%) of the Purchase Price, either Republic
or the Shareholder and the Acquired Entities may terminate and render this
Agreement null and void.
5.16 SHAREHOLDER AND DIRECTOR VOTE. The Shareholder, in executing
this Agreement, consents as a director and shareholder (as applicable) of the
Acquired Entities to the Mergers, the Share Exchange and other transactions
contemplated hereby, and waives notice of any meeting in connection therewith
and hereby releases and waives all rights with respect to the transactions
contemplated hereby under any agreements relating to the sale, purchase or
voting of stock of the Acquired Entities.
5.17 AUDITED FINANCIAL STATEMENTS OF ACQUIRED ENTITIES. The
Acquired Entities acknowledge and agree that they shall engage a certified
public accounting firm acceptable to Republic to complete an audit and prepare
audited financial statements for each of the Acquired Entities (the "Audited
Statements") as soon as practicable, it being anticipated that it will be
completed the 21st day after the date of this Agreement, and the Acquired
Entities shall deliver such Audited Statements (including signed audit opinions
relating thereto) to Republic upon completion. The Audited Statements shall
comply with all laws and regulations of the Securities and Exchange
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Commission that require Republic to file audited financial statements with the
SEC with respect to registrations under the Securities Act and for reporting
purposes under the Securities Exchange Act.
5.18 SHAREHOLDER'S LIABILITY. At Closing, Republic shall use its
reasonable best efforts to cause the Shareholder to be released from the
Shareholder's guarantees of the Acquired Entity indebtedness listed on Schedule
3.11. In the event a release is not obtained, Republic agrees to indemnify and
hold the Shareholder harmless from any claims resulting from the failure to
obtain such release.
5.19 PURCHASE OF WI'S ASSET. Prior to the Closing, the Shareholder or
his assignee shall purchase from WI at fair market value (which approximates the
amount of the indebtedness relating thereto, which indebtedness shall be assumed
by the Shareholder), the airplane (the "Airplane") more particularly described
as a Hawker 700. The Shareholder agrees that any gain resulting from the sale of
the Airplane will be reported in WI's S Short Year (as defined in Treasury
Regulation Section 1.1362-3(a)). The Shareholder further specifically agrees
that allocation between the S Short Year and the C Short Year (as defined in
Treasury Regulation Section 1.1362-3(a)) shall be made pursuant to Section
1.362(e)(3) of the Code.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Mergers and the
Share Exchange and the other transactions contemplated hereby shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions,
any or all of which may be waived in whole or in part by the Republic Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Acquired Entities and the
Shareholder in this Agreement shall be true and correct at and as of the Closing
Date with the same force and effect as though made at and as of that time except
(i) for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of particular date
shall remain true and correct as of such date. The Acquired Entities and the
Shareholder shall have performed or complied with all of their obligations
required by this Agreement to be performed or complied with at or prior to the
Closing Date. The Acquired Entities and the Shareholder shall have delivered to
Republic a certificate, dated as of the Closing Date, (which in case of the
Acquired Entities shall be duly signed by their respective Chief Executive
Officers and Chief Financial Officers) certifying that such representations and
warranties, as specifically permitted to be amended by the terms of this Section
6.1, are true and correct and that all such obligations have been performed and
complied with.
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6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the
date hereof and the Closing Date; (a) there shall have been no Material Adverse
Change to any of the Acquired Entities, (b) there shall have been no adverse
federal, state or local legislative or regulatory change affecting in any
material respect the services, products or business of any of the Acquired
Entities and (c) none of the Assets of the Acquired Entities shall have been
damaged by fire, flood, casualty, act of God or the public enemy or other cause
(regardless of insurance coverage for such damage) which damages may have a
Material Adverse Effect thereon, and the Acquired Entities and the Shareholder
shall have delivered to Republic a certificate, dated as of the Closing Date, to
that effect.
6.3 CORPORATE CERTIFICATE. The Acquired Entities shall have delivered
to the Republic Companies (i) copies of the Articles of Incorporation of each of
the Acquired Entities certified by the Florida Secretary of State no longer than
15 days prior to the Effective Time and copies of the Bylaws of each Acquired
Entity as in effect immediately prior to the Effective Time, (ii) copies of
resolutions adopted by the Board of Directors and shareholders of each Acquired
Entity authorizing the transactions contemplated by this Agreement, and (iii) a
certificate of good standing of each of the Acquired Entities issued by the
state of its incorporation or formation and each other state in which it is
qualified to do business as of a date not more than 5 days prior to the Closing
Date, and all of such documents as to each Acquired Entity shall be certified as
of the Closing Date by the Secretary of such Acquired Entity as being true,
correct and complete.
6.4 OPINION OF COUNSEL. Republic shall have received an opinion, dated
as of the Closing Date, from counsel for the Acquired Entities and the
Shareholder, in form and substance acceptable to Republic, including but not
limited to such matters as set forth on Schedule 6.4.
6.5 CONSENTS. The Acquired Entities, the Shareholder, and Republic
shall have received consents to the Mergers, the Share Exchange and other
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Acquired Entities or the Shareholder,
from any Person from whom such consent or waiver is required, including without
limitation, under any Material Contract listed or required to be listed in
Schedule 3.25 (including but not limited to, any Franchise Agreement or any
other franchise, dealer or other agreement with the Factories) or under the HSR
Act or other law or regulation as of a date not more than five days prior to the
Closing, or who as a result of the transactions contemplated hereby, would have
such rights to terminate or modify such Contracts or instruments, either by the
terms thereof or as a matter of law. Republic shall have received all consents
required under the Franchise Agreements between the Acquired Entities and the
Factories or shall have entered into new arrangements and franchise agreements
of the type generally in use at that time to operate a dealership of each of the
Factories at the current locations of the Dealerships, subject only to such
additional terms and conditions as are acceptable to Republic. Republic shall
have obtained any applicable dealer license or other approvals required under
state laws or the applicable state motor vehicle authorities and all other
Governmental Authorities with respect to the transactions contemplated hereby.
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6.6 SECURITIES LAWS. Republic shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the issuance of the Republic Shares in connection with the
transactions contemplated hereby.
6.7 POOLING LETTERS. The Acquired Entities shall have received from
Goldenberg Rosenthal Friedlander, LLP, a letter, dated the Closing Date,
confirming that to their knowledge after due and diligent inquiry of management,
there have been no transactions or events with respect to the Acquired Entities
which would, and the ownership structure and attributes of the Acquired Entities
and the Shareholder would not, prohibit the transactions contemplated hereby, if
consummated, from being accounted for as pooling of interests business
combinations in accordance with GAAP and the criteria of Accounting Principles
Board Opinion No. 16 and the regulations of the SEC. Republic shall have
requested and received from Arthur Andersen LLP, a letter, dated the Closing
Date, confirming that the transactions contemplated hereby, if consummated, can
properly be accounted for as pooling of interests combinations in accordance
with GAAP and the criteria of Accounting Principles Board Opinion No. 16 and the
regulations of the SEC.
6.8 POOLING UNDERTAKINGS. At or prior to the Closing, the Shareholder
and other appropriate Persons shall have delivered to Republic a letter
agreement relating to "pooling of interests" criteria, in form and substance
satisfactory to Republic.
6.9 AUDITED STATEMENTS. The Audited Statements shall have been timely
delivered to Republic as required by Section 5.17.
6.10 STOCK POWERS. At the Closing, the Shareholder shall have delivered
to Republic, for use in connection with the Held Back Shares, ten stock powers
executed in blank, with signature guarantees.
6.11 NO ADVERSE LITIGATION. There shall not be pending or threatened
any action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Mergers, the Share Exchange or other transactions hereunder, or which, in
the judgment of Republic, makes it inadvisable to proceed with the transactions
contemplated hereby.
6.12 EMPLOYMENT AGREEMENT. At or prior to the Closing, as provided in
Section 5.13, the Shareholder shall have entered into an employment agreement
and Chris Woods shall have entered into an employment arrangement satisfactory
to Republic, with one of the Acquired Entities, Republic, or at Republic's
option, one or more of its assignees.
6.13 LIABILITIES. Prior to the Closing, each Acquired Entity shall have
obtained full satisfactions or releases of all obligations and liabilities due
from the Acquired Entities which is due to be satisfied or released by the terms
of this Agreement to or on behalf of (i) any Affiliate of any Acquired Entity or
(ii) the Shareholder or any Affiliate of the Shareholder.
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6.14 RELEASES. At the Closing, each of the Acquired Entities and the
Shareholder and such of their Affiliates as may be designated by Republic, shall
deliver to Republic a release (collectively, the "Releases") in such form
satisfactory to Republic releasing all claims of any nature against the Republic
Companies and the Acquired Entities and any claims arising out of the Mergers,
the Share Exchange and the other transactions contemplated by this Agreement,
except for claims and obligations set forth in the express terms of this
Agreement.
6.15 BOARD APPROVAL. The Board of Directors of Republic shall have
authorized and approved this Agreement and the transactions contemplated hereby
on the earlier of the Closing Date or within thirty (30) days of the date of
this Agreement.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE ACQUIRED ENTITIES AND THE SHAREHOLDER
The obligations of the Acquired Entities and the Shareholder to effect
the Mergers and the Share Exchange shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in whole or in part by the Acquired Entities and the Shareholder.
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Republic Companies
contained in this Agreement shall be true and correct at and as of the Closing
Date with the same force and effect as though made at and as of that time except
(i) for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date. Republic shall have
performed and complied with all of its obligations required by this Agreement to
be performed or complied with at or prior to the Closing Date. The Republic
Companies shall each have delivered to the Acquired Entities a certificate,
dated as of the Closing Date, and signed by an executive officer, certifying
that such representations and warranties are true and correct, as specifically
permitted to be amended by the terms of this Section 7.1, and that all such
obligations have been performed and complied with.
7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of
the Republic Shares and shall have delivered to the Shareholder (a) certificates
for the Republic Shares issued to him hereunder, other than the Held Back
Shares, and (b) copies of certificates representing the Held Back Shares.
7.3 NO ORDER OR INJUNCTION. There shall not be issued and in effect by
or before any court or other governmental body an order or injunction
restraining or prohibiting the transactions contemplated hereby.
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7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under the HSR
Act shall have expired or been terminated.
ARTICLE VIII
REGISTRATION RIGHTS
The Shareholder shall have the following registration rights with
respect to the Republic Shares issued to him hereunder.
8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF REGISTRATION
STATEMENT. Republic will utilize its reasonable best efforts to cause, as soon
as practicable following the Closing Date, a registration statement to be filed
under the Securities Act or an existing registration statement to be amended for
the purpose of registering the Republic Shares for resale by a Holder thereof
(the "Registration Statement"). For purposes of this Article VIII, a person is
deemed to be a "Holder" of Republic Shares whenever such person is the record
owner of Republic Shares. Republic will use its reasonable best efforts to have
the Registration Statement become effective and cause the Republic Shares to be
registered for resale under the Securities Act and registered, qualified or
exempted under the state securities laws of such jurisdictions as any Holder
reasonably requests as soon as reasonably practicable following the Effective
Date, provided, however, that Republic shall not be required to qualify to do
business in any state or to consent to be subject to general service of process
in any state where it is not otherwise required to be so qualified or subject.
8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses incurred
by Republic in connection with the registration, qualification and/or exemption
of the Republic Shares, including any SEC and state securities law registration
and filing fees, printing expenses, fees and disbursements of Republic's counsel
and accountants, transfer agents' and registrars' fees, fees and disbursements
of experts used by Republic in connection with such registration, qualification
and/or exemption, and expenses incidental to any amendment or supplement to the
Registration Statement or prospectuses contained therein. Republic shall not,
however, be liable for any sales, broker's or underwriting commissions or
discounts upon sale by any Holder of any of the Republic Shares.
8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the Holders such
reasonable number of copies of the Registration Statement, such prospectuses as
are contained in the Registration Statement and such other documents as the
Holders may reasonably request in order to facilitate the offering of the
Republic Shares.
8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and promptly
file with the SEC and promptly notify the Holders of the filing of such
amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions if,
at the time when a prospectus relating to the Republic Shares is required
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to be delivered under the Securities Act, any event shall have occurred as a
result of which any such prospectus or any other prospectus as then in effect
would include 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 (and the Holders shall
not use any prospectus to offer or sell Republic Shares until such amendments or
supplements are completed and the Registration Statement is effective),
provided, however, that Republic shall be entitled to delay any such filing and
the Holders' use of the prospectus if Republic determines that such filing would
impede, delay, or interfere with any significant financing, acquisition, or
other transaction involving Republic, or require disclosure of material
information which Republic has a bona fide business purpose for preserving as
confidential. Republic shall also advise the Holders promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
8.5 DURATION. Republic shall maintain the effectiveness of the
Registration Statement until such time as Republic reasonably determines, based
on an opinion of counsel, that all of the Holders will be eligible to sell all
of the Republic Shares then owned by the Holders without the need for continued
registration of the shares within the three month period immediately following
the termination of the effectiveness of the Registration Statement. Republic's
obligations contained in Sections 8.1. 8.3 and 8.4 shall terminate on the second
anniversary of the Closing Date; provided, however, that if the two-year holding
period under Rule 144 under the Securities Act is reduced to one year, such
terminations shall take effect as of the first anniversary of the Closing Date.
8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are
included in any registration, such Holder shall furnish Republic such
information regarding itself as Republic may reasonably request or as required
by applicable law in connection with any registration, qualification or
compliance referred to in this Agreement.
8.7 INDEMNIFICATION.
(a) Republic will indemnify and hold harmless the Holders and
each person, if any, who controls a Holder within the meaning of the Securities
Act, from and against any and all losses, damages, liabilities, costs and
expenses to which the Holders or any such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, any
prospectus contained therein or any amendment or supplement thereto, or are out
of or based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statement therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that, Republic will not be liable in any such case to the
extent that any such loss, claim, damage, liability, cost or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
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or alleged omission so made in conformity with information furnished by or on
behalf of any Holder or such controlling person in writing specifically for use
in the preparation thereof.
(b) Each of the Holders, jointly and severally, will indemnify
and hold harmless Republic and each person, if any, who controls Republic within
the meaning of the Securities Act, from and against any and all losses, damages,
liabilities, costs and expenses to which Republic or any such controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein or any 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, in light of the circumstances under
which they were made, not misleading, if such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
conformity with written information furnished by or on behalf of any Holder
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 8.7 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have hereunder unless the indemnifying party has been
materially prejudiced thereby nor will such failure to so notify the
indemnifying party relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants in
any action include both the indemnified party and the indemnifying party and
there is a conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate in the
defense of such action on behalf of such indemnified party or parties. After
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (a) or (b) for
any legal or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed counsel in
accordance with the provisions of the preceding sentence; (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party.
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(d) In the event that Republic determines in its sole
discretion to allow any of the Republic Shares to be sold by any Holder or
Holders in an underwritten public offering, (i) Republic shall provide customary
indemnification to the underwriters of such offering and any person controlling
any such underwriter on behalf of the Holder or Holders making the offering;
provided, however, that Republic shall not be required to consent to any such
underwriting or to provide such indemnification in respect of the matters
described in the proviso to the first sentence of Section 8.7(a), and (ii) the
Holders desiring to participate in such offering shall enter into the
underwriting agreement for such offering.
ARTICLE IX
INDEMNIFICATION
9.1 AGREEMENT BY THE SHAREHOLDER FOR INDEMNIFICATION. The Shareholder
agrees to indemnify and hold Republic and its stockholders, directors, officers,
employees, attorneys, agents and Affiliates harmless from and against, and at
Republic's election in its sole discretion Republic shall be entitled to recover
by set off against the Held Back Shares in accordance with Section 9.3, the
aggregate of all expenses, losses, costs, deficiencies, liabilities and damages
(including, without limitation, related counsel and paralegal fees and expenses)
incurred or suffered by Republic arising out of, relating to, or resulting, from
(i) any breach of a representation or warranty made by the Acquired Entities or
the Shareholder in or pursuant to this Agreement, (ii) any breach of the
covenants or agreements made by the Acquired Entities or the Shareholder in or
pursuant to this Agreement, (iii) any inaccuracy in any certificate, instrument
or other document delivered by the Acquired Entities or the Shareholder as
required by this Agreement; or (iv) any Excluded Liabilities (collectively,
"Indemnifiable Damages"). Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, Republic shall have the
right to be put in the same pretax consolidated financial position (taking into
consideration any insurance proceeds actually received or agreed to be paid) as
it would have been in if the breach or inaccuracy referenced in the foregoing
clauses (i), (ii), and (iii), and (iv) that caused such Indemnifiable Damages
had not occurred.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Acquired Entities and the Shareholder
in this Agreement or pursuant hereto shall survive for a period of one year
after the Closing Date. No claim for the recovery of Indemnifiable Damages may
be asserted by Republic after such one-year period has expired; provided,
however, that claims for Indemnifiable Damages first asserted within such period
shall not thereafter be barred. Notwithstanding any knowledge of facts
determined or determinable by any party by investigation, each party shall have
the right to fully rely on the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement of the parties contained in this Agreement is
independent of each other representation, warranty, covenant and agreement. Each
of the representations and warranties of the Republic Companies shall
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expire at the Effective Time. Notwithstanding the foregoing, no claim for
Indemnifiable Damages (except for claims under clause (ii) of Section 9.1 ,
Section 3.19 , and matters under Schedule 3.19) shall be asserted by the
Republic Companies until the aggregate of all such Indemnifiable Damages exceeds
the sum of $200,000, in which case the Republic Companies shall be entitled to
the full amount of Indemnifiable Damages in excess of such $200,000, provided
that the aggregate Indemnifiable Damages that may be paid by the Shareholder
herein shall not exceed the Purchase Price.
9.3 SECURITY FOR THE INDEMNIFICATION OBLIGATION. As security for
the indemnification obligations contained in this Article IX, at the Closing,
Republic shall set aside and hold certificates representing the Held Back Shares
issued pursuant to this Agreement. Subject to the provisions of Section 9.2,
Republic may set off against the Held Back Shares any Indemnifiable Damages (to
the extent not paid in full by the Shareholder prior to the expiration of the
ten (10) day period provided in Section 9.3(b) below) subject, however, to the
following, terms and conditions:
(a) Republic shall give written notice to the holders of Held
Back Shares of any claim for Indemnifiable Damages or any other damages
hereunder, which notice shall set forth (i) the amount of Indemnifiable
Damages or other loss, damage, cost or expense which Republic claims to
have sustained by reason thereof, and (ii) the basis of such claim;
(b) Such set off shall be effected on the later to occur of
the expiration of ten (10) days from the date of such notice (the
"Notice of Contest Period") or, if such claim is contested, the date
the dispute is resolved;
(c) After the Held Back Shares are registered and any
restrictions on sale imposed under the Securities Act or otherwise are
terminated, the Shareholder may instruct Republic to sell some or all
of the Held Back Shares and the net proceeds thereof shall be held by
Republic in an interest-bearing account and shall be substituted for
such Held Back Shares in any set off to be made by Republic pursuant to
any claim hereunder subject to continued compliance with any applicable
SEC and other regulations; and
(d) For purposes of any set off against the Held Back Shares
pursuant to this Article IX, the shares of Republic Common Stock not
sold as provided in clause (c) of this Section shall be valued at the
Price per Share.
9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with
respect to Held Back Shares sold pursuant to the foregoing Section 9.3(c) (and
in the case of such shares, until the same are transferred), all Held Back
Shares shall be deemed to be owned by the Shareholder and the Shareholder shall
be entitled to vote the Held Back Shares; provided, however, that, there shall
also be deposited with Republic subject to the terms of this Article IX, all
shares of Republic Common Stock or other assets issued to or paid upon Held Back
Shares as a result of any stock or other dividend or distribution or stock split
with respect to the Held Back Shares. All stock or other distributions issued or
paid upon the Held Back Shares shall be delivered to the person or entity
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entitled to receive such Held Back Shares together with the delivery of such
Held Back Shares pursuant to Section 9.5.
9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the
Shareholder one-half of the Held Back Shares six months following the Effective
Date, provided that no claim for Indemnifiable Damages has been made during that
period. Republic agrees to deliver to the Shareholder any remaining Held Back
Shares no later than one year after the Effective Date any Held Back Shares (and
distributions thereon) then held by Republic (or proceeds, together with
interest thereon, if any, from the sale of Held Back Shares) unless there then
remains unresolved any claim for Indemnifiable Damages hereunder for which
notice has been given, in which event Republic shall retain such number of Held
Back Shares (and such amount of proceeds therefrom, together with interest, if
any, or distributions thereon) as is sufficient to satisfy any such unresolved
claim, as well as the attorney fees and costs associated therewith, and shall
release the remaining Held Back Shares (and such remaining proceeds, together
with interest, if any, and distributions) to the Shareholder. Any Held Back
Shares (and proceeds, together with interest, if any, from the sale of, or
distributions on, Held Back Shares) remaining on deposit after all such claims
shall have been satisfied shall be returned to the Shareholder promptly after
the time of satisfaction.
9.6 ADJUSTMENT TO PURCHASE PRICE. All payments for Indemnifiable
Damages made pursuant to this Article IX shall be treated as adjustments to the
Aggregate Consideration provided in Section 1.4.
9.7 NO BAR. If the Held Back Shares are insufficient to set off any
claim for Indemnifiable Damages made hereunder (or have been delivered to the
Shareholder prior to the making or resolution of such claim), then Republic may
take any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages.
9.8 REMEDIES CUMULATIVE-WAIVER. The remedies provided herein shall be
cumulative and shall not preclude Republic from asserting any other right, or
seeking any other remedies against the Shareholder. The Shareholder hereby
waives any right to contribution or any other similar right it may have against
any of the Acquired Entities as a result of his Agreement to Indemnify in this
Article IX.
9.9 DEFENSE OF THIRD PARTY CLAIMS. With respect to each third party
claim for which Republic seeks indemnification under this Article (a "Third
Party Claim"), Republic shall give prompt notice to the Shareholder of the Third
Party Claim, provided that failure to give such notice promptly shall not
relieve or limit the obligations of the Shareholder unless the Shareholder has
been materially prejudiced thereby (and such failure to notify the Shareholder
will not relieve him from any other liability he may have to Republic). If the
remedy sought in the Third Party Claim is solely money damages or if Republic
otherwise permits, then the Shareholder, at his sole cost and expense, may, upon
notice to Republic within fifteen (15) days after the Shareholder receives
notice of the Third Party Claim, assume the defense of the Third Party Claim. If
the Shareholder assumes the defense of a Third Party Claim, then the Shareholder
shall select counsel reasonably satisfactory to
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Republic to conduct the defense. The Shareholder shall not consent to a
settlement of, or the entry of any judgment arising from, any Third Party Claim,
unless (i) the settlement or judgment is solely for money damages and the
Shareholder admits in writing his liability to hold Republic harmless from and
against any losses, damages, expenses and liabilities arising out of such
settlement or judgment or (ii) Republic consents thereto, which consent shall
not be unreasonably withheld. The Shareholder shall provide Republic with
fifteen (15) days prior notice before it consents to a settlement of, or the
entry of a judgment arising from, any Third Party Claim. Republic shall be
entitled to participate at its own expense in the defense of any Third Party
Claim, the defense of which is assumed by the Shareholder with his own counsel
and at his own expense. With respect to Third Party Claims in which the remedy
sought is not solely money damages and Republic does not permit the Shareholder
to assume the defense, the Shareholder shall, upon notice to Republic within
fifteen (15) days after the Shareholder receives notice of the Third Party
Claim, be entitled to participate in the defense with his own counsel at his own
expense. If the Shareholder does not assume or participate in the defense of any
Third Party Claim in accordance with the terms of this Section, then the
Shareholder shall be bound by the results obtained by Republic with respect to
the Third Party Claim. The parties shall cooperate in the defense of any Third
Party Claim and the relevant records of each party shall be made available on a
timely basis.
ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
deposition after the Closing Date of the Republic Shares:
10.1 DISPOSITION OF SHARES.
(a) The Shareholder acknowledges that (i) he may be deemed to
be an "affiliate" of the Acquired Entities for purposes of qualifying the
transactions contemplated hereby as pooling of interests business combinations
under applicable accounting and SEC rules and regulations, and (ii) the Republic
Shares constitute "restricted securities" as defined in Rule 144 under the
Securities Act. The Shareholder agrees that prior to Closing he will not dispose
of any shares of capital stock of the Acquired Entities, and following the
Closing he will not sell, transfer or otherwise dispose of any of his Republic
Shares until such time as final results of operations of Republic covering at
least thirty (30) days of combined operations of Republic and the Acquired
Entities have been published.
(b) The Shareholder agrees that he will not sell, transfer or
otherwise dispose of any Republic Shares, except pursuant to (a) an exemption
from the registration requirements under the Securities Act, which does not
require the filing by Republic with the SEC of any registration statement,
offering circular or other document, in which case, each such Person shall first
supply to Republic an opinion of counsel (which counsel and opinions shall be
satisfactory to Republic) that
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such exemption is available, or (b) an effective registration statement filed by
Republic with the SEC under the Securities Act.
10.2 LEGENDS. The certificates representing the Republic Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO,
OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT
COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S
ACCOUNTING SERIES RELEASES 130 AND 135.
Republic may, unless a registration statement is in effect covering such shares,
place stop transfer orders with its transfer agents with respect to such
certificates in accordance with federal securities laws.
ARTICLE XI
DEFINITIONS
11.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"Chargebacks" shall mean (a) any amount which an Acquired
Entity may be required to pay back to any party purchasing retail
paper, warranties, insurance or the like from the Acquired Entity, or
(b) any amount which may be set-off or otherwise deducted from any
amount due and owing to the Acquired Entity by any party purchasing
retail paper, warranties, insurance or the like from the Acquired
Entity.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Environmental Costs" shall mean any and all expenses, costs,
damages, liabilities, or obligations (including, without limitation,
fees and expenses of counsel) incurred by, under or pursuant to any
Environmental Laws or related to the Discharge, Handling, presence or
clean up of Hazardous Substances arising as a result of events
occurring or facts or circumstances arising or existing on or prior to
the Closing Date (whether or not in the ordinary course of business).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Liabilities" shall mean (i) any obligations and
liabilities of the Acquired Entities, absolute or contingent, known or
unknown, other than Designated Liabilities, (ii) any liability or
obligation of the Acquired Entities arising under this Agreement, (iii)
any liability or obligation of the Acquired Entities relating to any
default under any Designated Liability to the extent such default
existed and was not cured prior to the Closing, (iv) any liability or
obligation of the Acquired Entities with respect to, or arising out of,
any employee benefit plan, executive deferred compensation plan, or any
other plans or arrangements for the benefit of any employees or
officers of the Acquired Entities (except for those listed on Schedule
3.18), (v) any liability or obligation of the Acquired Entities to the
Shareholder or any Affiliate of the Acquired Entities or the
Shareholder or to any party claiming to have a right to acquire any
shares of capital stock or other securities convertible into or
exchangeable for any shares of capital stock of the Acquired Entities
and (vi) any Environmental Costs or Litigation Costs.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
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"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited to,
any conditional sale or other title retention agreement any lease in
the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable law
or any jurisdiction in connection with such mortgage, pledge, security
interest, encumbrance, lien or charge).
"Litigation Costs" shall mean any and all expenses, costs,
damages, liabilities, or obligations (including, without limitation,
fees and expenses of counsel) incurred in connection with any action,
suit, or other legal or administrative proceeding or governmental
investigation arising as a result of events occurring or facts or
circumstances arising or existing on or prior to the Closing Date
(whether or not in the ordinary course of business), except for routine
customer claims and complaints arising in the ordinary course
consistent with past practice which involve amounts less than $10,000
individually or $100,000 in the aggregate.
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties, assets,
liabilities, rights, obligations, operations, business or prospects
which change (or effect) individually or in the aggregate, is
materially adverse to such condition, properties, assets, liabilities,
rights, obligations, operations, business or prospects.
"New Parts and Accessories Inventory" shall mean new,
non-damaged and nonobsolete parts and accessories inventory that may be
returned to the manufacturer.
"New Vehicle Inventory" shall mean all new vehicle inventory
including all demonstrator vehicles.
"Other Parts and Accessories Inventory" shall mean parts and
accessories inventory other than New Parts and Accessories Inventory.
"Other Vehicle Inventory" shall mean vehicle inventory other
than New Vehicle Inventory.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, estate,
trust, unincorporated association, joint venture, Governmental
Authority or other entity, of whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Tax.
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, use, franchise,
intangible, payroll, withholding, social security and unemployment
taxes imposed by any federal, state, local or foreign government
agency, and any interest or penalties related thereto.
11.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made
or delivered pursuant hereto or thereto, unless the context otherwise
requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with
this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with
prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of all of the parties hereto at
any time prior to the Closing; or
(b) by Republic upon delivery of written notice to the
Acquired Entities and the Shareholder in accordance with Section 13.1
of this Agreement in the event of a material breach by any Acquired
Entity or the Shareholder of any provisions of this Agreement,
including covenants, warranties or representations; or
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<PAGE> 51
(c) by the Acquired Entities and the Shareholder upon delivery
of written notice to Republic in accordance with Section 13.1 of this
Agreement in the event of a material breach by Republic of any
provision of this Agreement, including covenants, warranties or
representations; or
(d) by Republic or the Acquired Entities and the Shareholder
upon delivery of written notice to the other in accordance with Section
13.1 of this Agreement, if the Closing shall not have occurred by June
30, 1997.
12.2 EFFECT OF TERMINATION. Except for the provisions of Article IX
hereof, which shall survive any termination of this Agreement, in the event of
termination of this Agreement pursuant to Section 12.1, this Agreement shall
forthwith become void and of no further force and effect, and the parties shall
be released from any and all obligations hereunder; provided, however, that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which any party
shall designate in writing to the other parties):
(a) IF TO REPUBLIC TO:
Republic Industries, Inc.
450 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (954) 713-2111
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with a copy to:
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center
One Southeast Third Avenue, 28th Floor
Miami, FL 33131-1704
Attn: Luis J. Perez, Esq.
Telecopy: (305) 374-5095
(b) IF TO THE ACQUIRED ENTITIES AND/OR THE SHAREHOLDER
TO:
William L. Wallace
P.O. Box 9002
Delray Beach, FL 33447
with a copy to:
A. Edward Quinton III
Adams & Quinton, P.A.
World Trade Center
80 S.W. 8th Street, Suite 2150
Miami, FL 33130
Thomas D. Lumpkin, II
Attorney at Law
515 Gables International Plaza
2655 LeJeune Road
Coral Gables, FL 33134
13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matters and supersedes all prior agreements and understanding (oral or
written) between or among the parties with respect to such subject matter. The
Schedules and Exhibits constitute a part hereof as though set forth in full
above.
13.3 EXPENSES. Except as otherwise provided herein, the parties
shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby.
13.4 AMENDMENT; WAIVER. This Agreement may not be modified,
amended, supplemented, canceled, or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising,
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege
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<PAGE> 53
hereunder preclude the exercise of any other right, power or privilege. No
waiver of any breach of any provision shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision, nor shall any
waiver be implied from any course of dealing between the parties. No extension
of time for performance of any obligations or other acts hereunder or under any
other agreement shall be deemed to be an extension of the time for performance
of any other obligations or any other acts.
13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned or delegated by the Acquired Entities or the
Shareholder without the prior written consent of Republic. Republic may assign
all or any portion of its rights hereunder to one or more of its wholly owned
subsidiaries.
13.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
13.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever, the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Florida applicable to contracts executed and to be wholly performed with such
State.
13.9 JURISDICTION.
(a) the parties to this Agreement agree that any suit, action
or proceeding arising out of, or with respect to, this Agreement or any judgment
entered by any court in respect thereof may be brought in the courts of Broward
County, Florida or in the U.S. District Court for the Southern District of
Florida as Republic (in its sole discretion) may elect, and the Acquired
Entities and the Shareholder hereby accept the non-exclusive jurisdiction of
those courts for the purpose of any suit, action or proceeding.
(b) In addition, each of the Acquired Entities and the
Shareholders hereby irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
judgment entered by any court in respect thereof brought in Broward County,
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<PAGE> 54
Florida or the U.S. District Court for the Southern District of Florida, as
selected by Republic, and hereby further irrevocably waives any claim that any
suit, action or proceedings brought in Broward County, Florida or in such
District Court has been brought in an inconvenient forum.
13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions, and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advise of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
13.11 PREVAILING PARTY. The prevailing party in all litigation
concerning this Agreement shall be entitled to recover all reasonable attorney's
fees and expenses incurred in connection with such litigation (and any appeal
thereof).
The parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware
corporation
By: /s/ Richard L. Handley
----------------------------------------------
Richard L. Handley, Senior Vice President
RI/WF MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
----------------------------------------------
Richard L. Handley, Senior Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
54
<PAGE> 55
RI/WN MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
RI/WD MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
RI/WLM MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
RI/SLM MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
RI/BWE MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
55
<PAGE> 56
RI/MWP MERGER CORP., a Florida corporation
By: /s/ Richard L. Handley
---------------------------------------------
Richard L. Handley, Senior Vice President
WALLACE FORD, INC., a Florida corporation
By: /s/ William L. Wallace
---------------------------------------------
William L. Wallace, President
WALLACE NISSAN, INC., a Florida corporation
By: /s/ William L. Wallace
---------------------------------------------
William L. Wallace, President
WALLACE DODGE, INC., a Florida corporation
By: /s/ William L. Wallace
---------------------------------------------
William L. Wallace, President
WALLACE IMPORTS, INC., a Florida corporation
By: /s/ William L. Wallace
---------------------------------------------
William L. Wallace, President
[SIGNATURES CONTINUED ON NEXT PAGE]
56
<PAGE> 57
WALLACE LINCOLN-MERCURY, INC., a Florida
corporation
By: /s/ William L. Wallace
----------------------------------------
William L. Wallace, President
STUART LINCOLN-MERCURY, INC., a Florida
corporation
By: /s/ William L. Wallace
----------------------------------------
William L. Wallace, President
BILL WALLACE ENTERPRISES, INC., d/b/a
Stuart Mitsubishi, a Florida corporation
By: /s/ William L. Wallace
----------------------------------------
William L. Wallace, President
MECHANICAL WARRANTY PROTECTION, INC., a Florida
corporation
By: /s/ William L. Wallace
----------------------------------------
William L. Wallace, President
/s/ William L. Wallace
-------------------------------------------
WILLIAM L. WALLACE, Individually
57
<PAGE> 1
Exhibit 2.4
MERGER AND ACQUISITION AGREEMENT
This MERGER AGREEMENT (this "Agreement") is entered into as of January
12, 1997 by and among (i) Republic Industries, Inc., a Delaware corporation
("Republic"); (ii) RI/MC Merger Corp., a Florida corporation, RI/MO Merger
Corp., a Florida corporation, RI/MI Merger Corp., a Florida corporation, RI/MD
Merger Corp., a Florida corporation, RI/EWH Merger Corp., a Florida
corporation, RI/ESA Merger Corp., a Florida corporation, RI/MC&TR Merger Corp.,
a Florida corporation, RI/QPF Merger Corp., a Florida corporation, RI/AMF
Merger Corp., a New York corporation (the foregoing "Merger" corporations are
referred to herein as the "Republic Merger Subs" and individually as a Republic
Merger Sub"), RI/MDP Acquisition Corp., a Florida corporation, RI/MCFL
Acquisition Corp., a Florida corporation, and RI/MP Acquisition Corp., a
Florida corporation (the foregoing "Acquisition" corporations are referred to
herein as the "Republic Acquisition Subs" and individually as a "Republic
Acquisition Sub") (the Republic Merger Subs and the Republic Acquisition Subs
are referred to herein collectively as the "Republic Subsidiaries" and
individually as a "Republic Subsidiary"), (iii) Maroone Chevrolet, Inc., a
Florida corporation, Maroone Oldsmobile, Inc., a Florida corporation, Maroone
Isuzu, Inc., a Florida corporation, Maroone Dodge, Inc., a Florida corporation,
Al Maroone Ford, Inc., a New York corporation, Maroone Car & Truck Rental
Company, a Florida corporation, Empire Warranty Corporation, a Florida
corporation, Empire Warranty Holding Company, a Florida corporation, Empire
Services Agency, Inc., a Florida corporation, Quantum Premium Finance
Corporation, a Florida corporation, Alkit Enterprises, Inc., a New York
corporation, (each, a "Maroone Corporation" and collectively, the "Maroone
Corporations"), (iv) Maroone Management Services, Limited, a Florida limited
partnership, Maroone Dodge Pompano, Limited, a Florida limited partnership,
Maroone Chevrolet Ft. Lauderdale, Limited, a Florida limited partnership, (each
a "Partnership" and collectively, the "Partnerships") (the Maroone Corporations
and the Partnerships are referred to herein individually as an "Acquired
Entity" and collectively as the "Acquired Entities"), (v) Albert E. Maroone,
Michael E. Maroone, Katherine C. Maroone, Kathleen Hoctor, Patricia Damoorgian,
and Faisal Ahmed (each a "Shareholder" and collectively, the "Shareholders"),
and (vi) Michael E. Maroone, Maroone Isuzu, Inc., Floyd Clements and Curtis L.
Rodman (each a "Partner" and collectively, the "Partners"). The Shareholders
and Partners are sometimes referred to herein individually as a "Principal" and
collectively, as the "Principals." Michael E. Maroone is sometimes referred to
herein as "Maroone." Republic and the Republic Subsidiaries are sometimes
referred to herein individually as a "Republic Company" and collectively as the
"Republic Companies".
RECITALS
A. Republic and the Acquired Entities
desire to merge the automotive operations of the Maroone Corporations and
Partnerships with Republic's automotive businesses.
<PAGE> 2
B. Republic and the Republic Merger Subs and the Maroone
Corporations have determined that it is in the best interests of their
respective shareholders for Republic to acquire all of the issued and
outstanding equity interests of the Maroone Corporations as provided herein.
In order to effectuate the acquisition of the new car dealerships and the used
car superstore operations, Republic has organized each Republic Merger Sub as a
wholly-owned subsidiary, and the parties have agreed, subject to the terms and
conditions set forth in this Agreement, to merge the respective Republic Merger
Subs with and into the respective Maroone Corporations so that the Maroone
Corporations continue as surviving corporations of the respective mergers and
as wholly-owned subsidiaries of Republic, and each of the Shareholders will be
issued certain shares of common stock of Republic as provided herein in
exchange for their respective issued and outstanding equity interests in the
Maroone Corporations.
C. The parties also desire to provide for the acquisition by the
Republic Acquisition Subs of certain equity interests of the Partnerships and
certain other assets and securities as provided herein so that Republic
acquires the automotive retailing business and all related businesses of the
Acquired Entities.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
MERGERS; RELATED TRANSACTIONS; CLOSING
1.1 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Mergers (as defined below) and the other
transactions contemplated hereby (the "Closing"), shall take place as promptly
as practicable (and in any event within five (5) business days after the
satisfaction or waiver of the conditions set forth in Articles VI and VII
hereof), at the offices of Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A. in Miami, Florida, or such other place and time as the parties may
otherwise agree, and the date of the Closing is referred to herein as the
"Closing Date".
1.2 THE MERGERS. The mergers described in this Section are
referred to herein collectively as the "Mergers" and individually as a
"Merger," and the surviving corporations of such Mergers are referred to herein
collectively as the "Surviving Corporations" and individually as a "Surviving
Corporation".
(a) The Maroone Chevrolet, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
Florida Business Corporation Act (the "Florida Act"), at the Effective
Time (as defined below), RI/MC Merger Corp. will be merged with and
into Maroone Chevrolet, Inc., with Maroone Chevrolet, Inc. being the
2
<PAGE> 3
surviving corporation in the Merger and becoming a wholly-owned
subsidiary of Republic, and the separate corporate existence of RI/MC
Merger Corp. shall cease.
(b) The Maroone Oldsmobile, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
Florida Act, at the Effective Time, RI/MO Merger Corp. will be merged
with and into Maroone Oldsmobile, Inc. with Maroone Oldsmobile, Inc.
being the surviving corporation in the Merger and becoming a
wholly-owned subsidiary of Republic, and the separate corporate
existence of RI/MO Merger Corp. shall cease.
(c) The Maroone Isuzu, Inc. Merger. Subject to the terms
and conditions of this Agreement, and in accordance with the Florida
Act, at the Effective Time, RI/MI Merger Corp. will be merged with and
into Maroone Isuzu, Inc., with Maroone Isuzu, Inc. being the surviving
corporation in the Merger and becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of RI/MI Merger Corp.
shall cease.
(d) The Maroone Dodge, Inc. Merger. Subject to the terms
and conditions of this Agreement, and in accordance with the Florida
Act, at the Effective Time, RI/MD Merger Corp. will be merged with and
into Maroone Dodge, Inc., with Maroone Dodge, Inc. being the surviving
corporation in the Merger and becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of RI/MD Merger Corp.
shall cease.
(e) The Empire Warranty Holding Company Merger. Subject
to the terms and conditions of this Agreement, and in accordance with
the Florida Act, at the Effective Time, RI/EWH Merger Corp. will be
merged with and into Empire Warranty Holding Company, with Empire
Warranty Holding Company being the surviving corporation in the Merger
and becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/EWH Merger Corp. shall cease.
(f) The Empire Services Agency, Inc. Merger. Subject to
the terms and conditions of this Agreement, and in accordance with the
Florida Act, at the Effective Time, RI/ESA Merger Corp. will be merged
with and into Empire Services Agency, Inc., with Empire Services
Agency, Inc. being the surviving corporation in the Merger and
becoming a wholly-owned subsidiary of Republic, and the separate
corporate existence of RI/ESA Merger Corp. shall cease.
(g) The Maroone Car & Truck Rental Company Merger.
Subject to the terms and conditions of this Agreement, and in
accordance with the Florida Act, at the Effective Time, RI/MC&TR
Merger Corp. will be merged with and into Maroone Car & Truck Rental
Company, with Maroone Car & Truck Rental Company being the surviving
corporation in the Merger and becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of RI/MC&TR Merger
Corp. shall cease.
3
<PAGE> 4
(h) The Quantum Premium Finance Corporation Merger.
Subject to the terms and conditions of this Agreement, and in
accordance with the Florida Act, at the Effective Time, RI/QPF Merger
Corp. will be merged with and into Quantum Premium Finance
Corporation, with Quantum Premium Finance Corporation being the
surviving corporation in the Merger and becoming a wholly-owned
subsidiary of Republic, and the separate corporate existence of RI/QPF
Merger Corp. shall cease.
(i) The Al Maroone Ford, Inc. Merger. Subject to the
terms and conditions of this Agreement, and in accordance with the
corporation laws of the State of New York, at the Effective Time,
RI/AMF Merger Corp. will be merged with and into Al Maroone Ford,
Inc., with Al Maroone Ford, Inc. being the surviving corporation in
the Merger and becoming a wholly-owned subsidiary of Republic, and the
separate corporate existence of RI/AMF Merger Corp. shall cease.
1.3 RELATED TRANSACTIONS.
(a) Upon the Closing Date at the Effective Time
the following transactions shall occur (the "Related
Transactions"):
(i) the Partners of Maroone Management
Services, Limited shall sell, assign, convey and
transfer all of the outstanding partnership interests
in such Partnership to RI/MP Acquisition Corp., and
Maroone Management Services, Limited shall be
liquidated and its real property and other assets
transferred to RI/MP Acquisition Corp. or such other
person as RI/MP Acquisition Corp. may designate;
(ii) the Partners of Maroone Dodge
Pompano, Limited shall sell, assign, convey and
transfer all of the outstanding partnership interests
in such Partnership to RI/MDP Acquisition Corp., and
such Partnership shall be liquidated;
(iii) the Partners of Maroone Chevrolet
Ft. Lauderdale, Limited. shall sell, assign, convey
and transfer all of the outstanding partnership
interests in such Partnership to RI/MCFL Acquisition
Corp., and such Partnership shall be liquidated;
(iv) Alkit Enterprises, Inc. shall sell,
assign, convey and transfer all real property owned
by such Maroone Corporation and used by the Al
Maroone Ford dealership in Williamsville, New York,
and all cash and cash equivalents owned by such
Maroone Corporation, to RI/MP Acquisition Corp. (the
"Alkit Purchase"); and
(v) Maroone shall sell, assign, convey
and transfer to RI/MP Acquisition Corp., all of his
partnership interests in, and any and all other
rights and interests in and to and with respect to,
Premier Auto Finance,
4
<PAGE> 5
L.P. (including, without limitation, any rights or
options to acquire any general partner's interests in
such partnership or to acquire any other interest in
the partnership from the partnership or any Person);
(b) To the extent that any deed is legally
necessary or reasonably requested by the transferee to
consummate any of the Related Transactions (and a deed shall
be required for the Alkit Purchase), the transferring party
shall execute and deliver to the transferee at Closing a
warranty deed in appropriate form reasonably satisfactory to
Republic, and the Principals shall pay any and all transfer
taxes and fees applicable to the Alkit Purchase, and the other
Related Transactions, if applicable. All transfers pursuant
to the Related Transactions shall be effected pursuant to
instruments of transfer in form reasonably satisfactory to
Republic. All partnership interests and shares of stock and
other assets transferred pursuant to the Related Transactions
shall be transferred free and clear of any liens, security
interests or other encumbrances and shall vest good title
thereto in the transferees. With respect to the Alkit
Purchase, all items of income and expense shall be prorated
between the transferring and transferor parties as of the
Closing Date, including property taxes, rent, etc.
1.4 PURCHASE PRICE; CONVERSION OF SECURITIES.
(a) Aggregate Consideration. For purposes of this
Agreement, "Aggregate Consideration" means the number of shares
(rounded to the nearest whole share) of common stock, par value $.01
per share, of Republic (the "Republic Common Stock") determined by
dividing (a) two hundred million six hundred thousand dollars
($200,600,000.00) (the "Purchase Price"), minus the Transaction Fees
(as defined below), if any, by (b) $32.75 (the "Price per Share").
(b) The parties hereto agree that the Purchase Price
shall be reduced by the amount of the Transaction Fees. "Transaction
Fees" shall mean all legal, accounting, tax, consulting and financial
advisory and other fees and expenses, including any transfer taxes,
fees and expenses and the cost of title insurance, incurred by the
Acquired Entities in connection with the transactions contemplated
hereby.
(c) At the Effective Time, by virtue of the Mergers and
without any action on the part of the Maroone Corporations, Republic,
the Republic Subsidiaries or the Shareholders, the outstanding shares
of capital stock of each of the Maroone Corporations that is party to
a Merger shall be converted into the right to receive a number of
shares of Republic Common Stock determined as provided in Exhibit A
hereto, which Exhibit A is incorporated herein and constitutes part of
this Agreement (the aggregate number of such shares of Republic Common
Stock are referred to herein as the "Merger Shares").
(d) In consideration of the Related Transactions,
Republic shall issue to each of the parties that transfers interests
or other assets pursuant to the Related Transactions, a number of
shares of Republic Common Stock determined as provided in Exhibit B
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<PAGE> 6
hereto, which Exhibit B is incorporated herein and constitutes part of
this Agreement (the aggregate number of such shares of Republic Common
Stock are referred to herein as the "Transaction Shares").
(e) The combined total of the Merger Shares and the
Transaction Shares shall be equal to the Aggregate Consideration. The
total portion of the Aggregate Consideration to be received by each
Person who shall receive Republic Shares pursuant to the foregoing
paragraphs (c) and (d) is set forth on Exhibit C hereto.
(f) Each share of common stock of each Republic Merger
Sub that is party to a Merger, issued and outstanding at the Effective
Time shall be converted into one share of the voting common stock of
the Surviving Corporation into which it is merged.
1.5 [INTENTIONALLY DELETED]
1.6 FILING OF MERGER DOCUMENTS; EFFECTIVE TIME. At the Closing,
the parties shall cause the Mergers to be consummated by executing and filing
duly executed Certificates or Articles of Merger with respect to each of the
Mergers with the Secretary of State or other appropriate governmental authority
of the States of Florida and New York, in such form as Republic determines is
required by and in accordance with the relevant provisions of the Florida Act
and the corporation laws of such other jurisdictions (the date and time of such
filings is referred to herein as the "Effective Date" or "Effective Time").
1.7 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Mergers shall be as provided under the Florida Act and the corporate law of
the State of New York applicable to the Mergers. Without limiting the
generality of the foregoing, at the Effective Time:
(a) all property, rights, privileges, policies and
franchises of each Maroone Corporation and the Republic Subsidiary
with which it is merged shall vest in the Surviving Corporation of
such Merger and all debts, liabilities and duties of such Maroone
Corporation and the Republic Subsidiary with which it is merged shall
become the debts, liabilities and duties of the Surviving Corporation
of such Merger.
(b) the Articles or Certificate of Incorporation and the
Bylaws of each Maroone Corporation that is party to a Merger, as in
effect immediately prior to the Effective Time, shall remain its
Articles or Certificate of Incorporation and Bylaws thereafter, unless
and until amended in accordance with their terms and as provided by
law; and
(c) the directors and officers of each Republic Merger
Sub that is merged in one of the Mergers at the Effective Time shall
be the respective directors and officers of the Maroone Corporation
into which it is merged, each to hold a directorship or office in
accordance with the Articles or Certificate of Incorporation and
Bylaws of the Surviving Corporation of such Merger, until their
respective successors are duly elected and qualified.
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<PAGE> 7
1.8 TAX AND ACCOUNTING TREATMENT. The parties hereto acknowledge
and agree that the Mergers and the Related Transactions contemplated hereby
shall be treated for accounting purposes as a pooling of interests business
combination, and the Mergers and the Alkit Purchase shall be treated for tax
purposes as a tax-free reorganization under Section 368 of the Code.
1.9 PROCEDURE AT THE CLOSING. At the Closing, the parties agree
that the following shall occur:
(a) The Acquired Entities and the Principals shall have
satisfied each of the conditions set forth in Article VI and shall
deliver to Republic the documents, certificates, opinions, consents
and letters required by Article VI.
(b) Republic shall have satisfied each of the conditions
set forth in Article VII and shall deliver the documents,
certificates, consents and letters required by Article VII.
(c) Republic shall issue the shares of Republic Common
Stock issuable pursuant to Section 1.4, registered in the names of the
parties to receive such shares as provided in Section 1.4, and shall
deliver such shares in the following manner: (i) Republic shall set
aside and hold in accordance with Section 9.3 stock certificates
representing shares of Republic Common Stock having a value (based
upon the Price per Share) equal to 10% of the Purchase Price (the
"Held Back Shares"), and (ii) Republic shall deliver stock
certificates representing the balance of the shares of Republic Common
Stock issuable in accordance with Section 1.4 to the parties to
receive such shares as provided in Section 1.4. The shares of
Republic Common Stock issuable pursuant to Section 1.4, including the
Held Back Shares, are referred to herein as the "Republic Shares."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to the Company and the Principals to enter
into this Agreement and to consummate the transactions contemplated hereby, the
Republic Companies make the following representations and warranties to the
Company and the Principals:
2.1 CORPORATE STATUS. Republic is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
authorized to do business in the State of Florida, and has the requisite power
and authority to own or lease its properties and to carry on its business as
presently conducted. Each Republic Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and is a wholly-owned subsidiary of Republic. There is no
pending or, to the knowledge of Republic, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of Republic.
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2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies
has the corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all corporate
action necessary to authorize its execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by each of the Republic Companies and constitutes their legal, valid
and binding obligation enforceable against each of the Republic Companies in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Republic Shares as provided in this Agreement, the Republic Shares will be
validly issued, fully paid, non-assessable shares.
2.5 CAPITALIZATION. As of the date hereof, the authorized capital
stock of Republic consists of 500,000,000 shares of Republic Common Stock and
5,000,000 shares of preferred stock. As of November 30, 1996 (i) 232,466,603
shares of Republic Common Stock were validly issued and outstanding, and (ii)
no shares of preferred stock were issued or outstanding.
2.6 NO VIOLATION. The execution and delivery of this Agreement by
Republic, the performance by Republic of its obligations hereunder and the
consummation by Republic of the transactions contemplated by this Agreement
will not (a) contravene any provision of the Certificate of Incorporation or
Bylaws of Republic, (b) violate or conflict with any law, statute, ordinance,
rule, regulation, decree, writ, injunction, judgment, ruling or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon, or enforceable against Republic, (c) conflict with, result in
any breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under,
or give rise to a right to terminate, amend, modify, abandon or accelerate, any
material Contract which is applicable to, binding upon or enforceable against
Republic, (d) result in or require the creation or imposition of any Lien upon
or with respect to any of the property or assets of Republic, (e) give to any
individual or entity a right or claim against Republic, which would have a
Material Adverse Effect on Republic or (f) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except (i) pursuant to
the Exchange Act and the Securities Act and applicable inclusion requirements
of Nasdaq, (ii) filings required under the securities or blue sky laws of the
various states, (iii) filings required under the HSR Act, (iv) any filings or
consents required to be made or obtained by the Acquired Entities or the
Principals or (v) any governmental permits or licenses required to operate the
dealerships and other businesses of the Acquired Entities.
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2.7 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1996,
except where failure to have done so did not and would not have a Material
Adverse Effect on Republic, Republic has filed all reports, registrations and
statements, together with any required amendments thereto, that it was required
to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q,
Forms 8-K and proxy statements (collectively, the "Republic Reports").
Republic has previously furnished or made available to the Acquired Entities
and the Principals copies of all Republic Reports filed with the SEC since
January 1, 1996. As of their respective dates (but taking into account any
amendments filed prior to the date of this Agreement), the Republic Reports
complied in all material respects with all the rules and regulations
promulgated by the SEC and 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. The financial statements of Republic
included in the Republic Reports comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied during the periods presented (except, as noted therein,
or, in the case of the unaudited statements, as permitted by Form 10-Q of the
SEC) and fairly present (subject, in the case of the unaudited statements, to
normal audit adjustments) the financial position of Republic and its
consolidated subsidiaries as of the date thereof and the results of their
operations and their cash flows for the periods then ended.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Republic Reports, since January 1, 1996, there has not been any change in
the financial condition, results of operations or business of Republic that
either individually or in the aggregate would have a Material Adverse Effect on
Republic.
2.9 NO COMMISSIONS. Republic has not incurred any obligation for
any finder's or broker's or agent's fees or commissions or similar compensation
in connection with the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE ACQUIRED ENTITIES AND THE PRINCIPALS
As a material inducement to the Republic Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Acquired
Entities and the Principals, jointly and severally, make the following
representations and warranties to the Republic Companies:
3.1 CORPORATE AND PARTNERSHIP STATUS. Each Maroone Corporation is
a corporation, and each Partnership is a limited partnership, duly organized,
validly existing and in good standing under the laws of the state of its
incorporation or partnership formation and has the requisite power and
authority to own or lease its properties and to carry on its business as now
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being conducted. Each Acquired Entity is legally qualified to do business as a
foreign corporation or partnership, as the case may be, in each of the
jurisdictions in which it is required to be so qualified, which represent all
jurisdictions where the nature of its properties and the conduct of its
business require such qualification, and is in good standing in each of the
jurisdictions in which it is so qualified. Each Acquired Entity has fully
complied with all of the requirements of any statute governing the use and
registration of fictitious names, and has the legal right to use the names
under which it operates its businesses. There is no pending or threatened
proceeding for the dissolution, liquidation, insolvency or rehabilitation of
any Acquired Entity.
3.2 POWER AND AUTHORITY. Each Maroone Corporation has the
corporate power and authority, and each Partnership has the partnership power
and authority, to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated hereby.
Each Acquired Entity has taken all corporate or partnership action necessary to
authorize the execution and delivery of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated
hereby. Each of the Principals is an individual or other Person residing in
the State of Florida and has the requisite competence and authority to execute
and deliver this Agreement, to perform his or her respective obligations
hereunder and to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by each of the Acquired Entities and each of the Principals, and
constitutes the legal, valid and binding obligation of each of them,
enforceable against each of them in accordance with its terms, except as the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and general equitable principles regardless of whether such
enforceability is considered in a proceeding at law or in equity.
3.4 CAPITALIZATION.
(a) Schedule 3.4 sets forth, as of the date hereof, with
respect to each Maroone Corporation, respectively, (a) the number of
authorized shares of each class of its capital stock, (b) the number
of issued and outstanding shares of each class of its capital stock
and (c) the number of shares of each class of its capital stock which
are held in treasury. All of the issued and outstanding shares of
capital stock of each Maroone Corporation (i) have been duly
authorized and validly issued and are fully paid and non-assessable,
(ii) were issued in compliance with all applicable state and federal
securities laws and (iii) were not issued in violation of any
preemptive rights or rights of first refusal or similar rights. No
preemptive rights or rights of first refusal or similar rights exist
with respect to any shares of capital stock of any Maroone Corporation
and no such rights arise by virtue of or in connection with the
transactions contemplated hereby. Except as set forth on Schedule
3.4, (which items disclosed on Schedule 3.4 are referred to herein as
the "Equity Rights"), (i) there are no outstanding or authorized
rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or
commitments of any kind that could require any Maroone Corporation to
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issue or sell any shares of its capital stock (or securities
convertible into or exchangeable for shares of its capital stock);
(ii) there are no outstanding stock appreciation, phantom stock,
profit participation or other similar rights with respect to any
Maroone Corporation; (iii) there are no proxies, voting rights or
other agreements or understandings with respect to the voting or
transfer of the capital stock of any Maroone Corporation; and (iv) no
Maroone Corporation is obligated to redeem or otherwise acquire any of
its outstanding shares of capital stock.
(b) Schedule 3.4 sets forth, as of the date hereof, with
respect to each Partnership, respectively, (a) the number of
authorized partnership interests of each class of partnership
interests (limited, general, etc.) and (b) the number or amount of
issued and outstanding partnership interests of each class. All of
the issued and outstanding partnership interests of each Partnership
(i) have been duly authorized and validly issued and are fully paid
and non-assessable, (ii) were issued in compliance with all applicable
state and federal securities laws and (iii) were not issued in
violation of any preemptive rights or rights of first refusal or
similar rights. No preemptive rights or rights of first refusal or
similar rights exist with respect to any partnership interests of any
Partnership and no such rights arise by virtue of or in connection
with the transactions contemplated hereby. Except as set forth on
Schedule 3.4, (which items disclosed on Schedule 3.4 are referred to
herein as the "Equity Rights"), (i) there are no outstanding or
authorized rights, options, warrants, convertible securities,
subscription rights, conversion rights, exchange rights or other
agreements or commitments of any kind that could require any
Partnership to issue or sell any partnership interests (or securities
convertible into or exchangeable for its partnership interests); (ii)
there are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the
partnership interests of any Partnership; and (iv) no Partnership is
obligated to redeem or otherwise acquire any of its outstanding
partnership interests.
3.5 SHAREHOLDERS AND PARTNERS OF THE ACQUIRED ENTITIES. Schedule
3.5 sets forth, with respect to each Acquired Entity (i) the name, address and
federal taxpayer identification number of, and the number of outstanding shares
of each class of its capital stock and number or amount and type of partnership
interests owned by, each shareholder of record or partner as of the close of
business on the date of this Agreement; and (ii) the name, address and federal
taxpayer identification number of, and number of shares of each class of its
capital stock and number or amount and type of partnership interests
beneficially owned by, each beneficial owner of outstanding shares of capital
stock or partnership interests (to the extent that record and beneficial
ownership of any such shares or interests are different). The Shareholders
constitute all of the record and beneficial holders of all issued and
outstanding shares of capital stock of the Maroone Corporations, the Partners
constitute all of the holders of any partnership interests in the Partnerships,
and each of the Shareholders and Partners owns such shares and/or partnership
interests as is set forth on Schedule 3.5, free and clear of all Liens,
restrictions and claims of any kind, except as set forth on Schedule 3.5.
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3.6 NO VIOLATION. Except for any approvals or consents required
under the Franchise Agreements (as defined in Section 3.25), the execution and
delivery of this Agreement by the Acquired Entities and the Principals, the
performance by the Acquired Entities and the Principals of their obligations
hereunder and the consummation by them of the transactions contemplated by this
Agreement will not (a) contravene any provision of the Articles or Certificate
of Incorporation or Bylaws or partnership agreement or other organizational or
governing document of any Acquired Entity, (b) violate or conflict with any
law, statute, ordinance, rule, regulation, decree, writ, injunction, judgment
or order of any Governmental Authority or of any arbitration award which is
either applicable to, binding upon or enforceable against any Acquired Entity
or Principal, (c) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right of payment
under or the right to terminate, amend, modify, abandon or accelerate, any
Contract which is applicable to, binding upon or enforceable against any
Acquired Entity or Principal, (d) result in or require the creation or
imposition of any Lien upon or with respect to any of the properties or assets
of any Acquired Entity or Principal, (e) give to any individual or entity a
right or claim against any Acquired Entity or Principal or (f) require the
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, any court or tribunal or any other Person,
except any applicable filings required under the HSR Act and any SEC and other
filings required to be made by the Republic Companies.
3.7 RECORDS OF THE ACQUIRED ENTITIES. The copies of the Articles
and Certificates of Incorporation, Bylaws, partnership agreements, and other
documents and agreements of the Acquired Entities which were provided to
Republic are true, accurate, and complete and reflect all amendments made
through the date of this Agreement. The minute books and other records of
corporate and partnership actions for the Acquired Entities made available to
Republic for review were correct and complete as of the date of such review, no
further entries have been made through the date of this Agreement, such minute
books and records contain the true signatures of the persons purporting to have
signed them, and such minute books and records contain an accurate record of
all material corporate and partnership actions of the shareholders, partners
and directors (and any committees thereof) of the Acquired Entities taken by
written consent or at a meeting or otherwise since incorporation or formation.
All corporate and partnership actions taken by the Acquired Entities have been
duly authorized or ratified. All accounts, books, ledgers and official and
other records of the Acquired Entities have been fully, properly and accurately
kept and are complete, and there are no inaccuracies or discrepancies of any
kind contained therein. The stock and partnership ledgers of the Acquired
Entities, as previously made available to Republic, contain accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock and partnership interests of the Acquired Entities.
3.8 SUBSIDIARIES. The Acquired Entities do not, directly or
indirectly, own any outstanding voting securities of or other interests in, or
control, any other corporation, partnership, joint venture or other entity,
except that Empire Warranty Corporation (the "Subsidiary") is a wholly owned
subsidiary of Empire Warranty Holding Company (the "Holding Company"), and the
Holding Company owns all outstanding shares of capital stock of the Subsidiary,
free and clear of any Liens or encumbrances of any nature.
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3.9 FINANCIAL STATEMENTS. Each of the Acquired Entities has
delivered to Republic the financial statements of such Acquired Entity for the
fiscal year ended December 31, 1995 and the eleven-month period ended November
30, 1996 (collectively, the "Financial Statements"), copies of which are
attached to Schedule 3.9 hereto. The respective individual balance sheets of
the Acquired Entities dated as of November 30, 1996, included in the Financial
Statements are referred to herein as the "Current Balance Sheets." The
Financial Statements fairly present the financial position of the respective
Acquired Entities at each of the balance sheet dates and the results of
operations for the periods covered thereby, and have been prepared in
accordance with GAAP consistently applied throughout the periods indicated.
The books and records of each of the Acquired Entities fully and fairly reflect
all of its transactions, properties, assets and liabilities. There are no
material special or non-recurring items of income or expense during the periods
covered by the Financial Statements, and the balance sheets included in the
Financial Statements do not reflect any write-up or revaluation increasing the
book value of any assets. The Financial Statements reflect all adjustments
necessary for a fair presentation of the financial information contained
therein.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as
specifically set forth in Schedule 3.10, since the date of its Current Balance
Sheet included in the Financial Statements, no Acquired Entity has (a) issued,
sold, pledged, disposed of, encumbered, or authorized the issuance, sale,
pledge, disposition, grant or encumbrance of any shares of its capital stock or
of any class or any partnership interests, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
such capital stock or partnership interests or any other ownership interest of
such Acquired Entity, (b) declared, set aside, made, or paid any dividend or
other distribution payable in cash, stock, property or otherwise of or with
respect to its capital stock, partnership interests or other securities, or
reclassified, combined, split, subdivided or redeemed, purchased or otherwise
acquired, directly or indirectly, any of its capital stock, partnership
interests or other securities; (c) paid any bonus to or increased the rate of
compensation of any of its officers, partners or salaried employees or amended
any other terms of employment or engagement of such persons; (d) sold, leased
or transferred any of its properties or assets or acquired any properties or
assets other than in the ordinary course of business consistent with past
practice; (e) made or obligated itself to make capital expenditures out of the
ordinary course of business consistent with past practice; (f) made any payment
in respect of its liabilities other than in the ordinary course of business
consistent with past practice; (g) incurred any obligations or liabilities
(including, without limitation, any indebtedness for borrowed money, issuance
of any debt securities, or the assumption, guarantee, or endorsement of the
obligations of any Person) or entered into any transaction or series of
transactions involving in excess of $100,000 in the aggregate out of the
ordinary course of business, except for this Agreement and the transactions
contemplated hereby; (h) suffered any theft, damage, destruction or casualty
loss, whether or not covered by insurance, in excess of $100,000 in the
aggregate; (i) suffered any extraordinary losses (whether or not covered by
insurance); (j) waived, canceled, compromised or released any rights having a
value in excess of $100,000 in the aggregate; (k) made or adopted any change in
its accounting practice or policies; (l) made any adjustment to its books and
records other than in respect of the conduct of its business activities in the
ordinary course consistent with past practice; (m) entered into any transaction
with any Principal or any Affiliate of any of the
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Acquired Entities or any Principal, (n) entered into any employment agreement
not terminable at will; (o) terminated, amended or modified any agreement
involving an amount in excess of $100,000 in the aggregate; (p) imposed any
security interest or other Lien on any of its assets other than in the ordinary
course of business consistent with past practice; (q) delayed paying any
account payable beyond 45 days following the date on which it is due and
payable except to the extent being contested in good faith; (r) made or pledged
any charitable contributions in excess of $100,000 in the aggregate; (s)
acquired (including, without limitation, for cash or shares of stock or
partnership interests, by merger, consolidation, or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or made any investment either
by purchase of stock or securities, contributions or property transfer of
capital other than as permitted or provided in this Agreement; (t) increased or
decreased prices charged to customers, except in the ordinary course of
business consistent with past practice, materially increased or decreased the
average monthly New Parts and Accessories Inventory, Other Parts and
Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory, other
than in the ordinary course of business consistent with past practice, ordered
any New Vehicle Inventory from the Factory which would be inconsistent with the
prior practices of the Acquired Entity, or taken any actions which might
reasonably result in any material loss of customers; (u) made any dealer trades
other than in the ordinary course of business consistent with past practice, or
(v) entered into any other transaction or been subject to any event which has
or may reasonably be expected to have a Material Adverse Effect on such
Acquired Entity; or (w) agreed to do or authorized any of the foregoing.
3.11 LIABILITIES. No Acquired Entity has any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, except (a) to
the extent reflected on such Acquired Entity's Current Balance Sheet and not
heretofore paid or discharged, (b) liabilities incurred in the ordinary course
of business consistent with past practice since the date of such Acquired
Entity's Current Balance Sheet (none of which relates to breach of contract,
breach of warranty, tort, infringement or violation of law, or which arose out
of any action, suit, claim, governmental investigation or arbitration
proceeding), and (c) liabilities incurred in the ordinary course of business
prior to the date of such Acquired Entity's Current Balance Sheet which, in
accordance with GAAP consistently applied, were not required to be recorded
thereon and which, in the aggregate, are not material (the liabilities and
obligations referenced in (a), (b) and (c) above are referred to as the
"Designated Liabilities"). Schedule 3.11 lists all indebtedness owed by any of
the Acquired Entities, itemized with respect to each Acquired Entity, to a bank
or any other Person, including without limitation, indebtedness for borrowed
money (including principal and accrued but unpaid interest) and capitalized
equipment leases. Schedule 3.11 also lists each account of each Acquired
Entity with any bank, broker or other depository institution, and the names of
all persons authorized to withdraw funds from each such account.
3.12 LITIGATION. There is no action, suit or other legal or
administrative proceeding or governmental investigation pending, or, to the
knowledge of the Acquired Entities and Principals, threatened, anticipated or
contemplated (i) against, by or affecting any Acquired Entity or Principal
(which, in the case of the Principals, relate to or concern any Acquired Entity
or for which any Acquired Entity may be responsible), or any Acquired Entity's
properties or assets,
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except for routine customer claims and complaints arising in the ordinary
course consistent with past practice which involve amounts less than $10,000
individually or $200,000 in the aggregate, or (ii) which question the validity
or enforceability of this Agreement or the transactions contemplated hereby,
and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which any Acquired Entity is or was a party which have not been
complied with in full or which continue to impose any material obligations on
the any Acquired Entity.
3.13 ENVIRONMENTAL MATTERS.
(a) Each of the Acquired Entities and the Principals are
and have at all times been in full compliance with all Environmental
Laws governing its business, operations, properties and assets,
including, without limitation: (i) all requirements relating to the
Discharge and Handling of Hazardous Substances; (ii) all requirements
relating to notice, record keeping and reporting; (iii) all
requirements relating to obtaining and maintaining Licenses (as
defined herein) for the ownership by each of the Acquired Entities of
its properties and assets and the operation of its business as
presently conducted or the ownership by the Acquired Entities and the
Principals and use by the Acquired Entities of the Principal Owned
Properties (as defined in Section 3.14); or (iv) all applicable writs,
orders, judgments, injunctions, governmental communications, decrees,
informational requests or demands issued pursuant to, or arising
under, any Environmental Laws.
(b) There are no (and there is no basis for any)
non-compliance orders, warning letters, notices of violation
(collectively "Notices"), claims, suits, actions, judgments,
penalties, fines, or administrative or judicial investigations of any
nature or proceedings (collectively "Proceedings") pending or
threatened against or involving any of the Acquired Entities, their
businesses, operations, properties or assets or the Principal Owned
Properties, issued by any Governmental Authority or third party with
respect to any Environmental Laws or Licenses issued to any of the
Acquired Entities thereunder in connection with, related to or arising
out of the ownership by any of the Acquired Entities of its properties
or assets or the operation of its businesses or the ownership by the
Principals and use by the Company of the Principal Owned Properties,
which have not been resolved to the satisfaction of the issuing
Governmental Authority or third party in a manner that would not
impose any obligation, burden or continuing liability on Republic or
any Surviving Corporation in the event that the transactions
contemplated by this Agreement are consummated.
(c) None of the Acquired Entities nor any of the
Principals has at any time Handled or Discharged, nor has it at any
time allowed or arranged for any third party to Handle or Discharge,
Hazardous Substances to, at or upon: (i) any location other than a
site lawfully permitted to receive such Hazardous Substances; (ii) any
parcel of real property owned or leased at any time by any of the
Acquired Entities (including, without limitation, the Company Owned
Properties (as defined in Section 3.14)) or any of the Principal Owned
Properties, except in compliance with applicable Environmental Laws;
or
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(iii) any site which, pursuant to CERCLA or any similar state law (x)
has been placed on the National Priorities List or its state
equivalent, or (y) the Environmental Protection Agency or any relevant
state agency has notified any of the Acquired Entities that it has
proposed or is proposing to place on the National Priorities List or
its state equivalent. There has not occurred, nor is there presently
occurring, a Discharge, or threatened Discharge of any Hazardous
Substance on, into or beneath the surface of, or adjacent to, any real
property owned or leased at any time by any of the Acquired Entities
or the Principal Owned Properties.
(d) Except as set forth in a letter to be delivered by
the Acquired Entities to Republic no later than 10 days after the date
hereof, none of the Acquired Entities uses, nor has any of them used,
any Aboveground Storage Tanks or Underground Storage Tanks; there are
not now nor have there ever been any Underground Storage Tanks on any
real property owned or leased at any time by any of the Acquired
Entities, or the Principal Owned Properties; and there has been no
Discharge from or rupture of any Aboveground Storage Tanks or
Underground Storage Tanks.
(e) Except as set forth on Schedule 3.13(e), there have
been no (i) environmental audits, assessments or occupational health
studies undertaken since the date that any of the Acquired Entities
was incorporated by any of the Acquired Entities or its agents or
representatives thereof or, to the knowledge of any of the Acquired
Entities or Principals, undertaken by any Governmental Authority, or
any third party, relating to or affecting any of the Acquired Entities
or any real property owned or leased at any time by any of the
Acquired Entities or the Principal Owned Properties; (ii) ground,
water, soil, air or asbestos monitoring undertaken by any of the
Acquired Entities or its agents or representatives thereof or
undertaken by any Governmental Authority or any third party, relating
to or affecting any of the Acquired Entities or any real property
owned or leased at any time by any of the Acquired Entities or the
Principal Owned Properties; (iii) material written communications
between any of the Acquired Entities and any Governmental Authority
arising under or related to Environmental Laws including but not
limited to, any notices of violation and notices of non-compliance;
and (iv) outstanding citations issued under OSHA, or similar state or
local statutes, laws, ordinances, codes, rules, regulations, orders,
rulings or decrees, relating to or affecting any of the Acquired
Entities or any real property owned or leased at any time by any of
the Acquired Entities or the Principal Owned Properties. The
representations and warranties in this Section 3.13 shall survive for
a period of one year after the Closing Date as provided in Section 9.2
in the same manner as the other representations and warranties herein.
(f) For purposes of this Section, the following terms
shall have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law,
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ordinance, code, rule, regulation, order ruling, or decree governing
Aboveground Storage Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, migrating or emitting, as any of such terms
may further be defined in any Environmental Law, into or through any
medium including, without limitation, ground water, surface water,
land, soil or air.
"Environmental Laws" means all federal state, regional or
local statutes, laws rules, regulations, codes, ordinances, orders,
plans, injunctions, decrees, rulings, licenses, and changes thereto,
or judicial or administrative interpretations thereof, or similar laws
of business, whether currently in existence or hereafter enacted,
issued, or promulgated, any of which govern, purport to govern, or
relate to pollution, protection of the environment, public health and
safety, air emissions, water discharges, waste disposal, hazardous or
toxic substances, solid or hazardous waste, occupational, health and
safety, as any of these terms are or may be defined in such statutes,
laws, rules, regulations, codes, orders, ordinances, plans,
injunctions, decrees, rulings, licenses, and changes thereto, or
judicial or administrative interpretations thereof, including, without
limitation: the Comprehensive Environmental Responses, Compensation
and Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (herein,
collectively, "CERCLA"); the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901
et seq. (herein, collectively, "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. Section 1801, et seq., (the
"Hazardous Materials Transportation Act"); the Clean Water Act, as
amended, 33 U.S.C. Section 1311, et seq. (the "Clean Water Act"); the
Clean Air Act, as amended, 42 U.S.C. Section 7401-7642, (the "Clean
Air Act"); the Toxic Substances Control Act, as amended, 15 U.S.C.
Section 2601 et seq., (the "Toxic Substances Control Act"); the
Federal Insecticide, Fungicide, and Rodenticide Act as amended, 7
U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended 42 U.S.C. Section
11001, et seq. (Title III of SARA) ("EPCRA"); and the Occupational
Safety and Health Act of 1970, as amended, 29 U.S.C. Section 651, et
seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law.
"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental laws or which are or become regulated, listed
or controlled by, under or pursuant to any Environmental
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Laws, or which has been or shall be determined or interpreted at any
time by any Governmental Authority to be a hazardous or toxic
substance regulated under any other statute, law, regulation, order,
code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits,
approvals, decrees and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order, ruling or decree governing Underground Storage
Tanks.
3.14 REAL ESTATE
(a) Schedule 3.14 contains the street addresses of, and
indicates the owner(s) of, any real property or any leasehold or other
interest therein (including without limitation any option or other
right or obligation to purchase any real property or any interest
therein) owned by any of the Acquired Entities as of the date hereof
(the "Company Owned Properties"). There has been no real property (or
any interest therein) owned by any of the Acquired Entities within the
past five years that is not owned as of the date of this Agreement.
Schedule 3.14 contains the legal descriptions and the street addresses
of any real property (or any interest therein) which was owned by any
of the Principals or any of their Affiliates (the 'Principal Owned
Properties," and together with the Company Owned Properties, the
"Owned Properties"), and used in any Acquired Entity's business which
has been conveyed, as additional contributions of capital or otherwise
conveyed, to any Acquired Entity. With respect to each such parcel of
Owned Properties: (i) the Acquired Entity that owns such parcel as
indicated in the Schedules to this Section 3.14 has good and
marketable title, free and clear of any covenants, conditions,
easements and exceptions other than the Permitted Exceptions (as
defined in Section 5.15), and of any Lien other than liens for real
estate taxes not yet due and payable, (ii) there are no pending or
threatened condemnation proceedings, suits or administrative actions
relating to the Owned Properties or other matters affecting adversely
the current use, occupancy or value thereof; (iii) the legal
descriptions for the Owned Properties contained in the deeds thereof
describe such parcels fully and adequately; (iv) the buildings and
improvements are located within the boundary lines of the described
parcels of land and are not in violation of applicable setback
requirements, local comprehensive plan provisions zoning laws and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), building code
requirements, permits, licenses or other forms of approval, regulation
or restrictions by any Governmental Authority, and do not encroach on
any easement which may burden the land; the land does not serve any
adjoining property for any purpose inconsistent with the use of the
land; and the Owned Properties are not located within any flood plain
or subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained; (v) all
facilities
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have received all material approvals of Governmental Authorities
(including licenses and permits) required in connection with the
ownership or operation thereof and have been operated and maintained
in accordance with applicable laws, ordinances, rules and regulations;
(vi) there are no Contracts granting to any party or parties the right
of use or occupancy of any portion of the Owned Properties, and there
are no parties (other than the Acquired Entities) in possession of any
of the Owned Properties; (vii) there are no outstanding options or
rights of first refusal to purchase any of the Owned Properties or any
portion thereof or interest therein, (viii) all facilities located on
the Owned Properties are supplied with utilities and other services
necessary for their operation, all of which services are adequate in
accordance with all applicable laws, ordinances, rules and
regulations, and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefiting the Owned Properties:
(ix) the Owned Properties abut on and have adequate direct vehicular
access to a public road and there is no pending or threatened
termination of such access; (x) all improvements, buildings and
systems on the Owned Properties are in good repair, and safe for
occupancy; and (xi) there are no material Contracts relating to
management or similar matters which affect any of the Owned
Properties.
(b) Schedule 3.14 sets forth a list of all leases,
licenses or similar agreements to which any Acquired Entity is a
party, which are for the use or occupancy of real estate owned by a
third party ("Leases") (copies of which have previously been furnished
to Republic), in each case, setting forth (i) the lessor and lessee
thereof and the commencement date, term and renewal rights under each
of the Leases, and (ii) the street address or legal description of
each property covered thereby (the "Leased Premises"). The Leases are
in full force and effect and have not been amended, and no party
thereto is in default or breach under any such Lease. No event has
occurred which, with the passage of time or the giving of notice or
both, would cause a material breach of or default under any of such
leases. With respect to each such Leased Premises: (i) the Acquired
Entity that is the lessee has a valid leasehold interest in the Leased
Premises, free and clear of any Liens, covenants and easements or
title defects of any nature whatsoever; (ii) the portions of the
buildings located on the Leased Premises that are used in the business
of the Acquired Entity are each in good repair and condition, normal
wear and tear excepted, and are in the aggregate sufficient to satisfy
the Acquired Entity's current and reasonably anticipated normal
business activities as conducted thereat; (iii) each of the Leased
Premises (a) has direct access to public roads or access to public
roads by means of a perpetual access easement, such access being
sufficient to satisfy the current and reasonably anticipated normal
transportation requirements of the business presently conducted at
such parcel; and (b) is served by all utilities in such quantity and
quality as are sufficient to satisfy the current normal business
activities conducted at such parcel; and (iv) no Acquired Entity or
Principal has received notice of (a) any condemnation proceeding with
respect to any portion of the Leased Premises or any access thereto,
and no such proceeding is contemplated by any Governmental Authority;
or (b) any special assessment which may affect any of the Leased
Premises, and no such special assessment is contemplated by any
Governmental Authority.
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3.15 BUSINESS; GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY
(a) No Principal is engaged in the Auto Business or the
Parts Business (as defined in Section 5.11) or owns an interest in any
Person engaged in the Auto Business or the Parts Business, other than
(A) the Auto Business and Parts Business conducted by the Acquired
Entities or (B) the Principals' ownership interests in the Acquired
Entities. Alkit Enterprises, Inc. has no assets used in the Auto
Business or Parts Business other than real property. The Acquired
Entities own and operate the motor vehicle dealerships (the
"Dealerships") listed on Schedule 3.15 at the locations set forth
thereon, and each Dealership is owned and operated by the Acquired
Entity indicated in Schedule 3.15. Upon the consummation of the
transactions contemplated hereby, the Republic Companies will have
acquired and own all of the Acquired Entities' assets and operations
engaged in the Auto Business or Parts Business and related rights and
interests. Except as disclosed in the Financial Statements, each
Acquired Entity has good and marketable title to all of its Assets
free and clear of any Liens. For purposes of this Agreement, the term
"Assets" means all of the properties and assets of any nature of the
Acquired Entities.
(b) The Fixed Assets currently in use or necessary for
the business and operations of the Acquired Entities are in good
operating condition, normal wear and tear excepted, and, to the
knowledge of the Acquired Entities and the Principals, have been
maintained substantially in accordance with all applicable
manufacturer's specifications and warranties. For purposes of this
Agreement, the term "Fixed Assets" means all vehicles (other than
vehicles held as inventory), machinery, equipment, tools, supplies,
leasehold improvements, furniture and fixtures, owned, used by or
located on the premises of the Acquired Entities or set forth on the
Current Balance Sheets or acquired by the Acquired Entities since the
date of the Current Balance Sheets.
(c) None of the vehicles owned by the Acquired Entities
as of the date hereof has been, or will be on the Closing Date,
salvaged or rebuilt or have any frame, flood or other damage impairing
its salability in the ordinary course of business, and with respect to
each vehicle, the Acquired Entities owning such vehicles has or will
have prior to the Closing Date on file true and correct odometer
statements, none of which indicate that the actual mileage is unknown.
3.16 COMPLIANCE WITH LAWS. Each of the Acquired Entities, the
Principals and their Affiliates is and has been in compliance in all material
respects with all laws, regulations and orders applicable to it, its business
and operations (as conducted by it now and in the past), the Assets, the Owned
Properties and the Leased Premises and any other properties and assets (in each
case owned or used by it now or in the past). No Acquired Entity has been
cited, fined or otherwise notified of any asserted past or present failure to
comply with any laws, regulations or orders and no proceeding with respect to
any such violation is pending or threatened. Except for the Franchise
Agreements, no Acquired Entity is subject to any Contract, decree or injunction
in which it is a party which restricts the continued operation of any business
or the expansion thereof to other geographical areas, customers and suppliers
or lines of business. No Acquired Entity, nor
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any of their employees or agents, has made any payment of funds in connection
with its business which is prohibited by law, and no funds have been set aside
to be used in connection with its business for any payment prohibited by law.
3.17 LABOR AND EMPLOYMENT MATTERS. No Acquired Entity is a party
to or bound by any collective bargaining agreement or any other agreement with
a labor union, and there has been no labor union during the 24 months prior to
the date hereof organizing any employees of the Acquired Entities into one or
more collective bargaining units. There is not now, and there has not been
during the 24 months prior to the date hereof, any actual or threatened labor
dispute, strike or work stoppage which affects or which may affect the business
of the Acquired Entities or which may interfere with their continued
operations. No Acquired Entity, and no employee, agent or representative
thereof has since the date of incorporation or formation of such Acquired
Entity committed any unfair labor practice as defined in the National Labor
Relations Act, as amended, and there is no pending or, to the knowledge of the
Acquired Entities and the Principals, threatened, charge or complaint against
any Acquired Entity by or with the National Labor Relations Board or any
representative thereof. To the knowledge of the Acquired Entities and
Principals, no executive or key employee or group of employees has any plans to
terminate his, her or their employment with any Acquired Entity as a result of
the transactions contemplated hereby or otherwise. Each Acquired Entity has
complied with applicable laws, rules and regulations relating to employment,
civil rights and equal employment opportunities, including but not limited to,
the Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans
with Disabilities Act, as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a list
setting forth each employee benefit plan or arrangement of each of the
Acquired Entities, including but not limited to employee pension
benefit plans, as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), multiemployer
plans, as defined in Section 3(37) of ERISA, employee welfare benefit
plans, as defined in Section 3(1) of ERISA, deferred compensation
plans, stock option plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or
termination pay plans and policies, whether or not described in
Section 3(3) of ERISA, in which employees, their spouses or
dependents, of any of the Acquired Entities participate ("Employee
Benefit Plans") (true and accurate copies of which, together with the
most recent annual reports on Form 5500 and summary plan descriptions
with respect thereto, were furnished to Republic).
(b) Compliance with Law. With respect to each Employee
Benefit Plan (i0 each has been administered in all material respects
in compliance with its terms and with all applicable laws, including,
but not limited to, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"); (ii) no actions, suits, claims or disputes are
pending, or threatened; (iii) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (iv) there are no facts which could give rise
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to any material liability in the event of any such investigation,
claim, action, suit, audit, review, or other proceeding; (v) all
material reports, returns and similar documents required to be filed
with any governmental agency or distributed to any plan participant
have been duly or timely filed or distributed; and (vi) no "prohibited
transaction" has occurred within the meaning of the applicable
provisions of ERISA or the Code.
(c) Qualified Plans. With respect to each Employee
Benefit Plan intended to qualify under Code Section 401(a) or 403(a),
(i) the Internal Revenue Service has issued a favorable determination
letter, true and correct copies of which have been furnished to
Republic, that such plans are qualified and exempt from federal income
taxes; (ii) no such determination letter has been revoked nor has
revocation been threatened, nor has any amendment or other action or
omission occurred with respect to any such plan since the date of its
most recent determination letter or application therefor in any
respect which would adversely affect its qualification or materially
increase its costs; (iii) no such plan has been amended in a manner
that would require security to be provided in accordance with Section
401(a)(29) of the code; (iv) no reportable event (within the meaning
of Section 4043 of ERISA) has occurred, other than one for which the
30-day notice requirement has been waived; (v) as of the Effective
Date, the present value of all liabilities that would be "benefit
liabilities" under Section 4001(a)(16) of ERISA if benefits described
in Code Section 411(d)(6)(B) were included will not exceed the then
current fair market value of the assets of such plan (determined using
the actuarial assumptions used for the most recent actuarial valuation
for such plan); (vi) all contributions to, and payments from and with
respect to such plans, which may have been required to be made in
accordance with such plans and, when applicable, Section 302 of ERISA
or Section 412 of the Code, have been timely made; and (vii) all such
contributions to the plans and all payments under the plans (except
those to be made from a trust qualified under Section 401(a) of the
Code) and all payments with respect to the plans (including without
limitation PBGC (as defined below) and insurance premiums) for any
period ending before the Effective Date that are not yet, but will be,
required to be made are properly accrued and reflected on the Current
Balance Sheet.
(d) Multiemployer Plans. With respect to any
multiemployer plan as described in Section 4001(a)(3) of ERISA ("MPPA
Plan") (i) all contributions required to be made with respect to
employees of the Acquired Entities have been timely paid; (ii) each
Acquired Entity has not incurred and is not expected to incur,
directly or indirectly, any withdrawal liability under ERISA with
respect to any such plan (whether by reason of the transactions
contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets
forth (A) the withdrawal liability under ERISA to each MPPA Plan, (B)
the date as of which such amount was calculated, and (C) the method
for determining the withdrawal liability; and (iv) no such plan is (or
is expected to be) insolvent or in reorganization and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived, exists or is expected to exist
with respect to any such plan.
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(e) Welfare Plans. (i) No Acquired Entity is obligated
under any employee welfare benefit plan as described in Section 3(1)
of ERISA ("Welfare Plan") to provide medical or death benefits with
respect to any employee or former employee of the Acquired Entities or
their predecessors after termination of employment; (ii) each Acquired
Entity has complied with the notice and continuation coverage
requirements of Section 4980B of the Code and the regulations
thereunder with respect to each Welfare Plan that is, or was during
any taxable year for which the statute of limitations on the
assessment of federal income taxes remains open, by consent or
otherwise, a group health plan within the meaning of Section
5000(b)(1) of the Code; and (iii) there are no reserves, assets,
surplus or prepaid premiums under any Welfare Plan which is an
Employee Benefit Plan. The consummation of the transactions
contemplated by this Agreement will not entitle any individual to
severance pay, and, will not accelerate the time of payment or
vesting, or increase the amount of compensation due to any individual.
(f) Controlled Group Liability. No Acquired Entity nor
any entity that would be aggregated with any Acquired Entity under
Code Section 414(b), (c), (m) or (o): (i) has ever terminated or
withdrawn from an employee benefit plan under circumstances resulting
(or expected to result) in liability to the Pension Benefit Guaranty
Corporation ("PBGC"), the fund by which the employee benefit plan is
funded, or any employee or beneficiary for whose benefit the plan is
or was maintained (other than routine claims for benefits); (ii) has
any assets subject to (or expected to be subject to) a lien for unpaid
contributions to any employee benefit plan; (iii) has failed to pay
premiums to the PBGC when due (iv) is subject to (or expected to be
subject) an excise tax under Code Section 4971; (v) has engaged in any
transaction which would give rise to liability under Section 4069 or
Section 4212(c) of ERISA; or (vi) has violated Code Section 4980B or
Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit
Plans obligates any Acquired Entity to pay separation, severance,
termination or similar benefits solely as a result of any transaction
contemplated by this Agreement or solely as a result of a "change of
control" (as such term is defined in Section 280G of the Code); (ii)
all required or discretionary (in accordance with historical
practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Effective Date
shall have been made or properly accrued on the Current Balance Sheets
or will be properly accrued on the books and records of the Acquired
Entities as of the Effective Date; and (iii) none of the Employee
Benefit Plans has any unfunded liabilities which are not reflected on
the Current Balance Sheets or the books and records of the Company.
3.19 TAX MATTERS. All Tax Returns required to be filed prior to
the date hereof with respect to any of the Acquired Entities or any of their
respective income, properties, franchises or operations have been timely filed,
each such Tax Return has been prepared in compliance with all applicable laws
and regulations, and all such Tax Returns are true and accurate in all
respects. All Taxes due and payable by or with respect to each Acquired Entity
have been paid or are accrued on the applicable Current Balance Sheet or will
be accrued on the Company's books and records
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as of the Closing. (i) Except as set forth in a letter to be delivered by the
Acquired Entities to Republic no later than 10 days after the date hereof, with
respect to each taxable period of each Acquired Entity, either such taxable
period has been audited by the relevant taxing authority or the time for
assessing or collecting Taxes with respect to each such taxable period has
closed and such taxable period is not subject to review by any relevant taxing
authority; (ii) no deficiency or proposed adjustment which has not been settled
or otherwise resolved for any amount of Taxes has been asserted or assessed by
any taxing authority against any Acquired Entity; (iii) no Acquired Entity has
consented to extend the time in which any Taxes may be assessed or collected by
any taxing authority; (iv) no Acquired Entity has requested or been granted an
extension of the time for filing any Tax Return to a date later than the
Closing; (v) there is no action, suit, taxing authority proceeding, or audit or
claim for refund now in progress, pending or threatened against or with respect
to any Acquired Entity regarding Taxes; (vi) no Acquired Entity has made an
election or filed a consent under Section 341(f) of the Code (or any
corresponding provision of state, local or foreign law) on or prior to the
Effective Date; (vii) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of any Acquired Entity; (viii)
no Acquired Entity will be required (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the Effective Date, to
include any adjustment under Section 481(c) of the Code (or any corresponding
provision of state, local or foreign law) in taxable income for any taxable
period (or portion thereof) beginning after the Effective Date or (B) as a
result of any "closing agreement," as described in Section 7121 of the Code (or
any corresponding provision of state, local or foreign law), to include any
item of income or exclude any item of deduction from any taxable period (or
portion thereof) beginning after the Effective Date; (ix) no Acquired Entity
has been a member of an affiliated group (as defined in Section 1504 of the
Code) or filed or been included in a combined, consolidated or unitary income
Tax Return; (x) no Acquired Entity is a party to or bound by any tax allocation
or tax sharing agreement and has no current or potential contractual obligation
to indemnify any other Person with respect to Taxes; (xi) no Acquired Entity
has made any payments or, is or will become obligated (under any contract
entered into on or before the Closing) to make any payments, that will be
non-deductible under Section 280G of the Code (or any corresponding provision
of state, local or foreign law); and (xii) no Acquired Entity has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code (or any corresponding provision of state, local or
foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii)
of the Code (or any corresponding provision of state, local or foreign law);
(xiii) no claim has ever been made by a taxing authority in a jurisdiction
where any Acquired Entity does not file Tax Returns that an Acquired Entity is
or may be subject to Taxes assessed by such jurisdiction; (xiv) no Acquired
Entity has any permanent establishment in any foreign country, as defined in
the relevant tax treaty between the United States of America and such foreign
country; (xv) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to any Acquired Entity for the past three
years have been furnished or made available to Republic; (xvi) no Acquired
Entity will be subject to any Taxes for the period ending at the Closing for
any period for which a Tax Return has not been filed imposed pursuant to
Section 1374 or Section 1375 of the Code (or any corresponding provision of
state, local or foreign law); and (xvii) no sales or use tax will be payable by
any Acquired Company or Republic or any Surviving Corporation or transferee
pursuant to the Related Transactions, on the transfer
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of any Assets pursuant to the isolated or occasional sale rule, Fla. Admin.
Code 12A-10.037 and the resale provisions of Fla. Admin. Code 12A-1.038 as a
result of this transaction, and there will be no non-recurring intangible tax,
documentary stamp tax, or other excise (or comparable tax imposed by any
governmental entity) as a result of this transaction. Each Maroone Corporation
that has filed a Tax return as an S corporation timely and properly filed an S
corporation election under the Code and under applicable state and local Tax
law for its first taxable year, and no such S election has been revoked or
terminated and neither the Maroone Corporations nor any Shareholder has taken
any action that would cause a termination of such S election. Each Partnership
for all taxable periods has qualified to be treated as a partnership for
Federal, state, local and foreign income Tax purposes.
3.20 INSURANCE. Each Acquired Entity is covered by valid,
outstanding enforceable policies of insurance issued to it by reputable
insurers covering its properties, assets and businesses against risks of the
nature normally insured against by similar entities in the same or similar
lines of business, and in the Principals' opinion, in coverage amounts
typically and reasonably carried by such entities (the "Insurance Policies").
Such Insurance Policies are in full force and effect, and all premiums due
thereon have been paid. Through the Effective Time, each of the Insurance
Policies will be in full force and effect. Each Acquired Entity has complied
with the provisions of such Insurance Policies applicable to it. A complete
and correct list and copies of all Insurance Policies and all amendments and
riders thereto have been provided to Republic and there is no pending claim or
claims under any of the Insurance Policies for an amount in excess of $50,000
individually or $250,000 in the aggregate, including any claim for loss or
damage to the properties, assets or business of any Acquired Entity. No
Acquired Entity has failed to give, in a timely manner, any notice required
under any of the Insurance policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables are valid and legally
binding, represent bona fide transactions and arose in the ordinary course of
business of the Acquired Entities. All of the Receivables are good and
collectible receivables, and will be collected in accordance with past practice
and the terms of such receivables (and in any event within six months following
the Closing Date), without set off or counterclaims, subject to the allowance
for doubtful accounts, if any, set forth on the Current Balance Sheets. For
purposes of this Agreement, the term "Receivables" means all receivables of the
Acquired Entities, including without limitation all manufacturer's warranty
receivables and all trade account receivables arising from the provision of
services, sale of inventory, notes receivable, and insurance proceeds
receivable.
3.22 LICENSES AND PERMITS. Each Acquired Entity possesses all
licenses and required governmental or official approvals, permits or
authorizations (collectively, the "Permits") for its business and operations,
including with respect to the operations of each of the Owned Properties and
Leased Premises, and, within one week after the date hereof, the Acquired
Entities will deliver to Republic a schedule that sets forth a true, complete
and accurate list of all such Permits, itemized for each acquired Entity. All
such Permits are valid and in full force and effect, each Acquired Entity is in
compliance with the respective requirements thereof, and no proceeding is
pending or threatened to revoke or amend any of them. None of such Permits is
or will be
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impaired or in any way affected by the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS: RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased
premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of each of the businesses of the Acquired Entities in
the manner in which and to the extent to which such business is currently being
conducted. No current supplier to the Acquired Entities of items essential to
the conduct of their businesses has threatened to terminate its business
relationship with any of the Acquired Entities for any reason. Each Acquired
Entity has no direct or indirect interest in any customer, supplier or
competitor of the Acquired Entity or in any person from whom or to whom the
Acquired Entity leases real or personal property. No officer, director,
shareholder, or partner of any Acquired Entity, nor any person related by blood
or marriage to any such person, nor any entity in which any such person owns
any beneficial interest, is a party to any Contract or transaction with the
Acquired Entity or has any interest in any property used by the Acquired
Entity.
3.24 INTELLECTUAL PROPERTY. Each Acquired Entity has full legal
right title and interest in and to all trademarks, service marks, trade names,
copyrights, know-how, patents, trade secrets, licenses (including licenses for
the use of computer software programs), and other intellectual property used in
the conduct of its business (the "Intellectual Property"). The conduct of the
business of the Acquired Entities as presently conducted, and the unrestricted
conduct and the unrestricted use and exploitation of the Intellectual Property,
does not infringe or misappropriate any rights held or asserted by any Person
and to the knowledge of the Acquired Entities and the Principals, no Person is
infringing on any Intellectual Property. No payments are required for the
continued use of the Intellectual Property. None of the Intellectual Property
has ever been declared invalid or unenforceable, or is the subject of any
pending or threatened action for opposition, cancellation, declaration,
infringement, or invalidity, unenforceability or misappropriation or like
claim, action or proceeding.
3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract
to which any Acquired Entity is a party or by which any of them or their
properties and assets are bound and which is material to any of their
businesses, assets, properties or prospects (the "Material Contracts"),
including without limitation all franchise, sales and service, dealer and other
agreements or understandings (the "Franchise Agreements") with the Chevrolet
and Oldsmobile Divisions of General Motors, the Ford Division of the Ford Motor
Company, American Isuzu Motors, Inc., and the Dodge Division of the Chrysler
Corporation or any other automobile manufacturer or distributor (collectively,
the "Factories"). As indicated in Schedule 3.25, certain Acquired Entities are
parties to Franchise Agreements for each of the Dealerships, which Franchise
Agreements grant the Acquired Entities full rights and privileges necessary to
operate the Dealerships. The copy of each Material Contract furnished to
Republic is a true and complete copy of the document it purports to represent
and reflects all amendments thereto made through the date of this Agreement.
The Acquired Entities have not violated any of the terms or conditions of any
Material Contract or any term or condition which would permit termination or
material
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modification of any Material Contract, all of the covenants to be performed by
any other party thereto, to the knowledge of the Acquired Entities and the
Principals, have been fully performed, and there are no claims for breach or
indemnification or notice of default or termination under any Material
Contract. No event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a default by any Acquired Entity
under any Material Contract, and no such event has occurred which constitutes
or would constitute a default by any other party. Each Acquired Entity is not
subject to any liability or payment resulting from renegotiation of amounts
paid under any Material Contract. As used in this Section 3.25, Material
Contracts shall include, without limitation, formal or informal, written or
oral, (a) loan agreements, indentures, mortgages, pledges, hypothecations,
deeds of trust, conditional sale or title retention agreements, security
agreements, equipment financing obligations or guaranties, or other sources of
contingent liability in respect of any indebtedness or obligations to any other
Person, or letters of intent or commitment letters with respect to same, which
individually or in the aggregate exceed $100,000; (b) contracts obligating any
Acquired Entity to provide products or services for a period of one year or
more, excluding standard warranty contacts entered into in the ordinary course
of its business without material modification from the preprinted forms used by
the Acquired Entities in the ordinary course of business, copies of which have
been supplied to Republic and which individually or in the aggregate exceed
$100,000; (c) leases of real property; (d) leases of personal property which
individually or in the aggregate provide for total payments in excess of
$100,000 (other than those which individually provide for annual payments of
less than $25,000 and which are cancelable without penalty on notice of sixty
(60) days or less); (e) distribution, sales agency or franchise or similar
agreements, or agreements providing for an independent contractor's services,
or letters of intent with respect to same; (f) employment agreements,
management service agreements, consulting agreements, confidentially
agreements, non-competition agreements, employee handbooks, policy statements
and any other agreements relating to any employee, officer, partner or director
of the Acquired Entities; (g) licenses, assignments or transfers of trademarks,
trade names, service marks, patents, copyrights, trade secrets or know how, or
other agreements regarding proprietary rights or intellectual property; (h) any
contract relating to pending capital expenditures by the Acquired Entities; (i)
contracts obligating any Acquired Entity to purchase vehicles, parts,
accessories, supplies, equipment, oil, advertising, media and media related
services of any kind, not cancelable without penalty on notice of thirty (30)
days or less; (j) any non-competition agreements restricting any Acquired
Entity in any manner; and (k) other material Contracts or understandings,
irrespective of subject matter and whether or not in writing, and not otherwise
disclosed on the Schedules.
3.26 ACCURACY OF INFORMATION FURNISHED. No representation,
statement or information contained in this Agreement (including, without
limitation, the various Schedules attached hereto) or any agreement executed in
connection herewith or in any certificate delivered pursuant hereto or thereto
or made or furnished to Republic or its representatives by the Acquired
Entities or the Principals, contains or shall contain any untrue statement of a
material fact or omits or shall omit any material fact necessary to make the
information contained therein not misleading. The Acquired Entities have
provided Republic with true, accurate and complete copies of all documents
listed or described in the various Schedules attached hereto.
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3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. Each of the Principals has had the opportunity to discuss the
transactions contemplated hereby with Republic and has had the opportunity to
obtain such information pertaining to Republic as has been requested, including
but not limited to filings made by Republic with the SEC under the Exchange
Act. Each of the Principals and the Partnerships is an "accredited investor"
within the meaning of Regulation D promulgated under the Securities Act, and
has such knowledge and experience in business or financial matters that he or
it is capable of evaluating the merits and risks of an investment in the
Republic Shares. Each of the Principals and the Partnerships hereby represents
that he or it can bear the economic risk of losing his or its investment in the
Republic Shares and has adequate means for providing for his current financial
needs and contingencies. The Principals and Partnerships have received copies
of all Republic Reports filed with the SEC since January 1, 1996.
3.28 [INTENTIONALLY OMITTED]
3.29 NO COMMISSIONS. No Acquired Entity nor any Principal has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
3.30 CERTAIN ACCOUNTING MATTERS. No Acquired Entity nor any of the
Principals, nor any of their Affiliates, has taken or agreed to take any action
that (without regard to any action taken or agreed to be taken by Republic or
any of its Affiliates) would prevent Republic from accounting for the
transactions contemplated hereby as pooling of interests business combinations
in accordance with GAAP and the criteria of Accounting Principles Board Opinion
No. 16 and the regulations of the SEC.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
4.1 CONDUCT OF BUSINESS BY THE ACQUIRED ENTITIES PENDING THE
CLOSING. The Acquired Entities and the Principals, jointly and severally,
covenant and agree that, between the date of this Agreement and the Effective
Time, the business of the Acquired Entities shall be conducted only in, and the
Acquired Entities shall not take any action except in, the ordinary course of
business consistent with past practice. The Acquired Entities and each of the
Principals shall use its or his reasonable best efforts to preserve intact the
Acquired Entities' business organizations, to keep available the services of
their current officers, employees and consultants, and to preserve their
present relationships with customers, suppliers and other persons with which
they have significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, the Acquired Entities
shall not, between the date of this Agreement and the Effective Time, directly
or indirectly, do or propose or agree to do any of the following without the
prior written consent of Republic.
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(a) amend or otherwise change its Articles or Certificate
of Incorporation, Bylaws, partnership agreement or equivalent
organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or,
authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (i) any shares of its capital stock of any class or any
partnership interests, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such
capital stock of partnership interests, or any other ownership
interest, of it, or (ii) any of its assets, tangible or intangible,
except, in the case of (ii), in the ordinary course of business
consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock or partnership interests, except
that the Acquired Entities may make cash distributions only to the
extent necessary to pay for the Principals' tax liability for earnings
of the Acquired Entities, consistent with past practice in the
ordinary course.
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its
capital stock or partnership interests;
(e) (i) acquire (including, without limitation, for cash
or shares of stock or partnership interests, by merger, consolidation
or acquisition of stock or assets) any interest in any corporation,
partnership or other business organization or division thereof or any
assets, or make any investment either by purchase of stock or
securities, contributions of capital or property transfer, or, except
in the ordinary course of business, consistent with past practice,
purchase any property or assets of any other Person, (ii) incur any
indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans or
advances, except for its "floor plan" financing of vehicle inventories
in the ordinary course of business consistent with past practice or
(iii) modify, terminate, or enter into any Contract other than as
provided herein or in the ordinary course of business, consistent with
past practice;
(f) increase the compensation payable or to become
payable to its officers or employees or partners, or, except as
presently bound to do, grant any severance or termination pay to, or
enter into any employment or severance agreement with, any of its
directors, officers or other employees or partners, or establish,
adopt, enter into or amend or take any action to accelerate any rights
or benefits which any collective bargaining, bonus, profit sharing,
trust, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees or partners;
(g) take any action with respect to accounting policies
or procedures other than in the ordinary course of business and in a
manner consistent with past practices;
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(h) pay, discharge or satisfy any existing claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with
past practice of due and payable liabilities reflected or reserved
against in its financial statements, as appropriate, or liabilities
incurred after the date thereof in the ordinary course of business and
consistent with past practice;
(i) enter into any transaction with any Principal or
Affiliate thereof; or
(j) agree, in writing or otherwise, to take or authorize
any of the foregoing actions or any action which would make any
representation or warranty in Article III untrue or incorrect in any
material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Principals shall cause the
Acquired Entities to comply with all of the covenants of the Acquired Entities
under this Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation in connection with the transactions contemplated by
this Agreement and to use their respective best efforts to agree jointly on a
method or overcome any objections by any Governmental Authority to any such
transactions.
5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties
hereto shall (a) cooperate in the preparation and filing of, and take all
appropriate actions in connection with, the application to the Factories for
approval of the transactions contemplated hereby, and (b) use its reasonable
efforts to take, or cause to be taken, all appropriate actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated herein, including, without limitation, using its best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to
Contracts with the Acquired Entities as are necessary for the consummation of
the transactions contemplated hereby. Each of the parties shall make on a
prompt and timely basis all governmental or regulatory notifications and
filings required to be made by it for the consummation of the transactions
contemplated hereby. The parties also agree to use best efforts to defend all
lawsuits or other
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legal proceedings challenging this Agreement or the consummation of the
transactions contemplated hereby and to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby.
5.5 HSR ACT. Republic and the Acquired Entities and Principals
shall make promptly (unless they have already made) their respective filings,
if any, and thereafter make any other required submissions, under the HSR Act,
with respect to the transactions contemplated hereby, and shall, if requested
by Republic, seek early termination of the applicable waiting period under the
HSR Act. Republic shall pay the HSR Act filing fee.
5.6 ACCESS TO INFORMATION. From the date hereof to the Effective
Time, the Acquired Entities and the Principals shall, and shall cause their
directors, officers, employees, auditors, counsel and agents to, afford
Republic and Republic's officers, employees, auditors, counsel and agents
reasonable access at all reasonable times to its properties, offices and other
facilities, to its officers and employees and to all books and records, and
shall furnish such persons with all financial, operating and other data and
information as may be requested. No information provided to or obtained by
Republic shall affect any representation or warranty in this Agreement.
Following the Effective Time, the Principals shall have reasonable access to
the Acquired Entities' tax records to prepare their own tax return, and shall
have input in the preparation of the Acquired Entities' tax returns for the
first fiscal year ending after the Effective Time.
5.7 NOTIFICATION OF CERTAIN MATTERS. Each of the parties to this
Agreement shall give prompt notice to the other parties of the occurrence or
non-occurrence of any event which would likely cause any representation or
warranty made by such party herein to be untrue or inaccurate or any covenant,
condition or agreement contained herein not to be complied with or satisfied
(provided, however, that, any such disclosure shall not in any way be deemed to
amend, modify or in any way affect the representations, warranties and
covenants made by any party in or pursuant to this Agreement).
5.8 TAX AND ACCOUNTING TREATMENT. Republic and the Acquired
Entities and the Principals will use their respective reasonable best efforts
to cause the Mergers contemplated hereby to qualify as a reorganization under
the provisions of Section 368(a) of the Code and will not take any action after
the Mergers are effected to cause the Mergers to lose their tax-free status.
All parties hereto agree to file the plan of merger for the Mergers with their
respective federal income tax returns for the year in which the Mergers are
effective, and to comply with the reporting requirements of Treasury Regulation
1.368-3. In addition, Republic, the Acquired Entities and the Principals will
not take any action after the date hereof to cause the Mergers or Related
Transactions contemplated hereby not to be accountable as a pooling of
interests business combination.
5.9 CONFIDENTIALITY; PUBLICITY. Except as may be required by law
or as otherwise permitted or expressly contemplated herein, no party hereto or
their respective Affiliates, employees, agents and representatives shall
disclose to any third party this Agreement, the subject matter or terms hereof
or any confidential information or other proprietary knowledge concerning
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the business or affairs of any other party which it may have acquired from such
party in the course of pursuing the transactions contemplated by this Agreement
without the prior consent of the other parties hereto; provided, that any
information that is otherwise publicly available, without breach of this
provision , or has been obtained from a third party, shall not be deemed
confidential information. No press release or other public announcement
related to this Agreement or the transactions contemplated hereby shall be
issued by any party hereto without the prior approval of the other parties,
except that Republic may make such public disclosure which it believes in good
faith to be required by law or by the terms of any listing agreement with or
requirements of Nasdaq (in which case Republic will consult with Maroone prior
to making such disclosure).
5.10 NO OTHER DISCUSSIONS. The Acquired Entities and the
Principals and their Affiliates, employees, agents and representatives will not
(a) initiate, encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
capital stock, partnership interests (or derivatives thereof), business or
properties of any Acquired Entities (whether by merger, consolidation, sale of
stock or partnership interests, sale of assets, or otherwise), or (b) enter
into any agreement or commitment (whether or not binding) with respect to any
of the foregoing transactions. The Acquired Entities and the Principals will
immediately notify Republic if any third party attempts to initiate any
solicitation, discussion, or negotiation with respect to any of the foregoing
transactions, and shall provide Republic with the name of such third parties
and the terms of any offers.
5.11 RESTRICTIVE COVENANTS. In order to assure that Republic will
realize the benefits of the transactions contemplated hereby, each of the
Principals agrees with Republic that he will not:
(a) during the Restricted Period, directly or indirectly,
alone or as a partner, joint venturer, officer, director, member,
employee, consultant, agent, independent contractor or stockholder of,
or lender to, any company or business, engage in selling, leasing, or
servicing any new or used vehicles (the "Auto Business") or in the
wholesale or retail supply of parts with respect thereto (the "Parts
Business") anywhere in the Restricted Territory; provided, however,
that, the beneficial ownership of less than five percent (5%) of the
shares of stock of any corporation having a class of equity securities
actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the
prohibitions of this Section;
(b) during the Restricted Period, directly or indirectly
(i) induce any Person which is a customer of any Acquired Entity,
Republic or any Affiliate of the Acquired Entities or Republic to
patronize any business directly or indirectly in competition with the
Auto Business or the Parts Business conducted by the Acquired
Entities, Republic or any Affiliate of the Acquired Entities or
Republic; (ii) canvass, solicit or accept from any Person which is a
customer of the Acquired Entities, Republic or any Affiliate of the
Acquired Entities or Republic, any such competitive business; or (iii)
request or advise any Person which is a customer of the Acquired
Entities, Republic or any Affiliate of the
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Acquired Entities or Republic, or its or their successors, to
withdraw, curtail or cancel any such customer's business with any such
entity;
(c) during the Restricted Period, directly or indirectly
employ, or knowingly permit any company or business directly or
indirectly controlled by him, to employ, any person who was employed
by the Acquired Entities, Republic or any Affiliate of the Acquired
Entities or Republic at or within the prior six months, or in any
manner seek to induce any such person to leave his or her employment;
(d) during the Restricted Period, directly or indirectly,
in any way utilize, disclose, copy, reproduce or retain in his
possession any of the Acquired Entities' proprietary rights or
records, including, but not limited to any customer lists, provided,
however, that the Principals shall be allowed reasonable access to
review and copy such records for purposes of litigation and tax
audits, but with respect to any litigation against or adverse to
Republic or any of its Affiliates such access shall be only to the
extent required under laws and rules of procedure and discovery
applicable to such proceeding.
For purposes of this Section 5.11, (a) the "Restricted Period" shall mean (i)
for the Principals other than Maroone, the period beginning on the Effective
Time and ending on the fifth anniversary of the Effective Time, and (ii) for
Maroone, the longer of (A) the period beginning on the Effective Time and
ending on the fifth anniversary of the Effective Time, or (B) the second
anniversary of the termination of his employment following the Effective Time,
and (b) the "Restricted Territory" shall mean anywhere in the United States.
The Principals agree and acknowledge that the restrictions contained in this
Section 5.11 are reasonable in scope and duration and are necessary to protect
Republic and the Acquired Entities after the Effective Time. If any provision
of this Section 5.11, as applied to any party or to any circumstance, is
adjudged by a court to be invalid or unenforceable, the same will in no way
affect any other circumstance or the validity or enforceability of the
remainder of this Agreement. If any such provision, or any part thereof, is
held to be unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court making such determination
shall have the power to reduce the duration and/or area of such provision,
and/or to delete specific words or phrases, and in its reduced form, such
provision shall then be enforceable and shall be enforced. The parties agree
and acknowledge that the breach of this Section 5.11 will cause irreparable
damage to Republic and upon breach of any provision of this Section 5.11,
Republic shall be entitled to injunctive relief, specific performance or other
equitable relief, provided, however, that the foregoing remedies shall in no
way limit any other remedies which Republic may have (including, without
limitation, the right to seek monetary damages).
5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise
expressly consented to by Republic, from the date of this Agreement until the
Effective Time, neither the Acquired Entities, the Principals nor any of their
Affiliates will directly or indirectly purchase or sell (including short sales)
any shares of Republic Common Stock in any transactions effected on Nasdaq or
otherwise.
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5.13 EMPLOYMENT OF SHAREHOLDERS AND OTHER EMPLOYEES. Republic or
its assignee and Maroone shall enter into an employment agreement in the form
attached hereto as Schedule 5.13.
5.14 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. Republic
shall be entitled to conduct prior to Closing a due diligence review of the
assets, properties, books and records of the Acquired Entities and an
environmental assessment of the Owned Properties and Leased Premises
(hereinafter referred to as "Environmental Assessment"). The Environmental
Assessment may include, but not be limited to, a physical examination of the
Owned Properties and Leased Premises, and any structures, facilities, or
equipment located thereon, soil samples, ground and surface water samples,
storage tank testing, review of pertinent records (including but not limited
to, off-site disposal records and manifests), documents, and Licenses of the
Acquired Entities. The Acquired Entities shall provide Republic or its
designated agents or consultants with the access to such properties which
Republic, its agents or consultants require to conduct the Environmental
Assessment. If the Environmental Assessment identifies Recognized
Environmental Conditions (as defined by ASTM Standard Practice E-1527) which
require remediation or further evaluation under the Environmental Laws as
defined in Section 3.13(f) of this Agreement, then Republic shall notify the
Acquired Entities and the Principals in writing and the Acquired Entities and
the Principals shall be financially responsible for the remediation of all
Recognized Environmental Conditions which remediation is, may or would be
required by any appropriate governmental agency. Republic's failure or
decision not to conduct any such Environmental Assessment shall not affect any
representation or warranty of the Acquired Entities or the Principals under
this Agreement. Prior to Closing, the parties hereto shall agree on the
appropriate actions (and the cost thereof) to be taken with respect to any such
Recognized Environmental Conditions (provided further that in the event the
parties do not agree prior to Closing on which action is to be taken with
respect to any such Recognized Environmental Conditions, after Closing,
Republic shall at its reasonable discretion, determine the appropriate course
of action (and the cost thereof) with respect thereto). If the cost of
remediation of all Recognized Environmental Conditions exceeds $10,000,000 the
Acquired Entities and the Principals reserve the right to terminate this
Agreement, prior to the Effective Time, upon the delivery of written notice in
accordance with Section 13.1 of this Agreement.
5.15 TITLE INSURANCE AND SURVEYS.
(a) Within 10 business day after the date of this
Agreement, the Acquired Entities and the Principals shall obtain and
deliver to Republic commitments (the "Commitments") issued by a title
insurance company acceptable to Republic (the "Title Company") and
dated not earlier than the date of this Agreement for the issuance of
an ALTA Owners Policy of Title Insurance (10-17-92) (with Florida
Modifications), (the "Title Policy") for each of the Owned Properties
(and such of the Leased Premises as Republic may designate) in an
amount acceptable to Republic, together with legible hard copies of
all title exceptions reflected in the commitments. At Republic's
option, the Acquired Entities and principals shall deliver copies of
previous owner policies or other title evidence sufficient for
Republic to obtain the Commitments directly from the Title
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Company or its agent. In either case, the premium for the Title
Policy shall be paid by the Principals. The Title Policy shall be in
the amount designated by Republic, showing fee simple title to the
Owned Properties vested now or to be vested at or immediately prior to
the Closing in the Acquired Entities subject only to current real
estate Taxes not yet due and payable as of the Effective Time, and
such other covenants, conditions, easements, and exceptions to title
as Republic may approve in writing (collectively, the "Permitted
Exceptions"). The Commitments and the Title Policy to be issued by
the Title Company shall have all Standard and General Exceptions
deleted so as to afford full "extended form coverage" and shall
contain an ALTA Zoning Endorsements 3.1 (if available), contiguity
(where appropriate), survey, and such other endorsements as may be
reasonably requested by Republic, excluding nonimputation and
creditors rights endorsements. At the Closing, the Acquired Entities,
the Principals and their Affiliates shall deliver such affidavits or
other instruments as the Title Company may reasonably require to
delete Standard and General Exceptions and to provide the special
endorsements required hereunder. The Acquired Entities and the
Principals shall cause the Commitments to be later-dated to cover the
Closing and to cause the Title Company to deliver the Title Policy at
the Closing as directed by Republic.
(b) Within 20 days after the date of this Agreement but
before the Closing, the Acquired Entities and the Principals shall
deliver to Republic and the Title Company an as-built plat of survey
of each of the Owned Properties and the Leased Premises (the
"Surveys") prepared by a registered land surveyor or engineer,
licensed in the respective states in which such properties are
located, dated on or after the date hereof, certified to Republic, the
Title Company, and such other entities as Republic may designate in
writing to the Acquired Entities and the Principals prior to the
Closing, and conforming to current ALTA/ACSM Minimum Detail
Requirements for Land Title Surveys, sufficient to cause the Title
Company to delete the standard printed survey exception. Each Survey
shall show access from the land to dedicated roads and shall include a
flood plain certification. Any survey may be a recertification of a
prior survey, provided that it meets the above-described criteria.
(c) If (i) any Commitment discloses a title exception
other than a Permitted Exception (an "Unpermitted Exception") or (ii)
any Survey discloses any encroachment, overlap, boundary dispute, or
gap or any other matter which renders title to any of the Owned
Properties unmarketable or reflects that any utility service to the
improvements or access thereto does not lie wholly within the
applicable parcel of real property, or within an encumbered easement
for the benefit of such parcel of real property, or reflects any other
matter adversely affecting the use or improvements of such parcel of
real property (a "Survey Defect"), then the Acquired Entities and the
Principals, prior to the Closing, shall have the Unpermitted Exception
removed from such Commitment or the Survey Defect corrected or insured
over by an appropriate title insurance endorsement, all in a manner
reasonably satisfactory to Republic.
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5.16 SHAREHOLDER AND DIRECTOR VOTE. Each of the Principals, in
executing this Agreement, consents as a director, shareholder, and/or partner
(as applicable) of the Acquired Entities to the Mergers and other transactions
contemplated hereby, and waives notice of any meeting in connection therewith
and hereby release and waive all rights with respect to the transactions
contemplated hereby under any agreements relating to the sale, purchase or
voting of stock or partnership interests of the Acquired Entities, including
without limitation the Shareholders Agreement, dated July 13, 1989, and
effective November 2, 1988, by and between Albert E. Maroone, Michael E.
Maroone and Faisal Ahmed, the Buy-Sell Agreement, dated June 22, 1992, by and
among Albert E. Maroone and Michael E. Maroone, and the Cross Purchase
Agreement by and among Michael E. Maroone, Kathleen M. Hoctor and Patricia
Damoorgian.
5.17 AUDITED FINANCIAL STATEMENTS OF ACQUIRED ENTITIES. The
Acquired Entities acknowledge and agree that they have already engaged their
certified public accounting firm of Crowe, Chizek and Company LLP to complete
an audit and prepare audited financial statements for each of the Acquired
Entities (the "Audited Statements") as soon as practicable, it being
anticipated that it will be completed the 21st day after the date of this
Agreement, and the Acquired Entities shall deliver such Audited Statements
(including signed audit opinions relating thereto) to Republic upon completion.
The Audited Statements shall comply with all laws and regulations of the
Securities and Exchange Commission that require Republic to file audited
financial statements with the SEC with respect to registrations under the
Securities Act and for reporting purposes under the Securities Exchange Act.
5.18 [INTENTIONALLY DELETED]
5.19 [INTENTIONALLY DELETED]
5.20 POSITIVE WORKING CAPITAL. The Acquired Entities and the
Principals hereby covenant, represent and warrant that on and as of the Closing
Date, the total aggregate current assets of the Acquired Entities (other than
any current assets that are not held by the Surviving Corporations upon
consummation of the Mergers and any current assets of the Partnerships that are
not acquired by the Republic Acquisition Subs hereunder) shall exceed the total
aggregate current liabilities of the Acquired Entities, in each case determined
in accordance with GAAP (such condition is referred to herein as "Positive
Working Capital").
5.21 RELEASES. Each of the Acquired Entities and each of the
Principals shall deliver (and shall cause any other Person holding Equity
Rights to deliver) to Republic a release (collectively, the "Releases") in such
form as is reasonably satisfactory to Republic releasing all Equity Rights and
releasing all claims of any nature against the Acquired Entities and any claims
arising out of the Mergers and the Related Transactions and the other
transactions contemplated by this Agreement, except for claims and obligations
set forth in the express terms of this Agreement; provided, however, that if
all such Releases are not delivered as required then, at Republic's election at
its sole discretion, Maroone shall sign an indemnification agreement to
indemnify Republic and its subsidiaries and Affiliates from and against all
such claims, rights and obligations to which the Releases were to relate.
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5.22 APPOINTMENT OF MAROONE REPRESENTATIVE. Each of the Acquired
Entities and the Principals hereby appoints Michael E. Maroone (the "Maroone
Representative") as the attorney-in-fact of such Person, with full power and
authority, including power of substitution, acting in the name of and for and
on behalf of such person to amend or waive any provision of this Agreement, to
terminate this Agreement pursuant to the provisions hereof, and to take all
other action under or related to this Agreement, which in his discretion, he
may consider necessary or proper to effectuate the transactions contemplated
hereunder and to resolve any dispute with the Republic Companies over any
aspect of this Agreement and on behalf of such person to enter into any
agreement to effectuate any of the foregoing which shall have the effect of
binding such person as if such person had personally entered into such an
agreement; provided, however, that all actions taken or decisions made by the
Maroone Representative on behalf of the Principals and the Acquired Entities
shall be taken or made in a manner which is ratable and equitable amongst all
of them. This appointment and power of attorney shall be deemed as coupled
with an interest and all authority conferred hereby shall be irrevocable and
shall not be subject to termination by operation of law, whether by the death
or incapacity or liquidation or dissolution of any Acquired Entity or Principal
or the occurrence of any other event or events. The Maroone Representative may
not terminate this power of attorney with respect to any Acquired Entity or
Principal, or such Person's successors or assigns without the consent of
Republic. Each Acquired Entity and Principal agrees to hold the Maroone
Representative harmless from any and all loss, damage or liability and expenses
(including legal fees) which such person may sustain as a result of any action
taken in good faith by the Maroone Representative.
5.23 DRIVER'S MART. Maroone and Maroone Isuzu, Inc. hereby
represent and warrant that their agreements and relationships with Driver's
Mart Worldwide, Inc. ("Driver's Mart") have been terminated with no further
rights or obligations between Driver's Mart and any Acquired Entity or
Principal, and any proceeds received by the Acquired Entities or Principals in
connection therewith shall be acquired by the Republic Companies pursuant to
this Agreement.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Mergers and
the other transactions contemplated hereby shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, any or all of
which may be waived in whole or in part by the Republic Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Acquired Entities and
the Principals contained in this Agreement shall be true and correct at and as
of the Closing Date with the same force and effect as though made at and as of
that time except that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date. The Acquired Entities and each of the Principals shall have performed or
complied with all of their obligations required by this Agreement to be
performed or complied with at or
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prior to the Closing Date. The Acquired Entities and each of the Principals
shall have delivered to Republic a certificate, dated as of the Closing Date,
(which in case of the Maroone Corporations shall be duly signed by their
respective Chief Executive Officers and Chief Financial Officers and in case of
the Partnerships shall be signed by their respective general partners)
certifying that such representations and warranties are true and correct and
that all such obligations have been performed and complied with.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.
Between the date hereof and the Closing Date, (a) there shall have been no
Material Adverse Change to the Acquired Entities, (b) there shall have been no
adverse federal, state or local legislative or regulatory change affecting in
any material respect the services, products or business of the Acquired
Entities and (c) none of the Assets of the Acquired Entities shall have been
damaged by fire, flood, casualty, act of God or the public enemy or other cause
(regardless of insurance coverage for such damage) which damages may have a
Material Adverse Effect thereon, and the Acquired Entities and the Principals
shall have delivered to Republic a certificate, dated as of the Closing Date,
to that effect.
6.3 CORPORATE CERTIFICATE. The Acquired Entities shall have
delivered to the Republic Companies (i) state- certified copies of the articles
or certificate of incorporation or certificate of limited partnership of each
of the Acquired Entities and copies of the bylaws or partnership agreement of
each Acquired Entity as in effect immediately prior to the Effective Time, (ii)
copies of resolutions adopted by the Board of Directors and shareholders of
each Maroone Corporation and the partners of each Partnership authorizing the
transactions contemplated by this Agreement, and (iii) a certificate of good
standing of each of the Acquired Entities issued by the state of its
incorporation or formation and each other state in which it is qualified to do
business as of a date not more than 5 days prior to the Closing Date, and all
of such documents as to each Acquired Entity shall be certified as of the
Closing Date by the Secretary or general partner of such Acquired Entity as
being true, correct and complete.
6.4 OPINION OF COUNSEL. Republic shall have received an opinion
dated as of the Closing Date from counsel for the Acquired Entities and the
Partners in form and substance acceptable to Republic, including but not
limited to, such matters as set forth on Schedule 6.4.
6.5 CONSENTS. The Acquired Entities, the Principals, and Republic
shall have received consents to the Mergers and Related Transactions and other
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Acquired Entities or Principals, from
any Person from whom such consent or waiver is required under any Material
Contract listed or required to be listed in Schedule 3.25 (including but not
limited to, any Franchise Agreement or any other franchise, dealer or other
agreement with the Factories) or under the HSR Act or other law or regulation
as of a date not more than five days prior to the Closing, or who as a result
of the transactions contemplated hereby, would have such rights to terminate or
modify such Contracts or instruments, either by the terms thereof or as a
matter of law. Republic shall have received all consents required under the
Franchise Agreements between the Acquired Entities and the Factories or shall
have entered into new dealer and franchise
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agreements of the type generally in use at that time to operate a dealership of
each of the Factories at the current locations of the Dealerships, subject only
to such additional terms and conditions as are acceptable to Republic.
Republic shall have obtained any applicable dealer license or other approvals
required under state laws or the applicable state motor vehicle authorities and
all other Governmental Authorities with respect to the transactions
contemplated hereby.
6.6 SECURITIES LAWS. Republic shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the issuance of the Republic Shares in connection with the
transactions contemplated hereby.
6.7 POOLING LETTERS. The Acquired Entities shall have received
from Crowe, Chizek and Company LLP, a letter, dated the Closing Date,
confirming that to their knowledge after due and diligent inquiry of
management, there have been no transactions or events with respect to the
Acquired Entities which would, and the ownership structure and attributes of
the Acquired Entities and the Principals would not, prohibit the transactions
contemplated hereby, if consummated, from being accounted for as pooling of
interests business combinations. Republic shall have received from Arthur
Andersen LLP, a letter, dated the Closing Date, confirming that the
transactions contemplated hereby, if consummated, can properly be accounted for
as pooling of interests combinations in accordance with GAAP and the criteria
of Accounting Principles Board Opinion No. 16 and the regulations of the SEC.
6.8 POOLING UNDERTAKINGS. At or prior to the Closing, the
Shareholders and other appropriate Persons shall have delivered to Republic a
letter agreement relating to "pooling of interests" criteria, in form and
substance satisfactory to Republic.
6.9 AUDITED STATEMENTS. At or prior to the Closing Date, the
Audited Statements shall have been delivered to Republic as required by Section
5.17, or if not so delivered then Republic shall have received assurances
satisfactory to Republic that the Audited Statements will be delivered as
required under Section 5.17.
6.10 STOCK POWERS. At the Closing, the parties to receive the
Republic Shares shall have delivered to Republic, for use in connection with
the Held Back Shares, ten stock powers executed in blank, with signature
guarantees.
6.11 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Mergers or other transactions hereunder, and which,
in the judgment of Republic, makes it inadvisable to proceed with the
transactions contemplated hereby.
6.12 EMPLOYMENT AGREEMENTS. At or prior to the Closing, as
provided in Section 5.13, Maroone shall have entered into an employment
agreement with one of the Acquired Entities, Republic, or at Republic's option,
one or more of its assignees.
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6.13 LIABILITIES. Prior to the Closing, (a) each Acquired Entity
shall have obtained full satisfactions or releases of all obligations and
liabilities due to or on behalf of any Affiliate of any Acquired Entity or any
Principal.
6.14 POSITIVE WORKING CAPITAL. The Acquired Entities shall have
Positive Working Capital as provided in Section 5.20.
6.15 TERMINATION OF EQUITY RIGHTS. All Releases shall have been
delivered to Republic in form and substance reasonably satisfactory to
Republic.
6.16 BOARD APPROVAL. The transactions contemplated hereby shall
have been approved by the Board of Directors of Republic.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE ACQUIRED ENTITIES AND PRINCIPALS
The obligations of the Acquired Entities and the Principals to effect
the Mergers and the Related Transactions shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in whole or in part by the Acquired Entities and the Principals.
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Republic Companies
contained in this Agreement shall be true and correct at and as of the Closing
Date with the same force and effect as though made at and as of that time
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date. Republic
shall have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Closing Date.
The Republic Companies shall each have delivered to the Acquired Entities a
certificate, dated as of the Closing Date, and signed by an executive officer,
certifying that such representations and warranties are true and correct and
that all such obligations have been performed and complied with.
7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued
all of the Republic Shares and shall have delivered to the parties to receive
such shares hereunder (a) certificates representing the Republic Shares issued
to them hereunder, other than the Held Back Shares, and (b) copies of
certificates representing the Held Back Shares.
7.3 NO ORDER OR INJUNCTION. There shall not be issued and in
effect by or before any court or other governmental body an order or injunction
restraining or prohibiting the transactions contemplated hereby.
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7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under
the HSR Act shall have expired or been terminated.
7.5 OPINION OF COUNSEL. The Acquired Entities shall have received
an opinion dated as of the Closing Date from Republic's general counsel
substantially in the form attached as Schedule 7.5 hereto.
ARTICLE VIII
REGISTRATION RIGHTS
The parties receiving the Republic Shares hereunder shall have the
following registration rights with respect to the Republic Shares issued to
them hereunder.
8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF
REGISTRATION STATEMENT. Republic will utilize its reasonable best efforts to
cause, as soon as practicable following the Closing Date, a registration
statement to be filed under the Securities Act or an existing registration
statement to be amended for the purpose of registering the Republic Shares for
resale by a Holder thereof (the "Registration Statement"). For purposes of this
Article VIII, a person is deemed to be a "Holder" of Republic Shares whenever
such person is the record owner of Republic Shares. Republic will use it
reasonable best efforts to have the Registration Statement become effective and
cause the Republic Shares to be registered for resale under the Securities Act,
and registered, qualified or exempted under the state securities laws of such
jurisdictions as any Holder reasonably requests as soon as reasonably
practicable following the Effective Date, provided, however, that Republic
shall not be required to qualify to do business in any state or to consent to
be subject to general service of process in any state where it is not otherwise
required to be so qualified or subject.
8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses
incurred by Republic in connection with the registration, qualification and/or
exemption of the Republic Shares, including any SEC and state securities law
registration and filing fees, printing expenses, fees and disbursements of
Republic's counsel and accountants, transfer agents' and registrars' fees, fees
and disbursements of experts used by Republic in connection with such
registration, qualification and/or exemption, and expenses incidental to any
amendment or supplement to the Registration Statement or prospectuses contained
therein. Republic shall not, however, be liable for any sales, broker's or
underwriting commissions or discounts upon sale by any Holder of any of the
Republic Shares.
8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the
Holders such reasonable number of copies of the Registration Statement, such
prospectuses as are contained in the Registration Statement and such other
documents as the Holders may reasonably request in order to facilitate the
offering of the Republic Shares.
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8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and
promptly file with the SEC and promptly notify the Holders of the filing of
such amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions
if, at the time when a prospectus relating to the Republic Shares is required
to be delivered under the Securities Act, any event shall have occurred as a
result of which any such prospectus or any other prospectus as then in effect
would include 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 (and the Holders shall
not use any prospectus to offer or sell Republic Shares until such amendments
or supplements are completed and the Registration Statement is effective),
provided, however, that Republic shall be entitled to delay any such filing and
the Holders' use of the prospectus if Republic determines that such filing
would impede, delay, or interfere with any significant financing, acquisition,
or other transaction involving Republic, or require disclosure of material
information which Republic has a bona fide business purpose for preserving as
confidential. Republic shall also advise the Holders promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the SEC suspending the effectiveness of the Registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
8.5 DURATION. Republic shall maintain the effectiveness of the
Registration Statement until such time as Republic reasonably determines, based
on an opinion of counsel, that all of the Holders will be eligible to sell all
of the Republic Shares then owned by the Holders without the need for continued
registration of the shares within the three month period immediately following
the termination of the effectiveness of the Registration Statement. Republic's
obligations contained in Sections 8.1, 8.3 and 8.4 shall terminate on the
second anniversary of the Closing Date; provided, however, that if the two-year
holding period under Rule 144 under the Securities Act is reduced to one year,
such terminations shall take effect as of the first anniversary of the Closing
Date.
8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are
included in any registration, such Holder shall furnish Republic such
information regarding itself as Republic may reasonably request or as required
by applicable law in connection with any registration, qualification or
compliance referred to in this Agreement.
8.7 INDEMNIFICATION.
(a) Republic will indemnify and hold harmless the Holders
and each person, if any, who controls a Holder within the meaning of
the Securities Act, from and against any and all losses, damages,
liabilities, costs and expenses to which the Holders or any such
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities, costs
or expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, any prospectus contained therein or any amendment or
supplement thereto, or
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arise out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which
they were made, not misleading; provided, however, that, Republic will
not be liable in any such case to the extent that any such loss,
claim, damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by
or on behalf of any Holder or such controlling person in writing
specifically for use in the preparation thereof.
(b) Each of the Holders will indemnify and hold harmless
Republic and each person, if any, who controls Republic within the
meaning of the Securities Act, from and against any and all losses,
damages, liabilities, costs and expenses to which Republic or any such
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, any prospectus contained therein or any 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, in light
of the circumstances under which they were made, not misleading, if
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in conformity with
written information furnished by or on behalf of any Holder
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party
pursuant to the provisions of paragraph (a) or (b) of this Section 8.7
of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party
pursuant to the provisions of said paragraph (a) or (b), promptly
notify the indemnifying party of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from
any liability which it may have hereunder unless the indemnifying
party has been materially prejudiced thereby nor will such failure to
so notify the indemnifying party relieve it from any liability which
it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however,
if the defendants in any action include both the indemnified party and
the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing the
indemnified party, the indemnified party or parties shall have the
right to select separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election
so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party pursuant to the provisions of said
paragraph (a) or (b) for
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any legal or other expense subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable
costs of investigation, unless (i) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after the
notice of the commencement of the action or (ii) the indemnifying
party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.
(d) In the event that Republic determines in its sole
discretion to allow any of the Republic Shares to be sold by any
Holder or Holders in an underwritten public offering, (i) Republic
shall provide customary indemnification to the underwriters of such
offering and any person controlling any such underwriter on behalf of
the Holder or Holders making the offering; provided, however, that
Republic shall not be required to consent to any such underwriting or
to provide such indemnification in respect of the matters described in
the proviso to the first sentence of Section 8.7(a), and (ii) the
Holders desiring to participate in such offering shall enter into the
underwriting agreement for such offering.
ARTICLE IX
INDEMNIFICATION
9.1 AGREEMENT BY THE PRINCIPALS FOR INDEMNIFICATION. The
Principals other than Maroone Isuzu, Inc. jointly and severally agree to
indemnify and hold Republic and its stockholders, directors, officers,
employees, attorneys, agents and Affiliates harmless from and against, and at
Republic's election in its sole discretion Republic shall be entitled to
recover by set off against the Held Back Shares in accordance with Section 9.3,
the aggregate of all expenses, losses, costs, deficiencies, liabilities and
damages (including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered by Republic arising out of, relating to, or
resulting, from (i) any breach of a representation or warranty made by the
Acquired Entities or the Principals in or pursuant to this Agreement, (ii) any
breach of the covenants or agreements made by the Acquired Entities or the
Principals in or pursuant to this Agreement, (iii) any inaccuracy in any
certificate, instrument or other document delivered by the Acquired Entities or
the Principals as required by this Agreement or (iv) any Excluded Liabilities
which any Surviving Corporation, Republic or any Affiliate of Republic may pay
or be required to or otherwise pay (collectively, "Indemnifiable Damages").
Without limiting the generality of the foregoing, with respect to the
measurement of Indemnifiable Damages, Republic shall have the right to be put
in the same pre-tax consolidated financial position as it would have been in if
the breach, inaccuracy or Excluded Liability referenced in the foregoing
clauses (i), (ii), (iii) and (iv) that caused such Indemnifiable Damages had
not occurred. Notwithstanding anything to the contrary contained herein,
Republic shall not be entitled to any Indemnifiable Damages unless the
aggregate of all such Indemnifiable Damages exceeds $500,000 ("Indemnification
Threshold"), in which case Republic shall be entitled to the full amount of
Indemnifiable Damages; provided, however, that the Indemnification Threshold
shall be $100,000 for breaches of Section 3.13.
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9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Acquired Entities and Principals in
this Agreement or pursuant hereto shall survive for a period of one year after
the Closing Date. No claim for the recovery of Indemnifiable Damages may be
asserted by Republic after such representations and warranties shall thus
expire; provided, however, that claims for Indemnifiable Damages first asserted
within such period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by any party by investigation,
each party shall have the right to fully rely on the representations,
warranties, covenants and agreements of the other parties contained in this
Agreement or in any other documents or papers delivered in connection herewith.
Each representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement. Each of the representations and warranties of the
Republic Companies shall expire at the Effective Time.
9.3 SECURITY FOR THE INDEMNIFICATION OBLIGATION. As security for
the indemnification obligations contained in this Article IX, at the Closing,
Republic shall set aside and hold certificates representing the Held Back
Shares issued pursuant to this Agreement. Republic may set off against the
Held Back Shares any Indemnifiable Damages, subject, however, to the following
terms and conditions:
(a) Republic shall give written notice to the holders of
Held Back Shares of any claim for Indemnifiable Damages or any other
damages hereunder, which notice shall set forth (i) the amount of
Indemnifiable Damages or other loss, damage, cost or expense which
Republic claims to have sustained by reason thereof, and (ii) the
basis of such claim;
(b) Such set off shall be effected on the later to occur
on the expiration of twenty (20) days from the date of such notice or,
if such claim is contested, the date the dispute is resolved, and such
set off shall be charged proportionally against the shares set aside;
(c) After the Held Back Shares are registered and any
restrictions on sale imposed under the Securities Act or otherwise are
terminated, the Shareholders may instruct Republic to sell some or all
of the Held Back Shares and the net proceeds thereof shall be
substituted for such Held Back Shares in any set off to be made by
Republic pursuant to any claim hereunder subject to continued
compliance with any applicable SEC and other regulations; and
(d) For purposes of any set off against the Held Back
Shares pursuant to this Article IX, the shares of Republic Common
Stock not sold as provided in clause (c) of this Section shall be
valued at the Price per Share.
9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with
respect to Held Back Shares sold pursuant to the foregoing Section 9.3(c) (and
in the case of such shares, until the same are transferred), all Held Back
Shares shall be deemed to be owned by the record holders thereof and the record
holders shall be entitled to vote the Held Back Shares; provided, however,
that, there shall also be deposited with Republic subject to the terms of this
Article IX,
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all shares of Republic Common Stock or other assets issued to or paid upon Held
Back Shares as a result of any stock or other dividend or distribution or stock
split with respect to the Held Back Shares. All stock or other distributions
issued or paid upon Held Back Shares shall be delivered to the person or entity
entitled to receive such Held Back Shares together with the delivery of such
Held Back Shares pursuant to Section 9.5.
9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to
the holders of the Held Back Shares, no later than one year after the Effective
Date any Held Back Shares (and distributions thereon) then held by Republic (or
proceeds from the sale of Held Back Shares) unless there then remains
unresolved any claim for Indemnifiable Damages or other damages hereunder as to
which notice has been given, in which event Republic shall retain such number
of Held Back Shares (and such amount of proceeds therefrom or distributions
thereon) as is sufficient to satisfy any such unresolved claim, as well as the
attorney fees and costs associated therewith, and shall release the remaining
Held Back Shares (and such remaining proceeds and distributions) to the holders
thereof; provided, however, if Republic has made no claim for damages hereunder
during the first six months after the Effective Date, Republic shall deliver
50% of the Held Back Shares (and such proceeds thereon) to the holders thereof
pro rata, promptly after such six-month period. Any Held Back Shares (and
proceeds from the sale of, or distributions on, Held Back Shares) remaining on
deposit after all such claims shall have been satisfied shall be returned to
the holders thereof promptly after the time of satisfaction.
9.6 ADJUSTMENT TO PURCHASE PRICE. All payments for Indemnifiable
Damages made pursuant to this Article IX shall be treated as adjustments to the
Aggregate Consideration provided in Section 1.4.
9.7 NO BAR. If the Held Back Shares are insufficient to set off
any claim for Indemnifiable Damages made hereunder (or have been delivered to
the holders prior to the making or resolution of such claim), then Republic may
take any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages.
9.8 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude Republic from asserting any other right, or
seeking any other remedies against the Principals.
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ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
deposition after the Closing Date of the Republic Shares:
10.1 DISPOSITION OF SHARES.
(a) The parties to receive the Republic Shares hereunder
acknowledge that (i) they may be deemed to be "affiliates" of the
Acquired Entities for purposes of qualifying the transactions
contemplated hereby as pooling of interests business combinations
under applicable accounting and SEC rules and regulations, and (ii)
the Republic Shares constitute "restricted securities" as defined in
Rule 144 under the Securities Act. Each of the parties to receive
Republic Shares hereunder agrees that prior to Closing they will not
dispose of any shares of capital stock or partnership interests of the
Acquired Entities, and following the Closing he or it will not sell,
transfer or otherwise dispose of any of their Republic Shares until
such time as final results of operations of Republic covering at least
thirty (30) days of combined operations of Republic and the Acquired
Entities have been published.
(b) The parties to receive Republic Shares hereunder
agree that they will not sell, transfer or otherwise dispose of any
Republic Shares, except pursuant to (a) an exemption from the
registration requirements under the Securities Act, which does not
require the filing by Republic with the SEC of any registration
statement, offering circular or other document, in which case, each
such Person shall first supply to Republic an opinion of counsel
(which counsel and opinions shall be satisfactory to Republic) that
such exemption is available, or (b) an effective registration
statement filed by Republic with the SEC under the Securities Act.
10.2 LEGENDS. The certificates representing the Republic Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO,
OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE, AND ALSO MAY NOT BE SOLD,
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TRANSFERRED OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT
COMPLIANCE WITH THE SECURITIES AND EXCHANGE COMMISSION'S
ACCOUNTING SERIES RELEASES 130 AND 135.
Republic may, unless a registration statement is in effect covering such
shares, place stop transfer orders with its transfer agents with respect to
such certificates in accordance with federal securities laws.
ARTICLE XI
DEFINITIONS
11.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Accepted Liabilities" shall mean all Designated Liabilities
(as defined in Section 3.11) of the Maroone Corporations, other than
those obligations, duties and liabilities due to or on behalf of any
Principal or Affiliate of any Acquired Entity or any Principal.
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"Chargebacks" shall mean (a) any amount which an Acquired
Entity may be required to pay back to any party purchasing retail
paper, warranties, insurance or the like from the Acquired Entity, or
(b) any amount which may be set-off or otherwise deducted from any
amount due and owing to the Acquired Entity by any party purchasing
retail paper, warranties, insurance or the like from the Acquired
Entity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Environmental Costs" shall mean any and all expenses, costs,
damages, liabilities, or obligations (including, without limitation,
fees and expenses of counsel) incurred by, under or pursuant to any
Environmental Laws or related to the Discharge, Handling, presence or
clean up of Hazardous Substances arising as a result of events
occurring or facts or circumstances arising or existing on or prior to
the Closing Date (whether or not in the ordinary course of business).
48
<PAGE> 49
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Liabilities" shall mean (i) any obligations and
liabilities of any of the Acquired Entities, absolute or contingent,
known or unknown, other than Accepted Liabilities, (ii) any liability
or obligation of any of the Acquired Entities arising under this
Agreement, (iii) any liability or obligation of any of the Acquired
Entities relating to any default under any Accepted Liability to the
extent such default existed prior to the Closing, (iv) any liability
or obligation of any of the Acquired Entities with respect to, or
arising out, of any employee benefit plan, executive deferred
compensation plan, or any other plans or arrangements for the benefit
of any employees or officers of any of the Acquired Entities, (v) any
liability or obligation of any of the Acquired Entities to any of the
Principals or any Affiliate of any of the Acquired Entities or the
Principals or to any party claiming to have a right to acquire any
shares of capital stock or partnership interests or other securities
convertible into or exchangeable for any shares of capital stock or
partnership interests of any of the Acquired Entities and (vi) any
Environmental Costs or Litigation Costs.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited
to, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable
law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
"Litigation Costs" shall mean any and all expenses, costs,
damages, liabilities, or obligations (including, without limitation,
fees and expenses of counsel) incurred in connection with any action,
suit, or other legal or administrative proceeding or governmental
investigation arising as a result of events occurring or facts or
circumstances arising or existing on or prior to the Closing Date
(whether or not in the ordinary course of business).
49
<PAGE> 50
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties,
assets, liabilities, rights, obligations, operations, business or
prospects which change (or effect) individually or in the aggregate,
is materially adverse to such condition, properties, assets,
liabilities, rights, obligations, operations, business or prospects.
"New Parts and Accessories Inventory" shall mean new,
non-damaged and non-obsolete parts and accessories inventory that may
be returned to the manufacturer.
"New Vehicle Inventory" shall mean all new vehicle inventory
including all demonstrator vehicles.
"Other Parts and Accessories Inventory" shall mean parts and
accessories inventory other than New Parts and Accessories Inventory.
"Other Vehicle Inventory" shall mean vehicle inventory other
than New Vehicle Inventory.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company,
estate, trust, unincorporated association, joint venture, Governmental
Authority or other entity, of whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Tax.
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, use, franchise,
intangible, payroll, withholding, social security and unemployment
taxes imposed by any federal, state, local or foreign governmental
agency, and any interest or penalties related thereto.
11.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other
documents made or delivered pursuant hereto or thereto, unless the
context otherwise requires.
50
<PAGE> 51
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection
with this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with
prior periods, where applicable.
(d) As used herein, the neuter gender shall also denote
the masculine and feminine, and the masculine gender shall also denote
the neuter and feminine, where the context so permits.
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any prior to
the Effective Time.
(a) by mutual written consent of all of the parties
hereto at any time prior to the Closing; or
(b) by Republic upon delivery of written notice to the
Acquired Entities and the Principals in accordance with Section 13.1
of this Agreement in the event of a material breach by any Acquired
Entity or any of the Principals of any provisions of this Agreement;
or
(c) by the Acquired Entities and the Principals upon
delivery of written notice to Republic in accordance with Section 13.1
of this Agreement in the event of a material breach by Republic of any
provision of this Agreement; or
(d) by Republic or the Acquired Entities and the
Principals upon delivery of written notice to the other in accordance
with Section 13.1 of this Agreement, if the Closing shall not have
occurred by June 30, 1997.
12.2 EFFECT OF TERMINATION. Except for the provisions of Article
IX hereof, which shall survive any termination of this Agreement, in the event
of termination of this Agreement pursuant to Section 12.1, this Agreement shall
forthwith become void and of no further force and effect, and the parties shall
be released from any and all obligations hereunder; provided, however, that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
51
<PAGE> 52
ARTICLES XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which any
party shall designate in writing to the other parties):
(a) IF TO REPUBLIC TO:
Republic Industries, Inc.
450 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (954) 713-2111
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attn: Cesar L. Alvarez, Esq.
Telecopy: (305) 579-0717
(b) IF TO THE ACQUIRED ENTITIES AND/OR THE PRINCIPALS TO:
Michael E. Maroone
c/o Maroone Auto Plaza
8600 Pines Boulevard
Pembroke Pines, Florida 33024
Telecopy: (954) 433-3311
WITH A COPY TO:
James E. Kelly, Esq.
1920 Liberty Building
Buffalo, New York 14202
Telecopy: (716) 856-2150
13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire
52
<PAGE> 53
understanding of the parties in respect of its subject matters and supersedes
all prior agreements and understanding (oral or written) between or among the
parties with respect to such subject matter. The Schedules and Exhibits
constitute a part hereof as though set forth in full above.
13.3 EXPENSES. Except as otherwise provided herein, the parties
shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby.
13.4 AMENDMENT; WAIVER. This Agreement may not be modified,
amended, supplemented, canceled, or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising,
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other right, power or privilege. No
waiver of any breach of any provision shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision, nor shall
any waiver be implied from any course of dealing between the parties. No
extension of time for performance of any obligations or other acts hereunder or
under any other agreement shall be deemed to be an extension of the time for
performance of any other obligations or any other acts.
13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of
this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall
be construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by the Acquired Entities or the Principals
without the prior written consent of Republic. Republic may assign all or any
portion of its rights hereunder to one or more of its wholly owned
subsidiaries.
13.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
13.7 INTERPRETATION. When a reference is made in this Agreement to
an article, section, paragraph, clause, schedule or exhibit, such reference
shall be deemed to be to this Agreement unless otherwise indicated. The
headings contained herein and on the schedules are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or the schedules. Whenever, the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." Time shall be of the essence in this Agreement.
13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be
construed in accordance with and governed for all purposes by the laws of the
State of Florida applicable to contracts executed and to be wholly performed
with such State.
13.9 JURISDICTION. The parties to this Agreement agree that any
suit, action or proceeding arising out of, or with respect to, this Agreement
or any judgment entered by any
53
<PAGE> 54
court in respect thereof may be brought only in the courts of the State of
Florida or the federal district courts located within the State of Florida, and
the parties hereto hereby accept the exclusive jurisdiction of those courts for
the purpose of any suit, action or proceeding.
13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself of the terms, contents,
conditions, and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party
has had the opportunity to seek and has obtained the advise of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
54
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware corporation
By: /s/ H. Wayne Huizenga
----------------------------------------------
Name: H. Wayne Huizenga
----------------------------------------
Title: Chairman and Co-Chief Executive Officer
----------------------------------------
REPUBLIC SUBSIDIARIES:
RI/MC Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/MO Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/MI Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/MD Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
<PAGE> 56
RI/EWH Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/ESA Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/MC&TR Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/QPF Merger Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
RI/AMF Merger Corp., a New York corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------
Title: Vice President
----------------------------------------
<PAGE> 57
RI/MDP Acquisition Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------------
Title: Vice President
----------------------------------------------
RI/MCFL Acquisition Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------------
Title: Vice President
----------------------------------------------
RI/MP Acquisition Corp., a Florida corporation
By: /s/ Thomas W. Hawkins
----------------------------------------------------
Name: Thomas W. Hawkins
----------------------------------------------
Title: Vice President
---------------------------------------------
MAROONE CORPORATIONS:
Maroone Chevrolet, Inc., a Florida corporation
By: /s/ Michael E. Maroone
---------------------------------------------------
Name: Michael E. Maroone
Title: President
Maroone Oldsmobile, Inc., a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
<PAGE> 58
Maroone Isuzu, Inc., a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Maroone Dodge, Inc., a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Al Maroone Ford, Inc., a New York corporation
By: /s/ Albert E. Maroone
----------------------------------------------------
Name: Albert E. Maroone
Title: President
---------------------------------------------
Maroone Car & Truck Rental Company, a Florida corporati
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Empire Warranty Corporation, a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
<PAGE> 59
Empire Warranty Holding Company, a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Empire Services Agency, Inc., a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Quantum Premium Finance Corporation, a Florida corporation
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Alkit Enterprises, Inc., a New York corporation
By: /s/ Albert E. Maroone
----------------------------------------------------
Name: Albert E. Maroone
Title: President
--------------------------------------------
<PAGE> 60
PARTNERSHIPS:
Maroone Management Services, Limited, a Florida limited
partnership
By: Maroone Isuzu, Inc., general partner
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Maroone Dodge Pompano, Limited, a Florida limited
partnership
By: Maroone Isuzu, Inc., general partner
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
Maroone Chevrolet Ft. Lauderdale, Limited, a Florida
limited partnership
By: Maroone Isuzu, Inc., general partner
By: /s/ Michael E. Maroone
----------------------------------------------------
Name: Michael E. Maroone
Title: President
<PAGE> 61
SHAREHOLDERS:
/s/ Albert E. Maroone
------------------------------------------------------
Albert E. Maroone
/s/ Michael E. Maroone
------------------------------------------------------
Michael E. Maroone
/s/ Katherine C. Maroone
------------------------------------------------------
Katherine C. Maroone
/s/ Kathleen Hoctor
------------------------------------------------------
Kathleen Hoctor
/s/ Patricia Damoorgian
------------------------------------------------------
Patricia Damoorgian
/s/ Faisal Ahmed
------------------------------------------------------
Faisal Ahmed
PARTNERS:
/s/ Michael E. Maroone
------------------------------------------------------
Michael E. Maroone
/s/ Michael E. Maroone
------------------------------------------------------
Maroone Isuzu, Inc.
<PAGE> 62
/s/ Floyd Clements
-------------------------------------------------------
Floyd Clements
/s/ Curtis L. Rodman
-------------------------------------------------------
Curtis L. Rodman
<PAGE> 63
<PAGE> 1
EXHIBIT 2.5
MERGER AGREEMENT
This MERGER AGREEMENT (this "Agreement") is entered into as of November
15, 1996 by and among Republic Industries, Inc., a Delaware corporation
("Republic"); RI/RB Merger Corp., RI/GFB Merger Corp., both Florida corporations
and wholly-owned subsidiaries of Republic (collectively, RI/RB Merger Corp. and
RI/GFB Merger Corp. shall be referred to herein as the "Republic Merger Subs,"
and together with Republic, the "Republic Companies"); R & B Holding Company,
Inc. d/b/a Kendall Toyota and Kendall KIA ("R&B"), a Florida corporation, G.F.B.
Enterprises, Inc. d/b/a Lexus of Kendall ("GFB"), a Florida corporation
(collectively R&B and GFB shall be referred to herein as the "Companies"); and
Gerald F. Bean, a resident of the State of Florida and the sole shareholder of
the Companies (the "Shareholder").
RECITALS
Republic and the Boards of Directors of the Companies have determined
that it is in the best interests of their respective shareholders for Republic
to acquire all of the issued and outstanding equity interests of the Companies.
In order to effectuate the acquisition, Republic has organized the Republic
Merger Subs as wholly-owned subsidiaries, and the parties have agreed, subject
to the terms and conditions set forth in this Agreement, to merge the Republic
Merger Subs with and into the Companies as provided herein, so that the
Companies continue as surviving corporations and wholly-owned subsidiaries of
Republic, and the Shareholder will be issued certain shares of common stock of
Republic in exchange for the issued and outstanding equity interests of each of
the Companies.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 THE MERGERS. Subject to the terms and conditions of this
Agreement, and in accordance with the Business Corporations laws of the State of
Florida (the "Corporations Code"), at the Effective Time (as defined in Section
1.5), the Republic Merger Subs will be merged with and into the Companies (the
"Mergers") as follows:
<PAGE> 2
(a) RI/RB Merger Corp. shall be merged into and with R&B;
and
(b) RI/GFB Merger Corp. shall be merged into and with
GFB.
As a result of the Mergers, the separate corporate existence of each of
the Republic Merger Subs shall cease, and the Companies shall continue as
surviving corporations in the Mergers (the "Surviving Corporations") and
wholly-owned subsidiaries of Republic.
1.2 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Mergers (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII
hereof, as and when determined by Republic, at the offices of Akerman,
Senterfitt & Eidson, P.A. in Miami, Florida, or such other place and time as the
parties may otherwise agree.
1.3 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Mergers and without any action on the part of the Companies, the Republic
Companies, or the Shareholder:
(a) Each share of common stock of R&B, par value $0.00 per share,
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive a number of shares (rounded to the nearest
whole share) of common stock, par value $.01 per share, of Republic (the
"Republic Common Stock") determined by dividing (i) $66,000,000 less the sum
allocated in Schedule 1.3(a) to GFB, minus (A) the amount of all bank
indebtedness and any long-term non-bank debt of R&B as of the Effective Date,
and minus (B) the amount (if any) by which R&B's current liabilities exceed its
current assets as of the Effective Date, (the "R&B Purchase Price"), by (ii) the
average closing sale price of a share of Republic Common Stock as quoted on the
Nasdaq Stock Market ("Nasdaq") for the fifteen consecutive trading days which
precede the third trading day which is immediately prior to the Closing, as
reported (absent manifest error in the printing thereof) by the Wall Street
Journal (Eastern Edition) (the "Average Closing Sale Price"), and then (iii)
dividing the quotient determined under (i) and (ii) above by the aggregate
number of shares of common stock of R&B issued and outstanding at the Effective
Time.
(b) Each share of common stock of GFB, par value $1.00 per share,
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive a number of shares (rounded to the nearest
whole share) of Republic Common Stock determined by dividing (i) $66,000,000
less the sum allocated in Schedule 1.3(b) to R&B, minus (A) the amount of all
bank indebtedness and any long-term non-bank debt of GFB as of the Effective
Date, and minus (B) the amount (if any) by which GFB's current liabilities
exceed its current assets as of the Effective Date, (the "GFB Purchase Price"),
by (ii) the Average Closing Sale Price, and then (iii) dividing the quotient
determined under (i) and (ii) above by the aggregate number of shares of common
stock of GFB issued and outstanding at the Effective Time. The sum of the R&B
Purchase Price and the GFB Purchase shall be referred hereto as the "Total
Purchase Price."
2
<PAGE> 3
(c) Each share of common stock of the Republic Merger Subs issued
and outstanding at the Effective Time shall be converted into one share of the
common stock of the Surviving Corporation into which it is merging.
(d) The parties agree that the calculation of current liabilities
and current assets pursuant to this Section 1.3 shall be consistent with past
practice and shall include all short-term non-bank debt of the Companies.
For purposes of clarification, the total Purchase Price shall equal
$66,000,000, minus the amount of all bank indebtedness and any long-term
non-bank debt of R&B and GFB and minus the amount by which the total current
liabilities of R&B and GFB exceed the total current assets of R&B and GFB as of
the Effective Time.
1.4 TIMING OF TOTAL PURCHASE PRICE DETERMINATION. At least two days
prior to the Closing, the Companies and Republic shall estimate the Total
Purchase Price by mutual agreement as of the Effective Time for purposes of
determining the number of Republic Shares to be delivered by Republic at the
Effective Time (which estimated amount is referred to herein as the "Estimated
Value"). Within 60 days after the Effective Time, Republic shall prepare and
deliver to the Shareholder (in accordance with Section 13.1) a determination
(the "Determination") of the actual Total Purchase Price as of the Effective
Time (which actual value is referred to herein as the "Actual Value"), which
shall be prepared on a basis consistent with the determination of the Estimated
Value. If, within 30 days after the date on which a Determination is delivered
to the Shareholder, the Shareholder shall not have given written notice to
Republic setting forth in detail any objection of the Shareholder to such
Determination, then such Determination shall be final and binding on the parties
hereto. In the event the Shareholder gives written notice of any objection to
such Determination within the 30-day period, Republic and the Shareholder shall
use all reasonable efforts to resolve the dispute within the 30-day period
following the delivery of the written notice. If the parties are unable to reach
an agreement within such 30-day period, the matter shall be submitted to Arthur
Andersen LLP, a firm of independent certified public accountants, for
determination of the Actual Value which shall be final and binding upon Republic
and the Shareholder. Republic and the Shareholder shall contribute equally to
the costs (including fees and expenses charged by Arthur Andersen LLP) in
connection with the resolution of any such dispute. If the Actual Value is
lesser than the Estimated Value, Republic shall be entitled to set off against
the Held Back Shares (as defined in Section 1.8) the difference between the
Actual Value and the Estimated Value (assuming a value per share for purposes of
such calculation equal to the Average Closing Sale Price ), which set off shall
be deemed to be Indemnifiable Damages under Article IX hereof but such set-off
shall not count against or toward the Indemnification Threshold (as defined in
Section 9.1). If the Actual Value is greater than the Estimated Value, Republic
shall issue to the Shareholder such additional Republic Shares as would have a
value (assuming a value per share equal to the Average Closing Sale Price),
equal to the difference between the Actual Value and the Estimated Value.
1.5 FILING OF PLANS OF MERGER. At the Closing, the parties shall
cause the Mergers to be consummated by filing duly executed Certificates of
Merger with the Secretary of State of the State of Florida, in such form as
Republic determines is required by and in accordance with the relevant
provisions of the Corporations Code (the date and time of such filing is
referred to herein as the "Effective Date" or "Effective Time").
3
<PAGE> 4
1.6 EFFECT OF THE MERGERS. At the Effective Time, the effect of the
Mergers shall be as provided under the Corporations Code. Without limiting the
generality of the foregoing, at the Effective Time:
(a) all property, rights, privileges, policies and franchises of
each of the Companies and the Republic Merger Subs shall vest in the Surviving
Corporations, and all debts, liabilities and duties of each of the Companies and
Republic Merger Subs shall become the debts, liabilities and duties of the
Surviving Corporations.
(b) the Articles of Incorporation and Bylaws of each of the
Companies, as in effect immediately prior to the Effective Time, shall remain
its Articles of Incorporation and Bylaws thereafter, unless and until amended in
accordance with their terms and as provided by law; and
(c) the directors and officers or each of the Republic Merger Subs
at the Effective Time shall be the directors and officers of R&B and GFB,
respectively, each to hold a directorship or office in accordance with the
Articles of Incorporation and Bylaws of the respective Surviving Corporations,
until their respective successors are duly elected and qualified.
1.7 TAX TREATMENT. The parties hereto acknowledge and agree that the
Mergers contemplated hereby shall be treated for tax purposes as a tax-free
reorganization under Section 368 of the Code.
1.8 PROCEDURE AT THE CLOSING. At the Closing, the parties agree that
the following shall occur:
(a) The Companies and the Shareholder shall have satisfied each of
the conditions set forth in Article VI and shall deliver to Republic the
documents, certificates, opinions, consents and letters required by Article VI.
(b) The Republic Companies shall have satisfied each of the
conditions set forth in Article VII and shall deliver to the Companies the
documents, certificates, consents and letters required by Article VII.
(c) Republic shall issue the shares of Republic Common Stock
issuable pursuant to Section 1.3, registered in the names of the Shareholder and
shall deliver such shares in the following manner: (i) Republic shall set aside
and hold in accordance with Section 9.3 stock certificates representing shares
of Republic Common Stock having a value (based upon the Average Closing Sale
Price) equal to 5% of the Total Purchase Price (the "Held Back Shares"), and
(ii) Republic shall deliver stock certificates representing the balance of the
shares of Republic Common Stock issuable in accordance with Section 1.3 to the
Shareholder. The shares of Republic Common Stock issuable pursuant to Section
1.3, including the Held Back Shares, are referred to herein as the "Republic
Shares."
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to the Companies and the Shareholder to enter
into this Agreement and to consummate the transactions contemplated hereby, the
Republic Companies make the following representations and warranties to the
Companies and the Shareholder:
2.1 CORPORATE STATUS. Republic is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority to own or lease its properties and to carry on
its business as presently conducted. The Republic Merger Subs are corporations
duly organized, validly existing and in good standing under the laws of the
State of Florida, and is a wholly-owned subsidiary of Republic. There is no
pending or, to the knowledge of Republic, threatened proceeding for the
dissolution, liquidation, insolvency or rehabilitation of Republic.
2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies has
the corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all corporate
action necessary to authorize its execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the Republic Companies and constitutes their legal, valid and binding
obligation enforceable against each of the Republic Companies in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles regardless of
whether such enforceability is considered in a proceeding at law or in equity.
2.4 REPUBLIC COMMON STOCK. Upon consummation of the transactions
contemplated hereby and the issuance and delivery of certificates representing
the Republic Shares to the Shareholder, the Republic Shares will be duly
authorized, validly issued, fully paid, non-assessable shares, and free and
clear of any Liens, other than Liens arising by operating of law or Liens on any
particular Shareholder's Republic Shares that may be created or permitted to
exist by such Shareholder's actions.
2.5 CAPITALIZATION. As of the date hereof, the authorized capital stock
of Republic consists of 500,000,000 shares of Republic Common Stock and
5,000,000 shares of preferred stock. As ofNovember 6, 1996 (i) 192,150,630
shares of Republic Common Stock were validly issued and outstanding, fully paid
and nonassessable, and (ii) no shares of preferred stock were issued or
outstanding.
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2.6 NO VIOLATION. The execution and delivery of this Agreement by
Republic, the performance by Republic of its obligations hereunder and the
consummation by Republic of the transactions contemplated by this Agreement will
not (a) contravene any provision of the Certificate of Incorporation or Bylaws
of Republic, (b) violate or conflict with any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment, ruling or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon, or enforceable against Republic, (c) conflict with, result in
any breach of, or constitute a default (or an event which would, with the
passage of time or the giving of notice or both, constitute a default) under, or
give rise to a right to terminate, amend, modify, abandon or accelerate, any
material Contract which is applicable to, binding upon or enforceable against
Republic, (d) result in or require the creation or imposition of any Lien upon
or with respect to any of the property or assets of Republic, (e) give to any
individual or entity a right or claim against Republic, which would have a
Material Adverse Effect on Republic or (f) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except (i) pursuant to the
Exchange Act and the Securities Act and applicable inclusion requirements of
Nasdaq, (ii) filings required under the securities or blue sky laws of the
various states, (iii) filings required under the HSR Act or (iv) any filings
required to be made by the Companies or the Shareholder. Republic will use its
best efforts to ensure its continued inclusion in, and the continued eligibility
of the Republic Common Stock for trading on, the Nasdaq Stock Market or a
similar market, for a period of one year from the date hereof.
2.7 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1996, except
where failure to have done so did not and would not have a Material Adverse
Effect on Republic, Republic has filed all reports, registrations and
statements, together with any required amendments thereto, that it was required
to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q,
Forms 8-K and proxy statements (collectively, the "Republic Reports"). Republic
has previously furnished or made available to the Companies and the Shareholder
copies of all Republic Reports filed with the SEC since January 1, 1996. As of
their respective dates (but taking into account any amendments filed prior to
the date of this Agreement), the Republic Reports complied in all material
respects with all the rules and regulations promulgated by the SEC and 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. The
financial statements of Republic included in the Republic Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied during the periods
presented (except, as noted therein, or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present (subject,
in the case of the unaudited statements, to normal audit adjustments) the
financial position of Republic and its consolidated subsidiaries as of the date
thereof and the results of their operations and their cash flows for the periods
then ended.
2.8 NO COMMISSIONS. Republic has not incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANIES AND THE SHAREHOLDER
As a material inducement to the Republic Companies to enter into this
Agreement and to consummate the transactions contemplated hereby, the Companies
and the Shareholder, jointly and severally, make the following representations
and warranties to the Republic Companies:
3.1 CORPORATE STATUS. Each of the Companies is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the requisite power and authority to own or lease its properties
and to carry on its business as now being conducted. Each of the Companies is
legally qualified to do business as a foreign corporation in each of the
jurisdictions set forth in Schedule 3.1, which represent all jurisdictions where
the nature of its properties and the conduct of its business require such
qualification, and is in good standing in each of the jurisdictions in which it
is so qualified. Each of the Companies has fully complied with all of the
requirements of any statute governing the use and registration of fictitious
names, and each of the Companies has the legal right to use the names under
which it operates its businesses including, in the case of R&B, the names
"Kendall Toyota" and "Kendall KIA" and in the case of GFB, the name "Lexus of
Kendall." There is no pending or threatened proceeding for the dissolution,
liquidation, insolvency or rehabilitation of the Companies.
3.2 POWER AND AUTHORITY. Each of the Companies has the corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. Each of the
Companies has taken all corporate action necessary to authorize the execution
and delivery of this Agreement, the performance of its obligations hereunder,
and the consummation of the transactions contemplated hereby. The Shareholder is
an individual residing in the State of Florida and has the requisite competence
and authority to execute and deliver this Agreement, to perform his obligations
hereunder and to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and delivered
by each of the Companies and the Shareholder, and constitutes the legal, valid
and binding obligation of each of them, enforceable against each of them in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, as of the date hereof,
with respect to each of the Companies, (a) the number of authorized shares of
each class of its capital stock, (b) the number of issued and outstanding shares
of each class of its capital stock and (c) the number of shares of each class of
its capital stock which are held in treasury. All of the issued and outstanding
shares of capital stock of each of the Companies (i) have been duly authorized
and validly issued and
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are fully paid and non-assessable, (ii) were issued in compliance with all
applicable state and federal securities laws and (iii) were not issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the shares of capital
stock of either of the Companies and no such rights arise by virtue of or in
connection with the transactions contemplated hereby. There are no outstanding
or authorized rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or commitments of
any kind that could require either of the Companies to issue or sell any shares
of its capital stock (or securities convertible into or exchangeable for shares
of its capital stock). There are no outstanding stock appreciation, phantom
stock, profit participation or other similar rights with respect to either of
the Companies. There are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock of
either of the Companies. Neither Company is obligated to redeem or otherwise
acquire any of its outstanding shares of capital stock.
3.5 SHAREHOLDERS OF THE COMPANIES. Schedule 3.5 sets forth, with
respect to each of the Companies (i) the name, address and federal taxpayer
identification number of, and the number of outstanding shares of each class of
its capital stock owned by the Shareholder of record as of the close of business
on the date of this Agreement; and (ii) the name, address and federal taxpayer
identification number of, and number of shares of each class of its capital
stock beneficially owned by, each beneficial owner of outstanding shares of
capital stock (to the extent that record and beneficial ownership of any such
shares are different). The Shareholder is the sole holder of all issued and
outstanding shares of capital stock of the Companies, and the Shareholder owns
such shares as is set forth on Schedule 3.5, free and clear of all Liens,
restrictions and claims of any kind.
3.6 NO VIOLATION. Except as set forth on Schedule 3.6, the execution
and delivery of this Agreement by the Companies and the Shareholder, the
performance by the Companies and the Shareholder of their obligations hereunder
and the consummation by them of the transactions contemplated by this Agreement
will not (a) contravene any provision of the Articles of Incorporation or Bylaws
of either of the Companies, (b) violate or conflict with any law, statute,
ordinance, rule, regulation, decree, writ, injunction, judgment or order of any
Governmental Authority or of any arbitration award which is either applicable
to, binding upon or enforceable against either of the Companies or the
Shareholder, (c) conflict with, result in any breach of, or constitute a default
(or an event which would, with the passage of time or the giving of notice or
both, constitute a default) under, or give rise to a right of payment under or
the right to terminate, amend, modify, abandon or accelerate, any Contract which
is applicable to, binding upon or enforceable against either of the Companies or
the Shareholder, (d) result in or require the creation or imposition of any Lien
upon or with respect to any of the properties or assets of either of the
Companies, (e) give to any individual or entity a right or claim against either
of the Companies or the Shareholder or (f) require the consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Authority, any court or tribunal or any other Person, except any applicable
filings required under the HSR Act and any SEC and other filings required to be
made by the Republic Companies.
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3.7 RECORDS OF THE COMPANIES. The copies of the Articles of
Incorporation and Bylaws of each of the Companies which were provided to
Republic are true, accurate, and complete and reflect all amendments made
through the date of this Agreement. The minute books for each of the Companies
made available to Republic for review were correct and complete as of the date
of such review, no further entries have been made through the date of this
Agreement, such minute books contain the true signatures of the persons
purporting to have signed them, and such minute books contain an accurate record
of all corporate actions of the shareholders and directors (and any committees
thereof) of the Companies taken by written consent or at a meeting since
incorporation. All corporate actions taken by the Companies have been duly
authorized or ratified. All corporate books, corporate ledgers and official and
other corporate records of the Companies have been fully, properly and
accurately kept and are complete, and there are no inaccuracies or discrepancies
of any kind contained therein. The stock ledgers of the Companies, as previously
made available to Republic, contain accurate and complete records of all
issuances, transfers and cancellations of shares of the capital stock of the
Companies.
3.8 SUBSIDIARIES. Except as set forth on Schedule 3.8, the Companies do
not own, directly or indirectly, any outstanding voting securities of or other
interests in, or controls, any other corporation, partnership, joint venture or
other business entity.
3.9 FINANCIAL STATEMENTS. The Companies have delivered to Republic the
financial statements of the Companies for the fiscal year ended December 31,
1995, and for the year-to-date period and month ended October 31, 1996,
including the notes thereto, (collectively, the "Financial Statements"), copies
of which are attached to Schedule 3.9 hereto. The balance sheets of the
Companies dated as of October 31, 1996, included in the Financial Statements are
referred to herein collectively as the "Current Balance Sheets." The Financial
Statements fairly present the financial position of each of the Companies at
each of the balance sheet dates and the results of operations for the periods
covered thereby. The books and records of each of the Companies fully and fairly
reflect all of its transactions, properties, assets and liabilities. There are
no material special or non-recurring items of income or expense during the
periods covered by the Financial Statements, and the balance sheets included in
the Financial Statements do not reflect any writeup or revaluation increasing
the book value of any assets, except as specifically disclosed in the notes
thereto. The Financial Statements reflect all adjustments necessary for a fair
presentation of the financial information contained therein. The Companies have
and at the Effective Time continue to have sufficient working capital to meet
the aggregate of the minimum working capital requirements imposed by the
Factories pursuant to the Franchise Agreements (as defined in Section 3.25). The
reserve for Chargebacks (as defined in Section 11.1) maintained by the Companies
on the Current Balance Sheet is sufficient to cover any Chargebacks which may be
made to the Companies on account of any sales of vehicles made on or prior to
the date of the Current Balance Sheet and the reserve for Chargebacks maintained
by the Companies in Balance Sheet prepared as of the date of Closing will be
sufficient to cover any Chargebacks which may be made to the Companies on
account of any sales of vehicles made on or prior to the Effective Time.
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3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Except as set forth
on Schedule 3.10 hereto, since the date of the Current Balance Sheets, the
Companies have not (a) issued, sold, pledged, disposed of, encumbered, or
authorized the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of its capital stock or of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock or any other ownership interest of the Companies; (b) declared,
set aside, made, or paid any dividend or other distribution payable in cash,
stock, property or otherwise of or with respect to its capital stock or other
securities, or reclassified, combined, split, subdivided or redeemed, purchased
or otherwise acquired, directly or indirectly, any of its capital stock or other
securities; (c) paid any bonus to or increased the rate of compensation of any
of its officers, or salaried employees or amended any other terms of employment
of such persons; (d) sold, leased or transferred any of its properties or assets
or acquired any properties or assets other than in the ordinary course of
business consistent with past practice; (e) made or obligated itself to make
capital expenditures out of the ordinary course of business consistent with past
practice; (f) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (g) incurred any
obligations or liabilities (including, without limitation, any indebtedness for
borrowed money, issuance of any debt securities, or the assumption, guarantee,
or endorsement of the obligations of any person) or entered into any transaction
or series of transactions involving in excess of $25,000in the aggregate out of
the ordinary course of business, except for this Agreement and the transactions
contemplated hereby; (h) suffered any theft, damage, destruction or casualty
loss, whether or not covered by insurance, in excess of $25,000in the aggregate;
(i) suffered any extraordinary losses (whether or not covered by insurance); (j)
waived, canceled, compromised or released any rights having a value in excess of
$25,000in the aggregate; (k) made or adopted any change in its accounting
practice or policies; (l) made any adjustment to its books and records other
than in respect of the conduct of its business activities in the ordinary course
consistent with past practice; (m) entered into any transaction with the
Shareholder or any Affiliate of the Companies or the Shareholder; (n) entered
into any employment agreement; (o) terminated, amended or modified any agreement
involving an amount in excess of $25,000in the aggregate; (p) imposed any
security interest or other Lien on any of its assets other than in the ordinary
course of business consistent with past practice; (q) delayed paying any account
payable beyond 45 days following the date on which it is due and payable except
to the extent being contested in good faith; (r) made or pledged any charitable
contributions in excess of $25,000in the aggregate; (s) acquired (including,
without limitation, for cash or shares of stock, by merger, consolidation, or
acquisition of stock or assets) any interest in any corporation, partnership or
other business organization or division thereof or any assets, or made any
investment either by purchase of stock or securities, contributions or property
transfer of capital other than as permitted or provided in this Agreement; (t)
increased or decreased prices charged to customers, except in the ordinary
course of business consistent with past practice, materially increased or
decreased the average monthly New Parts and Accessories Inventory, Other Parts
and Accessories Inventory, New Vehicle Inventory or Other Vehicle Inventory,
other than in the ordinary course of business consistent with past practice,
ordered any New Vehicle Inventory from the Factory which would be inconsistent
with the prior practices of the Companies, or taken any actions which might
reasonably result in any material increase in the loss of customers; (u) made
any dealer trades other than in the ordinary course of business consistent with
past practice, or (v) entered into any other transaction
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or been subject to any event which has or may reasonably be expected to have a
Material Adverse Effect on the Companies; or (w) agreed to do or authorized any
of the foregoing.
3.11 LIABILITIES OF THE COMPANIES. The Companies have no liabilities or
obligations, whether accrued, absolute, contingent or otherwise, except (a) to
the extent reflected on the Current Balance Sheet and not heretofore paid or
discharged, (b) liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Current Balance Sheet (none
of which relates to breach of contract, breach of warranty, tort, infringement
or violation of law, or which arose out of any action, suit, claim, governmental
investigation or arbitration proceeding), (c) liabilities incurred in the
ordinary course of business prior to the date of the Current Balance Sheet
which, in accordance with GAAP consistently applied, were not required to be
recorded thereon and which, in the aggregate, are not material. Schedule 3.11
lists all indebtedness owed by the Companies to a bank or any other Person,
including without limitation, indebtedness for borrowed money (including
principal and accrued but unpaid interest) and capitalized equipment leases of
the Companies.
3.12 LITIGATION. Except as set forth in Schedule 3.12 hereto, there is
no action, suit or other legal or administrative proceeding or governmental
investigation pending, threatened, anticipated or contemplated against, by or
affecting the Companies or Shareholder (which, in the case of the Shareholder,
relate to or concern the Companies or for which the Companies may be
responsible), or the Companies' properties or assets, or which question the
validity or enforceability of this Agreement or the transactions contemplated
hereby, and there is no basis for any of the foregoing. There are no outstanding
orders, decrees or stipulations issued by any Governmental Authority in any
proceeding to which either of the Companies is or was a party which have not
been complied with in full or which continue to impose any material obligations
on the Companies.
3.13 ENVIRONMENTAL MATTERS.
(a) Each of the Companies and the Shareholder are and have at all
times been in full compliance with all Environmental Laws governing its
business, operations, properties and assets, including, without limitation: (i)
all requirements relating to the Discharge and Handling of Hazardous Substances;
(ii) all requirements relating to notice, record keeping and reporting; (iii)
all requirements relating to obtaining and maintaining Licenses (as defined
herein) for the ownership by each of the Companies of its properties and assets
and the operation of its business as presently conducted or the ownership by the
Companies and the Shareholder and use by the Companies of the Shareholder Owned
Properties; or (iv) all applicable writs, orders, judgements, injunctions,
governmental communications, decrees, informational requests or demands issued
pursuant to, or arising under, any Environmental Laws.
(b) There are no (and there is no basis for any) non-compliance
orders, warning letters, notices of violation (collectively "Notices"), claims,
suits, actions, judgments, penalties, fines, or administrative or judicial
investigations of any nature or proceedings (collectively "Proceedings") pending
or threatened against or involving any of the Companies, their businesses,
operations,
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properties or assets or the Shareholder Owned Properties, issued by any
Governmental Authority or third party with respect to any Environmental Laws or
Licenses issued to any of the Companies thereunder in connection with, related
to or arising out of the ownership by any of the Companies of their properties
or assets or the operation of its businesses or the ownership by the Shareholder
and use by the Companies of the Shareholder Owned Properties, which have not
been resolved to the satisfaction of the issuing Governmental Authority or third
party in a manner that would not impose any obligation, burden or continuing
liability on Republic in the event that the transactions contemplated by this
Agreement are consummated.
(c) None of the Companies nor the Shareholder has at any time
Handled or Discharged, nor has it or he at any time allowed or arranged for any
third party to Handle or Discharge, Hazardous Substances to, at or upon: (i) any
location other than a site lawfully permitted to receive such Hazardous
Substances; (ii) any parcel of real property owned or leased at any time by any
of the Companies (including, without limitation, the Company Owned Properties)
or any of the Shareholder Owned Properties, except in compliance with applicable
Environmental Laws; or (iii) any site which, pursuant to CERCLA or any similar
state law (x) has been placed on the National Priorities List or its state
equivalent, or (y) the Environmental Protection Agency or any relevant state
agency has notified any of the Companies that it has proposed or is proposing to
place on the National Priorities List or its state equivalent. There has not
occurred, nor is there presently occurring, a Discharge, or threatened
Discharge, of any Hazardous Substance on, into or beneath the surface of, or
adjacent to, any real property owned or leased at any time by any of the
Companies or the Shareholder Owned Properties.
(d) Except as set forth on Schedule 3.13(d), (i) none of the
Companies uses, nor has any of them used, any Aboveground Storage Tanks or
Underground Storage Tanks, (ii) there are not now nor have there ever been any
Underground Storage Tanks on any real property owned or leased at any time by
any of the Companies, or the Shareholder Owned Properties (iii) there has been
no Discharge from or rupture of any such Aboveground Storage Tanks or
Underground Storage Tanks listed on Schedule 3.13(d).
(e) Schedule 3.13(e) identifies (i) all environmental audits,
assessments or occupational health studies undertaken since the date that any of
the Companies was incorporated by any of the Companies or its agents or
representatives thereof or, to the knowledge of any of the Companies or
Shareholder, undertaken by any Governmental Authority, or any third party,
relating to or affecting any of the Companies or any real property owned or
leased at any time by any of the Companies or the Shareholder Owned Properties;
(ii) the results of any ground, water, soil, air or asbestos monitoring
undertaken by any of the Companies or its agents or representatives thereof or
undertaken by any Governmental Authority or any third party, relating to or
affecting any of the Companies or any real property owned or leased at any time
by any of the Companies or the Shareholder Owned Properties; (iii) all material
written communications between any of the Companies and any Governmental
Authority arising under or related to Environmental Laws including but not
limited to, any notices of violation and notices of non-compliance; and (iv) all
outstanding citations issued under OSHA, or similar state or local statutes,
laws, ordinances, codes,
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rules, regulations, orders, rulings or decrees, relating to or affecting any of
the Companies or any real property owned or leased at any time by any of the
Companies or the Shareholder Owned Properties.
(f) For purposes of this Section, the following terms shall
have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Aboveground Storage
Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing, migrating or emitting, as any of such terms may
further be defined in any Environmental Law, into or through any medium
including, without limitation, ground water, surface water, land, soil
or air.
"Environmental Laws" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, ordinances, orders,
plans, injunctions, decrees, rulings, licenses, and changes thereto, or
judicial or administrative interpretations thereof, or similar laws of
foreign jurisdictions where the Companies or any of its subsidiaries
conducts business, whether currently in existence or hereafter enacted,
issued, or promulgated, any of which govern, purport to govern, or
relate to pollution, protection of the environment, public health and
safety, air emissions, water discharges, waste disposal, hazardous or
toxic substances, solid or hazardous waste or occupational health and
safety, as any of these terms are or may be defined in such statutes,
laws, rules, regulations, codes, orders, ordinances, plans,
injunctions, decrees, rulings , licenses, and changes thereto, or
judicial or administrative interpretations thereof, including, without
limitation: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. ss.9601, et seq. (herein,
collectively, "CERCLA"); the Solid Waste Disposal Act, as amended by
the Resource Conversation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.6901 et seq.
(herein, collectively, "RCRA"); the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss.1801, et seq., (the "Hazardous Materials
Transportation Act"); the Clean Water Act, as amended, 33 U.S.C.
ss.1311, et seq., (the "Clean Water Act"); the Clean Air Act, as
amended (42 U.S.C. ss.7401-7642) (the "Clean Air Act"); the Toxic
Substances Control Act, as amended, 15 U.S.C. ss.2601 et seq., (the
"Toxic Substances Control Act"); the Federal Insecticide, Fungicide,
and Rodenticide Act as amended, 7 U.S.C. ss.136-136y ("FIFRA"); the
Emergency Planning and Community Right-to-Know Act of 1986 as amended,
42 U.S.C. ss.11001, et seq. (Title III of SARA) ("EPCRA"); and the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C.
ss.651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law.
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"Hazardous Substances" shall be construed broadly to include
any toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental Laws or which are or become regulated, listed
or controlled by, under or pursuant to any Environmental Laws, or which
has been or shall be determined or interpreted at any time by any
Governmental Authority to be a hazardous or toxic substance regulated
under any other statute, law, regulation, order, code, rule, order, or
decree.
"Licenses" means all licenses, certificates, permits,
approvals, decrees and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Underground Storage
Tanks.
3.14 REAL ESTATE
(a) Schedule 3.14(a)(1) contains the legal description and
street address of any real property or any interest therein (including
without limitation any option or other right or obligation to purchase
any real property or any interest therein) owned by the Companies as of
the date hereof (the "Company Owned Properties"). Schedule 3.14(a)(2)
contains a list of the locations of any real property (or any interest
therein) owned by the Companies and disposed of in any manner on or
prior to the date hereof (the "Previously Owned Properties"). Schedule
3.14(a)(3) contains the legal descriptions and the street addresses of
any real property (or any interest therein) owned by the Shareholder or
any of his Affiliates (the "Shareholder Owned Properties," and together
with the Company Owned Properties, the "Owned Properties"), which will
be conveyed, as additional contributions of capital, to one of the
Companies prior to the Effective Time. With respect to each such parcel
of Owned Properties, except as set forth on Schedule 3.14(a)(4): (i)
one of the Companies has (and in the case of Shareholder Owned
Properties, will as of the Effective Time have) good and marketable
title, free and clear of any covenants, conditions, easements and
exceptions other than the Permitted Exceptions (as defined in Section
5.14), and of any Lien other than liens for real estate taxes not yet
due and payable, (ii) there are no pending or threatened condemnation
proceedings, suits or administrative actions relating to the Owned
Properties or other matters affecting adversely the current use,
occupancy or value thereof; (iii) the legal descriptions for the Owned
Properties contained in the deeds thereof describe such parcels fully
and adequately; (iv) the buildings and improvements are located within
the boundary lines of the described parcels of land, are not in
violation of applicable setback requirements, local comprehensive plan
provisions, zoning laws and ordinances (and none of the properties
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or buildings or improvements thereon are subject to "permitted
non-conforming use" or "permitted non-conforming structure"
classifications), building code requirements, permits, licenses or
other forms of approval by any Governmental Authority, and do not
encroach on any easement which may burden the land; the land does not
serve any adjoining property for any purpose inconsistent with the use
of the land; and the Owned Properties are not located within any flood
plain or subject to any similar type restriction for which any permits
or licenses necessary to the use thereof have not been obtained; (v)
all facilities have received all material approvals of Governmental
Authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, ordinances, rules and
regulations; (vi) there are no Contracts granting to any party or
parties the right of use or occupancy of any portion of the Owned
Properties and there are no parties (other than the Companies) in
possession of the Owned Properties; (vii) there are no outstanding
options or rights of first refusal to purchase the Owned Properties or
any portion thereof or interest therein (other than by the Companies);
(viii) all facilities located on the Owned Properties are supplied with
utilities and other services necessary for their operation, all of
which services are adequate in accordance with all applicable laws,
ordinances, rules and regulations, and are provided via public roads or
via permanent, irrevocable, appurtenant easements benefitting the Owned
Properties; (ix) the Owned Properties abut on and have adequate direct
vehicular access to a public road, and there is no pending or
threatened termination of such access; (x) all improvements, buildings
and systems on the Owned Properties are in good repair, safe for
occupancy, and adequate for the current use of such Owned Properties;
and (xi) there are no Contracts relating to service, management or
similar matters which affect any of the Owned Properties.
(b) Schedule 3.14(b) sets forth a list of all leases, licenses
or similar agreements to which either of the Companies is a party,
which are for the use or occupancy of real estate owned by a third
party ("Leases")(copies of which have previously been furnished to
Republic), in each case, setting forth (i) the lessor and lessee
thereof and the commencement date, term and renewal rights under each
of the Leases, and (ii) the street address or legal description of each
property covered thereby (the "Leased Premises"). The Leases are in
full force and effect and have not been amended, and no party thereto
is in default or breach under any such Lease. No event has occurred
which, with the passage of time or the giving of notice or both, would
cause a material breach of or default under any of such Leases. Except
as set forth in Schedule 3.14(b), with respect to each such Leased
Premises: (i) one of the Companies has a valid leasehold interest in
the Leased Premises, free and clear of any Liens, covenants and
easements or title defects of any nature whatsoever; (ii) the portions
of the buildings located on the Leased Premises that are used in the
business of the Companies are each in good repair and condition, normal
wear and tear excepted, and are in the aggregate sufficient to satisfy
the Companies' current and reasonably anticipated normal business
activities as conducted thereat; (iii) each of the Leased Premises (a)
has direct access to public roads or access to public roads by means of
a perpetual access easement, such access being sufficient to satisfy
the current and reasonably anticipated normal
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transportation requirements of the business presently conducted at such
parcel; and (b) is served by all utilities in such quantity and quality
as are sufficient to satisfy the current normal business activities
conducted at such parcel; and (iv) neither of the Companies has
received notice of (a) any condemnation proceeding with respect to any
portion of the Leased Premises or any access thereto, and no such
proceeding is contemplated by any Governmental Authority; or (b) any
special assessment which may affect any of the Leased Premises, and no
such special assessment is contemplated by any Governmental Authority.
3.15 GOOD TITLE TO AND CONDITION OF ASSETS; INVENTORY.
(a) The Companies own and operate the motor vehicle
dealerships (the "Dealerships") listed on Schedule 3.15, at the
locations set forth thereon. Except as set forth on Schedule 3.15(a),
the Companies have good and valid title to all of their Assets free and
clear of any Liens. For purposes of this Agreement, the term "Assets"
means all of the properties and assets owned by the Companies, other
than the Owned Properties and the Leased Premises, whether personal or
mixed, tangible or intangible, wherever located.
(b) Except as provided in Schedule 3.15(b), the Fixed Assets
currently in use by the Companies are, in the aggregate, in good
operating condition, normal wear and tear excepted, and have been
maintained substantially in accordance with all applicable
manufacturer's specifications and warranties. For purposes of this
Agreement, the term "Fixed Assets" means all vehicles (other than
vehicles held as inventory), machinery, equipment, tools, supplies,
leasehold improvements, furniture and fixtures used by or located on
the premises of the Companies or set forth on the Current Balance Sheet
or acquired by the Companies since the date of the Current Balance
Sheet.
(c) None of the vehicles owned by the Companies as of the date
hereof has been, or will be on the Closing Date, salvaged or rebuilt or
have any frame, flood or other damage impairing its salability in the
ordinary course of business, and with respect to each vehicle, one of
the Companies has or will have prior to the Closing Date on file true
and correct odometer statement, none of which indicate that the actual
mileage is unknown.
(d) Schedule 3.15(d) sets forth a true, complete and correct
list of any and all dealer trades made by the Companies within the last
90 days from the date hereof.
3.16 COMPLIANCE WITH LAWS. Except as set forth in Schedule 3.16(a),
each of the Companies, the Shareholder, and any Affiliate is and has been in
compliance with all laws, regulations and orders applicable to their businesses
and operations (as conducted now and in the past), the Assets, the Owned
Properties and the Leased Premises and any other properties and assets (in each
case owned or used now or in the past). Except as provided in Schedule 3.16(b),
neither of the Companies has been cited, fined or otherwise notified of any
asserted past or present failure to comply with any laws, regulations or orders
and no proceeding with respect to any such violation is pending or threatened.
Neither of the Companies is subject to any Contract, decree or injunction
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in which it is a party which restricts the continued operation of any business
or the expansion thereof to other geographical areas, customers and suppliers or
lines of business. Neither of the Companies, nor any of its employees or agents,
has made any payment of funds in connection with its business which is
prohibited by law, and no funds have been set aside to be used in connection
with its business for any payment prohibited by law.
3.17 LABOR AND EMPLOYMENT MATTERS. Neither of the Companies is a party
to or bound by any collective bargaining agreement or any other agreement with a
labor union, and there has been no effort by any labor union during the 24
months prior to the date hereof to organize any employees of the Companies into
one or more collective bargaining units. Except as set forth in Schedule 3.17,
there is not now, and there has not been during the 24 months prior to the date
hereof, any actual threatened labor dispute, strike or work stoppage which
affects or which may affect the businesses of the Companies or which may
interfere with their continued operations, except for employment disputes with
individual employees. Neither of the Companies nor any agent, representative or
employee thereof has since the date of incorporation of the Companies committed
any unfair labor practice as defined in the National Labor Relations Act, as
amended, and there is no pending or, to the knowledge of the Companies or the
Shareholder, threatened charge or complaint against either of the Companies by
or with the National Labor Relations Board or any representative thereof.
Neither of the Companies is aware that any executive or key employee or group of
employees has any plans to terminate his, her or their employment with either of
the Companies as a result of the transactions contemplated hereby or otherwise.
The Companies have complied with applicable laws, rules and regulations relating
to employment, civil rights and equal employment opportunities, including but
not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and
the Americans with Disabilities Act, as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a list setting
forth each employee benefit plan or arrangement of the Companies, including but
not limited to employee pension benefit plans, as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
multiemployer plans, as defined in Section 3(37) of ERISA, employee welfare
benefit plans, as defined in Section 3(1) of ERISA, deferred compensation plans,
stock option plans, bonus plans, stock purchase plans, hospitalization,
disability and other insurance plans, severance or termination pay plans and
policies, whether or not described in Section 3(3) of ERISA, in which employees,
their spouses or dependents, of the Companies participate ("Employee Benefit
Plans") (true and accurate copies of which, together with the most recent annual
reports on Form 5500 and summary plan descriptions with respect thereto, were
furnished to Republic).
(b) Compliance with Law. With respect to each Employee Benefit
Plan (i) each has been administered in all material respects in compliance with
its terms and with all applicable laws, including, but not limited to, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) no actions,
suits, claims or disputes are pending, or threatened; (iii) no audits,
inquiries, reviews, proceedings, claims, or demands are pending with any
governmental or regulatory agency;
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(iv) there are no facts which could give rise to any material liability in the
event of any such investigation, claim, action, suit, audit, review, or other
proceeding; (v) all material reports, returns, and similar documents required to
be filed with any governmental agency or distributed to any plan participant
have been duly or timely filed or distributed; and (vi) no "prohibited
transaction" has occurred within the meaning of the applicable provisions of
ERISA or the Code.
(c) Qualified Plans. With respect to each Employee Benefit Plan
intended to qualify under Code Section 401(a) or 403(a) (i) the Internal Revenue
Service has issued a favorable determination letter, true and correct copies of
which have been furnished to Republic, that such plans are qualified and exempt
from federal income taxes; (ii) no such determination letter has been revoked
nor has revocation been threatened, nor has any amendment or other action or
omission occurred with respect to any such plan since the date of its most
recent determination letter or application therefor in any respect which would
adversely affect its qualification or materially increase its costs; (iii) no
such plan has been amended in a manner that would require security to be
provided in accordance with Section 401(a)(29) of the Code; (iv) no reportable
event (within the meaning of Section 4043 of ERISA) has occurred, other than one
for which the 30- day notice requirement has been waived; (v) as of the
Effective Date, the present value of all liabilities that would be "benefit
liabilities" under Section 4001(a)(16) of ERISA if benefits described in Code
Section 411(d)(6)(B) were included will not exceed the then current fair market
value of the assets of such plan (determined using the actuarial assumptions
used for the most recent actuarial valuation for such plan); (vi) all
contributions to, and payments from and with respect to such plans, which may
have been required to be made in accordance with such plans and, when
applicable, Section 302 of ERISA or Section 412 of the Code, have been timely
made; and (vii) all such contributions to the plans, and all payments under the
plans (except those to be made from a trust qualified under Section 401(a) of
the Code) and all payments with respect to the plans (including, without
limitation, PBGC (as defined below) and insurance premiums) for any period
ending before the Closing Date that are not yet, but will be, required to be
made are properly accrued and reflected on the Current Balance Sheet.
(d) Multiemployer Plans. With respect to any multiemployer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (i) all contributions
required to be made with respect to employees of the Companies have been timely
paid; (ii) the Companies have not incurred, and are not expected to incur,
directly or indirectly, any withdrawal liability under ERISA with respect to any
such plan (whether by reason of the transactions contemplated by the Agreement
or otherwise); (iii) Schedule 3.18 sets forth (A) the withdrawal liability under
ERISA to each MPPA Plan, (B) the date as of which such amount was calculated,
and (C) the method for determining the withdrawal liability; and (iv) no such
plan is (or is expected to be) insolvent or in reorganization and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists or is expected to exist with respect to any
such plan.
(e) Welfare Plans. (i) The Companies are not obligated under any
employee welfare benefit plan as described in Section 3(1) of ERISA ("Welfare
Plan") to provide medical or death benefits with respect to any employee or
former employee of the Companies or their
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predecessors after termination of employment; (ii) the Companies have complied
with the notice and continuation coverage requirements of Section 4980B of the
Code and the regulations thereunder with respect to each Welfare Plan that is,
or was during any taxable year for which the statute of limitations on the
assessment of federal income taxes remains, open, by consent or otherwise, a
group health plan within the meaning of Section 5000(b)(1) of the Code; and
(iii) there are no reserves, assets, surplus or prepaid premiums under any
Welfare Plan which is an Employee Benefit Plan. The consummation of the
transactions contemplated by this Agreement will not entitle any individual to
severance pay, and, will not accelerate the time of payment or vesting, or
increase the amount of compensation, due to any individual.
(f) Controlled Group Liability. Neither of the Companies nor any
entity that would be aggregated with the Companies under Code Section 414(b),
(c), (m) or (o): (i) has ever terminated or withdrawn from an employee benefit
plan under circumstances resulting (or expected to result) in liability to the
Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee
benefit plan is funded, or any employee or beneficiary for whose benefit the
plan is or was maintained (other than routine claims for benefits); (ii) has any
assets subject to (or expected to be subject to) a lien for unpaid contributions
to any employee benefit plan; (iii) has failed to pay premiums to the PBGC when
due; (iv) is subject to (or expected to be subject to) an excise tax under Code
Section 4971; (v) has engaged in any transaction which would give rise to
liability under Section 4069 or Section 4212(c) of ERISA; or (vi) has violated
Code Section 4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit Plans
obligates either of the Companies to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change of control" (as such term is
defined in Section 280G of the Code); (ii) all required or discretionary (in
accordance with historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of the
Effective Date shall have been made or properly accrued on the Current Balance
Sheet or will be properly accrued on the books and records of the Companies as
of the Effective Date; and (iii) none of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Current Balance Sheet or the
books and records of the Companies.
3.19 TAX MATTERS. All Tax Returns required to be filed prior to the
date hereof with respect to each of the Companies or any of its income,
properties, franchises or operations have been timely filed, each such Tax
Return has been prepared in compliance with all applicable laws and regulations,
and all such Tax Returns are true and accurate in all respects. All Taxes due
and payable by or with respect to each of the Companies have been paid or are
accrued on the Current Balance Sheet or will be accrued on the Companies' books
and records as of the Closing. Except as set forth in Schedule 3.19 hereto: (i)
with respect to each taxable period of each of the Companies, either such
taxable period has been audited by the relevant taxing authority or the time for
assessing or collecting Taxes with respect to each such taxable period has
closed and such taxable period is not subject to review by any relevant taxing
authority; (ii) no deficiency or proposed adjustment which has not been settled
or otherwise resolved for any amount of Taxes has been asserted or assessed by
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any taxing authority against either of the Companies; (iii) neither of the
Companies has consented to extend the time in which any Taxes may be assessed or
collected by any taxing authority; (iv) neither of the Companies has requested
or been granted an extension of the time for filing any Tax Return to a date
later than the Closing; (v) there is no action, suit, taxing authority
proceeding, or audit or claim for refund now in progress, pending or threatened
against or with respect to either of the Companies regarding Taxes; (vi) neither
of the Companies has made an election or filed a consent under Section 341(f) of
the Code (or any corresponding provision of state, local or foreign law) on or
prior to the Closing; (vii) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of either of the Companies;
(viii) neither of the Companies will be required (A) as a result of a change in
method of accounting for a taxable period ending on or prior to the Effective
Date, to include any adjustment under Section 481(c) of the Code (or any
corresponding provision of state, local or foreign law) in taxable income for
any taxable period (or portion thereof) beginning after the Effective Date or
(B) as a result of any "closing agreement," as described in Section 7121 of the
Code (or any corresponding provision of state, local or foreign law), to include
any item of income or exclude any item of deduction from any taxable period (or
portion thereof) beginning after the Effective Date; (ix) neither of the
Companies has been a member of an affiliated group (as defined in Section 1504
of the Code) or filed or been included in a combined, consolidated or unitary
income Tax Return; (x) neither of the Companies is a party to or bound by any
tax allocation or tax sharing agreement and has no current or potential
contractual obligation to indemnify any other Person with respect to Taxes; (xi)
no taxing authority will claim or assess any additional Taxes against either of
the Companies for any period for which Tax Returns have been filed; (xii)
neither of the Companies has made any payments, is or will become obligated
(under any contract entered into on or before the Closing) to make any payments,
that will be non-deductible under Section 280G of the Code (or any corresponding
provision of state, local or foreign law); (xiii) neither of the Companies has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code (or any corresponding provision of state, local or
foreign law) during the applicable period specified in Section 897(c)(1)(a)(ii)
of the Code (or any corresponding provision of state, local or foreign law);
(xiv) no claim has ever been made by a taxing authority in a jurisdiction where
either of the Companies does not file Tax Returns that such Company is or may be
subject to Taxes assessed by such jurisdiction; (xv) neither of the Companies
has any permanent establishment in any foreign country, as defined in the
relevant tax treaty between the United States of America and such foreign
country; (xvi) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to the Companies for the past three years have
been furnished or made available to Republic; (xvii) neither of the Companies
will be subject to any Taxes for the period ending at the Closing for any period
for which a Tax Return has not been filed imposed pursuant to Section 1374 or
Section 1375 of the Code (or any corresponding provision of state, local or
foreign law); (xviii) no sales or use tax will be payable by the Companies or
Republic on the transfer of any Assets pursuant to the isolated or occasional
sale rule, Fla. Admin. Code 12A-1.037 and the resale provisions of Fla. Admin.
Code 12A-1.038 as a result of this transaction, and there will be no
non-recurring intangible tax, documentary stamp tax, or other excise (or
comparable tax imposed by any governmental entity) as a result of this
transaction; and (xix) the Companies have duly and validly filed elections for S
corporation status under the Code, and such
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S elections have not been revoked or terminated, and neither of the Companies
nor the Shareholder have taken any action which would cause a termination of any
of such S elections.
3.20 INSURANCE. The Companies are covered by valid, outstanding and
enforceable policies of insurance issued to it by reputable insurers covering
its properties, assets and businesses against risks of the nature normally
insured against by corporations in the same or similar lines of business and in
coverage amounts typically and reasonably carried by such corporations (the
"Insurance Policies"). Such Insurance Policies are in full force and effect, and
all premiums due thereon have been paid. Through the Effective Time, each of the
Insurance Policies will be in full force and effect. The Companies have complied
with the provisions of such Insurance Policies. Schedule 3.20 contains (i) a
complete and correct list of all Insurance Policies and all amendments and
riders thereto (copies of which have been or prior to Closing will be provided
to Republic) and (ii) a detailed description of each pending claim under any of
the Insurance Policies for an amount in excess of $10,000 that relates to loss
or damage to the properties, assets or businesses of the Companies. Neither of
the Companies have failed to give, in a timely manner, any notice required under
any of the Insurance Policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables are valid and legally binding,
represent bona fide transactions and arose in the ordinary course of business of
the Companies. All of the Receivables are good and collectible receivables, and
will be collected in full in accordance with the terms of such receivables (and
in any event within six months following the Effective Date), without set off or
counterclaims, subject to the allowance for doubtful accounts, if any, set forth
on the Current Balance Sheet. For purposes of this Agreement, the term
"Receivables" means all receivables of the Companies, including, without
limitation, all manufacturer's warranty receivables and all trade account
receivables arising from the provision of services, sale of inventory, notes
receivable, and insurance proceeds receivable.
3.22 LICENSES AND PERMITS. Except as set forth in Schedule 3.22, the
Companies possess all licenses and required governmental or official approvals,
permits or authorizations (collectively, the "Permits") for their businesses and
operations, including with respect to the operations of each of the Owned
Properties and Leased Premises, and Schedule 3.22 sets forth a true, complete
and accurate list of all such Permits. All such Permits are valid and in full
force and effect, the Companies are in compliance with the respective
requirements thereof, and no proceeding is pending or threatened to revoke or
amend any of them. None of such Permits is or will be impaired or in any way
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets, Owned Properties, and Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of each of the businesses of the Companies in the
manner in which and to the extent to which such business is currently being
conducted. No current supplier to the Companies of items essential to the
conduct of their businesses has threatened to terminate its business
relationship with either of the Companies for any reason. Neither of the
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Companies has a direct or indirect interest in any customer, supplier or
competitor of the Companies, or in any person from whom or to whom the Companies
lease real or personal property. Except as set forth on Schedule 3.23, no
officer, director, shareholder, or partner of the Companies, nor any person
related by blood or marriage to any such person, nor any entity in which any
such person owns any beneficial interest, is a party to any Contract or
transaction with the Companies or has any interest in any property used by the
Companies.
3.24 INTELLECTUAL PROPERTY. The Companies have full legal right, title
and interest in and to all trademarks, service marks, trade names, copyrights,
know-how, patents, trade secrets, licenses (including licenses for the use of
computer software programs), and other intellectual property used in the conduct
of its business and set forth on Schedule 3.24 (the "Intellectual Property").
The conduct of the businesses of the Companies as presently conducted, and the
unrestricted conduct and the unrestricted use and exploitation of the
Intellectual Property, does not infringe or misappropriate any rights held or
asserted by any Person, and, to the knowledge of the Companies and the
Shareholder, no Person is infringing on the Intellectual Property. No payments
are required for the continued use of the Intellectual Property. None of the
Intellectual Property has ever been declared invalid or unenforceable, or is the
subject of any pending threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding.
3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract to
which each of the Companies is a party or by which any of them or their
properties and assets are bound and which is material to any of their
businesses, assets, properties or prospects (the "Material Contracts"),
including all franchise, sales and service, dealer and other agreements or
understandings (the "Franchise Agreements") with Toyota Motor Sales, U.S.A.,
Inc. and KIA Motors America, Inc. (collectively, the "Factories"). One of the
Companies is party to Franchise Agreements for each of the Dealerships, granting
such Company full rights and privileges necessary to operate the Dealerships.
The copy of each Material Contract furnished to Republic is a true and complete
copy of the document it purports to represent and reflects all amendments
thereto made through the date of this Agreement. The Companies have not violated
any of the terms or conditions of any Material Contract or any term or condition
which would permit termination or material modification of any Material
Contract, all of the covenants to be performed by any other party thereto, to
the knowledge of the Companies and the Shareholder, have been fully performed,
and there are no claims for breach or indemnification or notice of default or
termination under any Material Contract. No event has occurred which
constitutes, or after notice or the passage of time, or both, would constitute,
a default by the Companies under any Material Contract, and no such event has
occurred which constitutes or would constitute a default by any other party. The
Companies are not subject to any liability or payment resulting from
renegotiation of amounts paid under any Material Contract. As used in this
Section 3.25, Material Contracts shall include, without limitation, formal or
informal, written or oral (a) loan agreements, indentures, mortgages, pledges,
hypothecations, deeds of trust, conditional sale or title retention agreements,
security agreements, equipment financing obligations or guaranties, or other
sources of contingent liability in respect of any indebtedness or obligations to
any other Person, or letters of intent or commitment letters with respect to
same, which individually or in the aggregate
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exceed $25,000; (b) contracts obligating the Companies to provide products or
services for a period of one year or more, excluding standard warranty contracts
entered into in the ordinary course of its business without material
modification from the preprinted forms used by the Companies in the ordinary
course of business, copies of which have been supplied to Republic and which
individually or in the aggregate exceed $25,000; (c) leases of real property;
(d) leases of personal property which individually or in the aggregate provide
for total payments in excess of $25,000 (other than those which individually
provide for annual payments of less than $25,000 and which are cancelable
without penalty on notice of sixty (60) days or less; (e) distribution, sales
agency or franchise or similar agreements, or agreements providing for an
independent contractor's services, or letters of intent with respect to same;
(f) employment agreements, management service agreements, consulting agreements,
confidentiality agreements, non-competition agreements, employee handbooks,
policy statements and any other agreements relating to any employee, officer or
director of either of the Companies; (g) licenses, assignments or transfers of
trademarks, trade names, service marks, patents, copyrights, trade secrets or
know how, or other agreements regarding proprietary rights or intellectual
property; (h) any contract relating to pending capital expenditures by the
Companies; (i) contracts obligating the Companies to purchase vehicles, parts,
accessories, supplies, equipment, oil, advertising, media and media related
services of any kind, not cancelable without penalty on notice of thirty (30)
days or less; (j) any non-competition agreements restricting either of the
Companies in any manner; and (k) other material Contracts or understandings,
irrespective of subject matter and whether or not in writing, and not otherwise
disclosed on the Schedules.
3.26 ACCURACY OF INFORMATION FURNISHED. No representation, statement or
information contained in this Agreement (including, without limitation, the
various Schedules attached hereto) or any agreement executed in connection
herewith or in any certificate delivered pursuant hereto or thereto or made or
furnished to Republic or its representatives by the Companies or the
Shareholder, contains or shall contain any untrue statement of a material fact
or omits or shall omit any material fact necessary to make the information
contained therein not misleading. The Companies have provided Republic with
true, accurate and complete copies of all documents listed or described in the
various Schedules attached hereto.
3.27 INVESTMENT INTENT; ACCREDITED INVESTOR STATUS; SECURITIES
DOCUMENTS. The Shareholder has had the opportunity to discuss the transactions
contemplated hereby with Republic and has had the opportunity to obtain such
information pertaining to Republic as has been requested, including but not
limited to filings made by Republic with the SEC under the Exchange Act. The
Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act, and has such knowledge and experience in
business or financial matters that he is capable of evaluating the merits and
risks of an investment in the Republic Shares. The Shareholder hereby represents
that he can bear the economic risk of losing his investment in the Republic
Shares and has adequate means for providing for his current financial needs and
contingencies. The Shareholder has received copies of all Republic Reports filed
with the SEC since January 1, 1996.
3.28 BANK ACCOUNTS; BUSINESS LOCATIONS. As of the date hereof, the
Companies have no office or place of business other than as identified on
Schedules 3.14(a) and 3.14(b) and the
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Companies' principal places of business and chief executive offices are
indicated on Schedule 3.14(a). All locations where the equipment, inventory,
chattel paper and books and records of the Companies are located as of the date
hereof are fully identified on Schedules 3.14(a) and 3.14(b). Schedule 3.28
lists each account of the Companies with any bank, broker or other depository
institution, and the names of all persons authorized to withdraw funds from each
such account.
3.29 NAMES; PRIOR ACQUISITIONS; NO COMMISSIONS. All names under which
each of the Companies does business as of the date hereof are specified on
Schedule 3.29. Except as otherwise disclosed in Schedule 3.29, neither of the
Companies has changed its name or used any assumed or fictitious name, or been
the surviving entity in a merger, acquired any business or changed its principal
place of business or chief executive office, within the past three years.
Neither of the Companies nor the Shareholder has incurred any obligation for any
finder's or broker's or agent's fees or commissions or similar compensation in
connection with the transactions contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
4.1 CONDUCT OF BUSINESS BY THE COMPANIES PENDING THE CLOSING. The
Companies and the Shareholder, jointly and severally, covenant and agree that,
between the date of this Agreement and the Effective Time, the business of the
Companies shall be conducted only in, and the Companies shall not take any
action except in, the ordinary course of business consistent with past practice.
The Companies and the Shareholder shall use their or his reasonable best efforts
to preserve intact the Companies' business organizations, to keep available the
services of their current officers, employees and consultants, and to preserve
their present relationships with customers, suppliers and other persons with
which they have significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, each of the Companies
shall not, between the date of this Agreement and the Effective Time, directly
or indirectly, do or propose or agree to do any of the following without the
prior written consent of Republic:
(a) amend or otherwise change their Articles of Incorporation,
Bylaws, or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or, authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i)
any shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest, of it,
or (ii) any of its assets, tangible or intangible, except, in the case
of (ii), in the ordinary course of business consistent with past
practice;
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(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or
shares of stock, by merger, consolidation or acquisition of stock or
assets) any interest in any corporation, partnership or other business
organization or division thereof or any assets, or make any investment
either by purchase of stock or securities, contributions of capital or
property transfer, or, except in the ordinary course of business,
consistent with past practice, purchase any property or assets of any
other Person, (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or
make any loans or advances, except for its "floor plan" financing of
vehicle inventories in the ordinary course of business consistent with
past practice or (iii) modify, terminate, or enter into any Contract
other than as provided herein or in the ordinary course of business,
consistent with past practice;
(f) increase the compensation payable or to become payable to
its officers or employees, or, except as presently bound to do, grant
any severance or termination pay to, or enter into any employment or
severance agreement with, any of its directors, officers or other
employees, or establish, adopt, enter into or amend or take any action
to accelerate any rights or benefits which any collective bargaining,
bonus, profit sharing, trust, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) take any action with respect to accounting policies or
procedures other than in the ordinary course of business and in a
manner consistent with past practices;
(h) pay, discharge or satisfy any existing claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of due
and payable liabilities reflected or reserved against in its financial
statements, as appropriate, or liabilities incurred after the date
thereof in the ordinary course of business and consistent with past
practice;
(i) increase or decrease prices charged to its customers,
except in the ordinary course of business consistent with past
practices, or take any other action which might reasonably result in
any material increase in the loss of customers; materially increase or
decrease the average monthly parts and accessories inventory,
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New Vehicle Inventory, or Other Vehicle Inventory, other than in the
ordinary course of business and in a manner consistent with past
practice; and order any New Vehicles from the Factory which would be
inconsistent with the prior ordering practices of the Companies;
(j) make any dealer trades other than in the ordinary course
of business consistent with past practice;
(k) enter into any transaction with the Shareholder or
Affiliate thereof; or
(l) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any
representation or warranty in Article III untrue or incorrect in any
material respect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Shareholder shall cause the
Companies to comply with all of the covenants of the Companies under this
Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the other
in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation in connection with the transactions contemplated by this
Agreement and to use their respective best efforts to agree jointly on a method
to overcome any objections by any Governmental Authority to any such
transactions.
5.4 FACTORIES APPLICATIONS AND OTHER ACTIONS. Each of the parties
hereto shall (a) cooperate in the preparation and filing of, and take all
appropriate actions in connection with, the application to the Factories for
approval of the transactions contemplated hereby, and (b) use its reasonable
best efforts to take, or cause to be taken, all appropriate actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated herein, including, without limitation, using its best efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any Governmental Authority and parties to Contracts
with the Companies as are necessary for the consummation of the transactions
contemplated hereby. Each of the parties shall make on a prompt and timely basis
all governmental or regulatory notifications and filings required to be made by
it
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for the consummation of the transactions contemplated hereby. The parties also
agree to use best efforts to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby and to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby.
5.5 HSR ACT. Republic and the Companies shall make promptly (unless
they have already made) their respective filings, if any, and thereafter make
any other required submissions, under the HSR Act, with respect to the
transactions contemplated hereby, and shall, if requested by Republic, seek
early termination of the applicable waiting period under the HSR Act. Republic
shall pay the HSR Act filing fee.
5.6 ACCESS TO INFORMATION. From the date hereof to the Effective Time,
the Companies shall, and shall cause its directors, officers, employees,
auditors, counsel and agents to, afford Republic and Republic's officers,
employees, auditors, counsel and agents reasonable access at all reasonable
times to its properties, offices and other facilities (including access to
perform environmental and other tests and assessments), to its officers and
employees and to all books and records, and shall furnish such persons with all
financial, operating and other data and information as may be requested. No
information provided to or obtained by Republic shall affect any representation
or warranty in this Agreement.
5.7 NOTIFICATION OF CERTAIN MATTERS. The Companies shall give prompt
notice to Republic of the occurrence or non-occurrence of any event which would
likely cause any representation or warranty contained herein to be untrue or
inaccurate, or any covenant, condition or agreement contained herein not to be
complied with or satisfied (provided, however, that, any such disclosure shall
not in any way be deemed to amend, modify or in any way affect the
representations, warranties and covenants made by the Companies and the
Shareholder in or pursuant to this Agreement).
5.8 TAX TREATMENT. Republic and the Companies and the Shareholder will
use their respective reasonable best efforts to cause the transactions
contemplated hereby to qualify as a reorganization under the provisions of
Section 368(a) of the Code. All parties hereto agree to file the Plans of Merger
with their respective federal income tax returns for the year in which the
Mergers are effective, and to comply with the reporting requirements of Treasury
Regulation 1.368-3.
5.9 CONFIDENTIALITY; PUBLICITY. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement, the subject matter or terms hereof or any
confidential information or other proprietary knowledge concerning the business
or affairs of the other party which it may have acquired from such party in the
course of pursuing the transactions contemplated by this Agreement without the
prior consent of the other party hereto; provided, that any information that is
otherwise publicly available, without breach of this provision,
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or has been obtained from a third party, shall not be deemed confidential
information. No press release or other public announcement related to this
Agreement or the transactions contemplated hereby shall be issued by any party
hereto without the prior approval of the other parties, except that Republic may
make such public disclosure which it believes in good faith to be required by
law or by the terms of any listing agreement with or requirements of Nasdaq (in
which case Republic will consult with the Companies prior to making such
disclosure).
5.10 NO OTHER DISCUSSIONS. The Companies and the Shareholder and their
Affiliates, employees, agents and representatives will not (a) initiate,
encourage the initiation by others of discussions or negotiations with third
parties or respond to solicitations by third persons relating to any merger,
sale or other disposition of any substantial part of the assets, capital stock
(or derivatives thereof), business or properties of the Companies (whether by
merger, consolidation, sale of stock, sale of assets, or otherwise), or (b)
enter into any agreement or commitment (whether or not binding) with respect to
any of the foregoing transactions. The Companies and the Shareholder will
immediately notify Republic if any third party attempts to initiate any
solicitation, discussion, or negotiation with respect to any of the foregoing
transactions, and shall provide Republic with the name of such third parties and
the terms of any offers.
5.11 RESTRICTIVE COVENANT. In order to assure that Republic will
realize the benefits of the Mergers, the Shareholder agrees with Republic that
he will not:
(a) during the Restricted Period, directly or indirectly,
alone or as a partner, joint venturer, officer, director, member,
employee, consultant, agent, independent contractor or stockholder of,
or lender to, any company or business, engage in selling, leasing, or
servicing any new or used vehicles (the "Auto Business") or in the
wholesale or retail supply of parts with respect thereto (the "Parts
Business") anywhere in the Restricted Territory; provided, however,
that, the beneficial ownership of less than five percent (5%) of the
shares of stock of any corporation having a class of equity securities
actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the
prohibitions of this Section;
(b) during the Restricted Period, directly or indirectly (i)
induce any Person which is a customer of the Companies, Republic or any
Affiliate of the Companies or Republic to patronize any business
directly or indirectly in competition with the Auto Business or the
Parts Business conducted by the Companies, Republic or any Affiliate of
the Companies or Republic; (ii) canvass, solicit or accept from any
Person which is a customer of the Companies, Republic or any Affiliate
of the Companies or Republic, any such competitive business; or (iii)
request or advise any Person which is a customer of the Companies,
Republic or any Affiliate of the Companies or Republic, to withdraw,
curtail or cancel any such customer's business with the Companies,
Republic or any Affiliate of the Companies or Republic, or its or their
successors;
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(c) during the Restricted Period, directly or indirectly
employ, or knowingly permit any company or business directly or
indirectly controlled by him, to employ, any person who was employed by
either of the Companies, Republic or any Affiliate of the Companies or
Republic at or within the prior six months, or in any manner seek to
induce any such person to leave his or her employment;
(d) during the Restricted Period, directly or indirectly, in
any way utilize, disclose, copy, reproduce or retain in his possession
any of the Companies' proprietary rights or records, including, but not
limited to, any of its customer lists.
Notwithstanding the provisions of this Section 5.11, the parties agree that the
Shareholder's ownership interest and operation of KIA dealership in St. Lucie
County, Florida shall not be deemed a violation hereof. For purposes of this
Section 5.11, (a) the "Restricted Period" for any individual shall mean the
period beginning on the Effective Time and ending on the later of (i) the fifth
anniversary of the Effective Time (the "Purchase Restricted Period"), or (ii)
the second anniversary of the termination of the employment of such individual
with Republic, the Companies, or any Affiliate of Republic or the Companies (the
"Employment Restricted Period"), and (b) the "Restricted Territory" for any
individual shall mean (i) during the Employment Restricted Period, anywhere in
the United States, and (ii) during the Purchase Restricted Period, anywhere
within the city limits or within fifty miles of the city limits of those cities
listed on Schedule 5.11. The Shareholder agrees and acknowledges that the
restrictions contained in this Section 5.11 are reasonable in scope and duration
and are necessary to protect Republic and the Companies after the Effective
Time. If any provision of this Section 5.11, as applied to any party or to any
circumstance, is adjudged by a court to be invalid or unenforceable, the same
will in no way affect any other circumstance or the validity or enforceability
of the remainder of this Agreement. If any such provision, or any part thereof,
is held to be unenforceable because of the duration of such provision or the
area covered thereby, the parties agree that the court making such determination
shall have the power to reduce the duration and/or area of such provision,
and/or to delete specific words or phrases, and in its reduced form, such
provision shall then be enforceable and shall be enforced. The parties agree and
acknowledge that the breach of this Section 5.11 will cause irreparable damage
to Republic and upon breach of any provision of this Section 5.11, Republic
shall be entitled to injunctive relief, specific performance or other equitable
relief; provided, however, that the foregoing remedies shall in no way limit any
other remedies which Republic may have (including, without limitation, the right
to seek monetary damages).
5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise expressly
consented to by Republic, from the date of this Agreement until the Effective
Time, neither of the Companies, the Shareholder nor any of their Affiliates will
directly or indirectly purchase or sell (including short sales) any shares of
Republic Common Stock in any transactions effected on Nasdaq or otherwise.
5.13 EMPLOYMENT OF SHAREHOLDER. Republic or its assignee and the
Shareholder shall enter into an employment agreement in the form attached hereto
as Schedule 5.13.
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5.14 TITLE INSURANCE AND SURVEYS.
(a) Within 10 business days after the date of this Agreement, the
Companies and the Shareholder shall obtain and deliver to Republic commitments
(the "Commitments") issued by a title insurance company acceptable to Republic
(the "Title Company") and dated not earlier than November 15, 1996 for the
issuance of an ALTA Owners Policy of Title Insurance (10-17-92) (with Florida
Modifications), (the "Title Policy") for the Owned Properties. The Title Policy
shall be in the amount allocated to the real property herein, showing fee simple
title to the Owned Properties vested now or to be vested at the Effective Time
in one of the Companies subject only to current real estate Taxes not yet due
and payable as of the Effective Time, and such other covenants, conditions,
easements, and exceptions to title as Republic may approve in writing
(collectively, the "Permitted Exceptions"). The Commitments and the Title Policy
to be issued by the Title Company shall have all Standard and General Exceptions
deleted so as to afford full "extended form coverage" and shall contain an ALTA
Zoning Endorsement 3.1, contiguity (where appropriate), and such other
endorsements as may be reasonably requested by Republic, excluding
non-imputation and creditors rights endorsements. At the Closing, the
Shareholder or his Affiliates shall deliver such affidavits or other instruments
as the Title Company may reasonably require to delete Standard and General
Exceptions and to provide the special endorsements required hereunder. The
Shareholder shall cause the Commitments to be later-dated to cover the Closing
and to cause the Title Company to deliver the Title Policy at the Closing as
directed by Republic. The cost of the Title Policy shall be borne one-half by
Republic and one-half by the Companies and the Shareholder
(b) Within 20 days after the date of this Agreement but before the
Closing, the Companies and the Shareholder shall deliver to Republic and the
Title Company an as-built plat of survey of each of the Owned Properties and the
Leased Premises (the "Surveys") prepared by a registered land surveyor or
engineer, licensed in the respective states in which such properties are
located, dated on or after the date hereof, certified to Republic, the Title
Company, and such other entities as Republic may designate in writing to the
Companies and the Shareholder prior to the Closing, and conforming to current
ALTA/ACSM Minimum Detail Requirements for Land Title Surveys, sufficient to
cause the Title Company to delete the standard printed survey exception. Each
Survey shall show access from the land to dedicated roads and shall include a
flood plain certification. Any survey may be a recertification of a prior
survey, provided that it meets the above-described criteria.
(c) Republic shall notify the Companies and the Shareholder in writing,
within ten (10) business days of the receipt of any Commitment of Survey, if (i)
such Commitment discloses a title exception other than a Permitted Exception (an
"Unpermitted Exception") or (ii) such Survey discloses any encroachment,
overlap, or gap or any other matter which renders title to any of the Owned
Properties unmarketable or reflects that any utility service to the improvements
or access thereto does not lie wholly within the applicable parcel of real
property, or within an encumbered easement for the benefit of such parcel of
real property, or reflects any other matter adversely affecting the use or
improvements of such parcel of real property (a "Survey Defect"), then the
Companies and the Shareholder, twenty (20) days prior to the Closing, shall have
the Unpermitted
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Exception removed from such Commitment or the Survey Defect corrected or insured
over by an appropriate title insurance endorsement, all in a manner reasonably
satisfactory to Republic, or, if unable to do so, the parties may terminate this
Agreement.
5.15 SHAREHOLDER AND DIRECTOR VOTE. The Shareholder, in executing this
Agreement, consents as a director, shareholder, and/or partner (as applicable)
of the Companies to the transactions contemplated hereby, and waives notice of
any meeting in connection therewith.
5.16 SCHEDULES. The parties hereto acknowledge and agree that, as of
the date hereof, the Schedules to this Agreement are preliminary in nature and,
therefore, are incomplete. The parties hereto further acknowledge and agree that
(i) the Shareholder and the Companies shall be permitted to finalize the
Schedules to this Agreement, including providing new Schedules, within fourteen
(14) business days of the date hereof (the "Schedule Date"), and (ii) Republic
shall have ten (10) business days from the Schedule Date to accept or object to
any matter disclosed in any Schedule, including the Schedules attached hereto.
5.17 DUE DILIGENCE REVIEW. Republic shall be entitled to conduct a due
diligence review of the assets, real and personal properties, corporate and
financial books, records, plans, programs, and any other matters relating to the
Companies or their properties, which shall be completed on the tenth (10th)
business day (the "Due Diligence Date") after the later of (i) the Schedule
Date, or (ii) receipt by Republic of all documents, items, and information
requested by Republic to complete such due diligence review. Republic may, at
any time up to and including the Due Diligence Date, elect not to close the
transactions contemplated by this Agreement for any reason, in which case this
Agreement shall be terminated and the parties shall be released from any and all
obligations hereunder.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Mergers shall
be subject to the fulfillment at or prior to the Closing Date of the following
conditions, any or all of which may be waived in whole or in part by the
Republic Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Companies and the
Shareholder contained in this Agreement shall be true and correct at and as of
the Effective Time with the same force and effect as though made at and as of
that time except that those representations and warranties which address matters
only as of a particular date shall remain true and correct as of such date. The
Companies and the Shareholder shall have performed and complied with all of
their obligations required by this Agreement to be performed or complied with at
or prior to the Closing Date. The Companies and the Shareholder shall have
delivered to Republic a certificate, dated as of the Closing Date, (which
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in case of the Companies shall be duly signed by its Chief Executive Officer and
Chief Financial Officer) certifying that such representations and warranties are
true and correct and that all such obligations have been performed and complied
with.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY. Between the
date hereof and the Closing Date, (a) there shall have been no Material Adverse
Change to the Companies, (b) there shall have been no adverse federal, state or
local legislative or regulatory change affecting in any material respect the
services, products or business of the Companies and (c) none of the Assets of
the Companies shall have been damaged by fire, flood, casualty, act of God or
the public enemy or other cause (regardless of insurance coverage for such
damage) which damages may have a Material Adverse Effect thereon, and the
Companies and the Shareholder shall have delivered to Republic a certificate,
dated as of the Closing Date, to that effect.
6.3 OPINION OF COUNSEL. Republic shall have received an opinion dated
as of the Closing Date from counsel for the Companies and the Shareholder in
form and substance acceptable to Republic, in the form set forth on Schedule
6.3.
6.4 CONSENTS. The Companies and Republic shall have received consents
to the Mergers contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Companies from any Person from whom
such consent or waiver is required under any Material Contract (including but
not limited to, any franchise, dealer or other agreement with the Factories) or
under the HSR Act as of a date not more than five days prior to the Closing
Date, or who, as a result of the transactions contemplated hereby, would have
such rights to terminate or modify such Contracts or instruments, either by the
terms thereof or as a matter of law. Republic shall have received consents to
the transfer of the Franchise Agreements between each of the Companies and each
of the Factories or shall have entered into new dealer and franchise agreements
of the type generally in use at that time to operate a dealership of each of the
Factories at the Companies' current locations, subject only to such additional
terms and conditions as are acceptable to Republic. Republic shall have obtained
any applicable dealer license or other approvals required under laws of the
States of Florida and terms from the Motor Vehicle Commission of the State of
Florida and other Governmental Authorities with respect to the Mergers.
6.5 SECURITIES LAWS. Republic shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the issuance of the Republic Shares in connection with the
transactions contemplated hereby.
6.6 STOCK POWERS. At the Closing, the Shareholder shall have delivered
to Republic, for use in connection with the Held Back Shares, ten stock powers
executed in blank, with signature guarantees.
6.7 NO ADVERSE LITIGATION. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit,
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invalidate or collect damages arising out of the Mergers, and which, in the
judgment of Republic, makes it inadvisable to proceed with the transactions
contemplated hereby.
6.8 EMPLOYMENT AGREEMENTS. At or prior to the Closing, the Shareholder
shall have entered into employment agreements with the Companies, Republic, or
at Republic's option, one or more of its assignees provided that such assignment
shall not require the Shareholder to move outside the South Florida area, in the
form attached hereto as Schedule 5.13.
6.9 BOARD APPROVAL. The Board of Directors (the "Board") of Republic
shall have authorized and approved this Agreement, the Mergers, and the
transactions contemplated hereby. Republic shall notify the Companies and the
Shareholder of such approval or rejection by the Board before the end of the
third (3) business day following the Due Diligence Date. Upon notification by
Republic to the Companies of the Board's rejection of this Agreement and the
transactions contemplated hereby, this Agreement shall be terminated and the
parties shall be released from any and all obligations hereunder. Failure by
Republic to notify the Companies of the Board's rejection within the period
provided herein shall be deemed a waiver of this condition by Republic.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE SHAREHOLDER AND COMPANIES
The obligations of the Shareholder and the Companies to effect the
Mergers shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in whole or in part
by the Shareholder and the Companies:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Republic Companies
contained in this Agreement shall be true and correct at and as of the Effective
Time with the same force and effect as though made at and as of that time except
that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date. Republic shall
have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Effective Time.
The Republic Companies shall each have delivered to the Companies a certificate,
dated as of the Effective Time, and signed by an executive officer, certifying
that such representations and warranties are true and correct and that all such
obligations have been performed and complied with.
7.2 REPUBLIC SHARES. At the Closing, Republic shall have issued all of
the Republic Shares and shall have delivered to the Shareholder (a) certificates
representing the Republic Shares issued to them hereunder, other than the Held
Back Shares, and (b) copies of certificates representing the Held Back Shares
issued to the Shareholder.
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7.3 NO ORDER OR INJUNCTION. There shall not be issued and in effect by
or before any court or other governmental body an order or injunction
restraining or prohibiting the transactions contemplated hereby.
7.4 HSR ACT WAITING PERIOD. Any applicable waiting period under the HSR
Act shall have expired or been terminated.
7.5 CONSENTS. The Companies and the Shareholder shall have received
consents to the Mergers contemplated hereby and waivers of rights to terminate
or modify any material rights or obligations of the Companies from any Person
from whom such consent or waiver is required under any Material Contract
(including but not limited to, any franchise, dealer or other agreement with the
Factories) or under the HSR Act as of a date not more than five days prior to
the Closing Date, or who, as a result of the transactions contemplated hereby,
would have such rights to terminate or modify such Contracts or instruments,
either by the terms thereof or as a matter of law.
ARTICLE VIII
REGISTRATION RIGHTS
The Shareholder shall have the following registration rights with
respect to the Republic Shares issued to them hereunder.
8.1 REGISTRATION RIGHTS FOR REPUBLIC SHARES; FILING OF REGISTRATION
STATEMENT. Republic will utilize its reasonable best efforts to cause, as soon
as practicable following the Closing Date, a registration statement to be filed
under the Securities Act or an existing registration statement to be amended for
the purpose of registering the Republic Shares for resale by a Holder thereof
(the "Registration Statement"). For purposes of this Article VIII, a person is
deemed to be a "Holder" of Republic Shares whenever such person is the record
owner of Republic Shares. Republic will use its reasonable best efforts to have
the Registration Statement become effective and cause the Republic Shares to be
registered under the Securities Act, and registered, qualified or exempted under
the state securities laws of such jurisdictions as any Holder reasonably
requests, as soon as reasonably practicable following the Effective Date,
provided, however, that Republic shall not be required to qualify to do business
in any state or to consent to be subject to general service of process in any
state where it is not otherwise required to be so qualified or subject.
8.2 EXPENSES OF REGISTRATION. Republic shall pay all expenses incurred
by Republic in connection with the registration, qualification and/or exemption
of the Republic Shares, including any SEC and state securities law registration
and filing fees, listing fees, printing expenses, fees and disbursements of
Republic's counsel and accountants, transfer agents' and registrars' fees, fees
and disbursements of experts used by Republic in connection with such
registration, qualification and/or exemption, and expenses incidental to any
amendment or supplement to the Registration Statement
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<PAGE> 35
or prospectuses contained therein. Republic shall not, however, be liable for
any sales, broker's or underwriting commissions upon sale by any Holder of any
of the Republic Shares.
8.3 FURNISHING OF DOCUMENTS. Republic shall furnish to the Holders such
reasonable number of copies of the Registration Statement, such prospectuses as
are contained in the Registration Statement and such other documents as the
Holders may reasonably request in order to facilitate the offering of the
Republic Shares.
8.4 AMENDMENTS AND SUPPLEMENTS. Republic shall prepare and promptly
file with the SEC and promptly notify the Holders of the filing of such
amendments or supplements to the Registration Statement or prospectuses
contained therein as may be necessary to correct any statements or omissions if,
at the time when a prospectus relating to the Republic Shares is required to be
delivered under the Securities Act, any event shall have occurred as a result of
which any such prospectus or any other prospectus as then in effect would
include 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, provided, however, that Republic
shall be entitled to delay any such filing and the use of the prospectus if
Republic determines that such filing would impede, delay, or interfere with any
significant financing, acquisition, or other transaction involving Republic, or
require disclosure of material information which Republic has a bona fide
business purpose for preserving as confidential. Republic shall also advise the
Holders promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the SEC suspending the effectiveness of the
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
8.5 DURATION. Republic shall maintain the effectiveness of the
Registration Statement until such time as Republic reasonably determines, based
on an opinion of counsel, that all of the Holders will be eligible to sell all
of the Republic Shares then owned by the Holders without the need for continued
registration of the shares within the three month period immediately following
the termination of the effectiveness of the Registration Statement. Republic's
obligations contained in Sections 8.1, 8.3 and 8.4 shall terminate on the second
anniversary of the Effective Date.
8.6 FURTHER INFORMATION. If Republic Shares owned by a Holder are
included in any registration, such Holder shall furnish Republic such
information regarding itself as Republic may reasonably request and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
8.7 INDEMNIFICATION
(a) Republic will indemnify and hold harmless the Holders and
each person, if any, who controls a Holder within the meaning of the
Securities Act, from and against any and all losses, damages,
liabilities, costs and expenses to which the Holders or any such
controlling person may become subject under the Securities Act or
otherwise, insofar as such
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<PAGE> 36
losses, claims, damages, liabilities, costs or expenses are caused by
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus contained
therein or any amendment or supplement thereto, or arise out of or
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, in light of the circumstances under which they were made, not
misleading; provided, however, that, Republic will not be liable in any
such case to the extent that any such loss, claim, damage, liability,
cost or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by or on behalf of any Holder or
such controlling person in writing specifically for use in the
preparation thereof.
(b) Each of the Holders, jointly and severally, will indemnify
and hold harmless Republic and each person, if any, who controls
Republic within the meaning of the Securities Act, from and against any
and all losses, damages, liabilities, costs and expenses to which
Republic or any such controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus contained therein or any
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, in
light of the circumstances under which they were made, not misleading,
to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by or on behalf of any
Holder specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to
the provisions of paragraph (a) or (b) of this Section 8.7 of notice of
the commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the
provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have hereunder unless the indemnifying party has been
materially prejudiced thereby nor will such failure to so notify the
indemnifying party relieve it from any liability which it may have to
any indemnified party otherwise than hereunder. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified
party; provided, however, if the defendants in any action include both
the indemnified party and the indemnifying party and there is a
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified
party or parties shall have the right to select separate counsel to
participate in the defense of such action on behalf of such indemnified
party or parties. After notice from the indemnifying
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<PAGE> 37
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph (a) or
(b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnified party
shall have employed counsel in accordance with the provisions of the
preceding sentence, (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
(d) In the event any of the Republic Shares are sold by any
Holder or Holders in an underwritten public offering consented to by
Republic, Republic shall provide indemnification to the underwriters of
such offering and any person controlling any such underwriter on behalf
of the Holder or Holders making the offering; provided, however, that
Republic shall not be required to consent to any such underwriting or
to provide such indemnification in respect of the matters described in
the proviso to the first sentence of Section 8.7(a).
ARTICLE IX
INDEMNIFICATION
9.1 AGREEMENT BY THE SHAREHOLDER FOR INDEMNIFICATION. The Shareholder
agrees to indemnify and hold Republic and its shareholders, directors, officers,
employees, attorneys, agents and Affiliates harmless from and against, and
Republic shall be entitled to recover by set off against the Held Back Shares in
accordance with Section 9.3, the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation, related
counsel and paralegal fees and expenses) incurred or suffered by Republic
arising out of, relating to, or resulting from (i) any breach of a
representation or warranty made by the Companies or the Shareholder in or
pursuant to this Agreement, (ii) any breach of the covenants or agreements made
by the Companies or the Shareholder in or pursuant to this Agreement, or (iii)
any inaccuracy in any certificate, instrument or other document delivered by the
Companies or the Shareholder as required by this Agreement (collectively,
"Indemnifiable Damages"). Without limiting the generality of the foregoing, with
respect to the measurement of Indemnifiable Damages, Republic shall have the
right to be put in the same pre-tax consolidated financial position as it would
have been in had each of the representations and warranties of the Shareholder
hereunder been true and correct and had the agreements of the Companies and the
Shareholder hereunder been performed in full, and such Indemnifiable Damages
shall be reduced by and to the extent Republic receives proceeds under insurance
policies, including title insurance policies, as a result of, and in
compensation for, the subject matter of such claim. In no event, however, shall
the aggregate amount of Indemnifiable Damages payable by the Shareholder exceed
the Total Purchase Price. Notwithstanding anything to the contrary contained
herein,
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<PAGE> 38
Republic shall not be entitled to any Indemnifiable Damages unless the
aggregate of all such Indemnifiable Damages exceeds $250,000 ("Indemnification
Threshold"). The Indemnification Threshold shall not be applicable to any claim
under (ii) above or any claim arising under Section 3,19.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholder in this Agreement or
pursuant hereto shall survive for a period of two years after the Effective
Time, except that the representations and warranties made in Section 3.12,
Section 3.18, and Section 3.19 shall survive for the length of any applicable
period of limitations, and the representations and warranties made by the
Shareholder in Sections 3.4, 3.5, and 3.13, shall never expire. No claim for the
recovery of Indemnifiable Damages may be asserted by Republic after such
representations and warranties shall thus expire; provided, however, that claims
for Indemnifiable Damages first asserted within the applicable period shall not
thereafter be barred. Notwithstanding any knowledge of facts determined or
determinable by any party by investigation, each party shall have the right to
fully rely on the representations, warranties, covenants and agreements of the
other parties contained in this Agreement or in any other documents or papers
delivered in connection herewith. Each representation, warranty, covenant and
agreement of the parties contained in this Agreement is independent of each
other representation, warranty, covenant and agreement. Each of the
representations and warranties of the Republic Companies shall expire at the
Effective Time.
9.3 SECURITY FOR THE SHAREHOLDER'S INDEMNIFICATION OBLIGATION. As
security for the indemnification obligations contained in this Article IX, at
the Closing, Republic shall set aside and hold certificates representing the
Held Back Shares issued pursuant to this Agreement. Republic may set off against
the Held Back Shares any loss, damage, cost or expense for which the Shareholder
may be responsible pursuant to this Agreement (including without limitation, any
Indemnifiable Damages) whether or not indemnified pursuant to this Article IX,
subject, however, to the following terms and conditions:
(a) Republic shall give written notice to the Shareholder of
any claim for Indemnifiable Damages or any other damages hereunder,
which notice shall set forth (i) the amount of Indemnifiable Damages or
other loss, damage, cost or expense which Republic claims to have
sustained by reason thereof, and (ii) the basis of such claim;
(b) Such set off shall be effected on the later to occur on
the expiration of 15 days from the date of such notice or, if such
claim is contested, the date the dispute is resolved, and such set off
shall be charged proportionally against the shares set aside;
(c) After the Held Back Shares are registered and any
restrictions on sale imposed under the Securities Act or otherwise are
terminated, the Shareholder may
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<PAGE> 39
instruct Republic to sell some or all of the Held Back Shares and the
net proceeds thereof shall be substituted for such Held Back Shares in
any set off to be made by Republic pursuant to any claim hereunder
subject to continued compliance with any applicable SEC and other
regulations; and
(d) For purposes of any set off against the Held Back Shares
pursuant to this Article IX, the shares of Republic Common Stock not
sold as provided in clause (d) of this Section shall be valued at the
Average Closing Sale Price.
9.4 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with
respect to shares transferred pursuant to the foregoing right of set off (and in
the case of such shares, until the same are transferred), all Held Back Shares
shall be deemed to be owned by the Shareholder and the Shareholder shall be
entitled to vote the Held Back Shares; provided, however, that, there shall also
be deposited with Republic subject to the terms of this Article IX, all shares
of Republic Common Stock issued to the Shareholder as a result of any stock
dividend or stock split and all cash issuable to the Shareholder as a result of
any cash dividend, with respect to the Held Back Shares. All stock and cash
issued or paid upon Held Back Shares shall be distributed to the person or
entity entitled to receive such Held Back Shares together with such Held Back
Shares.
9.5 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to the
Shareholder no later than one year after the Effective Date any Held Back Shares
then held by it (or proceeds from the Held Back Shares) unless there then
remains unresolved any claim for Indemnifiable Damages or other damages
hereunder as to which notice has been given, in which event any Held Back Shares
(or proceeds from the sale of Held Back Shares) remaining on deposit after such
claim shall have been satisfied shall be returned to the Shareholder promptly
after the time of satisfaction.
9.6 ADJUSTMENT TO TOTAL PURCHASE PRICE. All payments for Indemnifiable
Damages made pursuant to this Article IX shall be treated as adjustments to the
consideration granted in the Mergers under Section 1.3.
9.7 NO BAR. If the Held Back Shares are insufficient to set off any
claim for Indemnifiable Damages made hereunder (or have been delivered to the
Shareholder prior to the making or resolution of such claim), then Republic may
take any action or exercise any remedy available to it by appropriate legal
proceedings to collect the Indemnifiable Damages.
9.8 REMEDIES CUMULATIVE. The remedies provided herein shall be
cumulative and shall not preclude Republic from asserting any other right, or
seeking any other remedies against the Shareholder.
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ARTICLE X
SECURITIES LAW MATTERS
The parties agree as follows with respect to the sale or other
disposition after the Effective Time of the Republic Shares:
10.1 DISPOSITION OF SHARES. The Shareholder agrees that he will not
sell, transfer or otherwise dispose of any Republic Shares, except pursuant to
(a) an exemption from the registration requirements under the Securities Act,
which does not require the filing by Republic with the SEC of any registration
statement, offering circular or other document, in which case, each such
Shareholder shall first supply to Republic an opinion of counsel (which counsel
and opinions shall be satisfactory to Republic) that such exemption is
available, or (b) an effective registration statement filed by Republic with the
SEC under the Securities Act.
10.2 LEGEND. The certificates representing the Republic Shares shall
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE ACT, AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO,
OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
Republic may, unless a registration statement is in effect covering such shares,
place stop transfer orders with its transfer agents with respect to such
certificates in accordance with federal securities laws.
ARTICLE XI
DEFINITIONS
11.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
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"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
hereof.
"Chargebacks" shall mean (a) any amount which either of the Companies
may be required to pay back to any party purchasing retail paper, warranties or
the like from such Companies, or (b) any amount which may be set-off or
otherwise deducted from any amount due and owing to either of the Companies by
any party purchasing retail paper, warranties or the like from such Companies.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note, mortgage,
indenture, loan agreement, franchise agreement, covenant, employment agreement,
license, instrument, purchase and sales order, commitment, undertaking,
obligation, whether written or oral, express or implied.
"Current Assets" shall mean all current assets of each of the
Companies, the value of which shall be determined in accordance with the rules
and policies of each of the Factories (or in the case of any Factory for which
no such rules or policies have been established, in accordance with GAAP).
"Current Liabilities" shall mean all current liabilities of each of the
Companies, the value of which shall be determined in accordance with the rules
and policies of each of the Factories (or in the case of any Factory for which
no such rules or policies have been established, in accordance with GAAP).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, but not limited to, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform Commercial
Code or comparable law or any jurisdiction in connection with such mortgage,
pledge, security interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or effect), in
the condition (financial or otherwise), properties, assets, liabilities, rights,
obligations, operations, business or prospects which change (or effect)
individually or in the aggregate, is materially adverse to such condition,
properties, assets, liabilities, rights, obligations, operations, business or
prospects.
"New Parts and Accessories Inventory" shall mean new, non-damaged and
non-obsolete parts and accessories inventory that may be returned to the
manufacturer.
"New Vehicle Inventory" shall mean vehicles which are new, unused
(meaning untitled and unreported as sold with full factory warranty) and
undamaged (meaning having repairable damage costing less than $100) and have
less than 100 miles.
"Other Parts and Accessories Inventory" shall mean parts and
accessories inventory other than New Parts and Accessories Inventory.
"Other Vehicle Inventory" shall mean vehicle inventory other than New
Vehicle Inventory.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, estate, trust,
unincorporated association, joint venture, Governmental Authority or other
entity, of whatever nature.
"Register", "registered" and "registration" refer to a registration of
the offering and sale of securities effected by preparing and filing a
registration statement in compliance with the Securities Act and the declaration
or ordering of the effectiveness of such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Tax.
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, use, franchise,
intangible, payroll, withholding, social security and unemployment
taxes imposed by any federal, state, local or foreign governmental
agency, and any interest or penalties related thereto.
11.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other documents made
or delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with
this Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods, where
applicable.
(d) As used herein, the neuter gender shall also denote the
masculine and feminine, and the masculine gender shall also denote the neuter
and feminine, where the context so permits.
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time.
(a) by mutual written consent of all of the parties hereto
at any time prior to the Closing; or
(b) by Republic, ten days after delivery of written notice
to the Companies and the Shareholder in accordance with Section 13.1 of this
Agreement in the event of a material breach by the Companies or the Shareholder
of any provision of this Agreement if the Companies and the Shareholder have not
cured said material breach; or
(c) by the Companies and the Shareholder ten days after
delivery of written notice to Republic in accordance with Section 13.1 of this
Agreement in the event of a
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material breach by Republic of any provision of this Agreement, if Republic has
not cured said material breach; or
(d) by Republic or the Companies upon delivery of written
notice to the other in accordance with Section 13.1 of this Agreement, if the
Closing shall not have occurred by January 31, 1996.
12.2 EFFECT OF TERMINATION. Except for the provisions of Article IX
hereof, which shall survive any termination of this Agreement, in the event of
termination of this Agreement pursuant to Section 12.1, this Agreement shall
forthwith become void and of no further force and effect, and the parties shall
be released from any and all obligations hereunder; provided, however, that
nothing herein shall relieve any party from liability for the willful breach of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be deemed given if
delivered by certified or registered mail (first class postage pre-paid),
guaranteed overnight delivery or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage
pre-paid) or guaranteed overnight delivery, to the following addresses and
telecopy numbers (or to such other addresses or telecopy numbers which such
party shall designate in writing to the other party):
(a) IF TO REPUBLIC TO:
Republic Industries, Inc.
200 East Las Olas Blvd., Suite 1400
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (954) 779-3884
WITH A COPY TO:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Attn: Bruce I. March, Esq.
Telecopy: (305) 374-5095
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(b) IF TO THE COMPANIES AND/OR THE SHAREHOLDER
TO:
10943 South Dixie Highway
Miami, Florida 33156
Attn: Gerald L. Bean
Telecopy: (305) 669-7204
WITH A COPY TO:
Greenberg, Traurig, Hoffman, Lipoff, Rosen
& Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attn: Jorge L. Freeland, Esq.
Telecopy: (305) 579-0717
13.2 ENTIRE AGREEMENT. This Agreement (including the Schedules attached
hereto) and other documents delivered at the Closing pursuant hereto, contains
the entire understanding of the parties in respect of its subject matter and
supersedes all prior agreements and understandings (oral or written) between or
among the parties with respect to such subject matter. The Schedules constitute
a part hereof as though set forth in full above.
13.3 EXPENSES; SALES TAX. Except as otherwise provided herein, the
parties shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby.
13.4 AMENDMENT; WAIVER. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts.
13.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights
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hereunder. Except as expressly provided herein, the rights and obligations of
this Agreement may not be assigned by the Companies without the prior written
consent of Republic. Republic may assign all or any portion of its rights
hereunder to one or more of its wholly owned subsidiaries.
13.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
13.7 INTERPRETATION. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
13.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws of the State of
Florida applicable to contracts executed and to be wholly performed within such
State.
13.9 JURISDICTION.
(a) The parties to this Agreement agree that any suit, action
or proceeding arising out of, or with respect to, this Agreement or any judgment
entered by any court in respect thereof may be brought only in the courts of
Dade County, Florida or in the U.S. District Court for the Southern District of
Florida and the parties hereto hereby accept the exclusive jurisdiction of those
courts for the purpose of any suit, action or proceeding.
(b) In addition, each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any judgment entered
by any court in respect thereof brought in Dade County, Florida or the U.S.
District Court for the Southern District of Florida, and hereby further
irrevocably waives any claim that any suit, action or proceedings brought in
Dade County, Florida or in such District Court has been brought in an
inconvenient forum.
13.10 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to all other parties hereto that (a) before executing this
Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party has
had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
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Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware
corporation
By: /s/ Steven R. Berrard
----------------------------------------
Steven R. Berrard, President
RI/RB MERGER CORP., a Florida corporation
By: /s/ Steven R. Berrard
----------------------------------------
Steven R. Berrard, President
RI/GFB MERGER CORP., a Florida corporation
By: /s/ Steven R. Berrard
----------------------------------------
Steven R. Berrard, President
R & B HOLDING COMPANY, INC., a Florida
corporation
By: /s/ Gerald F. Bean
----------------------------------------
Gerald F. Bean, President
G.F.B. ENTERPRISES, INC., a Florida
corporation
By: /s/ Gerald F. Bean
----------------------------------------
Gerald F. Bean, President
/s/ Gerald F. Bean
-------------------------------------------
Gerald F. Bean, individually
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EXHIBIT 2.6
MERGER AGREEMENT
This Merger Agreement (this "Agreement") is entered into as of
February 4, 1997 by and among REPUBLIC INDUSTRIES, INC., a Delaware corporation
("Republic"); REPUBLIC WASTE COMPANIES HOLDING CO., a Delaware corporation and
wholly-owned subsidiary of Republic ("Republic Holding"); and RI/YWD MERGER
CORP. ("RI/YWD"), a Pennsylvania corporation and wholly-owned subsidiary of
Republic Holding (sometimes hereinafter referred to as the "Republic Merger
Sub," and together with Republic and Republic Holding, the "Republic
Companies"); YORK WASTE DISPOSAL, INC. (the "Company"), a Pennsylvania
corporation; and SCOTT R. WAGNER, ROBERT A. KINSLEY, PATRICK A. KINSLEY,
JONATHAN R. KINSLEY, CHRISTOPHER A. KINSLEY, TIMOTHY J. KINSLEY and ROBERT
ANTHONY KINSLEY, each a resident of the State of Pennsylvania; who together
constitute all of the shareholders of the Company (together, the
"Shareholders"). Certain other capitalized terms used herein are defined in
Article X and throughout this Agreement.
RECITALS
The Boards of Directors of Republic and the Company have determined
that it is in the best interests of their respective shareholders for Republic
to acquire through Republic Holding the Company upon the terms and subject to
the conditions set forth in this Agreement. In order to effectuate the
transaction, Republic has organized the Republic Merger Sub as a wholly-owned
subsidiary of Republic Holding, and the parties have agreed, subject to the
terms and conditions set forth in this Agreement, to merge the Republic Merger
Sub with and into the Company so that the Company continues as the surviving
corporation. As a result, the Company will become a wholly-owned subsidiary of
Republic Holding, and each of the Shareholders will be issued certain shares of
common stock of Republic.
TERMS OF AGREEMENT
In consideration of the mutual representations, warranties, covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Business Corporations Law of 1988 of the
Commonwealth of Pennsylvania (the "Corporations Code"), at the Effective Time
(as defined below) Republic Merger Sub shall be merged with and into the
Company (the "Merger") pursuant to the terms and conditions set forth in
<PAGE> 2
the Plan of Merger annexed hereto as Exhibit A (the "Plan of Merger"). The
terms and conditions of the Plan of Merger are incorporated herein by reference
as if fully set forth herein. As a result of the Merger, the separate
corporate existence of Republic Merger Sub shall cease and the Company shall
continue as the surviving corporation (the "Surviving Corporation").
1.2 THE CLOSING. Subject to the terms and conditions of this
Agreement, the consummation of the Merger (the "Closing") shall take place as
promptly as practicable (and in any event within five (5) business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII, at
the offices of Republic's counsel, Akerman, Senterfitt & Eidson, P.A., Miami,
Florida, or such other time and place as the parties may otherwise agree.
1.3 PLAN OF MERGER. Pursuant to the Plan of Merger, an aggregate
of 1,131,579 shares of common stock, $0.01 par value per share, of Republic
("Republic Common Stock") (the "Purchase Price") will be issued in the Merger
in exchange for all of the issued and outstanding shares of capital stock of
the Company. Notwithstanding the foregoing, the Purchase Price shall be
reduced by (i) all Indebtedness (as defined below) of the Company in excess of
$9,000,000.00, and (ii) the amount, if any, by which the Working Capital (as
defined below) of the Company is less than Zero Dollars ($0) (collectively
items (i) and (ii) are referred to herein as the "Purchase Price Adjustment,"
which amount shall be calculated as of the Effective Date). The amount of the
Purchase Price Adjustment shall be divided by $38.00, and the quotient so
calculated shall be deducted from the number of shares of Republic Common Stock
based on the Purchase Price to be issued hereunder as of the Effective Date.
For purposes of determining the Purchase Price Adjustment, (i) "Indebtedness"
shall include the aggregate amount of all liabilities and indebtedness for
borrowed money, whether owed to a bank or any other Person, and any interest
which has accrued but remains unpaid thereon, and remaining payments on
capitalized equipment leases and operating equipment leases; (ii) "Working
Capital" shall mean the difference, if any, between the Current Assets and the
Current Liabilities of the Company; (iii) "Current Assets" shall mean all
current assets determined in accordance with GAAP; and (iv) "Current
Liabilities" shall mean the sum of (a) current liabilities (excluding the
current portion of long-term indebtedness) determined in accordance with GAAP
and (b) any consulting, accounting, legal or other similar fees and expenses
paid or payable by the Company to any Person relating to the transactions
contemplated by this Agreement.
1.4 FILING OF ARTICLES OF MERGER. At the time of the Closing, the
parties shall cause the Merger to be consummated by filing duly executed
Articles of Merger (with the completed Plan of Merger annexed thereto) with the
Secretary of State of the Commonwealth of Pennsylvania, in such form as
Republic determines is required by and is in accordance with the relevant
provisions of the Corporations Code (the date and time of such filing is
referred to herein as the "Effective Date" or "Effective Time").
1.5 ISSUANCE OF REPUBLIC SHARES; DELIVERY OF CERTIFICATES. At the
Effective Time, each of the Shareholders shall deliver the certificates
representing all issued and outstanding shares of Company Common Stock to
Republic for cancellation; and Republic shall issue to each Shareholder
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the shares of Republic Common Stock issuable pursuant to Section 1.3 (the
shares of Republic Common Stock, including the Held Back Shares, issuable by
Republic in the Merger are sometimes referred to herein as the "Republic
Shares"), registered in the name of such Shareholder based on the number of
shares of Company Common Stock owned by such Shareholder on the Effective Date
as set forth on Schedule 3.5 and shall deliver such shares in the following
manner: (i) Republic shall set aside and hold in accordance with Article VIII
certificates evidencing an aggregate of 113,158 shares of Republic Common Stock
(the "Held Back Shares"); and (ii) Republic shall deliver to each such
Shareholder one or more certificates evidencing an aggregate of 1,018,421
shares of Republic Common Stock.
1.6 PURCHASE PRICE ADJUSTMENT. At least two days prior to the
Closing Date, the Company and Republic shall estimate by mutual agreement the
amount of the Purchase Price Adjustment, if any, as of the Effective Date for
purposes of determining the number of Republic Shares to be delivered by
Republic to the Shareholders at the Closing (which estimated amount is referred
to herein as the "Estimated Amount"). Within 30 days after the Closing Date,
Republic shall prepare and deliver to the Shareholders (in accordance with
Section 12.1) a determination (the "Determination") of the actual amount of the
Purchase Price Adjustment as of the Effective Date (which actual value is
referred to herein as the "Actual Amount"). If, within 30 days after the date
on which a Determination is delivered to the Shareholders, the Shareholders
shall not have given written notice to Republic setting forth in detail any
objection of the Shareholders to such Determination, then such Determination
shall be final and binding on the parties hereto. In the event the
Shareholders give written notice of any objection to such Determination within
the 30-day period, Republic and the Shareholders shall use all reasonable
efforts to resolve the dispute within the 30-day period following the delivery
of the written notice. If the parties are unable to reach an agreement within
such 30-day period, the matter shall be submitted to Arthur Andersen LLP for
determination of the Actual Amount which shall be final and binding upon
Republic and the Shareholders. Republic and the Shareholders shall contribute
equally to costs (including fees and expenses charged by Arthur Andersen LLP in
connection with the resolution of any such dispute). If the Actual Amount is
greater than the Estimated Amount, such amount shall be deemed to be
Indemnifiable Damages under Article VIII hereof and Republic may set off
against the Held Back Shares the difference between the Actual Amount and the
Estimated Amount (assuming a value per share for purposes of such calculation
equal to the Closing Sale Price); provided, that any and all such Indemnifiable
Damages shall not be applied against or subject to the Indemnification
Threshold (as such term is defined in Article VIII hereof).
1.7 ACCOUNTING AND TAX TREATMENT. The parties hereto acknowledge
and agree that the transactions contemplated hereby shall be treated as a
purchase transaction by Republic for accounting purposes and as a tax-free
reorganization under Section 368 of the Code.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE REPUBLIC COMPANIES
As a material inducement to each of the Shareholders to enter into
this Agreement and to consummate the transactions contemplated hereby, each of
the Republic Companies jointly and severally makes the following
representations and warranties to the Shareholders:
2.1 CORPORATE STATUS. Each of Republic and Republic Holding is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Republic Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Republic Merger Sub is a wholly-owned
subsidiary of Republic Holding.
2.2 CORPORATE POWER AND AUTHORITY. Each of the Republic Companies
has the corporate power and authority to execute and deliver this Agreement, to
perform its respective obligations hereunder and to consummate the transactions
contemplated hereby. Each of the Republic Companies has taken all action
necessary to authorize its execution and delivery of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated hereby.
2.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by each of the Republic Companies and constitutes a legal, valid and
binding obligation of each of the Republic Companies, enforceable against each
of the Republic Companies in accordance with its terms, except as the same may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles regardless of whether such enforceability is
considered in a proceeding at law or in equity.
2.4 REPUBLIC COMMON STOCK. Upon consummation of the Merger and
the issuance and delivery of certificates representing the Republic Shares to
the Shareholders, the Republic Shares will be (i) validly issued, fully paid
and non-assessable shares of Republic Common Stock, (ii) registered under the
Securities Act and applicable Blue Sky Laws under effective registration
statements and (iii) listed on the NASDAQ Stock Market.
2.5 NO COMMISSIONS. None of the Republic Companies has incurred
any obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.6 CAPITALIZATION. The authorized capital stock of Republic
consists of 500,000,000 shares of Republic Common Stock and 5,000,000 shares of
preferred stock. As of January 24, 1997, (i) 299,412,227 shares of Republic
Common Stock were validly issued and outstanding, fully paid and nonassessable
and not issued in violation of any preemptive right of any stockholder of
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Republic, and (ii) no shares of preferred stock were issued and outstanding.
The Republic Shares to be issued in the Merger will be "voting stock" within
the meaning of the Code.
2.7 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement by Republic, nor the consummation by Republic of
the transactions contemplated hereby, nor compliance by Republic with any of
the provisions hereof, will (a) conflict with or result in any breach of any
provision of its First Amended and Restated Certificate of Incorporation, (b)
violate, conflict with, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration of, or result in the creation of any lien, upon
any of the properties or assets of Republic or any of its subsidiaries (the
"Republic Subsidiaries") under any of the terms, conditions or provisions of
any contract or lien, to which Republic or any Republic Subsidiary is a party
or to which they or any of their respective properties or assets may be
subject, except for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens or other encumbrances, which,
individually or in the aggregate, will not have a Material Adverse Effect on
Republic, (c) violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Republic or any Republic Subsidiary
or any of their respective properties or assets, except for such violations
which, individually or in the aggregate, will not have a Material Adverse
Effect on Republic, or (d) require any consent, approval, authorization or
permit of or from, or filing with or notification to, any Governmental
Authority except (i) pursuant to the Exchange Act and the Securities Act, (ii)
filings required under the securities or blue sky laws of the various states,
(iii) filings required under the HSR, (iv) consents, approvals, authorizations,
permits, filings or notifications which have either been obtained or made prior
to the Closing or which, if not obtained or made, will neither individually or
in the aggregate, have a Material Adverse Effect on Republic nor restrict
Republic's legal authority to execute and deliver this Agreement and consummate
the transactions contemplated hereby, or (v) any filings required to be made by
the Company or the Shareholders.
2.8 REPORTS AND FINANCIAL STATEMENTS. Within the last three
years, except where failure to have done so did and would not have a Material
Adverse Effect on Republic, Republic has filed all reports, registrations and
statements, together with any required amendments thereto, that it was required
to file with the SEC, including, but not limited to Forms 10-K, Forms 10-Q,
Forms 8-K and proxy statements (collectively, the "Republic Reports").
Republic has previously furnished to the Company and made available to the
Shareholders copies of all Republic Reports filed with the SEC since January 1,
1996, and with respect to Republic Reports filed after the date of this
Agreement until the Effective Date, will promptly furnish to the Company and
make available to the Shareholders, copies of each of the Republic Reports
filed with the SEC during such period. As of their respective dates (but
taking into account any amendments filed prior to the date of this Agreement),
the Republic Reports complied, or, with respect to Republic Reports filed after
the date of this Agreement, will comply, in all material respects with all the
rules and regulations promulgated by the SEC and did not contain, or, with
respect to Republic Reports filed after the date of this Agreement, will not
contain any untrue statement of a material fact or omit to state a material
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<PAGE> 6
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.
2.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Republic Reports filed by Republic with the SEC prior to the date of this
Agreement, since December 31, 1995 to the date of this Agreement, there has not
been any change in the financial condition, results of operations or business
of Republic and the Republic Subsidiaries that either individually or in the
aggregate would have a Material Adverse Effect on the financial condition of
Republic.
2.10 ACCOUNTING AND TAX MATTERS. Neither Republic nor, to the best
of its knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent Republic from accounting from the business combinations to
be effected by the Merger as a "purchase." Republic warrants that it has no
present intention of disposing of any of the common stock of the Company to be
received by Republic in the Mergers. Republic does not have any present
intention to take any action to cause the Merger to lose its tax free status.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
As a material inducement to each of the Republic Companies to enter
into this Agreement and to consummate the transactions contemplated hereby,
each of the Shareholders jointly and severally makes the following
representations and warranties to Republic:
3.1 CORPORATE STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the requisite power and authority to own or lease its
properties and to carry on its business as now being conducted. The Company is
legally qualified to transact business as a foreign corporation in all
jurisdictions where the nature of its properties and the conduct of its
business requires such qualification (all of which jurisdictions are listed on
Schedule 3.1) and is in good standing in each of the jurisdictions in which it
is so qualified. The Company has fully complied with all of the requirements
of any statute governing the use and registration of fictitious names, and has
the legal right to use the names under which it operates its business. There
is no pending or threatened proceeding for the dissolution, liquidation,
insolvency or rehabilitation of the Company.
3.2 POWER AND AUTHORITY. The Company has the power and authority
to execute and deliver this Agreement, to perform its respective obligations
hereunder and to consummate the transactions contemplated hereby. The Company
has taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby. Each of the Shareholders
resides in the Commonwealth of Pennsylvania, and has the requisite power,
competence and authority to
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execute and deliver this Agreement, to perform each of their respective
obligations hereunder and to consummate the transactions contemplated hereby.
3.3 ENFORCEABILITY. This Agreement has been duly executed and
delivered by the Company and the Shareholders, and constitutes the legal, valid
and binding obligation of each of them, enforceable against them in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and general equitable principles
regardless of whether such enforceability is considered in a proceeding at law
or in equity.
3.4 CAPITALIZATION. Schedule 3.4 sets forth, with respect to the
Company, (a) the number of authorized shares of each class of its capital
stock, (b) the number of issued and outstanding shares of each class of its
capital stock, and (c) the number of shares of each class of its capital stock
which are held in treasury. All of the issued and outstanding shares of
capital stock of the Company (i) have been duly authorized and validly issued
and are fully paid and non-assessable, (ii) were issued in compliance with all
applicable state and federal securities laws, and (iii) were not issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the shares of capital
stock of the Company and no such rights arise by virtue of or in connection
with the transactions contemplated hereby. There are no outstanding or
authorized rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or commitments
of any kind that could require the Company to issue or sell any shares of its
capital stock (or securities convertible into or exchangeable for shares of its
capital stock). Except as otherwise set forth on Schedule 3.17C, there are no
outstanding stock appreciation, phantom stock, profit participation or other
similar rights with respect to the Company. There are no proxies, voting
rights or other agreements or understandings with respect to the voting or
transfer of the capital stock of the Company. The Company is not obligated to
redeem or otherwise acquire any of its outstanding shares of capital stock.
3.5 SHAREHOLDERS OF THE COMPANY. Schedule 3.5 sets forth, with
respect to the Company, (a) the name, address and federal taxpayer
identification number of, and the number of outstanding shares of each class of
its capital stock owned by, each shareholder of record as of the close of
business on the date of this Agreement; and (b) the name, address and federal
taxpayer identification number of, and number of shares of each class of its
capital stock beneficially owned by, each beneficial owner of outstanding
shares of capital stock (to the extent that record and beneficial ownership of
any such shares are different). The Shareholders constitute all of the holders
of all issued and outstanding shares of capital stock of the Company, and each
of the Shareholders owns such shares as is set forth on Schedule 3.5, free and
clear of all Liens, restrictions and claims of any kind.
3.6 NO VIOLATION. The execution and delivery of this Agreement by
the Company and the Shareholders, the performance by them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not (i) contravene any provision of the
articles of incorporation or bylaws of the Company, (ii) violate or conflict
with
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any law, statute, ordinance, rule, regulation, decree, writ, injunction,
judgment or order of any Governmental Authority or of any arbitration award
which is either applicable to, binding upon or enforceable against the Company
or any of the Shareholders, (iii) conflict with, result in any breach of, or
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to a right
to terminate, amend, modify, abandon or accelerate, any Contract which is
applicable to, binding upon or enforceable against the Company or any of the
Shareholders, (iv) result in or require the creation or imposition of any Lien
upon or with respect to any of the property or assets of the Company, or (v)
require the consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Authority, any court or tribunal or any other
Person, except any applicable filings required under the HSR Act, and any SEC
and other filings required to be made by Republic.
3.7 RECORDS OF THE COMPANY. The copies of the respective articles
of incorporation and bylaws of the Company which were provided to Republic are
true, accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company made available to Republic
for review were correct and complete in all material respects as of the date of
such review, no further entries have been made through the date of this
Agreement, such minute books contain the true signatures of the persons
purporting to have signed them, and such minute books contain an accurate
record of all material corporate actions of the shareholders and directors (and
any committees thereof) of the Company taken by written consent or at a meeting
since incorporation. All material corporate actions taken by the Company have
been duly authorized or ratified. All accounts, books, ledgers and official
and other records of the Company have been fully, properly and accurately kept
and completed in all material respects, and there are no material inaccuracies
or discrepancies of any kind contained therein. The stock ledgers of the
Company, as previously made available to Republic, contain accurate and
complete records of all issuances, transfers and cancellations of shares of the
capital stock of the Company.
3.8 SUBSIDIARIES. The Company does not own, directly or
indirectly, any outstanding voting securities of or other interests in, or
controls, any other corporation, partnership, joint venture or other business
entity.
3.9 FINANCIAL STATEMENTS. The Shareholders have delivered to
Republic the financial statements of the Company, including the notes thereto,
for the year ended December 31, 1996, audited by Miller & Company, copies of
which are attached to Schedule 3.9A hereto. The balance sheet of the Company
dated as of December 31, 1996, included in the Financial Statements are
referred to herein as the "Current Balance Sheet." The Financial Statements
fairly present the financial position of the Company at each of the balance
sheet dates and the results of operations for the periods covered thereby, and
have been prepared in accordance with GAAP consistently applied throughout the
periods indicated. The books and records of the Company fully and fairly
reflect all of its transactions, properties, assets and liabilities. Except as
disclosed on Schedule 3.9B, there are no material special or non-recurring
items of income or expense during the periods covered by the Financial
Statements and the balance sheets included in the Financial Statements do not
reflect any writeup or revaluation increasing the book value of any assets,
except as specifically disclosed in the
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notes thereto. The Financial Statements reflect all adjustments necessary for
a fair presentation of the financial information contained therein.
3.10 CHANGES SINCE THE CURRENT BALANCE SHEET DATE. Since the date
of the Current Balance Sheet of the Company, the Company has not (i) issued any
capital stock or other securities; (ii) made any distribution of or with
respect to its capital stock or other securities or purchased or redeemed any
of its securities; (iii) paid any bonus to or increased the rate of
compensation of any of its officers or salaried employees or amended any other
terms of employment of such persons; (iv) sold, leased or transferred any of
its properties or assets other than in the ordinary course of business
consistent with past practice; (v) made or obligated itself to make capital
expenditures out of the ordinary course of business consistent with past
practice; (vi) made any payment in respect of its liabilities other than in the
ordinary course of business consistent with past practice; (vii) incurred any
obligations or liabilities (including any indebtedness) or entered into any
transaction or series of transactions involving in excess of $25,000 in the
aggregate out of the ordinary course of business, except for this Agreement and
the transactions contemplated hereby; (viii) suffered any theft, damage,
destruction or casualty loss, not covered by insurance and for which a timely
claim was filed, in excess of $25,000 in the aggregate; (ix) suffered any
extraordinary losses (whether or not covered by insurance); (x) waived,
canceled, compromised or released any rights having a value in excess of
$25,000 in the aggregate; (xi) made or adopted any change in its accounting
practice or policies; (xii) made any adjustment to its books and records other
than in respect of the conduct of its business activities in the ordinary
course consistent with past practice; (xiii) entered into any transaction with
any Affiliate other than intercompany transactions in the ordinary course of
business consistent with past practice; (xiv) entered into any written
employment agreement or any other employment agreements other than "at will"
employment agreements; (xv) terminated, amended or modified any agreement
involving an amount in excess of $25,000, except in the ordinary course of
business; (xvi) imposed any security interest or other Lien on any of its
assets other than in the ordinary course of business consistent with past
practice; (xvii) delayed paying any accounts payable which are due and payable
except to the extent being contested in good faith; (xviii) made or pledged any
charitable contribution other than in the ordinary course of business
consistent with past practice; (xix) entered into any other transaction or been
subject to any event which has or may have a Material Adverse Effect on the
Company; or (xx) agreed to do or authorized any of the foregoing.
3.11 LIABILITIES OF THE COMPANY. Except as set forth on Schedule
3.12, the Company does not have any liabilities or obligations, whether
accrued, absolute, contingent or otherwise, except (a) to the extent reflected
or taken into account in the Current Balance Sheet and not heretofore paid or
discharged, (b) to the extent specifically set forth in or incorporated by
express reference in any of the Schedules attached hereto, (c) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of the Current Balance Sheet (none of which relates to breach of
contract, breach of warranty, tort, infringement or violation of law, or which
arose out of any action, suit, claim, governmental investigation or arbitration
proceeding), (d) normal accruals, reclassifications, and audit adjustments
which would be reflected on an audited financial statement and which would not
be material in the aggregate, and (e) liabilities incurred in the ordinary
course of business prior to the date of the Current Balance Sheet which, in
accordance with
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GAAP consistently applied, were not recorded thereon. The aggregate amount of
indebtedness for borrowed money, including principal and accrued but unpaid
interest, and including remaining payments on capitalized equipment leases and
operating equipment leases, of the Company, will not exceed $10.0 million, and
its net worth will be no less than $4.1 million, as of the Effective Time.
3.12 LITIGATION. Except as set forth in Schedule 3.12, there is no
action, suit, or other legal or administrative proceeding or governmental
investigation pending, threatened, anticipated or contemplated against, by or
affecting the Company, or any of its properties or assets, or which questions
the validity or enforceability of this Agreement or the transactions
contemplated hereby, and there is no basis for any of the foregoing. There are
no outstanding orders, decrees or stipulations issued by any Governmental
Authority in any proceeding to which the Company is or was a party which have
not been complied with in full or which continue to impose any material
obligations on the Company.
3.13 ENVIRONMENTAL MATTERS.
(a) The Company (as defined in clause (h) below)
is and has at all times been in full compliance with all Environmental Laws (as
defined in clause (h) below) governing its business, operations, properties and
assets, including, without limitation: (i) all requirements relating to the
Discharge (as defined in clause (h) below) and Handling (as defined in clause
(h) below) of Hazardous Substances (as defined in clause (h) below) or other
Waste (as defined in clause (h) below); (ii) all requirements relating to
notice, record keeping and reporting; (iii) all requirements relating to
obtaining and maintaining Licenses (as defined in clause (h) below) for the
ownership of its properties and assets and the operation of its business as
presently conducted, including Licenses relating to the Handling and Discharge
of Hazardous Substances and other Waste; and (iv) all applicable writs, orders,
judgements, injunctions, governmental communications, decrees, informational
requests or demands issued pursuant to, or arising under, any Environmental
Laws.
(b) Except with respect to matters disclosed in
Schedule 3.12, there are no (and there is no basis for any) non-compliance
orders, warning letters, notices of violation (collectively "Notices"), claims,
suits, actions, judgments, penalties, fines, or administrative or judicial
investigations or proceedings (collectively "Proceedings") pending or
threatened against or involving the Company, or its business, operations,
properties, or assets, issued by any Governmental Authority or third party with
respect to any Environmental Laws or Licenses issued to the Company thereunder
in connection with, related to or arising out of the ownership by the Company
of its properties or assets or the operation of its business, which have not
been resolved to the satisfaction of the issuing Governmental Authority or
third party in a manner that would not impose any obligation, burden or
continuing liability on Republic or the Surviving Corporation in the event that
the transactions contemplated by this Agreement are consummated, or which could
have a Material Adverse Effect on the Company, including, without limitation:
(i) Notices or Proceedings related to the Company being a potentially
responsible party for a federal or state environmental cleanup site or for
corrective action under any applicable Environmental Laws; (ii) Notices or
Proceedings in connection with any federal or state environmental cleanup site,
or in
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connection with any real property or premises where the Company has
transported, transferred or disposed of other Waste; (iii) Notices or
Proceedings relating to the Company being responsible to undertake any response
or remedial actions or clean-up actions of any kind; or (iv) Notices or
Proceedings related to the Company being liable under any Environmental Laws
for personal injury, property damage, natural resource damage, or clean up
obligations.
(c) Except as disclosed in Schedule 3.13B(1), the
Company has not Handled or Discharged, nor has it allowed or arranged for any
third party to Handle or Discharge, Hazardous Substances or other Waste to, at
or upon: (i) any location other than a site lawfully permitted to receive such
Hazardous Substances or other Waste; (ii) any real property currently or
previously owned or leased by the Company; or (iii) any site which, pursuant to
any Environmental Laws, (x) has been placed on the National Priorities List or
its state equivalent; or (y) the Environmental Protection Agency or the
relevant state agency or other Governmental Authority has notified the Company
that such Governmental Authority has proposed or is proposing to place on the
National Priorities List or its state equivalent. There has not occurred, nor
is there presently occurring, a Discharge, or threatened Discharge, of any
Hazardous Substance on, into or beneath the surface of, or adjacent to, any
real property currently or previously owned or leased by the Company in an
amount requiring a notice or report to be made to a Governmental Authority or
in violation of any applicable Environmental Laws.
(d) Schedule 3.13A identifies the operations and
activities, and locations thereof, which have been conducted or are being
conducted by the Company on any real property currently or previously owned or
leased by the Company which have involved the Handling or Discharge of
Hazardous Substances. None of the operations and activities listed on Schedule
3.13A have had nor will they have a Material Adverse Effect on the use and
occupancy of any such real property.
(e) Schedule 3.13B(2) identifies the locations to which
the Company has ever transferred, transported, hauled, moved, or disposed of
Waste and the types and volumes of Waste transferred, transported, hauled,
moved, or disposed of to each such location.
(f) Except as set forth on Schedule 3.13C, the Company
does not use, nor has it used, any Aboveground Storage Tanks (as defined in
clause (h) below) or Underground Storage Tanks (as defined in clause (h)
below), and there are not now nor have there ever been any Underground Storage
Tanks beneath any real property currently or previously owned or leased by the
Company that are required to be registered under applicable Environmental Laws.
There has been no Discharge from any Aboveground Storage Tanks or Underground
Storage Tanks set forth on Schedule 3.13C.
(g) Schedule 3.13D identifies (i) all environmental
audits, assessments or occupational health studies undertaken by the Company or
its agents or, to the knowledge of the Company, undertaken by any Governmental
Authority, or any third party, relating to or affecting the Company or any real
property currently or previously owned or leased by the Company; (ii) the
results of any ground, water, soil, air or asbestos monitoring undertaken by
the Company or its 12
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agents or, to the knowledge of the Company, undertaken by any Governmental
Authority or any third party, relating to or affecting the Company or any real
property currently or previously owned or leased by the Company which indicate
the presence of Hazardous Substances at levels requiring a notice or report to
be made to a Governmental Authority or in violation of any applicable
Environmental Laws; (iii) Schedule 3.13E identifies all material written
communications between the Company and any Governmental Authority arising under
or related to Environmental Laws; and (iv) Schedule 3.13F identifies all
outstanding citations issued under OSHA, or similar state or local statutes,
laws, ordinances, codes, rules, regulations, orders, rulings, or decrees,
relating to or affecting either the Company or any real property currently or
previously owned or leased by the Company.
(h) For purposes of this Section 3.13, the following
terms shall have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Aboveground Storage
Tanks.
"Company" means the Company, Lancaster Waste Disposal, Inc.,
America's Recycling Center, Inc. and the businesses referred to in
Schedule 3.30B.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further
be defined in any Environmental Law, into any medium including,
without limitation, ground water, surface water, soil or air.
"Environmental Laws" means all federal, state, regional or
local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial
or administrative interpretations thereof, or similar laws of foreign
jurisdictions where the Company conducts business, whether currently
in existence or hereafter enacted or promulgated, any of which govern
(or purport to govern) or relate to pollution, protection of the
environment, public health and safety, air emissions, water
discharges, hazardous or toxic substances, solid or hazardous waste or
occupational health and safety, as any of these terms are or may be
defined in such statutes, laws, rules, regulations, codes, orders,
plans, injunctions, decrees, rulings and changes or ordinances, or
judicial or administrative interpretations thereof, including, without
limitation: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq.
(collectively "CERCLA"); the Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901
et seq. (collectively "RCRA"); the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act,
as amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as
amended (42 U.S.C. Section 7401-7642); the Toxic Substances
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Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C.
Section 136-136y ("FIFRA"); the Emergency Planning and Community
Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et seq.
(Title III of SARA) ("EPCRA"); and the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be
defined in any Environmental Law, of any Hazardous Substances or
Waste.
"Hazardous Substances" shall be construed to include any toxic
or hazardous material, or waste, and any other contaminant or
pollutant whether liquid, solid, semi-solid, sludge and/or gaseous,
including without limitation, chemicals, compounds, by-products,
pesticides, asbestos containing materials, petroleum or petroleum
products, and polychlorinated biphenyls, the presence of which
requires investigation or remediation under any Environmental Laws or
which are regulated, listed or controlled by, under or pursuant to any
Environmental Laws, including, without limitation, RCRA, CERCLA, the
Hazardous Materials Transportation Act, the Toxic Substances Control
Act, the Clean Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA, or
any similar state statute, or regulations implementing such statutes,
laws, ordinances, codes, rules, regulations, orders, rulings, or
decrees, or which has been or shall be determined or interpreted at
any time by any Governmental Authority to be a hazardous or toxic
substance regulated under any other statute, law, regulation, order,
code, rule, order, or decree.
"Licenses" means all licenses, certificates, permits,
approvals and registrations.
"Underground Storage Tank" shall have the meaning ascribed to
such term in Section 6901 et seq., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule,
regulation, order ruling, or decree governing Underground Storage
Tanks.
"Waste" shall be construed broadly to include agricultural
wastes, biomedical wastes, biological wastes, bulky wastes,
construction and demolition debris, garbage, household wastes,
industrial solid wastes, liquid wastes, recyclable materials, sludge,
solid wastes, special wastes, used oils, white goods, and yard trash
as those terms are defined under any applicable Environmental Laws.
3.14 REAL ESTATE. The Company does not own any real property or
any interest therein. Schedule 3.14 sets forth a list of all leases, licenses
or similar agreements ("Leases") to which the Company is a party (copies of
which have previously been furnished to Republic), in each case, setting forth
(A) the lessor and lessee thereof and the date and term of each of the Leases,
(B) the legal description, including street address, of each property covered
thereby, and (C) a brief
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description (including size and function) of the principal improvements and
buildings thereon (the "Leased Premises"), all of which are within the property
set-back and building lines of the respective property. The Leases are in full
force and effect and have not been amended, and no party thereto is in default
or breach under any such Lease. No event has occurred which, with the passage
of time or the giving of notice or both, would cause a material breach of or
default under any of such Leases. There is no breach or anticipated breach by
any other party to such Leases. With respect to each such Leased Premises:
(i) The Company has valid leasehold interests in
the Leased Premises, free and clear of any Liens, covenants and
easements or title defects of any nature whatsoever;
(ii) The portions of the buildings located on the
Leased Premises that are used in the business of the Company are each
in good repair and condition, normal wear and tear excepted, and are
in the aggregate sufficient to satisfy the Company's current and
reasonably anticipated normal business activities as conducted
thereat;
(iii) Each of the Leased Premises (a) has direct
access to public roads or access to public roads by means of a
perpetual access easement, such access being sufficient to satisfy the
current and reasonably anticipated normal transportation requirements
of the Company's business as presently conducted at such parcel; and
(b) is served by all utilities in such quantity and quality as are
sufficient to satisfy the current normal business activities as
conducted at such parcel; and
(iv) The Company has not received notice of (a)
any condemnation proceeding with respect to any portion of the Leased
Premises or any access thereto, and no such proceeding is contemplated
by any Governmental Authority; or (b) any special assessment which may
affect any of the Leased Premises, and no such special assessment is
contemplated by any Governmental Authority.
3.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) The Company has good and marketable title to all of
its Assets (as hereinafter defined) and except as set forth on Schedule 3.15A,
free and clear of any Liens or restrictions on use. For purposes of this
Agreement, the term "Assets" means all of the properties and assets of the
Company, other than the Leased Premises, whether personal or mixed, tangible or
intangible, wherever located.
(b) The Fixed Assets (as hereinafter defined) currently
in use or necessary for the business and operations of the Company are in good
operating condition, normal wear and tear excepted, and have been maintained
substantially in accordance with all applicable manufacturer's specifications
and warranties. For purposes of this Agreement, the term "Fixed Assets" means
all
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vehicles, machinery, equipment, tools, supplies, leasehold improvements,
furniture and fixtures used by or located on the premises of the Company or set
forth on the Current Balance Sheet or acquired by the Company since the date of
the Current Balance Sheet. Schedule 3.15B lists the vehicles owned, leased or
used by the Company, setting forth the make, model, description of body and
chassis, vehicle identification number, and year of manufacture, and for each
vehicle, whether it is owned or leased, and if owned, the name of any
lienholder and the amount of the lien, and if leased, the name of the lessor
and the general terms of the lease, and, whether owned or leased, if it is used
to transport, transfer, handle, dispose or haul Waste materials.
3.16 COMPLIANCE WITH LAWS.
(a) The Company is and has been in compliance with all
laws, regulations and orders applicable to it, its business and operations (as
conducted by it now and in the past), the Assets, the Leased Premises and any
other properties and assets (in each case owned or used by it now or in the
past). The Company has not been cited, fined or otherwise notified of any
asserted past or present failure to comply with any laws, regulations or orders
and no proceeding with respect to any such violation is pending or threatened.
(b) Neither the Company, nor any of its employees or
agents, has made any payment of funds in connection with the business of the
Company which is prohibited by law, and no funds have been set aside to be used
in connection with the business of the Company for any payment prohibited by
law.
(c) The Company is and at all times has been in full
compliance with the terms and provisions of the Immigration Reform and Control
Act of 1986, as amended (the "Immigration Act"). With respect to each Employee
(as defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with the
Immigration Act is required, the Company has on file a true, accurate and
complete copy of (i) each Employee's Form I-9 (Employment Eligibility
Verification Form) and (ii) all other records, documents or other papers
prepared, procured and/or retained by the Company pursuant to the Immigration
Act. The Company has not been cited, fined, served with a Notice of Intent to
Fine or with a Cease and Desist Order, nor has any action or administrative
proceeding been initiated or threatened against the Company, by the Immigration
and Naturalization Service by reason of any actual or alleged failure to comply
with the Immigration Act.
(d) The Company is not subject to any Contract, decree or
injunction in which the Company is a party which restricts the continued
operation of any business of the Company or the expansion thereof to other
geographical areas, customers and suppliers or lines of business.
3.17 LABOR AND EMPLOYMENT MATTERS. Schedule 3.17A sets forth the
name, address, social security number and current rate of compensation of the
employees of the Company. Except as set forth on Schedule 3.17B, the Company
is not a party to or bound by any collective bargaining agreement or any other
agreement with a labor union, and there has been no effort by any labor union
during the 24 months prior to the date hereof to organize any employees of the
Company into one
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<PAGE> 16
or more collective bargaining units. There is no pending or threatened labor
dispute, strike or work stoppage which affects or which may affect the business
of the Company or which may interfere with its continued operations. Neither
the Company nor any agent, representative or employee thereof has within the
last 24 months committed any unfair labor practice as defined in the National
Labor Relations Act, as amended, and there is no pending or threatened charge
or complaint against the Company by or with the National Labor Relations Board
or any representative thereof. There has been no strike, walkout or work
stoppage involving any of the employees of the Company during the 24 months
prior to the date hereof. None of the Shareholders is aware that any executive
or key employee or group of employees has any plans to terminate his, her or
their employment with the Company as a result of the Merger or otherwise.
Schedule 3.17C contains detailed information about each contract, agreement or
plan of the following nature, whether formal or informal, and whether or not in
writing, to which the Company is a party or under which it has an obligation:
(i) employment agreements, (ii) employee handbooks, policy statements and
similar plans, (iii) noncompetition agreements and (iv) consulting agreements.
The Company has complied with applicable laws, rules and regulations relating
to employment, civil rights and equal employment opportunities, including but
not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, and
the Americans with Disabilities Act, as amended.
3.18 EMPLOYEE BENEFIT PLANS.
(a) Employee Benefit Plans. Schedule 3.18 contains a
list setting forth each employee benefit plan or arrangement of the Company,
including but not limited to employee pension benefit plans, as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), multiemployer plans, as defined in Section 3(37) of ERISA, employee
welfare benefit plans, as defined in Section 3(1) of ERISA, deferred
compensation plans, stock option plans, bonus plans, stock purchase plans,
hospitalization, disability and other insurance plans, severance or termination
pay plans and policies, whether or not described in Section 3(3) of ERISA, in
which employees, their spouses or dependents, of the Company participate
("Employee Benefit Plans") (true and accurate copies of which, together with
the most recent annual reports on Form 5500 and summary plan descriptions with
respect thereto, were furnished to Republic).
(b) Compliance with Law. With respect to each Employee
Benefit Plan (i) each has been administered in all material respects in
compliance with its terms and with all applicable laws, including, but not
limited to, ERISA and the Code; (ii) no actions, suits, claims or disputes are
pending, or threatened; (iii) no audits, inquiries, reviews, proceedings,
claims, or demands are pending with any governmental or regulatory agency; (iv)
there are no facts which could give rise to any material liability in the event
of any such investigation, claim, action, suit, audit, review, or other
proceeding; (v) all material reports, returns, and similar documents required
to be filed with any governmental agency or distributed to any plan participant
have been duly or timely filed or distributed; and (vi) no "prohibited
transaction" has occurred within the meaning of the applicable provisions of
ERISA or the Code.
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<PAGE> 17
(c) Qualified Plans. With respect to each Employee
Benefit Plan intended to qualify under Code Section 401(a) or 403(a) (i) the
Internal Revenue Service has issued a favorable determination letter, true and
correct copies of which have been furnished to Republic, that such plans are
qualified and exempt from federal income taxes; (ii) no such determination
letter has been revoked nor has revocation been threatened, nor has any
amendment or other action or omission occurred with respect to any such plan
since the date of its most recent determination letter or application therefor
in any respect which would adversely affect its qualification or materially
increase its costs; (iii) no such plan has been amended in a manner that would
require security to be provided in accordance with Section 401(a)(29) of the
Code; (iv) no reportable event (within the meaning of Section 4043 of ERISA)
has occurred, other than one for which the 30-day notice requirement has been
waived; (v) as of the Effective Date, the present value of all liabilities that
would be "benefit liabilities" under Section 4001(a)(16) of ERISA if benefits
described in Code Section 411(d)(6)(B) were included will not exceed the then
current fair market value of the assets of such plan (determined using the
actuarial assumptions used for the most recent actuarial valuation for such
plan); (vi) all contributions to, and payments from and with respect to such
plans, which may have been required to be made in accordance with such plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code, have
been timely made; and (vii) all such contributions to the plans, and all
payments under the plans (except those to be made from a trust qualified under
Section 401(a) of the Code) and all payments with respect to the plans
(including, without limitation, PBGC (as defined below) and insurance premiums)
for any period ending before the Effective Date that are not yet, but will be,
required to be made are properly accrued and reflected on the Current Balance
Sheet.
(d) Multiemployer Plans. With respect to any
multiemployer plan, as described in Section 4001(a)(3) of ERISA ("MPPA Plan")
(i) all contributions required to be made with respect to employees of the
Company have been timely paid; (ii) the Company has not incurred or is not
expected to incur, directly or indirectly, any withdrawal liability under ERISA
with respect to any such plan (whether by reason of the transactions
contemplated by the Agreement or otherwise); (iii) Schedule 3.18 sets forth (A)
the withdrawal liability under ERISA to each MPPA Plan, (B) the date as of
which such amount was calculated, and (C) the method for determining the
withdrawal liability; and (iv) no such plan is (or is expected to be) insolvent
or in reorganization and no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists or is expected to exist with respect to any such plan.
(e) Welfare Plans. (i) The Company is not obligated
under any employee welfare benefit plan as described in Section 3(1) of ERISA
("Welfare Plan") to provide medical or death benefits with respect to any
employee or former employee of the Company or its predecessors after
termination of employment; (ii) the Company has complied with the notice and
continuation coverage requirements of Section 4980B of the Code and the
regulations thereunder with respect to each Welfare Plan that is, or was during
any taxable year for which the statute of limitations on the assessment of
federal income taxes remains, open, by consent or otherwise, a group health
plan within the meaning of Section 5000(b)(1) of the Code; and (iii) there are
no reserves, assets, surplus or prepaid premiums under any Welfare Plan which
is an Employee Benefit Plan. The
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consummation of the transactions contemplated by this Agreement will not
entitle any individual to severance pay, and, will not accelerate the time of
payment or vesting, or increase the amount of compensation, due to any
individual.
(f) Controlled Group Liability. Neither the Company, nor
any entity that would be aggregated with it under Code Section 414(b), (c), (m)
or (o): (i) has ever terminated or withdrawn from any employee benefit plan
under circumstances resulting (or expected to result) in liability to the
Pension Benefit Guaranty Corporation ("PBGC"), the fund by which the employee
benefit plan is funded, or any employee or beneficiary for whose benefit the
plan is or was maintained (other than routine claims for benefits); (ii) has
any assets subject to (or expected to be subject to) a lien for unpaid
contributions to any employee benefit plan; (iii) has failed to pay premiums to
the PBGC when due; (iv) is subject to (or expected to be subject to) an excise
tax under Code Section 4971; (v) has engaged in any transaction which would
give rise to liability under Section 4069 or Section 4212(c) of ERISA; or (vi)
has violated Code Section 4980B or Section 601 through 608 of ERISA.
(g) Other Liabilities. (i) None of the Employee Benefit
Plans obligates the Company to pay separation, severance, termination or
similar benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change of control" (as such term is
defined in Section 280G of the Code); (ii) all required or discretionary (in
accordance with historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of the
Effective Date shall have been made or properly accrued on the Current Balance
Sheet or will be properly accrued on the books and records of the Company as of
the Effective Date; and (iii) none of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Current Balance Sheet or
the books and records of the Company.
3.19 TAX MATTERS. All Tax Returns required to be filed prior to
the date hereof with respect to the Company or any of its income, properties,
franchises or operations have been timely filed, each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all such
Tax Returns are true and accurate in all respects. All Taxes due and payable
by or with respect to the Company have been paid and are accrued on the Current
Balance Sheet or will be accrued on its books and records as of the Closing.
Except as set forth in Schedule 3.19 hereto: (i) with respect to each taxable
period of the Company, either such taxable period has been audited by the
relevant taxing authority or the time for assessing or collecting Taxes with
respect to each such taxable period has closed and such taxable period is not
subject to review by any relevant taxing authority; (ii) no deficiency or
proposed adjustment which has not been settled or otherwise resolved for any
amount of Taxes has been asserted or assessed by any taxing authority against
the Company; (iii) the Company has not consented to extend the time in which
any Taxes may be assessed or collected by any taxing authority; (iv) the
Company has not requested or been granted an extension of the time for filing
any Tax Return to a date later than the Effective Time; (v) there is no action,
suit, taxing authority proceeding, or audit or claim for refund now in
progress, pending or threatened against or with respect to the Company
regarding Taxes; (vi) the Company has not made an election or filed a consent
under Section 341(f) of the Code (or any corresponding provision
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of state, local or foreign law) on or prior to the Effective Time; (vii) there
are no Liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of the Company; (viii) the Company will not be required (A) as
a result of a change in method of accounting for a taxable period ending on or
prior to the Effective Date, to include any adjustment under Section 481(c) of
the Code (or any corresponding provision of state, local or foreign law) in
taxable income for any taxable period (or portion thereof) beginning after the
Effective Time or (B) as a result of any "closing agreement," as described in
Section 7121 of the Code (or any corresponding provision of state, local or
foreign law), to include any item of income or exclude any item of deduction
from any taxable period (or portion thereof) beginning after the Effective
Time; (ix) the Company has not been a member of an affiliated group (as defined
in Section 1504 of the Code) or filed or been included in a combined,
consolidated or unitary income Tax Return; (x) the Company is not a party to or
bound by any tax allocation or tax sharing agreement or has any current or
potential contractual obligation to indemnify any other Person with respect to
Taxes; (xi) no taxing authority will claim or assess any additional Taxes
against the Company for any period for which Tax Returns have been filed; (xii)
the Company has not made any payments, and will not become obligated (under any
contract entered into on or before the Effective Date) to make any payments,
that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign law); (xiii) the Company has
not been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code (or any corresponding provision of state,
local or foreign law) during the applicable period specified in Section
897(c)(1)(a)(ii) of the Code (or any corresponding provision of state, local or
foreign law); (xiv) no claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that such company is
or may be subject to Taxes assessed by such jurisdiction; and (xv) the Company
does not have any permanent establishment in any foreign country, as defined in
the relevant tax treaty between the United States of America and such foreign
country; (xvi) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to the Company for the past three years have
been furnished or made available to Republic; (xvii) the Company will not be
subject to any Taxes for the period ending at the Effective Time for any period
for which a Tax Return has not been filed imposed pursuant to Section 1374 or
Section 1375 of the Code (or any corresponding provision of state, local or
foreign law); (xviii) no sales or use tax, non-recurring intangibles tax,
documentary stamp tax or other excise tax (or comparable tax imposed by any
governmental entity) will be payable by Republic by virtue of the transactions
completed in this Agreement; and (xix) the Company has duly and validly filed
an election for "S" corporation status under the Code, and such "S" election
has not been revoked or terminated and neither the Company nor the Shareholders
have taken any action which would cause a termination of such "S" election.
3.20 INSURANCE. The Company is covered by valid, outstanding and
enforceable policies of insurance covering its respective properties, assets
and businesses against risks of the nature normally insured against by
corporations in the same or similar lines of business and in coverage amounts
typically and reasonably carried by such corporations (the "Insurance
Policies"). Such Insurance Policies are in full force and effect, and all
premiums due thereon have been paid. As of the Effective Time, each of the
Insurance Policies will be in full force and effect. None of the Insurance
Policies will lapse or terminate as a result of the transactions contemplated
by this
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Agreement. The Company has complied with the provisions of such Insurance
Policies. Schedule 3.20 contains (i) a complete and correct list of all
Insurance Policies and all amendments and riders thereto (copies of which have
been provided to Republic) and (ii) a detailed description of each pending
claim under any of the Insurance Policies for an amount in excess of $10,000
that relates to loss or damage to the properties, assets or businesses of the
Company. The Company has not failed to give, in a timely manner, any notice
required under any of the Insurance Policies to preserve its rights thereunder.
3.21 RECEIVABLES. All of the Receivables (as hereinafter defined)
are valid and legally binding, represent bona fide transactions and arose in
the ordinary course of business of the Company. All of the Receivables are
good and collectible receivables, and will be collected in full in accordance
with the terms of such receivables (and in any event within six months
following the Closing), without setoff or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the Current Balance Sheet
as reasonably adjusted since the date of the Current Balance Sheet in the
ordinary course of business consistent with past practice. For purposes of
this Agreement, the term "Receivables" means all receivables of the Company,
including those set forth on the Current Balance Sheet and all trade account
receivables arising from the provision of services, sale of inventory, notes
receivable, and insurance proceeds receivable.
3.22 LICENSES AND PERMITS. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its respective businesses and operations,
including with respect to the operation of each of the Leased Premises. All
such Permits are valid and in full force and effect, the Company is in full
compliance with the respective requirements thereof, and no proceeding is
pending or threatened to revoke or amend any of them. None of such Permits is
or will be impaired or in any way affected by the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
3.23 ADEQUACY OF THE ASSETS; RELATIONSHIPS WITH CUSTOMERS AND
SUPPLIERS; AFFILIATED TRANSACTIONS. The Assets and the Leased Premises
constitute, in the aggregate, all of the assets and properties necessary for
the conduct of the business of the Company in the manner in which and to the
extent to which such business is currently being conducted. No current
supplier to the Company of items essential to the conduct of its business will
or has threatened to terminate its business relationship with it for any
reason. The Company does not have any direct or indirect interest in any
customer, supplier or competitor of the Company, or in any person from whom or
to whom the Company leases real or personal property. Except as set forth in
Schedule 3.23, no officer, director or shareholder of the Company, nor any
person related by blood or marriage to any such person, nor any entity in which
any such person owns any beneficial interest, is a party to any Contract or
transaction with the Company or has any interest in any property used by the
Company.
3.24 INTELLECTUAL PROPERTY. The Company has full legal right,
title and interest in and to all trademarks, service marks, trade names,
copyrights, know-how, patents, trade secrets, licenses (including licenses for
the use of computer software programs), and other intellectual property used
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in the conduct of its business (the "Intellectual Property"). The conduct of
the business of the Company as presently conducted, and the unrestricted
conduct and the unrestricted use and exploitation of the Intellectual Property,
does not infringe or misappropriate any rights held or asserted by any Person,
and no Person is infringing on the Intellectual Property. No payments are
required for the continued use of the Intellectual Property. None of the
Intellectual Property has ever been declared invalid or unenforceable, or is
the subject of any pending or threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or misappropriation
or like claim, action or proceeding.
3.25 CONTRACTS. Schedule 3.25 sets forth a list of each Contract
to which the Company is a party or by which it or its properties and assets are
bound and which is material to its business, assets, properties or prospects
(the "Designated Contracts"), true and correct copies of which have been
provided to Republic. The copy of each Designated Contract furnished to
Republic is a true and complete copy of the document it purports to represent
and reflects all amendments thereto made through the date of this Agreement.
The Company has not violated any of the material terms or conditions of any
Designated Contract or any term or condition which would permit termination or
material modification of any Designated Contract, and all of the covenants to
be performed by any other party thereto have been fully performed and there are
no claims for breach or indemnification or notice of default or termination
under any Designated Contract. No event has occurred which constitutes, or
after notice or the passage of time, or both, would constitute, a material
default by the Company under any Designated Contract, and no such event has
occurred which constitutes or would constitute a material default by any other
party. The Company is not subject to any liability or payment resulting from
renegotiation of amounts paid it under any Designated Contract. As used in
this Section, Designated Contracts shall include, without limitation, (a) loan
agreements, indentures, mortgages, pledges, hypothecations, deeds of trust,
conditional sale or title retention agreements, security agreements, equipment
financing obligations or guaranties, or other sources of contingent liability
in respect of any indebtedness or obligations to any other Person, or letters
of intent or commitment letters with respect to same; (b) contracts obligating
the Company to provide products or services for a period of one year or more,
excluding standard waste collection and disposal contracts entered into in the
ordinary course of business without material modification from the preprinted
forms used by the Company in the ordinary course of its business; (c) leases of
real property, and leases of personal property not cancelable without penalty
on notice of sixty (60) days or less or calling for payment of an annual gross
rental exceeding Ten Thousand Dollars ($10,000.00); (d) distribution, sales
agency or franchise or similar agreements, or agreements providing for an
independent contractor's services, or letters of intent with respect to same;
(e) employment agreements, management service agreements, consulting
agreements, confidentiality agreements, non-competition agreements and any
other agreements relating to any employee, officer or director of the Company;
(f) licenses, assignments or transfers of trademarks, trade names, service
marks, patents, copyrights, trade secrets or know how, or other agreements
regarding proprietary rights or intellectual property; (g) any Contract
relating to pending capital expenditures by the Company; and (h) other material
Contracts or understandings, irrespective of subject matter and whether or not
in writing, not entered into in the ordinary course of business by the Company
and not otherwise disclosed on the Schedules.
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3.26 CUSTOMER LISTS AND RECURRING REVENUE. Schedule 3.26 is a
true, correct and complete list of all existing municipal, county or city or
other large customers (collectively, the "Material Customers") of the Company
who have entered into valid and enforceable long-term (i.e., more than one
year) waste collection and disposal, recycling or other franchises or
agreements with the Company. True, correct and complete copies of such
franchises and agreements, and any ordinances relating thereto, have been
furnished by the Shareholders to Republic. Other than the Material Customers
listed on Schedule 3.26, no customer of the Company as of the date of this
Agreement accounts for more than 1% of its annual revenue. Schedule 3.26 sets
forth each Material Customer's name, address, account number, term of franchise
or agreement, billing cycle, type of service and rates charged. The average
gross monthly revenue generated for the Company by all of its customers during
the six (6) calendar month period immediately following the Effective Date
(the "Test Period") will not be less than $3,200,000.00 per month.
3.27 ACCURACY OF INFORMATION FURNISHED BY THE SHAREHOLDERS. No
representation, statement or information made or furnished by the Shareholders
to Republic or any of Republic's representatives, including those contained in
this Agreement and the various Schedules attached hereto and the other
information and statements referred to herein and previously furnished by the
Company and the Shareholders, contains or shall contain any untrue statement of
a material fact or omits or shall omit any material fact necessary to make the
information contained therein not misleading. The Shareholders have provided
Republic with true, accurate and complete copies of all documents listed or
described in the various Schedules attached hereto.
3.28 SECURITIES LAW MATTERS. Each of the Shareholders is acquiring
the Republic Shares hereunder for his own account for investment and not with a
view to, or for the sale in connection with, any distribution of any of the
Republic Shares, except in compliance with applicable state and federal
securities laws. Each of the Shareholders has had the opportunity to discuss
the transactions contemplated hereby with Republic and has had the opportunity
to obtain such information pertaining to the Republic Companies as has been
requested, including but not limited to filings made by Republic with the SEC
under the Exchange Act. Each of the Shareholders acknowledge receiving a
prospectus of Republic in accordance with the requirements of the Securities
Act. Each of the Shareholders represent that they have such knowledge and
experience in business or financial matters that are capable of evaluating the
merits and risks of an investment in the Republic Shares.
3.29 BANK ACCOUNTS; BUSINESS LOCATIONS. Schedule 3.29 sets forth
all accounts of the Company with any bank, broker or other depository
institution, and the names of all persons authorized to withdraw funds from
each such account. As of the date hereof, the Company has no office or place
of business other than as identified on Schedule 3.14 and the Company's
principal place of business and chief executive offices are indicated on
Schedule 3.14, and, except for equipment leased to customers in the ordinary
course of business, all locations where the equipment, inventory, chattel paper
and books and records of the Company is located as of the date hereof are fully
identified on Schedule 3.14.
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3.30 NAMES; PRIOR ACQUISITIONS. All names under which the Company
does business as of the date hereof are specified on Schedule 3.30A. Except as
set forth on Schedule 3.30B, the Company has not changed its name or used any
assumed or fictitious name, or been the surviving entity in a merger, acquired
any business or changed its principal place of business or chief executive
office, within the past three years.
3.31 NO COMMISSIONS. Neither the Company nor the Shareholders has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business,
consistent with past practice. The Company shall use its best efforts to
preserve intact its business organization, to keep available the services of
its current officers, employees and consultants, and to preserve its present
relationships with customers, suppliers and other persons with which it has
significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, the Company shall not, between the
date of this Agreement and the Effective Time, directly or indirectly, do or
propose or agree to do any of the following without the prior written consent
of Republic:
(a) amend or otherwise change its articles of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, encumber, or,
authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (i) any shares of its capital stock of any class, or
any options, warrants, convertible securities or other rights of any
kind to acquire any shares of such capital stock, or any other
ownership interest, of it or (ii) any of its assets, tangible or
intangible, except in the ordinary course of business consistent with
past practice (except for distributions to the Shareholders of the
certain assets more particularly described in Schedule 4.1(b) attached
hereto);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (except for distributions to the
Shareholders in amounts reasonably necessary for the Shareholders to
pay taxes with respect to the taxable income of the Company, which
amounts are consistent with past practices of the Company);
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(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its
capital stock;
(e) (i) acquire (including, without limitation, for cash
or shares of stock, by merger, consolidation, or acquisition of stock
or assets) any interest in any corporation, partnership or other
business organization or division thereof or any assets, or make any
investment either by purchase of stock or securities, contributions of
capital or property transfer, or, except in the ordinary course of
business, consistent with past practice, purchase any property or
assets of any other Person, (ii) incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse or
otherwise as an accommodation become responsible for, the obligations
of any Person, or make any loans or advances, or (iii) enter into any
Contract other than in the ordinary course of business, consistent
with past practice;
(f) subject to the provisions of any agreements
referenced on Schedule 3.17C, increase the compensation payable or to
become payable to its officers or employees, or, except as presently
bound to do, grant any severance or termination pay to, or enter into
any employment or severance agreement with, any of its directors,
officers or other employees, or establish, adopt, enter into or amend
or take any action to accelerate any rights or benefits which any
collective bargaining, bonus, profit sharing, trust, compensation,
stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees;
(g) take any action other than in the ordinary course of
business and in a manner consistent with past practice with respect to
accounting policies or procedures;
(h) pay, discharge or satisfy any existing claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with
past practice of due and payable liabilities reflected or reserved
against in its financial statements, as appropriate, or liabilities
incurred after the date hereof in the ordinary course of business and
consistent with past practice; provided, however, that the
Shareholders may, at their option, provide the Company with additional
capital to be applied by the Company to increase Working Capital;
(i) other than in the ordinary course of its business,
increase or decrease prices charged to its customers, except for
previously announced price changes, or take any other action which
might reasonably result in any material increase in the loss of
customers through non-renewal or termination of service contracts or
other causes; or
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(j) agree, in writing or otherwise, to take or authorize
any of the foregoing actions or any action which would make any
representation or warranty in Article III untrue or incorrect.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 FURTHER ASSURANCES. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 COMPLIANCE WITH COVENANTS. The Shareholders shall cause the
Company to comply with all of the respective covenants of the Company under
this Agreement.
5.3 COOPERATION. Each of the parties agrees to cooperate with the
other in the preparation and filing of all forms, notifications, reports and
information, if any, required or reasonably deemed advisable pursuant to any
law, rule or regulation or the rules of any exchange on which the Republic
Common Stock is listed or The NASDAQ Stock Market in connection with the
transactions contemplated by this Agreement and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions.
5.4 HSR ACT AND OTHER ACTIONS. Each of the parties hereto shall
(i) make promptly (and in no event later than five (5) business days following
the date hereof) its respective filings, if any, and thereafter make any other
required submissions, under the HSR Act, with respect to the transactions
contemplated hereby, and (ii) use its reasonable best efforts to take, or cause
to be taken, all appropriate actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated herein, including,
without limitation, using its best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of any
Governmental Authority and parties to Contracts with the Company as are
necessary for the consummation of the transactions contemplated hereby. Each
of parties shall make on a prompt and timely basis all governmental or
regulatory notifications and filings required to be made by it for the
consummation of the transactions contemplated hereby. The parties also agree
to use best efforts to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby and to lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby.
5.5 ACCESS TO INFORMATION. From the date hereof to the Effective
Time, the Company shall (and shall cause its directors, officers, employees,
auditors, counsel and agents) to afford Republic and Republic's officers,
employees, auditors, counsel and agents reasonable access at all
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reasonable times to its properties, offices, and other facilities, to its
officers and employees and to all books and records, and shall furnish such
persons with all financial, operating and other data and information as may be
requested. No information provided to or obtained by Republic shall affect any
representation or warranty in this Agreement.
5.6 NOTIFICATION OF CERTAIN MATTERS. The Shareholders shall give
prompt notice to Republic of the occurrence or non-occurrence of any event
which would likely cause any representation or warranty contained herein to be
untrue or inaccurate, or any covenant, condition, or agreement contained herein
not to be complied with or satisfied.
5.7 TAX TREATMENT. Republic, the Company and the Shareholders
will use their respective best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code and do not
presently intend to take any action after the Merger is effected to cause the
Merger to lose its tax-free status. All parties hereto agree to file the Plan
of Merger with its respective federal income tax returns for the year in which
the Merger is effective, and to comply with the reporting requirements of
Treasury Regulation 1.368-3.
5.8 CONFIDENTIALITY; PUBLICITY. Except as may be required by law
or as otherwise permitted or expressly contemplated herein, no party hereto or
their respective Affiliates, employees, agents and representatives shall
disclose to any third party this Agreement or the subject matter or terms
hereof without the prior consent of the other parties hereto. No press release
or other public announcement related to this Agreement or the transactions
contemplated hereby shall be issued by any party hereto without the prior
approval of the other parties, except that Republic may make such public
disclosure which it believes in good faith to be required by law or by the
terms of any listing agreement with or requirements of a securities exchange
(in which case Republic will consult with an officer of the Company prior to
making such disclosure).
5.9 NO OTHER DISCUSSIONS. The Company, the Shareholders, and
their respective Affiliates, employees, agents and representatives will not (i)
initiate, encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale
of stock or otherwise) or (ii) enter into any agreement or commitment (whether
or not binding) with respect to any of the foregoing transactions. The
Shareholders will immediately notify Republic if any third party attempts to
initiate any solicitation, discussion or negotiation with respect to any of the
foregoing transactions.
5.10 RESTRICTIVE COVENANTS. In order to assure that Republic will
realize the benefits of the Merger, each of the Shareholders jointly and
severally agrees with Republic that he will not for a period of three years
from the Effective Time:
(a) directly or indirectly, alone or as a partner, joint
venturer, officer, director, employee, consultant, agent, independent
contractor or stockholder of any company or business, engage in any
business activity in the counties set forth in
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Schedule 5.10 attached hereto in the states of Pennsylvania or
Maryland in which the Company presently conducts business which is
directly or indirectly in competition with the business conducted by
the Company at the Effective Time; provided, however, that, (i) the
beneficial ownership of less than five percent (5%) of the shares of
stock of any corporation having a class of equity securities actively
traded on a national securities exchange or over-the-counter market
shall not be deemed, in and of itself, to violate the prohibitions of
this Section, (ii) Kinsley Construction, Inc., an affiliate of certain
Shareholders, may, from time to time, engage in demolition activities
and remove and transport construction and demolition debris solely in
connection with its construction and demolition business as currently
conducted, and (iii) Advantage Recovery LLC, an affiliate of certain
of the Shareholders, may engage in the processing of recycled
materials at its present facility in Baltimore County, Maryland and
the transporting of recycled products from such facility, as currently
conducted by it;
(b) directly or indirectly (i) induce any Person which is
a customer of the Company at the Effective Time to patronize any
business directly or indirectly in competition with the business
conducted by the Company; (ii) canvass, solicit or accept from any
Person which is a customer of the Company, any such competitive
business; or (iii) request or advise any Person which is a customer of
the Company at the Effective Time to withdraw, curtail or cancel any
such customer's business with the Company or its successors;
(c) directly or indirectly employ, or knowingly permit
any company or business directly or indirectly controlled by him, to
employ, any person who was employed by the Company at or within six
months prior to the Effective Time, or in any manner seek to induce
any such person to leave his or her employment; and
(d) directly or indirectly, at any time following the
Effective Time, in any way utilize, disclose, copy, reproduce or
retain in his possession the Company's proprietary rights or records,
including, but not limited to, any of its customer lists.
The Shareholders agree and acknowledge that the restrictions contained in this
Section are reasonable in scope and duration and are necessary to protect
Republic after the Effective Time. If any provision of this Section as applied
to any party or to any circumstance is adjudged by a court to be invalid or
unenforceable, the same will in no way affect any other circumstance or the
validity or enforceability of this Agreement. If any such provision, or any
part thereof, is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision, and/or to delete specific words or phrases, and in its reduced
form, such provision shall then be enforceable and shall be enforced. The
parties agree and acknowledge that the breach of this Section will cause
irreparable damage to Republic and upon breach of any provision of this
Section, Republic shall be entitled to injunctive relief, specific performance
or other equitable relief;
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provided, however, that, this shall in no way limit any other remedies which
Republic may have (including, without limitation, the right to seek monetary
damages).
5.11 DUE DILIGENCE REVIEW AND ENVIRONMENTAL ASSESSMENT. At its
sole expense, Republic shall be entitled to have conducted prior to Closing a
due diligence review of the assets, properties, books and records of the
Company and an environmental assessment of the Leased Premises (hereinafter
referred to as "Environmental Assessment"). The Environmental Assessment may
include, but not be limited to, a physical examination of the Leased Premises,
and any structures, facilities, or equipment located thereon, soil samples,
ground and surface water samples, storage tank testing, review of pertinent
records, documents, and Licenses of the Company. The Shareholders shall
provide Republic or its designated agents or consultants with the access to
such property which Republic, its agents or consultants require to conduct the
Environmental Assessment. If the Environmental Assessment identifies
environmental contamination which requires remediation or further evaluation
under the Environmental, Health and Safety Laws or if the results of the
Environmental Assessment are otherwise not satisfactory to Republic in its sole
discretion, then Republic may elect not to close the transactions contemplated
by this Agreement in which case this Agreement shall be terminated. Republic's
failure or decision not to conduct any such Environmental Assessment shall not
affect any representation or warranty of the Shareholders under this Agreement.
5.12 TRADING IN REPUBLIC COMMON STOCK. Except as otherwise
expressly consented to by Republic, from the date of this Agreement until the
Effective Time, neither the Company nor the Shareholders (nor any Affiliates
thereof) will directly or indirectly purchase or sell (including short sales)
any shares of Republic Common Stock in any transactions effected on The NASDAQ
Stock Market or otherwise.
5.13 LEASES. At or prior to the Effective Time, (i) the Company
and the Shareholders shall enter into lease amendments with respect to the
headquarters facility and the recycling facility of the Company located at 1110
East Princess Street, York, Pennsylvania upon such commercially reasonable
terms reasonably acceptable to Republic, the Company and the Shareholders, and
(ii) the Company and Concord Road Associates shall enter into a lease with
respect to that certain C&D facility located at Concord Road, York,
Pennsylvania, for an initial two-year term commencing the Effective Date and
containing successive renewal options, at the option of the Company and at the
annual rent specified in the current lease, as follows: (A) a two-year
renewal term immediately following the initial two-year term and (B) two
successive five- year renewal terms, and containing such other commercially
reasonable terms reasonably acceptable to Republic and Concord Road Associates.
5.14 NASDAQ LISTING. During the three (3) years following the
Effective Date, Republic shall use reasonable efforts to maintain its listing
on the NASDAQ Stock Market or other nationally-recognized securities exchanges.
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ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE REPUBLIC COMPANIES
The obligations of the Republic Companies to effect the Merger shall
be subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part by
the Republic Companies:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of the Shareholders contained
in this Agreement shall be true and correct at and as of the Effective Time
with the same force and effect as though made at and as of that time except (i)
for changes specifically permitted by or disclosed pursuant to this Agreement,
and (ii) that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date. The
Company and the Shareholders shall have performed and complied with all of
their respective obligations required by this Agreement to be performed or
complied with at or prior to the Effective Time. The Company and the
Shareholders shall have delivered to the Republic Companies a certificate,
dated as of the Effective Date, duly signed (in the case of the Company, by its
President), certifying that such representations and warranties are true and
correct and that all such obligations have been complied with and performed.
6.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.
Between the date hereof and the Effective Time, (i) there shall have been no
Material Adverse Change to the Company, (ii) there shall have been no adverse
federal, state or local legislative or regulatory change affecting in any
material respect the services, products or business of the Company, and (iii)
none of the properties and assets of the Company shall have been damaged by
fire, flood, casualty, act of God or the public enemy or other cause
(regardless of insurance coverage for such damage) which damages may have a
Material Adverse Effect thereon, and there shall have been delivered to the
Republic Companies a certificate to that effect, dated the Effective Date and
signed by or on behalf of the Company and the Shareholders.
6.3 CORPORATE CERTIFICATE. The Shareholders shall have delivered
to the Republic Companies (i) copies of the articles of incorporation and
bylaws of the Company as in effect immediately prior to the Effective Time,
(ii) copies of resolutions adopted by the Board of Directors and Shareholders
of the Company authorizing the transactions contemplated by this Agreement, and
(iii) a certificate of good standing of the Company issued by the Secretary of
State of the Commonwealth of Pennsylvania and each other state in which the
Company is qualified to do business as of a date not more than thirty days
prior to the Effective Date, certified in the case of subsections (i) and (ii)
of this Section as of the Effective Date by the Secretary of the Company as
being true, correct and complete.
6.4 OPINION OF COUNSEL. The Republic Companies shall have
received an opinion dated as of the Effective Date from counsel for the Company
and the Shareholders, in form and substance acceptable to the Republic
Companies, to the effect that:
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(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and is authorized to carry on the
business now conducted by it and to own or lease the properties now
owned or leased by it;
(ii) The Company has obtained all necessary
authorizations and consents of its Board of Directors and the
Shareholders to effect the Merger;
(iii) All issued and outstanding shares of capital
stock of the Company are owned as set forth on Schedule 3.5 hereto;
(iv) Such counsel does not know or have reason to
believe that there is any litigation, proceeding or investigation
pending or threatened which might result in any Material Adverse
Change in the properties, business or prospects or in the condition of
the Company which questions the validity of this Agreement; and
(v) This Agreement is a valid and binding
obligation of the Company, and the Shareholders, and enforceable
against the Company and the Shareholders in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally or general equitable principles.
6.5 CONSENTS. The Company shall have received consents to the
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Company from any Person from whom
such consent or waiver is required under any Contract or instrument as of a
date not more than ten days prior to the Effective Date, or who, as a result of
the transactions contemplated hereby, would have such rights to terminate or
modify such Contracts or instruments, either by the terms thereof or as a
matter of law.
6.6 ACKNOWLEDGMENT OF PROSPECTUS DELIVERY AND RULE 145
RESTRICTIONS. At or prior to the Closing, the Shareholders shall have
delivered to Republic a letter acknowledging receipt of a prospectus in
accordance with the Securities Act and compliance with the restrictions of Rule
145 under the Securities Act, in form and substance satisfactory to the
Republic Companies.
6.7 COMPANY COMMON STOCK. At the Closing, each of the
Shareholders shall have delivered to Republic all certificates evidencing the
shares of capital stock of the Company held by them.
6.8 STOCK POWERS. At the Closing, each of the Shareholders shall
have delivered to Republic in escrow, for use in connection with the Held Back
Shares, ten stock powers executed in blank, with signatures guaranteed.
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6.9 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Merger or any other transaction contemplated hereby,
and which, in the judgment of Republic, makes it inadvisable to proceed with
the Merger and other transactions contemplated hereby.
6.10 BOARD APPROVAL. The Board of Directors of Republic shall have
authorized and approved this Agreement, the Merger and transactions
contemplated hereby.
6.11 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period
shall have expired or been terminated.
6.12 DUE DILIGENCE REVIEW. Republic shall be satisfied with the
results of its due diligence review and Environmental Assessment pursuant to
Section 5.11.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDERS
The obligations of the Company and the Shareholders to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following conditions, any or all of which may be waived in whole or in part
by the Company and the Shareholders:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
OBLIGATIONS. The representations and warranties of each of the Republic
Companies contained in this Agreement shall be true and correct at and as of
the Effective Time with the same force and effect as though made at and as of
that time except (i) for changes specifically permitted by or disclosed
pursuant to this Agreement, and (ii) that those representations and warranties
which address matters only as of a particular date shall remain true and
correct as of such date. Each of the Republic Companies shall have performed
and complied with all of its obligations required by this Agreement to be
performed or complied with at or prior to the Effective Time. Each of the
Republic Companies shall have delivered to the Company and the Shareholders a
certificate, dated as of the Effective Date, and signed by an executive
officer, certifying that such representations and warranties are true and
correct and that all such obligations have been complied with and performed.
7.2 NO MATERIAL ADVERSE CHANGE OR DESTRUCTION OF PROPERTY.
Between the date hereof and the Effective Time, (i) there shall have been no
Material Adverse Change of the Republic Companies, (ii) there shall have been
no adverse federal, state or local legislative or regulatory change affecting
in any material respect the services, products or business of the Republic
Companies, and (iii) none of the properties and assets of the Republic
Companies shall have been damaged by fire, flood, casualty, act of God or the
public enemy or other cause (regardless of
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insurance coverage for such damage) which damages may have a Material Adverse
Effect on Republic and the Republic Companies taken as a whole, and there shall
have been delivered to the Company and the Shareholders a certificate to that
effect, dated the Effective Date and signed on behalf of Republic.
7.3 REPUBLIC SHARES. At the Closing, Republic shall have issued
all of the Republic Shares and shall have delivered to the Shareholders (i)
certificates representing the Republic Shares issued to them hereunder, other
than the Held Back Shares, and (ii) copies of stock certificates representing
the Held Back Shares issued to them.
7.4 NO ADVERSE LITIGATION. There shall not be pending or
threatened any action or proceeding by or before any court or other
governmental body which shall seek to restrain, prohibit, invalidate or collect
damages arising out of the Merger or any other transaction contemplated hereby,
and which in the judgment of the Company and the Shareholders makes it
inadvisable to proceed with the Merger and other transactions contemplated
hereby.
7.5 HSR ACT WAITING PERIOD. Any applicable HSR Act waiting period
shall have expired or been terminated.
7.6 OPINION OF COUNSEL. The Company and the Shareholders shall
have received an opinion dated as of the Closing Date from counsel for
Republic, in form and substance acceptable to the Company and the Shareholders,
to the effect that:
(a) Republic is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware;
(b) Republic has obtained all necessary
authorizations and consents of its Board of Directors to effect the
transactions contemplated hereby and the consent of its shareholders is not
required;
(c) the Republic Shares, when issued in
connection with the transactions contemplated hereby, will be duly authorized,
validly issued, fully paid and nonassessable; and
(d) this Agreement is a valid and binding
obligation of Republic, enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the enforcement of creditors' rights
generally or general equitable principles.
7.7 TAX OPINION. The Company and the Shareholders shall have
received an opinion of counsel reasonably acceptable to them confirming that
the Merger is a tax-free reorganization under Section 368(a) of the Code.
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<PAGE> 33
7.8 STOCK REGISTRATION AND LISTING. The Republic Shares shall
remain subject to effective registration statements under the Securities Act
and applicable state blue sky laws and have been authorized for listing on the
NASDAQ Stock Market.
7.9 RELEASE OF PERSONAL LIABILITIES OF THE SHAREHOLDERS. Republic
shall use reasonable efforts to obtain from each appropriate third party
referred to in Schedule 7.9, a release of all liabilities of the Shareholders
for the obligations of the Company, contingent or otherwise, referred to
therein. To the extent that Republic is unable to obtain any such releases,
Republic agrees to indemnify and hold harmless Shareholders for any losses,
claims or damages incurred by them for any such unreleased liabilities.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT BY THE SHAREHOLDERS TO INDEMNIFY. The Shareholders
jointly and severally agree to indemnify and hold Republic harmless from and
against the aggregate of all expenses, losses, costs, deficiencies, liabilities
and damages (including, without limitation, related counsel and paralegal fees
and expenses) incurred or suffered by Republic arising out of or resulting from
(i) any breach of a representation or warranty made by the Shareholders in or
pursuant to this Agreement, (ii) any breach of the covenants or agreements made
by the Company or any Shareholder in or pursuant to this Agreement, or (iii)
any inaccuracy in any certificate delivered by the Company or any Shareholder
pursuant to this Agreement (collectively, "Indemnifiable Damages"). Without
limiting the generality of the foregoing, with respect to the measurement of
Indemnifiable Damages, Republic shall have the right to be put in the same
pre-tax consolidated financial position as it would have been in had each of
the representations and warranties of the Shareholders hereunder been true and
correct and had the covenants and agreements of the Company and the
Shareholders hereunder been performed in full.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Shareholders and Republic in this
Agreement or pursuant hereto shall survive the Effective Time for a period of
one year after the Effective Time except for the representations and warranties
contained in Sections 3.13, 3.16, 3.18 and 3.19, which shall expire at the time
the last applicable period of limitations expires for enforcement by an
applicable governmental authority. No claim for the recovery of Indemnifiable
Damages may be asserted by Republic against the Shareholders after such
representations and warranties shall thus expire, provided, however, that
claims for Indemnifiable Damages first asserted within the applicable period
shall not thereafter be barred. Notwithstanding any knowledge of facts
determined or determinable by any party by investigation, each party shall have
the right to fully rely on the representations, warranties, covenants and
agreements of the other parties contained in this Agreement or in any other
documents or papers delivered in connection herewith. Each representation,
warranty, covenant and agreement
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<PAGE> 34
of the parties contained in this Agreement is independent of each other
representation, warranty, covenant and agreement.
8.3 RECURRING REVENUE. In the event that Republic shall have
determined that the actual average gross combined monthly revenue generated by
the Company from its customers during the Test Period was less than the amount
represented and warranted in Section 3.26, then, notwithstanding any other
provision of this Agreement to the contrary, an amount equal to 16.25 times the
deficiency shall be deemed to be the amount of the loss, damage or expense
incurred as a result of such breach of the representation and warranty set
forth in Section 3.26 for purposes of this Section. Such determination shall
be made within seven (7) months following the Effective Date.
8.4 SECURITY FOR THE SHAREHOLDERS' INDEMNIFICATION OBLIGATION. As
security for the agreement by the Shareholders to indemnify and hold Republic
harmless as described in this Article at the Closing, Republic shall set aside
and hold certificates representing the Held Back Shares issued pursuant to this
Agreement. The Shareholders hereby grant Republic a first priority security
interest in the Held Back Shares. Republic may set off against the Held Back
Shares any Indemnifiable Damages for which the Shareholders may be responsible
pursuant to this Agreement, subject, however, to the following terms and
conditions:
(a) Republic shall give written notice to the
Shareholders of any claim for Indemnifiable Damages or any other
damages hereunder, which notice shall set forth (i) the amount of
Indemnifiable Damages or other loss, damage, cost or expense which
Republic claims to have sustained by reason thereof, and (ii) the
basis of such claim;
(b) Unless the Indemnifiable Damages arise from a claim
of a third party with respect to which (i) the Shareholders have
agreed in writing to assume the defense of and pay all resulting
costs, liabilities, judgments or settlements thereunder and (ii)
Republic has previously consented in writing to such arrangement,
which consent is in the sole discretion of Republic, then such set off
shall be effected on the later to occur on the expiration of 10 days
from the date of such notice (the "Notice of Contest Period") or, if
such claim is contested, the date the dispute is resolved, and such
set off shall be charged proportionally against the shares set aside;
(c) If, prior to the expiration of the Notice of Contest
Period, the Shareholders shall notify Republic in writing of an
intention to dispute the claim and if such dispute is not resolved
within 30 days after expiration of such period (the "Resolution
Period"), then Republic may elect that such dispute shall be resolved
by a committee of three arbitrators (one appointed by the
Shareholders, one appointed by Republic and one appointed by the two
arbitrators so appointed), which shall be appointed within 60 days
after the expiration of the Resolution Period. The arbitrators shall
abide by the rules of the American Arbitration Association and their
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<PAGE> 35
decision shall be made within 45 days of being appointed and shall be
final and binding on all parties;
(d) For purposes of any set off described under this
Section, the Held Back Shares shall be valued at the Closing Sale
Price.
8.5 VOTING OF AND DIVIDENDS ON THE HELD BACK SHARES. Except with
respect to shares transferred pursuant to the foregoing right of setoff (and in
the case of such shares, until the same are transferred), all Held Back Shares
shall be deemed to be owned by the Shareholders and the Shareholders shall be
entitled to vote the same; provided, however, that, there shall also be
deposited with Republic subject to the terms of this Article, all shares of
Republic Common Stock issued to the Shareholders as a result of any stock
dividend or stock split and all cash issuable to the Shareholders as a result
of any cash dividend, with respect to the Held Back Shares. All stock and cash
issued or paid upon Held Back Shares shall be distributed to the person or
entity entitled to receive such Held Back Shares together with such Held Back
Shares.
8.6 DELIVERY OF HELD BACK SHARES. Republic agrees to deliver to
the Shareholders no later than ten (10) business days following the first
anniversary of the Effective Date any Held Back Shares then held by it unless
there then remains unresolved any claim for Indemnifiable Damages or other
damages hereunder as to which notice has been given, in which event only so
many of the Held Back Shares as determined by Republic in its sole discretion,
to be necessary to cover such claim, valued at the Closing Sale Price, shall be
retained and the remainder of the Held Back Shares shall be released to the
Shareholders free and clear of Republic's security interest thereon. Any Held
Back Shares remaining on deposit after such claim shall have been satisfied
shall be returned to the Shareholders promptly after the time of satisfaction.
Republic agrees to advise the Shareholders of the number of Held Back Shares it
determines to retain pursuant to this provision.
8.7 NO BAR. If the Held Back Shares are insufficient to set off
any claim for Indemnifiable Damages made hereunder (or have been delivered to
the Shareholders prior to the making or resolution of such claim), then
Republic may take any action or exercise any remedy available to it by
appropriate legal proceedings to collect the Indemnifiable Damages.
8.8 INDEMNIFICATION THRESHOLD. Excluding any Indemnifiable
Damages arising in connection with or relating to (i) Section 1.6, (ii) the
following disposal sites (NPL) referred to on Schedule 3.13B(1) : (A) Keystone
Sanitation Co., Inc., (B) Modern Landfill and (C) York County Solid Waste
Authority, (iii) the 1 Holland Ave location referred to on Schedule 3.13A, (iv)
Section 5.11; and (v) Section 8.3, the Shareholders shall not be liable to
Republic with respect to any claim for Indemnifiable Damages unless the
aggregate amount of all Indemnifiable Damages incurred by Republic exceeds an
aggregate of $520,000.00 (the "Indemnification Threshold"), in which case the
Shareholders shall be only liable for the amount of such Indemnifiable Damages
above the Indemnification Threshold.
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<PAGE> 36
ARTICLE IX
SECURITIES LAW MATTERS
The Shareholders agree as follows with respect to the sale or other
disposition after the Effective Time of the Republic Shares:
9.1 DISPOSITION OF SHARES. The Shareholders represent and warrant
that the shares of Republic Common Stock being acquired by them hereunder are
being acquired and will be acquired for their own respective accounts and will
not be sold or otherwise disposed of, except (a) pursuant to an exemption from
the registration requirements under the Securities Act, (b) in accordance with
Rule 145(d) under the Securities Act, or (c) pursuant to an effective
registration statement filed by Republic with the SEC under the Securities Act.
To the extent the Shareholders comply with the provisions of Rule 145(d) under
the Securities Act in effecting sales of the Republic Shares, Republic agrees
to provide its transfer agent with appropriate instructions and/or opinions of
counsel in order for the shareholders to sell, transfer and/or dispose of the
Republic Shares in accordance with Rule 145(d).
9.2 LEGEND. The certificates representing the Republic Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT AND IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO, (B) IN
ACCORDANCE WITH RULE 145(D) UNDER THE ACT, OR (C) IN ACCORDANCE WITH
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
Republic may, unless a registration statement is in effect covering such shares
or unless the Shareholders comply with Rule 145(d), place stop transfer orders
with its transfer agent with respect to such certificates in accordance with
federal securities laws.
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<PAGE> 37
ARTICLE X
DEFINITIONS
10.1 DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act, as
in effect on the date hereof.
"Closing Sale Price" shall mean $38.00 per share of Republic
Common Stock issued pursuant to the terms hereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contract" means any agreement, contract, lease, note,
mortgage, indenture, loan agreement, franchise agreement, covenant,
employment agreement, license, instrument, purchase and sales order,
commitment, undertaking, obligation, whether written or oral, express
or implied.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in
effect in the United States of America from time to time.
"Governmental Authority" means any nation or government, any
state, regional, local or other political subdivision thereof, and any
entity or official exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, but not limited
to, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable
law or any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
"Material Adverse Change (or Effect)" means a change (or
effect), in the condition (financial or otherwise), properties,
assets, liabilities, rights, obligations, operations, business or
prospects which change (or effect) individually or in the
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<PAGE> 38
aggregate, is materially adverse to such condition, properties,
assets, liabilities, rights, obligations, operations, business or
prospects.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, estate, trust, unincorporated
association, joint venture, Governmental Authority or other entity, of
whatever nature.
"Register", "registered" and "registration" refer to a
registration of the offering and sale of securities effected by
preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Tax Return" means any tax return, filing or information
statement required to be filed in connection with or with respect to
any Taxes; and
"Taxes" means all taxes, fees or other assessments, including,
but not limited to, income, excise, property, sales, franchise,
intangible, withholding, social security and unemployment taxes
imposed by any federal, state, local or foreign governmental agency,
and any interest or penalties related thereto.
10.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the
defined meanings when used in any certificates, reports or other documents made
or delivered pursuant hereto or thereto, unless the context otherwise requires.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) All matters of an accounting nature in connection
with this Agreement and the transactions contemplated hereby shall be
determined in accordance with GAAP applied on a basis consistent with prior
periods, where applicable.
(d) As used herein, the neuter gender shall also denote
the masculine and feminine, and the masculine gender shall also denote the
neuter and feminine, where the context so permits.
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<PAGE> 39
ARTICLE XI
TERMINATION
11.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of all of the parties
hereto at any time prior to the Closing; or
(b) by Republic in the event of a material breach by the
Company or any of the Shareholders of any provision of this Agreement;
or
(c) by the Company in the event of a material breach by
Republic of any provision of this Agreement; or
(d) by either Republic or the Company if the Closing
shall not have occurred by April 15, 1997.
11.2 EFFECT OF TERMINATION. Except for the provisions of Article
VIII hereof, which shall survive any termination of this Agreement, in the
event of termination of this Agreement pursuant to Section 12.1, this Agreement
shall forthwith become void and of no further force and effect and the parties
shall be released from any and all obligations hereunder; provided, however,
that nothing herein shall relieve any party from liability for the willful
breach of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by
certified or registered mail (first class postage pre-paid), guaranteed
overnight delivery, or facsimile transmission if such transmission is confirmed
by delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall
designate in writing to the other party):
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<PAGE> 40
(a) IF TO ANY OF THE REPUBLIC COMPANIES TO:
Republic Industries, Inc.
450 East Las Olas Blvd., Suite 1200
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Telecopy: (954) 713-2120
WITH A COPY TO:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131
Attention: Jonathan L. Awner, Esq.
Telecopy: (305) 374-5095
(b) IF TO THE COMPANY AND/OR THE SHAREHOLDERS TO:
Mr. Robert A. Kinsley
c/o Kinsley Construction, Inc.
2700 Water Street
York, Pennsylvania 17403
Telecopy: (717) 741-5292
AND
Mr. Scott R. Wagner
550 Hess Farm Road
Dallastown, Pennsylvania 17313
Telecopy: (717) 845-5301
WITH A COPY TO:
Barley, Snyder, Senft & Cohen, LLP
100 East Market Street
York, Pennsylvania 17401
Attention: Jeffrey D. Lobach, Esq.
Telecopy: (717) 843-8492
Notice shall be deemed given on the date sent if sent by overnight
delivery or facsimile transmission and on the date delivered (or the date of
refusal of delivery) if sent by certified or registered mail.
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<PAGE> 41
12.2 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing
pursuant hereto, contains the entire understanding of the parties in respect of
its subject matter and supersedes all prior agreements and understandings (oral
or written) between or among the parties with respect to such subject matter.
The Exhibits and Schedules constitute a part hereof as though set forth in full
above.
12.3 EXPENSES. Except as otherwise provided herein, the parties
shall pay their own fees and expenses, including their own counsel fees,
incurred in connection with this Agreement or any transaction contemplated
hereby. Republic and the Shareholders each hereby agree to pay one-half ( 1/2)
of the applicable filing fees with respect to any required HSR Act filings.
12.4 AMENDMENT; WAIVER. This Agreement may not be modified,
amended, supplemented, canceled or discharged, except by written instrument
executed by all parties. No failure to exercise, and no delay in exercising,
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other right, power or privilege. No
waiver of any breach of any provision shall be deemed to be a waiver of any
preceding or succeeding breach of the same or any other provision, nor shall
any waiver be implied from any course of dealing between the parties. No
extension of time for performance of any obligations or other acts hereunder or
under any other agreement shall be deemed to be an extension of the time for
performance of any other obligations or any other acts. The rights and
remedies of the parties under this Agreement are in addition to all other
rights and remedies, at law or equity, that they may have against each other.
12.5 BINDING EFFECT; ASSIGNMENT. The rights and obligations of
this Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall
be construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by the Company, or any Shareholders without the
prior written consent of Republic.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together
shall constitute one and the same instrument.
12.7 INTERPRETATION. When a reference is made in this Agreement to
an article, section, paragraph, clause, schedule or exhibit, such reference
shall be deemed to be to this Agreement unless otherwise indicated. The
headings contained herein and on the schedules are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or the schedules. Whenever the words "include," "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation." Time shall be of the essence in this Agreement.
12.8 GOVERNING LAW; INTERPRETATION. This Agreement shall be
construed in accordance with and governed for all purposes by the laws of the
State of Florida applicable to contracts executed and to be wholly performed
within such State.
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12.9 ARM'S LENGTH NEGOTIATIONS. Each party herein expressly
represents and warrants to all other parties hereto that (a) before executing
this Agreement, said party has fully informed itself of the terms, contents,
conditions and effects of this Agreement; (b) said party has relied solely and
completely upon its own judgment in executing this Agreement; (c) said party
has had the opportunity to seek and has obtained the advice of counsel before
executing this Agreement; (d) said party has acted voluntarily and of its own
free will in executing this Agreement; (e) said party is not acting under
duress, whether economic or physical, in executing this Agreement; and (f) this
Agreement is the result of arm's length negotiations conducted by and among the
parties and their respective counsel.
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<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
REPUBLIC INDUSTRIES, INC., a Delaware
corporation
By: /s/ Richard L. Handley
------------------------------------
Richard L. Handley, President
REPUBLIC WASTE COMPANIES HOLDING
CO., a Delaware corporation
By: /s/ Richard L. Handley
------------------------------------
Richard L. Handley, President
RI/YWD MERGER CORP., a Pennsylvania
corporation
By: /s/ Richard L. Handley
------------------------------------
Richard L. Handley, President
YORK WASTE DISPOSAL, INC., a
Pennsylvania corporation
By: /s/ Scott R. Wagner
------------------------------------
Scott R. Wagner, President
/s/ Scott R. Wagner
------------------------------------
SCOTT R. WAGNER, individually
/s/ Robert A. Kinsley
------------------------------------
ROBERT A. KINSLEY, individually
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<PAGE> 44
/s/ Patrick A. Kinsley
------------------------------------
PATRICK A. KINSLEY, individually
/s/ Jonathan R. Kinsley
------------------------------------
JONATHAN R. KINSLEY, individually
/s/ Christopher A. Kinsley
------------------------------------
CHRISTOPHER A. KINSLEY, individually
/s/ Timothy J. Kinsley
------------------------------------
TIMOTHY J. KINSLEY, individually
/s/ Robert Anthony Kinsley
------------------------------------
ROBERT ANTHONY KINSLEY, individually
44
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269,
333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and
Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 14, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated February 14, 1997, on
the combined financial statements of Maroone Automotive Group included in
Republic Industries, Inc. Form 8-K, dated February 27, 1997, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269,
333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915) and
Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669).
Crowe, Chizek and Company LLP
Ft. Lauderdale, Florida
March 14, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Form S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269,
333-08479, 333-18009 and 333-20667), Form S-4 (Registration No. 333-17915)
and Forms S-8 (Registration Nos. 33-93742, 333-07623, 333-19453 and 333-20669).
Goldenberg Rosenthal Friedlander, LLP
Jenkintown, Pennsylvannia
March 14, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report included in this Form 8-K
of Republic Industries, Inc. dated February 27, 1997 into the previously filed
Registration Statements and related prospectuses of Republic Industries, Inc.
on Forms S-3 (Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289,
333-01757, 333-04269, 333-08479, 333-18009 and 333-20667), Form S-4
(Registration No. 333-17915) and Forms S-8 (Registration Nos. 33-93742,
333-07623, 333-19453 and 333-20669).
McGLADREY & PULLEN, LLP
Anaheim, California,
March 14, 1997
<PAGE> 1
EXHIBIT 99
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Historical Financial Information
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants........................................................ F-2
Supplemental Consolidated Balance Sheets as of December 31, 1996 and 1995................................. F-3
Supplemental Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994....................................................................... F-4
Supplemental Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.................................................................. F-5
Supplemental Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994........................................................................ F-6
Notes to Supplemental Consolidated Financial Statements................................................... F-7
KENDALL AUTOMOTIVE GROUP
Report of Independent Certified Public Accountants........................................................ F-28
Combined Balance Sheet as of October 31, 1996............................................................. F-29
Combined Statement of Income and Retained Earnings for the Ten-Month Period Ended October 31, 1996........ F-31
Combined Statement of Cash Flows for the Ten-Month Period Ended October 31, 1996.......................... F-32
Notes to Combined Financial Statements.................................................................... F-33
MAROONE AUTOMOTIVE GROUP
Report of Independent Auditors............................................................................ F-39
Combined Statements of Income for the Years Ended December 31, 1996 and 1995.............................. F-40
Combined Balance Sheets as of December 31, 1996 and 1995.................................................. F-41
Combined Statements of Cash Flows for the Years Ended December 31, 1996 and 1995.......................... F-42
Combined Statements of Owners' Equity for the Years Ended December 31, 1996 and 1995...................... F-44
Notes to Combined Financial Statements.................................................................... F-45
THE WALLACE COMPANIES
Independent Auditor's Report.............................................................................. F-60
Combined Balance Sheet as of December 31, 1996............................................................ F-61
Combined Statement of Income for the Year Ended December 31, 1996......................................... F-63
Combined Statement of Retained Earnings for the Year Ended December 31, 1996.............................. F-64
Combined Statement of Cash Flows for the Year Ended December 31, 1996..................................... F-65
Notes to Combined Financial Statements.................................................................... F-67
TAORMINA INDUSTRIES, INC.
Independent Auditor's Report.............................................................................. F-78
Balance Sheets as of December 31, 1996 and 1995........................................................... F-79
Statements of Income for the Years Ended December 31, 1996 and 1995....................................... F-80
Statements of Retained Earnings for the Years Ended December 31, 1996 and 1995............................ F-81
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995................................... F-82
Notes to Financial Statements............................................................................. F-84
(b) Pro Forma Financial Information
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC., GRUBB AUTOMOTIVE AND
KENDALL AUTOMOTIVE GROUP
Unaudited Condensed Consolidated Pro Forma Financial Statements........................................... F-93
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of December 31, 1996.......................... F-94
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1996............................................................................ F-95
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements.................................. F-96
</TABLE>
F-1
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Industries, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the
three-year period ended December 31, 1996, included on pages 46 through 71 of
Form 10-K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Republic
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
We have also made similar audits of the accompanying supplemental
consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the related supplemental consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996. The supplemental
consolidated statements give retroactive effect to the mergers with Carlisle
Motors, Inc. on January 21, 1997; National Car Rental System, Inc. on February
24, 1997; Taormina Industries, Inc. on February 27, 1997; and Wallace
Automotive Group and Maroone Automotive Group on February 28, 1997, which have
been accounted for as poolings of interests as described in Note 1. These
supplemental financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these supplemental
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 supplemental consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Republic Industries, Inc. and its subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996, after giving
retroactive effect to the mergers with Carlisle Motors, Inc., National Car
Rental System, Inc., Taormina Industries, Inc., Wallace Automotive Group, and
Maroone Automotive Group as described in Note 1, all in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 14, 1997.
F-2
<PAGE> 3
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 299,453 $ 345,633
Receivables, net.......................................... 535,653 428,743
Revenue earning vehicles, net............................. 3,495,178 2,922,832
Advances to affiliate..................................... 247,472 --
Inventory................................................. 185,395 178,722
Other current assets...................................... 149,981 145,767
---------- ----------
Total Current Assets.............................. 4,913,132 4,021,697
PROPERTY AND EQUIPMENT, NET................................. 1,064,974 790,043
INTANGIBLE ASSETS, NET...................................... 260,067 156,910
INVESTMENT IN SUBSCRIBER ACCOUNTS, NET...................... 92,427 42,240
OTHER ASSETS................................................ 39,659 30,059
---------- ----------
$6,370,259 $5,040,949
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 270,654 $ 221,258
Accrued liabilities....................................... 278,025 158,425
Estimated liability insurance claims...................... 144,225 119,161
Current portion of revenue earning vehicle debt........... 2,688,787 3,040,699
Notes payable and current maturities of long-term debt.... 184,054 197,622
Other current liabilities................................. 94,194 81,650
---------- ----------
Total Current Liabilities......................... 3,659,939 3,818,815
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 347,987 293,659
LONG-TERM REVENUE EARNING VEHICLE DEBT,
NET OF CURRENT PORTION.................................... 799,624 --
OTHER LIABILITIES........................................... 210,736 210,637
COMMITMENTS AND CONTINGENCIES...............................
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 5,000,000
shares authorized; none issued......................... -- --
Common stock, par value $.01 per share; 500,000,000 and
350,000,000 shares authorized, respectively;
296,829,054 and 248,013,006 shares issued and
outstanding, respectively.............................. 2,968 2,480
Additional paid-in capital................................ 1,343,003 629,131
Retained earnings......................................... 6,002 86,227
---------- ----------
Total Shareholders' Equity........................ 1,351,973 717,838
---------- ----------
$6,370,259 $5,040,949
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 4
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE:
Vehicle rentals.......................................... $2,567,099 $1,886,399 $1,222,325
Vehicle sales............................................ 1,410,513 1,000,282 858,330
Solid waste services..................................... 701,209 450,398 317,928
Electronic security services............................. 85,276 49,826 41,913
---------- ---------- ----------
4,764,097 3,386,905 2,440,496
EXPENSES:
Vehicle rental operating expenses........................ 2,072,373 1,517,036 910,337
Cost of vehicle sales.................................... 1,269,873 872,337 743,721
Cost of solid waste services............................. 512,396 307,519 213,633
Cost of electronic security services..................... 37,307 20,569 20,643
Selling, general and administrative...................... 784,212 602,818 467,449
Restructuring and merger expenses........................ 38,335 3,264 --
---------- ---------- ----------
OPERATING INCOME .......................................... 49,601 63,362 84,713
INTEREST INCOME............................................ 30,769 21,038 6,430
INTEREST EXPENSE........................................... (43,887) (33,526) (20,198)
OTHER INCOME (EXPENSE), NET................................ 5,525 5,085 (2,567)
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY CHARGE........................... 42,008 55,959 68,378
PROVISION FOR INCOME TAXES................................. 43,024 31,280 29,767
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY CHARGE..................................... (1,016) 24,679 38,611
EXTRAORDINARY CHARGE RELATED TO EARLY EXTINGUISHMENT OF
DEBT, NET OF BENEFIT FOR INCOME TAXES OF $14,955......... (31,592) -- --
---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS................... (32,608) 24,679 38,611
---------- ---------- ----------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes................................................. -- 5,414 (2,764)
Loss on disposal of segment, net of income tax benefit... -- (30,537) --
---------- ---------- ----------
Loss from discontinued operations........................ -- (25,123) (2,764)
---------- ---------- ----------
NET INCOME (LOSS).......................................... $ (32,608) $ (444) $ 35,847
========== ========== ==========
FULLY DILUTED INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Income (loss) from continuing operations before
extraordinary charge.................................. $ -- $ .11 $ .25
Extraordinary charge..................................... (.10) -- --
Discontinued operations.................................. -- (.11) (.02)
---------- ---------- ----------
Net income (loss)........................................ $ (.10) $ -- $ .23
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 5
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
------ --------------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................................ $1,533 $ 230,266 $103,612
Sales of common stock..................................... 29 16,490 --
Distributions to former owners of pooled companies........ -- -- (25,743)
Other..................................................... 16 21,161 1,245
Net income................................................ -- -- 35,847
------- ---------- --------
BALANCE AT DECEMBER 31, 1994................................ 1,578 267,917 114,961
Sales of common stock and warrants........................ 441 261,967 --
Stock issued in acquisitions.............................. 173 83,910 --
Exercise of stock options and warrants.................... 30 15,690 --
Reclassification of additional paid-in capital to effect
the spin-off........................................... -- (36,305) 36,305
Spin-off of Republic Environmental Systems, Inc........... -- -- (23,579)
Contributions to capital from former owners
of pooled companies.................................... -- 29,783 --
Distributions to former owners of pooled companies........ -- -- (41,033)
Other..................................................... 258 6,169 17
Net loss.................................................. -- -- (444)
------- ---------- --------
BALANCE AT DECEMBER 31, 1995................................ 2,480 629,131 86,227
Sales of common stock..................................... 220 550,652 --
Stock issued in acquisitions.............................. 221 101,224 --
Exercise of stock options and warrants.................... 57 43,707 --
Contributions to capital from former owners of pooled
companies.............................................. -- 21,887 --
Distributions to former owners of pooled companies........ -- -- (48,187)
Other..................................................... (10) (3,598) 570
Net loss.................................................. -- -- (32,608)
------- ---------- --------
BALANCE AT DECEMBER 31, 1996................................ $2,968 $1,343,003 $ 6,002
======= ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 6
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations.............. $ (32,608) $ 24,679 $ 38,611
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing
operations:
Restructuring, merger and other non-recurring
expenses......................................... 95,519 3,264 --
Loss on extinguishment of debt, net of income
taxes............................................ 31,592 -- --
Depreciation and amortization...................... 847,635 629,724 415,217
Changes in assets and liabilities, net of effects
from business acquisitions:
Receivables...................................... (102,253) (29,316) (37,258)
Inventory........................................ (1,392) (41,509) (12,039)
Other assets..................................... (47,920) 2,980 9,747
Accounts payable and accrued liabilities......... 68,863 84,425 6,026
Other liabilities................................ 128,672 22,807 8,786
----------- ----------- -----------
988,108 697,054 429,090
----------- ----------- -----------
CASH PROVIDED BY DISCONTINUED OPERATIONS................ -- 6,105 12,168
----------- ----------- -----------
CASH USED IN INVESTING ACTIVITIES:
Purchases of revenue earning vehicles from third party
suppliers.......................................... (3,999,100) (2,806,011) (2,762,648)
Purchases of revenue earning vehicles from related
party suppliers.................................... (631,280) (351,755) (551,157)
Sales of revenue earning vehicles..................... 3,356,359 2,841,614 2,673,654
Purchases of property and equipment................... (251,688) (221,906) (153,419)
Advances to affiliate................................. (243,400) -- --
Investment in subscriber accounts..................... (41,371) (15,980) (17,512)
Cash used in business acquisitions.................... (47,018) (1,331,676) (11,797)
Other................................................. 46,537 90,742 147,134
----------- ----------- -----------
(1,810,961) (1,794,972) (675,745)
----------- ----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES:
Payments of revenue earning vehicle financing......... (17,414,332) (9,972,386) (3,071,250)
Proceeds from revenue earning vehicle financing....... 17,732,521 11,094,327 3,348,787
Payments of long-term debt and notes payable.......... (563,698) (211,360) (200,169)
Proceeds from long-term debt and notes payable........ 512,133 188,189 128,993
Sales of common stock................................. 550,872 262,408 16,519
Other................................................. (40,823) 30,957 11,917
----------- ----------- -----------
776,673 1,392,135 234,797
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (46,180) 300,322 310
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 345,633 45,311 45,001
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 299,453 $ 345,633 $ 45,311
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 7
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Supplemental Consolidated Financial Statements include the
accounts of Republic Industries, Inc. and its subsidiaries ("Republic" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated. In 1995, the Company implemented a formal plan to dispose of all of
its mining and citrus operations. In 1994, the Board of Directors authorized
management to pursue a plan to distribute its hazardous waste services segment,
Republic Environmental Systems, Inc. ("RESI"), now known as International
Alliance Services, Inc., to Republic shareholders. Accordingly, as discussed in
Note 11, Discontinued Operations, these segments have been accounted for as
discontinued operations and the accompanying Supplemental Consolidated
Financial Statements presented herein have been restated to report separately
the operating results of these discontinued operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
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.
The accompanying Supplemental Consolidated Financial Statements include the
financial position and results of operations of Addington Resources, Inc.
("Addington") and Continental Waste Industries, Inc. ("Continental") which the
Company acquired in December 1996; Alamo Rent-A-Car, Inc. ("Alamo") which the
Company acquired in November 1996; CarChoice, Inc. ("CarChoice") which the
Company acquired in August 1996; and Incendere, Inc. ("Incendere") and The
Denver Fire Reporter & Protective Co. ("Denver Alarm"), which the Company
acquired in February 1996. These transactions were accounted for under the
pooling of interests method of accounting and, accordingly, the Supplemental
Consolidated Financial Statements have been previously restated as if the
Company and Addington, Continental, Alamo, CarChoice, Incendere and Denver Alarm
had operated as one entity since inception. See Note 2, Business Combinations,
for further discussion of these transactions.
All per share data and numbers of shares of the Company's common stock, par
value $.01 per share ("Common Stock") for all periods included in the financial
statements and notes thereto have been adjusted to reflect a two-for-one stock
split in the form of a 100% stock dividend that became effective in June 1996,
as more fully described in Note 6, Shareholders' Equity.
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Supplemental Consolidated Financial Statements give
retroactive effect to the acquisitions of National Car Rental System, Inc.
("National"), Maroone Automotive Group ("Maroone"), Wallace Automotive Group
("Wallace") and Taormina Industries, Inc. ("Taormina") all of which the Company
acquired in February 1997 and Carlisle Motors, Inc. ("Carlisle") which the
Company acquired in January 1997. The acquisitions of National, Maroone,
Wallace, Taormina and Carlisle have been accounted for under the pooling of
interests method of accounting. See Note 2, Business Combinations, for further
discussion of these transactions.
RECEIVABLES
Receivables include trade accounts receivable from the Company's various
operating business segments which consist of amounts due from retail and service
customers, travel agents and tour operators. Receivables also include vehicle
receivables from automobile manufacturers which consist of amounts due under
vehicle repurchase and incentive programs and from vehicle renters for damages
incurred on revenue earning vehicles.
F-7
<PAGE> 8
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of receivables, net of allowance for doubtful accounts at
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Trade....................................................... $286,154 $219,756
Vehicle..................................................... 226,620 185,229
Contracts in transit........................................ 19,338 16,899
Other....................................................... 19,499 16,879
-------- --------
551,611 438,763
Less: allowance for doubtful accounts....................... (15,958) (10,020)
-------- --------
$535,653 $428,743
======== ========
</TABLE>
INVESTMENTS
Investments have a maturity of one year or less, are classified as
held-to-maturity securities and are recorded at amortized cost adjusted for the
amortization or accretion of premiums or discounts, which approximate market
value. Investments are included in other assets in the accompanying
Supplemental Consolidated Balance Sheets.
Investments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Eurodollar deposits......................................... $ -- $26,727
Repurchase agreements....................................... 20,165 24,000
Certificates of deposit..................................... 1,000 13,549
Other....................................................... 1,706 3,798
------- -------
$22,871 $68,074
======= =======
</TABLE>
Repurchase agreements are restricted for the settlement of specific
estimated auto liability claims.
REVENUE EARNING VEHICLES AND DEPRECIATION
Revenue earning vehicles are stated at cost less accumulated depreciation
and allowances for stolen vehicles. The straight-line method is used to
depreciate revenue earning vehicles to their estimated residual values over the
anticipated periods of use based on the Company's fleet plan, typically ranging
from four to twenty months in the United States and from four to nine months in
Canada and Europe. Depreciation expense also includes those costs relating to
losses from damaged vehicles, and gains and losses on revenue earning vehicle
sales in the ordinary course of business. Depreciation expense related to
revenue earning vehicles was $732.3 million, $545.7 million, and $352.5 million
for the years ended December 31, 1996, 1995 and 1994, respectively, and is
included as a component of vehicle rental operating expenses in the accompanying
Supplemental Consolidated Statements of Operations.
A summary of revenue earning vehicles at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenue earning vehicles.................................... $3,906,376 $3,245,254
Less: accumulated depreciation.............................. (411,198) (322,422)
---------- ----------
$3,495,178 $2,922,832
========== ==========
</TABLE>
Revenue earning vehicles with depreciated cost of $2.9 billion at December
31, 1996 were acquired under programs that allow the Company to require
counterparties to repurchase vehicles held for periods of up to twenty-four
months. The agreements contain varying mileage and damage limitations.
F-8
<PAGE> 9
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also leases vehicles under operating lease agreements which
require the Company to provide normal maintenance and liability coverage. The
agreements generally have terms of four to twelve months. Many agreements
provide for an option to terminate the leases early and allow for the purchase
of leased vehicles subject to certain restrictions. Most leases provide for an
initial minimum monthly charge, with contingent rental charges for changes in
interest rates and adjustments for wear, damage and mileage in excess of
stipulated amounts. Contingent rental charges were $1.8 million, $13.2 million
and $2.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method. Cost includes acquisition expenses,
including reconditioning and transportation costs. Parts and accessories are
valued at the lower of cost or market, using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to expense as incurred. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is reflected in the
Supplemental Consolidated Statements of Operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for trucks and equipment and five to ten
years for furniture and fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. No general and administrative costs are
capitalized as landfills and landfill improvements.
Interest costs are capitalized in connection with the construction of
automotive rental facilities and landfill sites. Interest capitalized was $2.4
million, $3.3 million, and $2.7 million for the years ended December 31, 1996,
1995 and 1994, respectively.
Depreciation, amortization and depletion expense related to property and
equipment was $93.2 million, $71.4 million and $54.6 million in 1996, 1995 and
1994, respectively.
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Land, landfills and improvements............................ $ 451,523 $ 376,008
Furniture, fixtures and equipment........................... 657,091 408,355
Buildings and improvements.................................. 355,111 287,166
---------- ---------
1,463,725 1,071,529
Less: accumulated depreciation, amortization and
depletion................................................. (398,751) (281,486)
---------- ---------
$1,064,974 $ 790,043
========== =========
</TABLE>
F-9
<PAGE> 10
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net tangible assets acquired. The cost in excess of
the fair value of net tangible assets is amortized over periods ranging from
fifteen to forty years on a straight-line basis. Amortization expense related to
intangible assets was $12.8 million, $8.2 million and $4.7 million, in 1996,
1995 and 1994, respectively. Accumulated amortization of intangible assets was
$47.6 million and $30.4 million at December 31, 1996 and 1995, respectively.
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.
INVESTMENT IN SUBSCRIBER ACCOUNTS
Investment in subscriber accounts consists of certain capitalized costs
associated with new monitoring systems installed by the Company's electronic
security service business and the cost of acquired subscriber accounts.
The costs are amortized over periods ranging from eight to twelve years
(based on estimated and historical customer attrition rates) on a straight-line
basis. Amortization expense related to investment in subscriber accounts was
$9.3 million, $4.4 million and $3.4 million in 1996, 1995 and 1994,
respectively. Accumulated amortization of investment in subscriber accounts was
$20.7 million and $11.4 million at December 31, 1996 and 1995, respectively.
ACCRUED ENVIRONMENTAL AND LANDFILL COSTS
Accrued environmental and landfill costs are included in other liabilities
and include landfill site closure and post-closure costs. Landfill site closure
and post-closure costs include estimated costs to be incurred for final closure
of the landfills and estimated costs for providing required post-closure
monitoring and maintenance of landfills. These costs are accrued based on
consumed airspace. Estimated aggregate closure and post-closure costs are to be
fully accrued for these landfills at the time that such facilities cease to
accept waste and are closed. Excluding existing accruals at December 31, 1996,
approximately $53.7 million of such costs are to be expensed over the remaining
lives of these facilities. The Company estimates its future cost requirements
for closure and post-closure monitoring and maintenance for its solid waste
facilities based on its interpretation of the technical standards of the United
States Environmental Protection Agency's Subtitle D regulations. These estimates
do not take into account discounts for the present value of such total estimated
costs.
In addition to the Company's solid waste collection and disposal
operations, the Company's vehicle rental operations also involve the storage and
dispensing of petroleum products, primarily gasoline. The Company records as
expense, on a current basis, costs associated with remediation of environmental
pollution. The Company also accrues for its proportionate share of costs
associated with the remediation of environmental pollution when it becomes
probable that a liability has been incurred and the amount can be reasonably
estimated. Estimated costs include anticipated site testing, consulting,
remediation, disposal, post-remediation monitoring and legal fees, as
appropriate. The liability does not reflect possible recoveries from insurance
companies or reimbursement of remediation costs.
The Company periodically reassesses its method and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
F-10
<PAGE> 11
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 8, Commitments and Contingencies, the Company is
involved in litigation and is subject to ongoing environmental investigations by
certain regulatory agencies, as well as other claims and disputes that could
result in additional litigation which are in the normal course of business.
LIABILITY INSURANCE
The Company retains up to $1.0 million of risk per claim under its various
liability insurance programs for property damage and bodily injury claims. Costs
in excess of $1.0 million per claim are insured under various contracts with
insurance carriers. The costs of these retained insurance risks are estimated by
management and by actuarial evaluation based on historical claims experience,
adjusted for current trends and changes in claims-handling procedures. In 1996,
the Company changed its method of accounting for estimated auto rental liability
insurance claims by no longer discounting such liability. The effect of this
change was not material to the Company's supplemental consolidated financial
position or results of operations.
REVENUE RECOGNITION
Revenue from the Company's automotive rental operations consists primarily
of fees from rentals and the sale of related rental products from the leisure
and business travel segments. Revenue from the Company's automotive retailing
operations consists of sales of new and used vehicles, parts and service.
Revenue from the Company's solid waste services operations consists of
collection fees from residential, commercial and industrial customers and
landfill disposal fees charged to third parties. Revenue from the Company's
electronic security services business results from monitoring contracts for
security systems and fees charged for the sale and installation of such systems.
The Company recognizes revenue over the period vehicles are rented, services are
provided or products are sold.
FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps in the management of interest rate
risk. The differentials between the amounts paid and received from these swaps
are recognized over the terms of the agreements and are recorded as adjustments
to interest expense. Amounts receivable or payable under the agreements are
included in receivables or accrued liabilities in the Supplemental Consolidated
Balance Sheets and were not material at December 31, 1996 or 1995.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were capitalized at
December 31, 1996 or 1995. Advertising expense was $138.6 million, $108.4
million and $78.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with purchased
maturities of three months or less to be cash equivalents unless the investments
are legally or contractually restricted for more than three months. The effect
of non-cash transactions related to business combinations, as discussed in Note
2, Business Combinations, and other non-cash transactions are excluded from the
Statements of Cash Flows.
NEW ACCOUNTING PRONOUNCEMENT
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," effective for fiscal years beginning after December 15, 1996. This
statement provides that environmental remediation liabilities should be accrued
when the criteria of Statement of Financial Accounting Standards ("SFAS") No. 5,
"Accounting for Contingencies,"
F-11
<PAGE> 12
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are met, and it includes benchmarks to aid in the determination of when
environmental remediation liabilities should be recognized. SOP 96-1 also states
that an accrual for environmental liabilities should include incremental direct
costs of the remediation effort and costs of compensation and benefits for those
employees who are expected to devote a significant amount of time directly to
the remediation effort. The Company early adopted SOP 96-1 in 1996 without
material impact on its supplemental consolidated results of operations or
financial position.
2. BUSINESS COMBINATIONS
PENDING ACQUISITIONS
In March 1997, the Company signed a definitive agreement to acquire
Chesrown Automotive Group ("Chesrown"), which owns and operates seven
franchised automotive dealerships. The Company will issue approximately 1.9
million shares of Common Stock in this transaction, which will be accounted for
under the pooling of interests method of accounting. The closing of the
transaction is subject to customary conditions, including manufacturer and
regulatory approvals.
In March 1997, the Company signed a definitive agreement to acquire
Bankston Enterprises ("Bankston"), which owns and operates four franchised
automotive dealerships. The Company will issue approximately 1.1 million shares
of Common Stock in this transaction, which will be accounted for under the
pooling of interests method of accounting. The closing of the transaction is
subject to customary conditions, including manufacturer and regulatory
approvals.
In March 1997, the Company signed a definitive agreement to acquire
Flemington Car and Truck Country and certain related dealerships ("Flemington"),
which own and operate twelve franchised automotive dealerships. The Company
will issue approximately 1.6 million shares of Common Stock in this
transaction, which will be accounted for under the pooling of interests method
of accounting. The closing of the transaction is subject to customary
conditions, including manufacturer and regulatory approvals.
In February 1997, the Company signed a definitive agreement to acquire Joe
Meyers Automotive Group ("Joe Meyers"), which owns and operates five franchised
automotive dealerships. The Company will issue approximately .9 million shares
of Common Stock in this transaction, which will be accounted for under the
pooling of interests method of accounting. The closing of the transaction is
subject to customary conditions, including manufacturer and regulatory
approvals.
Additionally, in January, February and March 1997, the Company signed
definitive agreements to acquire various other businesses in the automotive
retailing and solid waste services industries which are not material to the
Company. The Company will issue an aggregate of approximately .9 million shares
of Common Stock in such transactions which will be accounted for under the
purchase method of accounting, and will issue an aggregate of approximately .4
million shares of Common Stock in such transactions which will be accounted for
under the pooling of interests method of accounting. These transactions are
subject to customary conditions, including manufacturer and regulatory
approvals, as applicable.
COMPLETED ACQUISITIONS
Significant businesses acquired and accounted for under the pooling of
interests method of accounting have been included retroactively in the
Supplemental Consolidated Financial Statements as if the companies had operated
as one entity since inception. Businesses acquired through December 31, 1996 and
accounted for under the purchase method of accounting are included in the
Supplemental Consolidated Financial Statements from the date of acquisition.
In February 1997, the Company acquired National, which operates a vehicle
rental business. The Company issued approximately 21.7 million shares of Common
Stock in this transaction, which has been accounted for under the pooling of
interests method of accounting. National was formed in April 1995 to acquire the
operating assets and certain liabilities of a predecessor company ("Old
National") from General Motors Corp. as further discussed below.
In February 1997, the Company acquired Maroone, which owns and operates
five franchised automotive dealerships. The Company issued approximately 6.1
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Wallace, which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.7
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In February 1997, the Company acquired Taormina, which provides waste
collection services and owns and operates a materials recycling facility. The
Company issued approximately 7.4 million shares of Common Stock in this
transaction, which has been accounted for under the pooling of interests method
of accounting.
In February 1997, the Company acquired Kendall Automotive Group
("Kendall"), which owns and operates three franchised automotive dealerships.
The Company issued approximately 1.2 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In January 1997, following approval by the Company's stockholders at a
special meeting, the Company acquired AutoNation Incorporated ("AutoNation"),
which is developing a chain of used vehicle megastores. The Company issued
approximately 17.5 million shares of Common Stock in this transaction, which
will be accounted for under the purchase method of accounting.
F-12
<PAGE> 13
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company acquired Carlisle which owns and operates
three franchised automotive dealerships. The Company issued approximately 1.0
million shares of Common Stock in this transaction, which has been accounted for
under the pooling of interests method of accounting.
In January 1997, the Company acquired Grubb Automotive ("Grubb"), which
owns and operates seven franchised automotive dealerships. The Company issued
approximately 4.0 million shares of Common Stock in this transaction, which has
been accounted for under the purchase method of accounting.
In January 1997, the Company acquired Ed Mullinax, Inc. and subsidiaries
("Mullinax"), which owns and operates six franchised automotive dealerships.
The Company issued approximately 3.6 million shares of Common Stock in this
transaction, which has been accounted for under the purchase method of
accounting.
In addition, in January, February and March 1997, the Company acquired
various other businesses in the solid waste services, electronic security
services and automotive retailing industries which were not material to the
Company. The Company issued an aggregate of approximately 1.9 million shares of
Common Stock and paid approximately $56.5 million of cash in such transactions
which will be accounted for under the purchase method of accounting, and issued
an aggregate of approximately 4.0 million shares of Common Stock in such
transactions which will be accounted for under the pooling of interests method
of accounting.
In December 1996, the Company acquired Addington, which primarily provides
solid waste disposal services. The Company issued approximately 13.7 million
shares of Common Stock in this transaction, which has been accounted for under
the pooling of interests method of accounting.
In December 1996, the Company acquired Continental, which provides
integrated solid waste services. The Company issued approximately 12.4 million
shares of Common Stock in this transaction, which has been accounted for under
the pooling of interests method of accounting.
In November 1996, the Company acquired Alamo, which operates a vehicle
rental business. The Company issued approximately 22.6 million shares of Common
Stock in this transaction, which has been accounted for under the pooling of
interests method of accounting.
In August 1996, the Company acquired substantially all of the assets of
CarChoice, which operated used vehicle superstores similar to those being
developed by AutoNation. The Company issued approximately 3.9 million shares of
Common Stock in this transaction, which has been accounted for under the pooling
of interests method of accounting.
In February 1996, the Company acquired Incendere, which provides solid
waste collection, recycling and medical waste hauling services. In February
1996, the Company acquired Denver Alarm, which provides electronic security
services. The Company issued an aggregate of approximately 5.8 million shares of
Common
F-13
<PAGE> 14
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock in these transactions, which have been accounted for under the pooling of
interests method of accounting.
Details of the results of operations of the Company and National, Maroone,
Wallace, Taormina and Carlisle (collectively, the "Pooled Entities") for the
periods before the pooling of interests combinations were consummated are as
follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
The Company.................................. $2,365,520 $1,791,446 $1,595,880
Pooled Entities.............................. 2,398,577 1,595,459 844,616
---------- ---------- ----------
$4,764,097 $3,386,905 $2,440,496
========== ========== ==========
Net income (loss):
The Company.................................. $ (59,497) $ (26,586) $ 27,188
Pooled Entities.............................. 26,889 26,142 8,659
---------- ---------- ----------
$ (32,608) $ (444) $ 35,847
========== ========== ==========
</TABLE>
During the year ended December 31, 1996, the Company also acquired various
other businesses in the solid waste services, electronic security services and
automotive retailing industries which were not material to the Company. The
Company issued an aggregate of approximately 9.1 million shares of Common Stock
and paid $23.4 million of cash in such transactions which have been accounted
for under the purchase method of accounting, and issued an aggregate of
approximately 13.0 million shares of Common Stock in such transactions which
have been accounted for under the pooling of interests method of accounting.
These acquisitions accounted for under the pooling of interests method of
accounting were not material in the aggregate and, consequently, prior period
financial statements were not restated for such acquisitions.
In November 1995, the Company acquired J.C. Duncan Company, Inc.
("Duncan"), Garbage Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc.
("Fennell") and Scott Security Systems ("Scott"). Duncan provides solid waste
collection and recycling services and also operates two landfills. GDS provides
solid waste collection and recycling services. Fennell provides solid waste
collection and recycling services and also owns a landfill. Scott provides
electronic security services. In October 1995, the Company acquired United Waste
Service, Inc. ("United") and Southland Environmental Services, Inc.
("Southland"). United provides solid waste collection, transfer and recycling
services. Southland provides solid waste collection services. In August 1995,
the Company acquired Kertz Security Systems, Inc. ("Kertz"), which provides
electronic security services. The Company issued an aggregate of approximately
36.3 million shares of Common Stock for the above acquisitions. These
acquisitions have been accounted for under the pooling of interests method of
accounting and, accordingly, the accompanying Consolidated Financial Statements
have previously been restated as if the Company and Duncan, GDS, Fennell, Scott,
United, Southland and Kertz had operated as one entity since inception.
In August 1995, the Company acquired Hudson Management Corporation and
Envirocycle, Inc. (collectively, "HMC"). HMC provides solid waste collection and
recycling services. The Company issued 16.0 million shares of Common Stock to
acquire HMC. The acquisition of HMC has been accounted for under the purchase
method of accounting. The pro forma effect of this acquisition is not material
to the Company's Supplemental Consolidated Results of Operations. During the
years ended December 31, 1995 and 1994, the Company entered into several other
business combinations which have been accounted for under the purchase method of
accounting, which were not material to the Company.
In June 1995, National acquired all of the operating assets and assumed
certain liabilities of Old National for a total cash purchase price of
approximately $1.3 billion. This acquisition was accounted for under the
purchase method of accounting. The Company's unaudited pro forma supplemental
consolidated results of operations for the years ended December 31, assuming
the acquisition of Old National had occurred on January 1, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenue........................................ $3,732,405 $3,187,796
========== ==========
Income from continuing operations.............. $ 23,935 $ 54,793
========== ==========
Fully diluted income from continuing
operations per common and common equivalent
share........................................ $ .10 $ .31
========== ==========
</TABLE>
The unaudited pro forma supplemental consolidated results of operations are
presented for informational purposes only and may not necessarily reflect the
future results of operations of the Company or what results of operations would
have been had the Company owned and operated Old National as of January 1, 1994.
F-14
<PAGE> 15
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting (including historical
accounts of immaterial acquisitions accounted for under the pooling of interests
method of accounting) for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Revenue earning vehicles.............................. $ 79,379 $1,455,197 $ --
Property and equipment................................ 114,260 99,296 45,301
Investment in subscriber accounts..................... 18,087 -- --
Intangible assets..................................... 104,996 100,058 18,802
Working capital deficiency, net of cash acquired...... (19,138) 16,794 (10,536)
Long-term debt assumed................................ (127,503) (124,326) (15,445)
Other liabilities, net................................ (21,618) (131,260) (17,879)
Common stock issued................................... (101,445) (84,083) (8,446)
--------- ---------- --------
Cash used in acquisitions............................. $ 47,018 $1,331,676 $ 11,797
========= ========== ========
</TABLE>
3. NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
Notes payable and lines of credit secured by revenue earning vehicles at
December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Amounts under $1.4 billion loan agreement with termination
date of June 10, 1997; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates................. $ 1,396,846 $ 579,001
Senior secured notes payable with interest at fixed rates
ranging from 5.58% to 7.08% with various maturity dates
secured by eligible vehicle collateral and vehicle
receivable balances; repaid in 1996....................... -- 445,500
Amounts due under commercial paper program with National
Fleet Funding Corp., maturities of 58 days or less,
weighted average interest rate was 5.47% and 5.81% in 1996
and 1995, respectively.................................... 856,294 1,429,235
Medium term notes payable, interest payable monthly at
floating or fixed rates (average fixed rate at December
31, 1996 was 7.12% and floating rate based on 3 month
LIBOR plus .5% was 5.97% at December 31, 1996), due in
July 2001................................................. 799,524 --
Amounts under $250.0 million loan agreement with termination
date of September 19, 1997; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates; repaid in
1996...................................................... -- 236,357
Amounts under various uncommitted revolving lease facilities
with financing institutions in United Kingdom; secured by
eligible vehicle collateral; interest based on an as
quoted basis dictated by market competition; no stated
expiration dates, reviewed annually....................... 143,519 157,088
Other, including amounts to be financed after period end,
under various revolving credit agreements and lease
facilities................................................ 292,228 193,518
----------- ----------
3,488,411 3,040,699
Less: current portion....................................... (2,688,787) (3,040,699)
----------- ----------
$ 799,624 $ --
=========== ==========
</TABLE>
In November 1996, the Company refinanced a substantial portion of Alamo's
notes payable and lines of credit secured by revenue earning vehicles through an
increase in its commercial paper loan agreement from $580.0 million to $1.4
billion. Certain of the notes payable and lines of credit secured by revenue
earning vehicles contain various restrictive covenants, including provisions
relating to the maintenance of tangible net worth
F-15
<PAGE> 16
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and debt to tangible net worth ratios, incurrence of additional indebtedness,
and limitations on the payment of dividends and certain investments. The
effective economic interest rate on notes payable and lines of credit secured by
revenue earning vehicles was 6.79%, 6.94% and 6.02% at December 31, 1996, 1995
and 1994, respectively. Interest expense on notes payable and lines of credit
secured by revenue earning vehicles is included as a component of vehicle rental
operating expenses in the accompanying Supplemental Consolidated Statements of
Operations.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest protection
agreements with several counterparties are used to manage the impact of interest
rate changes. At December 31, 1996 and 1995, the Company effectively converted
interest rates on the following notional principal amounts:
<TABLE>
<CAPTION>
LATEST
1996 1995 MATURITY
-------- -------- -----------
<S> <C> <C> <C>
Variable-rate (capped) into fixed-rate
obligations....................................... $150,000 $175,000 August 1998
Variable-rate into fixed-rate obligations........... 651,950 350,000 December 2006
-------- --------
Aggregate notional principal........................ $801,950 $525,000
======== ========
</TABLE>
4. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
$250.0 million revolving credit facility; interest payable
monthly using either a competitive bid feature or LIBOR
based rate; matures December 1998; unsecured........................ $ 150,000 $ --
Mortgages payable to GMAC and predecessor agreements with
interest at 9.19% or 1% above prime; payable in monthly
installments; secured by real property; repaid in 1997............. 25,158 110,467
Revolving credit facility, secured by the stock of certain
of the Company's subsidiaries, interest at prime or at a
Eurodollar rate plus 0% to 2.75%, repaid in 1996.................... -- 16,400
Amounts under United Kingdom $17.1 million revolving credit
commitment due on demand with 90-day notice; interest
based on Sterling LIBOR plus 125 basis points or base rate
plus 125 basis points; secured by non-vehicle equipment
and leaseholds...................................................... 6,003 11,431
Bonds payable under loan agreements with California Pollution
Control Financing Authority; interest varies weekly as
determined by remarketing agent (3.15% at December 31,
1996)............................................................... 43,960 29,685
Note payable to Ford Motor Credit Company; interest at
2.75%-3.00% above commercial paper rate or 1.25% above
prime; secured by assets of certain of the Company's subsidiaries;
due 2000-2004....................................................... 26,577 28,245
Amounts due under line of credit with Ford Motor Credit
Company; interest at 1%-1.75% above prime or commercial
paper rate; collateralized by the assets of certain of the Company's
subsidiaries........................................................ 19,700 3,994
Mortgages payable to Ford Motor Credit Company; interest at
.75% above prime or 3.0% above commercial paper rate;
secured by assets of certain of the Company's subsidiaries; maturing
through 2011........................................................ 8,557 3,830
Notes to banks and financial institutions, secured by real
property, equipment and other assets, interest ranging
from 4.8% to 14.0%, maturing through 2015........................... 99,017 99,610
Vehicle inventory credit facilities secured by the Company's
vehicle inventory, interest at LIBOR plus 2.75% or 1%
above prime......................................................... 114,300 130,693
Note payable to bank with interest based on LIBOR or prime
paid quarterly; secured by a building; repaid in 1996............... -- 8,700
Other notes, secured by equipment and other assets, interest
ranging from 0% to 21%, maturing through 2010....................... 38,769 48,226
--------- ---------
532,041 491,281
Less: current portion................................................. (184,054) (197,622)
--------- ---------
$ 347,987 $ 293,659
========= =========
</TABLE>
F-16
<PAGE> 17
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, the Company completed a tender offer and consent
solicitation resulting in the repurchase of approximately $100.0 million
aggregate principal amount 11.75% senior notes due 2006 ("Senior Notes"), which
were issued in February 1996. The Company recorded an extraordinary charge of
$31.6 million, net of income taxes, during 1996 related to the early
extinguishment of the Senior Notes and certain other debt. Included in this
charge are bond redemption premiums, the write-off of debt issue costs,
prepayment penalties and other fees related to the tender offer and the
repayment of other debt.
In December 1995, the Company entered into a credit agreement (the "Credit
Agreement") with certain banks pursuant to which such banks have agreed to
advance the Company on an unsecured basis an aggregate of $250.0 million for a
term of 36 months. Outstanding advances, if any, are payable at the expiration
of the 36-month term. The Credit Agreement requires, among other items, that the
Company maintain certain financial ratios and comply with certain financial
covenants. Interest is payable monthly and generally determined using either a
competitive bid feature or a LIBOR based rate. As of December 31, 1996, $150.0
million was outstanding and the Company was in compliance with all covenants
under the Credit Agreement.
At December 31, 1996, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1997........................................................ $184,054
1998........................................................ 180,061
1999........................................................ 20,311
2000........................................................ 28,740
2001........................................................ 14,719
Thereafter.................................................. 104,156
--------
$532,041
========
</TABLE>
The Company made interest payments on revenue earning vehicle financing and
notes payable and long-term debt of approximately $274.2 million, $204.4
million, and $129.0 million in 1996, 1995 and 1994, respectively.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
The Company files a consolidated federal income tax return which includes
the operations of businesses acquired for periods subsequent to the dates of the
acquisitions. Certain businesses acquired which were accounted for under the
pooling of interests method of accounting were subchapter S corporations for
income tax purposes prior to their acquisition by the Company. For purposes of
these Consolidated Financial Statements, federal and state income taxes have
been provided as if these companies had filed subchapter C corporation tax
returns for the pre-acquisition periods, and the current income tax expense is
reflected as an increase to additional paid-in capital. The subchapter S
corporation status of these companies was terminated effective with the closing
date of the acquisitions.
F-17
<PAGE> 18
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes related to
continuing operations for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $ 41,759 $11,233 $12,317
State..................................................... 3,991 2,465 2,959
Federal and state deferred.................................. (11,868) 15,698 17,196
Foreign deferred............................................ (8,780) (1,406) (2,617)
Change in valuation allowance............................... 17,922 3,290 (88)
-------- ------- -------
Provision for income taxes.................................. $ 43,024 $31,280 $29,767
======== ======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Amortization of intangible assets........................... 3.0 1.3 .4
Non-deductible expenses..................................... 14.6 1.9 1.3
State income taxes, net of federal benefit.................. 6.0 4.4 4.7
Change in valuation allowance............................... 42.8 5.9 --
Foreign income tax benefit at other than U.S. rates......... (3.0) (.1) --
Other, net.................................................. 4.0 7.5 2.1
----- ----- -----
Effective tax rate........................................ 102.4% 55.9% 43.5%
===== ===== =====
</TABLE>
Components of the net deferred income tax liability included in other
liabilities in the accompanying Supplemental Consolidated Balance Sheets at
December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 260,860 $213,669
Deferred costs............................................ 15,870 17,867
Deferred income tax assets:
Net operating losses...................................... (102,124) (43,636)
Deferred revenue.......................................... (14,388) (14,913)
Accruals not currently deductible......................... (91,103) (89,638)
Valuation allowance......................................... 62,125 41,933
--------- --------
Net deferred income tax liability........................... $ 131,240 $125,282
========= ========
</TABLE>
At December 31, 1996, the Company had available domestic net operating loss
carryforwards of approximately $253.9 million which begin to expire in the year
2006 and foreign net operating loss carryforwards of approximately $47.9
million, the majority of which have an indefinite carryforward. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The Company has provided a valuation allowance to offset a portion of
the deferred tax assets due to uncertainty surrounding the future realization of
such deferred tax assets. The Company adjusts the valuation allowance in the
period management determines it is more likely than not that deferred tax assets
will or will not be realized.
F-18
<PAGE> 19
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The foreign component of income (loss) from continuing operations before
income taxes and extraordinary charge for the years ended December 31, 1996,
1995 and 1994 was $(22.0) million, $(20.8) million and $.8 million,
respectively.
The Company made income tax payments of approximately $13.5 million, $11.6
million and $2.6 million in 1996, 1995 and 1994, respectively.
6. SHAREHOLDERS' EQUITY
In January 1997, the Company sold 15.8 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $552.7
million.
In November 1996, the Company sold 12.1 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $353.0
million.
In May 1996, the Company sold 9.9 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $197.6
million.
In May 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend, payable June 8,
1996, to holders of record on May 28, 1996.
In May 1996, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock from 350.0 million
shares to 500.0 million shares.
In October 1995, one of the Pooled Entities completed a secondary public
offering of approximately 2.6 million equivalent shares of Common Stock
resulting in net proceeds of approximately $30.1 million.
In September 1995, the Company sold 10.0 million shares of Common Stock in
a private placement transaction resulting in net proceeds of approximately $99.0
million.
In August 1995, the Company sold an aggregate of 16.7 million shares of
Common Stock and warrants to purchase an additional 33.4 million shares of
Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda
corporation controlled by Michael G. DeGroote, former Chairman of the Board,
President and Chief Executive Officer of Republic), Harris W. Hudson, and
certain of their assigns for an aggregate purchase price of $37.5 million. Mr.
Huizenga is the Chairman of the Board and Co-Chief Executive Officer of the
Company; Mr. DeGroote is a Director of the Company and Mr. Hudson is Vice
Chairman of the Board of the Company. The warrants are exercisable at prices
ranging from $2.25 to $3.50 per share. In August 1995, the Company issued and
sold an additional 2.0 million shares of Common Stock each to Mr. Huizenga and
John J. Melk (a Director of the Company) for aggregate proceeds of approximately
$26.5 million.
In July 1995, the Company sold 10.8 million shares of Common Stock in a
private placement transaction resulting in net proceeds of approximately $69.0
million.
The Company has 5.0 million authorized shares of preferred stock, par value
$.01 per share, none of which are issued or outstanding. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
establish the rights, preferences and dividends.
7. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the fair market value of the Common Stock at the date of grant. Generally,
options granted will have a term of ten years from the date of grant, and will
vest in increments of 25% per year over a four year period on the yearly
anniversary of the grant date.
F-19
<PAGE> 20
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option and warrant transactions for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants
outstanding at beginning
of year.................. 49,635 $ 4.87 8,062 $4.54 7,195 $ 4.45
Granted.................... 8,741 21.86 45,110 4.92 1,310 4.96
Exercised.................. (5,666) 4.03 (2,884) 4.14 (26) 13.61
Canceled................... (208) 9.44 (653) 7.49 (417) 4.07
------ ------ -----
Options and warrants
outstanding at end of
year..................... 52,502 7.63 49,635 4.87 8,062 4.54
====== ====== =====
Options and warrants
exercisable at
year-end................. 38,495 4.12 39,852 3.50 4,334 4.33
Options available for
future grants............ 7,911 4,344 5,698
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options and warrants at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------- -------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------ ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$ 1.05 - $ 2.75.......... 24,144 1.22 $ 2.37 23,323 $ 2.40
2.95 - 12.38.......... 17,761 5.15 7.28 14,123 6.10
12.88 - 33.75.......... 10,597 9.38 20.21 1,049 15.76
------ ------
1.05 - 33.75.......... 52,502 4.20 7.63 38,495 4.12
====== ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby no compensation cost related to stock options
is deducted in determining net income (loss). Had compensation cost for the
Company's stock option plans been determined pursuant to SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company's supplemental pro forma
net loss and pro forma net loss per share would have increased accordingly.
Using the Black-Scholes option pricing model for all options granted after
December 31, 1994, the Company's supplemental pro forma net loss, supplemental
pro forma net loss per share and supplemental pro forma weighted average fair
value of options granted, with related assumptions, are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Pro forma net loss................................... $(50,442) $(8,400)
Pro forma net loss per share......................... (.18) (.04)
Pro forma weighted average fair value of options
granted............................................ 9.80 5.28
Risk free interest rates............................. 5.98% - 6.17% 5.98% - 6.17%
Expected lives....................................... 5-7 years 5-7 years
Expected volatility.................................. 40% 40%
</TABLE>
F-20
<PAGE> 21
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to obtain a variance under California
regulations to reclassify the Filters as a special waste so they may be left in
the landfill. If this occurs, the State, regional and local regulatory agencies
may nevertheless require that the affected area of the landfill be capped and
closed. In the event that the variance is not granted, remedial measures may be
required based on the Filters' classification as a California hazardous waste.
One of those measures could include the removal of the Filters or the closure of
a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) if so, what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
in the United States District Court for the Southern District of California
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses incurred by the Company associated
with the resolution of this matter. This suit was settled in November 1996
without material impact on the Company's supplemental consolidated financial
position, results of operations or cash flows.
The Company's solid waste and environmental services activities are
conducted in the context of a developing and changing statutory and regulatory
framework, aggressive government enforcement and a highly visible political
environment. Governmental regulation of the waste management industry requires
the Company to obtain and retain numerous governmental permits to conduct
various aspects of its operations. These permits are subject to revocation,
modification or denial. The costs and other capital expenditures which may be
required to obtain or retain the applicable permits or comply with applicable
regulations could be significant.
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, ("CarMax") accused AutoNation of infringing CarMax's trademark
rights by using the marks AutoNation USA and "The Better Way to Buy a Car."
AutoNation denied such allegations and on February 5, 1996, filed suit in the
U.S. District Court for the Southern District of Florida seeking a declaratory
judgment that AutoNation's use and registration of such marks do not violate any
of the rights of CarMax. On or about October 11, 1996, CarMax filed a
counterclaim against AutoNation seeking unspecified damages and an order
enjoining AutoNation from using certain marks, including the marks AutoNation
USA and "The Better Way to Buy a Car." In February 1997, AutoNation filed a
motion for partial summary judgment on CarMax's dilution claim under Florida
law. A trial has been set for May 1997. Although it is impossible to predict the
outcome of this litigation, the Company believes that AutoNation has a valid
basis for its complaint and that CarMax's allegations and counterclaims are
without merit.
While the results of the legal and environmental proceedings described
above and other proceedings which arose in the normal course of business cannot
be predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial position. However, unfavorable resolution of
each matter individually or in the aggregate could affect the consolidated
results of operations or cash flows for the quarterly periods in which they are
resolved.
F-21
<PAGE> 22
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintains general liability and property insurance and an
umbrella and excess liability policy in amounts it considers adequate and
customary for businesses of its kind. However, there can be no assurance that
the Company will not experience legal claims in excess of its insurance coverage
or claims which are ultimately not covered by insurance.
LEASE COMMITMENTS
The Company and its subsidiaries lease real property, equipment and
software under various operating leases with terms from 1 to 20 years. The
Company has also entered into various airport concession and permit agreements
which generally provide for payment of a percentage of revenue from vehicle
rentals with a guaranteed minimum lease obligation.
Expenses under real property, equipment and software leases and airport
concession agreements (excluding amounts charged through to customers) for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Real property.......................................... $ 45,614 $ 36,084 $ 25,591
Equipment and software................................. 23,772 24,896 22,890
Airport concession and permit fees:
Minimum fixed obligations............................ 89,594 68,027 36,328
Additional amounts, based on revenue from vehicle
rentals........................................... 94,544 60,106 27,617
-------- -------- --------
Total........................................ $253,524 $189,113 $112,426
======== ======== ========
</TABLE>
Future minimum lease obligations under noncancelable real property and
equipment leases and airport agreements with initial terms in excess of one year
at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1997................................................... $ 99,598
1998................................................... 80,519
1999................................................... 53,737
2000................................................... 33,656
2001................................................... 20,632
Thereafter............................................. 117,590
--------
$405,732
========
</TABLE>
In August 1995, the Company entered into a ten-year lease agreement for
Alamo's Fort Lauderdale, Florida corporate headquarters facility. In December
1996, the Company acquired the headquarters facility for approximately $23.5
million, including the assumption of debt totaling approximately $22.7 million
which was repaid by the Company in January 1997.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance bonds, letters of credit, and/or cash deposits as a financial
guarantee of the Company's performance. To date, the Company has satisfied
financial responsibility requirements for regulatory agencies by making cash
deposits, obtaining bank letters of credit or by obtaining surety bonds. At
December 31, 1996, letters of credit and surety bonds totaling $283.3 million
expire through October 1999.
9. INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) per common and common equivalent share are based on the
combined weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing income per common and common equivalent
share from continuing operations before extraordinary charge, the Company has
utilized the treasury stock method.
F-22
<PAGE> 23
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of fully diluted income per share from continuing
operations before extraordinary charge, which is substantially the same as
the computation used to calculate primary income per share from continuing
operations before extraordinary charge, for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Common shares outstanding................................. 296,829 248,012 157,816
Common equivalent shares.................................. 58,080 53,774 1,234
Weighted average treasury shares purchased................ (15,159) (7,646) 298
Effect of using weighted average common and common
equivalent shares outstanding........................... (25,825) (74,054) (3,298)
------- ------- -------
313,925 220,086 156,050
======= ======= =======
</TABLE>
For the years ended December 31, 1996 and 1995, the weighted-average
effect of common stock equivalents of approximately 37.1 million and
17.4 million shares, respectively, has been excluded from the computations of
the extraordinary charge per share and net loss per share in 1996 and the net
loss from discontinued operations per share in 1995 since they are
anti-dilutive.
10. RESTRUCTURING, MERGER AND OTHER NON-RECURRING EXPENSES
During the year ended December 31, 1996, the Company recorded one-time
pre-tax charges of approximately $95.5 million related primarily to the
integration of the operations of Alamo into those of the Company. Also included
in these charges are merger expenses associated with the acquisitions of Alamo,
Addington and Continental. Approximately $38.3 million of such expenses appear
as restructuring and merger expenses with the remainder of approximately $57.2
million included in selling, general and administrative expenses in the
Company's Supplemental Consolidated Statements of Operations for the year ended
December 31, 1996. These costs primarily include asset write-offs, severance
benefits, accounting and legal merger costs and changes in various estimated
reserve requirements.
In 1995, the Company recorded a $3.3 million pre-tax charge related to the
closing of a subsidiary's headquarters office in Indianapolis, Indiana. The
major components of the charge include severance costs, future contractual
payments required under pre-existing contracts and other costs related to the
write-off of equipment and other obligations related to the physical closure of
the office.
11. DISCONTINUED OPERATIONS
In 1995, the Company implemented a formal plan to dispose of all of its
mining and citrus operations. These discontinued operations consisted primarily
of the following: coal mining, mining equipment manufacturing and licensing,
citrus properties in Belize, precious and industrial metals mining and
incidental limestone properties. The Company initially recorded a loss on the
disposal of the discontinued operations of approximately $30.5 million (net of
income tax benefits of approximately $10.0 million) which represents the
estimated loss on the disposal of such operations and a provision of
approximately $2.0 million for expected operating losses through the final
disposition of such operations. See Note 14, Related Party Transactions, for
discussion of the disposition of the Company's mining and citrus operations.
In 1994, the Company announced the contemplation of a plan to spin-off
RESI, its hazardous waste services segment. In April 1995, Republic shareholders
received one share of common stock of RESI for every ten shares of Common Stock
of Republic owned in connection with the spin-off of RESI. Approximately 5.4
million RESI shares were distributed to Republic shareholders (the
"Distribution"). In connection with the Distribution, the Company contributed
the intercompany balance to RESI's equity and contributed approximately $2.5
million to RESI to repay RESI's indebtedness and to provide working capital to
RESI. Additionally, the Company reclassified approximately $36.3 million to
retained earnings from additional paid-in capital to effect the spin-off under
Delaware law. As a result of these transactions, the Company's equity at the
date of the Distribution was reduced by approximately $23.6 million.
The Company has sold or spun-off all of its subsidiaries included in
discontinued operations, hence fully disposing of all mining and citrus and
hazardous waste operations. Upon ultimate disposal of its discontinued
operations, the Company determined its initial estimates did not require
adjustment. The recorded transactions reflect the disposal of all of the
Company's hazardous waste and mining and citrus segments and,
F-23
<PAGE> 24
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordingly, the operating results of these segments have been classified as
discontinued operations for all periods presented in the accompanying
Supplemental Consolidated Financial Statements.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, investments, receivables,
other assets (excluding goodwill, intangibles and deferred costs), accounts
payable and accrued liabilities (nonderivatives) approximates fair value because
of the short maturity of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. The assumptions
used have a significant effect on the estimated amounts reported.
The Company has interest protection agreements with several counterparties
to manage the impact of interest rate changes. The estimated fair values of the
interest protection agreements were determined from dealer quotations and
represent the discounted future cash flows through maturity or expiration using
current rates, and are effectively the amounts the Company would pay or receive
to terminate the agreements. The estimated fair values of the interest rate
protection agreements at December 31, 1996 and 1995 was a net payable position
of $.7 million and $9.7 million, respectively.
The estimated fair value of mortgages payable at December 31, 1996 and
1995 was approximately $34.0 million and $114.0 million, respectively which
approximates the carrying value. The estimated fair values were derived by
discounting expected cash flows at the rates then offered to the Company for
debt of similar terms and remaining maturities. The fair value of the
Company's medium-term notes payable is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The estimated fair value of
the medium-term notes payable was $792,775 as of December 31, 1996. The
carrying amount of the remaining debt approximates fair value because interest
rates are variable and, accordingly, approximate current market rates.
In September 1996, the Agreement and Plan of Amalgamation, dated as of July
1, 1996 and amended as of July 15, 1996 (the "ADT Agreement") by and among the
Company, R.I./Triangle, Ltd. and ADT Limited, a Bermuda corporation ("ADT"),
which provided for the acquisition of ADT by the Company, was terminated by
mutual agreement of the parties. In connection with the execution of the ADT
Agreement, ADT granted to the Company a warrant (the "ADT Warrant") to purchase
15.0 million common shares of ADT at a purchase price $20 per share (which
approximated fair market value), subject to certain anti-dilution adjustments.
The warrant became exercisable upon the termination of the ADT Agreement and
remains exercisable through March 1997. Pursuant to the terms of the warrant,
ADT has granted to the Company certain registration rights with respect to the
common shares of ADT issuable to the Company upon exercise of the warrant. The
Company estimates the fair value of the ADT Warrant at December 31, 1996 to be
approximately $5.7 million based upon an option pricing model calculation, which
approximates the carrying value.
13. BUSINESS AND CREDIT CONCENTRATIONS
AUTOMOTIVE RENTAL INDUSTRY
At December 31, 1996 the Company had 406 corporate owned vehicle rental
facilities at airport, near-airport and downtown locations throughout the United
States. The Company also had 31 corporate owned vehicle rental facilities in the
United Kingdom, 25 in Germany, 4 in Switzerland, 82 in Canada, 1 in Belgium and
2 in The Netherlands. In addition to its corporate owned locations, the
Company's licensee network operates 284 locations throughout Europe, Latin
America, the Caribbean, and the Pacific. The automotive rental industry in
which the Company operates is highly seasonal.
Trade receivables at December 31, 1996 and 1995 include $68.3 million and
$59.3 million, respectively from travel agents and tour operators. Of the travel
agent and tour operator receivable balances, $25.4 million
F-24
<PAGE> 25
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and $25.6 million at December 31, 1996 and 1995, respectively, are maintained
outside the United States. The Company holds minimum collateral in the form of
cash, letters of credit or insurance from most of these vendors. The Company
continually evaluates the credit risk of these customers and believes that the
allowance for doubtful accounts relative to its trade receivables is adequate.
At December 31, 1996 and 1995, the Company had vehicle receivables from
manufacturers of $125.4 million and $65.0 million, respectively. Of the
receivable balances from manufacturers, $16.9 million and $12.7 million are
maintained outside the United States. Vehicle receivables also include amounts
due from renters for damages incurred on revenue earning vehicles.
The Company enters into vehicle repurchase programs with one principal
vehicle manufacturer, as well as other vehicle manufacturers. During model year
1996, the Company purchased 71% of its vehicle fleet under repurchase programs
with one vehicle manufacturer.
SOLID WASTE SERVICES, ELECTRONIC SECURITY SERVICES AND AUTOMOTIVE RETAILING
INDUSTRIES
Concentrations of credit risk with respect to trade receivables related to
the Company's solid waste services, electronic security services and automotive
retailing segments are limited due to the wide variety of customers and markets
in which the Company's products are sold and services are provided as well as
their dispersion across many different geographic areas in the United States. As
a result, at December 31, 1996, the Company does not consider itself to have any
significant concentrations of credit risk in the solid waste services,
electronic security services and automotive retailing segments.
14. RELATED PARTY TRANSACTIONS
As of December 31, 1996, approximately $247.5 million was due from
AutoNation pursuant to a loan agreement whereby the Company agreed to provide
advances at an interest rate of LIBOR plus 2% to fund AutoNation's cash flow
requirements. Interest income recognized on such advances was approximately $5.6
million for the year ended December 31, 1996. In addition, on behalf of
AutoNation, the Company has guaranteed certain lease obligations and the
residual value related to a portfolio of properties leased by AutoNation under a
$150.0 million operating lease facility. At December 31, 1996, annual lease
obligations were approximately $2.6 million through the year 2001 and the
residual value guaranty was approximately $37.6 million.
The Company purchased approximately $631.3 million, $351.8 million and
$551.2 million of revenue earning vehicles from a group of automotive
dealerships owned primarily by a former director of Alamo during the years ended
December 31, 1996, 1995 and 1994, respectively. Pursuant to an automobile
purchase agreement, the Company agreed to purchase and/or lease a minimum number
of vehicles and pay to these automotive dealerships a specific amount (in
addition to the manufacturer's sales price) for each vehicle purchased.
In September 1995, in a related party transaction, the Company entered into
a stock purchase agreement with Addington Enterprises, Inc. (a company f/k/a
Addington Acquisition Company, Inc., owned by certain former shareholders of
Addington; collectively, the "Addington Brothers") whereby the Company would
receive $30.0 million, subject to a working capital adjustment, in exchange for
all the issued and outstanding shares of common stock of its subsidiaries,
Addington Mining, Inc., Mining Technologies Inc., Addwest Mining, Inc. and
Addington Coal Holding, Inc. This transaction closed in November 1995, at which
time the proceeds received were used by the Company to pay down certain
borrowings under a revolving line of credit.
Included in the transaction described above and pursuant to an option
agreement, in August 1995 the Company sold to the Addington Brothers all the
issued and outstanding shares of common stock of its subsidiary, Tennessee
Mining, Inc. According to the terms of the option agreement, the Addington
Brothers will pay the Company a royalty based on tons of coal delivered under a
certain coal sales contract, up to a maximum aggregate royalty of $12.5 million.
F-25
<PAGE> 26
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, in a related party transaction, the Company entered into
an agreement to sell all of the issued and outstanding shares of common stock of
its subsidiary, Belize River Fruit Co., to the Addington Brothers in exchange
for .9 million shares of Common Stock of the Company owned by such shareholders.
This transaction was consummated in November 1995, at which time the Company
acquired and retired the .9 million shares valued at $13.6 million. The Company
retained no obligations in connection with the sales and has fully divested its
investment in its citrus operations.
15. OPERATIONS BY INDUSTRY SEGMENT
The Company is a diversified holding company with major business operations
in the automotive rental, solid waste services, automotive retailing and
electronic security services industries. The Company operates primarily in the
United States.
The following table presents financial information regarding the Company's
different industry segments as of and for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Automotive rental................................ $2,567,099 $1,886,399 $1,222,325
Solid waste services............................. 701,209 450,398 317,928
Automotive retailing............................. 1,410,513 1,000,282 858,330
Electronic security services..................... 85,276 49,826 41,913
---------- ---------- ----------
$4,764,097 $3,386,905 $2,440,496
========== ========== ==========
Operating income (loss):
Automotive rental................................ $ (30,674) $ (19,318) $ 30,224
Solid waste services............................. 93,656 63,091 42,650
Automotive retailing............................. 3,887 15,276 12,369
Electronic security services..................... 14,495 8,631 2,352
Corporate........................................ (31,763) (4,318) (2,882)
---------- ---------- ----------
$ 49,601 $ 63,362 $ 84,713
========== ========== ==========
Depreciation and amortization:
Automotive rental................................ $ 772,932 $ 576,139 $ 372,544
Solid waste services............................. 58,946 44,595 35,028
Automotive retailing............................. 4,947 4,044 3,534
Electronic security services..................... 10,810 4,946 4,111
---------- ---------- ----------
$ 847,635 $ 629,724 $ 415,217
========== ========== ==========
Capital expenditures, purchases of revenue earning
vehicles and investment in subscriber accounts:
Automotive rental................................ $4,691,228 $3,197,399 $3,347,988
Solid waste services............................. 141,147 146,008 112,723
Automotive retailing............................. 38,043 34,786 5,750
Electronic security services..................... 53,021 17,459 18,275
---------- ---------- ----------
$4,923,439 $3,395,652 $3,484,736
========== ========== ==========
Assets:
Automotive rental................................ $4,625,368 $3,838,227 $2,310,448
Solid waste services............................. 1,309,262 840,201 466,066
Automotive retailing............................. 392,071 318,687 230,331
Electronic security services..................... 43,558 43,834 34,447
Net assets of discontinued operations............ -- -- 86,229
---------- ---------- ----------
$6,370,259 $5,040,949 $3,127,521
========== ========== ==========
</TABLE>
F-26
<PAGE> 27
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company's automotive rental operations and particularly the leisure
travel segment is highly seasonal. In these operations, the third quarter which
includes the peak summer travel months has historically been the strongest
quarter of the year. During the peak season the Company increases its rental
fleet and workforce to accommodate increased rental activity. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on the annual performance of this segment. The first
quarter for the Company's automotive rental operations is generally the weakest,
when there is limited leisure family travel and a greater potential for adverse
weather conditions. Many of the operating expenses such as rent, general
insurance and administrative personnel are fixed and cannot be reduced during
periods of decreased rental demand.
The third and fourth quarters of 1996 included one-time pre-tax charges of
approximately $7.6 million and $87.9 million, respectively, as described in Note
10, Restructuring, Merger and Other Non-Recurring Expenses. The fourth quarter
of 1996 also included an extraordinary charge of approximately $31.6 million,
net of income tax benefit, related to the early extinguishment of debt as
described in Note 4, Long-Term Debt and Notes Payable.
The following is an analysis of certain items in the Supplemental
Consolidated Statements of Operations by quarter for 1996 and 1995. Amounts for
the first, second and third quarters of 1996 and the 1995 quarterly amounts have
been restated from amounts previously reported in Form 10-Q for significant
business combinations accounted for under the pooling of interests method of
accounting.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue................................. 1996 $1,015,948 $1,191,533 $1,212,789 $1,343,827
1995 618,152 745,336 1,009,955 1,013,462
Operating income (loss)................. 1996 $ 25,791 $ 47,013 $ 70,828 $ (94,031)
1995 (7,959) 11,196 69,117 (8,992)
Income (loss) from continuing operations
before extraordinary charge........... 1996 $ 12,400 $ 23,712 $ 37,102 $ (74,230)
1995 (8,129) 3,133 37,045 (7,370)
Income (loss) per share from
continuing operations before
extraordinary charge.................. 1996 $ .04 $ .08 $ .12 $ (.26)
1995 (.05) .02 .16 (.03)
Net income (loss)....................... 1996 $ 12,400 $ 23,712 $ 37,101 $ (105,821)
1995 (6,627) 5,429 9,255 (8,501)
</TABLE>
F-27
<PAGE> 28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying combined balance sheet of Kendall Automotive
Group, as of October 31, 1996 and the related combined statements of income and
retained earnings and cash flows for the ten-month period then ended. These
financial statements are the responsibility of the Group'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 Kendall Automotive Group as of
October 31, 1996, and the results of its operations and its cash flows for the
ten-month period then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
January 3, 1997.
F-28
<PAGE> 29
KENDALL AUTOMOTIVE GROUP
COMBINED BALANCE SHEET
OCTOBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,876,561
Temporary investments 976,025
Accounts receivable, net 14,634,782
Inventories 23,066,290
Rental vehicles 3,933,290
Other current assets 220,350
------------
Total current assets 49,707,298
PROPERTY AND EQUIPMENT, net 21,586,597
OTHER ASSETS 49,440
NET ASSETS TO BE DISTRIBUTED TO STOCKHOLDER (Note 10) 2,864,384
-----------
Total assets $ 74,207,719
============
</TABLE>
(Continued)
F-29
<PAGE> 30
KENDALL AUTOMOTIVE GROUP
COMBINED BALANCE SHEET
OCTOBER 31, 1996
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Floor plan notes $ 37,035,142
Current portion of long-term debt 2,275,919
Capital lease obligation 4,180,299
Trade accounts payable 2,995,954
Accrued expenses 2,111,462
Allowance for chargebacks 2,693,020
Other current liabilities 853,062
------------
Total current liabilities 52,144,858
LONG-TERM DEBT, less current portion 19,654,433
------------
Total liabilities 71,799,291
------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY:
R&B common stock, zero par value, 60 shares
authorized, 30 shares issued 420,499
GFB common stock, $1 par value 1,000 shares
authorized issued and outstanding 1,000
GFB additional paid-in-capital 499,000
Retained earnings 6,832,645
Less 15 shares of R&B common stock held in treasury, at cost (5,344,716)
------------
Total stockholder's equity 2,408,428
------------
Total liabilities and stockholder's equity $ 74,207,719
============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this balance sheet.
F-30
<PAGE> 31
KENDALL AUTOMOTIVE GROUP
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
SALES:
New vehicles $ 237,815,425
Used vehicles 74,587,988
Service and parts 28,238,797
-------------
340,642,210
COST OF SALES, including floor plan interest of $2,838,576 307,494,140
-------------
Gross profit 33,148,070
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,410,233
-------------
Income from operations 3,737,837
-------------
OTHER INCOME (EXPENSE):
Interest, net (1,113,820)
Other, net 539,740
-------------
(574,080)
-------------
Net income 3,163,757
RETAINED EARNINGS, beginning of period 4,868,888
DISTRIBUTION TO STOCKHOLDER (1,200,000)
-------------
RETAINED EARNINGS, end of period $ 6,832,645
=============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
F-31
<PAGE> 32
KENDALL AUTOMOTIVE GROUP
COMBINED STATEMENT OF CASH FLOWS
FOR THE TEN-MONTH PERIOD ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,163,757
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 723,650
Provision for doubtful accounts 208,006
(Increase) decrease in-
Temporary investments (133,090)
Accounts receivable (1,309,508)
Inventories (277,257)
Rental vehicles (610,469)
Other current assets (138,316)
Other assets 208,182
Increase (decrease) in-
Floor plan notes (7,434,195)
Capital lease obligation 449,850
Trade accounts payable (1,728,413)
Accrued expenses (640,413)
Allowance for chargebacks (438,430)
Other current liabilities 105,402
------------
Net cash used in operating activities (7,851,244)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,912,391)
Change in net assets to be distributed to stockholder (462,395)
------------
Net cash used in investing activities (2,374,786)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 250,000
Repayment of long-term debt (5,231,579)
Distribution to stockholder (1,200,000)
------------
Net cash used in financing activities (6,181,579)
------------
Net decrease in cash and cash equivalents (16,407,609)
CASH AND CASH EQUIVALENTS, beginning of period 23,284,170
------------
CASH AND CASH EQUIVALENTS, end of period $ 6,876,561
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 5,003,776
============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of this statement.
F-32
<PAGE> 33
KENDALL AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business-
R & B Holding Company, Inc. ("R&B"), d/b/a Kendall Toyota and Kendall Kia, and
GFB Enterprises, Inc. ("GFB"), d/b/a Lexus of Kendall, (collectively, the
"Companies" or "Kendall Automotive Group") are Florida corporations engaged
primarily in the sale and service of new and used cars and trucks in South
Florida. The Companies operate as franchised dealers for Southeast Toyota
Distributors; Lexus, a division of Toyota Motor Sales, U.S.A. Inc. and Kia
Motors America, Inc. In accordance with the individual franchise agreements,
each dealership is subject to certain rights and restrictions typical of the
industry. The ability of the manufacturers to influence the operations of the
dealerships or the loss of a franchise agreement could have a negative impact on
the operating results of the Companies.
Principles of Combination-
The combined financial statements include the accounts of R&B and GFB. All
significant transactions and balances between R&B and GFB have been eliminated
in combination.
Revenue Recognition-
Revenue is recognized by the Companies when vehicles are delivered to consumers
or motor vehicle service work is performed and parts are delivered. Finance and
insurance revenues (participation fees) are recognized upon the sale of the
finance or insurance contract. A corresponding allowance for chargebacks of
finance and insurance revenues is recognized in the same period.
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.
F-33
<PAGE> 34
Cash and Cash Equivalents-
Cash and cash equivalents include all highly-liquid investments with an original
maturity of three months or less. Included in cash and cash equivalents is
$5,724,401 of interest-bearing cash maintained by R&B with World Omni Finance
Company ("WOFCO"). Under the terms of the Loan Agreement discussed in Note 6
WOFCO has the right of set-off against any monies of R&B in the possession of
WOFCO at the time the loan obligations become due and payable.
Temporary Investments-
Temporary investments consists of certificates of deposits with banks with
original maturities of approximately one year and interest rates ranging from
3.10% to 4.75%.
Inventories-
Inventories are stated at the lower of cost or market. The cost of new Toyota
vehicles is determined using the last-in, first-out (LIFO) method. The cost of
all other vehicles is determined on a specific identification basis. The cost of
parts and accessories is determined on a FIFO basis.
Rental Vehicles-
Rental vehicles consist of new vehicles under short-term capital leases which
are utilized primarily as loaners for customers with vehicles in service. Rental
vehicles are acquired from the lessor generally after a six-month period and are
included in the used vehicle inventory at such time. Rental vehicles are stated
at cost less accumulated depreciation. Depreciation is provided during the
rental period to reduce the cost of the rental vehicle to its estimated net
realizable value at the time of resale to customers.
Property and Equipment-
Property and equipment are recorded at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using the following
methods and estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Description Method Useful Lives
-------------------------- --------------- ---------------
<S> <C> <C>
Buildings and improvements Straight-line 25 - 40 years
Equipment Accelerated 5 - 10 years
</TABLE>
F-34
<PAGE> 35
Expenditures for repairs and maintenance which increase the useful life or
substantially increase serviceability of the asset are capitalized. All other
expenditures are charged to expense as incurred. When equipment is sold or
otherwise disposed of, the cost and related accumulated depreciation are removed
from their respective accounts and any resulting gain or loss is included in the
statement of income.
Income Taxes-
The Companies have elected S-Corporation status for federal income tax purposes.
Accordingly, the Companies themselves are not subject to income taxes; instead,
earnings are included in the stockholder's personal income tax returns and taxed
accordingly. The financial statements, therefore, do not include a provision for
income taxes.
Fair Value of Financial Instruments-
The Companies' financial instruments consist of cash and cash equivalents,
temporary investments, accounts receivable, floor plan notes, capital lease
obligations, trade accounts payable and long-term debt. The carrying amount of
these financial instruments approximates fair value due either to length of
maturity or existence of variable interest rates that approximates prevailing
market rates.
(2) ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following as of October 31, 1996:
<TABLE>
<S> <C>
Customer installment contracts in transit $ 10,849,905
Participation fees on customer
installment contracts 629,367
Manufacturer or distributor 884,783
Other customers 2,473,060
------------
14,837,115
Less- allowance for doubtful accounts (202,333)
------------
$ 14,634,782
============
</TABLE>
(3) INVENTORIES:
Inventories consist of the following components:
<TABLE>
<S> <C>
New vehicles $ 11,023,182
Used vehicles 11,330,678
Parts and accessories 1,770,755
------------
24,124,615
Cumulative LIFO reserve (1,058,325)
------------
$ 23,066,290
============
</TABLE>
If the specific identification method had been used to determine the cost of new
Toyotas, the Companies would have reported approximately $366,000 less net
income for the ten-month period ended October 31, 1996.
F-35
<PAGE> 36
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at October 31, 1996:
<TABLE>
<S> <C>
Land $ 6,002,002
Buildings and improvements 16,997,747
Equipment 3,838,905
------------
26,838,654
Less- accumulated depreciation (5,252,057)
------------
$ 21,586,597
============
</TABLE>
(5) FLOOR PLAN NOTES:
At October 31, 1996, the Companies' vehicle floor plan agreements are with
WOFCO. The floor plan agreements require demand notes which are secured by new
and used vehicle inventory. The agreements are cancelable at any time by WOFCO.
The notes bear interest at prime (8.25% at October 31, 1996) plus .75% for new
vehicles and prime plus 1.75% for used vehicles. The floor plan agreements also
grant a collateral interest in substantially all of the non-inventory assets of
the Companies and generally require payment of debt at the time the related
customer installment contracts are collected. The notes are also personally
guaranteed by the stockholder of the Companies.
From November 1994 to February 1996, GFB's vehicle inventory was financed
through a floor plan agreement with Toyota Motor Credit Corp.
The weighted average interest rate on floor plan borrowings was 9.1% for the
ten-month period ended October 31, 1996.
(6) LONG-TERM DEBT:
Long-term debt consists of notes payable to WOFCO pursuant to a revolving line
of credit agreement, as amended, (the "Loan Agreement") between WOFCO and R&B in
connection with the construction and improvement of the Companies' premises. The
notes payable to WOFCO bear annual interest of 8% to 8.75%, with principal and
interest due monthly. Principal amortization periods are primarily 120 months.
The maximum amount of borrowings approved by WOFCO under the Loan Agreement is
$25,000,000. The Loan Agreement also requires prior written consent from WOFCO
for any additional indebtedness to be assumed by R&B. The notes are secured by
substantially all assets of the Companies and certain assets of the stockholder.
The security interest in the inventories is subordinate to the security interest
granted to WOFCO under the floor plan agreements. The notes payable are
personally guaranteed by the stockholder of the Companies.
As of December 31, 1995, R&B was indebted to WOFCO for an additional $4,500,000
under a separate note payable. The terms of the note included a requirement that
the proceeds of such loan be maintained in an interest-bearing cash account with
WOFCO. The loan was repaid at maturity in April 1996.
The weighted average interest rate on long-term debt was 8.6% for the ten-month
period ended October 31, 1996.
F-36
<PAGE> 37
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years Ending October 31,
------------------------
<S> <C>
1997 $ 2,275,919
1998 2,468,734
1999 2,689,710
2000 2,930,474
2001 3,192,803
Thereafter 8,372,712
------------
$ 21,930,352
============
</TABLE>
(7) CAPITAL LEASE OBLIGATION:
The Companies lease their rental vehicles from Toyota Motor Credit Corp. under
capital lease agreements which essentially require the Companies to acquire the
rental vehicles after a specified period, generally six months. Accordingly, the
capital lease obligation has been reflected as a current liability in the
accompanying combined balance sheet. Interest expense from these leases amounted
to approximately $185,000 for the ten-month period ended October 31,1996. As of
October 31, 1996, the interest rate on the leases was 9%.
(8) INCOME TAXES:
In the event that the Companies terminate S-Corporation status, deferred income
taxes will arise due to the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities. Under the provisions of Statement of Financial Accounting No. 109,
"Accounting for Income Taxes", recording of these deferred taxes are required in
the period that S-Corporation status is terminated. If the Companies'
S-Corporation status had terminated on October 31, 1996, the deferred tax asset
(related primarily to allowances for chargebacks) as of that date would have
been approximately $915,000.
(9) COMMITMENT AND CONTINGENCIES:
Lease Commitments-
The Companies lease a portion of their dealer premises and certain equipment
under operating leases. Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
Years Ending October 31,
------------------------
<S> <C>
1997 $ 315,819
1998 323,138
1999 330,777
2000 292,387
2001 207,985
Thereafter 2,194,363
-----------
$ 3,664,469
===========
</TABLE>
F-37
<PAGE> 38
Total expense for these leases amounted to $257,821 for the ten-month period
ended October 31, 1996.
Advertising Commitments-
The Companies have entered into certain contractional agreements which require a
minimum amount of advertising expenditures from October 1996 through September
1997. As of October 31, 1996, the Companies remaining commitment amounted to
$1,094,000.
Self Insurance-
The Companies retain a portion of their workers compensation insurance risk
through a retrospective rating plan with the Employee Self Insurance Funds of
Florida. As of October 31, 1996, reserves of approximately $375,000 have been
recorded to cover estimated losses from outstanding and incurred but not
reported claims. Although not determinable at the present time, in the opinion
of the Companies management, the ultimate resolution of these claims, net of
related insurance coverage, will not have a material effect on the combined
financial position or results of operations of the Companies.
Legal Matters-
Certain claims, suits and complaints in the ordinary course of business have
been filed or are pending against the Companies. In the opinion of management,
all such matters are without merit or are of such kind and involve such amounts
that their resolution, net of related insurance coverage, would not have a
material effect on the combined financial position or results of operations of
the Companies.
(10) SUBSEQUENT EVENT:
On November 15, 1996, the stockholder of the Companies entered into a Merger
Agreement with Republic Industries, Inc. Under the terms of the Merger
Agreement, Republic Industries will acquire 100% of the common stock of the
Companies. Prior to the closing of this Merger Agreement, the Companies will
distribute to the stockholder certain nonautomotive net assets. These net assets
consist of the following as of October 31, 1996:
<TABLE>
<S> <C>
Cash and cash equivalents $ 338,842
Keyman life insurance ($6,000,000 face value) 362,027
Land and buildings, net of accumulated
depreciation of $406,257, and mortgage
debt of $901,282 2,148,176
Yacht 950,000
Other assets 111,342
Due to stockholder (1,046,003)
-----------
$ 2,864,384
===========
</TABLE>
The above net assets contributed approximately $300,675 to net income for the
ten-month period ended October 31, 1996.
F-38
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Maroone Automotive Group
Pembroke Pines, Florida
We have audited the accompanying combined balance sheets of Maroone Automotive
Group as of December 31, 1996 and 1995 and the related combined statements of
income, owners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Group'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 Maroone Automotive Group as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Ft. Lauderdale, Florida
February 14, 1997
- -------------------------------------------------------------------------------
F-39
<PAGE> 40
MAROONE AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUE $ 715,063,853 $ 486,993,709
Cost of revenue 644,039,039 421,351,542
----------------- -----------------
GROSS PROFIT 71,024,814 65,642,167
Operating expenses 55,741,827 53,794,891
----------------- -----------------
INCOME BEFORE TAXES 15,282,987 11,847,276
Provision for income taxes 366,429 209,059
----------------- -----------------
NET INCOME $ 14,916,558 $ 11,638,217
================= =================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-40
<PAGE> 41
MAROONE AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
December 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,336,825 $ 2,554,938
Short-term investments 1,000,463 4,001,383
Receivables, net of allowance for doubtful accounts 18,506,835 14,920,807
Inventories 58,508,330 55,418,310
Rental vehicles, net of accumulated depreciation 2,650,190 2,733,084
Prepaid expenses and other 1,328,882 1,097,699
Receivable and advances - related parties 5,193,189 1,684,219
Due from shareholder 500,000 -
----------------- -----------------
Total current assets 98,024,714 82,410,440
Property and equipment, net 36,790,574 25,300,047
Other assets
Intangible assets, net of accumulated amortization 2,744,211 87,711
Due from shareholder 1,197,278 1,204,524
Other assets 1,950,139 1,596,284
----------------- -----------------
5,891,628 2,888,519
----------------- -----------------
$ 140,706,916 $ 110,599,006
================= =================
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Checks written in excess of bank balance $ 6,730,648 $ 6,442,793
Notes payable - floorplan 23,132,830 25,732,281
Notes payable 24,400,487 14,178,270
Accounts payable and other accrued expenses 10,238,613 7,236,257
Liability for finance and insurance chargebacks 4,238,051 3,997,957
Unearned income 2,382,257 2,073,717
Due to related parties 3,562,491 1,127,505
Deferred income taxes 191,973 186,598
Due to shareholders 35,435,123 31,090,731
----------------- -----------------
Total current liabilities 110,312,473 92,066,109
Long-term portion of notes payable 17,071,341 6,824,682
Liability for finance and insurance chargebacks 4,202,430 5,082,212
Unearned income 4,782,682 4,079,476
Deferred income taxes 383,945 373,195
Other liabilities - 274,972
Owners' equity 3,954,045 1,898,360
----------------- -----------------
$ 140,706,916 $ 110,599,006
================= =================
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-41
<PAGE> 42
MAROONE AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,916,558 $ 11,638,217
Adjustments to reconcile net income to
net cash from operating activities
Depreciation and amortization 1,188,684 1,097,336
Amortization of intangibles 43,500 8,398
(Gain)/loss on disposal of property and equipment 1,774 (1,624)
Change in assets and liabilities
Short term - investments 3,000,920 (399,999)
Receivables (3,586,028) (695,253)
Inventories 2,469,269 (9,657,215)
Rental vehicles 82,894 (338,486)
Due from related parties (3,508,970) (1,584,219)
Other current assets (208,530) (144,015)
Other assets (141,573) (34,156)
Checks in excess of bank balance 287,855 (782,269)
Accounts payable and accrued expenses 3,002,356 1,382,794
Due to related party 2,434,986 1,127,505
Liability for finance and insurance chargebacks (639,688) 393,578
Unearned income 1,011,747 1,035,261
Other liabilities 140,402 174,972
Deferred income taxes 16,124 79,235
--------------- ----------------
Net cash from operating activities 20,512,280 3,300,060
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of property and equipment 25,098 13,881
Capital expenditures (12,257,025) (4,900,754)
Split dollar life insurance arrangements (212,281) (204,566)
Acquisition of dealerships and franchise rights (9,926,949) (50,000)
Disposal of franchises 1,195,948 -
Due from shareholder (492,754) (1,202,524)
--------------- ----------------
Net cash from investing activities (21,667,963) (6,343,963)
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-42
<PAGE> 43
MAROONE AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under floorplan agreements $ (2,599,451) $ 1,425,042
Borrowings on long-term debt 31,114,646 10,080,000
Payments on long-term debt (10,645,770) (6,483,131)
Net borrowings from shareholders 4,344,392 12,127,791
Capital contributions 1,441,500 200,000
Dividends (14,717,747) (12,505,903)
--------------- ----------------
Net cash from financing activities 8,937,570 4,843,799
--------------- ----------------
Net change in cash 7,781,887 1,799,896
Cash at beginning of year 2,554,938 755,042
--------------- ----------------
CASH AT END OF YEAR $ 10,336,825 $ 2,554,938
=============== ================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 6,379,379 $ 6,909,531
Income taxes paid during the year 271,405 63,500
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-43
<PAGE> 44
MAROONE AUTOMOTIVE GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
Years ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Partners' Minority
Stock Capital Earnings Capital Interest Total
----- ------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995... $ 45,001 $ 298,099 $ 2,322,946 $ -- $ -- $ 2,666,046
Capital contributions........ -- -- -- 200,000 (100,000) 100,000
Dividends.................... (2,000) -- (12,503,903) -- -- (12,505,903)
Net income for year.......... -- -- 11,761,722 51,467 (174,972) 11,638,217
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 43,001 298,099 1,580,765 251,467 (274,972) 1,898,360
Capital contributions........ -- 100,000 -- 1,341,500 (1,500) 1,440,000
Dividends.................... -- -- (13,883,999) (833,748) 416,874 (14,300,873)
Net income for year.......... -- -- 15,372,627 (315,667) (140,402) 14,916,558
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 $ 43,001 $ 398,099 $ 3,069,393 $ 443,552 $ -- $ 3,954,045
============ ============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-44
<PAGE> 45
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS: Maroone Automotive Group (the Group) operates in
Pembroke Pines, Miami, Ft. Lauderdale and Pompano Beach, Florida and Buffalo,
New York. The Group serves customers principally in the south Florida and
metropolitan Buffalo areas. The Group offers a broad range of products and
services including new and used car and light truck sales, vehicle financing and
warranty products, and replacement parts and service. At its five locations the
Group offers collectively five makes of new vehicles, including Chevrolet,
Dodge, Ford, Oldsmobile and Isuzu.
PRINCIPLES OF COMBINATION: The combined financial statements of Maroone
Automotive Group consists of the entities listed below, which represent the
financial position and results of operations of the entities to be acquired by
Republic Industries, Inc. (Republic) in February 1997. The majority of the
entities are owned by members of the Maroone Family. Certain dealership
executives also have ownership interest which is to be acquired by Republic. The
entities include:
<TABLE>
<S> <C>
Maroone Chevrolet, Inc. Maroone Oldsmobile, Inc.
Maroone Isuzu, Inc. Maroone Dodge, Inc.
Al Maroone Ford, Inc. Maroone Dodge Pompano, Limited
Maroone Chevrolet Ft. Lauderdale, Limited Empire Warranty Holding Company
Empire Warranty Corporation Empire Services Agency, Inc.
Maroone Car & Truck Rental Company Empire Acceptance, L.P.
Quantum Premium Finance Corporation Maroone Realty, Inc.
Maroone Management Services, Limited
</TABLE>
Empire Acceptance, L.P. had minority interest of 20% and 50% at December 31,
1996 and 1995, respectively, which interest is not subject to the February 1997
acquisition by Republic.
Alkit Enterprises, Inc. which leases the facilities to Al Maroone Ford, Inc. has
not been included in the combined group because it is not subject to the
acquisition by Republic.
All significant intercompany transactions have been eliminated in the combined
financial statements.
MAJOR SUPPLIER AND DEALER AGREEMENTS: The Group purchases substantially all of
its new vehicles and replacement parts inventories from General Motors
Corporation, Ford Motor Company, American Isuzu Motors and Chrysler Motor
Corporation at the prevailing prices charged to all franchised dealers. The
Group's overall sales could be impacted by a manufacturer's inability or
unwillingness to supply the Group with an adequate supply or mix of inventory.
- --------------------------------------------------------------------------------
(Continued)
F-45
<PAGE> 46
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Group enters into Dealer Agreements with each manufacturer. The Dealer
Agreements limit the location of the dealership and give the manufacturer rights
to approve changes in the dealership's ownership. A manufacturer is entitled to
terminate the Dealer Agreement if the Group is in breach of its terms.
REVENUE RECOGNITION: Revenue from the sale of vehicles is recognized on customer
acceptance and completed financing arrangements. Revenue from parts sales and
service are recognized on customer service. Revenue from service agreements
entered into by the Group and the customer is recorded as deferred revenue upon
receipt and recognized as income on a prorated basis over the term of the
contract. The Group also sells service contracts on behalf of unrelated entities
for which the Group receives a commission.
The Group arranges financing with financial institutions for its customers'
purchases of new and used vehicles for which the Group earns a fee from the
respective financial institution.
The fees that the Group earns for arranging financing and selling third party
service contracts is subject to chargeback if the customer terminates the
respective contract for any reason. The Group records an estimate of the
liability for future chargebacks based on management's estimate and historical
experience.
SHORT-TERM INVESTMENTS: Short-term investments represents certificate of
deposits with maturities of one year or less, but greater than 90 days.
FLEET TRANSACTIONS: The revenue and cost for fleet sales are reported the same
way as other vehicle sales. On the balance sheet, the contract receivable from
the purchaser is netted with the floorplan owing to the credit facility. The net
balance being reported represents the commission receivable on the sales.
INVENTORIES: Inventories are valued at the lower of cost or market. The cost of
the new and used vehicle inventories is determined on a last-in first-out basis
(LIFO), except for Maroone Dodge Pompano, Limited and Maroone Chevrolet Ft.
Lauderdale, Limited which are determined using the first-in first-out (FIFO)
basis. All parts and accessories inventories are determined on a first-in
first-out (FIFO) basis.
INCOME TAXES: An asset and liability approach is used to recognize deferred
income tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities.
- --------------------------------------------------------------------------------
(Continued)
F-46
<PAGE> 47
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The deferred taxes arise from temporary differences in recognition of premium
income and the expensing of the acquisition cost. For financial reporting
purposes, premium income and acquisition cost are deferred and recognized over
the life of the contract. For income tax purposes, 20% of the premium income is
recognized in income immediately with the balance deferred, and the acquisition
costs are expensed as incurred for tax return purposes. Acquisition costs
include commissions paid to the dealerships for originating the contracts and
management fees paid per contract.
ADVERTISING: The Group expenses production and other costs of advertising as
incurred. Advertising expense for the years ended December 31, 1996 and 1995 was
$5.2 million and $4.9 million, respectively.
CREDIT RISK CONCENTRATION: The Group sells new and used vehicles, service
replacement parts and body shop repairs to customers in south Florida and
western New York areas. The Group's trade receivables are due primarily from
retail customers. In addition, the majority of the vehicle and contracts
receivables are due from the manufacturers' financing subsidiaries and financial
institutions relating to sales of new and used vehicles, with the balance due
from various wholesale customers. Additionally there are receivables and
payables to the various manufacturers.
The Group has cash deposited in various local banks. The first $100,000 of the
deposits for each individual company are insured by an agency of the U.S.
Government.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost less
accumulated depreciation. Expenditures for maintenance, repairs and minor
renewals are charged to expense in the period incurred. Betterments and
additions are capitalized. Depreciation is provided by the straight-line and
accelerated methods over the estimated useful lives of the assets.
INTANGIBLE ASSETS: The goodwill of Companies acquired is being amortized on a
straight-line basis over a period not to exceed 40 years. Recoverability is
reviewed annually or sooner if events or changes in circumstances indicate that
the carrying amount may exceed fair value.
Loan costs are amortized over the life of the loan.
- --------------------------------------------------------------------------------
(Continued)
F-47
<PAGE> 48
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: Preparing 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. The actual outcome of the estimates could
differ from the estimates made in the preparation of the financial statements.
FAIR VALUES OF FINANCIAL INSTRUMENTS: The fair value of cash equivalents,
receivables and trade payables approximates the carrying value. The fair value
of floorplan debt, shareholder note payable and other debt approximates the
carrying amount as these instruments bear market interest rates. At December 31,
1996, the fair value of the interest rate swaps represented a benefit to the
Group of approximately $76,000.
INTEREST RATE SWAP AGREEMENTS: The differential to be paid or received is
accrued as interest rates change and is recognized over the life of the
agreement.
STATEMENT OF CASH FLOWS: For purposes of the statement of cash flows, cash
includes cash and short-term investments with original maturities of 90 days or
less.
NOTE 2 - REVENUE AND COST OF REVENUE
For the years ended December 31, 1996 and 1995 the revenue and cost of revenue
consisted of the following:
<TABLE>
<CAPTION>
Revenue 1996 1995
- -------- ---- ----
<S> <C> <C>
Fleet $ 283,625,609 $ 105,188,472
Automotive retail 431,438,244 381,805,237
Cost of Revenue
- ---------------
Fleet $ 281,601,214 $ 104,102,172
Automotive retail 362,437,825 317,249,370
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-48
<PAGE> 49
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 3 - INCOME TAXES
SUB CHAPTER S CORPORATIONS
The following entities are treated for income tax purposes as S Corporations.
Accordingly, the accompanying financial statements reflect no provision for
income taxes for these entities since the taxable income or loss of the entities
are reported by the shareholders, individually:
<TABLE>
<S> <C>
Maroone Chevrolet, Inc. Maroone Oldsmobile, Inc.
Maroone Isuzu, Inc. Maroone Dodge, Inc.
Al Maroone Ford, Inc. Maroone Car & Truck Rental Company
Quantum Premium Finance Corporation. Empire Services Agency, Inc.
</TABLE>
LIMITED PARTNERSHIPS
The following entities are organized as limited partnerships. Accordingly the
accompanying financial statements reflect no provision for income taxes for
these entities since the taxable income or loss of the entities are reported by
the partners, individually:
<TABLE>
<S> <C>
Maroone Management Services, Limited Maroone Dodge Pompano, Limited
Maroone Chevrolet Ft. Lauderdale, Limited Empire Acceptance, L.P.
</TABLE>
TAXABLE CORPORATION
The provision for income taxes consist of the following for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current federal income taxes $ 284,305 $ 125,574
Deferred federal income taxes 16,124 79,235
------------ ------------
300,429 204,809
State income taxes 66,000 4,250
------------ ------------
Total $ 366,429 $ 209,059
============ ============
</TABLE>
The detail to the deferred tax balances as of December 31, 1996 and December 31,
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liability $ 575,918 $ 559,793
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-49
<PAGE> 50
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 3 - INCOME TAXES (Continued)
The provision for income taxes at the Group's effective tax rate of 34% differed
from the provision for income taxes at the statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computed tax at the expected statutory rate $ 5,196,216 $ 4,028,074
S-corporation and partnership not subject to entity level tax (4,875,103) (3,815,560)
State taxes, net of federal effect 43,560 2,805
Other, net 1,756 (6,260)
--------------- ---------------
Provision for income taxes $ 366,429 $ 209,059
=============== ==============
</TABLE>
NOTE 4 - RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Trade receivables $ 1,431,027 $ 1,029,492
Contract in transit and vehicle receivables 12,980,081 10,541,942
Factory receivables and others 4,140,727 3,399,373
--------------- ---------------
18,551,835 14,970,807
Less: allowance for doubtful accounts (45,000) (50,000)
--------------- ---------------
$ 18,506,835 $ 14,920,807
=============== ===============
</TABLE>
NOTE 5 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
New vehicles $ 45,727,117 $ 46,933,155
Used vehicles 10,119,773 5,916,661
Parts, accessories and miscellaneous 2,661,440 2,568,494
--------------- ---------------
$ 58,508,330 $ 55,418,310
=============== ===============
</TABLE>
At December 31, 1996, $10.2 million of new vehicles and $2.7 million of used
vehicles are valued on a FIFO basis. The remaining December 31, 1996 new and
used vehicle inventories were valued on a LIFO basis. All of the December 31,
1995 new and used vehicle inventories were valued on a LIFO basis. The LIFO
reserve at December 31, 1996 and 1995 was $9.3 million and $9.1 million,
respectively.
- --------------------------------------------------------------------------------
(Continued)
F-50
<PAGE> 51
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 16,479,368 $ 11,301,738
Buildings and improvements 13,767,282 12,856,005
Construction in progress 5,332,459 110,956
Leasehold improvements 923,037 1,030,125
Equipment and vehicles 2,928,882 2,254,470
Furniture and fixtures 3,834,145 3,089,722
--------------- ---------------
43,295,173 30,643,016
Less: accumulated depreciation and amortization 6,504,599 5,342,969
--------------- ---------------
$ 36,790,574 $ 25,300,047
=============== ===============
</TABLE>
The construction in progress represents the substantial completion of the Pines
Boulevard facility.
NOTE 7 - RECEIVABLES FROM AFFILIATES AND SHAREHOLDERS
Due from shareholders at December 31, 1996 and 1995 consists of unsecured
advances made during 1996 and 1995 due from shareholders. The Group anticipates
repayment of these advances during 1997 but has recorded the 1995 advances as
long term at December 31, 1996.
Due from affiliates includes approximately $4.0 and $1.6 million at December 31,
1996 and 1995 respectively, due from the general partner of Empire Acceptance,
L.P. and are the results of purchase of finance contracts by the general partner
through the normal course of operations. Approximately $20 million of contracts
were sold by Empire Acceptance, L.P. in 1996 and approximately $10 million in
1995. In addition, at December 31, 1996, Alkit Enterprises, Inc. owed the Group
approximately $1.1 million for funds advanced during 1996 for the remodeling of
the Al Maroone Ford facilities. Alkit plans to repay these funds in 1997 when
permanent financing for the improvements is obtained.
- --------------------------------------------------------------------------------
(Continued)
F-51
<PAGE> 52
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 8 - INTANGIBLE ASSETS
Intangible assets included the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Goodwill and franchise rights $ 2,750,000 $ 50,000
Mortgage costs and other intangibles 64,109 64,109
-------------- ------------
2,814,109 114,109
Less: accumulated amortization 69,898 26,398
-------------- ------------
$ 2,744,211 $ 87,711
============== ============
</TABLE>
NOTE 9 - OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Amounts due under split dollar life
insurance arrangements $ 1,408,478 $ 1,196,197
Deposits 500,000 400,000
Other 41,661 87
--------------- --------------
$ 1,950,139 $ 1,596,284
=============== ==============
</TABLE>
NOTE 10 - NOTES PAYABLE - FLOORPLAN
At December 31, 1996 the Group had floorplan financing agreements with Ford
Motor Credit Corporation bearing interest at 1% over prime, secured by new and
used vehicle inventories. Ford Motor Credit allows the Group to invest available
cash against the floor plan in a Cash Management Account (CMA) arrangement with
Ford Motor Credit Corporation. The cash invested in and the earnings on the CMA
account is reflected as a reduction of the floorplan liability and interest
expense in the Group financial statements. At December 31, 1996 and 1995 the CMA
amounts shown as offsets to the floorplan liability were $44,110,000 and
$42,265,000, respectively.
Prior to the current floorplan agreements with Ford Motor Credit, the Group had
floorplan agreements with General Motors Acceptance Corporation and Chrysler
Credit Corporation.
- --------------------------------------------------------------------------------
(Continued)
F-52
<PAGE> 53
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 10 - NOTES PAYABLE - FLOORPLAN (Continued)
The Group also has financing arrangements with General Motors Acceptance and
Chrysler Credit relating to daily rental vehicles. The loans are secured by the
rental vehicles and bear interest at .75% to 1% of prime and require monthly
principal payments of 1.75% to 3% of the original amount.
NOTE 11 - NOTES PAYABLE
Notes payable consist of the following at December 31, 1996 and 1995;
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
$5 million line of credit arrangement with
First Union National Bank of Florida requiring
payment of interest monthly at .5% over the bank's
prime rate. The loan is guaranteed by the shareholder.
The loan agreement contains certain covenants. $ 1,300,000 $1,000,000
Unsecured notes payable to NationsBank, due on
demand with interest due monthly at 9.25%. 3,200,000 3,200,000
$13 million mortgage loan payable to First Union
National Bank of Florida in monthly installment of
$54,167 plus interest at 1.9% above the Bank of
America LIBOR rate. The loan is secured by the
Maroone Auto Plaza property in Pembroke Pines, Florida
and is guaranteed by Maroone Isuzu, Inc. and
Maroone Oldsmobile, Inc. and is subject to restrictive
covenants. The mortgage matures on March 15, 2001. 12,512,500 --
Mortgage loan payable to General Motors Acceptance
Corporation in monthly installments of $15,000 plus
interest at prime plus 1%, with a balloon payment due
on December 28, 1998. The loan is secured by the Maroone
Dodge, Inc. facilities. 2,446,667 2,626,667
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-53
<PAGE> 54
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 11 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
$5 million line of credit arrangement with First Union Mortgage loan
payable to General Motors Acceptance Corporation in monthly installments of
$129,928 including interest at 1% over prime rate, with the balance due on
February 1, 1996. The loan is secured by the Pembroke Pines auto plaza
facilities and all real and personal assets of Maroone Chevrolet, Inc. The
interest rate was reduced by .25% due to Maroone Chevrolet's participation
in the GMAC Quality Finance Plan. $ -- $ 9,546,950
$30 million revolving line of credit agreement with Ford Motor Credit
Company with interest payable monthly at 1.75% above the commercial paper
rate. Principal amortization begins the day on which either party
terminates the agreement, with payments due monthly on a five year
amortization schedule. The balance of the loan is due two years from the
date the agreement is terminated. The loan is secured by all tangible and
intangible property of the borrowers which are Maroone Management Services,
Limited, Maroone Chevrolet, Inc., Maroone Oldsmobile, Inc., Maroone Dodge,
Inc, Maroone Chevrolet Ft. Lauderdale, Limited, and Maroone Dodge Pompano,
Limited. The loan agreement contains certain restrictive covenants. 17,000,000 --
Mortgage loan payable to First Union National Bank of Florida in 39
quarterly installments of $122,500 commencing on March 10, 1997, plus
interest at 1.75% above the USD-LIBOR-BBA rate. The loan matures and is
due in full on December 8, 2006. The loan is secured by tracts of real
estate located in Broward and Dade Counties Florida and is guaranteed by
Maroone Isuzu, Inc. and Maroone Oldsmobile, Inc. and is subject to
restrictive covenants. The borrower is Maroone Management Services,
Limited. 4,900,000 4,107,780
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-54
<PAGE> 55
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 11 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Other notes payable and capital lease arrangements
relating to various computer and office equipment. $ 112,661 $ 521,555
---------------- ---------------
41,471,828 21,002,952
Current maturities 24,400,487 14,178,270
---------------- ---------------
$ 17,071,341 $ 6,824,682
================ ===============
</TABLE>
Before considering covenant violations, notes payable are scheduled to become
due over the next five years as follows:
1997 $ 5,861,320
1998 3,470,413
1999 1,147,595
2000 1,140,000
2001 10,402,500
The loan agreements with Ford Motor Credit Company, First Union National Bank
and General Motors Acceptance Corporation contain covenants which include
restrictions on merger transactions and ownership changes; and minimum
requirements for the floor plan cash management balance and net worth levels and
restrictions on the entering into other loan arrangements or guaranteeing the
debt of the companies or persons. At December 31, 1996 the Group was in
violation of certain of these covenants with General Motors Acceptance
Corporation and First Union National Bank and the balance of these loans are
reflected in current maturities.
At December 31, 1996 the Group had an unused line of credit with First Union
Bank of $3.7 million. In addition First Union held approximately $800,000 of
standby letters of credits relating to the Group's workers compensation plan.
Interest expense on all indebtedness amounted to $6.7 million and $7.0 million
for the years ended December 31, 1996 and 1995 respectively.
Interest credits of $3.3 million and $3.5 million received from the
manufacturers in 1996 and 1995, respectively have been shown as a reduction in
the cost of revenue.
Interest capitalized during 1996 and 1995 was $647,995 and $12,653,
respectively.
- --------------------------------------------------------------------------------
(Continued)
F-55
<PAGE> 56
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 12 - NOTES PAYABLE TO SHAREHOLDERS
Notes payable shareholders represent amounts due to Group shareholders. The
average balance outstanding was approximately $34 million and $21 million during
1996 and 1995, respectively. The highest balance outstanding was approximately
$36 million in 1996 and $31 million in 1995. Interest is paid on the notes at 1%
over major bank prime. Total interest paid to the shareholders was $2,614,210
and $2,091,458 for 1996 and 1995, respectively.
NOTE 13 - INTEREST RATE SWAP AGREEMENTS
Maroone Chevrolet, Inc. has entered into a interest rate swap agreement to
reduce the impact of changes in interest rates on its long-term debt. At
December 31, 1996, the swap agreement with First Union National Bank had a
notional principal of approximately $12.5 million. This agreement effectively
changes the Group's interest rate exposure on its $12.5 million mortgage to a
fixed 7.76%. The interest swap agreement matures on March 15, 2001.
Maroone Management Services, Limited. has entered into a interest rate swap
agreement to reduce the impact of changes in interest rates on its long-term
debt. At December 31, 1996, the swap agreement with First Union National Bank
had a notional principal of approximately $2.45 million. This agreement
effectively changes the Group's interest rate exposure on $2.45 million of the
$4.9 million mortgage to a fixed 8.25%. The interest swap agreement matures on
December 8, 2006.
NOTE 14 - COMMON STOCK
At December 31, 1996 and 1995 the Common Stock consisted of:
<TABLE>
<CAPTION>
Par Value Shares
of Common Shares Issued and
Shares Authorized Outstanding Amount
------ ---------- ----------- ------
<S> <C> <C>
Maroone Chevrolet, Inc. $ 1.00 7,500 100 $ 100
Maroone Oldsmobile, Inc. 1.00 1,000 100 100
Maroone Isuzu, Inc. .01 1,000 100 1
Maroone Dodge, Inc. .01 500,000 240,000 2,400
Al Maroone Ford, Inc. No Par 200 200 40,000
Empire Warranty Holding Company. 1.00 1,000 100 100
Empire Services Agency, Inc. 1.00 1,000 100 100
Maroone Car & Truck Rental Company 1.00 1,000 100 100
Quantum Premium Finance Corporation 1.00 1,000 100 100
---------
$ 43,001
=========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-56
<PAGE> 57
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 15 - PROFIT SHARING PLAN
All of the Maroone Automotive Group's corporations and partnerships have adopted
the Maroone Group 401(k) Plan. The plan covers all non-highly compensated
employees over the age of 21 with one year experience and at least one thousand
hours worked in the current year. The Group annually sets matching
contributions. The profit sharing plan expense was $44,139 and $15,793 for 1996
and 1995, respectively.
NOTE 16 - LEASE COMMITMENTS
On August 1, 1996, Maroone Dodge Pompano, Limited assumed a contract with
Chrysler Realty Corporation to lease the dealership facilities through October
21, 1997. The lease calls for monthly payment of $16,250, plus taxes and
insurance, through September 30, 1997 with a final payment of $11,008.
Maroone Chevrolet Ft. Lauderdale, Limited leases its dealership facilities under
a ten year lease agreement dated November 1, 1996. The lease is a triple net
lease and provides monthly rent of $45,000 for the first thirty months and then
increasing proportionately with increases in the appraised value of the
dealership facilities. The lease provides for three five year renewal options.
The minimum rental commitments under these operating leases are as follows:
1997 $ 697,258
1998 540,000
1999 540,000
2000 540,000
2001 540,000
2002 and thereafter 2,610,000
---------------
$ 5,467,258
===============
Total rent expense under the lease agreements was $171,250 for the year ended
December 31, 1996.
- --------------------------------------------------------------------------------
(Continued)
F-57
<PAGE> 58
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 17 - RELATED PARTY TRANSACTIONS
The Group leases the Al Maroone Ford facilities from Alkit Enterprises, Inc.
which is owned by shareholders of the Group. The Group intends to continue rent
this facility for the next four years. The minimum rent is as follows:
1997 $ 288,000
1998 288,000
1999 288,000
2000 288,000
---------------
$ 1,152,000
===============
The rent expense under this lease arrangement was $288,000 and $270,000 for the
years ended December 31, 1996 and 1995 respectively.
NOTE 18 - ACQUISITIONS
On August 1, 1996 the Group acquired the Dodge franchise and certain assets from
Harbor Corp., Inc. The cost of the acquisition, which has been treated as a
purchase, was allocated as follows:
Goodwill $ 750,000
Inventory 2,978,584
Fixed assets 233,854
Other current assets 22,653
The goodwill will be amortized on a straight-line basis over 40 years. The
results of operations for the period of August 1, 1996 through December 31, 1996
are included in the financial statements.
In addition the Group acquired the Chevrolet franchise and certain assets from
Gary Fronrath Chevrolet, Inc. on November 1, 1996. The cost of the acquisition,
which has been treated as a purchase, was allocated as follows:
Goodwill $ 1,500,000
Inventory 3,776,653
Fixed assets 215,205
The goodwill will be amortized on a straight-line basis over 40 years. The
results of operations for the period of November 1, 1996 through December 31,
1996 are included in the financial statements.
- --------------------------------------------------------------------------------
(Continued)
F-58
<PAGE> 59
MAROONE AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE 19 - SUBSEQUENT EVENTS
MERGER AGREEMENT
On January 12, 1997, the Maroone Automotive Group corporations, partnerships,
shareholders and partners entered into a merger agreement with Republic
Industries, Inc. and its subsidiaries.
LOAN COVENANTS
The loan agreements with Ford Motor Credit Corporation, General Motors
Acceptance Corporation and First Union National Bank contain restrictive
covenants restricting merger transactions and the change in ownership of the
companies away from the Maroone Family. The financial institutions had not
waived these covenants as they relate to the merger agreement discussed above. A
violation of these covenants could result in a default of the loan agreements.
TERMINATION OF RETAILER AGREEMENT
On January 13, 1997 Maroone Isuzu, Inc. and related affiliates terminated a
Retailer Agreement dated October 31, 1996 with Driver's Mart Worldwide, Inc. The
termination agreement included the redemption of Maroone Isuzu, Inc. stock
holding in Driver's Mart Worldwide, Inc. by Driver's Mart.
- --------------------------------------------------------------------------------
F-59
<PAGE> 60
INDEPENDENT AUDITOR'S REPORT
Shareholder
The Wallace Companies
Delray Beach, Florida
We have audited the accompanying combined balance sheet of The
Wallace Companies as of December 31, 1996, and the related combined statements
of income, of retained earnings and of cash flows for the year then ended. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
financial statements based on our 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
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 financial position of The
Wallace Companies as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Goldenberg Rosenthal Friedlander, LLP
Jenkintown, Pennsylvania
February 17, 1997
F-60
<PAGE> 61
THE WALLACE COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS (Notes 7 and 13)
<S> <C>
Current assets
Cash (Note 1) $ 6,625,000
Marketable securities (Note 4) 726,000
Accounts receivable, net of allowance for doubtful
accounts of $116,000 (Notes 1 and 2) 7,483,000
Inventories (Notes 1 and 5) 39,076,000
Aviation equipment held for sale, net (Note 1) 2,930,000
Due from shareholder (Notes 1 and 3) 5,334,000
Prepaid expenses 533,000
-------------
Total current assets 62,707,000
-------------
Property and equipment (Notes 1 and 12)
Land 16,544,000
Building and improvements 14,461,000
Machinery and equipment 2,254,000
Furniture, signs and equipment 3,272,000
Construction in Progress 559,000
-------------
37,090,000
Less accumulated depreciation 7,282,000
-------------
29,808,000
-------------
Other assets
Intangibles (Notes 1 and 6) 7,806,000
Other 376,000
-------------
8,182,000
-------------
$ 100,697,000
=============
</TABLE>
See notes to combined financial statements
F-61
<PAGE> 62
THE WALLACE COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C>
Current liabilities
Notes payable (Notes 1 and 7) $ 50,593,000
Notes and loans payable, related parties (Notes 1 and 7) 1,802,000
Current maturities of long-term debt (Notes 1 and 7) 3,744,000
Accounts payable, trade (Note 1) 2,206,000
Accrued expenses 2,435,000
Finance and receivable chargeback reserve 1,426,000
Current portion of unearned premium reserve (Note 1) 1,796,000
-------------
Total current liabilities 64,002,000
-------------
Long-term debt, net of current maturities (Notes 1 and 7) 25,622,000
-------------
Unearned premium reserve, net of current portion (Note 1) 2,350,000
-------------
Deferred income taxes (Note 9) 474,000
-------------
Contingencies (Note 14)
Shareholder's equity
Common stock (Note 8) 32,000
Additional paid-in capital 4,259,000
Retained earnings 3,958,000
-------------
8,249,000
-------------
$ 100,697,000
=============
</TABLE>
See notes to combined financial statements
F-62
<PAGE> 63
THE WALLACE COMPANIES
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Sales (Note 1)
Vehicle $ 258,585,000
Service, parts and other 23,678,000
-------------
Net sales 282,263,000
-------------
Cost of sales (Notes 1 and 5)
Vehicle 240,203,000
Service, parts and other 12,607,000
-------------
Cost of sales 252,810,000
-------------
Gross profit on sales 29,453,000
Other operating income (Note 11) 4,749,000
-------------
Gross operating income 34,202,000
Selling, general and administrative expenses
(Notes 1, 2, 6 and 11) 29,812,000
-------------
Operating income 4,390,000
-------------
Other income (expense)
Interest expense (Note 11) (2,467,000)
Investment income, net (Note 4) 230,000
Gain on disposal of property and equipment 739,000
Miscellaneous 661,000
-------------
Total other income (expense) (837,000)
-------------
Income before income taxes 3,553,000
-------------
Income taxes (Note 9)
Current --
Deferred 110,000
-------------
110,000
-------------
Net income $ 3,443,000
=============
</TABLE>
See notes to combined financial statements
F-63
<PAGE> 64
THE WALLACE COMPANIES
COMBINED STATEMENT OF RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Retained earnings, beginning of year $ 1,635,000
Net income 3,443,000
Dividends paid (1,120,000)
-------------
Retained earnings, end of year $ 3,958,000
=============
</TABLE>
See notes to combined financial statements
F-64
<PAGE> 65
THE WALLACE COMPANIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities
Cash received from customers $ 298,140,000
Cash paid to suppliers and employees (277,433,000)
Interest received (Note 1) 237,000
Interest paid (Note 1) (4,293,000)
Income taxes paid (239,000)
-------------
Net cash provided by operating activities 16,412,000
-------------
Cash flows from investing activities
Capital expenditures (3,966,000)
Proceeds from disposal of property and equipment 1,918,000
Net advances to shareholder (4,909,000)
Acquisition of marketable securities (46,000)
Increase in other assets (100,000)
-------------
Net cash used in investing activities (7,103,000)
-------------
Cash flows from financing activities
Net payments on short-term debt (5,700,000)
Proceeds from long-term debt 2,475,000
Principal payments on long-term debt (697,000)
Net borrowings from related parties 70,000
Dividends paid (1,120,000)
-------------
Net cash used in financing activities (4,972,000)
-------------
Net increase in cash 4,337,000
Cash, beginning of year 2,288,000
-------------
Cash, end of year $ 6,625,000
=============
</TABLE>
See notes to combined financial statements
F-65
<PAGE> 66
THE WALLACE COMPANIES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income $ 3,443,000
-------------
Adjustment to reconcile net income to net cash
provided by operating activities
Depreciation 1,663,000
Amortization 247,000
Bad debt recoveries (59,000)
Gain on disposal of property and equipment (739,000)
Unrealized loss on marketable securities (Note 4) 11,000
Deferred income taxes 110,000
(Increase) decrease in assets
Accounts receivable 1,205,000
Inventories 9,823,000
Prepaid expenses (445,000)
Other assets 5,000
Increase (decrease) in liabilities
Accounts payable and accrued expenses 540,000
Unearned premium reserve 847,000
Income taxes payable (239,000)
-------------
12,969,000
-------------
Net cash provided by operating activities $ 16,412,000
=============
</TABLE>
See notes to combined financial statements
F-66
<PAGE> 67
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Wallace Companies ("the Company") is engaged in the
sale of new and used motor vehicles, finance and insurance products,
vehicle service and parts, limited extended warranty contracts and
after-market products. The Company also maintains a fleet of vehicles held
for rental to others. The principal geographic markets served are South
Florida including Palm Beach and Martin Counties. Revenues are derived
primarily from sales of vehicles.
The Company's new vehicle brand offering consists of Ford,
Nissan, Dodge, Lincoln-Mercury and Mitsubishi, which products are
purchased under franchise and dealer agreements with the respective
vehicle manufacturers and distributors.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include
Wallace Ford, Inc., Wallace Nissan, Inc., Wallace Dodge, Inc., Wallace
Imports, Inc., Wallace Lincoln-Mercury, Inc., Stuart Lincoln-Mercury, Inc.
and Bill Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi (all subchapter
S corporations) and Mechanical Warranty Protection, Inc., all affiliated
through common ownership by a sole shareholder. All significant
intercompany accounts and transactions have been eliminated in
combination.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and trade accounts
receivable. The Company places its cash and temporary cash investments
with commercial institutions. At times, such cash and temporary cash
investments may be in excess of the FDIC insurance limit. The Company
routinely assesses the financial strength of its customers and as a
consequence, believes that its trade accounts receivable credit risk
exposure is limited.
INVENTORIES
Inventories are valued at the lower of cost or market.
Cost is determined as follows: new vehicles - last-in, first-out (LIFO);
used vehicles - specific identification; parts, accessories and oil -
first-in, first-out (FIFO); vehicles held for rental are carried at
specifically identified cost, net of accumulated amortization
(straight-line method).
F-67
<PAGE> 68
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
REVENUE RECOGNITION
Revenue is recognized by the Company when vehicles are
delivered to consumers or motor vehicle service work is performed and
parts are delivered. Finance fees earned in connection with customer
vehicle financing is recognized upon the acceptance of the contract by the
financial institution. Commissions received from the sale of extended
warranty contracts, service contracts and insurance on credit life,
accident and disability policies in connection with the vehicle sale are
recognized upon customer execution of the related contracts. Generally,
the Company is subject to a chargeback of a portion of the commission or
fee received in the event that the contracts are prematurely canceled. An
allowance for chargebacks against revenue recognized from such activities
is established during the period in which the related revenue is
recognized.
Premiums on the sale of limited extended warranties are
deferred and recognized on a pro rata basis over the terms of the
policies.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Expenditures
for maintenance, repairs and renewals of a minor nature are charged
against earnings as incurred. Major renewals and betterments are
capitalized. Depreciation is provided principally by accelerated methods
over the estimated useful lives of the related assets.
AVIATION EQUIPMENT HELD FOR SALE AND DEPRECIATION
Aviation equipment held for sale is stated at cost.
Depreciation is provided on the straight-line method over the twelve year
estimated useful life of the asset.
AMORTIZATION
Goodwill is amortized on the straight-line method over
forty years.
Loan acquisition costs are amortized on the straight-line
method over the term of the loan.
Organization costs are amortized on the straight-line
method over five years.
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.
F-68
<PAGE> 69
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
ADVERTISING
The Company expenses production and other costs of
advertising as incurred. Advertising expense amounted to $4,452,000 for
the year ended December 31, 1996.
MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS
The Company purchases substantially all of their new
vehicles and parts inventories from various automobile manufacturers with
whom the Company holds franchise agreements. The franchise agreements
provide the Company with certain rights and restrictions such as location
of the dealership, and approval rights over changes in management and
ownership. The ability of the manufacturers to influence the operations of
the dealership and to supply the dealership with an adequate supply of
popular models could have a significant effect on operating results of the
Company. The ability to add additional locations depends, in part, on
obtaining consents of the manufacturers to acquire additional dealerships.
ENVIRONMENTAL LIABILITIES
Environmental liabilities are charged to operations when
it is probable that a liability has been incurred and the amount of the
liability can reasonably be estimated. Accrued liabilities are not reduced
by claims against third parties and are not discounted. No accrued
liabilities have been recorded as of December 31, 1996.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" ("SFAS No. 121") requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset in question may not be
recoverable. SFAS No. 121 was adopted in 1996 and did not have a material
effect on the Company's results of operations, cash flows or financial
position.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, receivables,
payables and short- and long-term borrowing approximate fair value due
either to length of maturity or existence of variable interest rates that
approximate prevailing market rates.
EARNINGS PER SHARE
Historical earnings per share is not presented, as the
historical capital structure prior to the merger is not comparable to the
capital structure that will exist subsequent to the merger (Note 13).
F-69
<PAGE> 70
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<S> <C>
Contracts-in-transit $3,789,000
Trade, other 1,152,000
Due from manufacturers 2,350,000
Due from finance companies 157,000
Due from related party 56,000
Recoverable income taxes 51,000
Other 44,000
-----------
7,599,000
Less allowance for doubtful accounts (116,000)
-----------
$7,483,000
===========
</TABLE>
3. DUE FROM SHAREHOLDER
The amount due from shareholder is comprised of the
following:
<TABLE>
<S> <C>
An unsecured advance due on demand; interest is
accrued at 5.89% for 1996 which approximates the
Internal Revenue Service annual blended federal rate $ 4,880,000
Unsecured notes receivable resulting from the sale
of wholly-owned subsidiaries in the amount of
$44,000 and $410,000, including interest at 9.0%
and 7.5% per annum, respectively 454,000
-----------
$ 5,334,000
===========
</TABLE>
Upon the completion of the merger, the above amounts will
be repaid in full (Note 13).
4. MARKETABLE SECURITIES
The Company has adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). The Company's investments are comprised of
mutual funds which are classified as trading securities as of December 31,
1996, and, accordingly, net unrealized holding losses of $11,000 were
included in net earnings for 1996.
In accordance with SFAS No. 115, these investments are
carried at fair value, which is based on quoted market prices.
Marketable securities as of December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Cost Fair Value
------------ ------------
<S> <C> <C>
Mutual fund $ 770,000 $ 726,000
============ ============
</TABLE>
F-70
<PAGE> 71
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
5. INVENTORIES
New vehicles $ 35,694,000
Used vehicles 4,141,000
Vehicles held for rental to others, net 4,244,000
Other 1,588,000
------------
45,667,000
LIFO reserve (6,591,000)
------------
$ 39,076,000
============
The LIFO provision was $253,000 for the year ended
December 31, 1996. Cost of sales would have been lower by this amount if a
non-LIFO method had been used.
Accumulated amortization of vehicles held for rental to
others was $509,000 as of December 31, 1996.
6. INTANGIBLE ASSETS
Intangible assets as of December 31, 1996 consist of the
following:
<TABLE>
<S> <C>
Goodwill, net of accumulated amortization of $482,000 $ 7,640,000
Loan acquisition costs, net of accumulated amortization of $61,000 138,000
Organization costs, net of accumulated amortization of $18,000 28,000
------------
$ 7,806,000
============
</TABLE>
7. DEBT
<TABLE>
<S> <C>
Collateralized by vehicle inventories, interest ranging from prime rate plus
1%, to prime rate plus 1.75% (prime rate as of December 31, 1996 was
8.25%) $ 46,374,000
Collateralized by lease and rental vehicles, interest rate as of December 31,
1996 ranged from 8.25% to 9.75% 4,219,000
------------
Balance, carried forward 50,593,000
</TABLE>
F-71
<PAGE> 72
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
7. DEBT (continued)
<TABLE>
<S> <C>
Balance, brought forward 50,593,000
Line-of-credit with Ford Motor Credit Company, amounting to $2,400,000,
collateralized by substantially all Company assets; interest only
payable monthly at 1.25% over the prime rate (prime was 8.25% as of
December 31, 1996); commencing on the date either the borrower or lender
amends or terminates the agreement, the amount outstanding shall be paid
in 23 equal monthly installments of principal in an amount calculated to
amortize the then outstanding balance over a period of 60 months, plus
interest with a final installment which shall include the unpaid
balance. As of December 31, 1996, Ford Motor Credit Company has
indicated that it has no intention of withdrawing the credit line 1,000,000
Note payable to Ford Motor Credit Company, due in monthly installments of
$208,000 including interest at 3% above the commercial paper rate (the
commercial paper rate was 5.25% as of December 31, 1996) but not to
exceed 13.49%; collateralized by substantially all the assets of the
Company guaranteed by the sole shareholder and the spouse of the sole
shareholder, Wallace Imports, Inc. and Mechanical Warranty Protection,
Inc.; due December, 2000; upon the debt being paid down below
$19,100,000, the interest rate shall be 2.75% above the commercial paper
rate not to exceed 13.24% 20,167,000
Note payable to Ford Motor Credit Company, due in monthly installments of
$47,000 including interest at 3% above the commercial paper rate (the
commercial paper rate was 5.25% as of December 31, 1996) but not to
exceed 13.49%; collateralized by substantially all the assets of the
Company guaranteed by the sole shareholder and the spouse of the sole
shareholder, Wallace Imports, Inc. and Mechanical Warranty Protection,
Inc.; due December, 2000 4,521,000
Note payable, bank, due in equal monthly installments of $1,802 plus interest
at prime; collateralized by equipment; due July, 1998 34,000
Note payable to individual, due in monthly installments of $50,000; due
April, 1997; total amount due as of December 31, 1996 is $200,000;
noninterest bearing, interest at 9.5% per annum imputed for financial
statement purposes, unsecured 196,000
------------
Balance, carried forward 76,511,000
</TABLE>
F-72
<PAGE> 73
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
7. DEBT (continued)
<TABLE>
<S> <C>
Balance, brought forward 76,511,000
Capital lease payable for computer system, payable to leasing company; due in
equal monthly lease payments of $5,000 including interest at an imputed
rate of 10.5% per annum through December, 1999 (Note 12) 147,000
Capital lease payable for property; the terms of the lease require a payment
of $7,500 per month including interest at an imputed rate of 9.274% per
annum through May, 1998; lessor has the right at anytime during the term
of the lease to give notice to the Company and the Company must purchase
the property for $875,000 or the lease is terminated; at the end of the
lease term, the Company has the option to purchase the property for
$900,000 881,000
Individual notes payable to a trust of the Wallace family and a key employee
of the Company, unsecured and due on demand; interest ranging from 9.00%
to 9.25% per annum payable annually; principal and interest due upon the
effective date of the merger (Note 13) 137,000
Individual notes to various members of the Wallace family and a trust of the
Wallace family, unsecured; interest only ranging from 7.00% to 7.50%
payable annually; principal and interest due upon the effective date of
the merger (Note 13) 695,000
Note payable to a trust of the Wallace family, unsecured, interest only at
7.75%; principal and interest due upon the effective date of the merger
(Note 13) 970,000
Note payable, G.E. Capital Corporation, payable in monthly installments of
$30,000 including interest at 2.6% above the commercial paper rate;
collateralized by aviation equipment; note to be assumed upon the
effective date of the merger (Note 13) 2,420,000
------------
81,761,000
Less, debt payable within one year:
Floor plan notes payable (50,593,000)
Notes payable related parties (1,802,000)
Current portion of long-term debt and capital lease obligations (3,744,000)
------------
$ 25,622,000
============
</TABLE>
F-73
<PAGE> 74
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
7. DEBT (continued)
The Company leases its computer system and property
adjacent to Wallace Lincoln-Mercury, Inc. from third parties under
capitalized lease agreements. Future minimum lease payments under capital
leases and principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Capital Long-Term
Leases Debt Total
----------- ----------- ------------
Year Ending December 31
-----------------------
<S> <C> <C> <C>
1997 $ 149,000 $ 3,690,000 $ 3,839,000
1998 972,000 1,155,000 2,127,000
1999 54,000 1,242,000 1,296,000
2000 - 21,251,000 21,251,000
2001 - - -
Thereafter - 1,000,000 1,000,000
----------- ----------- ------------
Total minimum lease payments
and principal maturities of
long-term debt 1,175,000 28,338,000 29,513,000
Less, amount representing
interest (147,000) - (147,000)
Less, current maturities (54,000) (3,690,000) (3,744,000)
----------- ----------- ------------
$ 974,000 $24,648,000 $ 25,622,000
=========== =========== ============
</TABLE>
Floor plan notes are due generally upon sale of the
related vehicle. New vehicles collateralizing floor plan notes of
approximately $6,083,000 were sold prior to December 31, 1996. The notes
were subsequently paid in January, 1997. In addition, during the first
week of January, 1997, the Company paid $3,783,000 of floor plan notes
collateralized by used vehicles. The floor plan agreements permit the
Company to borrow up to $48,900,000 as of December 31, 1996, restricted by
new and used vehicle levels.
In the normal course of business, Ford Motor Credit
Company has allowed the Company to exceed the available credit limits. As
of December 31, 1996, Ford Motor Credit Company indicated that it has no
intention of calling the credit facilities due to the floor plan
liabilities exceeding the stated credit limit. The weighted average
interest rate on short-term borrowings was 9.27% as of December 31, 1996.
F-74
<PAGE> 75
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
8. COMMON STOCK
<TABLE>
<CAPTION>
Par Authorized Issued Outstanding
Value Shares Shares Shares Amount
---------- --------------- ----------- ---------------- --------
<S> <C> <C> <C> <C> <C>
Wallace Ford, Inc. None 50 6 6 $ 6,000
Wallace Nissan, Inc. $1.00 7,500 1,000 1,000 1,000
Wallace Dodge, Inc. 1.00 7,500 760 760 1,000
Wallace Imports, Inc. 1.00 7,500 1,000 1,000 1,000
Wallace Lincoln-Mercury, Inc. .10 100,000 50,000 50,000 5,000
Stuart Lincoln-Mercury, Inc. .10 100,000 50,000 50,000 5,000
Bill Wallace Enterprises, Inc.
d/b/a Stuart Mitsubishi .10 100,000 50,000 50,000 5,000
Mechanical Warranty
Protection, Inc. 10.00 750 750 750 8,000
--------
$ 32,000
========
</TABLE>
9. INCOME TAXES
Effective January 1, 1989, Wallace Imports, Inc. elected S
corporation status. Effective January 1, 1993, Wallace Ford, Inc., Wallace
Nissan, Inc. and Wallace Dodge, Inc. elected S corporation status.
Effective November 18, 1994, Wallace Lincoln-Mercury, Inc. elected S
corporation status. Effective September 18, 1995, Stuart Lincoln-Mercury,
Inc. elected S corporation status. Effective October 12, 1995, Bill
Wallace Enterprises, Inc. d/b/a Stuart Mitsubishi elected S corporation
status. Under such elections, federal and state income taxes or tax
benefits accrue to the shareholder personally and are included on his
individual tax return. Therefore, income tax expense for these companies
has not been accrued in the financial statements.
As a result of the election of S corporation status by
Wallace Ford, Inc., Wallace Nissan, Inc. and Wallace Dodge, Inc. the
entities incurred income tax expense relating to recapture of their
respective LIFO reserves. The final payment as a result of this election
was made in March, 1996.
Mechanical Warranty Protection, Inc. has adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"), which requires the use of the liability method of
accounting for deferred income taxes.
Deferred income taxes are provided for temporary
differences between the financial statement and tax bases of assets and
liabilities. The differences arise from items not currently includable or
deductible for income tax purposes, primarily deferred policy acquisition
costs and unearned premium reserves.
F-75
<PAGE> 76
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
The Company's total deferred tax assets, deferred tax
liabilities and deferred tax valuation allowance are as follows:
<TABLE>
<S> <C>
Total deferred tax assets $ 478,000
Less valuation allowance (146,000)
----------
332,000
Total deferred tax liabilities (806,000)
----------
Net deferred tax liability ($474,000)
==========
</TABLE>
These amounts have been presented in the accompanying
combined balance sheet as noncurrent deferred tax liabilities.
As of December 31, 1996, Mechanical Warranty Protection,
Inc. has carryforward net operating losses available as follows:
<TABLE>
<CAPTION>
Expiration
Amount Date
-------- ----------
<S> <C> <C>
Federal net operating loss $297,000 2007, 2010
State net operating loss 818,000 2007, 2010
</TABLE>
10. RETIREMENT PLAN
The Company has a salary deferral 401(k) profit-sharing
plan. Participation is limited to those employees who have completed at
least one year of service and have attained the age of 21. Employees may
defer up to 15% of their compensation. Participants may also make
after-tax contributions up to 10% of their compensation. In total, these
contributions cannot exceed 19% of their compensation. The Company may
contribute a percentage of each participant's salary deferral. Such
discretionary match is limited to 3% of the participants' compensation.
Also, the Company may make a discretionary profit-sharing contribution.
The matching contributions for 1996 amounted to $155,000.
There were no discretionary profit-sharing contributions for the year
ended December 31, 1996.
F-76
<PAGE> 77
THE WALLACE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
11. INTEREST EXPENSE
Interest expense for the year ended December 31, 1996 was
comprised as follows:
<TABLE>
<S> <C>
Other expense
Related party $ 213,000
Other 2,254,000
-----------
$ 2,467,000
===========
Operating expense
Floor plan - new and used vehicles $ 849,000
Floor plan - rental vehicles 440,000
-----------
$ 1,289,000
===========
</TABLE>
The floor plan interest for the year ended December 31,
1996 is net of floor plan assistance of $3,018,000
12. LEASING ARRANGEMENTS
As discussed in Note 7, the Company leases its computer
system and land adjacent to Wallace Lincoln-Mercury, Inc. under capital
leases.
The computer system, recorded under the capital lease of
$229,000 is included in furniture, signs and equipment. Accumulated
amortization of this equipment is $151,000 as of December 31, 1996.
The property recorded under the capital lease of $900,000
is included in land.
13. SUBSEQUENT EVENT
The Company has agreed to a merger and share exchange with
Republic Industries, Inc. which will be treated for accounting purposes as
a pooling of interests. Prior to closing, all indebtedness of the
shareholder to the Company and all indebtedness of the Company to related
parties will be paid in full. In addition, the shareholder or his assignee
shall purchase from the Company the aviation equipment held for sale and
assume the amount of the related indebtedness.
14. COMMITMENTS AND CONTINGENCIES
The Company is exposed to various asserted and unasserted
potential claims encountered in the normal course of business. In the
opinion of management, the resolution of these matters will not have a
material effect on the Company's financial position or results of
operations.
F-77
<PAGE> 78
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Taormina Industries, Inc.
Anaheim, California
We have audited the accompanying balance sheets of Taormina Industries, Inc. as
of December 31, 1996 and 1995 and the related statements of income, retained
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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. 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 Taormina Industries, Inc. as
of December 31, 1996 and 1995 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
Anaheim, California
January 24, 1997, except for the first paragraph of
Note 13 as to which the date is February 3, 1997
F-78
<PAGE> 79
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS (NOTES 7 AND 9) 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents partially restricted
(Notes 2, 3 and 7) $21,076,128 $ 15,137,787
Certificates of deposit, restricted (Notes 2, 8 and 9) 845,681 720,681
Trade accounts receivable, less allowance for
doubtful accounts; 1996 and 1995 $50,000 8,083,245 9,265,774
Notes receivable, current portion (Note 4) 619,712 1,501,365
Salvage materials (Note 8) 202,000 240,196
Prepaid expenses 896,784 34,915
Other 324,415 299,709
----------------------------
TOTAL CURRENT ASSETS 32,047,965 27,200,427
----------------------------
Property and Equipment (Note 5) 49,101,847 45,117,719
----------------------------
Other Long-Term Assets
Notes receivable, long-term portion (Note 4) - 239,223
Intangible assets, net (Note 6) 8,429,774 6,839,930
----------------------------
8,429,774 7,079,153
----------------------------
$89,579,586 $ 79,397,299
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 7) $ 3,347,237 $ 3,248,804
Accounts payable 6,029,492 7,383,728
Accrued expenses (Note 12) 2,006,765 1,661,989
Deferred income 614,977 593,285
----------------------------
TOTAL CURRENT LIABILITIES 11,998,471 12,887,806
----------------------------
Long-Term Debt, less current maturities (Note 7) 49,551,969 38,535,218
----------------------------
Deferred Income Taxes (Note 11) 1,890,000 2,250,000
----------------------------
Commitments and Contingencies (Notes 7, 8, 9, 10, 11 and 12)
Stockholders' Equity (Note 13)
Common stock, $20 par value; authorized 5,000 shares; shares
issued and outstanding 1996 and 1995: 790 shares 15,810 15,810
Additional paid-in capital 4,653,334 4,653,334
Retained earnings 21,470,002 21,055,131
----------------------------
26,139,146 25,724,275
----------------------------
$89,579,586 $ 79,397,299
============================
</TABLE>
See Notes to Financial Statements.
F-79
<PAGE> 80
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
- -----------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
Disposal Service Revenue (Note 8) $ 81,046,868 $78,702,718
---------------------------
Salvage Revenue, net (Note 8) 8,811,732 21,802,002
Cost of Salvage Revenue 6,310,474 13,929,943
---------------------------
GROSS PROFIT FROM SALVAGE OPERATIONS 2,501,258 7,872,059
---------------------------
Operating and Administrative Expenses
Salaries and wages 22,203,488 24,299,298
Fringe benefits (Notes 10 and 12) 4,409,275 3,800,656
Amortization 1,090,965 1,203,251
Depreciation 6,888,392 6,737,993
Dump fees 26,729,517 25,232,835
Facilities rent (Note 9) 5,001,380 4,600,250
Outside services 2,650,149 3,141,670
Other 10,542,927 9,047,009
---------------------------
79,516,093 78,062,962
---------------------------
OPERATING INCOME 4,032,033 8,511,815
Financial Income (Expense)
Interest income 1,607,282 2,033,734
Interest expense (2,072,665) (2,349,627)
---------------------------
INCOME BEFORE INCOME TAXES 3,566,650 8,195,922
Income Tax (Credits) (Note 11) (276,000) (575,200)
---------------------------
NET INCOME $ 3,842,650 $ 8,771,122
===========================
</TABLE>
See Notes to Financial Statements.
F-80
<PAGE> 81
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning $ 21,055,131 $ 13,731,219
Net income 3,842,650 8,771,122
Dividends (3,427,779) (1,447,210)
------------------------------
Balance, ending $ 21,470,002 $ 21,055,131
==============================
</TABLE>
See Notes to Financial Statements.
F-81
<PAGE> 82
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,842,650 $ 8,771,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,888,392 6,737,993
Amortization 1,090,965 1,203,251
(Gain) loss on sale of equipment 118,691 (7,880)
Deferred income taxes (360,000) (720,000)
Change in assets and liabilities:
(Increase) decrease in:
Trade receivables 1,182,529 (1,810,604)
Salvage materials 38,196 (113,728)
Prepaid expenses (861,870) 81,280
Other 37,705 (139,734)
Increase (decrease) in accounts payable, accrued
expenses and deferred income (1,072,695) 5,807,262
---------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,904,561 19,808,962
---------------------------
Cash Flows from Investing Activities
Proceeds from sale of property and equipment 138,514 35,565
Proceeds from maturities of certificates of deposit 720,681 2,579,513
Principal payments received on notes receivable 1,840,569 1,231,473
Disbursements on notes receivable (719,693) (1,046,467)
Purchase of property and equipment (6,647,581) (17,774,904)
Purchase of securities and cash restricted for the
purchase of property and equipment (4,459,625) (4,373,538)
Purchase of intangible assets (2,680,810) -
Purchase of certificates of deposit (845,681) -
Proceeds from maturities of securities restricted for
the purpose of property and equipment - 16,242,000
----------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (12,653,626) (3,106,358)
---------------------------
Cash Flows from Financing Activities
Dividends paid to stockholders (3,427,779) (1,447,210)
Proceeds from long-term borrowings 14,500,000 -
Payments on long-term borrowings, including capital
lease obligations and leasehold interests (3,384,815) (5,427,011)
---------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,687,406 (6,874,221)
---------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 5,938,341 9,828,383
Cash and Cash Equivalents
Beginning 15,137,787 5,309,404
---------------------------
Ending $ 21,076,128 $15,137,787
===========================
</TABLE>
See Notes to Financial Statements.
F-82
<PAGE> 83
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 2,118,670 $ 2,347,347
===========================
Income taxes $ 114,842 $ 120,800
===========================
</TABLE>
See Notes to Financial Statements.
F-83
<PAGE> 84
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company operates in all aspects of commercial and residential waste disposal
and recycling in the Orange County and San Bernardino County, California areas.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES ARE AS FOLLOWS:
Cash and cash equivalents:
For the purpose of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with original maturities of three months or less to
be cash equivalents.
Available-for-sale securities:
Available-for-sale securities consist of debt securities and repurchase
agreements. Available-for-sale securities are stated at fair value, and
unrealized holding gains and losses, net of the related deferred tax effect, are
reported as a separate component of stockholders' equity.
Property and equipment:
Property and equipment is stated at cost. Provisions for depreciation on
equipment have been made using primarily an accelerated method with useful lives
ranging from three to ten years. Buildings and improvements are being
depreciated using an accelerated method with useful lives ranging from fifteen
to thirty-one years. The amortization expense on assets acquired under capital
leases and leasehold interests are being amortized on an accelerated method over
their estimated useful lives of ten years and are included with depreciation
expense on owned assets.
Intangible assets:
Intangible assets consist principally of city contracts, routes, covenants
not-to-compete, and the excess of cost over carrying value of net assets
acquired. These assets are being amortized by the straight-line method over
lives ranging from two to fifteen years.
Deferred income:
Deferred income represents the amount of billings issued for services to be
performed in future months.
Income taxes:
Deferred income taxes are provided primarily on the difference between the
financial reporting and the income tax basis of certain assets which if sold at
a gain within a ten-year period, beginning with the effective date of becoming a
S Corporation, would be subject to income taxes at the maximum corporate tax
rate. As of December 31, 1996, the Company's reported net assets exceed their
tax basis by approximately $5,900,000. Accordingly, if the election was
terminated on that date, a deferred tax liability of approximately $2,400,000
would be recognized (see Note 13).
F-84
<PAGE> 85
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect 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 2. CONCENTRATION OF CASH BALANCES
As of December 31, 1996, the Company had deposits at two financial institutions
in excess of FDIC insurance limits.
NOTE 3. MARKETABLE SECURITIES
The Company has securities which are all classified as available-for-sale. The
marketable securities are comprised of U.S. Treasury Securities and Repurchase
Agreements with fair values totaling $13,124,943. The fair value of these
securities is approximately equal to their respective amortized cost. The fair
values of the above noted securities are classified on the balance sheet as of
December 31, 1996 as cash and cash equivalents. At December 31, 1995, the
Company had $11,751,572 of U.S Treasury Securities classified as
held-to-maturity and included with cash and cash equivalents. These are recorded
at cost which approximates market value.
NOTE 4. NOTES RECEIVABLE
As of December 31, 1996, the Company had an unsecured note receivable totaling
$408,312 from a partnership which is related through common ownership. This note
is a result of loans from the Company totaling $3,165,000 to the partnership,
that were used to build a maintenance facility which, together with the land,
are leased to the Company on a month-to-month lease at $77,000 per month. The
note requires a minimum monthly payment of principal and interest of $47,000,
interest is at 7.5% and matures in September 1997. In addition, the Company has
other notes receivable from unrelated parties totaling $233,249 of which
$205,510 is secured and these notes bear interest ranging from 10% to 11.25%,
respectively.
F-85
<PAGE> 86
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 is comprised of the
following:
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,574,953 $ 3,089,535
Buildings and improvements 11,885,543 11,067,398
Transportation equipment 25,089,163 24,190,889
Machinery, bins and equipment 25,228,493 22,805,933
Leasehold improvements 2,066,378 1,363,712
Furniture and fixtures 509,752 464,705
Equipment under capital leases (Note 9) - 572,020
Leasehold interests in recycling equipment (Note 9) 10,548,826 10,548,826
Cash and cash equivalents, restricted for purchase
of land, buildings and equipment (Note 7) 11,028,613 6,568,988
-------------------------
89,931,721 80,672,006
Less accumulated depreciation: -------------------------
Equipment acquired under capital leases - 269,997
Leasehold interests 6,414,489 5,389,445
Owned assets 34,415,385 29,894,845
-------------------------
40,829,874 35,554,287
-------------------------
$ 49,101,847 $45,117,719
=========================
NOTE 6. INTANGIBLE ASSETS
Intangible assets are recorded at cost as of December 31, 1996 and 1995 and are
comprised of the following:
1996 1995
- -------------------------------------------------------------------------------
City contracts $21,128,951 $18,643,951
Covenants not-to-compete 302,867 302,867
Excess of purchase price over carrying
value of net assets acquired 1,945,593 1,945,593
Bond issuance costs 195,809 -
Solid waste collection routes 57,325 57,325
------------------------
$23,630,545 20,949,736
Less accumulated amortization 15,200,771 14,109,806
------------------------
$ 8,429,774 $ 6,839,930
========================
</TABLE>
F-86
<PAGE> 87
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. PLEDGED ASSETS, NOTES PAYABLE AND LONG-TERM DEBT
Pledged assets, notes payable and long-term debt are comprised of the following
as of December 31, 1996:
<TABLE>
<S> <C>
Obligations under capital leases and leasehold interests (Note 9). $ 4,692,508
Bonds payable (A). 43,960,000
Note payable to an individual, secured by real
property which is owned by the stockholders,
payable in monthly installments of
$100,000, including interest at 6%, due July 2000. 3,790,583
Other 456,115
---------------
52,899,206
Less current maturities 3,347,237
---------------
$ 49,551,969
===============
</TABLE>
(A) On August 1, 1994, November 1, 1994 and September 1, 1996, the Company
entered into three loan agreements with the California Pollution Control
Financing Authority (CPCFA) to borrow $9,000,000, $20,685,000 and
$14,500,000 of proceeds received by the CPCFA from the sale of Pollution
Control Variable Rate Demand Solid Waste Revenue Bonds (Series 1994A,
1994B and 1996A) due August 1, 2014, November 1, 2014, and August 1,
2016. The Company is required to make monthly interest payments to a
trustee for the bondholders based on a variable market rate of interest
determined weekly by the remarketing agent (3.15% at December 31, 1996).
Pursuant to a reimbursement agreement between a bank which has posted
letters of credit on this facility, and the Company, the Company began
making monthly principal sinking fund payments on January 1, 1996. As of
December 31, 1996, $11,028,613 of the proceeds remain unspent and on
deposit with the trustee (Note 5). The loan agreements require the
Company to utilize the proceeds within a specified period. If such use of
proceeds does not occur timely, the Company must refund arbitrage amounts
consisting of investment earnings on debt proceeds in excess of
corresponding debt interest costs. At December 31, 1996 and 1995, no
amounts are subject to arbitrage rebate.
Series 1994A, 1994B, and 1996A require the Company to post irrevocable
letters of credit to be held by the trustee for the benefit of the
bondholders. At December 31, 1996, these letters of credit total
$44,847,775 and are secured by all of the assets of the Company. The
Company further covenants to maintain certain financial ratios with
respect to these borrowings and is required to maintain a cash balance of
$7,500,000 until such time as the Company's bank is able to arrange and
consummate another bank to participate in the Company's borrowing
relationship.
Aggregate maturities on long-term debt are as follows: 1997 $3,347,237;
1998 $3,687,732; 1999 $4,258,474; 2000 $3,510,599; 2001 $2,277,903;
thereafter $35,817,261.
F-87
<PAGE> 88
<TABLE>
<CAPTION>
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. DISPOSAL SERVICE CONTRACTS
The Company has disposal service contracts with the cities of Anaheim, Brea,
Garden Grove, Placentia, Yorba Linda, Fullerton, Villa Park and Colton for the
collection and/or processing of waste and rubbish from residential and
commercial establishments. The period of these contracts range from fifteen to
twenty years with an evergreen provision on seven of these contracts which
provides an extension of an additional year on an annual basis. The remaining
agreement contains a six-year option. One agreement is personally guaranteed by
the Company's stockholders up to $20,000,000. Certain other agreements require
certificates of deposit totaling 225,000 to be pledged to the cities and a
county for landfill use.
Revenues for the years ended December 31, 1996 and 1995, include revenues from
the following two city contracts, which accounted for more than 10% of the total
revenues of the Company:
Contract A Contract B
- ----------------------------------------------------------------
<S> <C> <C>
1996
Revenue $ 19,621,000 $ 14,231,000
Accounts receivable 1,740,000 1,267,000
1995
Revenue 24,550,000 14,361,000
Accounts receivable 2,090,000 1,474,000
</TABLE>
The Company sells salvaged recyclable materials. Certain amounts of this
revenue are shared equally with four of the cities. The Company also sells
recyclable materials which are purchased from other waste collection contractors
and the general public.
NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS
The Company has entered into operating agreements with three cities to manage,
operate and maintain certain recycling equipment, each for a period of ten
years, at which time the Company can purchase the equipment at its fair market
value. The operating agreements have been recorded as leasehold interests in
recycling equipment, since the present value of the future minimum lease
payments equals the equipment cost. The implicit interest rates on these
agreements range from 8.4% to 8.8%, and expire in June 2000, September 2000 and
November of 2001.
Two financial institutions have posted two outstanding letters of credit
totaling $1,197,300 on behalf of the Company naming two of the cities as
beneficiaries. One of these letters of credit are collateralized by all assets
of the Company, while the other letter of credit is unsecured. The Company has a
certificate of deposit of $550,000 pledged to one of the cities. These letters
of credit are collateralized by all the assets of the Company. These letters of
credit and certificate of deposit are security for performance under the
operating agreements. The Company has posted a $250,000 letter of credit as
security for performance under one of its municipal franchise agreements. This
letter of credit is secured by all assets of the Company. The Company has also
pledged a $69,686 certificate of deposit as security on a note payable in the
amount of $98,926.
F-88
<PAGE> 89
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS (CONTINUED)
Components of capital leases and leasehold interests at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets Acquired Under Capital Leases
Transportation equipment $ - $ 384,221
Machinery, bins and equipment - 187,799
-----------------------------
$ - $ 572,020
=============================
Leasehold Interests in Recycling Equipment
Transportation equipment $ 3,523,578 $ 3,523,578
Automated barrels 7,025,248 7,025,248
-----------------------------
$ 10,548,826 $ 10,548,826
=============================
</TABLE>
At December 31, 1996, the trustees for the bondholders are holding approximately
$1,220,000 in reserve funds to pay bondholders related to the leasehold
interests in recycling equipment. Interest earnings on these funds reduces the
lease payments made by the Company. The leasehold interests liability as shown
on the Company's financial statements is reduced by the amount of these reserve
funds.
The following is a schedule by years and in the aggregate, of the expected
future minimum lease payments under the capital leases and leasehold interests
together with the present value of the net minimum lease payments as
of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending Leasehold
December 31, Interests
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 1,757,130
1998 1,756,452
1999 1,752,343
2000 1,282,245
2001 471,860
Thereafter -
-------------
TOTAL MINIMUM LEASE PAYMENTS 7,020,030
Less the amount representing interest 2,327,522
-------------
PRESENT VALUE OF MINIMUM LEASE
PAYMENTS (NOTE 7) 4,692,508
=============
</TABLE>
F-89
<PAGE> 90
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. COMMITMENTS, RENT EXPENSE AND RELATED PARTY TRANSACTIONS (CONTINUED)
The Company leases land from its stockholders. The Company has original cost
investments in buildings and leasehold improvements on the leased land of
approximately $12,400,000 and, accordingly, intends to continue leasing the
improved property over a thirty-year amortization period. The Company leases the
improved property pursuant to a five-year lease with a fifteen-year option to
renew. The Company leases land and improvements from a partnership under common
control on a month-to-month basis. The total monthly commitment under these
leases is $415,000. Rent expense under these leases amounted to approximately
$4,920,000 and $4,570,000 for the years ended December 31, 1996 and 1995,
respectively.
The Company also leases a variety of small office equipment under short-term
operating leases.
Future minimum lease commitments by year and in the aggregate under terms of
operating lease agreements are approximately as follows: 1997 $4,062,000; 1998
$3,996,000; 1999 $3,996,000; 2000 $3,996,000; 2001 $3,990,000 and thereafter
$52,440,000.
The Company purchases fuel from a related party partnership at $.05 per gallon
above invoice cost. Total purchases of fuel from the related party for the years
ended December 31, 1996 and 1995 were $1,719,557 and $1,430,847, respectively.
NOTE 10. RETIREMENT PLAN AND CONTINGENCY
The Company contributes to a union-sponsored multi-employer retirement plan in
accordance with a negotiated labor contract. The retirement plan covers all of
the Company's union employees, which represents approximately 38% of the
Company's employees. Contributions, which are based on varying rates for the
hours worked by the employees, totaled approximately $175,000 and $189,000 for
the years ended December 31, 1996 and 1995, respectively.
In the event of plan termination or employer withdrawal, an employer may be
liable for a portion of the Plan's unfunded vested benefits. The Company has not
received information from the Plan's administrators to determine its share of
unfunded vested benefits. The Company does not anticipate withdrawal from the
Plan, nor is the Company aware of any expected plan termination.
F-90
<PAGE> 91
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. INCOME TAX MATTERS
The net deferred income tax liabilities at December 31, 1996 and 1995 consist of
the following components:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $ 22,600 $ 17,500
Deferred tax liabilities 1,912,600 2,267,500
-------------------------
$ 1,890,000 $ 2,250,000
=========================
The components of the net income tax (credits) for the years ended December 31,
1996 and 1995 are as follows:
1996 1995
- --------------------------------------------------------------------------------
Current $ 84,000 $ 144,800
Deferred (360,000) (720,000)
-------------------------
$ (276,000) $ (575,200)
=========================
</TABLE>
On February 1, 1990, the Company, with the consent of its stockholders, has
elected to be taxed under sections of federal and California income tax law,
which provides that, in lieu of federal corporation income taxes, the
stockholders separately account for their pro rata shares of the Company's items
of income, deductions, losses and credits. For California, the tax rate has been
reduced from 9.3% to 1.5% at the corporate level (See Note 13).
As a result of the Tax Reform Act of 1986, the Company may be subject to income
taxes at the maximum corporate rate if certain assets are sold at a gain for a
ten-year period following the effective date of election mentioned above. The
Company has provided for its deferred tax liability that represents income taxes
that might be payable if those assets are sold at their carrying values. The
liability at December 31, 1996 and 1995 is approximately $1,874,000 and
$2,222,000, respectively. This deferred tax liability will be reduced, either
through actual tax payments or as the excess of the financial reporting basis of
assets over the tax basis of the related assets on the effective date of the
election diminishes over the ten-year period. Accordingly, the Company's income
tax (credits) are not as expected for 1996 and 1995 due to the amortization of
these assets resulting in a credit of approximately $348,000 in 1996 and
$678,000 in 1995, respectively.
F-91
<PAGE> 92
TAORMINA INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. SELF-INSURANCE
The Company is self-insured for its workers compensation claims up to $300,000
per occurrence with no overall aggregate stop-loss limitation. It is the
Company's policy to accrue for claims as they are incurred. At December 31,
1996 and 1995 the Company has recorded reserves of $620,218 and $446,216,
respectively. The Company has posted a performance bond totaling approximately
$1,500,000 as security to the State of California for the administration of its
workers compensation claims.
NOTE 13. SUBSEQUENT EVENTS
On February 3, 1997, the Company's shareholders entered into a Merger Agreement
to exchange their total shares for equivalent shares of a publicly-traded
entity. The transaction is anticipated to be accounted for as a pooling of
interests. Management anticipates the transaction will close or before on March
1, 1997. Upon closing, the Company will revoke its S status for income tax
purposes and will record a deferred tax liability as discussed in Note 1.
Subsequent to December 31, 1996, the Company declared and paid dividends
totaling $500,000.
F-92
<PAGE> 93
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements include the supplemental consolidated financial statements of
Republic Industries, Inc. and subsidiaries (the "Company") which include the
results of operations of National Car Rental System, Inc. ("National"), Maroone
Automotive Group ("Maroone"), Wallace Automotive Group ("Wallace") and Taormina
Industries, Inc. ("Taormina") which the Company acquired in February 1997 and
Carlisle Motors, Inc. ("Carlisle") which the Company acquired in January
1997. These transactions have been accounted for under the pooling of interests
method of accounting and, accordingly, the Company's supplemental consolidated
financial statements have been retroactively adjusted as if the Company,
National, Maroone, Wallace, Taormina and Carlisle had operated as one entity
since inception.
The following Unaudited Condensed Consolidated Pro Forma Balance Sheet
presents the pro forma financial position of the Company as of December 31, 1996
as if the acquisitions of AutoNation Incorporated ("AutoNation"), Ed Mullinax,
Inc. and subsidiaries ("Mullinax") and Grubb Automotive ("Grubb"), which were
acquired in January 1997, and Kendall Automotive Group ("Kendall"), which was
acquired in February 1997, had been consummated as of December 31, 1996. This
pro forma balance sheet also includes pro forma adjustments related to the
January 1997 sale of the Company's common stock, par value $.01 per share
("Common Stock") which resulted in net proceeds to the Company of approximately
$553 million (the "1997 Equity Transaction").
The following Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the year ended December 31, 1996 presents the pro forma results
of operations of the Company as if the acquisitions of AutoNation, Mullinax,
Grubb and Kendall, which have all been accounted for under the purchase
method of accounting, had been consummated as of January 1, 1996. This pro forma
statement of operations also contains pro forma adjustments related to the 1997
Equity Transaction and certain 1996 equity transactions which resulted in net
proceeds to the Company of approximately $551 million (the "1996 Equity
Transactions").
The unaudited pro forma income per common and common equivalent share
before extraordinary charge is based on the combined weighted average number of
common shares and common share equivalents outstanding which include, where
appropriate, the assumed exercise or conversion of warrants and options. In
computing the unaudited pro forma income per common and common equivalent
share before extraordinary charge, the Company utilizes the treasury stock
method. Primary income per share is not presented as it does not significantly
differ from fully diluted income per share.
These Unaudited Condensed Consolidated Pro Forma Financial Statements
should be read in conjunction with the respective historical consolidated
financial statements and notes thereto of the Company, National, Maroone,
Wallace, Taormina, Carlisle, AutoNation, Mullinax, Grubb and Kendall. These
Unaudited Condensed Consolidated Pro Forma Financial Statements were prepared
utilizing the accounting policies of the respective entities as outlined in
their historical financial statements except as described in the accompanying
notes. The acquisitions of AutoNation, Mullinax, Grubb and Kendall have been
accounted for under the purchase method of accounting. Accordingly, the
Unaudited Condensed Consolidated Pro Forma Financial Statements reflect the
Company's preliminary allocations of the purchase prices of such acquisitions
which will be subject to further adjustments as the Company finalizes the
allocations of the purchase prices in accordance with generally accepted
accounting principles. The unaudited condensed consolidated pro forma results of
operations do not necessarily reflect actual results which would have occurred
if the acquisitions or the 1996 or 1997 Equity Transactions had taken place on
the assumed dates, nor are they necessarily indicative of the results of future
combined operations.
F-93
<PAGE> 94
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SUPPLEMENTAL
REPUBLIC AUTONATION MULLINAX GRUBB KENDALL COMBINED
-------- ---------- ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 299,453 $ 6,062 $ 1,470 $ 4,077 $ 5,910 $ 316,972
Receivables, net 535,653 7,580 21,038 11,123 10,978 586,372
Inventory 185,395 66,258 92,171 48,011 25,694 417,529
Revenue earning vehicles, net 3,495,178 -- -- -- -- 3,495,178
Other current assets 397,453 445 4,517 228 1,179 403,822
---------- ---------- ------------ -------- ---------- ----------
Total current assets 4,913,132 80,345 119,196 63,439 43,761 5,219,873
Property and equipment, net 1,064,974 196,665 15,500 12,150 26,550 1,315,839
Intangible assets 260,067 -- 15 -- -- 260,082
Investment in subscribers 92,427 -- -- -- -- 92,427
Other assets 39,659 -- 157 3,506 2,821 46,143
---------- --------- ------------ -------- --------- ----------
$6,370,259 $ 277,010 $ 134,868 $ 79,095 $ 73,132 $6,934,364
========== ========= ============ ======== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 548,679 $ 35,833 $ 6,564 $ 5,535 $ 7,022 $ 603,633
Current portion of long-term
debt and notes payable 2,872,841 247,472 77,835 55,675 45,004 3,298,827
Other current liabilities 238,419 -- -- -- 512 238,931
---------- --------- ------------ -------- --------- ----------
Total current liabilities 3,659,939 283,305 84,399 61,210 52,538 4,141,391
Long-term debt, net of current
maturities 1,147,611 -- 10,190 4,060 19,310 1,181,171
Other liabilities 210,736 -- -- 600 -- 211,336
---------- -------- ------------ -------- --------- ----------
Total liabilities 5,018,286 283,305 94,589 65,870 71,848 5,533,898
---------- -------- ------------ -------- --------- ----------
Shareholders' equity:
Common stock 2,968 80 40 3,025 421 6,534
Additional paid-in capital 1,343,003 52,050 134 (650) (4,846) 1,389,691
Retained earnings 6,002 (58,425) 40,105 10,850 5,709 4,241
---------- -------- ------------ -------- --------- ----------
Total shareholders' equity 1,351,973 (6,295) 40,279 13,225 1,284 1,400,466
---------- -------- ------------ -------- --------- ----------
$6,370,259 $277,010 $ 134,868 $ 79,095 $ 73,132 $6,934,364
========== ======== ============ ======== ========= ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------------------------
DR. CR. PRO FORMA
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 316,972
Receivables, net 586,372
Inventory $ 18,129(a) 435,658
Revenue earning vehicles, net 3,495,178
Other current assets $ 247,472(b) 156,350
------------ ------------ -------------
Total current assets 18,129 247,472 4,990,530
Property and equipment, net 1,315,839
Intangible assets 329,705(c) 589,787
Investment in subscribers 92,427
Other assets 46,143
------------ ------------ -------------
$ 347,834 $ 247,472 $ 7,034,726
============ ============ =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 603,633
Current portion of long-term
debt and notes payable $ 247,472(b) 2,880,031
171,324(d)
Other current liabilities 238,931
------------ ------------ -------------
Total current liabilities 418,796 3,722,595
Long-term debt, net of current
maturities 381,352(d) 799,819
Other liabilities 211,336
------------ ------------ -------------
Total liabilities 800,148 4,733,750
------------ ------------ -------------
Shareholders' equity:
Common stock 3,566(e) $ 263(f) 3,389
158(d)
Additional paid-in capital 46,688(e) 396,064(f) 2,291,585
552,518(d)
Retained earnings 1,761(e) 6,002
------------ ------------ -------------
Total shareholders' equity 50,254 950,764 2,300,976
------------ ------------ -------------
$ 850,402 $ 950,764 $ 7,034,726
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-94
<PAGE> 95
REPUBLIC INDUSTRIES, INC.,
AUTONATION INCORPORATED, ED MULLINAX, INC.,
GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SUPPLEMENTAL
REPUBLIC AUTONATION MULLINAX GRUBB KENDALL COMBINED
--------- ---------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $4,764,097 $ 31,464 $659,002 $439,980 $405,835 $6,300,378
Expenses:
Cost of operations 3,891,949 43,411 589,835 384,759 367,063 5,277,017
Selling, general and
administrative 784,212 38,633 54,537 46,870 34,275 958,527
Restructuring and merger
expenses 38,335 -- -- -- -- 38,335
Other (income) expense:
Interest and other income (36,294) -- -- (2,042) (669) (39,005)
Interest expense 43,887 4,782 886 4,329 1,276 55,160
---------- -------- -------- -------- -------- ----------
4,722,089 86,826 645,258 433,916 401,945 6,290,034
---------- -------- -------- -------- -------- ----------
Income before
income taxes and
extraordinary charge 42,008 (55,362) 13,744 6,064 3,890 10,344
Provision for income taxes 43,024 -- -- -- -- 43,024
---------- -------- -------- -------- -------- ----------
Income before
extraordinary charge $ (1,016) $(55,362) $ 13,744 $ 6,064 $ 3,890 $ (32,680)
========== ======== ======== ======== ======== ==========
Fully-diluted:
Income per share before
extraordinary charge $ --
==========
Weighted average shares
outstanding 313,925 17,467 3,633 3,962 1,216 340,203
========== ======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
-------------------------
DR. CR. PRO FORMA
---------- ---------- --------------
<S> <C> <C> <C>
Revenue $6,300,378
Expenses:
Cost of operations $ 8,243(g) $ 862(a) 5,234,770
48,847(h)
781(b)
Selling, general and
administrative 958,527
Restructuring and merger
expenses 38,335
Other (income) expense:
Interest and other income 5,563(b) (33,442)
Interest expense 50,378(h) --
4,782(b)
------- -------- ----------
13,806 105,650 6,198,190
------- -------- ----------
Income before
income taxes and
extraordinary charge 13,806 105,650 102,188
Provision for income taxes 22,267(i) 65,291
------- -------- ----------
Income before
extraordinary charge $36,073 $105,650 $ 36,897
======= ======== ==========
Fully-diluted:
Income per share
before extraordinary charge $ .10
==========
Weighted average shares
outstanding 29,868(j) 370,071
======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-95
<PAGE> 96
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
ED MULLINAX, INC., GRUBB AUTOMOTIVE AND KENDALL AUTOMOTIVE GROUP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(a) Represents an entry to conform the inventory accounting policies of
acquired companies from LIFO to the specific identification method.
(b) Represents an entry to eliminate advances from the Company to AutoNation
and related interest on such advances.
(c) Represents an entry to record intangible assets resulting from the
preliminary allocations of the purchase prices for the acquisitions of
AutoNation, Mullinax, Grubb and Kendall as follows (in thousands):
<TABLE>
<S> <C>
Shares of Republic Common Stock to be issued............... 26,278
Value of Republic Common Stock consideration............... $396,327
Historical net assets...................................... 48,493
Write-up of inventory to fair value........................ 18,129
--------
Allocation to intangible assets............................ $329,705
========
</TABLE>
(d) Represents an entry to record the 1997 Equity Transaction and the assumed
repayment of indebtedness as of December 31, 1996.
(e) Represents an entry to eliminate the historical equity balances of
AutoNation, Mullinax, Grubb and Kendall.
(f) Represents the recording of equity resulting from the Company's issuance of
Common Stock to effect the acquisitions of AutoNation, Mullinax, Grubb and
Kendall.
(g) Represents an adjustment to record amortization, on a straight-line basis,
of the intangible assets resulting from the preliminary purchase price
allocations of AutoNation, Mullinax, Grubb and Kendall. Intangible assets
resulting from these purchases are being amortized over a 40 year life
which approximates the estimated useful life.
(h) Represents the assumed interest savings on the payoff of a portion of the
existing indebtedness outstanding as of January 1, 1996 of the combined
entity with the proceeds from the 1996 and 1997 Equity Transactions which
are also assumed to have occurred as of January 1, 1996.
(i) Represents the incremental change in the combined entity's provision for
income taxes as a result of the pre-tax income (loss) of AutoNation,
Mullinax, Grubb and Kendall and all pro forma adjustments as described
above.
(j) Includes the weighted average effect of shares issued in the 1996 and 1997
Equity Transactions.
F-96
