<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
_________________
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission File Number 2-97254-NY
_________________
FIRSTAMERICA AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 88-0206732
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
601 Brannan Street,
San Francisco, California 94107
(Address of principal executive offices) (Zip code)
(415) 284-0444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Exchange on which registered
------------------- ------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
__________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of October 31, 1999:
Class A Common Stock, $0.00001 par value 11,675,711
Class B Common Stock, $0.00001 par value 3,532,000
Class C Common Stock, $0.00001 par value 0
================================================================================
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
INDEX TO FORM 10Q
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998....................................... 3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1999 and 1998........................ 5
Condensed Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 1999........................................... 6
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998.................................. 7
Notes to Condensed Consolidated Financial Statements............................ 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk............... 25
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................... 25
Signatures............................................................................ 26
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTAMERICA AUTOMOTIVE, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents......................... $ 14,295 $ 2,191
Contracts in transit.............................. 22,872 13,567
Accounts receivable, net.......................... 27,201 18,460
Inventories....................................... 147,070 90,947
Deferred income taxes............................. -- 853
Deposits, prepaid expenses and other.............. 5,976 2,996
Assets held for sale............................. 6,544 --
-------- --------
Total current assets............................ 223,958 129,014
Property and equipment, net....................... 16,096 9,879
Other assets:
Loan origination and other costs, net............ 3,414 3,107
Other noncurrent assets.......................... 2,996 2,457
Goodwill and other intangible assets, net........ 123,734 33,995
-------- --------
Total assets...................................... $370,198 $178,452
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Condensed Consolidated Balance Sheets (continued)
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities and Stockholders' Equity 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Floor plan................................................................... $ 117,164 $ 81,452
Secured lines of credit...................................................... -- 17,025
Notes payable- Ford Motor Credit............................................. 135,292 --
Notes payable and other...................................................... 7,086 5,512
Accounts payable............................................................. 10,003 6,009
Accrued liabilities.......................................................... 39,607 13,028
Deferred income taxes........................................................ 886 --
Deferred revenue............................................................. 1,514 2,054
----------- -----------
Total current liabilities................................................. 311,552 125,080
Long-term liabilities:
Capital lease obligation and other long term notes........................... 4,033 1,386
Senior notes, net of (discount of $2,593 in 1999 and $2,839 in 1998)......... 33,407 33,161
Deferred income taxes........................................................ 1,056 1,055
Deferred revenue............................................................. 1,601 2,475
----------- -----------
Total liabilities......................................................... 351,649 163,157
----------- -----------
Cumulative redeemable preferred stock, $.00001 par value; 3,500
shares issued and outstanding in 1999 and 1998 (net of discount
of $403 in 1999 and $456 in 1998, liquidation preference of
$3,500 in 1999 and 1998)..................................................... 3,097 3,044
Redeemable preferred stock, $.00001 par value; 500 shares issued
and in 1999 and 1998 (net of discount of $58 in 1999 and
$65 in 1998, liquidation preference of $640 in 1999 and $600 in 1998)........ 572 535
Stockholders' equity:
Common stock, $0.00001 par value:
Class A, 30,000,000 shares authorized, 11,675,711 shares issued
and outstanding in 1999 and 11,514,044 issued and outstanding in 1998...... -- --
Class B, 5,000,000 shares authorized, 3,532,000 shares issued and
outstanding in 1999 and 1998............................................... -- --
Class C, 30,000,000 shares authorized, 0 shares issued and outstanding...... -- --
Additional paid-in capital................................................... 8,571 8,320
Retained earnings............................................................ 6,309 3,396
----------- -----------
Total stockholders' equity................................................ 14,880 11,716
----------- -----------
$ 370,198 $ 178,452
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Condensed Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
New vehicle................................................ $ 193,862 $ 141,870 $ 515,009 $ 341,488
Used vehicle............................................... 60,125 49,950 172,206 142,098
Service and parts.......................................... 34,433 24,867 90,142 65,917
Other dealership revenues, net............................. 8,212 6,799 24,979 17,651
----------- ----------- ----------- -----------
Total sales............................................. 296,632 223,486 802,336 567,154
Cost of sales:
New vehicle................................................ 178,455 130,801 475,233 314,975
Used vehicle............................................... 54,579 45,486 155,548 129,408
Service and parts.......................................... 18,031 13,460 47,894 35,703
----------- ----------- ----------- -----------
Total cost of sales..................................... 251,065 189,747 678,675 480,086
----------- ----------- ----------- -----------
Gross profit............................................ 45,567 33,739 123,661 87,068
Operating expenses:
Selling, general and administrative........................ 36,850 27,486 101,483 71,926
Depreciation and amortization.............................. 1,182 701 3,354 1,666
----------- ----------- ----------- -----------
Operating income.......................................... 7,535 5,552 18,824 13,476
Other income/(expense):
Interest expense, floor plan............................... (1,868) (1,483) (5,026) (4,172)
Interest expense, other.................................... (2,343) (1,257) (6,062) (3,300)
Written off IPO costs...................................... (2,564) -- (2,564) --
Gain on sale of dealership................................. -- -- 1,253 --
----------- ----------- ----------- -----------
Income before income taxes.............................. 760 2,812 6,425 6,004
Income tax expense............................................. 776 1,209 3,212 2,582
----------- ----------- ----------- -----------
Net income (loss)....................................... $ (16) $ 1,603 $ 3,213 $ 3,422
=========== =========== =========== ===========
Net income (loss) per common share-basic....................... $ (0.01) $ 0.11 $ 0.19 $ 0.22
=========== =========== =========== ===========
Weighted average common shares outstanding-basic............... 15,207,711 14,210,969 15,156,063 14,215,381
=========== =========== =========== ===========
Net income (loss) per common share-diluted..................... $ (0.01) $ 0.10 $ 0.19 $ 0.21
=========== =========== =========== ===========
Weighted average common shares outstanding-diluted............. 15,207,711 14,796,141 15,837,956 14,783,612
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Condensed Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FirstAmerica Automotive, Inc.
Common Stock
---------------------------------------------
Class A Class B Paid-in Retained Total
---------------------------------------------
Shares Amount Shares Amount Capital Earnings Equity
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998...................... 11,514 $ -- 3,532 $ -- $ 8,320 $ 3,396 $ 11,716
Stock options exercised......................... 161 -- -- -- 251 -- 251
Preferred dividend and liquidation preference... (240) (240)
Amortization of discount........................ (60) (60)
Net income...................................... 3,213 3,213
-------- -------- -------- -------- ------- -------- --------
Balance, September 30, 1999..................... 11,675 $ -- 3,532 $ -- $ 8,571 $ 6,309 $ 14,880
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $ 3,213 $ 3,422
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................ 3,354 1,104
Noncash interest expense................................. 706 562
Deferred warranty revenue, net.......................... (755) (296)
Gain on sale of dealership............................... (1,253) --
Changes in operating assets and liabilities:
Receivables and contracts in transit..................... (4,977) (9,882)
Inventories.............................................. 2,913 6,980
Other assets............................................. (4,830) (4,849)
Floor plan notes payable................................. (9,253) (4,133)
Accounts payable and accrued liabilities................. 10,010 6,287
---------- ----------
Net cash used in operating activities................... (872) (805)
---------- ----------
Cash flows from investing activities:
Capital expenditures....................................... (3,527) (3,921)
Acquisitions, net of cash acquired......................... (100,109) (15,481)
Proceeds from sale of dealership........................... 1,900 --
Deposits on pending acquisitions........................... (1,197) --
---------- ----------
Net cash used in investing activities................... (102,933) (19,402)
---------- ----------
Cash flows from financing activities:
Borrowings on notes payable and other...................... 136,891 12,400
Repayments on notes payable and other...................... (732) --
Borrowings on secured lines of credit...................... -- 5,776
Repayments on secured lines of credit...................... (17,025) --
Written off IPO costs...................................... (2,564) --
Proceeds from issuance of common stock..................... 247 --
Loan origination costs..................................... (768) (155)
Preferred stock dividend................................... (140) (140)
---------- ----------
Net cash provided by financing activities............... 115,909 17,881
----------- ----------
Net increase (decrease) in cash and equivalents......... 12,104 (2,326)
Cash at beginning of period................................. 2,191 2,924
---------- ----------
Cash at end of period....................................... $ 14,295 $ 598
========== ==========
Cash paid during the period for:
Interest................................................... $ 10,518 $ 6,526
Income taxes............................................... 3,094 2,432
Non-cash activity was as follows:
Capital lease obligation................................... 503 --
Discount on senior notes................................... 246 --
Notes payable to sellers................................... (2,000) --
Dividends declared but not paid............................ 70 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
FIRSTAMERICA AUTOMOTIVE, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) Business
FirstAmerica Automotive, Inc. (the "Company") is a leading automotive
retailer and consolidator in the highly fragmented automotive retailing
industry. The Company currently operates in four major metropolitan markets in
California and one metropolitan market in Nevada, and is focusing its
consolidation strategy in the western United States. The Company generates
revenues primarily through the sale and lease of new and used vehicles, service
and parts sales, financing fees, extended service warranty sales, after-market
product sales and collision repair services. The Company sells a variety of
domestic and foreign brands, including Acura, BMW, Cadillac, Chevrolet,
Chrysler, Dodge, Ford, Honda, Isuzu, Jeep, Lexus, Mercedes, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Toyota, Volkswagen, and Volvo.
The Company currently operates in the following five metropolitan markets:
* San Francisco Bay Area * San Jose/Silicon Valley
* San Diego * Los Angeles
* Las Vegas
As previously announced, the Company has entered into a definitive
agreement to be acquired by Sonic Automotive, Inc. ("Sonic")(see Note 10).
(b) Basis of Financial Statement Presentation
The financial information included herein for the three and nine month
periods ended September 30, 1999 and 1998 is unaudited; however, such
information reflects all adjustments consisting only of normal recurring
adjustments which
8
<PAGE>
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods.
The financial information as of December 31, 1998 is derived from
FirstAmerica Automotive, Inc.'s Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999. The interim condensed
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto
included in the Company's Form 10-K. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the full year.
All significant intercompany transactions and balances have been eliminated
in the accompanying condensed consolidated financial statements. Certain prior
period amounts have been reclassified to conform with the current financial
statement presentation.
(c) 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 amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
(d) Comprehensive Income
The Company has determined that net income and comprehensive income are the
same for the periods presented.
(2) Acquisitions and Disposition
Acquisitions and Disposition Completed During the Nine Months Ended September
30, 1999
In March 1999, the Company acquired substantially all of the operating
assets of Ritchey Fipp Chevrolet, a Chevrolet dealership located in Poway,
California. In April 1999, the Company acquired substantially all of the
operating assets of Marin Dodge, a Chrysler dealership located in San Rafael,
California. In June 1999, the Company acquired substantially all of the
operating assets of San Rafael Ford, a Ford dealership located in San Rafael,
California. In August 1999, the Company acquired substantially all of the
operating assets of South Bay Chrysler Plymouth Jeep, a Chrysler dealership
located in Torrance, California.
In September 1999, the Company acquired eight dealerships. The Company
acquired substantially all of the operating assets of Falconi's Tropicana Honda,
a Honda dealership located in Las Vegas, Nevada. The Company acquired all of
the outstanding capital stock of Kramer Honda-Volvo, which operates both a Honda
dealership and a Volvo dealership, both located in Santa Monica, California. In
addition, the Company acquired certain dealerships, assets, and liabilities of
the Lucas Dealership Group Inc., which operates six dealerships and one
collision repair center throughout the San Francisco Bay Area. These
dealerships include Autobahn Motors (Mercedes-Benz), Hayward Honda, St. Claire
Cadillac/Oldsmobile, Stevens Creek BMW Motorsport, Golden Gate Acura, and
Stevens Creek Honda.
The acquisitions were accounted for using the purchase method of accounting
and the operating results of these dealerships have been included in the
Company's results of operations since the date they were acquired. The purchase
prices have been allocated to assets acquired and liabilities assumed based on
the fair values on the acquisition date. Amounts recorded for these acquisitions
were as follows: current assets, net of cash acquired, of $79.9 million, fixed
assets of $4.2 million, goodwill and other intangibles of $88.7 million, notes
payable to the sellers of $2.0 million, and floor plan and other liabilities of
$70.7 million.
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the acquisitions completed during
9
<PAGE>
the period from January 1, 1998 to September 30, 1999 (see list of acquisitions
below) had occurred as of January 1, 1998 after giving effect to certain
adjustments, including amortization of goodwill, interest expense on acquisition
debt, reductions in floor plan interest expense resulting from re-negotiated
floor plan financing agreements, change in accounting for inventories from last-
in, first-out method to the Company's specific identification method for
accounting for inventories, and related income tax effects. The pro forma
results have been prepared for comparative purposes only and are not necessarily
indicative of the results of future operations:
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
--------------- --------------
<S> <C> <C>
Total sales $1,225,358 $1,099,943
Income before taxes 8,294 10,412
Net income 4,147 5,935
Net income per common share-diluted $ 0.24 $ 0.38
</TABLE>
The acquisitions incorporated into the above unaudited pro forma financial
information include the following:
Acquisition Date
- ------------------------ ----------
Beverly Hills BMW April 1998
Serramonte Honda June 1998
Concord Toyota October 1998
Volkswagen of Woodland Hills November 1998
Auto Town December 1998
Poway Chevrolet March 1999
Marin Dodge April 1999
San Rafael Ford June 1999
South Bay Chrysler Plymouth Jeep August 1999
Falconi's Tropicana Honda September 1999
Kramer Honda-Volvo September 1999
Lucas Dealership Group, Inc. September 1999
In March 1999, the Company sold the operating assets of Serramonte
GMC/Pontiac/Buick to General Motors, Inc. and received proceeds of approximately
$1.9 million and recorded an after-tax gain of $0.7 million.
(3) Inventories
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
New vehicles $ 95,590 $65,152
Used vehicles 33,489 20,049
Parts and accessories 17,991 5,746
-------------- --------------
Inventories $147,070 $90,947
============== ==============
</TABLE>
(4) Assets Held For Sale
Assets held for sale include property and equipment related to the Kramer
Honda-Volvo and Lucas Dealership Group, Inc. acquisitions which are subject to
definitive agreements to be sold and are valued at their estimated net
realizable value. Accordingly, there will be no gain or loss on the
transactions.
(5) Earnings Per Share
The following table reconciles basic and diluted earnings per share (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) per income statement $ (16) $ 1,603 $ 3,213 $ 3,422
Less:
Cumulative redeemable preference dividends 70 70 210 210
Redeemable preferred stock liquidation
preference accretion 10 10 30 50
Cumulative and redeemable preferred stock
discount amortization 20 20 60 60
------- ------- ------- -------
Net income (loss) applicable to common stockholders (116) 1,503 2,913 3,102
Add:
Interest charges applicable to convertible debt 6 7 17 20
------- ------- ------- -------
Net income (loss) applicable to common stockholders
and assumed conversions $ (110) $ 1,510 $ 2,930 $ 3,122
======= ======= ======= =======
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Diluted Earnings Per Share:
Weighted average common shares outstanding-basic 15,208 14,211 15,156 14,215
Net effect of dilutive stock options -- 268 344 259
Net effect of warrants -- 217 238 209
Net effect of convertible notes -- 100 100 100
------- ------- ------- -------
Total weighted average common shares
outstanding-diluted 15,208 14,796 15,838 14,783
======= ======= ======= =======
Net income (loss) per common share-diluted (a) $(0.01) $0.10 $0.19 $0.21
======= ======= ======= =======
</TABLE>
(a) In the third quarter of 1999, diluted earnings per share does not include
dilutive securities such as options and warrants, as their inclusion would
be anti-dilutive.
10
<PAGE>
(6) Floor Plan Notes Payable and Secured Lines of Credit
In September 1999, the Company obtained a new $138.0 million floor plan
facility and a $138.5 million revolving line of credit facility from Ford Motor
Credit Company, replacing the Company's previous $115 million floor plan
facility and its $60 million line of credit with General Electric Capital
Corporation. The new line of credit was obtained primarily to provide up to
$107.0 million of funding to acquire certain specific dealerships, to retire up
to $26.5 million in certain existing indebtedness of the Company, and to provide
up to $5.0 million in used vehicle floor plan financing to certain dealership
subsidiaries.
The acquisition line of credit is guaranteed by a $107.0 million commitment
from Sonic Automotive Inc.'s Chairman and Chief Executive Officer, O. Bruton
Smith. As previously announced, the Company has entered into a definitive
agreement to be acquired by Sonic Automotive, Inc. If the merger is not
completed, the Company is required either to obtain a release of the loan
guarantee, or to sell South Bay Chrysler Plymouth Jeep, Falconi's Tropicana
Honda, Kramer Honda-Volvo, and the Lucas Dealership Group, Inc. to Sonic for the
same price that the Company paid for these acquisitions. In order for the
Company to release the loan guarantee, the Company would likely be required to
refinance the line of credit which would probably require an equity infusion.
As of September 30, 1999, the Company had $135.3 on its line of credit. The
interest rate on the Ford revolving line of credit is based on the one month
commercial paper rate plus 275 basis points. Prior to September 1999, the
interest rate on the previous revolver advances was prime minus 35 basis points
and the interest rate on the over advances was prime plus 200 basis points.
According to the terms of the new revolving line of credit agreement, a loan
origination fee of $0.5 million is due to Ford Motor Credit Company. In
addition, a fee of $0.3 million for the collateral guarantee is payable to
Sonic's Chairman and Chief Executive Officer, O. Bruton Smith.
At September 30, 1999, the Company had approximately $117.2 million
outstanding under the new floor plan facility from Ford Motor Credit Company,
which has an initial term of three years. The new credit facility has an
estimated effective rate of prime minus 125 basis points subject to certain
incentives and other adjustments. Prior to September 1999, the interest rate for
the previous floor plan facility was prime minus 75 basis points.
Floor plan notes payable are due when vehicles are sold, leased, or
delivered. Floor plan notes payable are classified as a current liability and
the revolving line of credit is classified as notes payable in the accompanying
financial statements.
(7) Senior Notes
The Company is out of compliance with a financial covenant related to its
Senior Notes. The Company obtained a waiver for non-compliance.
(8) Operating Segments
The Company operates primarily in the automotive segment. The Company
sells new vehicles, used vehicles, light trucks, after-market automotive
products and replacement parts. In addition, it provides vehicle maintenance
and repair services, and arranges related financing and warranty products for
its automotive customers.
On December 31, 1998, the Company acquired Auto Town, a software company
that provides software products and internet services to automobile dealerships.
In connection with the transaction with Sonic, the Company is required to
sell or liquidate its subsidiary, Auto Town (See Note 10).
Summarized financial information concerning the Company's two segments is
shown in the following table (in thousands):
<TABLE>
<CAPTION>
Automotive Technology Total Company
Three months ended September 30,
--------------------------------------------------------------
1999 1998 1999 1998 1999 1998
---------- --------- ----------- ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $296,430 $223,486 $ 202 $ -- $296,632 $223,486
Income (loss) before taxes 1,788 2,812 (1,028) -- 760 2,812
Total assets (period end) 367,234 149,667 2,964 -- 370,198 149,667
Automotive Technology Total Company
<CAPTION>
Nine months ended September 30,
1999 1998 1999 1998 1999 1998
-------- -------- ------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $801,685 $567,154 $ 651 $ -- $802,336 $567,154
Income (loss) before taxes 8,734 6,004 (2,309) -- 6,425 6,004
Total assets (period end) 367,234 149,667 2,964 -- 370,198 149,667
</TABLE>
11
<PAGE>
(9) Related Party Transactions
In March 1999, the Company acquired substantially all of the operating
assets of Ritchey Fipp Chevrolet. The $3.7 million purchase price was partly
financed from the proceeds of a $1.0 million loan from the Chief Executive
Officer of the Company and $1.0 million in notes to each of the two selling
parties, one of whom became an employee of the Company after the acquisition.
The annual interest rate on the loan from the Chief Executive Officer is 7.4%
and there is no stated maturity date on the note. The annual interest rate on
each of the $1.0 million notes payable to the sellers is 10.5%, and the
principal amount on each note is due in March 2003. The seller notes and Chief
Executive Officer's note are included in other long-term notes in the
accompanying condensed consolidated financial statements.
(10) Subsequent Events
Pending Merger
The Company has entered into an Agreement and Plan of Merger and
Reorganization dated as of October 31, 1999 by and among Sonic Automotive, Inc.
("Sonic"), FAA Acquisition Corp., a wholly owned subsidiary of Sonic, the
Company and certain of the stockholders of the Company (the "Reorganization
Agreement"). Pursuant to the Reorganization Agreement, stockholders of the
Company holding approximately 95% of the outstanding shares of the Company's
common stock have agreed to sell their shares to Sonic (the "Acquisition") in
exchange for up to an aggregate of approximately 5 million shares of Sonic Class
A Common Stock ("Sonic Common Stock") at an exchange rate of approximately
.31246 shares (the "Conversion Number") of Sonic Common Stock for each share of
Company Common Stock. The purchase of the FAA Common Stock will be pursuant to
an exemption from registration under federal securities laws, and Sonic has
agreed to register the re-sale of the Sonic Common Stock by the selling
stockholders. The Sonic Common Stock exchanged for the Company's common stock
will be subject to certain restrictions described in the Reorganization
Agreement. Subsequent to the closing of the Acquisition, Sonic will effect a
merger of the Company with FAA Acquisition Corp. in which the remaining
stockholders of the Company will be entitled to receive cash for their shares of
Company common stock in an amount equal to the greater of (a) the average
closing price per share of Sonic Common Stock as reported on the composite tape
for the NYSE for the twenty consecutive trading days ending on and including the
trading day immediately preceding the day upon which the merger occurs or (b)
$13.72, in either case multiplied by the Conversion Number.
In connection with the transaction with Sonic, the Company withdrew its
registration statement on Form S-1 to sell shares of its common stock as
previously filed with the Securities and Exchange Commission. As a result of the
withdrawn offering, the Company took a charge of $2.6 million in the third
quarter of 1999 of costs associated with the offering.
In connection with the transaction with Sonic, the Company is required to
sell or liquidate its subsidiary, Auto Town. The Company is attempting to sell
Auto Town prior to the close of the transaction with Sonic. The Company is
currently unable to estimate the gain or loss on disposal. There can be no
assurances that the Company can succeed in its effort to sell Auto Town. In the
event the Company is unsuccessful and is required to liquidate Auto Town, the
Company would be required to write off its investment of $4.8 million at
September 30, 1999. The Company is currently in negotiations to sell Auto Town.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements. These statements are
necessarily subject to risk and uncertainty. Actual results could differ
materially from those projected in these forward looking statements as a result
of certain risks including those set forth in the Company's 1998 Annual Report
on Form 10-K as filed with the Securities and Exchange Commission. These risk
factors include, but are not limited to, the cyclical nature of automobile
sales, the intense competition in the automobile retail industry, and the
Company's ability to obtain additional sources of capital through debt or
equity, negotiate profitable acquisitions, and secure manufacturer approvals for
such acquisitions.
Overview
We are a leading automotive retailer in the highly fragmented automotive
retailing industry. We currently operate in four major metropolitan markets in
California and one metropolitan market in Nevada, and are focusing our
consolidation strategy in the western United States. We generate revenues
through the sale and lease of new and used vehicles, service and parts sales,
financing fees, vehicle insurance commissions, extended service warranty sales,
after-market product sales and collision repair service revenues. We currently
sell the following domestic and foreign brands: Acura, BMW, Cadillac, Chevrolet,
Chrysler, Dodge, Ford, Honda, Isuzu, Jeep, Lexus, Mercedes, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Toyota, Volkswagen, and Volvo.
New vehicle revenues include the sale and lease of new cars and light
trucks. Used vehicle revenues include retail and wholesale sales of used cars
and light trucks. Service and parts revenues include vehicle servicing revenues,
warranty repairs, collision repairs and sales of parts to retail and wholesale
customers. Other dealership revenues include financing fees, document processing
fees, vehicle insurance commissions, extended service warranty contract sales
and after-market product sales.
Our gross margin varies based on the mix between new vehicle sales, used
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vehicle sales, service and parts sales and other dealership revenues. Gross
margins on new vehicle sales can be affected by the availability of popular
model types as well as manufacturer promotions, because popular models tend to
have higher margins and manufacturer promotions may include dealer incentives,
which increase margins. Factors such as seasonality, weather and cyclicality may
also impact our product mix and influence our gross margins. Used vehicle gross
margins are primarily impacted by supply and the price of new vehicles. Service
and parts gross margins are primarily impacted by the productivity and wage rate
of service personnel.
Sales commissions, salaries, advertising and rent constitute the largest
components of selling, general and administrative expenses. Interest expense
primarily consists of interest charges on debt incurred for floor plan financing
and interest on debt incurred for dealership acquisitions.
Vehicle sales are cyclical and can be impacted by consumer confidence,
levels of consumers' disposable income, inflation, interest rates, credit
availability and other economic conditions. A significant portion of the costs
associated with vehicle sales are variable costs and can be adjusted during
periods of depressed sales. Sales of parts and service can offset reductions in
vehicle sales to the extent customers repair and service vehicles rather than
replace them.
We have accounted for all of our acquisitions using the purchase method of
accounting and, as a result, we do not include in our financial statements the
results of operations of acquisitions prior to the date they were acquired by
us.
Pending Merger
The Company has entered into an Agreement and Plan of Merger and
Reorganization dated as of October 31, 1999 by and among Sonic Automotive, Inc.
("Sonic"), FAA Acquisition Corp., a wholly owned subsidiary of Sonic, the
Company and certain of the stockholders of the Company (the "Reorganization
Agreement"). Pursuant to the Reorganization Agreement, stockholders of the
Company holding approximately 95% of the outstanding shares of the Company's
common stock have agreed to sell their shares to Sonic (the "Acquisition") in
exchange for up to an aggregate of approximately 5 million shares of Sonic Class
A Common Stock ("Sonic Common Stock") at an exchange rate of approximately
.31246 shares (the "Conversion Number") of Sonic Common Stock for each share of
Company Common Stock. The purchase of the FAA Common Stock will be pursuant to
an exemption from registration under federal securities laws, and Sonic has
agreed to register the re-sale of the Sonic Common Stock by the selling
stockholders. The Sonic Common Stock exchanged for the Company's common stock
will be subject to certain restrictions described in the Reorganization
Agreement. Subsequent to the closing of the Acquisition, Sonic will effect a
merger of the Company with FAA Acquisition Corp. in which the remaining
stockholders of the Company will be entitled to receive cash for their shares of
Company common stock in an amount equal to the greater of (a) the average
closing price per share of Sonic Common Stock as reported on the composite tape
for the NYSE for the twenty consecutive trading days ending on and including the
trading day immediately preceding the day upon which the merger occurs or (b)
$13.72, in either case multiplied by the Conversion Number.
In connection with the transaction with Sonic, we withdrew our registration
statement on Form S-1 to sell shares of our common stock as previously filed
with the Securities and Exchange Commission. As a result of the withdrawn
offering, we took a non-recurring charge of $2.6 million in the third quarter
of 1999 of costs associated with the offering.
Results of Operations
The following tables summarize, for the periods presented, the information
relating to specific items reflected in our statement of operations.
Percentages of total revenue:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Sales
New vehicles........................ 65.4% 63.4% 64.2% 60.2%
Used vehicles....................... 20.3% 22.4% 21.5% 25.1%
Service and parts................... 11.6% 11.2% 11.2% 11.7%
Other dealership revenues, net...... 2.7% 3.0% 3.1% 3.0%
-------- ------- ------- --------
Total sales....................... 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 84.6% 84.9% 84.6% 84.6%
-------- ------- ------- --------
Gross profit...................... 15.4% 15.1% 15.4% 15.4%
Selling, general and administrative
expenses........................... 12.4% 12.3% 12.6% 12.7%
Depreciation and amortization........ 0.4% 0.3% 0.4% 0.3%
-------- ------- ------- --------
Operating Income.................. 2.6% 2.5% 2.4% 2.4%
</TABLE>
New vehicle sales statistics:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Units................................................ 8,073 6,141 21,539 14,918
Sales (in thousands)................................. $193,862 $141,870 $515,009 $341,488
Gross profit (in thousands).......................... $ 15,407 $ 11,069 $ 39,776 $ 26,513
Gross margin......................................... 7.9% 7.8% 7.7% 7.8%
Gross profit per unit................................ $ 1,908 $ 1,802 $ 1,847 $ 1,777
</TABLE>
Used vehicle retail sales statistics, excluding wholesale sales and units:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
---------- -------- --------- ---------
<S> <C> <C> <C> <C>
Units................................................ 2,874 2,574 8,334 7,723
Sales (in thousands)................................. $ 45,499 $ 36,788 $131,188 $107,838
Gross profit (in thousands).......................... $ 4,767 $ 3,706 $ 14,129 $ 10,648
Gross margin......................................... 10.5% 10.1% 10.8% 9.9%
Gross profit per unit................................ $ 1,659 $ 1,440 $ 1,695 $ 1,379
</TABLE>
Service and parts statistics:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales (in thousands)................................. $ 34,433 $ 24,867 $ 90,142 $ 65,917
Gross profit (in thousands).......................... $ 16,402 $ 11,407 $ 42,248 $ 30,214
Gross margin......................................... 47.6% 45.8% 46.9% 45.8%
</TABLE>
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Three Months Ended September 30,1999 Compared to Three Months Ended September
30, 1998
Sales. Our sales increased $73.1 million, or 32.7%, to $296.6 million for
the three months ended September 30, 1999 from $223.5 million in 1998. We
acquired no dealerships in the third quarter of 1998 and eleven dealerships in
the third quarter of 1999, which for the periods following their acquisition
accounted for $58.0 million of the increase in 1999 sales. The remaining
increase of $15.1 million is due to increased sales at dealerships owned for
longer than one year.
New vehicles. We sold a variety of domestic and imported vehicle
brands ranging from economy to luxury vehicles, as well as sport utility
vehicles, minivans and light trucks. In the three months ended September
30, 1999 we sold 8,073 new vehicles, generating revenues of $193.9 million,
which constituted 65.4% of our total sales. In the three months ended
September 30, 1998 we sold 6,141 new vehicles, generating revenues of
$141.9 million, which constituted 63.4% of our total sales. The increase in
revenues and units was due primarily to the nine dealerships acquired
between July 1, 1998 and September 30, 1999 and a very strong new vehicle
market. Of this increase $39.2 million, or 75.4%, was due to dealerships
acquired between January 1, 1998 and September 30, 1999, and the remaining
$12.8 million, or 24.6%, was due to increased sales at dealerships owned
for longer than one year. Average unit prices increased 3.9% to $24,014 in
1999 from $23,102 in 1998 per vehicle due to the higher mix of luxury
vehicles, high-demand trucks, and sport utility vehicles we sold in 1999.
We anticipate an increase in the number of luxury vehicles we sell as we
acquire additional dealerships that sell these vehicles.
Used vehicles. We sold a variety of makes and models of used vehicles
and light trucks of varying model years and prices. In the three months
ended September 30, 1999, we sold 2,874 retail used vehicles and 2,212
wholesale used vehicles. In the three months ended September 30, 1998, we
sold 2,574 retail used vehicles and 2,160 wholesale used vehicles. Total
revenues from used vehicle sales increased 20.4%, to $60.1 million in the
three months ended September 30, 1999 from $50.0 million in the three
months ended September 30, 1998. The increase in revenues was due to
dealerships acquired between January 1, 1998 and September 30, 1999. Retail
and wholesale used vehicle sales comprised 20.3% of our total sales in the
three months ended September 30, 1999 compared to 22.4% of our total sales
in the three months ended September 30, 1998. The decrease in used vehicle
sales as a percentage of total sales is primarily attributable to the
change in product mix related to a strong demand for new vehicles over the
prior period. Our average price per used vehicle unit increased 12.0% to
$11,822 in 1999 from $10,551 in 1998 per vehicle.
Service and parts. Service and parts includes revenue from the sale of
parts, accessories, maintenance and repair services. Service and parts
revenue increased 38.5% to $34.4 million in the three months ended
September 30, 1999 from $24.9 million in the three months ended September
30, 1998. Of the increase in revenues, $7.2 million, or 76.1%, was due to
dealerships acquired between January 1, 1998 and September 30, 1999, and
the remaining $2.3 million, or 23.9%, was due to increased sales at
dealerships owned for longer than one year.
Other dealership revenues, net. Other dealership revenues primarily include
fees earned on the sale of vehicle financing notes and
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<PAGE>
warranty service contracts. Finance fees are received for notes sold to
finance companies for customer vehicle financing. Warranty service contract
fees are earned on extended warranty service contracts that are sold on
behalf of insurance companies and manufacturers. Fees from the sale of
vehicle financing notes and warranty service contracts are recorded at the
time of the sale of the vehicles net of a reserve for future chargebacks.
The reserve for future chargebacks is estimated based on historical
operating results and the termination provisions of the applicable
contracts. Other dealership revenues increased 20.8% to $8.2 million in the
three months ended September 30, 1999 from $6.8 million in the three months
ended September 30, 1998. Of the increase in revenues, $1.2 million, or
85.6%, was due to dealerships acquired between January 1, 1998 and
September 30, 1999, and the remaining $0.2 million, or 14.4%, was due to
increased sales at dealerships owned for longer than one year.
Gross profit. Gross profit increased 35.1% to $45.6 million in the three
months ended September 30, 1999 from $33.7 million in the three months ended
September 30, 1998. Our overall gross margins increased to 15.4% in the three
months ended September 30, 1999, from 15.1% in the three months ended September
30, 1998. The gross margin on new vehicle sales increased to 7.9% in the three
months ended September 30, 1999, from 7.8% in the three months ended September
30, 1998. The gross margin on retail and wholesale used vehicle sales increased
to 9.2% in the three months ended September 30, 1999 from 8.9% in the three
months ended September 30, 1998. Gross margins on service and parts increased to
47.6% in the three months ended September 30, 1999 from 45.8% in the three
months ended September 30, 1998, primarily due to increased emphasis on service
operations and profitability.
Selling, general and administrative expense. Our selling, general and
administrative expense increased $9.4 million, or 34.1%, to $36.9 million in the
three months ended September 30, 1999 from $27.5 million in the three months
ended September 30, 1998. Selling, general and administrative expense as a
percentage of sales were 12.4% in the three months ended September 30, 1999
compared to 12.3% in the three months ended September 30, 1998. The increase
included selling, general and administrative costs of $1.3 million related to
Auto Town, which we acquired on December 31, 1998.
Depreciation and amortization. Depreciation and amortization expense
increased $0.5 million, or 68.5%, to $1.2 million in the three months ended
September 30, 1999 from $0.7 million in the three months ended September 30,
1998. The increase was due to additional depreciation and goodwill amortization
from acquired dealerships and the acquisition of Auto Town. Of the increase,
$0.2 million related to Auto Town.
Interest expense. Floor plan interest expense increased $0.4 million, or
26.0%, to $1.9 million in the three months ended September 30, 1999 from $1.5
million in the three months ended September 30, 1998 primarily as a result of
increased floor plan debt in 1999 from the acquired dealerships. Interest
expense other than floor plan increased $1.0 million, or 86.4%, to $2.3 million
in the first three months of 1999 from $1.3 million in the three months ended
September 30, 1998. The increase was due to debt incurred in financing
dealerships we acquired.
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<PAGE>
Income tax expense. Income tax expense decreased to $0.8 million in the
three months ended September 30, 1999 from $1.2 million in the three months
ended September 30, 1998 due to lower income before taxes primarily as a result
of written off IPO costs in the third quarter of 1999. Our effective income tax
rate was 102% and 43% for the three months ended September 30, 1999 and 1998,
respectively. Our effective tax rate increased as a result of non-deductible
expenses such as goodwill associated with certain types of acquisitions and
lower projected pre-tax income.
Net income. As a result of the items discussed above, including the write
off of IPO costs of $2.6 million in the third quarter and the increase in the
tax rate to 102% from 43%, we incurred a net loss of $(16,000) in the three
months ended September 30, 1999 compared to $1.6 million in the three months
ended September 30, 1998.
Nine Months Ended September 30,1999 Compared to Nine Months Ended September 30,
1998
Sales. Our sales increased $235.1 million, or 41.5%, to $802.3 million for
the nine months ended September 30, 1999 from $567.2 million in the nine month
period ended September 30, 1998. We acquired four dealerships in the nine month
period ended September 30, 1998 and twelve dealerships for the same period
in 1999, which for the periods following their acquisition accounted for
$167.0 million of the increase in 1999 sales. The remaining increase of $68.1
million is due to increased sales at dealerships owned for longer than one
year.
New vehicles. We sold a variety of domestic and imported vehicle
brands ranging from economy to luxury vehicles, as well as sport utility
vehicles, minivans and light trucks. In the first nine months of 1999 we
sold 21,539 new vehicles, generating revenues of $515.0 million, which
constituted 64.2% of our total sales. In the first nine months of 1998 we
sold 14,918 new vehicles, generating revenues of $341.5 million, which
constituted 60.2% of our total sales. The increase in revenues and units
was due primarily to the sixteen dealerships acquired between January 1,
1998 and September 30, 1999 and a very strong new vehicle market. Of the
increase in revenues, $113.2 million, or 65.2%, of the increase in revenues
was due to dealerships acquired between January 1, 1998 and September 30,
1999, and the remaining $60.3 million, or 34.8%, was due to increased sales
at dealerships owned for longer than one year. Average unit prices
increased 4.5% to $23,911 in 1999 from $22,891 in 1998 per vehicle due to
the higher mix of luxury vehicles, high-demand trucks, and sport utility
vehicles we sold in 1999. We anticipate an increase in the number of luxury
vehicles we sell as we acquire additional dealerships that sell these
vehicles.
Used vehicles. We sold a variety of makes and models of used vehicles
and light trucks of varying model years and prices. In the first nine
months of 1999, we sold 8,334 retail used vehicles and 6,193 wholesale used
vehicles. In the first nine months of 1998, we sold 7,723 retail used
vehicles and 5,096 wholesale used vehicles. Total revenues from used
vehicle sales increased 21.2%, to $172.2 million in the first nine months
of 1999 from $142.1 million in the first nine months of 1998. The increase
in revenues was due to dealerships acquired between January 1, 1998 and
September 30, 1999. Retail and wholesale used vehicle sales comprised 21.5%
of our total sales in the first nine months of 1999 compared to 25.1% of
our total sales in the first nine months of 1998. The decrease in used
vehicle sales as a percentage of total sales is primarily attributable to
the change in product mix related to a strong demand for new vehicles over
the prior period. Our average price per used vehicle unit increased 6.9% to
$11,854 in 1999 from $11,085 in 1998 per vehicle.
Service and parts. Service and parts includes revenue from the sale of
parts, accessories, maintenance and repair services. Service and parts
17
<PAGE>
revenue increased 36.7% to $90.1 million in the first nine months of 1999
from $65.9 million in the first nine months of 1998. Of the increase in
revenues, $19.4 million, or 80.1%, was due to dealerships acquired between
January 1, 1998 and September 30, 1999, and the remaining $4.8 million, or
19.9%, was due to increased sales at dealerships owned for longer than one
year.
Other dealership revenues, net. Other dealership revenues primarily
include fees earned on the sale of vehicle financing notes and warranty
service contracts. Finance fees are received for notes sold to finance
companies for customer vehicle financing. Warranty service contract fees
are earned on extended warranty service contracts that are sold on behalf
of insurance companies and manufacturers. Fees from the sale of vehicle
financing notes and warranty service contracts are recorded at the time of
the sale of the vehicles net of a reserve for future chargebacks. The
reserve for future chargebacks is estimated based on historical operating
results and the termination provisions of the applicable contracts. Other
dealership revenues increased 41.5% to $25.0 million in the first nine
months of 1999 from $17.7 million in the first nine months of 1998. Of the
increase in revenues, $3.6 million, or 49.1% was due to dealerships
acquired between January 1, 1998 and September 30, 1999, and the remaining
$3.7 million, or 50.9% was due to increased sales at dealerships owned for
longer than one year.
Gross profit. Gross profit increased 42.0% to $123.7 million in the first
nine months of 1999 from $87.1 million in the first nine months of 1998. Our
overall gross margins were 15.4% in the first nine months of 1999, and 15.4% in
the first nine months of 1998. The gross margin on new vehicle sales decreased
to 7.7% in the first nine months of 1999, from 7.8% in the first nine months of
1998 primarily due to an emphasis on higher unit volume. The gross margin on
used vehicle sales increased to 9.7% in the first nine months of 1999 from 8.9%
in the first nine months of 1998 due to an emphasis on purchasing more desirable
used vehicles and increasing inventory turnover. Gross margins on service and
parts increased to 46.9% in the first nine months of 1999 from 45.8% in the
first nine months of 1998, primarily due to increased emphasis on service
operations and profitability.
Selling, general and administrative expense. Our selling, general and
administrative expense increased $29.6 million, or 41.1%, to $101.5 million in
the first nine months of 1999 from $71.9 million in the first nine months of
1998. Selling, general and administrative expense as a percentage of sales
decreased to 12.6% in the first nine months of 1999 from 12.7% in the first nine
months of 1998. The decrease was due primarily to leveraging the costs of our
infrastructure, partially offset by increased selling, general and
administrative costs of $3.0 million related to Auto Town, which we acquired on
December 31, 1998.
Depreciation and amortization. Depreciation and amortization expense
increased $1.7 million, or 101.2%, to $3.4 million in the first nine months of
1999 from $1.7 million in the first nine months of 1998. The increase was due
18
<PAGE>
to additional depreciation and goodwill amortization from acquired dealerships
and the acquisition of Auto Town. Of the increase, $0.5 million related to Auto
Town.
Interest expense. Floor plan interest expense increased $0.8 million, or
20.5%, to $5.0 million in the first nine months of 1999 from $4.2 million in
the first nine months of 1998 primarily as a result of increased floor plan
debt in 1999 from the acquired dealerships. Interest expense other than floor
plan increased $2.8 million, or 83.7%, to $6.1 million in the first nine months
of 1999 from $3.3 million in the first nine months of 1998. The increase was
due to debt incurred in financing dealerships we acquired.
Income tax expense. Income tax expense increased to $3.2 million in the
first nine months of 1999 from $2.6 million in the first nine months of 1998 due
to higher pretax income in 1999 and a higher projected effective tax rate. Our
effective income tax rate was 50% and 43% for the first nine months of 1999 and
1998. Our effective tax rate increased as a result of non-deductible expenses
such as goodwill associated with certain types of acquisitions and lower
projected pre-tax income.
Net income. As a result of the items discussed above and the sale of a
dealership in the first quarter with an after-tax gain of $0.7 million, the
write off of IPO costs of $2.6 million in the third quarter and the increase in
the tax rate to 50% from 43%, net income decreased to $3.2 million in the first
nine months of 1999 from $3.4 million in the first nine months of 1998.
Liquidity and Capital Resources
Our cash and liquidity requirements are primarily for acquiring new
dealerships, working capital, information systems and expanding existing
facilities. Historically, we have relied primarily upon cash flows from
operations, floor plan financing, and other borrowings under our credit facility
to finance our operations, and the proceeds from our private placements to
finance our acquisitions. At September 30,1999, we had a working capital deficit
of $87.6 million including $14.3 million in cash.
In the first nine months of 1999, operating activities resulted in net cash
used in operations of $0.9 million compared to $0.8 million used in operations
in the first nine months of 1998. The increase was attributable to a decrease in
receivables, contracts in transit, inventories and floor plan notes payable,
offset by an increase in accounts payable and accrued liabilities
compared to the prior year period.
In the first nine months of 1999, the net cash used in investing activities
totaled $102.9 million, which consisted of $100.1 million used for acquisitions,
$3.5 million of capital expenditures for information systems and improvements to
existing facilities, and $1.2 million for deposits on pending acquisitions,
offset by proceeds from a sale of a dealership of $1.9 million. This compared to
$19.4 million in the first nine months of 1998 which consisted of acquisitions
of $15.5 million and $3.9 million for capital expenditures for information
systems and improvements to existing facilities.
In the first nine months of 1999, net cash provided by financing activities
totaled $115.9, which consisted of borrowings and repayments on secured lines of
credit and notes payable and prepaid financing costs. Included in net cash
provided by financing activities are proceeds of a $1.0 million loan from the
Chief Executive Officer of the Company related to the financing of the Ritchey
Fipp Chevrolet acquisition. Additionally, we financed this acquisition with
19
<PAGE>
$2.0 million in notes to the selling parties. In the first nine months of 1998,
net cash provided by financing activities totaled $17.9 million which consisted
of borrowings on secured lines of credit and notes payable.
Floor Plan Notes Payable and Secured Lines of Credit
In September 1999, we obtained a new $138.0 million floor plan facility and
a $138.5 million revolving line of credit facility from Ford Motor Credit
Company, replacing our previous $115 million floor plan facility and our $60
million line of credit with General Electric Capital Corporation. The new line
of credit was obtained primarily to provide up to $107.0 million of funding to
acquire certain specific dealerships, to retire up to $26.5 million in certain
existing indebtedness of the Company, and to provide up to $5.0 million in used
vehicle floor plan financing to certain dealership subsidiaries.
The acquisition line of credit is guaranteed by a $107.0 million commitment
from Sonic Automotive Inc.'s Chairman and Chief Executive Officer, O. Bruton
Smith. As previously announced, we have entered into a definitive agreement to
be acquired by Sonic Automotive, Inc. If the merger is not completed, we are
required either to obtain a release of the loan guarantee, or to sell South Bay
Chrysler Plymouth Jeep, Falconi's Tropicana Honda, Kramer Honda-Volvo, and the
Lucas Dealership Group, Inc. to Sonic for the same price that we paid for these
acquisitions. In order for us to release the loan guarantee, we would likely be
required to refinance the line of credit which would probably require an equity
infusion.
As of September 30, 1999, we had $135.3 outstanding on our line of credit.
The interest rate on the Ford revolving line of credit is based on the one month
commercial paper rate plus 275 basis points. Prior to September 1999, the
interest rate on the previous revolver advances was prime minus 35 basis points
and the interest rate on the over advances was prime plus 200 basis points.
According to the terms of the new revolving line of credit agreement, a loan
origination fee of $0.5 million is due to Ford Motor Credit Company. In
addition, a fee of $0.3 million for the collateral guarantee will be payable to
Sonic's Chairman and Chief Executive Officer, O. Bruton Smith.
At September 30, 1999, we had approximately $117.2 million outstanding
under the new floor plan facility from Ford Motor Credit Company, which has an
initial term of three years. The new credit facility has an estimated effective
rate of prime minus 125 basis points subject to certain incentives and other
adjustments. Prior to September 1999, the interest rate for the previous floor
plan facility was prime minus 75 basis points.
Floor plan notes payable are due when vehicles are sold, leased, or
delivered. Floor plan notes payable are classified as a current liability and
the revolving line of credit is classified as secured lines of credit in the
accompanying financial statements.
We have approximately $2.0 million available under existing lines of
credit for acquisitions. However, we do not intend to consummate any
additional acquisitions prior to the closing of our pending transaction with
Sonic.
Senior Notes and Preferred Stock
In July 1997, we entered into a securities purchase agreement with an
institutional lender to provide an aggregate funding commitment of up to $40
million. The commitment consisted of $36 million of 12.375% senior notes, $3.5
million of 8% Cumulative Redeemable Preferred Stock and $0.5 million of
Redeemable Preferred Stock and up to 5 million shares of our Class B common
stock .
During 1997, we received $28 million of the $40 million commitment from the
institutional lender. In exchange, we issued senior notes with a principal
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<PAGE>
amount of $24 million at a discount of $2.2 million, 3,500 shares of Cumulative
Redeemable Preferred Stock at a discount of $0.6 million, 500 shares of
Redeemable Preferred Stock at a discount of $0.1 million and 3,032,000 shares of
Class B common stock at $0.92 per share. The senior notes, Cumulative Redeemable
Preferred Stock and Redeemable Preferred Stock are due June 30, 2005. We used
these proceeds primarily to acquire dealerships.
During 1998, we received the remaining $12 million of the $40 million
commitment from the institutional lender. In exchange, we issued senior notes
with a principal amount of $12 million at a discount of $1 million and 500,000
shares of common stock at $2.00 per share. The senior notes are due June 30,
2005. We used the proceeds to acquire a dealership.
The senior notes are unsecured and rank behind all debts of our operating
subsidiaries, rank equal to our other existing and future senior indebtedness,
and are senior in right of payment to any additional subordinated debt. The
CRPS and RPS shares rank behind all of our debt and the debt of our subsidiaries
and have priority over our common stock. We can redeem all the senior notes in
whole or in part, at any time, upon notice to the holders of the senior notes.
The redemption price for the period July 1, 1999 to June 30, 2000 is 107.5% of
the principal balance and decreases 1.25% on July 1 of each year thereafter.
The redemption price per share on June 30, 2005 is equal to the Cumulative
Redeemable Preferred Stock liquidation preference of $1,000 and the Redeemable
Preferred Stock liquidation preference of $1,720. If the aggregate outstanding
principal balance of the senior notes is less than $2 million at any time, we
are required to redeem all outstanding senior notes. We intend to redeem the
senior notes and the preferred stock in connection with our public offering of
common stock and anticipated new credit facility.
On July 1, 2003 and July 1, 2004, we must redeem senior notes in the
aggregate principal amount equal to the lesser of (a) 30% of the aggregate
principal amount of senior notes issued or (b) the aggregate amount of issued
and outstanding senior notes on such date, at the applicable redemption price
plus all accrued and unpaid interest on the senior notes to the redemption date.
On June 30, 2005, we must redeem all remaining issued and outstanding senior
notes, paying all outstanding principal and accrued and unpaid interest.
For financial reporting purposes, the difference between the issue price
and the face value of each security is recorded as a discount and is amortized
over the life of each security using the effective interest method. The senior
notes discount amortization is included in interest expense and the Cumulative
Redeemable Preferred Stock and redeemable Preferred Stock discount amortization
is recorded as a deduction from retained earnings. For financial reporting
purposes, the redemption premium, the remaining unamortized discount and the
remaining portion of the loan origination costs will be an extraordinary charge
to earnings at the time of redemption.
At September 30, 1999, we were out of compliance with a financial covenant
related to our Senior Notes, however, we have obtained a waiver for non-
compliance.
21
<PAGE>
Seasonality and Quarterly Fluctuations
Our sales are usually lower in the first and fourth quarters of each year
largely due to consumer purchasing patterns during the holiday season, inclement
weather and the reduced number of business days during the holiday season. As a
result, our financial performance is generally lower during the first and fourth
quarters than during the other quarters of each fiscal year. We believe that
interest rates, levels of consumer debt, consumer buying patterns and
confidence, as well as general economic conditions also contribute to
fluctuations in sales and operating results. The timing of acquisitions of new
dealerships may also cause substantial fluctuations of operating results from
quarter to quarter.
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This Statement of Position
requires the capitalization of eligible costs of specialized activities related
to computer software developed or obtained for internal use. The adoption of
this Statement of Position did not have a material effect on our financial
position or results of operations. The Statement is effective for fiscal years
beginning after December 15, 1998. We adopted this Statement of Position on
January 1, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting the Cost of Start Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The Statement requires that initial application be reported as a cumulative
effect of a change in accounting principle. The Statement is effective for
fiscal years beginning after December 15, 1998. We adopted this Statement of
Position on January 1, 1999. The adoption of this statement did not have a
material impact on our consolidated financial statements.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instrument and Hedging Activities." This Standard establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and hedging activities. In June 1999, the FASB
issued Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133." The
Statement will become effective for us beginning on January 1, 2001. The
implementation of the provisions of this Statement does not have an impact on
our financial statements for the nine months ended September 30, 1999.
Amortization of Goodwill
Goodwill as of September 30, 1999 was $123.7 million, or 33.4% of our total
assets. Goodwill represents the excess purchase price over the estimated fair
value of the tangible and measurable intangible assets purchased in an
acquisition. Generally accepted accounting principles require that goodwill be
22
<PAGE>
amortized over the period benefited, not to exceed 40 years. We have determined
that the period benefited by most of our goodwill is over forty years and
therefore we are amortizing this goodwill over a 40-year period. Earnings
reported in periods immediately following an acquisition would be overstated if
we attributed a forty-year benefit period to intangible assets that should have
had a shorter benefit period. In later years, we would be burdened by a
continuing charge against earnings without the associated benefit to income
valued by our management in arriving at the price paid for businesses acquired.
Earnings in later years also could be significantly affected if our management
then determined that the remaining balance of goodwill was impaired. We
periodically compare the carrying value of goodwill to the anticipated
undiscounted future cash flows from operations of the businesses we have
acquired to evaluate the recoverability of goodwill.
Inflation
We believe that the relatively moderate rate of inflation over the past few
years has not had a significant impact on our revenues or profitability.
Interest rates have been relatively stable during this period.
Year 2000 Project
We are in the process of addressing and mitigating the impact on our
operations of computer programs that are unable to distinguish between the year
1900 and the
year 2000.
Year 2000 Readiness Preparation
Our year 2000 program is comprised of several individual projects which
address primarily the following broad areas: data processing systems, embedded
technology in equipment and facilities, vendor and supplier risk, and
contingency planning. We have created a year 2000 task force that has assigned
a priority to all projects and broadly classified projects into critical and
non-critical categories indicating the importance of the function to our
continuing operations.
We continue the process of updating our data processing systems. We have
converted 95% and will complete conversion of all of our non-compliant software
and computer systems for our existing operations to compliant systems by
December 1, 1999. The most critical data processing systems are the
dealership management systems in our dealerships. As a result of an unrelated
project to integrate computing systems across the company, these dealer
management systems have been replaced or upgraded with year 2000 compliant
software and hardware platforms. This conversion project is fully complete.
Although we are converting to year 2000 compliant systems, management
recognizes that it could potentially acquire a dealership that does not have
year 2000 compliant systems. As part of our dealership acquisition due
diligence process, acquired dealership systems are evaluated for year 2000
compliance and scheduled for upgrade or replacement as acquired dealerships are
assimilated into our company. We intend to convert any noncompliant acquired
dealerships systems before December 31, 1999. All recently acquired acquisitions
and pending acquisitions have compliant dealer management systems. The dealer
23
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management system is the only system within a dealership capable of preventing a
store from conducting business.
We continue to assess the readiness preparations of our suppliers.
Manufacturers of vehicles and parts have been identified as our most critical
suppliers. In addition, we have communicated by writing, telephone and
electronic mail with our suppliers of dealer management systems,
telecommunications equipment, service equipment and transportation services to
respond to inquiries regarding their year 2000 readiness plans and status. We
have also reviewed year 2000 information available on suppliers' websites. All
critical suppliers have responded that they are year 2000 compliant. Some non-
critical suppliers who are identified as non-compliant will be replaced. In
addition, financial institutions that have been identified as critical suppliers
of inventory financing and customer financing have indicated that they are fully
year 2000 compliant. Our primary financial vendor has indicated full year 2000
compliance. Any major failure of our primary financial vendor would cause delays
of deposits, payables, payroll, flooring payments, credit card transactions and
electronic fund transfers, and would otherwise impact our ability to do
business. No non-primary financial vendors have been identified as critical.
Non-critical vendors identified as non-compliant will be replaced as necessary.
We also recognize that there may be embedded technology in our equipment
and facilities that could be impacted by the year 2000 issue. We have completed
our evaluation of service and miscellaneous equipment. Service equipment,
telephones and voicemail systems have been upgraded or replaced as necessary.
All other equipment identified as not being year 2000 compliant will be replaced
by December 31,1999 or removed from service.
Year 2000 Risks
The principal risk and most likely worst case scenario associated with the
year 2000 program is the risk of disrupting our operations due to operational
failure of third-party suppliers, primarily vehicle manufacturers. Such
failures could materially and adversely affect our ability to obtain vehicles
and parts for sale. We believe that significant disruptions among our suppliers
are not likely. We believe that, with the completion of the year 2000 project
as scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Year 2000 Costs
The conversion of our data processing systems has been incorporated into
our planned replacement or upgrade of its software and other computer systems
and therefore we have not experienced any significant incremental costs that are
specifically related to year 2000 compliance issues. Total year 2000 project
costs for replacing or upgrading our non-compliant equipment and facilities are
estimated to be approximately $1 million. In addition, 20 employees have been
assigned on a part-time basis to complete the year 2000 project, and one
employee has been assigned on a full-time basis to the project. Estimated total
project costs could change in the future as analysis continues.
Year 2000 Contingency Planning
We are have developed business contingency plans that address the actions
that will be taken if critical business operations are disrupted due to system
or supplier failure. Contingency planning has identified areas of concern where
24
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we can execute an effective backup plan relying on completely manual, paper
based processes and alternate suppliers of required services.
Year 2000 Forward-looking Statements
This discussion of the implications of the year 2000 for us contains
numerous forward-looking statements based on inherently uncertain information.
Statements about the cost of the project and the date on which we plan to
complete the internal year 2000 modifications are based on management's best
estimates, which were derived utilizing a number of assumptions of future events
including the continued availability of internal and external resources, third
party modifications and other factors. However, we may not achieve these
estimates or there may be a delay in, or increased costs associated with, the
implementation of the year 2000 program. In addition, we place a high degree of
reliance on computer systems of third parties, such as vendors, suppliers, and
financial institutions. Although we are assessing the readiness of these third
parties and will prepare contingency plans, the failure of these third parties
to modify their systems in advance of December 31, 1999 could have a material
adverse effect on our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Our primary market risk exposure is interest rate risk. A change in the
U.S. prime interest rate would affect the rate at which we could borrow funds
under our floor plan and secured line of credit borrowing facilities. We
estimate that a one percent increase or decrease in our variable rate debt would
result in an increase or decrease, respectively, in interest expense of $2.5
million for the year ended September 30, 2000. We estimate that a two percent
increase or decrease in our variable rate debt would result in an increase or
decrease, respectively, in interest expense of $5.0 million for the year ended
September 30, 2000. Our senior notes are at fixed rates. Our remaining financial
instrument liabilities are immaterial.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports and Form 8-K
(a) Exhibits
The exhibits filed as a part of this report are listed below.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.2 Agreement and Plan of Merger and Reorganization dated as of
October 31, 1999, among Sonic Automotive, Inc., FAA
Acquisition Corp., FirstAmerica Automotive, Inc., and
Certain of the Stockholders of FirstAmerica Automotive, Inc.
10.1.2 Credit Agreement by and between Ford Motor Credit Company and
the Company dated September 13, 1999.
10.10.1 Executive Employment Agreement dated as of August 1, 1999 by
and between the Company and Tom Price.
10.10.4 Executive Employment Agreement dated as of August 1, 1999 by
and between the Company and Debra Smithart.
10.10.5 Executive Employment Agreement dated as of August 1, 1999 by
and between the Company and Charles Ogelsby.
10.10.6 Executive Employment Agreement dated as of August 12, 1999 by
and between the Company and David Moeller.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended September 30,
1999.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTAMERICA AUTOMOTIVE, INC.
Dated: November 15, 1999 By: /s/ THOMAS A. PRICE
----------------------------------------------
Thomas A. Price
President, Chief Executive Officer, and
Director
(Principal Executive Officer)
By: /s/ DAVID J. MOELLER
----------------------------------------------
David J. Moeller
Vice President of Finance
(Acting Principal Financial and Accounting
Officer)
26
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of October 31, 1999,
Among
SONIC AUTOMOTIVE, INC.
FAA ACQUISITION CORP.
FIRSTAMERICA AUTOMOTIVE, INC.
And
CERTAIN OF THE STOCKHOLDERS OF
FIRSTAMERICA AUTOMOTIVE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I SECURITIES PURCHASE.............................................................................. 2
Section 1.1 The Securities Purchase................................................................... 2
Section 1.2 Purchase Price............................................................................ 2
Section 1.3 Registration, Offer or Sale of Parent Common Stocks....................................... 4
Section 1.4 The Closing............................................................................... 6
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser................................ 6
Section 1.6 Treatment of Options...................................................................... 6
ARTICLE II THE MERGER...................................................................................... 7
Section 2.1 The Merger................................................................................ 7
Section 2.2 Effective Time............................................................................ 7
Section 2.3 Effects of the Merger..................................................................... 8
Section 2.4 Certificate of Incorporation; By-Laws..................................................... 8
Section 2.5 Directors................................................................................. 8
Section 2.6 Officers.................................................................................. 8
Section 2.7 Effect on Capital Stock................................................................... 8
Section 2.8 Exchange of Certificates.................................................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 11
Section 3.1 Organization, Standing and Corporate Power................................................ 11
Section 3.2 Subsidiaries; Investments................................................................. 12
Section 3.3 Capital Structure......................................................................... 12
Section 3.4 Authority; Noncontravention............................................................... 12
Section 3.5 SEC Documents............................................................................. 14
Section 3.6 [INTENTIONALLY LEFT BLANK]................................................................ 14
Section 3.7 Litigation................................................................................ 14
Section 3.8 Labor Matters............................................................................. 14
Section 3.9 Employee Benefit Plans.................................................................... 15
Section 3.10 Tax Returns and Tax Payments.............................................................. 17
Section 3.11 Brokers................................................................................... 18
Section 3.12 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.13 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.14 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.15 Title to Assets; Related Matters.......................................................... 18
Section 3.16 Accounts Receivable....................................................................... 19
Section 3.17 Inventories............................................................................... 19
Section 3.18 1999 Pro Forma Pre-Tax Earnings........................................................... 19
Section 3.19 Real Property; Machinery and Equipment.................................................... 19
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc............................... 20
Section 3.21 Certain Liabilities....................................................................... 21
Section 3.22 No Undisclosed Liabilities................................................................ 21
Section 3.23 Absence of Changes........................................................................ 21
Section 3.24 Compliance with Laws, Etc................................................................. 22
Section 3.25 Permits, Etc.............................................................................. 22
Section 3.26 Compensation.............................................................................. 23
Section 3.27 Powers of Attorney........................................................................ 23
</TABLE>
i
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<TABLE>
<S> <C> <C>
Section 3.28 Material Agreements....................................................................... 23
Section 3.29 [INTENTIONALLY LEFT BLANK]................................................................ 23
Section 3.30 Insurance................................................................................. 23
Section 3.31 Warranties................................................................................ 24
Section 3.32 Directors and Officers.................................................................... 24
Section 3.33 Suppliers and Customers................................................................... 24
Section 3.34 Environmental Matters..................................................................... 24
Section 3.35 Year 2000 Matters......................................................................... 26
Section 3.36 Business Generally........................................................................ 26
Section 3.37 Manufacturer Communications............................................................... 27
Section 3.38 Pending Acquisitions...................................................................... 27
Section 3.39 Related Party Transactions................................................................ 27
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................ 28
Section 3A.1 Power and Authority; Validity of Agreement................................................ 28
Section 3A.2 No Conflicts; Consents and Approvals...................................................... 28
Section 3A.3 Ownership of Shares....................................................................... 28
Section 3A.4 No Encumbrances........................................................................... 29
Section 3A.5 Brokers and Intermediaries................................................................ 29
Section 3A.6 Special Representations Regarding the Reorganization Common Stock......................... 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.......................................... 30
Section 4.1 Organization, Standing and Corporate Power................................................ 30
Section 4.2 Subsidiaries.............................................................................. 31
Section 4.3 Capital Structure......................................................................... 31
Section 4.4 Authority; Noncontravention............................................................... 31
Section 4.5 SEC Documents............................................................................. 32
Section 4.6 [INTENTIONALLY LEFT BLANK.]............................................................... 33
Section 4.7 Litigation................................................................................ 33
Section 4.8 Brokers................................................................................... 33
Section 4.9 Interim Operations of Newco............................................................... 33
Section 4.10 Absence of Certain Changes or Events...................................................... 33
Section 4.11 Compliance with Laws, Etc................................................................. 34
ARTICLE V COVENANTS OF THE COMPANY......................................................................... 34
Section 5.1 Conduct of Business of the Company........................................................ 34
Section 5.2 Cooperation Regarding Notice of Appraisal Rights.......................................... 36
Section 5.3 Access to Information; Confidentiality.................................................... 36
Section 5.4 No Solicitation........................................................................... 37
Section 5.5 Public Announcements...................................................................... 38
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return.............................. 38
Section 5.7 Closing Conditions........................................................................ 38
Section 5.8 HSR Act................................................................................... 38
Section 5.9 Concerning Company Plans.................................................................. 39
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5.10 Bridge Financing......................................................................... 39
Section 5.11 280G Consent............................................................................. 40
Section 5.12 Tax Free Reorganization.................................................................. 40
ARTICLE VA COVENANTS OF THE STOCKHOLDERS.............................................................. 41
Section 5A.1 Agreement to Vote; Proxy................................................................. 41
Section 5A.2 No Solicitation.......................................................................... 42
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference.................................... 42
Section 5A.4 Additional Shares........................................................................ 43
Section 5A.5 Waiver of Appraisal and Dissenter's Rights............................................... 43
Section 5A.6 Actions Regarding Company Expenses....................................................... 43
Section 5A.7 Indemnity; Escrow Agreement.............................................................. 43
Section 5A.8 Further Assurances....................................................................... 46
Section 5A.9 Certain Events........................................................................... 46
Section 5A.10 Stop Transfer............................................................................ 46
Section 5A.11 Termination.............................................................................. 46
ARTICLE VI COVENANTS OF THE PARENT......................................................................... 46
Section 6.1 Conduct of Business of Parent............................................................ 46
Section 6.2 [INTENTIONALLY LEFT BLANK]............................................................... 47
Section 6.3 Access to Information; Confidentiality................................................... 47
Section 6.4 Indemnification.......................................................................... 47
Section 6.5 Public Announcements..................................................................... 49
Section 6.6 Newco Obligations........................................................................ 49
Section 6.7 Application to Manufacturers............................................................. 49
Section 6.8 Closing Conditions....................................................................... 49
Section 6.9 HSR Act.................................................................................. 49
Section 6.10 Tax Free Reorganization.................................................................. 49
Section 6.11 Additional Agreements of Parent.......................................................... 49
Section 6.12 Employee Benefits........................................................................ 50
ARTICLE VII CONDITIONS PRECEDENT........................................................................... 50
Section 7.1 Conditions to Each Party's Obligation To Effect the Reorganization....................... 50
Section 7.2 Conditions to Obligations of the Parent and Newco........................................ 51
Section 7.3 Conditions to Obligation of the Company and the Stockholders............................. 53
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................................................. 55
Section 8.1 Termination.............................................................................. 55
Section 8.2 Effect of Termination.................................................................... 56
Section 8.3 Amendment................................................................................ 56
Section 8.4 Extension; Waiver........................................................................ 56
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver................................ 56
ARTICLE IX GENERAL PROVISIONS.............................................................................. 57
Section 9.1 Best Reasonable Efforts.................................................................. 57
Section 9.2 Survival of Representations and Warranties............................................... 57
</TABLE>
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<TABLE>
<S> <C> <C>
Section 9.3 Fees and Expenses......................................................................... 57
Section 9.4 Notices................................................................................... 58
Section 9.5 Certain Definitions....................................................................... 59
Section 9.6 Interpretation............................................................................ 60
Section 9.7 Counterparts.............................................................................. 60
Section 9.8 Entire Agreement; No Third-Party Beneficiaries............................................ 60
Section 9.9 Governing Law............................................................................. 61
Section 9.10 Assignment................................................................................ 61
Section 9.11 Enforcement............................................................................... 61
Section 9.12 Consent to Jurisdiction................................................................... 61
Section 9.13 Severability.............................................................................. 61
Section 9.14 Construction.............................................................................. 61
Section 9.15 Effectiveness of this Agreement; Merger Agreement and Stockholder Agreement Superseded.... 61
Section 9.16 Concerning the Stockholders' Agent........................................................ 62
EXHIBIT A CALCULATION OF CONVERSION NUMBER
EXHIBIT B CALCULATION OF PRO FORMA PRE-TAX EARNINGS FOR CALENDAR YEAR 1999
EXHIBIT BB WARRANT EXCHANGE FACTORS CALCULATION
EXHIBIT C PRO FORMA PRETAX EARNINGS
EXHIBIT D ESCROW AGREEMENT
EXHIBIT E ONE TIME CHARGES AND ADJUSTMENTS
EXHIBIT F GRAY CARY OPINION
EXHIBIT G PARKER POE OPINION
</TABLE>
iv
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October 31,
1999 (this "Agreement"), by and among SONIC AUTOMOTIVE, INC., a Delaware
----------
corporation (the "Parent"), FAA ACQUISITION CORP., a Delaware corporation and a
-------
wholly-owned subsidiary of the Parent ("Newco"), FIRSTAMERICA AUTOMOTIVE, INC.,
------
a Delaware corporation (the "Company"), and the stockholders and warrant holders
--------
of the Company listed on Exhibit A hereto, and any other holders of securities
---------
of the Company who shall become a party to this Agreement after the date hereof
(and such stockholders, warrant holders and other security holders being
collectively, the "Stockholders" and each, individually, a "Stockholder").
------------- ------------
WHEREAS, the respective Boards of Directors of the Parent, Newco and the
Company have approved, and deem it fair, advisable and in the best interests of
their respective stockholders to consummate, the business combination
contemplated hereby upon the terms and subject to the conditions set forth
herein;
WHEREAS, it is intended that the business combination contemplated hereby
be accomplished by (i) a purchase (the "Securities Purchase") by Newco from the
-------------------
Stockholders of all of the following securities of the Company held by them: (A)
all shares of Class A, Class B and Class C Common Stock, par value $.00001
(collectively, the "Company Common Stock"); (B) all shares of the Company's
--------------------
Redeemable Preferred Stock due 2005 and all shares of the Company's 8%
Cumulative Redeemable Preferred Stock due 2005 (collectively, the "Company
-------
Preferred Stock"); and (C) all of the Warrants to Purchase Class A Common Stock
- ---------------
of the Company (the "Company Warrants" and, together with the Company Common
----------------
Stock and the Company Preferred Stock, sometimes hereinafter collectively called
the "Company Securities"), to be followed by a merger (the "Merger") of Newco
------------------ ------
with and into the Company, with the Company being the surviving corporation and
a wholly-owned subsidiary of the Parent, all upon the terms and subject to the
conditions set forth herein (the Securities Purchase and the Merger being
sometimes hereinafter collectively called the "Reorganization");
---------------
WHEREAS, the Parent, Newco and the Company are parties to an Agreement and
Plan of Merger dated as of August 25, 1999 (the "Merger Agreement");
-----------------
WHEREAS, the Parent and certain of the Stockholders are parties to a
Stockholder Agreement dated as of August 25, 1999 (the "Stockholder Agreement");
----------------------
WHEREAS, it is intended that this Agreement shall supersede and replace the
Merger Agreement and the Stockholder Agreement;
WHEREAS, the Parent, Newco, the Company and the Stockholders desire to make
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated hereby and also to prescribe various conditions to
the Reorganization;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
<PAGE>
ARTICLE I
SECURITIES PURCHASE
Section 1.1 The Securities Purchase. Upon the terms and subject to the
-----------------------
conditions set forth in this Agreement, at the Closing (as defined in Section
1.4 below), the Stockholders shall sell, transfer, convey and deliver to Newco,
and Newco shall purchase from the Stockholders, all of the Company Securities
held by the Stockholders as of the Closing. At the Closing each Stockholder
shall deliver to Newco a certificate or certificates representing the number of
Company Securities set forth opposite such Stockholder's name on Exhibit A
---------
hereto and any other Company Securities acquired by such Stockholder after the
date hereof, duly endorsed in blank or with one or more fully executed stock
powers or other appropriate instruments of assignment and conveyance attached,
all in proper form for transfer with all transfer taxes, if any, paid by such
Stockholder. All Company Securities shall be delivered to Newco free and clear
of all liens, pledges, encumbrances, claims, security interests, charges, voting
trusts, voting agreements, other agreements, rights, options, warrants or
restrictions of any kind, nature or description.
Section 1.2 Purchase Price. As the full purchase price to be paid by
--------------
Newco to the respective Stockholders for the respective Company Securities to be
purchased hereunder, at the Closing, Newco shall deliver to the Stockholders
securities of the Parent as follows:
(a) For each share of Company Common Stock held by a Stockholder,
Newco shall deliver to such Stockholder .31246, as such number may be adjusted
as provided in Section 1.2(e) below (as so adjusted, the "Conversion Number"),
------------------
fully paid and non-assessable shares of Class A Common Stock, par value $.01 per
share, of the Parent (the "Parent Common Stock").
-------------------
(b) For each share of Company Preferred Stock held by a Stockholder,
Newco shall deliver to such Stockholder that number of fully paid and non-
assessable shares of Parent Common Stock (collectively, the "Preferred Stock
---------------
Consideration Shares") obtained by dividing (i) One Thousand Dollars ($1,000) by
- --------------------
(ii) the average closing price per share of Parent Common Stock as reported on
the Composite Tape for the New York Stock Exchange (the "NYSE") for the twenty
------
(20) consecutive trading days ending on and including the trading day
immediately preceding the Closing Date (as defined in Section 1.4 below). If, as
of the Recalculation Date (as defined below), the Recalculation Market Value (as
defined below) of the Preferred Stock Consideration Shares is less than One
Thousand and Thirty Dollars ($1,030), the Parent shall issue and deliver to each
of the Stockholders who sold shares of Company Preferred Stock, for each share
of Company Preferred Stock sold by such Stockholder hereunder, that number of
additional shares of Parent Common Stock which, together with the Preferred
Stock Consideration Shares, have an aggregate Recalculation Market Value equal
to One Thousand and Thirty Dollars ($1,030). As used in this Subsection (b) the
following terms shall have the following meanings: (A) "Recalculation Date"
-------------------
shall mean the date which is ninety (90) days after the Closing Date; and (B)
"Recalculation Market Value" shall mean the average closing price share of
--------------------------
Parent Common Stock as reported on the NYSE for the twenty (20) consecutive
trading days ending on and including the trading day immediately preceding the
Recalculation Date. No fractional shares of such additional Parent Common Stock
shall be issued; any such
2
<PAGE>
portion of a share shall be paid in cash in an amount (rounded to the nearest
whole cent) equal to the product of such fraction multiplied by the
Recalculation Market Value.
(c) For each Company Warrant held by a Stockholder, Newco shall
deliver to such Stockholder that number of fully paid and non-assessable shares
of Parent Common Stock determined as follows:
(i) for each Company Warrant with an exercise price of $0.92 per
share of Company Common Stock, Newco shall deliver .2455 shares of Parent Common
Stock for each share of Company Common Stock issuable upon exercise of such
Company Warrant in full; and
(ii) for each Company Warrant with an exercise price of $2.00 per
share of Company Common Stock, Newco shall deliver .1667 shares of Parent Common
Stock for each share of Company Common Stock issuable upon exercise of such
Company Warrant in full.
The numbers of shares of Parent Common Stock set forth in clauses (i) and
(ii) immediately above (the "Warrant Exchange Factors") are determined in
------------------------
accordance with the provisions of Exhibit BB hereto, which reflects a Conversion
----------
Number of .31246. In the event that the Conversion Number is adjusted as
provided in Section 1.2(e) below, the respective Warrant Exchange Factors shall
be correspondingly adjusted.
(d) Except as set forth in Subsection (b) above, no fractional shares
of Parent Common Stock shall be delivered with respect to the purchase hereunder
of any Company Common Stock or Company Warrants; any such fraction of a share of
Parent Common Stock shall be paid in cash in an amount (rounded to the nearest
whole cent) equal to the product of (i) such fraction multiplied by (ii) the
average closing price per share of Parent Common Stock as reported on the
Composite Tape for the NYSE for the five (5) consecutive trading days ending on
and including the trading day immediately preceding the Closing Date.
(e) The Conversion Number set forth in Section 1.2(a) above has been
determined in accordance with Exhibit B hereto. If between the date of this
---------
Agreement and the Closing the outstanding shares of Company Common Stock or
Parent Common Stock shall have been changed (subject to compliance with any
other applicable provisions of this Agreement) into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, split-up, combination, or the like, the Conversion Number
shall be correspondingly adjusted. If between the date of this Agreement and the
Closing, the outstanding shares of Company Common Stock shall have been reduced
(subject to compliance with any other applicable provisions of this Agreement)
as a result of any transaction that does not involve an expenditure or
disposition of assets of the Company (other than the disposition of shares of
DSW Associates, Inc., d/b/a "Auto Town" in connection with the divestiture or
liquidation thereof contemplated by Section 7.2(m) below), or an increase in
liabilities of the Company, or which otherwise reduces the net assets of the
Company, the Conversion Number shall be recalculated in accordance with
Exhibit B hereto utilizing such reduced number of outstanding shares of Company
- ---------
Common Stock.
3
<PAGE>
Section 1.3 Registration, Offer or Sale of Parent Common Stocks.
---------------------------------------------------
(a) Not later than one hundred eighty (180) days after the Closing,
the Parent shall cause the resale by the Stockholders of the shares of Parent
Common Stock issued pursuant to Section 1.2 above (the "Reorganization Common
---------------------
Stock") to be registered under the Securities Act of 1933, as amended (the
- ------
"Securities Act"), pursuant to an effective "shelf" registration statement on
---------------
Form S-3 (the "Registration Statement") filed by the Parent with the
----------------------
Securities Exchange Commission (the "SEC"). The Parent shall use its best
---
reasonable efforts to cause the Registration Statement to be filed and to become
effective by the ninetieth (90th) day after the Closing. In connection with the
Registration Statement, the Parent shall:
(i) deliver to the Stockholders such number of copies of a
prospectus, and supplements thereto, that is part of the Registration Statement
(the "Resale Prospectus") to enable the Stockholders to offer and sell the
-------------------
shares of the Reorganization Common Stock received by them pursuant to this
Agreement;
(ii) maintain the effectiveness of the Registration Statement
and the currency of the Resale Prospectus until such time as all shares of the
Reorganization Common Stock may be sold by the Stockholders without restriction
pursuant to Rule 144 under the Securities Act or any successor rule or
regulation thereto ("Rule 144");
--------
(iii) cause the Reorganization Common Stock to be listed for
trading on the NYSE not later than the date of the effectiveness of the
Registration Statement;
(iv) pay all expenses, including legal and accounting fees, in
connection with the preparation, filing and maintenance of the Registration
Statement, including any amendments thereto, the Resale Prospectus, including
any supplements thereto, and any other expenses incurred by the Parent in
meeting its obligations under this Section 1.3; and
(v) indemnify the Stockholders for any liabilities arising under
he Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any state securities or blue sky laws resulting from any
------------
material misstatements in, or omissions of material information from, the Resale
Prospectus or the Registration Statement, including the information incorporated
by reference therein, except for the Stockholders' Liabilities (as defined in
Section 1.3(b)(vi) below).
(b) In connection with the Registration Statement, the Stockholders
agree as follows:
(i) the Stockholders shall effect each resale of the
Reorganization Common Stock only pursuant to the Resale Prospectus and the
methods described therein and subject to the provisions of Section 1.3(d) below;
(ii) any offering of any Reorganization Common Stock by a
Stockholder will be effected in an orderly manner through a securities dealer
acting as broker or dealer, selected by the Stockholder and reasonably
acceptable to the Parent (the "Designated Broker");
-----------------
4
<PAGE>
(iii) if requested by the Parent, the Stockholders will enter
into one or more custody agreements with one or more banks (the "Custodial
---------
Banks") with respect to the Reorganization Common Stock so that all such shares
- -----
of Reorganization Common Stock are held in the custody of such Custodial Banks
until offered pursuant to clause (ii) immediately above;
(iv) each of the Stockholders shall pay any and all expenses
directly related to the sale of the Reorganization Common Stock by it,
including, but not limited to, the commissions or fees of the Designated Broker,
but excluding the fees and expenses of the Custodial Banks holding the
Reorganization Common Stock, if applicable, which shall be borne by the Parent;
(v) because the shares of Reorganization Common Stock will be
"restricted securities" within the meaning of Rule 144, the certificates
representing the Reorganization Common Stock will be issued by the Parent to the
Stockholders with such legends as the Parent may reasonably require until such
shares are offered pursuant to the foregoing terms under the Resale Prospectus,
at which time such certificates shall be tendered to the Parent by the
Stockholder and a new certificate or certificates without legends shall be
issued by the Parent to the Designated Broker in order to settle any resales by
the Stockholders;
(vi) the Stockholders shall provide the Parent with all
information concerning the Stockholders and their resale of the Reorganization
Common Stock as may then be required by the Securities Act, and the Stockholders
shall indemnify the Parent for any liabilities (the "Stockholders' Liabilities")
--------------------------
arising under the Securities Act, the Exchange Act or any state securities or
blue sky laws resulting from any material misstatements in, or omissions of any
material information from, such information provided by the Stockholders to the
Parent pursuant to this Section 1.3(b)(vi).
(c) Lock-Up. During the Lock-Up Period (as defined below), the
-------
Stockholders agree that they will not, without the prior written consent of the
Parent, directly or indirectly, (i) offer, pledge, sell, sell short, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right to warrant for the sale of, or otherwise
dispose of or transfer any shares of Reorganization Common Stock or any shares
of the Parent Common Stock issuable upon exercise of Parent Options (as defined
in Section 1.6 below) (all of the foregoing shares being, collectively, the
"Lock-Up Shares"), or file any registration statement under the Securities Act,
--------------
with respect to any Lock-Up Shares, or (ii) enter into any swap or any other
agreement or hedging arrangement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of Lock-
Up Shares, whether any such swap or transaction is to be settled by delivery of
Parent Common Stock or other securities, in cash or otherwise provided, however,
that, other than with respect to shares of Parent Common Stock constituting any
part of the Escrow Shares (as defined in Section 5A.7(b) below), a Stockholder
may (i) transfer Lock-Up Shares to such Stockholder's spouse or lineal
descendant (natural or adopted) or an executor, administrator or testamentary
trustee (in their capacity as such) of such Stockholder or to a trust the
beneficiaries of which include only such Stockholder and his or her spouse or
lineal descendants (natural or adopted); provided, however, it shall be a
-------- -------
condition precedent to such transfer that the transferee agree in a writing
reasonably satisfactory to the Parent to be bound by the terms of this Section
1.3(c), (ii) purchase at its own expense one or several European style put
options, at exercise prices not
5
<PAGE>
to exceed 80% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, (iii) sell at their
own expense one or several European style call options at exercise prices no
less than 120% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, and (iv) pledge shares
of Parent Common Stock as security for loans so long as the pledgee agrees in a
writing reasonably satisfactory to the Parent that (A) such shares in the hands
of the pledgee remain subject to the provisions of this Section 1.3(c) and (B)
are restricted securities under applicable federal securities laws. The
"Lock-Up Period" shall be for a period beginning on the Closing Date and (i) for
--------------
15% of each of the Stockholders' Lock-Up Shares, ending on the date that is 180
days following the Closing Date, and (ii) for 85% of each of the Stockholders'
Lock-Up Shares, ending on the date that is one (1) year following the Closing
Date. Nothing contained in this Section 1.3(c) shall prevent the Parent and the
holders of the Preferred Stock Consideration Shares from entering into a
different lock-up agreement with respect to the shares of Parent Common Stock
delivered to such holders pursuant to Section 1.2(b) above, in which case the
provisions of this Section 1.3(c) shall be deemed modified by such different
lock-up agreement with respect to such holders and such shares of Parent Common
Stock only.
(d) Concerning Rule 144 Sales. For a period of four (4) years from
-------------------------
the Closing Date, any sales by the Stockholders of Reorganization Common Stock
pursuant to Rule 144, shall be effected through the Designated Broker and, if
requested by the Parent, the Custodial Banks. The Parent shall use its best
reasonable efforts to obtain favorable commission rates (similar to large
institutional rates) from the Designated Broker.
Section 1.4 The Closing. Unless this Agreement shall have been terminated
-----------
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Securities Purchase shall take place at
a closing (the "Closing") to be held at 10:00 a.m., California time no later
-------
than the second business day after satisfaction (or waiver if permissible) of
the conditions set forth in Article VII (the "Closing Date"), at the offices of
-------------
Gray Cary Ware & Freidenrich LLP, 139 Townsend Street, Suite 400, San Francisco,
California, unless another date, time or place is agreed to in writing by the
parties hereto.
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser.
----------------------------------------------------------
As promptly as possible after the Closing, the Company shall cause the
respective Company Securities to be transferred of record into the name of Newco
on the books and records of the Company. Promptly thereafter, Newco shall take
the necessary board of director action to authorize the Merger under Section 253
of the Delaware General Corporation Law (the "DGCL"). Notwithstanding the other
----
provisions of this Article I, the Parent may elect to purchase the Company
Securities (in lieu of Newco purchasing the Company Securities) in accordance
with the provisions of this Article I. In such event, the Parent shall promptly
contribute the Company Securities to the capital of Newco, so that they may be
transferred of record into the name of Newco.
Section 1.6 Treatment of Options.
--------------------
(a) Effective upon the Closing, each unexpired and unexercised option
to purchase shares of Company Common Stock (each a "Company Option") under the
---------------
Company's
6
<PAGE>
1997 Stock Option Plan, as amended through April 7, 1999 (the "Company Stock
-------------
Option Plan") shall be deemed to be automatically converted into an option (a
- -----------
"Parent Option") to purchase a number of shares of Parent Common Stock equal to
-------------
the number of shares of Company Common Stock that could have been purchased
under the Company Option multiplied by the Conversion Number (with the resulting
number of shares being rounded to the nearest whole share), at a price per share
of Parent Common Stock equal to the option exercise price of the Company Option,
divided by the Conversion Number provided, that there shall be no accelerated
--------
exercisability of any Company Option solely as a result of consummation of the
Merger except as provided in employment contracts in effect as of the date
hereof and, provided further, the shares of Parent Common Stock issuable upon
----------------
exercise of the Parent Option thereof shall be subject to a "lock-up" period of
180 days after the Closing, wherein such shares may not be sold or otherwise
disposed, and such "lock up" period shall be provided for under each of the
Company Option holder's stock option agreements. The date of grant of the
applicable Parent Option shall be the date on which the corresponding Company
Option was granted.
(b) Effective upon the Closing, the Parent shall (i) assume all of
the Company's obligations with respect to Company Options as contemplated by
Section 1.6(a) above, (ii) reserve for issuance the number of shares of Parent
Common Stock that will become subject to Parent Options in accordance with the
terms thereof, and (iii) make available for issuance all shares of Parent Common
Stock covered thereby.
(c) Not later than one hundred eighty (180) days after the Closing,
the Parent shall prepare and file with the SEC a registration statement on Form
S-8 (or another appropriate form) registering the number of shares of Parent
Common Stock issuable upon the exercise of all Company Options assumed by Parent
with Parent Options pursuant to Section 1.6(a) above, and shall use its best
efforts to cause the offer and sale of such shares to be registered under the
Securities Act and to maintain such registration in effect until the exercise or
termination of the Company Options and the termination of all of the Company
Stock Option Plan.
ARTICLE II
THE MERGER
Section 2.1 The Merger. As promptly as possible after the Closing and the
----------
completion of the matters described in Section 1.5 above but in no event later
than thirty (30) days after the Closing, upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Section 253 of
the DGCL, Newco shall be merged with and into the Company at the Effective Time
(as defined in Section 2.2 below). At the Effective Time, the separate existence
of Newco shall cease, and the Company shall continue as the surviving
corporation under the name "FIRSTAMERICA AUTOMOTIVE, INC." and as a wholly-owned
Subsidiary (as defined in Section 9.5) of the Parent (the Company and Newco are
sometimes herein referred to as the "Constituent Corporations" and the Company
-------------------------
as the surviving corporation in the Merger is sometimes referred to herein as
the "Surviving Corporation").
----------------------
Section 2.2 Effective Time. As promptly as possible after the Closing and
--------------
the completion of the matters described in Section 1.5 above but in no event
later than thirty (30) days after the Closing, Newco shall file with the
Secretary of State of the State of Delaware a
7
<PAGE>
certificate of ownership and merger (the "Certificate of Merger") in accordance
----------------------
with the relevant provisions of the DGCL, and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such other time as is permissible in accordance
with the DGCL and as Newco and Thomas A. Price as agent for the Stockholders
(the "Stockholders' Agent") shall agree, as specified in the Certificate of
--------------------
Merger (the time the Merger becomes effective being herein called the "Effective
---------
Time").
- ----
Section 2.3 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in the applicable provisions of the DGCL.
Section 2.4 Certificate of Incorporation; By-Laws.
-------------------------------------
(a) At the Effective Time, and without any further action on the part
of the Company or Newco, the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read the same as
the certificate of incorporation of Newco immediately prior to the Merger, until
thereafter amended as provided therein and under the DGCL.
(b) At the Effective Time, and without any further action on the part
of the Company or Newco, the By-laws of Newco as in effect at the Effective Time
shall be the By-laws of the Surviving Corporation following the Merger, until
thereafter amended as provided therein and under the DGCL.
Section 2.5 Directors. The directors of Newco at the Effective Time shall
---------
be the directors of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Section 2.6 Officers. The officers of Newco at the Effective Time shall
--------
be the officers of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
Section 2.7 Effect on Capital Stock. As of the Effective Time, by virtue
-----------------------
of the Merger and without any action on the part of the Company, Newco or any
holder of any shares of capital stock of the Company or any shares of capital
stock of Newco:
(a) Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time shall be converted into one fully paid
and non-assessable share of common stock, par value $1.00, of the Surviving
Corporation.
(b) Each share of Company Common Stock as well as each share of
Company Preferred Stock that is owned by the Company or by any Subsidiary of the
Company, and each share of the Company Common Stock and Company Preferred Stock
that is owned by the Parent, Newco or any other Subsidiary of the Parent, shall
automatically be canceled and retired and shall cease to exist, and no cash or
other consideration shall be delivered or deliverable in exchange therefor.
8
<PAGE>
(c) Except as otherwise provided herein, each issued and outstanding
share of the Company Common Stock (other than shares canceled pursuant to
Section 2.7(b) and Dissenting Shares (as defined in Section 2.7(d) below) shall
be converted into the right to receive, without interest, an amount in cash,
without interest, equal to (i) the greater of (A) the average closing price per
share of Parent Common Stock as reported on the Composite Tape for the NYSE for
the twenty (20) consecutive trading days ending on and including the trading day
immediately preceding the day upon which the Effective Time occurs or (B)
$13.72, (ii) in either case multiplied by the Conversion Number (the "Merger
------
Consideration").
- -------------
(d) Notwithstanding anything in this Agreement to the contrary,
shares of the Company Common Stock issued and outstanding immediately prior to
the Effective Time and held by a holder (if any) who has the right to demand
payment for and an appraisal of such shares in accordance with Section 262 of
the DGCL, or any successor provision, or Chapter 13 of the California General
Corporation Law (the "CGCL"), or any successor provision ("Dissenting Shares"),
---- -----------------
shall not be converted into a right to receive any Merger Consideration (but
shall have the rights set forth in Section 262 of the DGCL (or any successor
provision) or Chapter 13 of the CGCL (or any successor provision)) unless such
holder fails to perfect or otherwise loses such holder's right to such payment
or appraisal, if any. If, after the Effective Time, such holder fails to perfect
or loses any such right to appraisal, each such share of such holder shall be
treated as a share that had been converted as of the Effective Time into the
right to receive Merger Consideration in accordance with this Section 2.7. The
Company shall give prompt notice to the Parent of any demands received by the
Company for appraisal of shares of the Company Common Stock, and the Parent
shall have the right to participate in and approve all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of the Parent, make any payment with respect to, or settle
or offer to settle, any such demands or appraisal actions related thereto.
Promptly after the Closing, the Parent and Newco shall cause the Company to
comply with the notice requirements of Section 262 of the DGCL and/or Chapter 13
of the CGCL (or, in either case, any successor provision).
(e) As of the Effective Time, all shares of the Company Common Stock
and Company Preferred Stock (other than shares referred to in Section 2.7(d))
issued and outstanding immediately prior to the Effective Time shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of the
Company Common Stock shall, to the extent such certificate represents such
shares, cease to have any rights with respect thereto, except the right to
receive the Merger Consideration to be paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.8.
Section 2.8 Exchange of Certificates.
------------------------
(a) Prior to the Closing, the Company shall appoint First Union
National Bank or another bank or trust company located in the United States
which is reasonably satisfactory to the Company to act as exchange agent (the
"Exchange Agent") for the payment of the Merger Consideration. At the
--------------
Closing, the Stockholders shall cause the Company to deposit with the Exchange
Agent, for the benefit of the holders of shares of the Company Common Stock,
other than the Company or any Subsidiary of the Company or the Parent, Newco or
any other
9
<PAGE>
Subsidiary of the Parent, for exchange in accordance with this Section 2.8, cash
in an amount equal to the aggregate Merger Consideration projected to be paid
hereunder (the "Exchange Fund").
-------------
(b) As soon as practicable after the Effective Time, each holder of
an outstanding certificate or certificates which prior thereto represented
shares of the Company Common Stock shall, upon surrender of such certificate or
certificates to the Exchange Agent, be entitled to the amount of cash into which
the shares of Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time, there shall be no further transfer on the records of the Company
or its transfer agent of certificates representing shares of the Company Common
Stock and if such certificates are presented to the Company for transfer, they
shall be canceled against delivery of the applicable Merger Consideration. If
any Merger Consideration is to be remitted to a name other than that in which
the certificate for the Company Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the Person (as defined in Section 9.5)
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the payment of Merger
Consideration to a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Parent or its
transfer agent that such tax has been paid or is not applicable. Until surrender
as contemplated by this Section 2.3(b), each certificate for shares of the
Company Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon surrender the applicable Merger
Consideration as contemplated by Section 2.7. No interest will be paid or will
accrue on any amount payable as Merger Consideration.
(c) Merger Consideration paid upon the surrender for exchange of
certificates representing shares of the Company Common Stock in accordance with
the terms of this Section 2.8 shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of the Company Common Stock
represented by such certificates.
(d) Any portion of the Exchange Fund (including any interest and
other income received by the Exchange Agent in respect of all such funds) which
remains undistributed to the holders of the certificates representing shares of
the Company Common Stock for one year after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any holders of shares
of the Company Common Stock prior to the Merger who have not theretofore
complied with this Section 2.8 shall thereafter look only to the Surviving
Corporation for payment of their claim for Merger Consideration to which such
holders may be entitled.
(e) No party to this Agreement shall be liable to any Person (as
defined in Section 9.5) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law, if any certificates representing shares of the Company
Common Stock shall not have been surrendered in exchange for Merger
Consideration prior to one year after the Effective Time (or immediately prior
to such
10
<PAGE>
earlier date on which any Merger Consideration would otherwise escheat to or
become the property of any governmental entity), and any such amount shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(f) The Exchange Agent shall invest the cash, included in the
Exchange Fund as directed by the Parent, and any interest and other income
resulting from such investment shall be the property of, and paid to the Parent.
(g) In the event any certificate or certificates representing shares
of the Company Common Stock or shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such certificate
or certificates to be lost, stolen or destroyed, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Section 2.8, provided that the Person to whom the Merger Consideration is
paid shall, if requested by the Surviving Corporation and as a condition
precedent to the payment thereof, give the Surviving Corporation a bond in such
reasonable amount as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the certificate claimed to
have been lost, stolen or destroyed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company Disclosure Schedule attached hereto and
referring to the representations and warranties in this Agreement (the "Company
-------
Disclosure Schedule"), the Company represents and warrants to the Parent and
- --------------------
Newco with respect to itself and its Subsidiaries as of the date of this
Agreement and, with respect to the Pending Acquisitions, to the Company's
knowledge, as follows:
Section 3.1 Organization, Standing and Corporate Power. Each of the
------------------------------------------
Company and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect (as defined in Section 9.5)
with respect to the Company. Prior to the date hereof, the Company has delivered
to the Parent or its representative complete and correct copies of the
respective Certificates of Incorporation and By-laws (or other organizational
documents) of the Company and its Subsidiaries as currently in effect. All of
the outstanding capital stock of, or other ownership interests in, each of the
Subsidiaries is owned of record and beneficially by the Company, free and clear
of all Liens.
11
<PAGE>
Section 3.2 Subsidiaries; Investments. The Company does not own, directly
-------------------------
or indirectly, any capital stock or other ownership interest in any other
corporation, partnership, business association, joint venture or other entity.
Section 3.3 Capital Structure. The authorized capital stock of the
-----------------
Company consists of (i) 65,000,000 shares of the Company Common Stock and (ii)
10,000 shares of Company Preferred Stock. Subject to any Permitted Changes (as
defined in Section 5.1(a)(ii)) there are: (i) 15,207,711 shares of Company
Common Stock issued and outstanding (excluding shares held in the treasury of
the Company) and held by the stockholders listed on Attachment BB to the
Disclosure Schedule; (ii) no shares of Company Common Stock held in the treasury
of the Company; (iii) 1,689,867 shares of the Company Common Stock reserved for
issuance upon exercise of authorized but unawarded Company Options pursuant to
the Company Stock Option Plan; (iv) 1,310,133 shares of Company Common Stock
issuable upon exercise of outstanding Company Options, with an exercise price
per each awarded but unexercised Company Option as is set forth in Section 3.3
of the Company Disclosure Schedule hereto; (v) 100,000 shares of Company Common
Stock reserved for issuance upon conversion of outstanding promissory notes;
(vi) 371,700 shares of Company Common Stock reserved for issuance upon exercise
of outstanding warrants; (vii) 4,000 shares of Company Preferred Stock issued
and outstanding; and (viii) no shares of Company Preferred Stock are held in the
treasury of the Company. Except as set forth above, no shares of capital stock
or other equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Company Stock Option Plan will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth above, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
or voting securities of the Company or obligating the Company to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations, commitments, understandings or arrangements of the
Company to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company and, except as set forth
in the Stockholder Agreement and this Agreement, there are no irrevocable
proxies with respect to shares of capital stock of the Company. There are no
agreements or arrangements pursuant to which the Company is or could be required
to register shares of the Company Common Stock or other securities under the
Securities Act, or other agreements or arrangements with or, to the knowledge of
Company, among any security holders of the Company with respect to securities of
the Company. The Company has no rights plan or similar preferred stock purchase
plan or arrangement.
Section 3.4 Authority; Noncontravention.
---------------------------
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and
12
<PAGE>
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby, including the Reorganization, have been
duly authorized by the Board of Directors of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or similar
laws, now or hereafter in effect, affecting creditors, rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(c) The execution and delivery of this Agreement does not, and the
consummation by the Company of the transactions contemplated by this Agreement
and compliance by the Company with the provisions hereof will not, conflict
with, or result in any breach or violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien (as defined in Section 9.5)
upon any of the properties or assets of the Company or any of its Subsidiaries
under (i) the Certificate of Incorporation or By-laws (or other organizational
documents) of the Company or any of its Subsidiaries, (ii) any loan or credit
agreement, note, note purchase agreement, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule, regulation or arbitration award applicable to the Company
or any of its Subsidiaries or any of their properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not have a Material Adverse Effect with respect to the Company or could not
prevent, materially hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any federal, state or local government
or any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
-------------------
by or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i) the
filing of a pre-merger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
---
Act"), (ii) the filing with the SEC of such reports under the Exchange Act as
- ---
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, would not (x) prevent or materially
delay consummation of the Reorganization or (y) have a Material Adverse Effect
with respect to the Company.
13
<PAGE>
Section 3.5 SEC Documents. The Company has filed with the SEC all
-------------
reports, schedules, forms, statements and other documents required pursuant to
the Securities Act and the Exchange Act since January 1, 1998, including,
without limitation, the Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-75907) (such Amendment No. 4 being herein
called the "Form S-1") and the Company's quarterly report on Form 10-Q for the
--------
period ended June 30, 1999 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
the "SEC Documents"). As of their respective dates, the Form S-1 and the other
-------------
SEC Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents (including any and all financial statements
included therein) as of such dates contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in all SEC Documents filed since
January 1, 1998 (the "SEC Financial Statements") and the Company's pro-forma
-------------------------
consolidated financial statements set forth in the Form S-1 comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC), applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present in accordance with
generally accepted accounting principles the consolidated financial position of
the Company (and its Subsidiaries) as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited quarterly statements, to normal year-end audit
adjustments).
Section 3.6 [INTENTIONALLY LEFT BLANK]
Section 3.7 Litigation. There is (i) no suit, action or proceeding
----------
pending, and (ii) to the knowledge of the Company, no suit, action or proceeding
threatened against or investigation pending with respect to the Company or any
of its Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect with respect to the Company or prevent, materially
hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company which, individually or in the aggregate, would have any such
Material Adverse Effect.
Section 3.8 Labor Matters. (i) There are no labor strikes, disputes,
-------------
slowdowns, stoppages or lockouts actually pending, or, to the knowledge of the
Company, threatened against or affecting Company or any of its Subsidiaries and
during the past five years there have been no such actions; (ii) the Company is
not a party to or bound by any collective bargaining or similar agreement with
any labor organization, or by any work rules or practices agreed to with any
labor organization or employee association applicable to employees of the
Company or any of its Subsidiaries; (iii) to the knowledge of the Company, there
are no current union organizing activities among the employees of the Company or
any of its Subsidiaries; (iv) true, correct and complete copies of all written
personnel policies, rules or procedures applicable to employees of
14
<PAGE>
the Company and its Subsidiaries have been made available to the Parent; (v)
there are no material complaints, charges, arbitrations, controversies, lawsuits
or other proceedings pending or, to the knowledge of the Company, threatened in
any forum against the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship; (vi) there are
no employment contracts or severance agreements with any employees of the
Company or any of its Subsidiaries; and (vii) since the enactment of the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act"), the Company
--------
has not effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Company or any of its Subsidiaries, or (B)
a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of its Subsidiaries; nor has the Company or any
of its Subsidiaries engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law.
Section 3.9 Employee Benefit Plans.
----------------------
(a) Section 3.9 of the Company Disclosure Schedule hereto contains a
-----------
true and complete list of each written and material unwritten "employee benefit
plan" (within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (including, without limitation,
-----
multiemployer plans within the meaning of ERISA Section 3(37)), stock purchase,
stock option, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation and all other
employee benefit plans, agreements, programs, policies or other arrangements
relating to employment, benefits or entitlements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), under which any employee or former employee of the Company or any of
its Subsidiaries has any present or future right to benefits or under which the
Company or any of its Subsidiaries has any present or future liability. All such
plans, agreements, programs, policies and arrangements shall be collectively
referred to as the "Company Plans."
-------------
(b) With respect to each Company Plan, the Company has made available
to the Parent a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent applicable, (i)
any related trust agreement, annuity contract or other funding instrument; (ii)
the most recent determination letter; (iii) any summary plan description and
other written communications by the Company to its employees concerning the
extent of the benefits provided under a Company Plan; and (iv) for the three
most recent years (I) the Form 5500 and attached schedules; (II) audited
financial statements; and (III) actuarial valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable federal and state laws, rules and
regulations, in each case, in all material respects; (ii) each Company Plan
which is intended to be qualified within the meaning of Code Section 401(a) has
received a favorable determination letter as to its qualification and to the
knowledge of the Company nothing has occurred, whether by action or failure to
act, which
15
<PAGE>
would cause the loss of such qualification; (iii) with respect to any Company
Plan, no material actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the knowledge of the
Company, threatened, and, to the knowledge of the Company, no facts or
circumstances exist which could give rise to any such material actions, suits or
claims, and the Company will promptly notify the Parent in writing of any
pending claims or, to the knowledge of the Company, any threatened claims
arising between the date hereof and the Effective Time; (iv) neither the Company
or any of its Subsidiaries nor, to the knowledge of the Company, any other party
has engaged in a prohibited transaction, as such term is defined under Code
Section 4975 or ERISA Section 406, which would subject the Company or the Parent
to any material taxes, penalties or other liabilities under the Code or ERISA;
(v) no event has occurred and no condition exists that would subject the
Company, either directly or by reason of its affiliation with any member of its
"Controlled Group" (defined as any organization which is a member of a
----------------
controlled group of organizations within the meaning of Code Sections 414(b),
(c), or (m)), to any material tax, fine or penalty imposed by ERISA, the Code or
other applicable federal and state laws, rules and regulations; (vi) all
insurance premiums required to be paid and all contributions required to be made
under the terms of any Company Plan, the Code, ERISA or other applicable federal
and state laws, rules and regulations (including the applicable laws, rules and
regulations of any foreign jurisdiction) as of the Effective Time have been or
will be timely paid or made prior thereto and adequate reserves have been
provided for on the Company's balance sheet for any premiums (or portions
thereof) and for all benefits attributable to service on or prior to the
Effective Time; (vii) for each Company Plan with respect to which a Form 5500
has been filed, to the knowledge of the Company, no material change has occurred
with respect to the matters covered by the most recent Form 5500 since the date
thereof; and (viii) no Company Plan provides for a material increase in benefits
on or after the Effective Time.
(d) The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to any pension plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(e) With respect to any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) to which the Company or any member of its
Controlled Group has any liability or contributes (or has at any time
contributed or had an obligation to contribute): (i) the Company and each member
of its Controlled Group has or will have, as of the Effective Time, made all
contributions to each such multiemployer plan required by the terms of such
multiemployer plan or any collective bargaining agreement; (ii) neither the
Company nor any member of its Controlled Group has incurred any material
withdrawal liability under Title IV of ERISA or would be subject to such
liability if, as of the Closing, the Company or any member of its Controlled
Group were to engage in a complete withdrawal (as defined in ERISA Section 4203)
or partial withdrawal (as defined in ERISA Section 4205) from any such
multiemployer plan; (iii) no such multiemployer plan is in reorganization or is
insolvent (as those terms are defined in ERISA Sections 4241 and 4245,
respectively); and (iv) neither the Company nor any member of its Controlled
Group has engaged in a transaction which could subject it to liability under
ERISA Section 4212(c).
(f) (i) Each Company Plan which is intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the
Code meets such
16
<PAGE>
requirements; and (ii) the Company has received a favorable determination from
the Internal Revenue Service with respect to any trust intended to be qualified
within the meaning of Code Section 501(c)(9).
(g) Section 3.9 of the Company Disclosure Schedule hereto sets forth,
-----------
on a plan by plan basis, the present value of benefits payable presently or in
the future to present or former employees of the Company under each unfunded
Company Plan that must be accounted for in accordance with SFAS No. 87 or 106.
(h) No Company Plan exists which could result in the payment to any
-----------
Company employee of any money or other property or rights or accelerate or
provide any other rights or benefits to any Company employee as a result of the
transaction contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
Section 3.10 Tax Returns and Tax Payments.
----------------------------
(a) The Company and each of its Subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its Subsidiaries is or has been a member (a "Consolidated Group") has
------------------
timely filed all Tax Returns required to be filed by it, in material compliance
with all applicable laws, and such Tax Returns are complete and correct in all
material respects, has timely paid all Taxes required to be shown thereon to be
due and has provided adequate reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on any Tax Returns.
Additionally, (i) no material claim for unpaid Taxes has become a lien against
the property of the Company or a member of any Consolidated Group or is being
asserted against the Company or a member of any Consolidated Group except for
liens for Taxes not yet due and payable; (ii) no audit of any Tax Return of the
Company or a member of any Consolidated Group is pending, being conducted or, to
the knowledge of the Company, threatened by a Tax authority; (iii) no extension
of the statute of limitations on the assessment of any Taxes has been granted by
the Company or a member of any Consolidated Group and is currently in effect;
(iv) no consent under Section 341(f) of the Code has been filed with respect to
the Company; (v) the Company is not a party to any agreement or arrangement that
would result, separately or in the aggregate, in the actual or deemed payment by
the Company of any "excess parachute payments" within the meaning of Section
280G of the Code; (vi) no acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations under
Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement; (vii) the Company is not and has not been at any
time a member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired; (viii) the Company has not been at any time a member of
an affiliated group of corporations for purposes of Section 1501 of the Code
that have filed consolidated returns except as a member of a Consolidated Group
of which the Company is the common parent; (ix) the Company is not a party to
any tax sharing or allocation agreement, nor has it given any indemnity against
Taxes imposed on any other Person, that has not expired by its terms or
otherwise have been terminated and for which no amount is claimed to be owed;
(x) the Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii)
17
<PAGE>
of the Code; (xi) the Company is neither doing business in nor engaged in a
trade or business in any jurisdiction in which it has not filed all required
income or franchise tax returns; (xii) the Company has made all payments of
estimated Taxes required to be made under Section 6655 of the Code and any
comparable state, local or foreign Tax provision; (xiii) all Taxes required to
be withheld, collected or deposited by or with respect to the Company have been
timely withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (xiv) the Company has
not issued or assumed (A) any obligations described in Section 279(a) of the
Code, (B) any applicable high yield discount obligations, as defined in Section
163(i) of the Code, or (C) any registration-required obligations, within the
meaning of Section 163(f)(2) of the Code, that are not in registered form; (xv)
there are no proposed reassessments of any property owned by the Company or
other proposals that could materially increase the amount of any Tax to which
the Company would be subject, except any reassessment of property required as a
result of the Reorganization; and (xvi) there is no power of attorney currently
in force with respect to any matter relating to Taxes that could materially
affect the Tax liability of the Company. As used herein, "Taxes" shall mean all
-----
taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever, or
combination of two or more of the foregoing, together with any interest and any
penalties, additions to tax or additional amounts imposed by any governmental
authority, domestic or foreign. As used herein, "Tax Return" shall mean any
----------
return, report or statement required to be filed with any governmental authority
with respect to Taxes.
Section 3.11 Brokers. No broker, investment banker, financial advisor or
-------
other Person, other than Merrill Lynch Pierce Fenner & Smith Incorporated and
NCM Associates, Inc., the fees and expenses of which will be paid by the Company
(pursuant to fee agreements, copies of which have been provided to the Parent),
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
Section 3.12 [INTENTIONALLY LEFT BLANK]
Section 3.13 [INTENTIONALLY LEFT BLANK]
Section 3.14 [INTENTIONALLY LEFT BLANK]
Section 3.15 Title to Assets; Related Matters. Each of the Company and
--------------------------------
its Subsidiaries has good and valid title to all assets, rights, interests and
other properties, real, personal and mixed, tangible and intangible, owned by it
(collectively, the "Assets"), free and clear of all Liens, except those Liens
------
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. The Assets include all properties and assets (real,
personal and mixed, tangible and intangible) owned by the Company and its
Subsidiaries and used in the conduct of their respective businesses. The
tangible assets included within the Assets are in the possession or control of
the Company and its Subsidiaries and no other person or entity has a right to
possession or claims possession of all or a material part of such Assets.
18
<PAGE>
Section 3.16 Accounts Receivable. All accounts receivable of the Company
-------------------
and its Subsidiaries are collectible at the aggregate recorded amounts thereof,
subject to the reserve for doubtful accounts maintained by the Company and its
Subsidiaries in the ordinary course of business, and are not subject to any
known counterclaims or setoffs. An adequate reserve for doubtful accounts for
the Company and its Subsidiaries has been established and such reserve is
consistent with the operation of the Company in both the ordinary course of
business and past practice.
Section 3.17 Inventories. All inventories of the Company and its
-----------
Subsidiaries consist of items of a quality and quantity usable and saleable in
the ordinary course of business of the Company and its Subsidiaries, and the
levels of inventories are consistent with the levels maintained by the Company
and its Subsidiaries in the ordinary course consistent with past practice and
the Company's obligations under its agreements with the Manufacturers and all
applicable distributors. An adequate reserve has been established by the
Company for damaged, spoiled, obsolete, defective, or slow-moving goods and such
reserve is consistent with both the operation of the Company in the ordinary
course of business and past practice.
Section 3.18 1999 Pro Forma Pre-Tax Earnings. The consolidated pro forma
-------------------------------
pre-tax earnings of the Company and its Subsidiaries for the calendar year 2000,
subject to the adjustments enumerated and described in Exhibit C hereto, shall
---------
be at least Forty-Five Million Dollars ($45,000,000).
Section 3.19 Real Property; Machinery and Equipment.
--------------------------------------
(a) Owned Real Property. None of the Company or its Subsidiaries
-------------------
own, or has owned, any real property.
(b) Leased Premises. Schedule 3.19(b) hereto contains a complete
--------------- ----------------
list and brief description of all real property of which the Company or any of
its Subsidiaries is a tenant (herein collectively referred to as the "Leased
------
Premises" or the "Real Property." True, correct and complete copies of all
- -------- -------------
leases of all Leased Premises (the "Leases") have been made available to the
-------
Parent. To the Company's knowledge, the Leased Premises (including, without
limitation, the roof, the walls and all plumbing, wiring, electrical, heating,
air conditioning, fire protection and other systems, as well as all paved areas,
included therein or located thereat) are in good working order, condition and
repair, except for such exceptions as would not be material to the business of
the Company and its Subsidiaries. To the Company's knowledge, with respect to
each Lease, no event or condition currently exists which would give rise to a
material repair or restoration obligation of the Company or any Subsidiary if
such Lease were to terminate. The Company has no knowledge of any event or
condition which currently exists which would create a legal or other material
impediment to the use of the Leased Premises as currently used, or would
increase the additional charges or other sums payable by the tenant under any of
the Leases other than as set forth in such Leases (including, without
limitation, any pending tax reassessment or other special assessment affecting
the Leased Premises).
(c) Claims. There has been no work performed, services rendered or
------
materials furnished in connection with repairs, improvements, construction,
alteration, demolition or similar activities with respect to the Leased Premises
by or on behalf of the
19
<PAGE>
Company or its Subsidiaries for at least ninety (90) days before the date
hereof; there are no outstanding claims or persons entitled to any claim or
right to a claim for a mechanics' or materialman's lien against the Leased
Premises with respect to work performed for the Company or its Subsidiaries; and
there is no person or entity other than the Company and its Subsidiaries in, or,
to the Company's knowledge, entitled to, possession of the Leased Premises.
(d) Easements, Etc. The Company and its Subsidiaries have all rights
---------------
under the various Leases concerning utilities, access, ingress and egress,
necessary to conduct the business the Company and its Subsidiaries now conduct.
(e) Condemnation. To the Company's knowledge, neither the whole nor
------------
any portion of any of the Leased Premises has been condemned, expropriated,
ordered to be sold or otherwise taken by any public authority, with or without
payment or compensation therefor, and the Company has not received notice that
any such condemnation, expropriation, sale or taking is threatened or
contemplated.
(f) Zoning, Etc. None of the Leased Premises is in material
------------
violation of any applicable recorded covenant, condition or restriction or other
deed restriction, or any applicable government building, zoning, health, safety,
fire or other law, ordinance, code or regulation that would materially and
adversely affect the ability of the Company or its Subsidiaries to conduct their
respective business as presently conducted, and no notice from any governmental
body has been served upon the Company or any of its Subsidiaries or, to the
Company's knowledge, upon any of the landlords of the Leased Premises claiming
any violation of any such law, ordinance, code or regulation or requiring or
calling to the attention of the Company or any of its Subsidiaries the need for
any work, repair, construction, alterations or installation on or in connection
with said properties which has not been complied with.
(g) Maintenance of Equipment. All material machinery, equipment,
------------------------
motor vehicles, furniture and fixtures, whether owned or leased by the Company
and its Subsidiaries, and used in the conduct of its business, are in reasonably
good operating condition, maintenance and repair in accordance with applicable
industry standards taking into account the age thereof.
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc.
-----------------------------------------------------------
(a) Excluding "off the shelf" or other software available through
regular commercial distribution channels on standard terms and conditions as
modified for the Company's operations, there are no patents, trademarks, trade
names, service marks, service names and copyrights, and there are no
applications therefor or licenses thereof, inventions, trade secrets, computer
software, logos, slogans, proprietary processes and formulae or other
proprietary information, know-how and intellectual property rights, whether
patentable or unpatentable, that are owned or leased by the Company or any of
its Subsidiaries or used in the conduct of the Company's or any of its
Subsidiaries' businesses. Neither the Company nor any of its Subsidiaries is a
party to, and the Company and its Subsidiaries pay no royalty to anyone under,
any license or similar agreement. There is no existing claim, or, to the
knowledge of the Company, any basis for any claim, against the Company or any of
its Subsidiaries that any of its operations, activities or products infringe the
patents, trademarks, trade names, copyrights or
20
<PAGE>
other intellectual property rights of others or that the Company or any of its
Subsidiaries is wrongfully or otherwise using the intellectual property rights
of others.
(b) The Company and its Subsidiaries have the right to use their
respective names in the States in which they conduct their businesses, and to
the knowledge of the Company, no person uses, or has the right to use, such name
or any derivation thereof in connection with the manufacture, sale, marketing or
distribution of products or services commonly associated with an automobile
dealership.
Section 3.21 Certain Liabilities.
-------------------
(a) All accounts payable by the Company and its Subsidiaries to third
parties as of the date hereof arose in the ordinary course of business and none
are delinquent or past-due.
(b) Section 3.21 of the Company Disclosure Schedule hereto sets forth
------------
a list and brief description of all indebtedness of the Company and its
Subsidiaries, other than accounts payable, as of June 30, 1999 the close of
business on the day preceding the date hereof, including, without limitation,
money borrowed, indebtedness of the Company or its Subsidiaries owed to
stockholders and former stockholders, the deferred purchase price of assets,
letters of credit and capitalized leases.
Section 3.22 No Undisclosed Liabilities. Neither the Company nor any of
--------------------------
its Subsidiaries has any material liabilities or obligations of any nature,
known or unknown, fixed or contingent, matured or unmatured, other than those
(a) reflected in the SEC Financial Statements, (b) incurred in the ordinary
course of business since June 30, 1999, and of the type and kind reflected in
the SEC Financial Statements, or (c) disclosed specifically on Section 3.22 of
------------
the Company Disclosure Schedule hereto or otherwise specifically disclosed in
this Agreement or the other schedules hereto.
Section 3.23 Absence of Changes. Since June 30, 1999, the business of the
------------------
Company and its Subsidiaries has been operated in the ordinary course,
consistent with past practices and hereto, there has not been incurred, nor has
there occurred: (a) Any damage, destruction or loss to the property of the
Company or its Subsidiaries or the Leased Premises (whether or not covered by
insurance), adversely affecting the business or assets of the Company or its
Subsidiaries in excess of $50,000; (b) Any strikes, work stoppages or other
labor disputes involving the employees of the Company or its Subsidiaries; (c)
Any sale, transfer, pledge or other disposition of any of the assets of the
Company or its Subsidiaries having an aggregate book value of $50,000 or more
(except sales of vehicles and parts inventory in the ordinary course of
business); (d) Any declaration or payment of any dividend or other distribution
in respect of its capital stock or any redemption, repurchase or other
acquisition of its capital stock; (e) Any amendment, termination, waiver or
cancellation of any Material Agreement (as defined in Section 3.28 hereof) or
any termination, amendment, waiver or cancellation of any material right or
claim of the Company or any of its Subsidiaries under any Material Agreement
(except in each case in the ordinary course of business and consistent with past
practice); (f) Any (1) general uniform increase in the compensation of the
employees of the Company or any of its Subsidiaries (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment), (2) increase in any such
21
<PAGE>
compensation payable to any individual officer, director, consultant or agent
thereof, or (3) loan or commitment therefor made by the Company or any of its
Subsidiaries to any officer, director, stockholder, employee, consultant or
agent of the Company or any of its Subsidiaries; (g) Any change in the
accounting methods, procedures or practices followed by the Company and its
Subsidiaries or any change in depreciation or amortization policies or rates
theretofore adopted by the Company; (h) Any material change in policies,
operations or practices of the Company and its Subsidiaries with respect to
business operations followed by the Company and its Subsidiaries, including,
without limitation, with respect to selling methods, returns, discounts or other
terms of sale, or with respect to the policies, operations or practices of the
Company and its Subsidiaries concerning the employees of the Company and its
Subsidiaries; (i) Any capital appropriation or expenditure or commitment
therefor on behalf of the Company or any of its Subsidiaries in excess of
$50,000 individually or $100,000 in the aggregate; (j) Any write-down or write-
up of the value of any inventory or equipment of the Company or any of its
Subsidiaries or any increase in inventory levels in excess of historical levels
for comparable periods; (k) Any account receivable in excess of $50,000 or note
receivable in excess of $50,000 owing to the Company or any of its Subsidiaries
which (1) has been written off as uncollectible, in whole or in part, (2) has
had asserted against it any claim, refusal or right of setoff, or (3) the
account or note debtor has refused to, or threatened not to, pay for any reason,
or such account or note debtor has become insolvent or bankrupt; (l) Any other
change in the condition (financial or otherwise), business operations, assets,
earnings, business or prospects of the Company or any of its Subsidiaries which
has, or could reasonably be expected to have, a Material Adverse Effect on the
assets, business or operations of the Company or any of its Subsidiaries; or (m)
Any agreement, whether in writing or otherwise, for the Company or any of its
Subsidiaries to take any of the actions enumerated in this Section 3.23.
Section 3.24 Compliance with Laws, Etc. Each of the Company and its
-------------------------
Subsidiaries has conducted its operations and business in compliance in all
material respects, with, and all of the Assets (including the Leased Premises)
comply with, (i) all laws, rules, regulations and codes (including, without
limitation, any laws, rules, regulations and codes relating to anticompetitive
practices, contracts, discrimination, employee benefits, employment, health,
safety, fire, building and zoning, but excluding Environmental Laws which are
the subject of Section 3.34 hereof) which are material to the Company and its
Subsidiaries and its operations and (ii) all applicable orders, rules, writs,
judgments, injunctions, decrees and ordinances which are material to the Company
and its Subsidiaries and its operations. The Company and its Subsidiaries have
not received any notification of any asserted present or past failure by it to
comply with such laws, rules or regulations, or such orders, writs, judgments,
injunctions, decrees or ordinances. Set forth in Section 3.24 of the Company
------------
Disclosure Schedule hereto are all orders, writs, judgments, injunctions,
decrees and other awards of any court or governmental agency applicable to the
Company and/or its Subsidiaries and/or their respective businesses or
operations. The Company has made available to the Parent copies of all reports,
if any, of the Company required to be submitted under the Federal Occupational
Safety and Health Act of 1970, as amended, and under all other applicable health
and safety laws and regulations. The deficiencies, if any, noted on such
reports have been corrected by the Company and any deficiencies noted by
inspection through the Closing Date will have been corrected by the Company by
the Closing Date.
Section 3.25 Permits, Etc. Each of the Company and its Subsidiaries has
-------------
all material governmental licenses, permits, approvals, certificates of
inspection and other authorizations,
22
<PAGE>
filings and registrations (collectively "Permits") that are necessary for the
-------
Company and its Subsidiaries to own and operate their respective businesses as
presently conducted in all material respects. All such Permits have been duly
and lawfully secured or made by the Company and its Subsidiaries and are in full
force and effect. There is no proceeding pending, or, to the Company's
knowledge, threatened or probable of assertion, to revoke or limit any Permit.
Section 3.26 Compensation. Section 3.26 of the Company Disclosure
------------ ------------
Schedule contains a list of employees (1) whose base salary for 1999 is in
excess of $100,000, (2) whose base salary for 1999 is less than $100,000, but
who have earned more than $100,000 in 1999 to date, and (3) whose earnings to
date in 1999, when annualized for the full year, would equal or exceed $100,000.
Section 3.27 Powers of Attorney. There are no persons, firms,
------------------
associations, corporations or business organizations or entities holding general
or special powers of attorney from the Company or any of its Subsidiaries.
Section 3.28 Material Agreements.
-------------------
(a) List of Material Agreements. Set forth in Section 3.28(a) of the
--------------------------- ---------------
Company Disclosure Schedule hereto is a list of all leases and all other
contracts, agreements, documents, instruments, guarantees, plans, understandings
or arrangements, written or oral, which are material to the Company and its
Subsidiaries or their respective businesses or assets (collectively, the
"Material Agreements"). True copies of all written Material Agreements and
-------------------
written summaries of all oral Material Agreements described or required to be
described in Section 3.28(a) of the Company Disclosure Schedule have been made
---------------
available to Parent.
(b) Performance, Defaults, Enforceability. Each of the Company and
-------------------------------------
its Subsidiaries has in all material respects performed all of its obligations
required to be performed by it to the date hereof, and is not in default or
alleged to be in default in any material respect, under any Material Agreement,
and there exists no event, condition or occurrence which, after notice or lapse
of time or both, would constitute such a default. To the knowledge of the
Company, no other party to any Material Agreement is in default in any material
respect of any of its obligations thereunder. Each of the Material Agreements is
valid and in full force and effect and enforceable against the parties thereto
in accordance with their respective terms, and the consummation of the
transactions contemplated by this Agreement will not (i) require the consent of
any party thereto or (ii) constitute an event permitting termination thereof.
(c) Schedule of Acceleration. Section 3.28(c) of the Company
------------------------ ---------------
Disclosure Schedule sets forth all Material Agreements which contain terms
requiring the acceleration of payments upon a change of control of the Company.
All of such amounts other than principal and interest on debt will be included
in the one-time charges referred to in Section 5A.7(d).
Section 3.29 [INTENTIONALLY LEFT BLANK]
Section 3.30 Insurance.
---------
(a) Section 3.30(a) of the Company Disclosure Schedule hereto
---------------
contains a list of all policies of liability, theft, fidelity, life, fire,
product liability, workmen's compensation,
23
<PAGE>
health and any other insurance and bonds maintained by, or on behalf of, the
Company and its Subsidiaries on their respective properties, operations,
inventories, assets, business or personnel (specifying the insurer, amount of
coverage, type of insurance, policy number and any pending claims in excess of
$5,000 thereunder). Each such insurance policy identified therein is and shall
remain in full force and effect on and as of the Closing Date and the Company
and its Subsidiaries are not in default in any material respect to any provision
contained in any such insurance policy and has not failed to give any notice or
present any material claim under any such insurance policy in a due and timely
fashion. To the knowledge of the Company, the insurance maintained by, or on
behalf of, the Company and its Subsidiaries is adequate in accordance with the
standards of business of comparable size in the location and industry in which
the Company operates and no notice of cancellation or termination has been
received with respect to any such policy. The Company and its Subsidiaries have
not, since July 1997, been denied or had revoked or rescinded any policy of
insurance.
(b) Set forth in Section 3.30(b) of the Company Disclosure Schedule
---------------
hereto is a summary of information pertaining to material property damage and
personal injury claims in excess of $5,000 against the Company since July 1997,
all of which are fully satisfied or are being defended by the insurance carrier
and, to the knowledge of the Company, involve no exposure to the Company.
Section 3.31 Warranties. Set forth in Section 3.31 of the Company
---------- ------------
Disclosure Schedule hereto are descriptions or copies of the forms of all
express warranties and disclaimers of warranty made by the Company and its
Subsidiaries (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties)
since July 1997 to customers or users of the vehicles, parts, products or
services of the Company and its Subsidiaries. There have been no breach of
warranty or breach of representation claims against the Company and its
Subsidiaries since July 1997 which have resulted in any cost, expenditure or
exposure to the Company and its Subsidiaries of more than $50,000 individually
or $200,000 in the aggregate.
Section 3.32 Directors and Officers. Set forth in Section 3.32 of the
---------------------- ------------
Company Disclosure Schedule hereto is a true and correct list of the names and
titles of each director and officer of the Company.
Section 3.33 Suppliers and Customers. The Company and its Subsidiaries
-----------------------
are not required to provide bonding or any other security arrangements in
connection with any transactions with any of its respective customers and
suppliers. To the knowledge of the Company, no such supplier, customer or
creditor intends or has threatened, or reasonably could be expected, to
terminate or modify any of its relationships with the Company or any of its
Subsidiaries.
Section 3.34 Environmental Matters.
---------------------
(a) For purposes of this Section 3.34, the following terms shall have
the following meaning: (i) "Environmental Law" means all applicable present
-----------------
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all applicable judgments, decrees, orders, agreements, or
permits, issued, promulgated, approved or entered
24
<PAGE>
thereunder by any government authority relating to pollution, Hazardous
Materials, worker safety or protection of human health or the environment; (ii)
"Hazardous Materials" means any waste, pollutant, chemical, hazardous material,
-------------------
hazardous substance, toxic substance, hazardous waste, special waste, solid
waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or
petroleum-derived substance or waste (regardless of specific gravity), or any
constituent or decomposition product of any such pollutant, material, substance
or waste, including, but not limited to, any hazardous substance or constituent
contained within any waste and any other pollutant, material, substance or waste
regulated under or as defined by any Environmental Law.
(b) The Company and its Subsidiaries have obtained all permits,
licenses and other authorizations or approvals required under Environmental Laws
for the conduct and operation of the Assets and the business of the Company
("Environmental Permits"). All such Environmental Permits are in good standing,
---------------------
the Company and its Subsidiaries are and, during the period the Company and its
Subsidiaries have held such Environmental Permits, have been, in compliance in
all material respects with the terms and conditions of all such Environmental
Permits, and no appeal or any other action is pending or, to the Company's
knowledge, threatened to revoke any such Environmental Permit.
(c) The Company and its Subsidiaries and their respective businesses,
operations and assets are, and, during the period the Company and its
Subsidiaries have owned, leased, or conducted such business, operations and
assets, have been in compliance in all material respects with all Environmental
Laws.
(d) Neither the Company nor any of its Subsidiaries has received any
written order, notice of liability, complaint, request for information, claim,
or demand from any government authority or private claimant, whether based in
contract, tort, implied or express warranty, strict liability, or any other
common law theory, or any criminal or civil statute, arising from or with
respect to (i) the presence, release or threatened release of any Hazardous
Material or any other environmental condition on, in or under the Real Property
or any other property formerly used or leased by the Company, (ii) any other
circumstances forming the basis of any actual or alleged violation by the
Company or its Subsidiaries of any Environmental Law or any liability of the
Company or its Subsidiaries under any Environmental Law, (iii) any remedial or
removal action required to be taken by the Company or its Subsidiaries under any
Environmental Law, or (iv) any harm, injury or damage to real or personal
property, natural resources, the environment or any person alleged to have
resulted from the foregoing. Neither the Company nor any of its Subsidiaries has
entered into any agreements concerning any removal or remediation of Hazardous
Materials.
(e) No lawsuits, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other governmental actions are
pending or to the Company's knowledge, threatened, under any Environmental Law
with respect to the Company or its Subsidiaries or, to the Company's knowledge,
the Real Property.
(f) The Company has not released, discharged, spilled or disposed of,
and, to the knowledge of the Company, the Real Property does not contain, any
Hazardous Materials and, to the knowledge of the Company, no Hazardous Materials
have migrated onto the Real
25
<PAGE>
Property, and, to the knowledge of the Company, no environmental condition
exists (including, without limitation, the presence, release, threatened release
or disposal of Hazardous Materials) related to the Real Property, to any
property previously owned, operated or leased by the Company or any of its
Subsidiaries, or to the Company's or any of its Subsidiaries' past or present
operations, which would constitute a violation of any Environmental Law or
otherwise give rise to costs, liabilities or obligations under any Environmental
Law by the Company and any of its Subsidiaries.
(g) To the Company's knowledge, neither the Company or any of its
Subsidiaries, nor any of their respective predecessors in interest for whom the
Company has assumed environmental liability by contract or by operation of law,
has transported or disposed of, or arranged for the transportation or disposal
of, any Hazardous Materials to any location (i) which is listed on the National
Priorities List, the CERCLIS list under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any similar
federal, state or local list, (ii) which is the subject of any federal, state or
local enforcement action or other investigation, or (iii) about which the
Company or any of its Subsidiaries has received a potentially responsible party
notice under any Environmental Law.
(h) To the Company's knowledge, no environmental lien has attached or
is threatened to be attached to the Real Property.
(i) The Leased Premises do not contain nor, to the knowledge of the
Company, does any other property previously owned, operated or leased by the
Company or any of its Subsidiaries contain, any: (i) septic tanks into which
process wastewater or any Hazardous Materials have been disposed; (ii) asbestos;
(iii) polychlorinated biphenyls (PCBs); (iv) underground injection or monitoring
wells; or (v) underground storage tanks.
(j) Except as made available for review by Parent prior to the date
hereof, there have been no environmental assessment studies or reports made
relating to the Leased Premises or any other property or facility previously
operated or leased by the Company or its Subsidiaries and that are in the
Company's possession or control.
(k) The Company and its Subsidiaries have not agreed in writing nor,
to the Company's knowledge, have they agreed orally to assume, defend,
undertake, guarantee, or provide indemnification for, any liability, including,
without limitation, any obligation for corrective or remedial action, of any
other person or entity under any Environmental Law for environmental matters or
conditions.
Section 3.35 Year 2000 Matters. The Company's quarterly report on Form
-----------------
10-Q for the period ended June 30, 1999 truly and completely describes the
Company's process and preparation for addressing the impact of its operations
that could be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer applications used by the Company and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999).
Section 3.36 Business Generally. The Company has no knowledge of the
------------------
existence of any conditions, including, without limitation, any actual or
potential competitive factors in the
26
<PAGE>
markets in which the Company and its Subsidiaries participate, which have not
been disclosed in writing to the Parent and which could reasonably be expected
to have a Material Adverse Effect on the Company, other than general business
and economic conditions generally affecting the industry and markets in which
the Company and its Subsidiaries participate.
Section 3.37 Manufacturer Communications. No Manufacturer has (a)
---------------------------
notified the Company or any of its Subsidiaries of any deficiency in dealership
operations, including, but not limited to, the following areas: (i) brand
imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer
satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives
except, in the case of (a)(iii), (iv) and (vi) preceding, for such matters the
failure of which to cure or comply with could not reasonably be expected to
materially adversely affect the Company's relationship with the Manufacturer or
affect the Company's ability to complete the Merger; (b) otherwise advised the
Company or any of its Subsidiaries of a present or future need for facility
improvements or upgrades in connection with the Company's or any of the
Subsidiaries' businesses; or (c) notified the Company or any of its Subsidiaries
of the awarding or possible awarding of its franchise to an entity or entities
other than the Company and its Subsidiaries in the Metropolitan Statistical Area
in which the Company and its Subsidiaries operate.
Section 3.38 Pending Acquisitions. Each of the agreements, as amended to
--------------------
date (collectively, the "Acquisition Agreements"), governing the Pending
Acquisitions (such Pending Acquisitions set forth in Section 3.38 of the Company
------------
Disclosure Schedule) has been duly authorized, executed and delivered by the
Company and, to the Company's knowledge, each of the other parties thereto, and
constitutes a legally valid and binding obligation of the Company and, to the
Company's knowledge is enforceable against each such party thereto in accordance
with its terms; and except as described in the Form S-1, each of the
representations and warranties of the Company and its subsidiaries and each of
the other parties set forth in the Acquisition Agreements as modified by any
disclosure schedule to such Acquisition Agreements was true and correct at the
time such representations and warranties were made and will be true and correct
at and as of the Closing Date. The Company has delivered to Parent true and
complete copies of each Acquisition Agreement and the Company has no reason to
believe that it will not be able to consummate the transactions contemplated by
the Acquisition Agreements which have not been previously consummated.
Section 3.39 Related Party Transactions. There are no business
--------------------------
relationships or related party transactions of the nature described in Item 404
of Regulation S-K involving the Company or any of businesses being acquired
pursuant to the Acquisitions and any person described in such Item that are
required to be disclosed in the Registration Statement and which have not been
so disclosed.
27
<PAGE>
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to the Parent and Newco,
severally as to itself only, as follows:
Section 3A.1 Power and Authority; Validity of Agreement. Such
------------------------------------------
Stockholder has the legal capacity, power and authority to enter into and
perform all of its obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party, including, without limitation,
any voting agreement, shareholders' agreement or voting trust. This Agreement
has been duly and validly executed and delivered by such Stockholder and
constitutes a valid and binding obligation of such Stockholder enforceable
against such Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 3A.2 No Conflicts; Consents and Approvals. The execution and
------------------------------------
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to any third party right of termination, cancellation, material modification or
acceleration of any obligation or to loss of a material benefit under, any
provision of the Certificate of Incorporation, By-laws, partnership agreement,
limited liability company agreement or other constituent documents of such
Stockholder (if such Stockholder is an entity) or any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such Stockholder or any of its
properties or assets, other than such conflicts, violations or defaults or
terminations, cancellations or accelerations which individually or in the
aggregate do not materially impair the ability of such Stockholder to perform
its obligations hereunder. No consent, approval, order or authorization of, or
registration, declaration, or filing with, any governmental entity is required
by or with respect to the execution and delivery of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby.
Section 3A.3 Ownership of Shares. Such Stockholder is the record and/or
-------------------
beneficial owner of that number of Company Securities set forth opposite such
Stockholder's name on Exhibit A hereto (such Company Securities being sometimes
---------
hereafter called the "Existing Shares" and, together with any shares of Company
----------------
Common Stock or Company Preferred Stock acquired of record or beneficially by
such Stockholder in any capacity after the date hereof and prior to the
termination hereof, whether upon the exercise of warrants or options, conversion
of convertible securities, purchase, exchange or otherwise, collectively
referred to as the "Shares"). Also listed on Exhibit A are such other securities
------- ---------
of the Company, including any options or warrants, owned by such Stockholder.
28
<PAGE>
(i) On the date hereof, the Existing Shares constitute all of the
outstanding shares of Company Common Stock, Company Preferred Stock and Company
Warrants, as the case may be, owned of record and/or beneficially by the
Stockholders.
(ii) Such Stockholder has sole power of disposition, sole voting
power and sole power to demand dissenter's or appraisal rights, in each case
with respect to the Existing Shares owned by such Stockholder, with no
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(iii) Such Stockholder will have sole power of disposition, sole
voting power and sole power to demand dissenter's or appraisal rights, in each
case with respect to the shares of Company Common Stock or Company Preferred
Stock, other than Existing Shares, if any, which become beneficially owned by
such Stockholder with no restrictions on such rights, subject to applicable
federal securities laws and the terms of this Agreement.
Section 3A.4 No Encumbrances. The Existing Shares and the certificates
---------------
representing the Existing Shares are now, and the Shares and the certificates
representing such shares at all times during the term hereof will be, held by
such Stockholder, free and clear of all claims, liens, charges, security
interests, proxies, voting trusts or agreements, understandings or arrangements
and any other encumbrances of any kind or nature whatsoever, except as otherwise
provided in this Agreement.
Section 3A.5 Brokers and Intermediaries. No broker, investment banker,
--------------------------
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
such Stockholder.
Section 3A.6 Special Representations Regarding the Reorganization Common
-----------------------------------------------------------
Stock. Each of the Stockholders severally and not jointly represents and
- -----
warrants to the Parent and Newco as follows with respect to the shares of
Reorganization Common Stock to be issued to the Stockholders pursuant to this
Agreement (the "Reorganization Shares"):
(i) Such Stockholder understands that, except as set forth in this
Agreement, the Reorganization Shares will not be registered under the Securities
Act or applicable state securities laws on the basis that the sale provided for
in this Agreement and the issuance of the Reorganization Shares hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Parent's reliance on such exemption is predicated on the
representations and warranties of such Stockholder.
(ii) The Reorganization Shares are being acquired for the account of
such Stockholder for the purposes of investment and not with a view to the
distribution thereof, as those terms are used in the Securities Act and the
rules and regulations promulgated thereunder.
(iii) Such Stockholder has delivered to the Parent an Investor
Qualification Questionnaire regarding such Stockholder. As indicated in such
Investor Qualification Questionnaire, such Stockholder is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act; and such Stockholder has
29
<PAGE>
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of acquiring the Reorganization
Shares.
(iv) Such Stockholder has had made available to it copies of: (i) the
Prospectus of the Parent dated April 29, 1999; (ii) the Form 10-K filing of the
Parent for the year ended December 31, 1998; (iii) the Form 10-Q filing of the
Parent for the quarter ended March 31, 1999; (iv) the Form 10-Q filing of the
Parent for the quarter ended June 30, 1999; (v) all Form 8-K filings of the
Parent filed since the most recent 10-Q filing of the Parent; and has been
furnished such other information, and has had an opportunity to ask such
questions and have them answered by the Parent, as such Stockholder has deemed
necessary in order to make an informed investment decision with respect to the
acquisition of the Reorganization Shares.
(v) Such Stockholder understands, and has the financial capability of
assuming, the economic risk of an investment in the Reorganization Shares for an
indefinite period of time.
(vi) Such Stockholder has been advised that such Stockholder will not
be able to sell, pledge or otherwise dispose of the Reorganization Shares, or
any interest therein, without first complying with the relevant provisions of
the Securities Act and any applicable state securities laws, and that the
provisions of Rule 144, permitting routine sales of securities of certain
issuers subject to the terms and conditions thereof, is not currently available
to such Stockholder with respect to the Reorganization Shares.
(vii) Such Stockholder has, to the extent such Stockholder has deemed
necessary, consulted with such Stockholder's own investment advisors, legal
counsel and tax advisors regarding an investment in the Reorganization Shares.
(viii) Such Stockholder acknowledges that, except as specifically set
forth in this Agreement, the Parent and Newco are not under any obligation (i)
to register the Reorganization Shares, or (ii) to furnish any information or to
take any other action to assist such Stockholder in complying with the terms and
conditions of any exemption which might be available under the Securities Act or
any state securities laws with respect to sales of the Reorganization Shares by
such Stockholder in the future.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO
The Parent and Newco represent and warrant to the Company and the
Stockholders as follows:
Section 4.1 Organization, Standing and Corporate Power. Each of the
------------------------------------------
Parent and Newco is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Parent and Newco is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than
30
<PAGE>
in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to it.
Section 4.2 Subsidiaries. Newco has no direct or indirect Subsidiaries.
------------
Section 4.3 Capital Structure.
-----------------
(a) The authorized capital stock of the Parent consists of:
(i) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of the Parent, of which 300,000 shares are designated Class A Convertible
Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the
"Parent Series I Preferred Stock"), 100,000 shares of Series II (the "Parent
------
Series II Preferred Stock") and 100,000 shares of Series III (the "Parent Series
- ------------------------- -------------
III Preferred Stock"); as of September 21, 1999, there were 9,360 shares of
- -------------------
Parent Series I Preferred Stock issued and outstanding with no such shares of
Parent Series I Preferred Stock held in the treasury of the Parent, 7,675 shares
of Parent Series II Preferred Stock issued and outstanding with no such shares
of Parent Series II Preferred Stock held in the treasury of the Parent, and
11,683 shares of Parent Series III Preferred Stock issued and outstanding with
no such shares of Parent Series III Preferred Stock held in the treasury of the
Parent;
(ii) 100,000,000 shares of the Parent Common Stock, par value
$.01 per share, as of September 21, 1999, there were 23,644,696 shares of Parent
Common Stock issued and outstanding with no such shares of Parent Common Stock
held in the treasury of the Parent; and
(iii) 30,000,000 shares of Class B Common Stock, par value $.01
per share, of the Parent (the "Parent Class B Common Stock"); as of September
---------------------------
21, 1999, there were 12,250,000 shares of Parent Class B Common Stock issued and
outstanding with no such shares of Parent Class B Common Stock held in the
treasury of the Parent.
Except as set forth above, no shares of capital stock or other equity
securities of the Parent are issued or outstanding. All outstanding shares of
capital stock of the Parent are duly authorized, validly issued, fully paid and
nonassessable.
(b) The authorized capital stock of Newco consists of 1000 shares of
common stock, par value $.01 per share, all of which have been validly issued,
are fully paid and nonassessable and are owned by the Parent, free and clear of
any Lien.
Section 4.4 Authority; Noncontravention.
---------------------------
(a) Each of the Parent and Newco has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Parent and Newco and the consummation by the Parent and Newco of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Parent and Newco.
(b) This Agreement has been duly executed and delivered by the Parent
and Newco and constitutes a valid and binding obligation of each of the Parent
and Newco,
31
<PAGE>
enforceable against each of the Parent and Newco in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or similar laws, now or hereafter in effect, affecting creditors,
rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Except as set forth in Schedule 4.4(c) hereto, the execution and
---------------
delivery of this Agreement do not, and the consummation by the Parent and Newco
of the transactions contemplated by this Agreement and compliance by the Parent
and Newco with the provisions of this Agreement will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of the Parent or Newco under, (i) the Certificate of Incorporation or
By-laws of the Parent or Newco, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Parent or Newco or its properties or
assets, or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Parent or
Newco or their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not have a
Material Adverse Effect with respect to the Parent or Newco or could not
prevent, hinder or materially delay the ability of the Parent or Newco to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any governmental entity is required by
or with respect to the Parent or Newco in connection with the execution and
delivery of this Agreement by the Parent and Newco or the consummation by the
Parent and Newco of any of the transactions contemplated by this Agreement,
except for (i) the filing of a pre-merger notification and report form under the
HSR Act, (ii) the filing with the SEC of such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices, the failure of which to make or
obtain, individually or in the aggregate, would not (x) prevent or delay the
consummation of the Reorganization or (y) have a Material Adverse Effect with
respect to the Parent or Newco.
Section 4.5 SEC Documents. The Parent has filed with the SEC all reports,
-------------
schedules, forms, statements and other documents required pursuant to the
Securities Act and the Exchange Act since November 17, 1997 (collectively, and
in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Parent SEC Documents"). As of their
---------------------
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents (including any and
all financial statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material
32
<PAGE>
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Parent included in all
Parent SEC Documents filed since November 17, 1997 (the "Parent SEC Financial
--------------------
Statements") comply as to form in all material respects with applicable
- ----------
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC), applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in accordance with generally accepted accounting principles
the consolidated financial position of the Parent (and its Subsidiaries) as of
the dates thereof and the consolidated results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments). The audited consolidated
balance sheet of the Parent as of December 31, 1998 is referred to herein as the
"Parent Balance Sheet."
Section 4.6 [INTENTIONALLY LEFT BLANK.]
Section 4.7 Litigation. There is (i) no suit, action or proceeding
----------
pending, and (ii) to the knowledge of the Parent, no suit, action or proceeding
threatened against or investigation pending with respect to the Parent or any of
its Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect with respect to the Parent or prevent, materially hinder or
materially delay the ability of the Parent to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Parent which, individually or in the aggregate, would have any such Material
Adverse Effect.
Section 4.8 Brokers. No broker, investment banker, financial advisor or
-------
other Person, other than Stephens, Inc., the fees and expenses of which will be
paid by the Parent or its Affiliates (as defined in Section 9.5), is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent or its Affiliates.
Section 4.9 Interim Operations of Newco. Newco was formed on August 20,
---------------------------
1999 solely for the purpose of engaging in the transactions contemplated hereby,
has engaged in no other business activities and has conducted its operations
only as contemplated hereby.
Section 4.10 Absence of Certain Changes or Events. Since the date of the
------------------------------------
Parent Balance Sheet, Parent and its Subsidiaries have conducted their
businesses only in the ordinary course in a manner consistent with past
practice, and since such date there has not been: (a) any Material Adverse
Effect on the Parent or any of its Subsidiaries or any fact or circumstance that
would be reasonably likely to result in an Material Adverse Effect on the Parent
or any of its Subsidiaries or (b) any material change by Parent or any of its
Subsidiaries in its accounting methods, principles or practices; (c) any
revaluation by Parent or any of its Subsidiaries of any material asset or any
writedown of the value of inventory, or any write-off of notes or accounts
receivable other than in the ordinary course of business consistent with past
practice; or (d) any other action or event that would have been a violation of
Section 6.1 of this Agreement had such
33
<PAGE>
action or event occurred after the date of this Agreement and that could
reasonably be expected to result in a Material Adverse Effect on the Parent or
any of its Subsidiaries.
Section 4.11 Compliance with Laws, Etc. To the knowledge of the Parent,
--------------------------
each of the Parent and its Subsidiaries has conducted its operations and
business in compliance with, (i) all applicable laws, rules, regulations and
codes (including, without limitation, any laws, rules, regulations and codes
relating to anticompetitive practices, contracts, discrimination, employee
benefits, employment, health, safety, fire, building and zoning), and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances,
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect on the Parent or its Subsidiaries. The Parent and its
Subsidiaries have not received any notification of any asserted present or past
failure by it to comply with such laws, rules or regulations, or such orders,
writs, judgments, injunctions, decrees or ordinances.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of Business of the Company.
----------------------------------
(a) During the period from the date of this Agreement until the
Closing (except as otherwise expressly contemplated by the terms of this
Agreement), the Company shall act and carry on its business in the usual,
regular and ordinary course of business consistent with past practice and use
its reasonable best efforts to preserve substantially intact its current
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having significant business
dealings with it. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing, the Company shall not,
nor shall it permit any of its Subsidiaries to, and except as set forth in
Schedule 5.1 hereto, without the prior written consent of the Parent:
- ------------
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split, combine
or reclassify any capital stock of the Company or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or (C) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(ii) authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or any
other securities or equity equivalents (including without limitation stock
appreciation rights) other than the issuance of the Company Common Stock upon
the exercise of the Company Options awarded but unexercised on the date of this
Agreement and in accordance with their present terms (such issuances being
referred to herein as "Permitted Changes");
-----------------
34
<PAGE>
(iii) amend its Certificate of Incorporation, or By-laws;
(iv) except for the Pending Acquisitions (as defined in Section
9.5) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien (as defined in Section 9.5) or otherwise dispose of any of
its properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice;
(vi) (A) except pursuant to credit arrangements in effect as of
the date hereof and disclosed in Schedule 3.21 hereto, incur any indebtedness
-------------
for borrowed money or guarantee any such indebtedness of another Person, issue
or sell any debt securities or warrants or other rights to acquire any debt
securities, guarantee any debt securities of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, or (B) make any loans, advances or capital contributions to,
or investments in, any other Person;
(vii) acquire or agree to acquire any assets, other than in the
ordinary course of business consistent with past practice, that are material,
individually or in the aggregate, or make or agree to make any capital
expenditures except capital expenditures of less than $50,000, individually, or
less than $100,000 in the aggregate;
(viii) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of (x) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, or (y) claims settled or compromised to the extent
permitted by Section 5.1(a)(xii), or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing material license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(ix) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or reorganization;
(x) enter into any collective bargaining agreement;
(xi) change any material accounting principle used by it, except
as required by the SEC or applicable law;
(xii) settle or compromise any litigation or settle a dispute
under any contract or other agreement (whether or not commenced prior to the
date of this Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $100,000, provided that
the aggregate amount paid in connection with the settlement or compromise of all
such matters shall not exceed $250,000;
35
<PAGE>
(xiii) engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
Affiliates (as defined in Section 9.5) of the Company;
(xiv) except as contemplated by this Agreement, abandon any
Pending Acquisitions; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) During the period from the date of this Agreement to the Closing,
the Company shall not adopt or amend (except as may be required by law) any
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement (including any Company Plan) for the benefit or welfare of
any employee, director or former director or employee or, other than increases
for individuals (other than officers and directors) in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee or pay any
benefit not required by any existing plan, arrangement or agreement.
(c) During the period from the date of this Agreement to the Closing,
the Company shall not grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its severance
or termination pay policies in effect on the date hereof.
(d) During the period from the date of this Agreement to the Closing,
except in the ordinary course of business and consistent with past practice, the
Company shall not make any Tax election, change or request to change its method
of accounting, or settle or compromise any federal, state, local or foreign Tax
liability.
Section 5.2 Cooperation Regarding Notice of Appraisal Rights. The Company
------------------------------------------------
will cooperate with the Parent and Newco in connection with the Parent's and
Newco's performance of their obligations under Section 2.7(d). Without limiting
the generality of the foregoing, at the Closing, the Company will deliver to the
Parent a list of the Company's stockholders of record as of the Closing setting
forth the name and mailing address of, and the number of shares of Company
Common Stock held by, each stockholder.
Section 5.3 Access to Information; Confidentiality.
--------------------------------------
(a) The Company shall, and shall cause its officers, employees,
counsel, financial advisors and other representatives to, afford to the Parent
and its representatives and to potential financing sources reasonable access
during normal business hours to its properties, books, contracts, commitments,
personnel and records, including security position listings and other
information concerning beneficial owners and/or record owners of the Company's
securities which may be relevant to the Reorganization, and, during such period,
the Company shall, and shall cause its officers, employees and representatives
to, furnish promptly to the Parent (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
36
<PAGE>
other information concerning its business, properties, financial condition,
operations and personnel as the Parent may from time to time reasonably request.
Each of the Parent and Newco will hold, and will cause its respective directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to hold, any nonpublic information in confidence
to the extent required by, and in accordance with, the provisions of the Letter
Agreement dated August 13, 1999 from the Company to, and accepted by, Parent
regarding confidential treatment of the negotiation of a potential business
combination (the "Confidentiality Agreement").
--------------------------
(b) No investigation pursuant to this Section 5.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 5.4 No Solicitation. The Company shall not (whether directly or
---------------
indirectly through advisors, agents or other intermediaries), nor shall the
Company authorize or permit any of its officers, directors, agents,
representatives, advisors to (a) solicit, initiate or take any action knowingly
to facilitate the submission of inquiries, proposals or offers from any Person
(other than Newco or the Parent) relating to (i) any acquisition or purchase of
any of the consolidated assets of the Company and its Subsidiaries (other than
sales or disposition of assets in the ordinary course of business) any class of
equity securities of the Company, (ii) any tender offer (including a self tender
offer) or exchange offer of any class of equity securities of the Company, (iii)
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company other than the transactions contemplated by this
Agreement, or (iv) any other transaction the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or materially
delay the Reorganization or which would or could reasonably be expected to
materially dilute the benefits to the Parent of the transactions contemplated
hereby (collectively, "Transaction Proposals"), (b) agree to or endorse any
----------------------
Transaction Proposal, or (c) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other Person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person (other than Newco or the Parent) to do or seek any of the foregoing.
(b) Notwithstanding anything in Section 5.2(b) to the contrary, to
the extent the Company's Board of Directors receives an unsolicited bona-fide
written proposal with respect to a Transaction Proposal to acquire all of the
outstanding shares of capital stock of the Company which the Board of Directors
determines, after consultation with its independent financial advisors, may be
reasonably likely to result in a transaction (an "Alternative Transaction") that
-------------------------
is more favorable to the shareholders of the Company than the transactions
contemplated by the Reorganization and this Agreement (taking into account the
nature of the proposed transaction, the nature and amount of the consideration,
the Bridge Financing contemplated by Section 5.10 below, the likelihood of
completion and any other factors deemed appropriate by the Board of Directors),
the Board of Directors, upon the advice from outside legal counsel to the
Company that the Board of Directors of the Company is required in the exercise
of its fiduciary duty under the DGCL to do so, may engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any
37
<PAGE>
person relating to an Alternative Transaction or otherwise facilitate such
person presenting an Alternate Transaction to the Company's shareholders;
provided, however, that upon engaging in such negotiations or discussions,
providing such information or otherwise facilitating any effort to present to
the Company's shareholders an Alternative Transaction, the Company shall give
notice to Parent of the Company's engagement in such activities ("Alternative
-----------
Transaction Notice"). Prior to furnishing nonpublic information to, or entering
- ------------------
into discussions or negotiations with, any other persons or entities, the
Company shall obtain from such person or entity an executed confidentiality
agreement with terms no less favorable, taken as a whole, to the Company than
those contained in the Confidentiality Agreement, but which confidentiality
agreement shall not include any provision calling for an exclusive right to
negotiate with the Company, and the Company shall advise Parent of the nature of
such nonpublic information delivered to such person reasonably promptly
following its delivery to the requesting party. If the Board of Directors
determines that an Alternative Transaction is more favorable to the shareholders
of the Company than the Reorganization and this Agreement as provided above, the
Board of Directors of the Company may then (and only then) recommend that
Alternative Transaction. Nothing herein shall in any way limit the obligations
of the Stockholders contained in this Agreement.
Section 5.5 Public Announcements. Neither the Company nor any of its
--------------------
Subsidiaries will issue any press release or public statement with respect to
the transactions contemplated by this Agreement, including the Reorganization,
without the Parent's prior consent (such consent not to be unreasonably
withheld), except as may be required by applicable law or court process. In
addition to the foregoing, the Company and the Parent will consult with each
other before issuing, and provide the to the other the opportunity to review and
comment upon, any such press release or other public statements with respect to
such transactions.
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return.
------------------------------------------------------------
The Company shall promptly notify the Manufacturers (as defined in Section 9.5)
of the execution and delivery of this Agreement, and thereafter shall use
reasonable best efforts in cooperating with the Parent in the preparation of and
delivery to the Manufacturers, as soon as practicable after the date hereof, of
applications and any other information necessary to obtain the Manufacturers'
consents to or the approval of the transactions contemplated by this Agreement.
At the request of the Parent, the Company shall use its reasonable best efforts
to assist the Parent in effecting any one-time parts return offered by the
Manufacturers.
Section 5.7 Closing Conditions. The Company shall use all reasonable best
------------------
efforts to satisfy promptly the conditions to Closing set forth in Article VII
hereof required herein to be satisfied by the Company prior to Closing.
Section 5.8 HSR Act. The Company shall promptly prepare and file
-------
Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
----
(the "Antitrust Division"), and respond as promptly as practicable to all
-------------------
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
38
<PAGE>
Section 5.9 Concerning Company Plans.
------------------------
(a) If requested by the Parent not less than five (5) days prior to
the Closing, the Company shall terminate its 401(k) Plan not later than the day
prior to the Closing and, in connection therewith, the Company shall amend such
401(k) Plan to fully vest all accounts of all participants in such 401(k) Plan
and to provide for the distribution of all such accounts. At the Closing, the
Company shall deliver to the Parent a duly executed plan amendment and
resolutions of the Company's Board of Directors reflecting the termination of
such 401(k) Plan and such related amendments to such 401(k) Plan, provided that
the Parent shall have timely requested the termination of the Company's 401(k)
Plan. If requested by the Parent not less than five (5) days prior to the
Closing, the Company shall also terminate all other Company Plans as of the
Closing Date and shall provide the Parent at Closing with documentation
satisfactory to the Parent evidencing such terminations.
Section 5.10 Bridge Financing.
----------------
(a) In consideration of the issuance by Sonic Financial Corporation
and/or O. Bruton Smith (collectively, the "Guarantor") of one or more guaranties
----------
(the "Guaranty") of the Company's indebtedness to Ford Motor Credit or other
---------
financing institutions of approximately $107,000,000 to enable the Company to
complete the Pending Acquisitions which were pending on August 25, 1999, the
Company in the Merger Agreement granted, and does hereby in this Agreement
confirm its grant, to the Parent an option (the "Option") to purchase up to all
-------
of the dealership properties included in such Pending Acquisitions, including,
without limitation, the Lucas Group acquisition which closed effective September
30, 1999 (the "Dealership Properties"), on the following terms, in the event
----------------------
that this Agreement is terminated prior to the Closing:
(i) The Option shall be exercisable for a period of sixty (60)
days (the "Option Period") commencing on the ninety-first (91st) day after the
---------------
date of such termination of this Agreement, unless the Company shall, during the
ninety (90) day period after such termination, have caused a complete release
and discharge of the Guarantor from the Guaranty. The Company hereby agrees to
use its best reasonable efforts to obtain such release and discharge.
(ii) (The Option shall be exercisable from time to time during
the Option Period with respect to any or all of the Dealership Properties;
provided, however, with respect to any distinct dealership group (for example,
- -------- -------
the Lucas Group), the Option, if exercised, must be exercised as to all
Dealership Properties within that group.
(iii) The Option may be assigned by the Parent to any Person.
(iv) The exercise price for the Option will be the price
(including directly related transactions expenses) at which the Dealership
Property was purchased by the Company (the "Exercise Price").
---------------
(v) With respect to any exercise of the Option during the Option
Period, the period during which the Parent will have to close the purchase (the
"Closing Period") will begin on the date of exercise and will end one hundred
- ----------------
twenty (120) days after the end of the
39
<PAGE>
Option Period. The purchase will be made pursuant to purchase documentation
substantially equivalent including as to form, representations and warranties
and indemnification obligations of the agreements pursuant to which such
Dealership Properties were purchased by the Company. The parties will negotiate
in good faith and will reasonably cooperate with each other to finalize the
purchase documentation and close the purchase within the Closing Period.
(vi) The entire proceeds of the Exercise Price with respect to
any particular Dealership Property shall be applied toward the prepayment of the
indebtedness secured by the Guaranty or the reimbursement of the Guarantor to
the extent of any amount paid by the Guarantor pursuant to the Guaranty. In the
event that the Company shall sell any of the Dealership Properties at any time,
the proceeds of the sale shall also be applied to reduce the indebtedness
secured by the Guaranty.
(vii) Notwithstanding the last sentence of Section 5.10(a)(vi)
above, during the Option Period, the Company will not sell or otherwise dispose
of, or attempt in any way to sell or otherwise dispose of, any of the Dealership
Properties.
(viii) Notwithstanding the expiration of Option Period or the
Closing Period with respect to any particular exercise under the Option, in the
event that the Guarantor is required to pay any amount under the Guaranty, the
Option shall be reinstated on the terms of this Section 5.10, except that there
shall be no limitations on the duration of the Option Period or on any Closing
Period. Notwithstanding the foregoing, the Company may terminate such reinstated
Option prior to the exercise thereof by the Parent by (i) reimbursing the
Guarantor in full for all amounts paid by it under the Guaranty, together with
interest thereon at the rate of 12% per annum, and (ii) obtaining a complete
release and discharge of the Guarantor from the Guaranty.
(ix) The Guarantor shall be paid a fee for issuance of the
Guaranty in an amount equal to twenty-five basis points (.0025) of the principal
amount of indebtedness guaranteed. Such fee will be paid at the time of the
first draw down under the bridge facility.
(x) The provisions of this Section 5.10 shall survive the
termination of this Agreement.
(b) The rights of the parties under this Section 5.10 are subordinate
to the rights of the Manufacturers.
Section 5.11 280G Consent. Prior to the Closing, the Company shall take
------------
such steps as may be necessary to prevent any payment or benefit from being
subject to the excise tax payable under Section 4999 of the Code or the loss of
deductibility under Section 280G of the Code in connection with the transactions
contemplated by this Agreement.
Section 5.12 Tax Free Reorganization. The Company shall use its best
-----------------------
reasonable efforts to cause the Securities Purchase to be treated as a tax free
reorganization within the meaning of Section 368(a) of the Code.
40
<PAGE>
ARTICLE VA
COVENANTS OF THE STOCKHOLDERS
Section 5A.1 Agreement to Vote; Proxy.
------------------------
(a) Each of the Stockholders hereby agrees that, until the
Termination Date (as defined in Section 5A.11 below), at any meeting of the
stockholders of the Company, however called (including any adjournments or
postponements thereof), or in connection with any written consent of the
stockholders of the Company, such Stockholder shall vote (or cause to be voted)
the Shares held of record or beneficially by such Stockholder (i) in favor of
the Reorganization, the execution and delivery by the Company of this Agreement
and the approval of the terms thereof and each of the actions contemplated by
this Agreement and any actions required in furtherance hereof and thereof; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under this Agreement; and (iii) except as specifically requested in writing by
the Parent in advance, against the following actions or agreements (other than
the Reorganization and the transactions contemplated by this Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its Subsidiaries
(including, without limitation, any Transaction Proposal); (B) a sale, lease or
transfer of any assets of the Company or any of its Subsidiaries (other than in
the ordinary course of business) or reorganization, recapitalization,
dissolution or liquidation of the Company or any of its Subsidiaries, (C) any
change in the management or board of directors of the Company; (D) any change in
the present capitalization or dividend policy of the Company or any of its
Subsidiaries; (E) any amendment to the Company's Certificate of Incorporation or
By-Laws; (F) any other material change in the corporate structure or business of
the Company or any of its Subsidiaries; or (G) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or adversely affect, the Reorganization or the transactions
contemplated by this Agreement or the contemplated economic benefits of any of
the foregoing. No Stockholder shall enter into any agreement or understanding
with any person or entity prior to the Termination Date to vote or give
instructions after the Termination Date in any manner inconsistent with clauses
(i), (ii) or (iii) of the preceding sentence.
(b) PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, THE
-----
PARENT AND O. BRUTON SMITH, CHIEF EXECUTIVE OFFICER OF THE PARENT, AND THEODORE
M. WRIGHT, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER OF THE PARENT, IN
THEIR RESPECTIVE CAPACITIES AS OFFICERS OF THE PARENT, AND ANY INDIVIDUAL WHO
SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF THE PARENT, AND ANY OTHER DESIGNEE
OF THE PARENT, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL
THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF
SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 5A.1(a) ABOVE. EACH
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE)
AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE
41
<PAGE>
SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS
PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH
RESPECT TO THE SHARES.
(c) Notwithstanding anything contained in this Agreement to the
contrary, as to any Stockholder who is also a director of the Company, the
obligations of such Stockholder under this Section 5A.1 and Section 5A.2 below
to support the Reorganization in his capacity as stockholder shall in no way
prevent such Stockholder from exercising his fiduciary duties as a director of
the Company, with respect to the Reorganization or an Alternative Transaction,
it being also understood that the exercise of such fiduciary duties shall not
affect such Stockholder's obligations in his capacity as a stockholder under
this Section 5A.1 and Section 5A.2 below to support the Reorganization.
Section 5A.2 No Solicitation. Prior to the Termination Date, no
---------------
Stockholder shall (directly or indirectly through advisors, agents or other
intermediaries), nor shall such Stockholder authorize or permit any of their
officers, directors, agents, representatives or advisors to (i) solicit,
initiate or take any action knowingly to facilitate the submission of inquiries,
proposals or offers from any Person (other than the Parent or any of its
affiliates) relating to any Transaction Proposal, or (ii) enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other Person any information with respect to the business,
properties or assets or any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any effort
or attempt by any other Person (other than the Parent or any of its affiliates)
to do or seek any of the foregoing. If a Stockholder receives any such inquiry
or proposal, then such Stockholder shall promptly inform the Parent of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. Each Stockholder will immediately cease and cause its
advisors, agents and other intermediaries to cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and shall use its reasonable best efforts
to cause any such parties in possession of confidential information about the
Company that was furnished by or on behalf of the Company to return or destroy
all such information in the possession of any such party or in the possession of
any agent or advisor of such party.
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference.
-----------------------------------------------------
Prior to the Termination Date, no Stockholder shall, directly or indirectly: (i)
except to the Parent pursuant to this Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, any or all of the
Shares owned by it, and no Stockholder shall, directly or indirectly, enforce or
permit the execution of the provisions of any redemption agreement with the
Company or enter into any contract, option or other arrangement or understanding
with respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, or exercise any
discretionary powers to distribute, any or all of the Shares owned by it or any
interest therein, (ii) except as contemplated hereby, grant any proxies or
powers of attorney with respect to the Shares, deposit any Shares into a voting
trust or enter into any voting agreement with respect to any Shares, or (iii)
take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling any Stockholder from performing its obligations under
this Agreement. Notwithstanding the foregoing, a Stockholder may transfer
Shares to such
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Stockholder's spouse or lineal descendant (natural or adopted) or to an
executor, administrator or testamentary trustee (in their capacity as such) of
such Stockholder or to a trust the beneficiaries of which include only such
Stockholder and his or her spouse or lineal descendants; provided, however,
-------- -------
it shall be a condition precedent to such transfer that the transferee agree in
a writing reasonably satisfactory to the Parent and Newco to be bound by the
terms of this Agreement with respect to the shares so transferred, and provided,
--------
further, that such transfer shall not release the transferring Stockholder from
- --------
its obligations under this Agreement with respect to the Shares so transferred,
and the Parent and Newco shall be entitled to continue to treat the transferring
Stockholder as the owner of the Shares transferred for all purposes of this
Agreement.
Section 5A.4 Additional Shares. Each of the Stockholders hereby agrees,
-----------------
while this Agreement is in effect, to promptly notify the Parent of the number
of any new shares of Company Common Stock or Company Preferred Stock acquired by
such Stockholder after the date hereof.
Section 5A.5 Waiver of Appraisal and Dissenter's Rights. Each
------------------------------------------
Stockholder hereby waives any rights of appraisal or rights to dissent from the
Reorganization (including the Merger) that such Stockholder may have.
Section 5A.6 Actions Regarding Company Expenses. Each of the
----------------------------------
Stockholders agrees that they shall take no actions and shall not vote their
Shares in favor of any action which shall cause a substantial increase in the
expenses which are the subject of the indemnity contained in Section 5A.7(d)
below.
Section 5A.7 Indemnity; Escrow Agreement.
---------------------------
(a) The Stockholders hereby agree to indemnify and save the Parent
and the Surviving Corporation, their respective shareholders, officers,
directors and employees, and the successors and assigns of each of the foregoing
(each, an "Indemnitee") harmless from and against, for and in respect of, any
-----------
and all damages, losses, obligations, liabilities, demands, judgments, injuries,
penalties, claims, actions or causes of action, encumbrances, costs, and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees), suffered, sustained, incurred or required to be paid by any
Indemnitee (collectively, "Damages") arising out of, based upon, in connection
--------
with, or as a result of (i) the untruth, inaccuracy or breach of any
representation and warranty of the Company contained in or made pursuant to this
Agreement, including in any Schedule or certificate delivered hereunder or in
connection herewith, and (ii) the breach or nonfulfillment of any covenant or
agreement of the Company contained in this Agreement or in any other agreement,
document or instrument delivered hereunder or pursuant hereto. With respect to
the Stockholders' obligations to pay Damages pursuant to this Section 5A.7(a),
the Stockholders shall have no personal liability, and the Parent's and the
Surviving Corporation's sole recourse shall be to make demand for payment out of
the Escrow Amount (as defined in Section 5A.7(b) below).
(b) At the Closing, the Stockholders shall place into escrow with
First Union National Bank or another escrow agent mutually acceptable to the
parties hereto (the "Escrow Agent") 473,571 shares (adjusted for any stock
-------------
dividend, subdivision, reclassification, split-up, combination, or the like,
with respect to the Parent Common Stock) of Reorganization Common
43
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Stock (the "Escrow Shares" or "Escrow Amount"), pro rata among the Stockholders
--------------- --------------
according to the number of shares of Parent Common Stock issued to the
Stockholders in exchange for the Company Common Stock and the Company Warrants
(such shares being hereinafter called the "Pro Rata Shares"), in accordance with
----------------
the escrow agreement in the form of Exhibit D hereto, with such other changes
---------
thereto as the Escrow Agent shall reasonably request (the "Escrow Agreement").
-----------------
The term of the Escrow Agreement shall be for the period beginning with the
Closing and ending on March 31, 2001 (the "Escrow Period"). If the Parent shall
--------------
have made no claims for indemnification under Section 5A.7(a) above or otherwise
under this Section 5A.7, during the Escrow Period, the Parent will execute a
joint instruction with the Stockholders' Agent pursuant to the Escrow Agreement
to instruct the Escrow Agent to pay all of the Escrow Shares to the Stockholders
pursuant to the terms of the Escrow Agreement, pro rata according to their
respective Pro Rata Shares. To the extent that the Parent shall be entitled to
Damages, the Stockholders' Agent shall execute a joint instruction with the
Parent pursuant to the Escrow Agreement to instruct the Escrow Agent to disburse
to the Parent from the Escrow Amount that number of Escrow Shares having a
Market Price at the time of disbursement equal to the amount of such Damages.
All such disbursements from the Escrow Shares shall be charged to the
Stockholders pro rata according to their Pro Rata Shares of the Escrow Shares.
As used herein, the term "Market Price" shall mean the average of the daily
-------------
closing prices on the NYSE for one share of Parent Common Stock for the twenty
(20) consecutive trading days ending on and including the trading day
immediately prior to the date of determination. Reference is hereby made to
Section 9.16 with respect to certain matters concerning the Stockholders' Agent.
(c) The parties acknowledge that the purchase agreements for the
Pending Acquisitions (the "Pending Purchase Agreements") provide that the
----------------------------
Company is entitled to indemnification for breaches of representations,
warranties and covenants contained therein in accordance with the terms of such
agreements. The Parent and the Stockholders agree that:
(i) If an Indemnitee is entitled to indemnification under this
Agreement and the breach which gives rise to such right of indemnification under
this Agreement shall also be a matter for which the Company is entitled to
pursue indemnification under any of the Pending Purchase Agreements, the
Indemnitee (or Parent, on their behalf) shall first attempt to recover such
Damages as are indemnifiable under the Pending Purchase Agreements from the
indemnifying persons under such Pending Purchase Agreements. Such claims are
referred to herein as "Dual Indemnity Claims."
---------------------
(ii) Provided a Dual Indemnity Claim shall be made prior to the
Claim, Termination Date as such term is defined in the Escrow Agreement, during
such period as the Parent is pursuing indemnification pursuant to the terms of a
Pending Purchase Agreement, it shall be entitled to retain Escrow Shares
relating to such breaches as a Pending Claim as provided in the Escrow Agreement
to cover the amount of such Dual Indemnity Claims as are also covered by the
indemnification provisions of this Agreement.
(iii) When a Dual Indemnity Claim shall be finally resolved
pursuant to the terms of a Pending Acquisition Agreement, the resolution of such
claim shall be determinative except in the case where the amount of damages for
such Dual Indemnity Claim shall exceed the indemnification obligations of the
indemnifying parties under such Pending Acquisition Agreement. In such case the
Stockholders' Agent (as such term is defined in the
44
<PAGE>
Escrow Agreement) shall have opportunity to defend such claim in its entirety
pursuant to the terms of this Agreement. Upon the resolution of a Dual Indemnity
Claim, any Escrow Shares held beyond the Claim Termination Date in respect of
such Pending Claim shall, to the extent not required to cover other pending
Claims, be released.
(d) The parties hereby agree that the Parent shall be entitled to
claim against the Escrow Amount with respect to the actual amount of "one-time"
charges and adjustments (net of tax benefits), the categories of which are
generally summarized (with current estimates thereof which estimates are for
information purposes only) in Exhibit E hereto and consisting of (i) (A)
---------
redemption premiums related to payments to the Trust Company of the West and its
affiliates ("TCW") in connection with the sale of the shares of the Company
---
Preferred Stock hereunder and (B) prepayment penalties in connection with the
prepayment of the Company's indebtedness under the promissory notes issued to
TCW by the Company (the "TCW Loan"); (ii) severance payments (including those
--------
payable when the employee terminates "for good reason" under the relevant
employment contract) and stay-on bonuses to certain employees of the Company;
(iii) the tax charges for stock grants made to certain employees of the Company
and disclosed in the Company Disclosure Schedule (the "FAA Stock Grants"); (iv)
-----------------
out-of-pocket expenses incurred by the Company in connection with its recently
attempted initial public offering; (v) fees or commissions payable to Merrill
Lynch and NCM Associates for their services to the Company in connection with
the Reorganization; (vi) transaction fees and expenses incurred in connection
with the Reorganization, including those for services rendered by its legal
counsel and accountants, but excluding fees and expenses of legal counsel in
connection with the Registration Statement contemplated by the Merger Agreement;
(vii) costs and expenses incurred in connection with the divestiture of DSW
Associates, Inc., d/b/a "Auto Town" by the Company; (viii) payments under
contracts with "change of control" clauses which are triggered by the
Reorganization and not included in clause (ii) above; and (ix) expenses of
establishing the "bridge financing" contemplated by Section 5.10 of this
Agreement; provided, however, that the aggregate total of such actual charges
-----------------
and adjustments enumerated above shall be reduced by (i) the out-of-pocket
expenses of the IPO referred to in clause (iv) above up to $1,500,000 and (ii)
the dollar amount equal to any net income earned by the Company from July 1,
1999 through the Closing Date and, if the Closing Date takes place prior to
December 31, 1999, the sum of $123,288 per day for each day from the Closing
Date to and including December 31, 1999; and provided further that such charges
and adjustments shall exclude (x) any unamortized deferred loan costs incurred
by the Company in the prepayment of the TCW Loan, (y) the increase in the
Company's equity capitalization base in connection with the FAA Stock Grants,
and (z) any non-cash items related to the divestiture or liquidation of DSW
Associates, Inc. d/b/a "Auto Town", including unamortized deferred loan costs.
(e) With respect to any claim against the Escrow Amount by the Parent
for a breach of Section 3.18 of this Agreement regarding the Company's
representation and warranty to the effect that the Company and its subsidiaries
consolidated pro-forma pre-tax earnings will be a minimum of $45,000,000 (the
"Minimum Amount"), Parent shall be entitled to recover from such Escrow Amount
---------------
any discrepancy from the Minimum Amount on a dollar-for-dollar basis.
(f) With respect to any claim against the Escrow Amount by the Parent
for a breach of Section 3.5 of this Agreement regarding the Company's
representation and warranty to
45
<PAGE>
the effect, without limitation, that the Company's consolidated financial
statements as of June 30, 1999 have been prepared in accordance with generally
accepted accounting principles and fairly present the consolidated financial
position of the Company, the Parent shall not be entitled to claim that such one
time charges and expenses as are considered in Section 5A.7(d) above have caused
or contributed to a breach of such representation.
(g) The Parent shall be entitled to a claim against the Escrow Amount
for any Damages in excess of $50,000 incurred as a result of the Department of
Labor audit of the Company's 401(k) Plan.
(h) The Parent shall be entitled to a claim against the Escrow Amount
for any Damages in excess of the sum of (i) $100,000 plus (ii) the Company's
accruals therefore in accordance with GAAP, incurred as a result of the
Pierson/Portin litigation (or related class action) referred to in Section 3.7
of the Company Disclosure Schedule.
Section 5A.8 Further Assurances. From time to time, at the request of
------------------
the Stockholders, on the one hand, or at the request of the Parent, on the other
hand, and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
Section 5A.9 Certain Events. Each Stockholder agrees that this
--------------
Agreement and the obligations hereunder shall attach to all Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise.
Section 5A.10 Stop Transfer. Each Stockholder agrees with, and
-------------
covenants to the Parent that it shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Shares.
Section 5A.11 Termination. The obligations of each Stockholder under
-----------
Sections 5A.1, 5A.2, 5A.3 and 5A.10 of this Agreement shall terminate upon the
first to occur of (a) the Closing, and (b) the date that is one hundred eighty
(180) days after the date this Agreement is terminated in accordance with its
terms (such earlier date being the "Termination Date"). Except as set forth in
-----------------
this Section 5A.11 all other agreements and obligations of the parties hereto
shall survive the Closing and/or the Termination Date, as applicable.
ARTICLE VI
COVENANTS OF THE PARENT
Section 6.1 Conduct of Business of Parent. During the period from the
-----------------------------
date of this Agreement to the Closing (except as otherwise expressly
contemplated by the terms of this Agreement), the Parent shall act and carry on
its business in the usual, regular and ordinary course of business consistent
with past practice and use its reasonable best efforts to preserve substantially
intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
significant business dealings with it and
46
<PAGE>
provided that nothing contained in the foregoing shall prevent the Parent from
its business of acquiring automobile dealerships.
Section 6.2 [INTENTIONALLY LEFT BLANK]
Section 6.3 Access to Information; Confidentiality.
--------------------------------------
(a) Parent shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to the Company and its
representatives reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records, including
security position listings and other information concerning beneficial owners
and/or record owners of the Parent's securities which may be relevant to the
Reorganization, and, during such period, the Parent shall, and shall cause its
officers, employees and representatives to, furnish promptly to the Company (i)
a copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as the Company may
from time to time reasonably request. The Company will hold, and will cause its
respective directors, officers, employees, accountants, counsel, financial
advisors and other representatives and Affiliates to hold, any nonpublic
information in confidence to the same extent that nonpublic information
regarding the Company, as contemplated by Section 5.3 above, is required to be
held confidential by the Parent and Newco pursuant to the Confidentiality
Agreement.
(b) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 6.4 Indemnification.
---------------
(a) The certificate of incorporation and the by-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability substantially as set forth in the Company's
certificate of incorporation and by-laws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Closing in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Closing were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) From and after the Effective Time, the Parent agrees to indemnify
and agrees to cause the Surviving Corporation to indemnify each person who is
now, or who becomes after the Closing, an officer or director of the Company or
any of it Subsidiaries (the "Indemnified Parties"), to the fullest extent
-------------------
permitted by applicable law, with respect to all acts and omissions arising out
of the Indemnified Parties' services as officers, directors, employees or agents
of the Company or as trustees or fiduciaries of any plan for the benefit of
employees of the Company, occurring prior to the Closing including, without
limitation, the transactions contemplated by this Agreement. Without limitation
of the foregoing, in the event any such Indemnified Party is or becomes involved
in any capacity in any action, proceeding or investigation in connection with
any matter, including without limitation, the transactions
47
<PAGE>
contemplated by this Agreement, occurring prior to, and including, the Closing,
the Parent, from and after the Closing, will pay as incurred such Indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. Subject to
Section 6.4(c), the Parent shall advance (in reasonable amounts) and pay all
reasonable expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing this Section 6.4 or any action involving an
Indemnified Party resulting from the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary contained herein, the Parent
shall not have any obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by, or
otherwise is not available pursuant to, applicable law.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 6.4, upon learning of any claim, action, suit, proceeding or
investigation which may give rise to a right to indemnification under this
Section 6.4, shall promptly notify the Parent thereof. In the event of any such
claim, action, suit, proceeding or investigation, (i) the Parent or the
Surviving Corporation shall have the right to assume the defense thereof (with
counsel engaged by the Parent or the Surviving Corporation to be reasonably
acceptable to the Indemnified Party) and, provided there is no conflict of
interest, the Parent shall not be liable to such Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, (ii)the Indemnified
Party will cooperate in the defense of any such matter, and (iii)the Parent
shall not be liable for any settlement effected without its prior written
consent.
(d) Parent and the Surviving Corporation, shall, until the sixth
anniversary of the Closing or such earlier date as may be mutually agreed upon
by Parent, the Surviving Corporation and the applicable Indemnified Party, cause
to be maintained in effect, to the extent available, the policies of directors'
and officers' liability insurance maintained by the Company and its Subsidiaries
as of the date hereof (or policies of at least the same coverage and amounts
containing terms that are not less advantageous to the insured parties) with
respect to claims arising from facts or events that occurred on or prior to the
Closing, including without limitation all claims based upon, arising out of,
directly or indirectly resulting from, in consequence of, or in any way
involving the Reorganization and any and all related events. In lieu of
maintaining the Company's current policies, Parent may cause to be obtained and
maintained in effect directors' and officers' liability insurance of at least
the same coverage and amounts and containing terms that are, as a whole,
substantially no less advantageous than policies presently maintained by the
Company with respect to claims arising from facts or events which occurred on or
before the Closing. Notwithstanding the foregoing, in no event shall Parent or
the Surviving Corporation be required pursuant to this Section 6.4(d) to expend,
in order to maintain or procure insurance coverage pursuant to this Section 6.5,
any amount per annum in excess of 150% of the annual rate of premiums currently
being paid for the current Company officers' and directors' liability insurance
policy.
(e) The obligations of the Company, the Surviving Corporation and the
Parent under this Section 6.4 shall not be terminated or modified in such a
manner as to adversely affect any of the Indemnified Parties without the consent
of such Indemnified Party (it being expressly agreed that each such Indemnified
Party shall be a third party beneficiary of this Section 6.4).
48
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Section 6.5 Public Announcements. Neither the Parent nor Newco will issue
--------------------
any press release or public statement with respect to the transactions
contemplated by this Agreement, including the Reorganization, without the
Company's prior consent (such consent not to be unreasonably withheld), except
as may be required by applicable law, court process or by obligations pursuant
to any listing agreement with the NYSE. In addition to the foregoing, the
Parent will consult with the Company before issuing, and provide the Company the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions.
Section 6.6 Newco Obligations. Parent shall cause Newco to perform all of
-----------------
its obligations, agreements and covenants under this Agreement.
Section 6.7 Application to Manufacturers. Subject to the reasonable
----------------------------
cooperation of the Company, the Parent shall provide to the Manufacturers as
promptly as practicable after the execution and delivery of this Agreement any
application or other information with respect to such application necessary in
connection with the seeking of the consent of the Manufacturers to the
transactions contemplated by this Agreement.
Section 6.8 Closing Conditions. Parent shall use all reasonable best
------------------
efforts to satisfy promptly the conditions to Closing set forth in Article VII
hereof required herein to be satisfied by the Parent prior to Closing.
Section 6.9 HSR Act. Parent shall promptly prepare and file Notification
-------
and Report Forms under the HSR Act with the FTC and the Antitrust Division, and
respond as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation, and the Parent
shall pay all filing fees in connection therewith, including any such filing fee
required to be paid by Thomas A. Price.
Section 6.10 Tax Free Reorganization. Parent and the Company shall use
-----------------------
its best reasonable efforts to cause the Securities Purchase to be treated as a
tax free reorganization within the meaning of Section 368(a) of the Code.
Section 6.11 Additional Agreements of Parent. At the Closing, the Parent
-------------------------------
shall, or shall cause the Surviving Corporation immediately after the Closing
to:
(a) Repay all outstanding loans (set forth in Schedule 6.11(a)
----------------
hereto) by the officers of the Company to the Company;
(b) Secure the release of all officers of the Company, or any of such
officers' Affiliates from any guaranties (set forth in Schedule 6.11(b) hereto)
----------------
they have given in favor of the Company; and
(c) Repay all outstanding loans under the promissory notes issued to
TCW and its Affiliates.
49
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Section 6.12 Employee Benefits.
-----------------
(a) Parent will give, or will cause Surviving Corporation to give, to
each employee of Parent or Surviving Corporation who immediately prior to the
Effective Time was an employee of the Company (each such employee, a "Continuing
----------
Employee") full credit for purposes of eligibility, vesting, vacation, seniority
- --------
and sick pay to the extent permissible under applicable law. In the event Parent
causes Surviving Corporation to terminate a welfare plan so that there is a
short plan year, Parent will use its best efforts to, or will cause Surviving
Corporation to provide each Continuing Employee with credit for the remaining
short plan year for any co-payments and deductibles paid under each comparable
employee welfare benefit plan maintained by Company prior to the Effective Time
in satisfying any applicable deductible or co-payment requirements under any of
Parent's employee welfare benefit plans that such Continuing Employees are
eligible to participate in after the Effective Time. From and after the
Effective Time, the Continuing Employees shall be eligible to participate in
Parent's or Surviving Corporation's employee benefit plans and arrangements in
which similarly situated employees of Parent or Surviving Corporation
participate, to the same extent as such similarly situated employees.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Reorganization. The respective obligation of each party to effect the
- --------------
Reorganization is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) The waiting period (and any extension thereof) applicable to the
Reorganization under the HSR Act shall have been terminated or shall have
expired.
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Reorganization
shall be in effect; provided, however, that the parties hereto shall use their
best efforts to have any such injunction, order, restraint or prohibition
vacated.
(c) The Parent and the Company shall each have received written
opinions from their respective counsel to the effect that the Securities
Purchase will constitute a reorganization within the meaning of Section 368(a)
of the Code; provided, however, that if the counsel to either the Parent or the
-------- -------
Company does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to such party if counsel to the other party renders
such opinion to such party. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(d) Employment Agreement. The Parent and Thomas A. Price shall have
--------------------
entered into a mutually agreed upon employment agreement.
50
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Section 7.2 Conditions to Obligations of the Parent and Newco. The
-------------------------------------------------
obligations of the Parent and Newco to effect the Reorganization are further
subject to the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Stockholders set forth in this Agreement shall
be true and correct, in each case as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date, except (in
the case of the representations and warranties of the Company only) where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect, or (in the case of the representations and
warranties of any particular Stockholder only) where the failure of such
representations and warranties to be so true and correct would prevent the
purchase of the Company Securities from such Stockholder in accordance with the
terms hereof such that the condition set forth in Section 7.2(g) below would not
be satisfied. The Parent shall have received (i) with respect to the
representations and warranties of the Company, a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of
the Company, and (ii) with respect to the representations and warranties of the
Stockholders, a certificate signed by the Stockholders' Agent on behalf of each
of the Stockholders, in each case to the effect set forth in this paragraph.
(b) Performance of Obligations. The Company and the Stockholders
--------------------------
shall have performed the respective obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except, in the case of the
obligations of the Company only, for such failures to perform either
individually or in the aggregate that would not have a Material Adverse Effect
with respect to the Company or materially adversely affect the ability of the
Company to consummate the transactions herein contemplated or perform its
obligations hereunder).
(c) Consents, etc. The Parent shall have received evidence, in form
--------------
and substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, except where the failure to
obtain such licenses, permits, consents, approvals, authorizations,
qualifications and orders individually or in the aggregate would not have a
Material Adverse Effect with respect to the Company, provided, however, that
insofar as the foregoing Material Adverse Effect exception relates to Leases of
Real Property, the parties agree that it would constitute a Material Adverse
Effect if the failure to obtain the consent from a particular landlord under a
Lease could reasonably be expected to result in the inability of a dealership to
continue its operations substantially at that location.
(d) No Litigation. There shall not be pending any suit, action or
-------------
proceeding by any Governmental Entity or by any other Person, which has a
reasonable likelihood of success and which, if successful, would have a Material
Adverse Effect with respect to the Company or the Parent, or materially
adversely affect the ability of the parties hereto to consummate the
transactions contemplated herein.
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(e) Closing Documentation. The Parent shall have received the
---------------------
following documents, agreements and instruments from the Company:
(i) an opinion of Gray Cary Ware & Freidenrich LLP, dated the
Closing Date and addressed to the Parent and Newco, in substantially the form of
Exhibit F hereto;
- ---------
(ii) certificates dated as of a recent date from the Secretary
of State of the States of Delaware and any other applicable states to the effect
that each of the Company and its Subsidiaries is duly incorporated and in good
standing in such state and stating that the Company and its Subsidiaries owes no
franchise taxes in such state and listing all documents of the Company and its
Subsidiaries on file with said Secretary of State;
(iii) a copy of the Certificate of Incorporation of the Company,
including all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware;
(iv) evidence, reasonably satisfactory to the Parent, of the
authority and incumbency of the persons acting on behalf of the Company in
connection with the execution of any document delivered in connection with this
Agreement;
(v) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to the Company and its Subsidiaries from the states and local
jurisdictions where the principal place of business of the Company and its
Subsidiaries and their respective assets are located, the search reports of
which shall confirm compliance with Section 3.15 (and Schedule thereto) of this
Agreement;
(vi) the corporate minute books and stock record books of the
Company and its Subsidiaries;
(vii) estoppel letters of lenders to the Company, in form and
substance reasonably satisfactory to the Parent, with respect to amounts
(including any pre-payment penalties) owing by the Company as of the Closing;
and
(viii) such other instruments and documents as the Parent shall
reasonably request not inconsistent with the provisions hereof.
(f) No Material Adverse Change. There shall have been no Material Adverse
--------------------------
Change in the Company since June 30, 1999.
(g) Company Securities. The Company Securities held by the Stockholders
------------------
as of the Closing Date shall include not less than 96% of the issued and
outstanding shares of Company Common Stock, or such lesser percentage, not less
than 90%, as shall have been specifically agreed to by the Parent pursuant to
Section 9.15.
(h) Manufacturer Approval. The Manufacturers shall have given any
required approval of the Reorganization and shall have given any required
approval of O. Bruton Smith or his designee as the authorized dealer operator of
the Company's and its Subsidiaries' dealership
52
<PAGE>
franchises with the Manufacturers at the present dealership locations in their
existing facilities as currently configured for dealership operations, and the
Manufacturers shall have executed any required dealer agreements and/or
amendments or supplements thereto in connection with the foregoing.
(i) Prepayment of Convertible Debt; Termination of Registration Rights.
------------------------------------------------------------------
All convertible debt shall have been prepaid, and the Parent shall have received
reasonably satisfactory evidence thereof. Additionally, all of the registration
rights underlying the Company Warrants shall have been terminated.
(j) Delivery of Company Securities. The respective Stockholders shall
------------------------------
have delivered the certificate or certificates representing all of the Company
Securities, in accordance with Section 1.1 hereof.
(k) [INTENTIONALLY LEFT BLANK]
(l) [INTENTIONALLY LEFT BLANK]
(m) Auto Town Spin-Off. The divestiture or liquidation of DSW Associates,
------------------
Inc., d/b/a Auto Town, shall have been completed with the prior approval of the
Parent. The Company shall inform the Parent of the manner of divesting,
liquidating or otherwise disposing of DSW Associates, d/b/a "Auto Town", prior
to the Completion thereof, it being understood that the Parent shall not
unreasonably withhold such prior approval. Notwithstanding the foregoing, it
shall be a basis for the Parent to withhold its approval if such divestiture,
liquidation or other disposition is on terms which could result in any
continuing material liability or obligation of the Company to Auto Town or its
stockholders.
(n) Termination of Stockholder Agreement. The Stockholder Agreement dated
------------------------------------
as of July 11, 1997, as amended to date, by and among the Company, Thomas Price,
Donald Strough, Steven Hallock, Fred Cziska, Al Babbington, John Driebe,
Embarcadero Automotive, L.L.C., Raintree Capital LLC, BB Investments and certain
affiliates of Trust Company of the West, shall have been terminated.
(o) [INTENTIONALLY LEFT BLANK]
(p) The Parent shall have obtained the consents or approvals of the
parties set forth in Schedule 4.4(c) hereto.
---------------
Notwithstanding the foregoing, the obligations of the Parent and Newco to
effect the Reorganization shall not be relieved by the failure of any of the
foregoing conditions if such failure is the result, direct or indirect, of any
breach by the Parent or Newco of any of their obligations under this Agreement.
Section 7.3 Conditions to Obligation of the Company and the Stockholders.
------------------------------------------------------------
The obligations of the Company and the Stockholders to effect the Reorganization
are further subject to the following conditions:
53
<PAGE>
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Parent and Newco set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect with respect to, the Parent and Newco. The
Company shall have received a certificate signed on behalf of the Parent by an
authorized officer of the Parent to the effect set forth in this paragraph.
(b) Performance of Obligations of the Parent and Newco. The Parent
--------------------------------------------------
and Newco shall have performed the obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except for such failures
to perform, either individually or in the aggregate, that would not have a
Material Adverse Effect with respect to the Parent and Newco or materially
adversely affect the ability of the Parent and Newco to consummate the
transactions herein contemplated or perform their respective obligations
hereunder).
(c) Closing Documentation. The Company shall have received the
---------------------
following documents, agreements and instruments from the Parent:
(i) an opinion of Parker, Poe, Adams & Bernstein L.L.P., dated
the Closing Date and addressed to the Company and the Stockholders,
substantially in the form of Exhibit G hereto;
---------
(ii) certificates dated as of a recent date from the Secretary
of State of the State of Delaware to the effect that the Parent is duly
incorporated and in good standing in such State;
(iii) a copy of the Parent's Certificate of Incorporation,
including all amendments thereto, certified by the Secretary of State of the
State of Delaware;
(iv) evidence reasonably satisfactory to the Company as to the
authority and incumbency of the persons acting on behalf of the Parent in
connection with the execution of any document delivered in connection with this
Agreement; and
(v) such other instruments and documents as the Company shall
reasonably request not inconsistent with the provisions hereof.
Notwithstanding the foregoing, the obligations of the Company and the
Stockholders to effect the Reorganization shall not be relieved by the failure
of any of the foregoing conditions if such failure is the result, direct or
indirect, of any breach by the Company or any of the Stockholders of any of
their respective obligations under this Agreement.
(d) No Material Adverse Change. There shall have been no Material
--------------------------
Adverse Change in Parent since the Parent Balance Sheet Date.
54
<PAGE>
(e) Delivery of Parent Common Stock. Newco shall have delivered to
-------------------------------
the respective Stockholders the certificates representing the Parent Common
Stock, in accordance with Section 1.2 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated and abandoned
-----------
at any time prior to the Closing:
(a) by mutual written consent of the Parent, the Company and the
Stockholders' Agent; or
(b) by either the Parent or the Company, if any governmental entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Reorganization
and such order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by (i) the Parent, if the Reorganization shall not have been
consummated on or before the Closing Date Deadline (as defined in Section 9.5)
(other than due to the failure of the Parent or Newco to perform its obligations
under this Agreement required to be performed at or prior to the Closing), or
(ii) the Company, if the Reorganization shall not have been consummated on or
before the Closing Date Deadline (other than due to the failure of the Company
or any of the Stockholders to perform its obligations under this Agreement
required to be performed at or prior to the Closing); provided, however, that
-------- -------
any such termination by either such party shall be subject to the right of the
other party to extend the Closing Date Deadline, as contemplated by Section 9.5;
or
(d) by the Parent, if the holders of a majority of the outstanding
shares of the Company Common Stock and Company Preferred Stock shall not have
approved the Reorganization, this Agreement and the consummation of the
transactions contemplated hereby; or
(e) by the Parent, if the Company or its Board of Directors shall
have (i) withdrawn, modified or amended in any respect adverse to the Parent its
approval or recommendation of this Agreement or any of the transactions
contemplated herein, (ii) recommended any Transaction Proposal from a Person
other than the Parent or Newco or any of their Affiliates, or (iii) resolved to
do any of the foregoing; or
(f) by the Parent if a breach of any representation, warranty,
covenant or agreement on the part of the Company or any of the Stockholders set
forth in this Agreement shall have occurred which if uncured would cause any
condition set forth in Section 7.2(a) or Section 7.2(b) not to be satisfied, and
such breach is incapable of being cured or, if capable of being cured, shall not
have been cured within twenty (20) business days following receipt by the
Company of written notice of such breach from Parent; or
55
<PAGE>
(g) by the Company, if a breach of any representation, warranty,
covenant or agreement on the part of Parent or Newco set forth in this Agreement
shall have occurred which if uncured would cause any condition set forth in
Section 7.3(a) or Section 7.3(b) not to be satisfied, and such breach is
incapable of being cured or, if capable of being cured, shall not have been
cured within twenty (20) business days following receipt by Parent of written
notice of such breach from the Company.
Section 8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either the Company or the Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Parent, Newco or the Company, other than the
provisions of Section 3.11 (Brokers), Section 4.8 (Brokers), the last sentence
------- -------
of Section 5.3(a) (Access to Information; Confidentiality), the last sentence of
--------------------------------------
Section 6.3(a) (Access to Information; Confidentiality), Section 5.10 (Bridge
-------------------------------------- ------
Financing), this Section 8.2, Section 9.3 (Fees and Expenses), Section 9.8
- --------- -----------------
(Entire Agreement; No Third Party Beneficiaries) and Section 9.9 (Governing
- ----------------------------------------------- ---------
Law). Nothing contained in this Section shall relieve any party of any
liability for any breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
Section 8.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties. Notwithstanding
the foregoing, the Stockholders' Agent may execute any such writing on behalf of
all of the Stockholders so long as such writing does not (a) amend any provision
of Articles I, IIIA or VA hereof or (b) amend any other provision of this
Agreement in a way which materially increases any liability or materially
decreases any right of the Stockholders hereunder.
Section 8.4 Extension; Waiver. At any time prior to the Closing, the
-----------------
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. Notwithstanding the
foregoing, the Stockholders' Agent may execute any such agreement on behalf of
all of the Stockholders so long as such agreement does not apply to an extension
or waiver with respect to any provision of Article I, IIIA or VA hereof or to
any other provision of this Agreement where such extension or waiver materially
increases any liability or materially decreases any right of the Stockholders
hereunder. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
---------------------------------------------------------
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of the Parent or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
56
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Best Reasonable Efforts. Upon the terms and subject to the
-----------------------
conditions set forth in this Agreement, each of the parties agrees to use its
best reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, in the most expeditious manner
practicable, the Reorganization and the other transactions contemplated by this
Agreement. The Parent and the Company will use their best reasonable efforts and
cooperate with one another (i) in promptly determining whether any filings are
required to be made or consents, approvals, waivers, licenses, permits or
authorizations are required to be obtained (or, which if not obtained, would
result in an event of default, termination or acceleration of any agreement or
any put right under any agreement) under any applicable law or regulation or
from any governmental entities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by this Agreement, including the Reorganization and (ii) in
promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations.
Section 9.2 Survival of Representations and Warranties. The
-------------------------------------------
representations and warranties of the Stockholders contained in this Agreement
shall survive the Closing. Except as provided in the last sentence of this
Section 9.2, none of the representations and warranties of the Company, the
Parent or Newco contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing and all such
representations and warranties will be extinguished on consummation of the
Reorganization and neither the Company, the Parent or Newco, nor any officer,
director, or employee or stockholder of the Company, the Parent or Newco, shall
be under any liability whatsoever with respect to any such representation or
warranty of the Company, the Parent or Newco contained after such time. This
Section 9.2 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing. Notwithstanding the
foregoing, for purposes of the indemnification obligations of the Stockholders
under Section 5A.7 of this Agreement, the representations and warranties of the
Company contained in this Agreement shall be deemed to survive the Closing.
Section 9.3 Fees and Expenses.
-----------------
(a) If this Agreement is terminated pursuant to Section 8.1(d) or
Section 8.1(e), then the Company shall (provided that the Parent or Newco is not
then in material breach of its obligations under this Agreement), promptly, but
in no event later than four (4) business days after the termination of this
Agreement, reimburse the Parent and Newco for all documented out-of-pocket
expenses and fees (including, without limitation, fees payable to all banks,
investment banking firms and other financial institutions, and their respective
agents and counsel, and all fees of counsel, accountants, financial printers,
experts and consultants to Newco and its Affiliates), whether incurred prior to,
on or after the date hereof, in connection with the Reorganization and the
consummation of all transactions contemplated by this Agreement and the
financing thereof.
57
<PAGE>
(b) In the event a fee is or becomes payable pursuant to Section
9.3(a) hereof, the Company agrees promptly, but in no event later than four (4)
business days following written notice thereof, together with related bills or
receipts, to reimburse the Parent and Newco for all reasonable out-of-pocket
costs, fees and expenses, including, without limitation, the reasonable fees and
disbursements of counsel and the expenses of litigation, incurred in connection
with collecting the expenses pursuant to said Section 9.3(a), as a result of any
breach by the Company of its obligations under this Section 9.3.
(c) Except as provided otherwise in Section 9.3(a) above, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses.
Section 9.4 Notices. All notices, requests, claims, demands and other
--------
communications under this Agreement shall be in writing and shall be deemed
given if (i) delivered personally, (ii) sent by overnight courier (providing
proof of delivery) or (iii) upon transmission (with confirmed delivery to the
recipient of such communication) by facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Parent or Newco, to
Sonic Automotive, Inc.
5401 East Independence Boulevard
Charlotte, North Carolina 28212
Attention: Mr. Theodore M. Wright
with a copy to
Parker, Poe, Adams & Bernstein, LLP
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attention: Edward W. Wellman, Jr.
(b) if to the Company, to
FirstAmerica Automotive, Inc.
601 Brannon Street
San Francisco, California 94107
Attention: Mr. Thomas A. Price
58
<PAGE>
with copies to:
Gray, Cary, Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attention: Andrew D. Zeif, Esq. or
(c) if to the Stockholders or any of them, to the addresses listed
below their respective names on Exhibit A attached hereto.
---------
Section 9.5 Certain Definitions. For purposes of this Agreement:
--------------------
(a) "Affiliate" of any Person means another Person that directly or
----------
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) The terms "beneficially own" or "beneficial ownership" with
----------------- ---------------------
respect to any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the same
holder, securities beneficially owned by a Person shall include securities
beneficially owned by all other Persons with whom such Person would constitute a
"group" as described in Section 13(d)(3) of the Exchange Act.
(c) "Closing Date Deadline" means December 31, 1999; provided,
---------------------- ---------
however, if as of such date the approvals of the Manufacturers contemplated by
- --------
Section 7.2(h) shall not have been obtained or the waiting period (and any
extension thereof) applicable to the Reorganization under the HSR Act shall not
have been terminated or shall not have expired, the Parent or the Company may,
by written notice to the other, elect to extend the Closing Date Deadline for an
additional sixty (60) days.
(d) "Knowledge" with respect to the Company means the actual
----------
knowledge of the following persons: Thomas A. Price, Donald V. Strough, W. Bruce
Bercovich, Charles R. Oglesby, Debra L. Smithart, and David J. Moeller, in each
case after reasonable investigation and inquiry; provided, however, the Company
shall be deemed to have knowledge of all material facts disclosed in the
agreements (including related disclosure schedules) with respect to the Pending
Acquisition;
(e) "Lien" means any pledge, claim, lien, charge, encumbrance or
-----
security interest of any kind or nature whatsoever;
(f) "Manufacturers" means Acura Division of American Honda Motor Co.,
--------------
Inc., BMW of North America, Inc., Cadillac Motor Car Division of General Motors
Corp., Chevrolet Motor Division of General Motors Corp., Chrysler-Plymouth-Jeep
(Chrysler Corp.), Dodge Division of Chrysler Corp., Ford Division of Ford Motor
Co., Honda Division of America Honda Motor Co., Inc., American Isuzu Motors,
Inc., Lexus Division of Toyota Motor Sales,
59
<PAGE>
U.S.A., Inc., Daimler-Chrysler (Mercedes), Mitsubishi Motor Sales of America,
Inc., Nissan Motor Corporation in U.S.A., Oldsmobile Division of General Motors
Corp., Toyota Motor Sales, U.S.A., Inc., Volkswagen of America, Inc. and Volvo
Cars North-America, Inc.
(g) "Material Adverse Change" or "Material Adverse Effect" means,
------------------------ ------------------------
when used in connection with any Person, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, liabilities, financial condition or
results of operations of such Person but shall exclude any change or effect
resulting from (i) general economic conditions or (ii) general conditions in the
automotive industry;
(h) "Pending Acquisitions" means the pending acquisitions identified
---------------------
as such in Amendment No. 4 to the Company's Registration Statement on Form S-1
(Registration No. 333-75907), as well as the following pending acquisitions:
Capitol Ford, Inc.; and RAB Motors, Inc., d/b/a Lexus of Marin and Land Rover of
Marin. The fact that any Pending Acquisition identified in the foregoing
Registration Statement shall have closed prior to the date hereof or the Closing
shall not affect its status hereunder as a Pending Acquisition.
(i) "Person" means an individual, corporation, partnership, joint
-------
venture, association, trust, unincorporated organization or other entity; and
(j) "Subsidiary" of any Person means another Person, an amount of the
-----------
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
(k) In the event of a stock dividend or distribution, or any change
in the Company Common Stock or Company Preferred Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
-------
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
Section 9.6 Interpretation. When a reference is made in this Agreement to
--------------
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 9.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.8 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the
60
<PAGE>
subject matter of this Agreement. This Agreement, other than Section 6.4, is not
intended to confer upon any Person other than the parties hereto any rights or
remedies.
Section 9.9 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under principles of conflicts of laws.
Section 9.10 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.11 Enforcement. The parties agree that irreparable damage would
-----------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 9.12 Consent to Jurisdiction. Any judicial proceeding brought
-----------------------
with respect to this Agreement must be brought in any court of competent
jurisdiction in the State of California, and, by execution and delivery of this
Agreement, each party (i) accepts, generally and unconditionally, the exclusive
jurisdiction of such courts and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement and (ii) irrevocably waives any objection it may now or hereafter have
as to the venue of any such suit, action or proceeding brought in such a court
or that such court is an inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT.
Section 9.13 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.14 Construction. This Agreement shall be construed equitably in
------------
accordance with its terms, without regard to the degree to which the Company,
the Stockholders or the Parent, or their respective legal counsel, have
participated in the drafting of this Agreement.
Section 9.15 Effectiveness of this Agreement; Merger Agreement and
-----------------------------------------------------
Stockholder Agreement Superseded. This Agreement shall become effective when it
- --------------------------------
shall have been executed by the Parent, Newco and Stockholders who hold,
benefiically and of record, at least
61
<PAGE>
96% of the issued and outstanding shares of Company Common Stock, or such lesser
percentage, not less than 90%, as shall be specifically agreed to in writing by
the Parent. Upon the effectiveness of this Agreement and provided that this
Agreement shall have been executed by the Stockholders who are party to the
Stockholder Agreement, each of the Merger Agreement and the Stockholder
Agreement shall be superseded hereby and of no further force or effect.
Section 9.16 Concerning the Stockholders' Agent. By their respective
----------------------------------
signatures below, the Stockholders hereby acknowledge the appointment of Thomas
A. Price as the Stockholders' Agent hereunder and under the Escrow Agreement.
The parties hereto agree that a decision, consent, instruction or other act of
the Stockholders' Agent, including, but not limited to, a termination,
amendment, extension or waiver of this Agreement pursuant to Section 8.1,
Section 8.3 and Section 8.4 hereof, shall constitute a decision, consent,
instruction or other act, as the case may be, of the Stockholders and shall be
final, binding and conclusive upon the Stockholders; and the parties hereto
agree that the Escrow Agent, the Parent, Newco and the Surviving Corporation may
each rely upon any such decision, consent, instruction or other act of the
Stockholders' Agent as being the decision, consent, instruction or other act, as
the case may be, of the Stockholders.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
62
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
IN WITNESS WHEREOF, the Parent, Newco, the Company and the Stockholders
have signed this Agreement or have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.
PARENT: SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
---------------------------------
Name: Theodore M. Wright
Title: CFO, VP Finance,
Treasurer/Secretary
NEWCO: FAA ACQUISITION CORP.
By: /s/ Theodore M. Wright
---------------------------------
Name: Theodore M. Wright
Title: VP, Secretary/Treasurer
COMPANY: FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
---------------------------------
Name: Thomas A. Price
Title: President
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
STOCKHOLDERS:
/s/ Thomas A. Price /s/ Gwendolyn L. Price
- --------------------------------------- -------------------------------------
Name: Thomas A. Price, Spouse: Gwendolyn L. Price
individually and as trustee individually and as trustee
/s/ Donald V. Strough /s/ Linda L. Strough
- --------------------------------------- -------------------------------------
Name: Donald V. Strough Spouse: Linda L. Strough
individually and as trustee individually and as trustee
/s/ T. Al Babbington /s/ Iliana W. Babbington
- --------------------------------------- -------------------------------------
Name: T. Al Babbington Spouse: Iliana W. Babbington
/s/ John M. Driebe /s/ Christina Driebe
- --------------------------------------- -------------------------------------
Name: John M. Driebe Spouse: Christina Driebe
/s/ Fred Cziska /s/ Teresa Cziska
- --------------------------------------- -------------------------------------
Name: Fred Cziska Spouse: Teresa Cziska
/s/ Steve Hallock /s/ Kathryn Hallock
- --------------------------------------- -------------------------------------
Name: Steve Hallock Spouse: Kathryn Hallock
/s/ Brad Hallock
- --------------------------------------- -------------------------------------
Name: Brad Hallock
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BB INVESTMENTS
a California General Partnership
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
EMBARCADERO AUTOMOTIVE, LLC
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
GEARY PLAZA IRREVOCABLE TRUST
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW (LINC II), L.P., as General Partner
By TCW Advisors (Bermuda), Limited,
as General Partner
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
Managing Director
By: TCW Investment Management Company
its investment advisor
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
its general partner or managing owner
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited,
as General Partner
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
Managing Director
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
as investment manager and attorney-in-fact
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
Managing Director
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
ASIAN PACIFIC
By:
-------------------------
RAINTREE CAPITAL
By: /s/ Douglas Y. Beck By: /s/ Bert Wollen
------------------------- -------------------------
Douglas Y. Beck Bert Wollen
By: /s/ Ralph McBride By: /s/ Jack R. Tompkins
------------------------- -------------------------
Ralph McBride Jack R. Tompkins
By: /s/ Thomas R. Powers By: /s/ Brian Tucker
------------------------- -------------------------
Thomas R. Powers Brian Tucker
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
WARRANT HOLDERS:
/s/ T.J. Holterhoff /s/ Carole Holterhoff
- ----------------------------------- --------------------------------------
Name: T.J. Holterhoff Spouse: Carole Holterhoff
/s/ Carlanne Foushee /s/ Dennis S. Morgan
- ----------------------------------- --------------------------------------
Name: Carlanne Foushee Spouse: Dennis S. Morgan
BROWN, GIBBONS, LANG
By: /s/ Scott H. Lang
- -----------------------------------
Scott H. Lang
CAPMAN, INC.
By:
- -----------------------------------
<PAGE>
EXHIBIT 10.1.2
CREDIT AGREEMENT
NOTICE TO BORROWER: THIS DOCUMENT CONTAINS PROVISIONS FOR A VARIABLE INTEREST
RATE.
This Credit Agreement (this "Agreement") dated September 13 , 1999 is
-----
entered into between FIRSTAMERICA AUTOMOTIVE, INC., a Delaware corporation
("FAA") and FAA Holding Corp., a California corporation (jointly, severally, and
collectively, "Borrower"), whose collective address is 601 Brannan Street, San
Francisco, California ("Borrower's Address") and FORD MOTOR CREDIT COMPANY, a
Delaware corporation ("Lender"), whose address is 6120 Stoneridge Mall Road,
Suite 200, Pleasanton, California 94588 ("Lender's Address").
Borrower has requested Lender to extend a revolving line of credit to
Borrower in the principal amount not to exceed $138,500,000.00 (the "Loan") in
order to: (i) fund certain specific dealership acquisitions, (ii) retire
certain existing indebtedness of FAA, and (iii) provide used vehicle floor plan
financing to certain dealership subsidiaries of Borrower.
Lender is willing to make the Loan to Borrower provided that Borrower and
Guarantor grant to Lender a security interest in the Collateral (as defined
herein) and provide such other security as required by this Agreement and that
Borrower complies with the conditions precedent and other terms and conditions
of this Agreement and the Security Documents (as defined herein).
Now therefore, in consideration of the promises, covenants and undertakings
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, Lender and
Borrower hereby agree as follows:
ARTICLE I: DEFINITIONS
- -----------------------
1.1 All capitalized terms used in this Agreement have the meanings
attributed to them on Schedule A attached hereto, and made a part hereof, unless
otherwise defined herein. Any accounting terms used in this Agreement which are
not specifically defined herein have the meanings customarily given them in
accordance with generally accepted accounting principles in existence as of the
date hereof.
1.2 References. The existence throughout the Agreement of references
----------
to the Borrower's Subsidiaries is for a matter of convenience only. Any
references to Subsidiaries of the Borrower set forth herein will (i) with
respect to representations and warranties which deal with historical matters be
deemed to include each of the Subsidiaries existing on the date hereof; and (ii)
will not in any way be construed as consent by the Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder.
1.3 Effectiveness of this Agreement. Upon the satisfaction of all of
-------------------------------
the conditions precedent set forth in Section 3.1 of this Agreement (the date
-----------
upon which such conditions precedent are satisfied being hereinafter referred to
as the "Effective Date"), this Agreement will become effective.
--------------
ARTICLE II: THE LOAN FACILITIES
- --------------------------------
1
<PAGE>
2.1 Advances. Upon the satisfaction of the conditions precedent set
--------
forth in Sections 3.1 and 3.2, from and including the date of this Agreement and
------------ ---
prior to the Termination Date, the Lender will, on the terms and conditions set
forth in this Agreement, make Advances to the Borrower from time to time, in
dollars, in an amount not to exceed the Revolving Credit Availability at such
time; provided, however:
-------- -------
(i) at no time may the Revolving Credit Obligations exceed the Commitment
at such time;
(ii) at no time may the aggregate outstanding amount of Advances made
for the purposes of the Permitted Acquisitions of the New
Subsidiaries exceed $107,000,000.00 ("Acquisition Advances");
(iii) at no time may Advances for used vehicle floor plan financing
exceed the lesser of $5,000,000.00 or 100% of Used Vehicle Value
("Used Advances" and together with Acquisition Advances, "Revolving
Advances");
(iv) the will be only one Advance hereunder for the purposes of retiring
existing indebtedness of First AmericaAutomotive, Inc., and that
Advance will be payable to General Electric Capital Corporation and
may be in an amount no greater than $26,500,000.00 (such Advance is
referred to herein as the "GECal Advance") (Lender will have no
obligation to make such advance unless the conditions set forth in
Section 3.4 of this Agreement have been satisified).
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow Revolving Advances at any time prior to the Termination Date. The
Borrower shall repay in full the outstanding principal balance on the
Termination Date.
2.2 Optional Payments; Mandatory Prepayments.
----------------------------------------
(A) Optional Payments. The Borrower may from time to time repay or
-----------------
prepay, without penalty or premium all or any part of outstanding Advances;
provided, that the Borrower may not so prepay Advances unless it has provided at
- --------
least one business day's written notice to the Lender of such prepayment.
(B) Mandatory Prepayments. If at any time and for any reason the
---------------------
Revolving Credit Obligations are greater than the Commitment then the Borrower
shall immediately make a mandatory prepayment of the Obligations in an amount
equal to such excess. Amounts equal to a Decision Reserve or net cash proceeds
of an Asset Sale in connection with or following restoration, rebuilding or
replacement of insured property will be mandatorily applied against the
Revolving Credit Obligations in the amounts and in the manner set forth in
Section 5.2(G) hereof. All of the mandatory prepayments made under this Section
- -------------- -------
2.2(B) shall be applied first to Advances maturing on such date and then to
- ------
subsequently maturing Advances in order of maturity.
2.3 Changes in the Commitment. Reduction of Commitment. The
------------------------- -----------------------
Borrower may permanently reduce the Commitment in whole, or in part, in an
aggregate minimum amount of
2
<PAGE>
$5,000,000.00 and integral multiples of $1,000,000.00 in excess of that amount
(unless the Commitment is reduced in whole), upon at least three (3) business
days' written notice to the Lender, which notice must specify the amount of
any such reduction; provided, however, that the amount of the Commitment may
-------- -------
not be reduced below the aggregate principal amount of the outstanding
Revolving Credit Obligations.
2.4 Method of Borrowing. The Borrower shall give the Lender
-------------------
irrevocable notice in substantially the form of Exhibit B hereto (a "Borrowing
--------- ---------
Notice") not later than 10:00 a.m. (Eastern Standard Time) on the business day
- ------
preceding the Borrowing Date of each Advance, specifying: (i) the Borrowing
Date (which must be a business day) of such Advance; (ii) the aggregate amount
of such Advance; (iii) the use of proceeds of such Advance; and (iv) the account
or accounts into which the Advances should be funded. Not later than 2:00 p.m.
(Eastern Standard Time) on each Borrowing Date, the Lender will make available
its Advance, in funds immediately available to the Borrower at such account or
accounts as will have been notified to the Lender. Each Advance will bear
interest from and including the date of the making of such Advance to (but not
including) the date of repayment thereof at the Applicable Commercial Paper
Rate, changing when and as the underlying Commercial Paper Rate changes, which
such interest shall be payable in accordance with Section 2.9(B) and the Note.
--------------
2.5 Minimum Amount of Each Advance. Each Advance shall be in the
------------------------------
minimum amount of $250,000.00 (and in multiples of $50,000.00 if in excess
thereof), provided, however, that any Advance may be in the amount of the unused
-------- -------
Commitment.
2.6 Default Rate; Late Payment Fee. After the occurrence and during
------------------------------
the continuance of an Event of Default, at the option of the Lender, the
interest rate(s) applicable to the Advances may be equal to the Applicable
Commercial Paper Rate plus three percent (3.0%) per annum. If any of the
----
principal balance or interest on the Note or other sum due thereunder is not
paid within ten (10) days of when due, Borrower shall pay to Lender a late
charge payment equal to five percent (5%) of the amount of such installment or
the maximum rate permitted by law, whichever is less.
2.7 Method of Payment. All payments of principal, interest, and fees
-----------------
hereunder must be made, without setoff, deduction or counterclaim, in
immediately available funds to the Lender at the Lender's address specified
pursuant to Article X, or at any other address specified in writing by the
---------
Lender to the Borrower, by 2:00 p.m. (Eastern Standard Time) on the date when
due.
2.8 Advances, Telephonic Notices. The Lender is authorized to record
----------------------------
the principal amount of each Advance and each repayment with respect to its
Advances on the schedule attached to the Note; provided, however, that the
-------- -------
failure to so record will not affect the Borrower's obligations under the Note.
The Borrower authorizes the Lender to extend Advances and to transfer funds
based on telephonic notices made by any person or persons the Lender in good
faith believes to be acting on behalf of the Borrower. The Borrower agrees to
deliver promptly to the Lender a written confirmation, signed by an Authorized
Officer, if such confirmation is requested by the Lender, of each telephonic
notice. If the written confirmation differs in any material respect from the
action taken by the Lender, (i) the telephonic notice will govern absent
manifest error and (ii) the Lender shall promptly notify the Authorized Officer
who provided such confirmation of such difference.
3
<PAGE>
2.9 Promise to Pay; Interest and Commitment Fees; Interest Payment
---------------------------------------------------------------
Dates; Interest and Fee Basis; Taxes.
- ------------------------------------
(A) Promise to Pay. The Borrower unconditionally promises to pay
--------------
when due the principal amount of each Advance and all other Obligations incurred
by it, and to pay all unpaid interest accrued thereon, in accordance with the
terms of this Agreement and the Note.
(B) Interest Payment Date.
---------------------
(i) Interest Payable on Advances. Interest accrued on each Advance
----------------------------
will be payable on each Payment Date, commencing with the first such date
to occur after the date hereof and at maturity (whether by acceleration
or otherwise). On each Payment Date, the Borrower must pay interest at
the rate equal to the Commercial Paper Rate plus two and seventy five
hundredths percent (2.75%) per annum (the "Collection Rate") on each
Advance outstanding on such date. On the Termination Date, the Borrower
shall pay, in addition to any unpaid principal amount of any Advance,
interest at the Collection Rate and an amount equal to the Scaled Assets
Adjustment Amount to the Lender.
(ii) Interest on other Obligations. Interest accrued on the principal
-----------------------------
balance of all other Obligations will be payable in arrears (i) on the last
day of each calendar month, commencing on the first such day following the
incurrence of such Obligation, (ii) upon repayment thereof in full or in
part, and (iii) if not theretofore paid in full, at the time such other
Obligation becomes due and payable (whether by acceleration or otherwise).
(C) Interest and Fee Basis. Interest and fees will be calculated for
----------------------
actual days elapsed on the basis of a 365, or when appropriate 366, day year.
Interest will be payable for the day an Obligation is incurred but not for the
day of any payment on the amount paid if payment is received prior to 2:00 p.m.
(Eastern Standard Time) at the place of payment. If any payment of principal of
or interest on an Advance or any payment of any other Obligations becomes due on
a day which is not a business day, such payment must be made on the next
succeeding business day and, in the case of a principal payment, such extension
of time will be included in computing interest in connection with such payment.
2.10 Termination Date. This Agreement will be effective until the
----------------
Termination Date. Notwithstanding the termination of this Agreement on the
Termination Date, until all of the Obligations (other than contingent indemnity
obligations, but including all Floor Plan Indebtedness) have been fully and
indefeasibly paid and satisfied and all financing arrangements between the
Borrower and the Lender in connection with this Agreement have been terminated
(other than with respect to Hedging Obligations), all of the rights and remedies
under this Agreement and the other Loan Documents will survive and the Lender
will be entitled to retain its security interest in and to all existing and
future Collateral.
2.11 Taxes. (A) Any and all payments by the Borrower hereunder must
-----
be made free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings or any
liabilities with respect thereto including those arising after the date hereof
as a result of the adoption of or any change in any law, treaty, rule,
4
<PAGE>
regulation, guideline or determination of a governmental authority or any change
in the interpretation or application thereof by a governmental authority but
excluding such taxes (including income taxes, franchise taxes and branch profit
taxes) as are imposed on or measured by the Lender's income by the United States
of America or any governmental authority of the jurisdiction under the laws of
which the Lender is organized or having jurisdiction over the Lender by virtue
of the Lender's location(s) (other than solely as a result of the transaction
evidenced by this Agreement) (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings, and liabilities which the Lender determines
to be applicable to this Agreement, the other Loan Documents, the Commitment or
the Advances being hereinafter referred to as "Taxes"). If the Borrower is
-----
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to the Lender, (i) the sum payable
must be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.11(A)) the Lender receives an amount equal to the sum it would
---------------
have received had no such deductions been made, (ii) the Borrower must make such
deductions, and (iii) the Borrower must pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(B) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges, or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the other Loan Documents, the Commitment or the Advances (hereinafter
referred to as "Other Taxes").
-----------
(C) The Borrower indemnifies the Lender for the full amount of Taxes
and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any governmental authority on amounts payable under this Section 2.11 paid by
------------
the Lender and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification must be made
within thirty (30) days after the date the Lender makes written demand therefor.
A certificate as to any additional amount payable to the Lender under this
Section 2.11 submitted to the Borrower by the Lender must show in reasonable
- ------------
detail the amount payable and the calculations used to determine such amount and
will, absent manifest error, be final, conclusive and binding upon each of the
parties hereto. With respect to such deduction or withholding for or on account
of any Taxes and to confirm that all such Taxes have been paid to the
appropriate governmental authorities, the Borrower will promptly (and in any
event not later than thirty (30) days after receipt) furnish to the Lender such
certificates, receipts and other documents as may be required (in the judgment
of the Lender) to establish any tax credit to which the Lender may be entitled.
(D) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by the Borrower, the Borrower shall furnish to the Lender the
original or a certified copy of a receipt evidencing payment thereof.
(E) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.11 will survive the payment in full of principal and interest
------------
hereunder and the termination of this Agreement.
5
<PAGE>
2.12 Loan Account. The Lender shall maintain in accordance with its
------------
usual practice an account or accounts (a "Loan Account") evidencing the
------------
Obligations of the Borrower to the Lender owing to the Lender from time to time,
including the amount of principal and interest payable and paid to the Lender
from time to time hereunder and under the Note. The entries made in the Loan
Account will be conclusive and binding for all purposes, absent manifest error,
unless the Borrower objects to information contained in the Loan Account within
thirty (30) days of the Borrower's receipt of such information.
ARTICLE III: CONDITIONS PRECEDENT
- ----------------------------------
3.1 Conditions of Effectiveness. The Effective Date of this
---------------------------
Agreement will be on the date on which all of the following conditions have been
satisfied:
(A) no law, regulation, order, judgment or decree of any governmental
authority has, and the Lender had not received any notice that litigation
is pending or threatened which is likely to, (i) enjoin, prohibit or
restrain the making of an Advance hereunder or (ii) impose or result in the
imposition of a material adverse effect;
(B) all due diligence materials requested by the Lender from the Borrower
have been delivered to the Lender and such due diligence materials are in
form and substance satisfactory to the Lender;
(C) the Borrower has furnished to the Lender each of the following, all in
form and substance satisfactory to the Lender:
(i) this Agreement, duly executed by the Borrower;
(ii) the Note, duly executed by the Borrower in favor of the
Lender;
(iii) the Borrower's Guaranty, duly executed by the Borrower; a
Guaranty executed by each Guarantor which has not heretofore provided a
Guaranty to the Lender;
(iv) a Security Agreement executed by Borrower and each
Guarantor which has not heretofore provided a Security Agreement to the
Lender;
(v) to the extent Borrower or any Guarantor has any
Indebtedness other than Permitted Indebtedness, pay-out letters, releases
and UCC-3 Termination Statements, where applicable, from all third-party
creditors releasing all Liens securing any such Indebtedness;
(vi) certificates of good standing for the Borrower and each of
the Guarantors from its jurisdiction of incorporation and each other
jurisdiction where the nature of its business requires it to be qualified
as a foreign corporation;
6
<PAGE>
(vii) a Secretary's Certificate from the Borrower and each
Guarantor acquired by the Borrower on or prior to the date hereof, and an
Incumbency Certificate from Pledgor;
(viii) a certificate, in form and substance satisfactory to the
Lender, signed by the chief financial officer of the Borrower stating that
as of the Effective Date, no Event of Default or Unmatured Default has
occurred and is continuing and setting forth the calculation of the
FirstAmerica Group's Scaled Assets as of the Effective Date, and the
representations and warranties of the Borrower are true and correct with
full force and effect as if made on the Effective Date;
(ix) a written opinion of the Borrower's and Guarantors'
counsel, addressed to the Lender, in form and substance satisfactory to the
Lender;
(x) to the extent not included in the foregoing, the
documents, instruments and agreements set forth on the closing list
attached as Exhibit E hereto;
---------
(xi) such other documents as the Lender or its counsel may have
reasonably requested;
(xii) the Pledge Agreement, duly executed by Pledgor; and
(xiii) payment in full of the $500,000.00 loan origination fee.
3.2 Conditions Precedent to Each Advance. The Lender will not be
------------------------------------
required to make any Advance, unless on the applicable Borrowing Date:
(A) there exists no Event of Default or Unmatured Default; and
(B) the representations and warranties contained in Article IV
----------
are true and correct as of such Borrowing Date (unless such representation
and warranty expressly relates to an earlier date or is no longer true
solely as a result of transactions permitted by this Agreement).
Each Borrowing Notice with respect to each such Advance constitutes a
representation and warranty by the Borrower that the conditions contained in
Sections 3.2(A) and (B) have been satisfied. If the Lender has a reasonable
- --------------- ---
basis for believing an Event of Default or Unmatured Default may have occurred
and is continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in Article IV, the Lender may require a
----------
duly completed officer's certificate in substantially the form of Exhibit F
---------
hereto as a condition to making an Advance.
3.3 Condition Precedent to Additional Advance. Notwithstanding
-----------------------------------------
anything to the contrary in this Agreement, the Lender is under no obligation to
make an Advance to the Borrower hereunder until and unless the following
requirements have been satisfied:
(A) there exist no Liens on the Collateral other than Permitted Existing
Liens and those Permitted Existing Liens appearing on Schedule 1.1.3 marked
--------------
with an asterisk
7
<PAGE>
have been released and or terminated, and the Borrower has confirmed
delivery of such releases, UCC-3 termination statements or other
documentation reasonably requested by the Lender evidencing such release
or termination; and
(B) the loss payable endorsements referenced in Section 5.2(G) have been
--------------
delivered to the Lender.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES
- -------------------------------------------
The Borrower represents and warrants as follows to the Lender as of
the date hereof and as of the Effective Date, giving effect to the
consummation of the transactions contemplated by the Transaction Documents on
the date hereof, and thereafter on each date as required by Section 4.2:
-----------
4.1 Organization; Corporate Powers. The Borrower and each of its
------------------------------
Subsidiaries (i) is a corporation, limited liability company or limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (ii) is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which failure to
be so qualified and in good standing could not reasonably be expected to have a
material adverse effect and (iii) has all requisite corporate, company or
partnership power and authority to own, operate and encumber its property and to
conduct its business as presently conducted and as proposed to be conducted.
4.2 Authority.
---------
(A) The execution, delivery, performance and filing, as the case may
be, of each of the Transaction Documents which must be executed or filed by the
Borrower or any of its Subsidiaries in connection with the Public Offerings or
which have been executed or filed as required by this Agreement on or prior to
the Effective Date and to which the Borrower or any of its Subsidiaries is
party, and the consummation of the transactions contemplated thereby, have been
duly approved by the respective boards of directors or managers, or by the
partners, as applicable, and, if necessary, the shareholders, members or
partners, as applicable, of the Borrower and its Subsidiaries, and such
approvals have not been rescinded. No other corporate, company or partnership
action or proceedings on the part of the Borrower or its Subsidiaries are
necessary to consummate such transactions.
(B) Each of the Transaction Documents to which the Borrower or any of
its Subsidiaries is a party has been duly executed, delivered or filed, as the
case may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
without the prior written consent of the Lender, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be performed or complied with by such parties on or before the date
hereof, and no unmatured default, default or breach of any material covenant by
any such party exists thereunder.
8
<PAGE>
4.3 No Conflict; Governmental Consents. The execution, delivery and
----------------------------------
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the Charter Documents of the Borrower or any such Subsidiary, (ii)
constitute a tortious interference with any Contractual Obligation of any Person
or conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any requirement of law (including,
without limitation, any Environmental Property Transfer Act) or Contractual
Obligation of the Borrower or any such Subsidiary, or require termination of any
Contractual Obligation, (iii) result in or require the creation or imposition of
any Lien whatsoever upon any of the property or assets of the Borrower or any
such Subsidiary, other than Liens permitted by the Loan Documents, or (iv)
require any approval of the Borrower's or any such Subsidiary's shareholders
except such as have been obtained. The execution, delivery and performance of
each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by any
governmental authority, including under any Environmental Property Transfer Act,
except (i) filings, consents or notices which have been made, obtained or given,
or which, if not made, obtained or given, individually or in the aggregate could
not reasonably be expected to have a material adverse effect and (ii) filings
necessary to create or perfect security interests in the Collateral.
4.4 Financial Statements.
--------------------
(A) The pro forma financial statements of the Borrower and its
--- -----
Subsidiaries contained in the Registration Statement, present on a pro forma
--- -----
basis the financial condition of the Borrower and such Subsidiaries as of the
dates contained therein, and reflect on a pro forma basis those liabilities
--- -----
reflected in the notes thereto and resulting from consummation of the Public
Offering and the other transactions contemplated by this Agreement, and the
payment or accrual of all Transaction Costs payable on the Effective Date with
respect to any of the foregoing.
(B) The historical financial statements (the "Statement") of the
---------
Borrower and each of the Subsidiaries included in the Registration Statement,
(i) were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby (except as otherwise
expressly noted therein), (ii) to the Borrower's knowledge, after diligent
inquiry, fairly present the financial condition of each of the Borrower and such
Subsidiaries as of the dates thereof and the results of operations for the
periods covered thereby; and (iii) show all material indebtedness and other
liabilities, direct or contingent, of each of the Borrower and such Subsidiaries
as of the dates thereof.
4.5 No Material Adverse Change. (A) Since December 31, 1998 up to
--------------------------
the date hereof, there has occurred no event or circumstance which has had or
could reasonably be expected to have a material adverse change in the business,
condition (financial or otherwise), operations, performance, properties, or
prospects of the Borrower or any Guarantor from the pro forma financial
--- -----
statements and projections contained in the Registration Statement or in the
facts and information regarding such entities as represented to date. After
giving effect to the Acquisitions, none of the Borrower or Guarantor are or and
will be rendered insolvent by the indebtedness incurred in connection therewith,
will be left with unreasonably small capital with
9
<PAGE>
which to engage in its businesses or will have incurred debts beyond its
ability to pay such debts as they mature.
(B) Since the date hereof, there has occurred no event or
circumstance which has had or could reasonably be expected to have a material
adverse effect.
4.6 Taxes.
-----
(A) Tax Examinations. All deficiencies which have been asserted
----------------
against the Borrower or any of the Borrower's Subsidiaries as a result of any
federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the date hereof
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(B) Payment of Taxes. All tax returns and reports of the Borrower
----------------
and its Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries.
4.7 Litigation; Loss Contingencies and Violations. There is no
---------------------------------------------
action, suit, proceeding, arbitration or investigation before or by any
governmental authority or private arbitrator pending or, to the Borrower's
knowledge after diligent inquiry, threatened against the Borrower or any of its
Subsidiaries or any property of any of them (i) challenging the validity or the
enforceability of any material provision of the Transaction Documents or (ii)
which will have or could reasonably be expected to have a material adverse
effect. There is no material loss contingency within the meaning of Agreement
Accounting Principles which has not been reflected in the consolidated financial
statements of the Borrower and its Subsidiaries prepared and delivered pursuant
to Section 5.1(A) for the fiscal period during which such material loss
--------------
contingency was incurred. Neither the Borrower nor any of its Subsidiaries is
(A) in violation of any applicable requirements of law which violation will have
or could reasonably be expected to have a material adverse effect, or (B)
subject to or in default with respect to any final judgment, writ, injunction,
restraining order or order of any nature, decree, rule or regulation of any
court or governmental authority which will have or could reasonably be expected
to have a material adverse effect.
4.8 Subsidiaries. Schedule 4.8 to this Agreement (i) contains a
------------ ------------
description as of the Effective Date (or as of the date of any supplement
thereto) of the corporate structure of, the Borrower and its Subsidiaries and
any other Person in which the Borrower or any of its Subsidiaries holds an
Equity Interest; and (ii) accurately sets forth as of the Effective Date (or as
of the date of any supplement thereto) (A) the correct legal name, the
jurisdiction of incorporation or formation and the jurisdictions in which each
of the Borrower and the Subsidiaries of the Borrower is qualified to transact
business as a foreign corporation or other
10
<PAGE>
foreign entity and (B) a summary of the direct and indirect partnership, joint
venture, or other Equity Interests, if any, of the Borrower and each
Subsidiary of the Borrower in any Person that is not a corporation. After the
formation or acquisition of any New Subsidiary permitted under Section
-------
5.3(F)(ii), if requested by the Lender, the Borrower shall provide a supplement
- ----------
to Schedule 4.8 to this Agreement. None of the issued and outstanding Capital
------------
Stock of the Borrower or any of its Subsidiaries is subject to any redemption
or repurchase agreement. The outstanding Capital Stock of the Borrower and
each of the Borrower's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and, is not Margin Stock. The Borrower has no
Subsidiaries other (i) the Subsidiaries set forth on Schedule 4.8 and (ii) any
------------
Subsidiaries acquired in connection with a Permitted Acquisition, in
connection with which the Borrower shall have provided all of the documents,
instruments and agreements as required by this Agreement.
4.9 ERISA. No Benefit Plan has incurred any material accumulated
-----
funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the
Code) whether or not waived. Neither the Borrower nor any member of the
Controlled Group has incurred any material liability to the PBGC which remains
outstanding other than the payment of premiums, and there are no premium
payments which have become due which are unpaid. Schedule B to the most recent
annual report filed with the IRS with respect to each Benefit Plan and, if so
requested, furnished to the Lender, is complete and accurate. Since the date of
each such Schedule B, there has been no material adverse change in the funding
status or financial condition of the Benefit Plan relating to such Schedule B.
Neither the Borrower nor any member of the Controlled Group has (i) failed to
make a required contribution or payment to a Multiemployer Plan or (ii) made a
complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a
Multiemployer Plan, in either event which could result in any material
liability. Neither the Borrower nor any member of the Controlled Group has
failed to make a required installment or any other required payment under
Section 412 of the Code, in either case involving any material amount, on or
before the due date for such installment or other payment. Neither the Borrower
nor any member of the Controlled Group is required to provide security to a
Benefit Plan under Section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the plan year. Neither the
Borrower nor any of its Subsidiaries maintains or contributes to any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA. Each Plan which is intended to be qualified under Section
401(a) of the Code as currently in effect is so qualified, and each trust
related to any such Plan is exempt from federal income tax under Section 501(a)
of the Code as currently in effect. The Borrower and all Subsidiaries are in
compliance in all material respects with the responsibilities, obligations and
duties imposed on them by ERISA and the Code with respect to all Plans. Neither
the Borrower nor any of its Subsidiaries nor any fiduciary of any Plan has
engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA
or 4975 of the Code which could reasonably be expected to subject the Borrower
or any Guarantor to material liability. Neither the Borrower nor any member of
the Controlled Group has taken or failed to take any action which would
constitute or result in a Termination Event, which action or inaction could
reasonably be expected to subject the Borrower to material liability. Neither
the Borrower nor any Subsidiary is subject to any liability under Sections 4063,
4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group
is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA which could reasonably be expected to subject the Borrower or any
Guarantor to liability. Neither the Borrower nor any of its Subsidiaries has,
by reason of the
11
<PAGE>
transactions contemplated hereby, any obligation to make any payment to any
employee pursuant to any Plan or existing contract or arrangement. For
purposes of this Section 4.9 "material" means any noncompliance or basis for
-----------
liability which could reasonably be likely to subject the Borrower or any of
its Subsidiaries to liability individually or in the aggregate for all such
matters in excess of $250,000.00.
4.10 Accuracy of Information. The information, exhibits and reports
-----------------------
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Lender in connection with the negotiation of, or compliance with, the Loan
Documents, the representations and warranties of the Borrower and its
Subsidiaries contained in the Transaction Documents, and all certificates and
documents delivered to the Lender pursuant to the terms thereof, taken as a
whole, do not contain as of the date furnished any untrue statement of a fact or
omit to state a fact necessary in order to make the statements contained herein
or therein, taken as a whole, in light of the circumstances under which they
were made, not misleading.
4.11 Securities Activities. Neither the Borrower nor any of its
---------------------
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
4.12 Material Agreements. Neither the Borrower nor any of its
-------------------
Subsidiaries is a party to any Contractual Obligation or subject to any charter
or other corporate restriction which individually or in the aggregate will have
or could reasonably be expected to have a material adverse effect. Neither the
Borrower nor any of its Subsidiaries has received notice or has knowledge that
(i) it is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a material adverse effect.
4.13 Compliance with Laws; Compliance with Franchise Agreements. The
----------------------------------------------------------
Borrower and its Subsidiaries are in compliance with all requirements of law
applicable to them and their respective businesses. The execution, delivery and
performance by each Guarantor of any Loan Document to which it is a party does
not and will not conflict with the franchise agreement to which it is a party.
Each Guarantor (other than any Guarantor that functions only as a Subsidiary
holding company and is not an operating entity) is operating under a valid and
enforceable franchise agreement.
4.14 Assets and Properties. The Borrower and each of its
---------------------
Subsidiaries has good and marketable title to all of its assets and properties
(tangible and intangible, real or personal) owned by it or a valid leasehold
interest in all of its leased assets (except insofar as marketability may be
limited by any laws or regulations of any governmental authority affecting such
assets), and all such assets and property are free and clear of all Liens,
except Liens permitted under Section 5.3(C). Substantially all of the assets
--------------
and properties owned by, leased to or used by the Borrower and/or each such
Subsidiary of the Borrower are in adequate operating condition and repair,
ordinary wear and tear excepted. Neither this Agreement nor any other
Transaction Document, nor any transaction contemplated under any such agreement,
will affect any right, title or interest of the Borrower or such Subsidiary in
and to any of its assets in a manner that will have or could reasonably be
expected to have a material adverse effect.
12
<PAGE>
4.15 Statutory Indebtedness Restrictions. Neither the Borrower nor
-----------------------------------
any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
or the Investment Company Act of 1940, or any other federal, state or local
statute, ordinance or regulation which limits its ability to incur indebtedness
or its ability to consummate the transactions contemplated hereby.
4.16 Insurance. The Borrower's and its Subsidiaries' insurance
---------
policies and programs reflect coverage that is reasonably consistent with
prudent industry practice.
4.17 Labor Matters. As of the date hereof, to the Borrower's and its
-------------
Subsidiaries' knowledge, there are no material labor disputes to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities.
4.18 Environmental Matters. (A) The operations of the Borrower and
---------------------
its Subsidiaries comply in all material respects with Environmental, Health or
Safety Requirements of Law;
(B) the Borrower and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such
permits;
(C) neither the Borrower, any of its Subsidiaries nor any of
their respective present property or operations, or, to the best of, the
Borrower's or any of its Subsidiaries' knowledge, any of their respective
past property or operations, are subject to or the subject of, any
investigation known to the Borrower or any of its Subsidiaries, any
judicial or administrative proceeding, order, judgment, decree, settlement
or other agreement respecting: (i) any material violation of
Environmental, Health or Safety Requirements of Law; (ii) any material
remedial action; or (iii) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment;
(D) there is not now, nor to the best of the Borrower's or any
of its Subsidiaries' knowledge has there ever been on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment
or hazardous waste storage facility of any kind, any polychlorinated
biphenyls (PCBs) used in hydraulic oils, electric transformers or other
equipment, or any asbestos containing material that in the case of any of
the foregoing could be reasonably expected to result in any material claims
or liabilities; and
(E) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or threatened
Release of a Contaminant into the environment.
4.19 Benefits. Each of the Borrower and its Subsidiaries will
--------
benefit from the financing arrangement established by this Agreement. The
Lender has stated and the Borrower acknowledges that, but for the agreement by
each of the Guarantors to execute and deliver its
13
<PAGE>
respective Guaranty and Security Agreement, the Lender would not have made
available the credit facilities established hereby on the terms set forth
herein.
4.20 Acquisitions; Related Transactions. As of the Effective Date
----------------------------------
and as of the date of each Acquisition all material conditions precedent to, all
consents from applicable governmental authorities, and all other material
consents necessary to permit the Acquisitions pursuant to the Acquisition
Documents have been or will be satisfied or waived by the Borrower with the
prior written consent of the Lender.
ARTICLE V: COVENANTS
- ---------------------
The Borrower covenants and agrees that so long as any Commitment is
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations, but including Floor Plan
Indebtedness), unless the Lender otherwise gives its prior written consent:
5.1 Reporting. The Borrower shall:
---------
(A) Financial Reporting. Furnish to the Lender:
-------------------
(i) Quarterly Reports. As soon as practicable, and in any event
-----------------
within forty-five (45) days after the end of each fiscal quarter in each
fiscal quarter, the consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the related
consolidated and consolidating statements of income and consolidated
statements of cash flows of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, certified by the chief
financial officer of the Borrower on behalf of the Borrower as fairly
presenting the consolidated and consolidating financial position of the
Borrower and its Subsidiaries as at the dates indicated and the results of
their operations and cash flows for the periods indicated in accordance
with Agreement Accounting Principles, subject to normal year end
adjustments.
(ii) Annual Reports. As soon as practicable, and in any event
--------------
within ninety (90) days after the end of each fiscal year, (a) the
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal year and the related consolidated
and consolidating statements of income, stockholders' equity and cash flows
of the Borrower and its Subsidiaries for such fiscal year, and in
comparative form the corresponding figures for the previous fiscal year and
(b) an audit report on the items listed in clause (a) hereof (other than
----------
the consolidating statements) of independent certified public accountants
of recognized national standing, which audit report shall be unqualified
and shall state that such financial statements fairly present the
consolidated financial position of the Borrower and its Subsidiaries as at
the dates indicated and the results of their operations and cash flows for
the periods indicated in conformity with Agreement Accounting Principles
and that the examination by such accountants in connection with such
consolidated financial statements has been made in accordance with
generally accepted auditing standards. Within 30 days after the deliveries
made pursuant to this clause (ii), Borrower shall cause to be delivered to
-----------
Lender any management letter prepared by the above-referenced accountants.
14
<PAGE>
(iii) Monthly Statements. As soon as practicable, and in any by
------------------
the seventh business day of each month, (i) certified copies of statements
prepared by Borrower fairly presenting the financial position of each of
Borrower's Subsidiaries individually, and by the twenty-fifth day of each
month, certified copies of statements prepared by Borrower fairly
presenting the consolidated and consolidating financial position of
Borrower and its Subsidiaries, and (ii) a certified used vehicle inventory
schedule, providing an inventory of all used vehicles owned by Borrower and
its Subsidiaries.
(iv) Officer's Certificate. Together with each delivery of any
---------------------
financial statement pursuant to clauses (i) and (ii) of this Section
----------- ---- -------
5.1(A), an Officer's Certificate of the Borrower, substantially in the form
of Exhibit F attached hereto and made a part hereof, stating that no Event
---------
of Default or Unmatured Default exists, or if any Event of Default or
Unmatured Default exists, stating the nature and status thereof and setting
forth (X) such financial statements and information as shall be reasonably
acceptable to the Lender and (Y) a valuation of the Collateral.
(B) Notice of Event of Default. Promptly upon any of the chief
--------------------------
executive officer, chief operating officer, chief financial officer, treasurer
or controller of the Borrower or any of its Subsidiaries obtaining knowledge (i)
of any condition or event which constitutes an Event of Default or Unmatured
Default, or (ii) that any Person has given any written notice to the Borrower or
any Subsidiary of the Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section 6.1(E),
--------------
deliver to the Lender a notice specifying (a) the nature and period of existence
of any such claimed default, Event of Default, Unmatured Default, condition or
event, (b) the notice given or action taken by such Person in connection
therewith, and (c) what action the Borrower has taken, is taking and proposes to
take with respect thereto.
(C) Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of
--------
the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Borrower or
any of its Subsidiaries or any property of the Borrower or any of its
Subsidiaries, which action, suit, proceeding, governmental investigation or
arbitration exposes, or in the case of multiple actions, suits, proceedings,
governmental investigations or arbitrations arising out of the same general
allegations or circumstances which expose, in the Borrower's reasonable
judgment, the Borrower or any of its Subsidiaries to liability in an amount
aggregating $500,000.00 or more, give written notice thereof to the Lender and
provide such other information as may be reasonably available to enable the
Lender and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in clause (i) of this Section 5.1(C), upon request of the
---------- --------------
Lender, promptly give written notice of the status of any action, suit,
proceeding, governmental investigation or arbitration covered by a report
delivered pursuant to clause (i) above or disclosed in any filing with the
----------
Commission and provide such other information as may be reasonably available to
it that would not violate any attorney-client privilege by disclosure to the
Lender to enable the Lender and its counsel to evaluate such matters.
(D) ERISA Notices. Deliver or cause to be delivered to the Lender,
-------------
at the Borrower's expense, the following information and notices as soon as
reasonably possible, and in any event:
15
<PAGE>
(i) (a) within ten (10) business days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement of the
chief financial officer of the Borrower describing such Termination Event
and the action, if any, which the Borrower has taken, is taking or proposes
to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten
(10) business days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could reasonably be
expected to subject the Borrower or any member of the Controlled Group to
liability individually or in the aggregate in excess of $250,000, a written
statement of the chief financial officer of the Borrower describing such
Termination Event and the action, if any, which the member of the
Controlled Group has taken, is taking or proposes to take with respect
thereto, and when known, any action taken or threatened by the IRS, DOL or
PBGC with respect thereto;
(ii) within ten (10) business days after the Borrower or any of
its Subsidiaries obtains knowledge that a prohibited transaction (defined
in Sections 406 of ERISA and Section 4975 of the Code) has occurred, a
statement of the chief financial officer of the Borrower describing such
transaction and the action which the Borrower or such Subsidiary has taken,
is taking or proposes to take with respect thereto;
(iii) within ten (10) business days after the Borrower or any of
its Subsidiaries receives notice of any unfavorable determination letter
from the IRS regarding the qualification of a Plan under Section 401(a) of
the Code, copies of each such letter;
(iv) within ten (10) business days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by the Borrower or a member of
the Controlled Group with respect to such request;
(v) within ten (10) business days after receipt by the Borrower
or any member of the Controlled Group of the PBGC's intention to terminate
a Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(vi) within ten (10) business days after receipt by the Borrower
or any member of the Controlled Group of a notice from a Multi-employer
Plan regarding the imposition of withdrawal liability, copies of each such
notice;
(vii) within ten (10) business days after the Borrower or any
member of the Controlled Group fails to make a required installment or any
other required payment under Section 412 of the Code on or before the due
date for such installment or payment, a notification of such failure; and
(viii) within ten (10) business days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multi-employer Plan has been terminated, (b) the administrator or plan
sponsor of a Multi-employer Plan intends to terminate a Multi-employer
Plan, or (c) the PBGC has instituted or will institute proceedings under
Section 4042 of ERISA to terminate a Multi-employer Plan.
16
<PAGE>
For purposes of this Section 5.1(D), the Borrower, any of its Subsidiaries and
--------------
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) Labor Matters. Notify the Lender in writing, promptly upon the
-------------
Borrower's learning thereof, of (i) any material labor dispute to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities and (ii) any material liability incurred under the
Worker Adjustment and Retraining Notification Act with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) Other Indebtedness. Deliver to the Lender (i) a copy of each
------------------
notice or communication regarding potential or actual defaults (including any
accompanying officer's certificate) delivered by or on behalf of the Borrower or
any of its Subsidiaries to the holders of funded Indebtedness pursuant to the
terms of the agreements governing such Indebtedness, such delivery to be made at
the same time and by the same means as such notice or other communication is
delivered to such holders, and (ii) a copy of each notice or other communication
regarding potential or actual defaults received by the Borrower or any of its
Subsidiaries from the holders of funded Indebtedness pursuant to the terms of
such Indebtedness, such delivery to be made promptly after such notice or other
communication is received by the Borrower or any such Subsidiary.
(G) Other Reports. Deliver or cause to be delivered to the Lender
-------------
copies of all financial statements, reports and notices, if any, sent or made
available generally by the Borrower to its securities holders or filed with the
Commission by the Borrower, all press releases made available generally by the
Borrower or any of the Borrower's Subsidiaries to the public concerning material
developments in the business of the Borrower or any such Subsidiary and all
notifications received from the Commission by the Borrower or its Subsidiaries
pursuant to the Securities Exchange Act of 1934 and the rules promulgated
thereunder (other than customary comment letters received in connection with
registration statements or other routine communications between the Commission
and the Borrower).
(H) Environmental Notices. Deliver or cause to be delivered to
---------------------
Lender, as soon as possible, and in any event within ten (10) days after receipt
by the Borrower or any of its Subsidiaries, a copy of (i) any notice or claim to
the effect that the Borrower or any of its Subsidiaries is or may be liable to
any Person as a result of the Release by the Borrower, any of its Subsidiaries,
or any other Person of any Contaminant into the environment, and (ii) any notice
alleging any violation of any Environmental, Health or Safety Requirements of
Law by the Borrower or any of its Subsidiaries.
(I) Other Information. Promptly upon receiving a request therefor
-----------------
from the Lender, prepare and deliver to the Lender such other information with
respect to the Borrower, any of its Subsidiaries, or the Collateral, including,
without limitation, schedules identifying and describing the Collateral and any
dispositions thereof, as from time to time may be reasonably requested by the
Lender.
17
<PAGE>
5.2 Affirmative Covenants.
---------------------
(A) Existence, Etc. Except for mergers permitted pursuant to Section
--------------- -------
5.3(H), the Borrower shall, and shall cause each of its Subsidiaries to, at all
- ------
times maintain its corporate company or partnership existence, as applicable,
and preserve and keep, or cause to be preserved and kept, in full force and
effect its rights and franchises material to its businesses.
(B) Powers; Conduct of Business. The Borrower shall, and shall cause
---------------------------
each of its Subsidiaries to, qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so qualified
and where the failure to be so qualified will have or could reasonably be
expected to have a material adverse effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(C) Compliance with Laws, Etc. The Borrower shall, and shall cause
--------------------------
its Subsidiaries to, (i) comply with all requirements of law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (ii) obtain as needed all permits necessary for
its operations and maintain such permits in good standing.
(D) Payment of Taxes and Claims; Tax Consolidation. The Borrower
----------------------------------------------
shall pay, and shall cause each of its Subsidiaries to pay, (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 5.3(C)) upon any of
--------------
the Borrower's or such Subsidiary's property or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided, however,
-------- -------
that no such taxes, assessments and governmental charges referred to in clause
------
(i) above or claims referred to in clause (ii) above (and interest, penalties or
- --- -----------
fines relating thereto) need be paid if being contested in good faith by
appropriate proceedings diligently instituted and conducted and if such reserve
or other appropriate provision, if any, as shall be required in conformity with
Agreement Accounting Principles shall have been made therefor. The Borrower
will not, nor will it permit any of its Subsidiaries to, file or consent to the
filing of any consolidated income tax return with any other Person other than
the consolidated return of the Borrower.
(E) Insurance. The Borrower shall maintain for itself and its
---------
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(F) Inspection of Property; Books and Records; Discussions. The
------------------------------------------------------
Borrower shall permit and cause each of the Borrower's Subsidiaries to permit,
any authorized representative(s) designated by the Lender to visit and inspect
any of the properties of the Borrower or any of its Subsidiaries, to examine,
audit, check and make copies of their respective financial and accounting
records, books, journals, orders, receipts and any correspondence and other data
relating to their respective businesses or the transactions contemplated hereby
or by the Acquisitions (including, without limitation, in connection with
environmental compliance, hazard or liability), and to discuss their affairs,
finances and accounts with their officers and
18
<PAGE>
independent certified public accountants, all upon reasonable notice and at
such reasonable times during normal business hours, as often as may be
reasonably requested; provided, that while no Event of Default exists, all of
--------
the foregoing shall be at the expense of the Lender. The Borrower shall keep
and maintain, and cause each of the Borrower's Subsidiaries to keep and
maintain, in all material respects, proper books of record and account in
which entries in conformity with Agreement Accounting Principles shall be made
of all dealings and transactions in relation to their respective businesses
and activities, including, without limitation, transactions and other dealings
with respect to the Collateral. If an Event of Default has occurred and is
continuing, the Borrower, upon the Lender's request, shall deliver to Lender
to Lender or its representatives copies of any such records (which such copies
must be certified, as to completeness and accuracy, by an Authorized Officer).
(G) Insurance and Condemnation Proceeds. The Borrower directs (and,
-----------------------------------
if applicable, shall cause its Subsidiaries to direct) all insurers under
policies of property damage, boiler and machinery and business interruption
insurance and payors of any condemnation claim or award relating to the property
to pay all proceeds payable under such policies or with respect to such claim or
award for any loss with respect to the Collateral directly to the Lender;
provided, however, in the event that such proceeds or award are less than
- -------- -------
$250,000.00 ("Excluded Proceeds"), unless an Event of Default has occurred and
-----------------
is continuing, the Lender will remit such Excluded Proceeds to the Borrower or
Subsidiary, as applicable. Each such policy must contain a long-form loss-
payable endorsement naming the Lender as loss payee, which endorsement must be
in form and substance acceptable to the Lender. The Lender shall, upon receipt
of such proceeds (other than Excluded Proceeds) and at the Borrower's direction,
either apply the same to the principal amount of the Advances outstanding at the
time of such receipt and create a corresponding reserve against the Commitment
in an amount equal to such application (the "Decision Reserve") or hold them as
----------------
cash collateral for the Obligations in an interest bearing account. For up to
150 days from the date of any loss (the "Decision Period"), the Borrower may
---------------
notify the Lender that it intends to restore, rebuild or replace the property
subject to any insurance payment or condemnation award and shall, as soon as
practicable thereafter, provide the Lender detailed information, including a
construction schedule and cost estimates. Should an Event of Default occur at
any time during the Decision Period, should the Borrower notify the Lender that
it has decided not to rebuild or replace such property during the Decision
Period, or should the Borrower fail to notify the Lender of the Borrower's
decision during the Decision Period, then the amounts held as cash collateral
pursuant to this Section 5.2(G) or as the Decision Reserve must be applied as a
--------------
mandatory prepayment of the Advances pursuant to Section 2.2(B). Proceeds held
--------------
as cash collateral pursuant to this Section 5.2(G) or constituting the Decision
--------------
Reserve must be disbursed as payments for restoration, rebuilding or replacement
of such property become due; provided, however, should an Event of Default occur
-------- -------
after the Borrower has notified the Lender that it intends to rebuild or replace
the property, the Decision Reserve or amounts held as cash collateral will be
applied as a mandatory prepayment of the Advances pursuant to Section 2.2(B).
--------------
In the event the Decision Reserve is to be applied as a mandatory prepayment to
the Advances, the Borrower will be deemed to have requested Advances in an
amount equal to the Decision Reserve, and such Advances will be made regardless
of any failure of the Borrower to meet the conditions precedent set forth in
Article III. Upon completion of the restoration, rebuilding or replacement of
- -----------
such property, the unused proceeds will constitute net cash proceeds of an Asset
Sale and will be applied as a mandatory prepayment of the Advances pursuant to
Section 2.2(B).
- --------------
19
<PAGE>
(H) ERISA Compliance. The Borrower shall, and shall cause each of
----------------
the Borrower's Subsidiaries to, establish, maintain and operate all Plans, if
any, to comply in all material respects with the provisions of ERISA, the Code,
all other applicable laws, and the regulations and interpretations thereunder
and the respective requirements of the governing documents for such Plans,
except where the failure to comply will not or could not reasonably be expected
to subject the Borrower and its Subsidiaries to liability individually or in the
aggregate in excess of $250,000.00.
(I) Maintenance of Property. The Borrower shall cause all property
-----------------------
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 5.2(H) shall prevent the
- -------- ------- --------------
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Lender.
(J) Environmental Compliance. The Borrower and its Subsidiaries
------------------------
shall comply with all Environmental, Health or Safety Requirements of Law,
except where noncompliance could not reasonably be expected to subject the
Borrower and its Subsidiaries to liability individually or in the aggregate in
excess of $500,000.00. Neither the Borrower nor any of its Subsidiaries shall
be the subject of any proceeding or investigation pertaining to (i) the Release
by the Borrower or any of its Subsidiaries of any Contaminant into the
environment or (ii) the liability of the Borrower or any of its Subsidiaries
arising from the Release by any other Person of any Contaminant into the
environment, which, in either case, subjects or is reasonably likely to subject
the Borrower and its Subsidiaries individually or in the aggregate to liability
in excess of the amount set forth above.
(K) Use of Proceeds. The Borrower shall use the proceeds of the
---------------
Advances (i) to fund the Permitted Acquisitions of a New Subsidiary, (ii) to
payoff certain indebtedness owing by FirstAmerica Automotive, Inc. to General
Electric Acceptance Corporation in an amount not to exceed $26,500,000.00, and
(iii) to fund used automobile inventory, under the terms more specifically set
forth in Section 2.1 of this Agreement. The Borrower will not nor will it permit
any Subsidiary to, use any of the proceeds of the Loans to purchase or carry any
"Margin Stock" or to make any Acquisition, other than any Permitted Acquisition
pursuant to Section 5.3(F).
--------------
(L) Addition of Dealership Guarantors. The Borrower shall cause each
---------------------------------
Guarantor which has not heretofore provided a Guaranty to the Lender, to deliver
to the Lender a Guaranty, UCC-1 Financing Statements and an acknowledgment to be
bound by the Contribution Agreement, together with appropriate corporate
resolutions, opinions and other documentation in form and substance reasonably
satisfactory to the Lender. Each Guarantor shall provide such Guaranty and
Collateral Documents prior to or simultaneously with its Acquisition.
(M) Future Liens on Real Property. The Borrower shall, and shall
-----------------------------
cause each of its Subsidiaries that is required to guarantee the Obligations to,
execute and deliver to the Lender, immediately upon its acquisition or leasing
of any real property after the date hereof, a
20
<PAGE>
mortgage, deed of trust, collateral assignment or other appropriate instrument
evidencing a Lien upon any such acquired property, lease or interest, to be in
form and substance reasonably acceptable to the Lender and subject only to
such Liens as otherwise permitted by this Agreement and the Borrower or the
applicable Subsidiary, as the case may be, shall have provided the Lender with
such opinions, landlord and mortgagee waivers or title insurance as the Lender
shall have reasonably requested in connection with such acquisition or leasing
of real property. The foregoing provision shall apply to the leasing of any
real property only if (i) the term of such lease (without regard to any
extension thereof at then current market rent) is more than five years or (ii)
such lease has a material value by reason of a purchase option, below-market
rent or otherwise.
(N) Additional Stock Pledge. In the event the Pledged Stock Value
-----------------------
decreases below $175,000,000.00, Borrower shall cause Pledgor to pledge
additional shares of stock in Speedway Motor Sports, Inc. to Lender. Pledgor
shall be required to pledge additional shares of stock in an amount sufficient
to decrease the Loan to Value to no greater than fifty-eight percent (58%),
which such additional pledge agreement and pledged shares must be delivered to
Lender within five (5) business days of the valuation described in the following
sentence. For purposes of this paragraph, the Pledged Stock Value will be
determined by Lender on the last trading day of each month during the term of
this Loan by multiplying (i) the number of shares of stock in Speedway Motor
Sports, Inc. pledged by Pledgor to Lender for such preceding month by (ii) the
closing price for Speedway Motor Sports, Inc. stock reported on the New York
Stock Exchange on the last day trading of such month. Any such Pledged Stock
Value will be in effect for the next calendar month, until the final business
day, upon which Lender will recalculate the Pledged Stock Value.
5.3 Negative Covenants.
------------------
(A) Indebtedness. Neither the Borrower nor any of its Subsidiaries
------------
may directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) Indebtedness in respect of obligations secured by
Customary Permitted Liens;
(iv) Indebtedness constituting Contingent Obligations in
respect of Indebtedness otherwise permitted hereunder;
(v) Indebtedness arising from intercompany loans from the
Borrower to any Guarantor or from any Subsidiary to the Borrower or any
Guarantor; provided that in each case such Indebtedness is subordinated
--------
upon terms satisfactory to the Lender to the obligations of the Borrower
and its Subsidiaries with respect to the Obligations;
21
<PAGE>
(vi) Guaranties by the Borrower of Indebtedness permitted to be
incurred by any Subsidiary;
(vii) Indebtedness with respect to surety, appeal and
performance bonds obtained by the Borrower or any of its Subsidiaries in
the ordinary course of business;
(viii) Indebtedness arising under the Borrower Guaranty or any
Guaranty;
(ix) Indebtedness not in excess of $250,000.00 in connection
with the Liens set forth in Section 5.3(C)(iv); and
(x) Indebtedness evidenced by Seller's Notes, provided that
Lender has approved the amount of any such Seller's Note prior to the
incurrence of the Indebtedness evidenced thereby.
(B) Sales of Assets. Neither the Borrower nor any of its
---------------
Subsidiaries may sell, assign, transfer, lease, convey or otherwise dispose of
any property (including the Capital Stock of any Subsidiary), whether now owned
or hereafter acquired, or any income or profits therefrom, or enter into any
agreement to do so, except:
(i) sales of inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of
equipment that is obsolete, excess or no longer useful in the Borrower's or
its Subsidiaries' business;
(iii) sale (by sale of Capital Stock, sale of substantially all
assets of such Guarantor, or otherwise) of a Guarantor as a going concern
(provided that if Borrower incurred Indebtedness under the Note for the
purposes of the Permitted Acquisition of such Guarantor, simultaneous with
the sale of such Guarantor, Borrower makes a prepayment of the Indebtedness
under the Note in an amount equal to the net worth (calculated in
accordance with Agreement Accounting Principles) of such Guarantor);
(iv) sale of any real property acquired in connection with a
Permitted Acquisition, provided such sale is for not less than Fair Value;
and
(v) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (including sales of Capital Stock of a
Subsidiary) if such transaction (a) is for all cash consideration, (b) is
for not less than Fair Value, (c) when combined with all such other
transactions (each such transaction being valued at book value) (1) during
the immediately preceding twelve-month period, represents the disposition
of not greater than $250,000.00, and (2) during the period from the date
hereof to the date of such proposed transaction, represents the disposition
of not greater than $500,000.00 and (d) is a sale by the Borrower of
Capital Stock in any Subsidiary, except as provided in subclause (c) above,
the Borrower shall continue to own, of record and beneficially, with sole
voting and dispositive power, 100% (unless required by the Subsidiary's
franchise agreement to be less, in which event at least 80%) of the
outstanding shares of Capital Stock of any such Subsidiary.
22
<PAGE>
(C) Liens. Neither the Borrower nor any of its Subsidiaries may
-----
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets, except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) Liens securing the Obligations; and
(iv) Liens (other than on the stock of any Subsidiaries)
securing other obligations not exceeding $250,000.00 in the aggregate at
any time outstanding.
In addition, neither the Borrower nor any of its Subsidiaries may become a party
to any agreement, note, indenture or other instrument, or take any other action,
which would prohibit the creation of a Lien on any of its properties or other
assets in favor of the Lender, as collateral for the Obligations; provided that
--------
any agreement, note, indenture or other instrument in connection with Liens
permitted pursuant to clause (i) above may prohibit the creation of a Lien in
----------
favor of the Lender on the items of property subject to such Lien.
(D) Investments. Except to the extent permitted pursuant to
-----------
paragraph (G) below, neither the Borrower nor any of its Subsidiaries may
- -------------
directly or indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater
than the amount thereof on the date hereof;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(iv) Investments consisting of intercompany loans from any
Subsidiary to the Borrower or any other Subsidiary permitted by Section
-------
5.3(A)(v);
---------
(v) Investments in any Guarantor;
(vi) Investments constituting Permitted Acquisitions; and
(vii) Investments in addition to those referred to elsewhere in
this Section 5.3(D) in an amount not to exceed $500,000.00 in the aggregate
--------------
at any time outstanding;
provided, however, that the Investments described in clause (vii) above are not
- -------- ------- ------------
permitted if either an Event of Default or Unmatured Default shall have occurred
and be continuing on the date thereof or would result therefrom.
23
<PAGE>
(E) Restricted Payments. Neither the Borrower nor any of its
-------------------
Subsidiaries may declare or make any Restricted Payment, except:
(i) where the consideration therefor consists solely of Equity
Interests (but excluding Disqualified Stock) of the Borrower or its
Subsidiaries provided no Change of Control would occur as a result thereof;
and
(ii) in connection with the payment of dividends by a Subsidiary
to the Borrower.
(F) Conduct of Business; Subsidiaries; Acquisitions. (i) Neither
-----------------------------------------------
the Borrower nor any of its Subsidiaries may engage in any business other than
the businesses engaged in by the Borrower and Guarantor on the date hereof and
any business or activities which are substantially similar, related or
incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
entity listed on Exhibit G hereto (each referred to herein as a "New
---
Subsidiary") after the date hereof pursuant to any transaction that is
- ----------
permitted by or not otherwise prohibited by this Agreement; provided that upon
--------
the creation or acquisition of each New Subsidiary, the requirements set forth
in Section 5.2(L) hereof have been satisfied and all New Subsidiaries that are
--------------
Material Subsidiaries must be Controlled Subsidiaries.
(iii) The Borrower will not make any Acquisition of a New
Subsidiary unless such Acquisitions meets the following requirements, (each
such Acquisition constituting a "Permitted Acquisition"):
---------------------
(a) no Event of Default or Unmatured Default has occurred and is
continuing or would result from such Acquisition or the incurrence of any
Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an
entity, such Acquisition must be of one hundred percent (100%) of the
Equity Interests of such entity except that in the case of a Majority
Acquisition, such Acquisition must be of at least eighty percent (80%) of
the Equity Interests of such entity, provided, that the provisions of
--------
Section 5.2(N) are complied with;
(c) the businesses being acquired must be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrower and its Subsidiaries on the date hereof;
(d) prior to each such Acquisition, the Borrower shall deliver
to the Lender a certificate from one of the Authorized Officers,
demonstrating to the reasonable satisfaction of the Lender that after
giving effect to such Acquisition, the incurrence of any Indebtedness
hereunder and in connection herewith, and the incurrence of the full amount
of any Seller's Notes, on a pro forma basis (both historically and on a
--- -----
projected basis), as if the Acquisition and such incurrence of Indebtedness
had occurred on the first day of the twelve-month period ending on the last
day of the Borrower's most recently completed fiscal quarter, the Borrower
would have been in compliance with all
24
<PAGE>
of the covenants contained in this Agreement, including, without
limitation, the financial covenants set forth in Section 5.4;
-----------
(f) the purchase is consummated pursuant to a negotiated
acquisition agreement on a non-hostile basis;
(g) after giving effect to such Acquisition, the representations
and warranties set forth in Article IV hereof are true and correct in all
----------
material respects on and as of the date of such Acquisition with the same
effect as though made on and as of such date;
(h) the written consent of the Lender must have been obtained,
which such consent will not be unreasonably withheld, in connection with
any Acquisition if the acquisition price therefore (including the maximum
amount of any deferred portion thereof or contingency payments payable in
connection therewith) (computed with any non-cash portion of the
acquisition price being valued at the fair value thereof as of the date of
computation) exceeds $5,000,000.00 (such amount being net of new and used
vehicle inventory, if such inventory is financed with a floor plan lender)
for such Acquisition or series of related Acquisitions;
(i) the Borrower must have either (A) conducted (and must have
based the calculations set forth above on) its audit of the target, such
audit to have been performed in accordance with Borrower's established
procedures and Agreement Account Principles (if the Permitted Acquisition
is an Acquisition of Capital Stock (directly or indirectly), such audit
must be reviewed by independent certified public accountants, and a copy of
such review must be delivered to Lender), (B) obtained (and must have
based the calculations set forth above on) historical audited financial
statements for the target and/or reviewed unaudited financial statements
for the target for a period of not less than (1) two (2) years for
Acquisitions in excess of $20,000,000.00 and (2) one (1) year for any other
Acquisition, together with tax returns for the one year prior to such year,
in each case obtained from the seller or provided by independent certified
public accountants retained for the purposes of such Acquisition, broken
down by fiscal year in the Borrower's reasonable judgment, or (C) supplied
Lender with any other financial information Lender, in its discretion,
deems acceptable to Lender, in each case, copies of which shall be
provided to the Lender; and
(j) the Borrower must have obtained either (i) a new franchise
agreement between the Guarantor and the manufacturer on substantially the
same terms as the franchise agreement entered into between the manufacturer
and the entity to be acquired in such Permitted Acquisition or (ii) any
consent required from a manufacturer for the continued enforceability and
validity of such franchise agreement after the completion of a Permitted
Acquisition shall have been obtained.
(G) Transactions with Shareholders and Affiliates. Neither the
---------------------------------------------
Borrower nor any of its Subsidiaries may directly or indirectly enter into or
permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any holder or holders of any of the Equity Interests of the Borrower, or with
any Affiliate of the Borrower which is not a Guarantor, on terms that are less
favorable to the
25
<PAGE>
Borrower or any of its Subsidiaries, as applicable, than those that might be
obtained in an arm's length transaction at the time from Persons who are not
such a holder or Affiliate.
(H) Restriction on Fundamental Changes. With the exception of the
----------------------------------
proposed merger between FAA and Sonic Automotive, Inc., neither the Borrower nor
any of its Subsidiaries may enter into any merger or consolidation, or
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under Sections 5.3(B) or 5.3(G); (ii) the merger of a
--------------- ------
Subsidiary of the Borrower into a Person acquired or being acquired in
connection with a Permitted Acquisition; (iii) the merger of a wholly-owned
Subsidiary of the Borrower with and into the Borrower; and (iv) the merger of a
Subsidiary of the Borrower with another Subsidiary of the Borrower; provided,
--------
however, (i) with respect to any such permitted mergers involving any Guarantor,
- -------
the surviving corporation in the merger shall also be or become a Guarantor; and
(ii) after the consummation of any such transaction, the Borrower shall be in
compliance with the provisions of Sections 5.2(K) and 5.3(E).
--------------- ------
(I) Sales and Leasebacks. Neither the Borrower nor any of its
--------------------
Subsidiaries may become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed) (i) which
it or one of its Subsidiaries sold or transferred or is to sell or transfer to
any other Person, or (ii) which it or one of its Subsidiaries intends to use for
substantially the same purposes as any other property which has been or is to be
sold or transferred by it or one of its Subsidiaries to any other Person in
connection with such lease, provided, however, that transactions involving the
sale by Borrower and/or a Subsidiary of real property (which such sale is for
Fair Value and consummated pursuant to an arms length transaction), and the
subsequent leaseback by Borrower and/or a Subsidiary (which such leaseback is
for Fair Value and consummated pursuant to an arms length transaction), are
permitted.
(J) Margin Regulations. Neither the Borrower nor any of its
------------------
Subsidiaries, may use all or any portion of the proceeds of any credit extended
under this Agreement to purchase or carry Margin Stock.
(K) ERISA. The Borrower may not:
-----
(i) engage, or permit any of its Subsidiaries to engage, in
any prohibited transaction described in Sections 406 of ERISA or 4975 of
the Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as
defined in Sections 302 of ERISA and 412 of the Code), with respect to any
Benefit Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to
pay timely required contributions or annual installments due with respect
to any waived funding deficiency to any Benefit Plan;
26
<PAGE>
(iv) terminate, or permit any Controlled Group member to
terminate, any Benefit Plan which would result in any liability of the
Borrower or any Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any Controlled Group member may be
required to make under any agreement relating to such Multiemployer Plan,
or any law pertaining thereto;
(vi) fail, or permit any Controlled Group member to fail, to
pay any required installment or any other payment required under Section
412 of the Code on or before the due date for such installment or other
payment; or
(vii) amend, or permit any Controlled Group member to amend, a
Plan resulting in an increase in current liability for the plan year such
that the Borrower or any Controlled Group member is required to provide
security to such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not reasonably likely to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $250,000.00.
(L) Issuance of Equity Interests. The Borrower may not issue any
----------------------------
Equity Interests if as a result of such issuance a Change of Control occurs.
None of the Borrower's Subsidiaries may issue any Equity Interests other than to
(i) the Borrower, (ii) a Subsidiary holding company of the Borrower and (iii) a
Minority Holder (in connection with a Majority Acquisition).
(M) Corporate Documents; Franchise Agreements. Neither the Borrower
-----------------------------------------
nor any of its Subsidiaries may amend, modify or otherwise change any of the
terms or provisions in any of their respective constituent documents as in
effect on the date hereof in any manner adverse in any material respect to the
interests of the Lender without the prior written consent of the Lender. The
Borrower shall not permit any Guarantor to amend, modify or otherwise change any
of the terms or provisions of such Guarantor's franchise agreement in any manner
adverse in any material respect to the interests of the Lender without the prior
written consent of the Lender.
(N) Fiscal Year. Neither the Borrower nor any of its consolidated
-----------
Subsidiaries may change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(O) Subsidiary Covenants. The Borrower will not, and will not permit
--------------------
any Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or any other Subsidiary, make loans or advances or other Investments in
the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any
of its property to the Borrower or any other Subsidiary.
27
<PAGE>
(P) Hedging Obligations. The Borrower shall not and shall not permit
-------------------
any of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower or a
Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its
actual interest rate, foreign currency or commodity exposure.
ARTICLE VI: EVENT OF DEFAULTS
- ------------------------------
6.1 Event of Defaults. Each of the following occurrences constitute
-----------------
an Event of Default under this Agreement:
(A) Failure to Make Payments When Due. The Borrower fails to pay
---------------------------------
within ten (10) days after oral notice of the delinquency of any Obligations
under this Agreement or the other Loan Documents.
(B) Breach of Certain Covenants. The Borrower fails duly and
---------------------------
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under Sections 5.2(F), 5.2(K), 5.3 or 5.4.
--------------- ------ --- ---
(C) Breach of Representation or Warranty. Any representation or
------------------------------------
warranty made or deemed made by the Borrower to the Lender herein or by the
Borrower or any of its Subsidiaries in any of the other Loan Documents or in any
written statement or certificate at any time given by any such Person pursuant
to any of the Loan Documents is false or misleading in any material respect on
the date as of which made (or deemed made).
(D) Other Defaults. The Borrower defaults in the performance of or
--------------
compliance with any term contained in this Agreement (other than as covered by
paragraphs (a), (b) or (c) of this Section 6.1), or the Borrower or any of its
- -------------- --- --- -----------
Subsidiaries defaults in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default continues for
twenty (20) days after written notice thereof.
(E) Default as to Other Indebtedness. The Borrower or any of its
--------------------------------
Subsidiaries fails to make any payment when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) with respect to any
Indebtedness (other than Indebtedness constituting the deferred portion of the
purchase price of an asset which is subject to a good faith dispute, which,
together with all such other outstanding disputed Indebtedness, is not in excess
of $500,000.00 and which is being contested by the Borrower, and provided that
the Borrower has set aside adequate reserves covering such disputed
Indebtedness) the outstanding principal amount of which Indebtedness is in
excess of $200,000.00; or any breach, default or event of default occurs, or any
other condition exists under any instrument, agreement or indenture pertaining
to any such Indebtedness, if the effect thereof is to cause an acceleration,
mandatory redemption, a requirement that the Borrower offer to purchase such
Indebtedness or other required repurchase of such Indebtedness, or permit the
holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness is otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or
28
<PAGE>
otherwise repurchased by the Borrower or any of its Subsidiaries (other than
by a regularly scheduled required prepayment) prior to the stated maturity
thereof.
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc.
-----------------------------------------------------
(i) An involuntary case is commenced against the Borrower or any
of the Borrower's Subsidiaries and the petition is not dismissed, stayed,
bonded or discharged within sixty (60) days after commencement of the case;
or a court having jurisdiction in the premises enters a decree or order for
relief in respect of the Borrower or any of the Borrower's Subsidiaries in
an involuntary case, under any applicable bankruptcy, insolvency or other
similar law now or hereinafter in effect; or any other similar relief is
granted under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Borrower
or any of the Borrower's Subsidiaries or over all or a substantial part of
the property of the Borrower or any of the Borrower's Subsidiaries is
entered; or an interim receiver, trustee or other custodian of the Borrower
or any of the Borrower's Subsidiaries or of all or a substantial part of
the property of the Borrower or any of the Borrower's Subsidiaries is
appointed or a warrant of attachment, execution or similar process against
any substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries is issued and any such event is not stayed,
dismissed, bonded or discharged within sixty (60) days after entry,
appointment or issuance.
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower
---------------------------------------------------
or any of the Borrower's Subsidiaries (i) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consents to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, (iii) consents to the appointment of or taking possession by a
receiver, trustee or other similar custodian for the benefit of creditors for
all or a substantial part of its property, (iv) makes any assignment for the
benefit of creditors or (v) takes any corporate action to authorize any of the
foregoing.
(H) Judgments and Attachments. Any money judgment(s) (other than a
-------------------------
money judgment covered by insurance as to which the insurance company has not
disclaimed coverage or if it has reserved the right to disclaim coverage, such
letter reserving the right to disclaim coverage is outstanding twelve months
after such money judgment was rendered), writ or warrant of attachment, or
similar process against the Borrower or any of its Subsidiaries or any of their
respective assets involving in any single case or in the aggregate an amount in
excess of $250,000.00 is or are entered and remain undischarged, unvacated,
unbonded or unstayed for a period of sixty (60) days or in any event later than
fifteen (15) days prior to the date of any proposed sale thereunder.
(I) Dissolution. Any order, judgment or decree is entered against
-----------
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order remains undischarged and unstayed for a period in excess
of sixty (60) days; or the Borrower or any of
29
<PAGE>
its Subsidiaries otherwise dissolves or ceases to exist except as specifically
permitted by this Agreement.
(J) Loan Documents; Failure of Security. At any time, for any
-----------------------------------
reason, (i) any Loan Document as a whole that affects the ability of the Lender
to enforce the Obligations or enforce its rights against the Collateral ceases
to be in full force and effect or the Borrower or any of the Borrower's
Subsidiaries party thereto seeks to repudiate its obligations thereunder and the
Liens intended to be created thereby are, or the Borrower or any such Subsidiary
seeks to render such Liens, invalid or unperfected, or (ii) any Lien on
Collateral in favor of the Lender contemplated by the Loan Documents is, at any
time, for any reason, invalidated or otherwise ceases to be in full force and
effect or such Lien does not have the priority contemplated by this Agreement or
the Loan Documents and such failure continues for three (3) days after written
notice thereof.
(K) Termination Event. Any Termination Event occurs which is
-----------------
reasonably likely to subject the Borrower or any of its Subsidiaries to
liability individually or in the aggregate in excess of $250,000.00, and such
Termination Event continues for three (3) days after the occurrence thereof,
provided however, if such Termination Event is a Reportable Event, then prior to
- -------- -------
such Termination Event causing an Event of Default under this Section 6.1(k),
--------------
such Termination Event continues for ten (10) days after the occurrence thereof.
(L) Waiver of Minimum Funding Standard. If the plan administrator of
----------------------------------
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and the Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$250,000.00.
(M) Change of Control. A Change of Control occurs.
-----------------
(N) Hedging Agreements. Nonpayment by the Borrower or any Subsidiary
------------------
of any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with the Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach continues for
ten (10) days after the occurrence thereof.
(O) Guarantor Default or Revocation. Except as may otherwise be
-------------------------------
specifically permitted under this Agreement, the Borrower Guaranty or any
Guaranty fails to remain in full force or effect or any action is taken by the
Borrower or any Guarantor to discontinue or to assert the invalidity or
unenforceability of the Borrower Guaranty or any Guaranty or the Borrower or any
Guarantor fails to comply with any of the terms or provisions of any Guaranty to
which it is a party, or the Borrower or any Guarantor denies that it has any
further liability under any Guaranty to which it is a party, or gives notice to
such effect.
(P) Environmental Matters. The Borrower or any of its Subsidiaries
---------------------
is the subject of any proceeding or investigation pertaining to (i) the Release
by the Borrower or any of its Subsidiaries of any Contaminant into the
environment, (ii) the liability of the Borrower or any of its Subsidiaries
arising from the Release by any other person of any Contaminant into the
30
<PAGE>
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law by the Borrower or any of its Subsidiaries, which, in any
case, has subjected or is reasonably likely to subject the Borrower or any of
its Subsidiaries to liability individually or in the aggregate in excess of
$250,000.00.
(Q) Exercise of Purchase Option. O. Bruton Smith chooses to
---------------------------
exercise his option to purchase any one or each New Subsidiary.
An Event of Default will be deemed "continuing" until cured or until
waived in writing in accordance with Section 7.3.
-----------
ARTICLE VII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
- ------------------------------------------------------------
7.1 Termination of Commitments; Acceleration. If any Event of
----------------------------------------
Default described in Section 6.1(F) or 6.1(G) occurs with respect to the
-------------- ------
Borrower, the obligation of the Lender to make Advances hereunder will
automatically terminate and the Obligations will immediately become due and
payable without any election or action on the part of the Lender. If any other
Event of Default occurs, the Lender may terminate or suspend its obligations to
make Advances hereunder, or declare the Obligations to be due and payable, or
both, whereupon, after written notice to the Borrower, the Obligations will
become immediately due and payable, without presentment, demand, protest or
other notice of any kind, all of which the Borrower expressly waives.
7.2 Amendments. No amendment, waiver or modification of any
----------
provision of this Agreement will be effective unless signed by each of the
parties hereto and then only to the extent in such writing specifically set
forth.
7.3 Preservation of Rights. No delay or omission of the Lender to
----------------------
exercise any right under the Loan Documents will impair such right or be
construed to be a waiver of any Event of Default or an acquiescence therein, and
the making of an Advance notwithstanding the existence of an Event of Default or
the inability of the Borrower to satisfy the conditions precedent to such
Advance will not constitute any waiver or acquiescence. Any single or partial
exercise of any such right will not preclude other or further exercise thereof
or the exercise of any other right, and no waiver, amendment or other variation
of the terms, conditions or provisions of the Loan Documents whatsoever will be
valid unless in writing signed by the Lender, and then only to the extent in
such writing specifically set forth. All remedies contained in the Loan
Documents or by law afforded will be cumulative and all will be available to the
Lender until the Obligations have been paid in full.
ARTICLE VIII: GENERAL PROVISIONS
- ---------------------------------
8.1 Survival of Representations. All representations and warranties
---------------------------
of the Borrower contained in this Agreement will survive delivery of the Note
and the making of the Advances herein contemplated.
31
<PAGE>
8.2 Governmental Regulation. Anything contained in this Agreement to
-----------------------
the contrary notwithstanding, the Lender will not be obligated to extend credit
to the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
8.3 Performance of Obligations. The Borrower agrees that the Lender
--------------------------
may, but has no obligation to (i) at any time, pay or discharge taxes, liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral, unless such claims are being contested in good faith by
the Borrower and the Borrower has set aside adequate reserves covering such tax,
lien, security interest or other encumbrance and no Event of Default has
occurred and is outstanding and (ii) after the occurrence and during the
continuance of an Event of Default to make any payment or perform any act
required of the Borrower under any Loan Document or take any other action which
the Lender in its reasonable discretion deems necessary or desirable to protect
or preserve the Collateral, including, without limitation, any action to (y)
effect any repairs or obtain any insurance called for by the terms of any of the
Loan Documents and to pay all or any part of the premiums therefor and the costs
thereof and (z) pay any rents payable by the Borrower which are more than 30
days past due, or as to which the landlord has given notice of termination,
under any lease. The Lender will use its reasonable efforts to give the
Borrower notice of any action taken under this Section 8.3 prior to the taking
-----------
of such action or promptly thereafter provided the failure to give such notice
will not affect the Borrower's obligations in respect thereof. The Borrower
agrees to pay the Lender, upon demand, the principal amount of all funds
advanced by the Lender under this Section 8.3, together with interest thereon at
-----------
the rate from time to time applicable to Advancesfrom the date of such advance
until the outstanding principal balance thereof is paid in full. All
outstanding principal of, and interest on, advances made under this Section 8.3
-----------
shall constitute Obligations for purposes hereof.
8.4 Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and do not govern the interpretation of any of
the provisions of the Loan Documents.
8.5 Entire Agreement. The Loan Documents embody the entire agreement
----------------
and understanding among the Borrower and the Lender and the Loan Documents
delivered on the Effective Date supersede all prior agreements and
understandings among the Borrower and the Lender relating to the subject matter
thereof.
8.6 Expenses; Indemnification.
-------------------------
(A) Expenses. The Borrower shall reimburse the Lender for any
--------
reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Lender, which attorneys and paralegals may be employees of
the Lender) paid or incurred by the Lender in connection with the preparation,
negotiation, execution, delivery, review, amendment, modification, and
administration of the Loan Documents. The Borrower also agrees to reimburse the
Lender for any reasonable costs, internal charges and out-of-pocket expenses
(including attorneys' and paralegals' fees and time charges of attorneys and
paralegals for the Lender, which attorneys and paralegals may be employees of
the Lender) paid or incurred by the Lender in connection with the collection of
the Obligations and enforcement of the Loan Documents. In addition to expenses
set forth above, the Borrower agrees to reimburse the Lender, promptly after the
32
<PAGE>
Lender's request therefor, for each audit or other business analysis performed
by it in connection with this Agreement or the other Loan Documents at a time
when an Event of Default exists in an amount equal to the Lender's then
reasonable and customary charges for each person employed to perform such audit
or analysis, plus all costs and expenses (including without limitation, travel
expenses) incurred by the Lender in the performance of such audit or analysis.
Lender shall provide the Borrower with a detailed statement of all
reimbursements requested under this Section 8.6(A).
--------------
(B) Indemnity. The Borrower further agrees to defend, protect,
---------
indemnify, and hold harmless the Lender and each of its Affiliates, and each of
the Lender's, or Affiliate's respective officers, directors, employees,
attorneys and agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article III) (collectively, the "Indemnitees") from and
----------- -----------
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of:
(i) this Agreement, the other Loan Documents or any of the
Transaction Documents, or any act, event or transaction related or
attendant thereto or to the making of the Advances, hereunder, the
management of such Advances, the use or intended use of the proceeds of the
Advances hereunder, or any of the other transactions contemplated by the
Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or public
health or welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of investigation,
feasibility or remedial action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from or in
connection with the past, present or future operations of the Borrower, its
Subsidiaries or any of their respective predecessors in interest, or, the
past, present or future environmental, health or safety condition of any
respective property of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the Borrower or
its Subsidiaries or the Release or threatened Release of any Contaminant
into the environment (collectively, the "Indemnified Matters");
-------------------
provided, however, the Borrower has no obligation to an Indemnitee hereunder
- -------- -------
with respect to Indemnified Matters caused by or resulting from the willful
misconduct or gross negligence of such Indemnitee as determined by the final
non-appealed judgment of a court of competent jurisdiction. If the undertaking
to indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
will contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified Matters
incurred by the Indemnitees.
33
<PAGE>
(C) Notwithstanding anything else in this Agreement to the contrary,
no party has any obligation to reimburse any person for attorneys' fees and
expenses unless such fees and expenses are (i) reasonable in amount, (ii)
determined without reference to any statutory presumption and (iii) calculated
using the actual time expended and the standard hourly rate for the attorneys
and paralegals performing the tasks in question and the actual out-of-pocket
expenses incurred.
(D) Waiver of Certain Claims; Settlement of Claims. The Borrower
----------------------------------------------
further agrees to assert no claim against any of the Indemnitees on any theory
of liability for consequential, special, indirect, exemplary or punitive
damages. No settlement will be entered into by the Borrower or any of its
Subsidiaries with respect to any claim, litigation, arbitration or other
proceeding relating to or arising out of the transactions evidenced by this
Agreement, the other Loan Documents or in connection with Related Transactions
(whether or not the Lender or any Indemnitee is a party thereto) unless such
settlement releases all Indemnitees from any and all liability with respect
thereto.
(E) Survival of Agreements. The obligations and agreements of the
----------------------
Borrower under this Section 8.6 will survive the termination of this Agreement.
-----------
8.7 Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein will be interpreted and all accounting
determinations hereunder will be made in accordance with Agreement Accounting
Principles.
8.8 Severability of Provisions. Any provision in any Loan Document
--------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
will, as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
8.9 Nonliability of Lender. The relationship between the Borrower
----------------------
and the Lender is solely that of borrower and lender. The Lender has no
fiduciary responsibilities to the Borrower and the Lender does not take any
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
8.10 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE LENDER,
-------------
OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, WILL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF CALIFORNIA. ANY
ADVANCES MADE HEREUNDER WILL BE MADE PURSUANT TO THE CALIFORNIA FINANCE LENDER'S
LAW.
8.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
-------------------------------------------------------
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B),
---------------------- --------------
EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING
34
<PAGE>
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, WILL
BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CALIFORNIA, BUT
THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF CALIFORNIA. EACH OF THE PARTIES HERETO
WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION
--------------
THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE LENDER OR ANY
-------------------
INDEMNITEE WILL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY
IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS OR ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED
IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
--------------
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
------------------
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN WILL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY
OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER
----- --- ----------
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION WILL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL
35
<PAGE>
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(E) WAIVER OF BOND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
--------------
LAW, THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY
HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
-----------------
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 8.11, WITH ITS COUNSEL.
------------
8.12 No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement will be
construed as if drafted jointly by the parties hereto and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
8.13 Subordination of Intercompany Indebtedness. The Borrower agrees
------------------------------------------
that any and all claims of the Borrower against any Guarantor, any endorser or
any other guarantor of all or any part of the Obligations, or against any of its
properties, including, without limitation, pursuant to the any intercompany
Indebtedness permitted under Section 5.3(A)(vi), will be subordinate and subject
------------------
in right of payment to the prior payment, in full and in cash, of all
Obligations. Notwithstanding any right of the Borrower to ask, demand, sue for,
take or receive any payment from any Guarantor, all rights, liens and security
interests of the Borrower, whether now or hereafter arising and howsoever
existing, in any assets of any Guarantor will be and are subordinated to the
rights, if any, of the Lender in those assets. The Borrower has no right to
possession of any such asset or to foreclose upon any such asset, whether by
judicial action or otherwise, unless and until all of the Obligations shall have
been paid in full in cash and satisfied and all financing arrangements under
this Agreement and the other Loan Documents between the Borrower and the Lender
have been terminated. If, during the continuance of an Event of Default, all or
any part of the assets of any Guarantor, or the proceeds thereof, are subject to
any distribution, division or application to the creditors of any Guarantor,
whether partial or complete, voluntary or involuntary, and whether by reason of
liquidation, bankruptcy, arrangement, receivership, assignment for the benefit
of creditors or any other action or proceeding, then, and in any such event, any
payment or distribution of any kind or character, either in cash, securities or
other property, which is payable or deliverable upon or with respect to any
indebtedness of any Guarantor to the Borrower, including, without limitation,
pursuant to the any intercompany Indebtedness permitted under Section 5.3(A)(vi)
------------------
("Intercompany Indebtedness") will be paid or delivered directly to the Lender
-------------------------
for application on any of the Obligations, due or to become due, until such
Obligations have first been paid in full in cash and satisfied; provided,
--------
however, ordinary course payments or distributions made by any Guarantor to the
- -------
Borrower will be required to be paid or delivered to the Lender only upon
36
<PAGE>
the Lender's request. The Borrower irrevocably authorizes and empowers the
Lender to demand, sue for, collect and receive every such payment or
distribution and give acquittance therefor and to make and present for and on
behalf of the Borrower such proofs of claim and take such other action, in the
Lender's own name or in the name of the Borrower or otherwise, as the Lender
may deem necessary or advisable for the enforcement of this Section 8.13. The
------------
Lender may vote such proofs of claim in any such proceeding, receive and
collect any and all dividends or other payments or disbursements made thereon
in whatever form the same may be paid or issued and apply the same on account
of any of the Obligations. Should any payment, distribution, security or
instrument or proceeds thereof be received by the Borrower upon or with
respect to the Intercompany Indebtedness during the continuance of an Event of
Default and prior to the satisfaction of all of the Obligations and the
termination of all financing arrangements under this Agreement and the other
Loan Documents between the Borrower and the Lender, the Borrower receive and
hold the same in trust, as trustee, for the benefit of the Lender and shall
forthwith deliver the same to the Lender, in precisely the form received
(except for the endorsement or assignment of the Borrower where necessary),
for application to any of the Obligations, due or not due, and, until so
delivered, the same will be held in trust by the Borrower as the property of
the Lender; provided, however, ordinary course payments or distributions made
-------- -------
to or by any Guarantor to the Borrower will be required to be paid or
delivered to the Lender only upon the Lender's request after the occurrence
and Continuance of an Event of Default. If the Borrower fails to make any such
endorsement or assignment to the Lender, the Lender or any of its officers or
employees are irrevocably authorized to make the same. The Borrower agrees
that until the Obligations have been paid in full in cash and satisfied and
all financing arrangements under this Agreement and the other Loan Documents
between the Borrower and the Lender have been terminated, the Borrower will
not assign or transfer to any Person (other than the Lender) any claim the
Borrower has or may have against any Guarantor.
8.14 Usury Not Intended. It is the intent of the Borrower and the
------------------
Lender in the execution and performance of this Agreement and the other Loan
Documents to contract in strict compliance with applicable usury laws, including
conflicts of law concepts, governing the Advances of the Lender including such
applicable laws of the State of California and the United States of America from
time-to-time in effect. In furtherance thereof, the Lender and the Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents will ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Rate and that for purposes
hereof "interest" includes the aggregate of all charges which constitute
interest under such laws that are contracted for, charged or received under this
Agreement; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Advances, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess will be deemed to be a
mistake and the Lender receiving same will credit the same on the principal of
its Note (or if the Note shall have been paid in full, refund said excess to the
Borrower). In the event that the maturity of the Note is accelerated by reason
of any election of the holder thereof resulting from any Event of Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the Maximum Rate and excess interest, if any, provided for in this
Agreement or otherwise will be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, will be credited on the
applicable Note
37
<PAGE>
(or, if the Note has been paid in full, refunded to the Borrower of such
interest). In determining whether or not the interest paid or payable under
any specific contingencies exceeds the Maximum Rate, the Borrower and the
Lender will to the maximum extent permitted under applicable law amortize,
prorate, allocate and spread in equal parts during the period of the full
stated term of the Note all amounts considered to be interest under applicable
law at any time contracted for, charged, received or reserved in connection
with the Obligations. The provisions of this Section will control over all
other provisions of this Agreement or the other Loan Documents which may be in
apparent conflict herewith.
ARTICLE IX: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
- --------------------------------------------------------------
9.1 Successors and Assigns. The terms and provisions of the Loan
----------------------
Documents will be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
does not have the right to assign its rights or obligations under the Loan
Documents.
9.2 Participations.
--------------
(A) Permitted Participants; Effect. Subject to the terms set forth
------------------------------
in this Section 9.2, the Lender may, in the ordinary course of its business and
-----------
in accordance with applicable law, at any time sell to one or more banks or
other financial institutions ("Participants") participating interests in any
------------
Advance owing to the Lender, the Note, the Commitment or any other interest of
the Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice
of such participation to the Borrower will be required prior to any
participation becoming effective. In the event of any such sale by the Lender
of participating interests to a Participant, the Lender's obligations under the
Loan Documents will remain unchanged, the Lender will remain solely responsible
to the other parties hereto for the performance of such obligations, the Lender
shall remain the holder of the Note for all purposes under the Loan Documents,
all amounts payable by the Borrower under this Agreement will be determined as
if the Lender had not sold such participating interests, and the Borrower shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under the Loan Documents.
(B) Voting Rights. The Lender will retain the sole right to approve,
-------------
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Advance or Commitment in which such Participant has
an interest.
9.3 Assignments. The Lender may, in the ordinary course of its
-----------
business and in accordance with applicable law, at any time assign to one or
more banks or other financial institutions approved by the Borrower within 10
days of notice to the Borrower by the Lender of such assignment (which such
approval may not be unreasonably withheld) all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment
and all Advances owing to it) pursuant to an assignment agreement in form and
substance satisfactory to the Lender. Notwithstanding the foregoing, the
Borrower will not have any right to approve an assignee under this Section 9.3,
-----------
after the occurrence and continuance of an Event of Default or to the extent
such assignee is an Affiliate of the Lender, provided, however, that to the
-------- -------
extent the Lender assigns its obligations hereunder, such Affiliate must be a
United
38
<PAGE>
States Person and the Lender will have provided such financial statements as
the Borrower shall have reasonably requested.
9.4 Confidentiality. Subject to Section 9.5, the Lender will hold
--------------- -----------
all nonpublic information obtained pursuant to the requirements of this
Agreement and identified as such by the Borrower in accordance with the Lender's
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a prospective Transferee in connection with
the contemplated participation or as required or requested by any governmental
authority or representative thereof or pursuant to legal process and shall
require any such Transferee to agree (and require any of its Transferees to
agree) to comply with this Section 9.4. In no event shall the Lender be
-----------
obligated or required to return any materials furnished by the Borrower;
provided, however, each prospective Transferee will be required to agree that if
- -------- -------
it does not become a participant it shall return all materials furnished to it
by or on behalf of the Borrower in connection with this Agreement.
9.5 Dissemination of Information. The Borrower authorizes the Lender
----------------------------
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
----------
prospective Transferee any and all information in the Lender's possession
concerning the Borrower and its Subsidiaries; provided that prior to any such
--------
disclosure, such prospective Transferee shall have agreed to preserve in
accordance with Section 9.4 the confidentiality of any confidential information
-----------
described therein.
ARTICLE X: NOTICES
- -------------------
10.1 Giving Notice. Except as otherwise permitted by Section 2.8
------------- -----------
with respect to borrowing notices, all notices and other communications provided
to any party hereto under this Agreement or any other Loan Documents will be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, will be deemed given when
received; any notice, if transmitted by telex or facsimile, will be deemed given
when transmitted (answerback confirmed in the case of telexes).
10.2 Change of Address. The Borrower and the Lender may each change
-----------------
the address for service of notice upon it by a notice in writing to the other
parties hereto.
ARTICLE XI: COUNTERPARTS
- -------------------------
11.1 This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart. This
Agreement will be effective when it has been executed by the Borrower and the
Lender.
39
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
FIRSTAMERICA AUTOMOTIVE, INC.,
as the Borrower
By: /s/ David Moeller
-----------------------------------
David Moeller, Vice President
Attest: /s/ W. Bruce Bercovich
-------------------------------
W. Bruce Bercovich, Secretary
FAA HOLDING CORP., as the Borrower
By: /s/ David Moeller
-----------------------------------
David Moeller, Vice President
Attest: /s/ W. Bruce Bercovich
-------------------------------
W. Bruce Bercovich, Secretary
FORD MOTOR CREDIT COMPANY, as Lender
By: /s/ Rachel M. Richards
-----------------------------
Name: Rachel M. Richards
---------------------------
Title: National Account Manager
--------------------------
40
<PAGE>
SCHEDULE A
"Acquisition" means any transaction, or any series of related
-----------
transactions, consummated on or after the date of this Agreement, by which the
Borrower or a Subsidiary holding company (i) acquires any going business or all
or substantially all of the assets of any Guarantor and/or related operations of
any Guarantor (e.g. body shop and service repair centers), whether through
purchase of assets, merger or otherwise or (ii) directly or indirectly acquires
(in one transaction or as the most recent transaction in a series of
transactions) at least a majority (in number of votes) of the securities of such
a Guarantor which have ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) or a majority (by percentage of voting power) of the outstanding
equity interests of such Guarantor.
"Acquisition Documents" means all documents, instruments and
---------------------
agreements entered into in connection with any Acquisition.
"Advance" means any loan made by the Lender under Section 2.1 hereof.
------- -----------
"Affiliate" of any Person means any other Person directly or
---------
indirectly controlling, controlled by or under common control with such Person.
A Person shall be deemed to control another Person if the controlling Person is
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of greater than five percent (5%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
"Agreement Accounting Principles" means generally accepted accounting
-------------------------------
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in Section 5.1(A) hereof,
--------------
provided, however, all pro forma financial statements reflecting Acquisitions
- -------- ------- --- -----
shall be prepared in accordance with the requirements established by the
Commission, for acquisition accounting for reporting acquisitions by public
companies (whether or not such Acquisitions are required to be publicly
reported).
"Applicable Commercial Paper Rate " means as of the Termination Date,
--------------------------------
(a) with respect to that portion of the Obligations the principal amount of
which is equal to or less than the sum of (i) the value of the FirstAmerica
Group's Scaled Assets (except that any of such assets on which Lender does not
have a first security interest are excluded therefrom) plus (ii) the Pledged
Stock Value (such sum is referred to herein as the "Collateral Value"), the
Commercial Paper Rate plus two and seventy-five hundredths percent (2.75%) per
----
annum, and (b) with respect to that portion of the Obligations the principal
amount of which equals or exceeds the Collateral Value, the Commercial Paper
Rate plus three and seventy-five hundredths percent (3.75%) per annum.
----
"Asset Sale" means, with respect to any Person, the sale, lease,
----------
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-
41
<PAGE>
leaseback transaction and including the sale or other transfer of any of the
Equity Interests of any Subsidiary of such Person).
"Authorized Officer" means any of the chief executive officer,
------------------
president, chief financial officer, treasurer or assistant treasurer of the
Borrower, acting singly.
"Average Scaled Assets" means, as of the Termination Date, the average
---------------------
of (i) the sum of (A) the FirstAmerica Group's Scaled Assets on the Effective
Date (any of such assets on which Lender does not have a first security interest
on the Effective Date will be excluded therefrom) and (B) the Pledged Stock
Value (which will be calculated as described in section 5.2 (O) of this
Agreement) and (ii) the sum of (A) the FirstAmerica Group's Scaled Assets on
the Termination Date (any of such assets on which Lender does not have a first
security interest on the Effective Date will be excluded therefrom) and (B) the
Pledged Stock Value (which will be calculated as described in section 5.2 (O)
of this Agreement).
"Benefit Plan" means a defined benefit plan as defined in Section
------------
3(35) of ERISA (other than a Multi-employer Plan) in respect of which the
Borrower or any other member of the Controlled Group is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"Borrower Guaranty" means that certain Guaranty, dated as of even date
-----------------
herewith, pursuant to which the Borrower guaranties all Guarantor obligations
arising under any Floor Plan Indebtedness, as such Guaranty may be increased,
amended, restated or otherwise modified and in effect from time to time.
"Capital Stock" means (i) in the case of a corporation, corporate
-------------
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company, any and all membership interests or other equivalents (however
designated) and (v) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Capitalized Lease" of a Person means any lease of property by such
-----------------
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
-----------------------------
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"Cash Equivalents" means (i) marketable direct obligations issued or
----------------
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, or its branches or agencies; (iii) shares of money market, mutual or
similar funds having assets in excess of $100,000,000 and the investments of
which are limited to investment grade securities
42
<PAGE>
(i.e., securities rated at least Baa by Moody's Investors Service, Inc. or at
least BBB by Standard & Poor's Corporation); (iv) commercial paper of United
States and foreign banks and bank holding companies and their subsidiaries and
United States and foreign finance, commercial industrial or utility companies
which, at the time of acquisition, are rated A-1 (or better) by Standard &
Poor's Ratings Group or P-1 (or better) by Moody's Investors Services, Inc.;
(v) corporate bonds, mortgage-backed securities and municipal bonds in each
case of a domestic issuer rated at the date of acquisition not less than Aaa
by Moody's Investor Services, Inc. or AAA by Standard & Poor's Corporation
with maturities of no more than two (2) years from the date of acquisition;
and (vi) money market funds with respect to which not less than 90% of such
funds are invested in the type of investments specified in clauses (i) through
(v) above; provided, unless the context otherwise requires, that the
--------
maturities of such Cash Equivalents shall not exceed 365 days.
"Change of Control" means an event or series of events by which:
-----------------
(i) the Principals and their Related Parties cease to own,
directly or indirectly, more than fifty percent (50%) of the combined
voting power of the Borrower's Capital Stock ordinarily having the right to
vote at an election of directors;
(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first day
of such period, or
(b) whose election or nomination for election to the
board of directors of the Borrower was recommended or approved
by at least a majority of the directors then still in office
who were directors of the Borrower on the first day of such
period, or whose election or nomination for election was so
approved,
cease to constitute a majority of the board of directors of the Borrower;
(iii) the Borrower consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of
its property to any Person, or any corporation consolidates with or
merges into the Borrower, in either event pursuant to a transaction in
which the outstanding Capital Stock of the Borrower is reclassified or
changed into or exchanged for (A) cash or Cash Equivalents or (B)
securities, and the holders of the Capital Stock in the Borrower
immediately prior to such transaction do not, as a result of such
transaction, own, directly or indirectly, more than fifty percent (50%)
of the combined voting power of the Borrower's Capital Stock or the
Capital Stock of its successor entity in such transaction;
(iv) Capital Stock in Borrower ceases to be publicly traded; or
(v) Borrower ceases to own (directly or indirectly) 80% of
Guarantor's Capital Stock.
"Charter Documents" means (i) in the case of a corporation, such entity's
-----------------
articles of incorporation and by-laws, (ii) in the case of a limited liability
company, such entity's articles of organization and operating agreement or
equivalent (however designated), (iii) in the case of a
43
<PAGE>
partnership, such entity's partnership agreement or equivalent (however
designated) and (iv) in the case of an association or other business entity
not described above, such entity's founding documents (however designated).
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
----
otherwise modified from time to time, or any successor statute.
"Collateral" means all property and interests in property now owned or
----------
hereafter acquired by the Borrower or any Guarantor.
"Collateral Documents" means all agreements, instruments and documents
--------------------
executed in connection with this Agreement that are intended to create or
evidence Liens to secure the Obligations and all Floor Plan Indebtedness,
including, without limitation, the Security Agreement, the Escrow and Security
Agreement and all other security agreements, mortgages, deeds of trust, loan
agreements, notes, guaranties, subordination agreements, pledges, powers of
attorney, consents, assignments, contracts, fee letters, notices, leases,
financing statements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the Borrower or any of its Subsidiaries
and delivered to the Lender, together with all agreements and documents referred
to therein or contemplated thereby.
"Commercial Paper Rate" means the interest rate for "Commercial Paper-
---------------------
Financial-1 Month" under the column entitled "Week Ending" for the Friday
preceding the last Monday of a calendar month as reported in the Federal Reserve
Statistical Release No. H.15 (519) issued by the Federal Reserve Board. In the
event such Release is discontinued or modified to eliminate the reporting of a
30-day commercial paper rate, then Lender will substitute, in its sole
discretion, a comparable report or release of the 30-day commercial paper rate
published by a comparable source.
"Commission" means the Securities and Exchange Commission and any Person
----------
succeeding to the functions thereof.
"Commitment" means $150,000,000.00 minus the amount of any Decision Reserve
---------- -----
in effect from time to time.
"Consolidated Net Worth" means, at a particular date, the amount by which
----------------------
the total consolidated assets of the Borrower and its consolidated Subsidiaries
exceeds the total consolidated liabilities of the Borrower and its consolidated
Subsidiaries.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
-----------
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBs"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"Contingent Obligation", as applied to any Person, means any Contractual
---------------------
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
44
<PAGE>
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase, or otherwise
acquire such Indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make payment other than for value received.
"Contractual Obligation", as applied to any Person, means any material
----------------------
provision of any equity or debt securities issued by that Person or any material
indenture, mortgage, deed of trust, security agreement, pledge agreement,
guaranty, contract, undertaking, agreement or instrument, in each case in
writing, to which that Person is a party or by which it or any of its properties
is bound, or to which it or any of its properties is subject.
"Contribution Agreement" means that certain Contribution Agreement, dated
----------------------
as of even date herewith, as it may be amended, restated or otherwise modified
and in effect from time to time.
"Controlled Group" means the group consisting of (i) any corporation which
----------------
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Borrower, any corporation described in clause (i) above or any
----------
partnership or trade or business described in clause (ii) above.
-----------
"Controlled Subsidiary" of any Person means a Subsidiary of such Person (i)
---------------------
80% or more of the total Equity Interests or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more wholly-owned Subsidiaries of such Person and (ii) of
which such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies, whether through the ownership
of voting securities, by agreement or otherwise.
"Customary Permitted Liens" means:
-------------------------
(i) Liens (other than Environmental Liens, Liens in favor of the IRS
and Liens in favor of the PBGC) with respect to the payment of taxes,
assessments or governmental charges in all cases which are not yet due or
(if foreclosure, distraint, sale or other similar proceedings shall not
have been commenced) which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings properly instituted and diligently
45
<PAGE>
conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with Agreement
Accounting Principles;
(iii) Liens (other than Environmental Liens, Liens in favor of the IRS
and Liens in favor of the PBGC) incurred or deposits made, in each case, in
the ordinary course of business in connection with worker's compensation,
unemployment insurance or other types of social security benefits or to
secure the performance of bids, tenders, sales, contracts (other than for
the repayment of borrowed money), surety, appeal and performance bonds;
provided that (A) all such Liens do not in the aggregate materially detract
--------
from the value of the Borrower's or such Subsidiary's assets or property
taken as a whole or materially impair the use thereof in the operation of
the businesses taken as a whole, and (B) with respect to Liens securing
bonds to stay judgments or in connection with appeals do not secure at any
time an aggregate amount exceeding $250,000.00;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case materially detract from the value
of the property subject thereto or interfere with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against the Borrower or any
of its Subsidiaries which do not constitute an Event of Default under
Section 6.1(H) hereof; and
--------------
(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its Subsidiaries
in the ordinary course of business.
"Decision Period" is defined in Section 5.2(G) hereof.
--------------- --------------
"Decision Reserve" is defined in Section 5.2(G) hereof.
---------------- --------------
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
------------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the Termination Date.
"DOL" means the United States Department of Labor and any Person succeeding
---
to the functions thereof.
"Effective Date" is defined in Section 1.3 hereof.
-------------- -----------
"Environmental, Health or Safety Requirements of Law" means all
---------------------------------------------------
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
46
<PAGE>
Liability Act, 42 U.S.C. (S) 9601 et seq., the Occupational Safety and Health
-- ---
Act of 1970, 29 U.S.C. (S) 651 et seq., and the Resource Conservation and
-- --
Recovery Act of 1976, 42 U.S.C. (S) 6901 et seq., in each case including any
-- ---
amendments thereto, any successor statutes, and any regulations or guidance
promulgated thereunder, and any state or local equivalent thereof.
"Environmental Property Transfer Act" means any applicable requirement of
-----------------------------------
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"Equipment" means all of the Borrower's and each Guarantor's present and
---------
future furniture, machinery, service vehicles, supplies and other equipment and
any and all accessions, parts and appurtenances attached to any of the foregoing
or used in connection therewith, and any substitutions therefor and
replacements, products and proceeds thereof.
"Equity Interests" means Capital Stock and all warrants, options or other
----------------
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"Event of Default" means an event described in Article VI hereof.
---------------- ----------
"Extension Notice" is defined in Section 2.10 hereof.
---------------- ------------
"Fair Value" means (a) with respect to the Capital Stock of the Borrower,
----------
the closing price for such Capital Stock on the trading date immediately
preceding the date of the applicable acquisition agreement; and (b) with respect
to other assets, the value of the relevant asset as of the date of acquisition
or sale determined in an arm's-length transaction conducted in good faith
between an informed and willing buyer and an informed and willing seller under
no compulsion to buy.
"FirstAmerica Group's Scaled Assets" means with respect to Borrower and its
----------------------------------
Subsidiaries, the sum of (A) an amount equal to 75% of the Receivables of
Borrower and its Subsidiaries which constitute factory receivables, (B) an
amount equal to 60% of the Receivables of Borrower and its Subsidiaries which
constitute current finance receivables, (C) an amount equal to 60% of the
Receivables of Borrower and its Subsidiaries which constitute receivables for
parts and services (after netting any amounts payable in connection with such
parts and services by Borrower or any of its Subsidiaries), (D) an amount equal
to 55% of the Inventory of Borrower and its Subsidiaries which constitutes parts
and accessories, (E) an amount equal to 80% of the difference between (i) that
portion of the Inventory of Borrower and its Subsidiaries which constitutes used
vehicles and (ii) the amount of any Floor Plan Indebtedness of Borrower and any
of its Subsidiaries incurred or available in connection with such used vehicles,
and (F) an amount equal to 45% of the difference between (i) the value of the
Equipment of Borrower and its Subsidiaries and (ii) the amount of Indebtedness
of Borrower
47
<PAGE>
or any of its Subsidiaries incurred in connection with such Equipment. The
value of the FirstAmerica Group's Scaled Assets shall be calculated by the
Lender and shall be determined based on the financial statements and monthly
factory statements delivered to the Lender pursuant to Section 5.1(A). Scaled
--------------
Assets shall be measured as of the Effective Date and as of the end of each
Quarter.
"Floor Plan Indebtedness" means any and all loans, advances, debts,
-----------------------
liabilities and obligations owing by a Guarantor to the Lender of any kind or
nature, present or future, arising under a Wholesale Line or any other Loan
Document, whether or not evidenced by any note, guaranty or other instrument,
whether or not for the payment of money, whether arising by reason of an
extension of credit, loan, guaranty, indemnification, or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each
case whether or not allowed), and any other sum chargeable to the Borrower
and/or Guarantor under any wholesale line of credit.
"Guarantors" means, collectively, O Bruton Smith and (i) any Subsidiary of
----------
Borrower operating a dealership and/or related body shop or service repair
center, and (ii) any Subsidiary of Borrower that owns Capital Stock in an entity
described in preceding section (i).
"Guaranty" means, collectively, all Guaranties in the form attached hereto
--------
as either Exhibit C-1 or Exhibit C-2, provided by a Guarantor to Lender, as
each may be amended, supplemented, or restated, and as in effect from time to
time, and the Contribution Agreement.
"Hedging Obligations" of a Person means any and all obligations of such
-------------------
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or cross-
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Indebtedness" of any Person means, without duplication, such Person's (a)
------------
obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property or assets now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
reimbursement obligations with respect to letters of credit (other than
commercial letters of credit) issued for the account of such Person, (g) Hedging
Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in
respect of obligations of another Person of the type described in the foregoing
clauses (a) through (h). The amount of Indebtedness of any Person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as
48
<PAGE>
described above and the maximum liability of any such Contingent Obligations
at such date and (ii) in the case of Indebtedness of others secured by a Lien
to which the property or assets owned or held by such Person is subject, the
lesser of the fair market value at such date of any asset subject to a Lien
securing the Indebtedness of others and the amount of the Indebtedness
secured.
"Indemnified Matters" is defined in Section 8.6(B) hereof.
------------------- --------------
"Indemnitees" is defined in Section 8.6(B) hereof.
----------- --------------
"Inventory" shall mean any and all motor vehicles, tractors, trailers,
---------
service parts and accessories and other inventory of the Borrower and each
Guarantor.
"Investment" means, with respect to any Person, (i) any purchase or other
----------
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the
---
functions thereof.
"Lien" means any lien (statutory or other), mortgage, pledge,
----
hypothecation, assignment, encumbrance or security agreement or preferential
arrangements of any kind or nature whatsoever (including, without limitation,
the interest of a vendor or lessor under any conditional sale, Capitalized Lease
or other title retention agreement).
"Loan Documents" means this Agreement, the Note, the Borrower Guaranty, the
--------------
Guaranty, the Collateral Documents and all other documents, instruments and
agreements executed in connection therewith or contemplated thereby, as the same
may be amended, restated or otherwise modified and in effect from time to time.
"Loan to Value" means the ratio of (i) the sum of all Advances outstanding
-------------
under the Loan to (ii) the sum of (A) the value of the FirstAmerica Group's
Scaled Assets (except that any of such assets on which Lender does not have a
first security interest will be excluded from such calculation), and (B) the
Pledged Stock Value (which will be calculated as described in section 5.2 (O)
of this Agreement).
"Margin Stock" shall have the meaning ascribed to such term in
------------
Regulation U.
"Material Subsidiary" means (a) any "Significant Subsidiary" as defined in
-------------------
Regulation S-X issued pursuant to the Securities Act and the Exchange Act and
(b) any other Subsidiary of the Borrower which at any time comprises five
percent (5%) or more of the Borrower's Tangible Base Capital.
49
<PAGE>
"Maximum Rate" means the maximum nonusurious interest rate under applicable
------------
law.
"Minority Holder" means any holder of an Equity Interest in a Subsidiary
---------------
which such Equity Interest may not exceed 20% of the Capital Stock of such
Subsidiary.
"Multi-employer Plan" means a "Multi-employer Plan" as defined in Section
-------------------
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"New Subsidiary" is defined in Section 5.3(F)(ii).
-------------- ------------------
"Note" means that certain promissory note, in substantially the form of
----
Exhibit A hereto, duly executed by the Borrower and payable to the order of the
- ---------
Lender in the amount of $138,500,000.00, including any amendment, restatement,
modification, renewal, increase or replacement of such Note.
"Obligations" means all Advances, debts, liabilities, obligations,
-----------
covenants and duties owing by the Borrower or a Guarantor to the Lender or any
Indemnitee, of any kind or nature, present or future, arising under this
Agreement, the Note, the Collateral Documents or any other Loan Document,
whether or not evidenced by any note, guaranty or other instrument, whether or
not for the payment of money, whether arising by reason of an extension of
credit, loan, guaranty, indemnification, or in any other manner, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising and however acquired.
The term includes, without limitation, all interest, charges, expenses, fees,
attorneys' fees and disbursements, paralegals' fees (in each case whether or not
allowed), and any other sum chargeable to the Borrower or a Guarantor or under
this Agreement or any other Loan Document.
"Off Balance Sheet Liabilities" of a Person means (a) any repurchase
-----------------------------
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"Other Taxes" is defined in Section 2.11(B) hereof.
----------- ---------------
"Participants" is defined in Section 9.2(A) hereof.
------------ --------------
"Payment Date" means the thirtieth day of each calendar month, provided,
------------ --------
however if such day is not a business day, then the Payment Date shall be the
- -------
next succeeding business day following such thirtieth day.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
----
thereto.
50
<PAGE>
"Permitted Acquisition" is defined in Section 5.3(F)(iii) hereof.
--------------------- -------------------
"Permitted Existing Indebtedness" means the Indebtedness of the Borrower
-------------------------------
and its Subsidiaries identified as such on Schedule 1 to this Agreement.
----------
"Permitted Existing Investments" means the Investments of the Borrower and
------------------------------
its Subsidiaries identified as such on Schedule 2 to this Agreement.
----------
"Permitted Existing Liens" means the Liens on assets of the Borrower and
------------------------
its Subsidiaries identified as such on Schedule 3 to this Agreement.
----------
"Permitted Refinancing Indebtedness" means any replacement, renewal,
----------------------------------
refinancing or extension of any Indebtedness permitted by this Agreement that
(i) does not exceed the aggregate principal amount (plus associated fees and
expenses) of the Indebtedness being replaced, renewed, refinanced or extended,
(ii) does not rank at the time of such replacement, renewal, refinancing or
extension senior to the Indebtedness being replaced, renewed, refinanced or
extended, and (iii) does not contain terms (including, without limitation, terms
relating to security, amortization, interest rate, premiums, fees, covenants,
event of default and remedies) materially less favorable to the Borrower or to
the Lender than those applicable to the Indebtedness being replaced, renewed,
refinanced or extended.
"Person" means any individual, corporation, firm, enterprise, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company or other entity of any kind, or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA in
----
respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement dated as of even date
----------------
herewith pursuant to which Pledgor pledged to Lender 5,000,000 shares of stock
in Speedway Motor Sports, Inc.
"Pledged Stock Value" means the closing price of Speedway Motor Sports,
-------------------
Inc. stock, as reported on the New York Stock Exchange.
"Pledgor" means Sonic Financial Corporation, a North Carolina corporation.
-------
"Principals" means Donald Strough and Thomas Price.
----------
"Quarter" means each three month period commencing January 1, April 1, July
-------
1 and October1 during the term of the Note.
"Receivable(s)" means and includes all of the Borrower's and each
-------------
Dealership Guarantor's presently existing and hereafter arising or acquired
accounts, contract rights, chattel paper, instruments, notes, letters of credit,
documents, documents of title, investment property, deposit accounts, other bank
accounts, general intangibles, tax refunds and other
51
<PAGE>
obligations of third persons of any kind, now or hereafter existing, whether
arising out of or in connection with the sale or lease of goods, the rendering
of services or otherwise, and all rights now or hereafter existing in and to
all security agreements, leases, and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper, instruments,
notes, letters of credit, documents, documents of title, investment property,
deposit accounts, other bank accounts, general intangibles, tax refunds or
obligations of third persons.
"Registration Statement" means the Registration Statement on Form S-1 filed
----------------------
by the Borrower with the Commission on April 7, 1999, with respect to the
initial public offerings of its Class A common stock, $.00001 par value, as
filed on such date, except that for purposes of Section 4.20, "Registration
------------
Statement" means such Registration Statement as amended from time to time prior
to the Effective Date.
"Regulation G" means Regulation G of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"Regulation T" means Regulation T of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"Related Party" with respect to any Principal means (i) any spouse or
-------------
immediate family member of such Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding the outstanding Equity Interest of which consist
of such Principal and/or such other Persons referred to in the immediately
preceding clause (i).
"Release" means any release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including the movement of Contaminants through or in the
air, soil, surface water or groundwater.
"Reportable Event" means a reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such
52
<PAGE>
events as to which the PBGC by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days after such event occurs,
provided, however, that a failure to meet the minimum funding standards of
- -------- -------
Section 412 of the Code and of Section 302 of ERISA shall be a Reportable
Event regardless of the issuance of any such waiver of the notice requirement
in accordance with either Section 4043(a) of ERISA or Section 412(d) of the
Code.
"Restricted Payment" means (i) any dividend or other distribution, direct
------------------
or indirect, on account of any Equity Interests of the Borrower now or hereafter
outstanding, except a dividend payable solely in the Borrower's Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock, (ii) any redemption, retirement, purchase or other
acquisition for value, direct or indirect, of any Equity Interests of the
Borrower or any of its Subsidiaries now or hereafter outstanding, other than in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), and (iii) any payment of a claim for
the rescission of the purchase or sale of, or for material damages arising from
the purchase or sale of any Equity Interests of the Borrower or any of the
Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission.
"Revolving Credit Availability" means, at any particular time, the amount
-----------------------------
by which the Commitment at such time exceeds the Revolving Credit Obligations at
such time.
"Revolving Credit Obligations" means, at any particular time, the sum of
----------------------------
the outstanding principal amount of all Advances at such time.
"Scaled Assets Adjustment Amount" means, as of the Termination Date the
-------------------------------
difference between:
(i) the amount of interest that Borrower should have paid, at the
Applicable Commercial Paper Rate, for the term of the Loan which such amount
will be determined by:
(A) calculating, for each day, during the term of the Loan, on which the
principal balance under the Note exceed the Average Scaled Assets, the
difference between the Average Scaled Assets and the principal balance
outstanding under the Note; and
(B) multiplying the amount determined pursuant to preceding subsection
by1.00% per annum, and
(ii) the amount of interest actually paid by Borrower at the Collection
Rate for the term of the Loan.
"Secretary's Certificate" with respect to Borrower and any Subsidiary,
-----------------------
means any certificate, delivered by a secretary, assistant secretary, managing
member, general partner or governor of such entity which certifies (i) the names
and true signatures of the incumbent officers or managers of such entity
authorized to sign each Transaction Document to which it is a party and the
other documents to be executed thereunder, (ii) a true and correct copy of such
entity's Certificate of Incorporation, or similar charter document and all
amendments thereto, (iii)
53
<PAGE>
a true and correct copy of the by-laws or similar governing document of such
entity and all amendments thereto, and (iv) a true and correct copy of the
resolutions of such entity's board of directors or members approving and
authorizing the execution, delivery and performance by such entity of each
Transaction Document to which it is a party and the other documents to be
executed thereunder;
"Security Agreement" means, collectively, any Security Agreement from
------------------
Borrower or any Guarantor to Lender, pursuant to which any such entity grants
the Lender a security interest in all of its assets to secure the obligations
hereunder and the obligations of each Guarantor (other than itself) under any
documents evidencing any Floor Plan Indebtedness, as such Security Agreement may
be amended, modified, supplemented and/or restated, and as in effect from time
to time.
"Single Employer Plan" means a Plan maintained by the Borrower or any
--------------------
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Seller's Note" means any promissory note payable by Borrower to the
-------------
seller of an entity acquired pursuant to a Permitted Acquisition, which such
note constitutes a deferred portion of the purchase price of the entity acquired
pursuant to such Permitted Acquisition.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
----------
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Tangible Base Capital" means, at a particular date of calculation, the
---------------------
amount determined by the Lender to be equal to :
(i) Consolidated Net Worth
plus
- ----
(ii) the sum of
(A) Indebtedness of the Borrower or its Subsidiaries to officers of
the Borrower, which Indebtedness is subordinated in writing to
the Obligations on terms and conditions acceptable to the Lender;
(B) an amount equal to 64% of the LIFO reserve (as determined in
accordance with Agreement Accounting Principles) reflected on the
Borrower's balance sheet;
minus
- -----
(iii) the sum of
54
<PAGE>
(A) Receivables with respect to which the account debtor is a
director, officer, employee, Subsidiary or Affiliate of the
Borrower or other amounts (whether or not classified as
Receivables) from Affiliates of the Borrower or its Subsidiaries
(other than those payable within 30 days and incurred in the
ordinary course of business); and
(B) the value of leasehold improvements after deductions for
depreciation of the Borrower and its Subsidiaries on a
consolidated basis;
(C) that part of the Borrower's and its Subsidiaries (on a
consolidated basis) capitalization or reserves attributable to
any writing up of book values on any fixed assets after the date
of the most recently delivered financial statements of the
Borrower and its Subsidiaries;
(D) the aggregate amount of the Borrower's and its Subsidiaries
Investments in Affiliates (other than the Borrower's
Subsidiaries);
(E) organizational expenses related to start-up of operations with
respect to the Borrower and its Subsidiaries;
(F) goodwill and other intangible assets (as determined in
accordance with Agreement Accounting Principles);
(G) any amount paid to a third-party as consideration for no-
competition agreements;
(H) the value of daily rental franchise payments made by the
Borrower or its Subsidiaries under any franchise agreements (net
of any amounts owed by a franchisor to Borrower or its
Subsidiaries); and
(I) other assets (including, without limitation, airplanes, cattle,
etc.) not related to the operations of the Dealerships as
automobile dealerships.
"Taxes" is defined in Section 2.11(A) hereof.
----- ---------------
"Termination Date" means the day one hundred and eighty (180) days from the
----------------
Effective Date.
"Termination Event" means (i) a Reportable Event with respect to any
-----------------
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a
55
<PAGE>
distress termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any
event or condition which might constitute grounds under Section 4042 of ERISA
for the Termination of, or the appointment of a trustee to administer, any
Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or
any member of the Controlled Group from a Multi-employer Plan.
"Transaction Costs" means the fees, costs and expenses payable by the
-----------------
Borrower in connection with the execution, delivery and performance of the
Transaction Documents.
"Transaction Documents" means the Loan Documents, the Public Offering
---------------------
Documents the Acquisition Documents.
"Total Adjusted Debt to Adjusted TBC Ratio" means the ratio of (i) Total
----- -----------------------------------
Adjusted Debt of Borrower and its Subsidiaries on a consolidated basis to (ii)
(A) Tangible Base Capital of Borrower and its Subsidiaries on a consolidated
basis plus (B) amounts Borrower has paid as good will in connection with the
Acquisition of any Guarantor.
"Unfunded Liabilities" means (i) in the case of Single Employer Plans, the
--------------------
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multi-employer Plans, the
withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multi-employer
Plans.
"Unmatured Default" means an event which, but for the lapse of time or the
-----------------
giving of notice, or both, would constitute an Event of Default.
"Used Vehicle Value" means the collective value of the used vehicle
------------------
inventory of the Guarantors (except that vehicles more than five (5) years are
will be excluded therefrom), as reported in the financial statements described
in Section 5.1 (A) of this Agreement; such amount, however, may not exceed 100%
of the used vehicle current trade in value for such vehicles, as reported in
N.A.D.A.
56
<PAGE>
EXHIBIT 10.10.1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), effective August 1, 1999, between
FirstAmerica Automotive, Inc. ("FAA", "Employer" or "Corporation"), and Tom
Price ("Executive"). This Agreement's purpose is to establish in writing all the
terms and conditions of that employment, and specifically incorporates the Non-
Disclosure and Confidentiality Agreement.
Section 1. Position and Duties.
Executive shall be employed by the Corporation as its Chairman and Chief
Executive Officer, reporting to the Board of Directors. Subject to the
supervision and control of the Board of Directors of the Corporation (the
"Board"), Executive shall do and perform all services and acts necessary or
advisable to fulfill the duties and responsibilities of his position and shall
render such services on the terms set forth herein. In addition, Executive shall
have such other executive and managerial powers and duties with respect to the
Corporation as may be assigned to him by the Board. Executive shall devote his
full working time, attention and efforts to the Corporation and its affiliates;
provided, however, nothing in this Agreement shall preclude Executive from
pursuing those ventures or business activities described in Schedule 1, subject
to approval by the Board, and so long as such efforts do not interfere with
Executive's duties and responsibilities as provided herein or otherwise involve
more than 5 % (five percent) of Executive's daily work activities. Executive's
principal place of employment shall be the Corporation's principal executive
offices.
Section 2. Term.
The term of this Agreement shall commence on August 1, 1999 and shall
continue for a period of five (5) years thereafter ("Initial Term"), unless
Executive's employment and this Agreement are earlier terminated pursuant to
Section 5, or extended by mutual agreement of the parties; provided, however,
the term of this Agreement shall be automatically renewed for successive periods
of one year (each a "Renewal Term"), unless either party gives the other written
notice of termination or a desire to change the provisions herein on or before
the thirtieth (30th) day prior to the expiration of the Initial Term or any
Renewal term.
Section 3. Basic Compensation.
The Employer shall pay compensation to the Executive as set forth herein.
Such compensation shall be reviewed annually and modified as determined by the
sole discretion of the Corporate Board of Directors.
Salary
- ------
An annual base salary of $600,000 (six hundred thousand dollars),
approximately $50,000 (Fifty thousand dollars) per month gross pay per month,
will be paid to Executive, subject to applicable withholding, in accordance with
the Corporation's normal payroll procedures (the "Base Salary").
Benefits
- --------
During the first year of this Agreement, the Corporation shall provide the
Executive with the following benefits, on the same basis as other executive
officers of the Corporation, to
1
<PAGE>
participate in and to receive benefits under any of the Corporation's Executive
benefit plans, including the major medical, dental, vision and hospitalization
insurance coverage, disability insurance, life insurance, automobile insurance
and similar benefits, including any retirement plan maintained by the
Corporation, for which he is eligible in accordance with its terms. In addition,
Executive shall be entitled to the benefits afforded to other members of senior
management under the Corporation's vacation, holiday and business expense
reimbursement policies as outlined in the Executive Handbook.
Bonus
- -----
Executive shall be eligible to earn an annual performance bonus of up to
60% of Executive's annual base salary for the then-current fiscal year (the
"Performance Bonus"). The Performance Bonus shall be determined on the following
basis:
(i) Fifty percent of the Performance Bonus shall be
considered earned upon the Corporation's meeting such
annual performance objectives as shall be established
by the Compensation Committee of the Board no later
than ten weeks following the beginning of the
Corporation's then-current fiscal year.
(ii) Fifty percent of the Performance Bonus shall be
awarded strictly in the Board's discretion.
The Performance Bonus shall be paid within thirty days of receipt of
notification by the Compensation Committee of the Board of Executive's
attainment of the pre-established goals under subsection (i) herein, and said
bonus shall not accrue until the conclusion of the fiscal year for which such
bonus is to be paid.
Corporate Vehicle
- -----------------
Executive will be provided a corporate vehicle (and all associated
expenses) commensurate with his executive position, not to exceed an monthly
vehicle allowance of $1200.00.
Expense Reimbursement
- ---------------------
Upon receipt of proper documentation establishing the amount of such
expenses, the Corporation shall reimburse Executive for any reasonable business
expenses incurred.
Section 4. Return of Corporation Property.
Immediately upon the termination of Executive's employment, Executive shall
return to the Corporation all of its property, equipment, documents, records,
lists, files and any and all other Corporation materials including, without
limitation, computerized or electronic information, that is in Executive's
possession (the "Corporation Property") by delivering the Corporation Property
to the Corporation's principal executive offices on or before the date of such
term. Unless otherwise agreed by the Corporation in writing, Executive shall not
retain any Corporation Property or any copies thereof.
2
<PAGE>
Section 5. Benefits Upon Termination.
In the event of termination of Executive's employment by the Corporation,
based on the reasons set forth below, he shall be entitled to the following:
a. Termination for Cause: If Executive's employment is terminated
---------------------
by the Corporation for cause, Executive shall be entitled to no
compensation or benefits from the Corporation other than those
already earned under paragraph 3 through the date of his
termination. For purposes of this Agreement, a termination "for
cause" occurs if (Executive) is terminated for any of the
following reasons:
1. theft, dishonesty, breach of fiduciary duty, or
falsification of any employment or Corporation records;
2. improper disclosure of the Corporation's confidential or
proprietary information, including a violation of the Non-
Disclosure and Confidentiality Agreement.;
3. any intentional act by Executive which has a material
detrimental effect on the Corporation's reputation or
business as determined by the Corporation, including any
conviction for a felony or a criminal offense involving
moral turpitude; or,
4. any material breach of this Agreement by Executive, which
breach is not cured within thirty (30) days following
written notice of such breach from the Corporation. If such
material breach cannot be cured, Executive may be terminated
immediately without written notice and opportunity to cure.
b. Termination Other Than For Cause: If Executive's employment is
--------------------------------
terminated by the Corporation for any reason other than for
cause, Executive shall be entitled to the following separation
benefits:
1. Continuation of Executive's Base Salary for a period of one
year, such salary continuation payments to be made in
accordance with the Corporation's ordinary payroll
procedures without regard to whether Executive obtains
alternative employment in the interim; and
2. Payment of an amount equivalent to the annual average of the
amounts of annual Performance Bonuses previously paid to
Executive, less applicable withholding, with such payment to
be made in twelve equal monthly installments.
c. Resignation for Good Reason: For purposes of paragraph 5(b) of
---------------------------
this Agreement, Executive's resignation for Good Reason following
a Transfer of
3
<PAGE>
Control shall constitute a Termination Other Than for Cause.
For purposes of this Agreement, a "Transfer of Control" shall mean an
"Ownership Change Event" (as defined below) or a series of related Ownership
Change Events (collectively, the "Transaction") wherein the stockholders of the
Corporation immediately before the Transaction do not retain immediately after
the transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding voting stock
of the Corporation or the corporation or the corporations to which the assets of
the Corporation were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Corporation or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Corporation or Multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
For purposes of this Agreement, "Good Reason" means any of the following
conditions, which condition(s) remain(s) in effect 30 days after written notice
to the Board from Executive of the following condition(s):
(i) a decrease in Executive's base salary and/or a
material decrease in Executive's standard management
bonus plan or Executive benefits;
(ii) a material, adverse change in Executive's title,
authority, responsibilities or duties, as measured
against Executive's title, authority,
responsibilities or duties immediately prior to such
change;
(iii) any material breach by the Corporation of any
provision of this Agreement, which breach is not
cured within thirty (30) days following written
notice of such breach from Executive;
(iv) Any failure of the Corporation to obtain the
assumption of this Agreement by any successor or
assign of the Corporation; or
(v) Any purported termination of Executive's employment
for "material breach of contract" which is not
effected following a written notice satisfying the
requirements of paragraph 5.
For purposes of this Agreement, an "Ownership Change Event" shall be deemed
to have occurred if any of the following occurs with respect to the
Corporation:
(i) The direct or indirect sale or exchange in a single
or series of related transactions by the stockholders
of the Corporation of more than fifty percent (50%)
of the voting stock of the Corporation;
4
<PAGE>
(ii) A merger or consolidation in which the Corporation is
a party;
(iii) The sale, exchange, or transfer of all or
substantially all of the assets of the Corporation;
or
(iv) A liquidation or dissolution of the Corporation.
Section 6. Benefits Upon Voluntary Termination.
In the event Executive voluntarily resigns from his employment with the
Corporation, or in the event that Executive's employment terminates as a result
of his death or disability, Executive shall be entitled to no compensation or
benefits from the Corporation other than those earned under paragraph 3 above.
Section 7. Remedy for Breach.
The Executive acknowledges that a violation of any of the provisions of
this Agreement, including its restrictive covenants, will cause irreparable
damage to the Employer, its successors and assigns. The Executive consents that
any violation shall entitle the Employer or its successors and assigns, in
addition to any other rights or remedies it, or they, may have, to an immediate
injunction restraining any violation.
Section 8. Notices.
All notices, requests, demands, and other communications that are required
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid to the Board of Directors at the
corporate headquarters or to the Executive's last known home address, whichever
is applicable.
Section 9. Governing Laws.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California excluding its conflict of law provisions.
Section 10. Entire Agreement.
This Agreement contains the entire agreement among the parties regarding
Executive's pay plan and the "at-will" employment relationship. All prior
negotiations, agreements, and understandings are superseded. This Agreement may
not be amended or revised except by a writing signed by all the parties.
Section 11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, and successors of the respective parties; provided
however, that this Agreement and all its rights may not be assigned by any party
except by or with the written consent of the other parties.
Section 12. Confidential Information and Nondisclosure Agreement.
5
<PAGE>
Executive agrees to execute and abide by the terms and conditions of the
Corporation's standard Executive Confidential Information and Nondisclosure
Agreement.
Section 13. Non-Solicitation of Executives.
In the event that Executive's employment with the Corporation is terminated
for any reason, Executive agrees that for a period of one year after the date of
this Agreement, he shall not, either directly or indirectly, solicit the
services, or attempt to solicit the services of any employee of the Corporation
or its affiliated entities to any other person or entity, without the written
consent of the Board of Directors.
Section 14. Survival.
In the event of termination of Executive's employment and this Agreement
for any reason by Executive or the Corporation, Executive and/or the
Corporation, as the case may be, nevertheless shall continue to be bound by the
terms and conditions set forth in Sections 12 through 13 herein and all of the
terms and conditions incorporated therein.
Section 15. Attorneys' Fees.
The prevailing party shall be entitled to recover from the losing party is
attorneys' fees and costs incurred in any action brought to enforce any right
arising out of this Agreement.
Section 16. Mandatory Binding Arbitration.
Executive and Employer knowingly and voluntarily agree that in the event
there is any dispute arising out of Executive's employment with, seeking
employment with, or separation from the Employer that would require or allow
resort to any court, regardless of the kind or type of dispute, including, but
not limited to, claims of discrimination and harassment (except for claims
before the National Labor Relations Board or claims for physical injury under
the Worker's Compensation Act or disputes relating to misappropriation of
intellectual property), such dispute shall be submitted exclusively to final and
binding arbitration pursuant to the provisions of the Federal Arbitration Act,
in conformity with the procedures of the California Arbitration Act (Cal. Code
Civ. Proc. Sec. 1280 et seq.). All such arbitration proceedings shall take place
in the city of San Francisco, California, at a mutually agreed upon location.
Executive understands that by voluntarily agreeing to this binding arbitration
provision, both the Corporation and the Employer give up the right to a trial by
jury.
IT IS SO UNDERSTOOD AND AGREED:
EXECUTIVE:
Dated: August 1, 1999 Signature: /s/ Thomas Price
-------------- -- -----------------------------
EMPLOYER:
Dated: August 1, 1999 Signature: /s/ Bruce Bercovich
-------------- -- -----------------------------
6
<PAGE>
EXHIBIT 10.10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), effective August 1, 1999, between
FirstAmerica Automotive, Inc. ("FAA", "Employer" or "Corporation"), and Debra
Smithart ("Employee"). Employee originally began employment on October _______,
1997 ("Commencement Date"). This Agreement's purpose is to establish in writing
all the terms and conditions of that employment, and specifically incorporates
the Non-Disclosure and Confidentiality Agreement.
Section 1. Position and Duties.
Employee shall be employed by the Corporation as its President of Corporate
Services reporting to the Corporation's Chief Executive Officer ("CEO"). As
President of Corporate Services, Employee agrees to devote her full business
time, energy and skill to her duties with the Corporation. These duties shall
include, but are not limited to, any duties consistent with the job position
which may be assigned to Employee from time to time by the Corporation's CEO.
Employee shall be subject to all the same rules, policies and procedures of
Employer to the extent they do not directly contradict the terms of this
Agreement. Employer retains the right to modify or eliminate any rule, policy
or procedure at any time at its sole discretion.
Section 2. Term.
Employee's employment with the Corporation pursuant to this Agreement is
"at-will" and is for no specified period of time beginning, subject to the
provisions regarding termination set forth below. Upon the termination of
Employee's employment with the Corporation, for any reason, neither Employee nor
the Corporation shall have any further obligation or liability to the other,
except as set forth in paragraphs 5 or 6 below. Any modification or rescission
of this "at-will" relationship must be in writing signed by the CEO of the
Corporation.
Section 3. Basic Compensation.
The Employer shall pay compensation to the Employee as set forth herein.
Such compensation shall be reviewed annually and modified as determined by the
sole discretion of the Corporate Board of Directors.
Salary
- ------
An annual base salary of $500,000 (five hundred thousand dollars),
approximately $41,667 (Forty-one thousand six hundred and sixty-seven dollars)
per month gross pay per month, will be paid to Employee, subject to applicable
withholding, in accordance with the Corporation's normal payroll procedures (the
"Base Salary").
Benefits
- --------
Employee shall have the right, on the same basis as other members of senior
management of the Corporation, to participate in and to receive benefits under
any of the Corporation's employee benefit plans, including the medical, dental,
vision and disability group insurance plans, if any. Employee shall also be
entitled to participate in any retirement plan maintained by the Corporation for
which he is eligible in accordance with its terms. In addition, Employee shall
be entitled to the benefits afforded to other members of senior management
1
<PAGE>
under the Corporation's vacation, holiday and business expense reimbursement
policies as outlined in the Employee Handbook.
Bonus
- -----
Employee is eligible for an annual bonus of 50% of Employee's annual base
salary: 1/2 is based on corporate performance (making plan) and 1/2 is based
on personal performance as determined by the compensation committee.
Corporate Vehicle
- -----------------
Employee will be provided a corporate vehicle (and all associated expenses)
commensurate with her executive position.
Expense Reimbursement
- ---------------------
Upon receipt of proper documentation establishing the amount of such
expenses, the Corporation shall reimburse Employee for any reasonable business
expenses incurred.
Section 4. Stock Options.
Beginning with the Commencement date, Employee shall be granted a non-
statutory stock option to purchase 200,000 shares of the Corporation's Common
Stock at the strike price of $4.00 per share. Provided Employee remains an
employee of the Corporation, these shares shall vest at the rate of 4,166.67
shares per month following the Commencement Date. In the event that Employee
terminates her employment with the Corporation for Good Reason (as defined in
paragraph 5(c), below) following a Transfer of Control (as also defined in
paragraph 5(c), below), then, in addition to the benefits set forth in paragraph
5, Employee shall become immediately vested in all of the shares subject to the
Initial Stock Option, effective as of the date ten days prior to the Transfer of
Control.
Except as otherwise provided herein, the Initial Stock Option shall be
subject to the terms and conditions of the Corporation's stock option plan and
the Corporation's standard form of stock option agreement, which Employee shall
be required to sign as a condition of the issuance of the Initial Stock Option.
Section 5. Benefits Upon Termination.
Employee agrees that her employment may be terminated by the Corporation at
any time, with or without cause. In the event of termination of Employee's
employment by the Corporation, based on the reasons set forth below, she shall
be entitled to the following:
a. Termination for Cause: If Employee's employment is terminated
---------------------
by the Corporation for cause, Employee shall be entitled to no
compensation or benefits from the Corporation other than those
already earned under paragraphs 3 and 4 through the date of her
termination. For purposes of this Agreement, a termination "for
cause" occurs if (employee) is terminated for any of the
following reasons:
1. theft, dishonesty, or falsification of any employment or
Corporation records;
2
<PAGE>
2. improper disclosure of the Corporation's confidential or
proprietary information, including a violation of the Non-
Disclosure and Confidentiality Agreement.;
3. any intentional act by Employee which has a material
detrimental effect on the Corporation's reputation or
business as determined by the Corporation; or,
4. any material breach of this Agreement by Employee, which
breach is not cured within thirty (30) days following
written notice of such breach from the Corporation.
b. Termination Other Than For Cause: If Employee's employment is
--------------------------------
terminated by the Corporation for any reason other than for
cause, Employee shall be entitled to the following separation
benefits:
1. Continuation of Employee's Base Salary for a period of one
year, such salary continuation payments to be made in
accordance with the Corporation's ordinary payroll
procedures without regard to whether Employee obtains
alternative employment in the interim; and
2. Payment of an amount equivalent to the annual Performance
Bonus due to Employee, less applicable withholding, with
such payment to be made in twelve equal monthly
installments;
3. During the one year period of continuation of Base Salary,
the Corporation shall provide Employee with the following
benefits at the Corporation's expense: major medical, dental
and hospitalization insurance coverage, disability
insurance, life insurance, automobile insurance and similar
programs that are made available from time to time by the
Corporation to its executive officers, with the Employee
continuing to pay the portion of such insurance premiums
that would typically be paid by an employee of the
Corporation; and,
4. The Corporation will transfer, convey and assign to Employee
the designated corporate vehicle ("demo") in current use by
the employee at the vehicle's current market value. The
Corporation shall execute and deliver to Employee a bill of
sale for same.
c. Resignation for Good Reason: For purposes of paragraph 5(b) of
---------------------------
this Agreement, Employee's resignation for Good Reason following
a Transfer of Control shall constitute a Termination Other Than
for Cause.
3
<PAGE>
For purposes of this Agreement, a "Transfer of Control" shall mean an
"Ownership Change Event" (as defined below) or a series of related Ownership
Change Events (collectively, the "Transaction") wherein the stockholders of the
Corporation immediately before the Transaction do not retain immediately after
the transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding voting stock
of the Corporation or the corporation or the corporations to which the assets of
the Corporation were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Corporation or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Corporation or Multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
For purposes of this Agreement, "Good Reason" means any of the following
conditions, which condition(s) remain(s) in effect 30 days after written notice
to the Board from Employee of the following condition(s):
(i) a decrease in Employee's base salary and/or a
material decrease in Employee's standard management
bonus plan or employee benefits;
(ii) a material, adverse change in Employee's title,
authority, responsibilities or duties, as measured
against Employee's title, authority, responsibilities
or duties immediately prior to such change;
(iii) any material breach by the Corporation of any
provision of this Agreement, which breach is not
cured within thirty (30) days following written
notice of such breach from Employee;
(iv) Any failure of the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company; or
(v) Any purported termination of Employee's employment
for "material breach of contract" which is not
effected following a written notice satisfying the
requirements of paragraph 5.
For purposes of this Agreement, an "Ownership Change Event" shall be deemed
to have occurred if any of the following occurs with respect to the Corporation:
(i) The direct or indirect sale or exchange in a single
or series of related transactions by the stockholders
of the Corporation of more than fifty percent (50%)
of the voting stock of the Corporation;
(ii) A merger or consolidation in which the Corporation is
a party;
4
<PAGE>
(iii) The sale, exchange, or transfer of all or
substantially all of the assets of the Corporation;
or
(iv) A liquidation or dissolution of the Company.
Section 6. Benefits Upon Voluntary Termination.
In the event Employee voluntarily resigns from her employment with the
Corporation, or in the event that Employee's employment terminates as a result
of her death or disability, Employee shall be entitled to no compensation or
benefits from the Corporation other than those earned under paragraphs 3 and 4
above.
Section 7. Remedy for Breach.
The Employee acknowledges that a violation of any of the provisions of this
Agreement, including its restrictive covenants, will cause irreparable damage to
the Employer, its successors and assigns. The Employee consents that any
violation shall entitle the Employer or its successors and assigns, in addition
to any other rights or remedies it, or they, may have, to an immediate
injunction restraining any violation.
Section 8. Notices.
All notices, requests, demands, and other communications that are required
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid to the CEO at the Corporate
Headquarters or to the Employee's last known home address, whichever is
applicable.
Section 9. Governing Laws.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California excluding its conflict of law provisions.
Section 10. Entire Agreement.
This Agreement contains the entire agreement among the parties regarding
Employee's pay plan and the "at-will" employment relationship. All prior
negotiations, agreements, and understandings are superseded. This Agreement may
not be amended or revised except by a writing signed by all the parties.
Section 11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, and successors of the respective parties; provided
however, that this Agreement and all its rights may not be assigned by any party
except by or with the written consent of the other parties.
Section 12. Confidential Information and Nondisclosure Agreement.
Employee agrees to execute and abide by the terms and conditions of the
Company's standard employee Confidential Information and Nondisclosure
Agreement.
5
<PAGE>
Section 13. Non-Solicitation of Employees.
In the event that Employee's employment with the Company is terminated for
any reason, Employee agrees that for a period of one year after the date of this
Agreement, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services of any employee of the Corporation or its
affiliated entities to any other person or entity, without the written consent
of the President of the Corporation.
Section 14. Attorneys' Fees.
The prevailing party shall be entitled to recover from the losing party is
attorneys' fees and costs incurred in any action brought to enforce any right
arising out of this Agreement.
Section 15. Mandatory Binding Arbitration.
Employee and Employer knowingly and voluntarily agree that in the event
there is any dispute arising out of Employee's employment with, seeking
employment with, or separation from the Employer that would require or allow
resort to any court, regardless of the kind or type of dispute, including, but
not limited to, claims of discrimination and harassment (except for claims
before the National Labor Relations Board or claims for physical injury under
the Worker's Compensation Act or disputes relating to misappropriation of
intellectual property), such dispute shall be submitted exclusively to final and
binding arbitration pursuant to the provisions of the Federal Arbitration Act,
in conformity with the procedures of the California Arbitration Act (Cal. Code
Civ. Proc. Sec. 1280 et seq.). All such arbitration proceedings shall take place
in the city of San Francisco, California, at a mutually agreed upon location.
Employee understands that by voluntarily agreeing to this binding arbitration
provision, both the Corporation and the Employer give up the right to a trial by
jury.
IT IS SO UNDERSTOOD AND AGREED:
EMPLOYEE:
Dated: August 1, 1999 Signature: /s/ Debra Smithart
------------- -- ------------------------------
EMPLOYER:
Dated: August 1, 1999 Signature: /s/ Thomas Price
------------- -- ------------------------------
6
<PAGE>
EXHIBIT 10.10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), effective August 1, 1999, between
FirstAmerica Automotive, Inc. ("FAA", "Employer" or "Corporation"), and Charles
Oglesby ("Employee"). Employee began employment on September 1, 1998
("Commencement Date"). This Agreement's purpose is to establish in writing all
the terms and conditions of that employment, and specifically incorporates the
Non-Disclosure and Confidentiality Agreement.
Section 1. Position and Duties.
Employee shall be employed by the Corporation as its President and Chief
Operating Officer, reporting to the Corporation's Chief Executive Officer
("CEO"), as of the Commencement Date. As President and Chief Operating Officer,
Employee agrees to devote his full business time, energy and skill to his duties
with the Corporation. These duties shall include, but are not limited to, any
duties consistent with the job position which may be assigned to Employee from
time to time by the Corporation's CEO. Employee shall be subject to all the same
rules, policies and procedures of Employer to the extent they do not directly
contradict the terms of this Agreement. Employer retains the right to modify or
eliminate any rule, policy or procedure at any time at its sole discretion.
Section 2. Term.
Employee's employment with the Corporation pursuant to this Agreement is
"at-will" and is for no specified period of time beginning, subject to the
provisions regarding termination set forth below. Upon the termination of
Employee's employment with the Corporation, for any reason, neither Employee nor
the Corporation shall have any further obligation or liability to the other,
except as set forth in paragraphs 5 or 6 below. Any modification or rescission
of this "at-will" relationship must be in writing signed by the CEO of the
Corporation.
Section 3. Basic Compensation.
The Employer shall pay compensation to the Employee as set forth herein.
Such compensation shall be reviewed annually and modified as determined by the
sole discretion of the Corporate Board of Directors.
Salary
- ------
An annual base salary of $500,000 (five hundred thousand dollars),
approximately $41,667 (Forty-one thousand six hundred and sixty-seven dollars)
per month gross pay per month, will be paid to Employee, subject to applicable
withholding, in accordance with the Corporation's normal payroll procedures (the
"Base Salary").
Benefits
- --------
Employee shall have the right, on the same basis as other members of senior
management of the Corporation, to participate in and to receive benefits under
any of the Corporation's employee benefit plans, including the medical, dental,
vision and disability group insurance plans, if any. Employee shall also be
entitled to participate in any retirement plan maintained by the Corporation for
which he is eligible in accordance with its terms. In addition, Employee shall
be entitled to the benefits afforded to other members of senior management
1
<PAGE>
under the Corporation's vacation, holiday and business expense reimbursement
policies as outlined in the Employee Handbook.
Bonus
- -----
Eligibility for an annual bonus of 60% of Employee's annual base salary
will be based on performance criteria to be determined by the CEO in accordance
with personal performance and corporate performance.
Corporate Vehicle
- -----------------
Employee will be provided a corporate vehicle (and all associated
expenses) commensurate with his executive position.
Expense Reimbursement
- ---------------------
Upon receipt of proper documentation establishing the amount of such
expenses, the Corporation shall reimburse Employee for any reasonable business
expenses incurred.
Section 4. Stock Options.
Beginning with the Commencement date, Employee shall be granted a non-
statutory stock option to purchase 300,000 shares of the Corporation's Common
Stock at a strike price of $4.00 per share. Provided Employee remains an
employee of the Corporation, these shares shall vest at the rate of 5,000 shares
per month following the Commencement Date. In the event that Employee terminates
his employment with the Corporation for Good Reason (as defined in paragraph
5(c), below) following a Transfer of Control (as also defined in paragraph 5(c),
below), then, in addition to the benefits set forth in paragraph 5, Employee
shall become immediately vested in all of the shares subject to the Initial
Stock Option, effective as of the date ten days prior to the Transfer of
Control.
Except as otherwise provided herein, the Initial Stock Option shall be
subject to the terms and conditions of the Corporation's stock option plan and
the Corporation's standard form of stock option agreement, which Employee shall
be required to sign as a condition of the issuance of the Initial Stock Option.
Section 5. Benefits Upon Termination.
Employee agrees that his employment may be terminated by the Corporation
at any time, with or without cause. In the event of termination of Employee's
employment by the Corporation, based on the reasons set forth below, he shall be
entitled to the following:
a. Termination for Cause: If Employee's employment is terminated by
---------------------
the Corporation for cause, Employee shall be entitled to no
compensation or benefits from the Corporation other than those
already earned under paragraphs 3 and 4 through the date of his
termination. For purposes of this Agreement, a termination "for
cause" occurs if (employee) is terminated for any of the
following reasons:
1. theft, dishonesty, or falsification of any employment or
Corporation records;
2
<PAGE>
2. improper disclosure of the Corporation's confidential or
proprietary information, including a violation of the Non-
Disclosure and Confidentiality Agreement.;
3. any intentional act by Employee which has a material
detrimental effect on the Corporation's reputation or
business as determined by the Corporation; or,
4. any material breach of this Agreement by Employee, which
breach is not cured within thirty (30) days following
written notice of such breach from the Corporation.
b. Termination Other Than For Cause: If Employee's
--------------------------------
employment is terminated by the Corporation for any reason other
than for cause, Employee shall be entitled to the following
separation benefits:
1. Continuation of Employee's Base Salary for a period of one
year, such salary continuation payments to be made in
accordance with the Corporation's ordinary payroll
procedures without regard to whether Employee obtains
alternative employment in the interim;
2. Payment of an amount equivalent to the annual Performance
Bonus due to Employee, less applicable withholding, with
such payment to be made in twelve equal monthly
installments;
3. During the one year period of continuation of Base Salary,
the Corporation shall provide Employee with the following
benefits at the Corporation's expense: major medical, dental
and hospitalization insurance coverage, disability
insurance, life insurance, automobile insurance and similar
programs that are made available from time to time by the
Corporation to its executive officers, with the Employee
continuing to pay the portion of such insurance premiums
that would typically be paid by an employee of the
Corporation; and,
4. The Corporation will transfer, convey and assign to Employee
the designated corporate vehicle ("demo") in current use by
the employee at the vehicle's current market value. The
Corporation shall execute and deliver to Employee a bill of
sale for same.
c. Resignation for Good Reason: For purposes of paragraph
---------------------------
(b) of this Agreement, Employee's resignation for Good Reason
following a Transfer of Control shall constitute a Termination
Other Than for Cause.
3
<PAGE>
For purposes of this Agreement, a "Transfer of Control" shall mean an
"Ownership Change Event" (as defined below) or a series of related Ownership
Change Events (collectively, the "Transaction") wherein the stockholders of the
Corporation immediately before the Transaction do not retain immediately after
the transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding voting stock
of the Corporation or the corporation or the corporations to which the assets of
the Corporation were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Corporation or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the Corporation or Multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive .
For purposes of this Agreement, "Good Reason" means any of the following
conditions, which condition(s) remain(s) in effect 30 days after written notice
to the Board from Employee of the following condition(s):
(i) a decrease in Employee's base salary and/or a
material decrease in Employee's standard management
bonus plan or employee benefits;
(ii) a material, adverse change in Employee's title,
authority, responsibilities or duties, as measured
against Employee's title, authority, responsibilities
or duties immediately prior to such change;
(iii) any material breach by the Corporation of any
provision of this Agreement, which breach is not
cured within thirty (30) days following written
notice of such breach from Employee;
(iv) Any failure of the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company; or
(v) Any purported termination of Employee's employment
for "material breach of contract" which is not
effected following a written notice satisfying the
requirements of paragraph 5.
For purposes of this Agreement, an "Ownership Change Event" shall be deemed
to have occurred if any of the following occurs with respect to the Corporation:
(i) The direct or indirect sale or exchange in a single
or series of related transactions by the stockholders
of the Corporation of more than fifty percent (50%)
of the voting stock of the Corporation;
(ii) A merger or consolidation in which the Corporation is
a party;
4
<PAGE>
(iii) The sale, exchange, or transfer of all or
substantially all of the assets of the Corporation;
or
(iv) A liquidation or dissolution of the Company.
Section 6. Benefits Upon Voluntary Termination.
In the event Employee voluntarily resigns from his employment with the
Corporation, or in the event that Employee's employment terminates as a result
of his death or disability, Employee shall be entitled to no compensation or
benefits from the Corporation other than those earned under paragraphs 3 and 4
above.
Section 7. Remedy for Breach.
The Employee acknowledges that a violation of any of the provisions of this
Agreement, including its restrictive covenants, will cause irreparable damage to
the Employer, its successors and assigns. The Employee consents that any
violation shall entitle the Employer or its successors and assigns, in addition
to any other rights or remedies it, or they, may have, to an immediate
injunction restraining any violation.
Section 8. Notices.
All notices, requests, demands, and other communications that are required
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid to the CEO at the Corporate
Headquarters or to the Employee's last known home address, whichever is
applicable.
Section 9. Governing Laws.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California excluding its conflict of law provisions.
Section 10. Entire Agreement.
This Agreement contains the entire agreement among the parties regarding
Employee's pay plan and the "at-will" employment relationship. All prior
negotiations, agreements, and understandings are superseded. This Agreement may
not be amended or revised except by a writing signed by all the parties.
Section 11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, and successors of the respective parties; provided
however, that this Agreement and all its rights may not be assigned by any party
except by or with the written consent of the other parties.
Section 12. Confidential Information and Nondisclosure Agreement.
Employee agrees to execute and abide by the terms and conditions of the
Company's standard employee Confidential Information and Nondisclosure
Agreement.
5
<PAGE>
Section 13. Non-Solicitation of Employees.
In the event that Employee's employment with the Company is terminated for
any reason, Employee agrees that for a period of one year after the date of this
Agreement, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services of any employee of the Corporation or its
affiliated entities to any other person or entity, without the written consent
of the President of the Corporation.
Section 14. Attorneys' Fees.
The prevailing party shall be entitled to recover from the losing party is
attorneys' fees and costs incurred in any action brought to enforce any right
arising out of this Agreement.
Section 15. Mandatory Binding Arbitration.
Employee and Employer knowingly and voluntarily agree that in the event
there is any dispute arising out of Employee's employment with, seeking
employment with, or separation from the Employer that would require or allow
resort to any court, regardless of the kind or type of dispute, including, but
not limited to, claims of discrimination and harassment (except for claims
before the National Labor Relations Board or claims for physical injury under
the Worker's Compensation Act or disputes relating to misappropriation of
intellectual property), such dispute shall be submitted exclusively to final and
binding arbitration pursuant to the provisions of the Federal Arbitration Act,
in conformity with the procedures of the California Arbitration Act (Cal. Code
Civ. Proc. Sec. 1280 et seq.). All such arbitration proceedings shall take place
in the city of San Francisco, California, at a mutually agreed upon location.
Employee understands that by voluntarily agreeing to this binding arbitration
provision, both the Corporation and the Employer give up the right to a trial by
jury.
IT IS SO UNDERSTOOD AND AGREED:
EMPLOYEE:
Dated: August 1, 1999 Signature: /s/ Charles Oglesby
---------------- -- ------------------------------
EMPLOYER:
Dated: August 1, 1999 Signature: /s/ Thomas Price
---------------- -- ------------------------------
6
<PAGE>
EXHIBIT 10.10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") made this 12 day of August , 1999,
---- ----------
between FirstAmerica Automotive, Inc. ("FAA", "Employer" or "Corporation"), and
David Moeller ("Employee"). Employee began employment on February 9 , 1998
-------
("Commencement Date"). This Agreement's purpose is to establish in writing all
the terms and conditions of that employment, and specifically incorporates the
Non-Disclosure and Confidentiality Agreement.
Section 1. Position and Duties.
Employee shall be employed by the Corporation as its Vice President of
Finance reporting to the Corporation's Chief Financial Officer ("CFO"), as of
the Commencement Date. As Vice President of Finance, Employee agrees to devote
his full business time, energy and skill to his duties with the Corporation.
These duties shall include, but are not limited to, any duties consistent with
the job position which may be assigned to Employee from time to time by the
Corporation's CFO. Employee shall be subject to all the same rules, policies and
procedures of Employer to the extent they do not directly contradict the terms
of this Agreement. Employer retains the right to modify or eliminate any rule,
policy or procedure at any time at its sole discretion.
Section 2. Term.
Employee's employment with the Corporation pursuant to this Agreement is
"at-will" and is for no specified period of time beginning, subject to the
provisions regarding termination set forth below. Upon the termination of
Employee's employment with the Corporation, for any reason, neither Employee nor
the Corporation shall have any further obligation or liability to the other,
except as set forth in paragraphs 5 or 6 below. Any modification or rescission
of this "at-will" relationship must be in writing signed by the CFO of the
Corporation.
Section 3. Basic Compensation.
The Employer shall pay compensation to the Employee as set forth herein.
Such compensation shall be reviewed annually and modified as determined by the
sole discretion of the CFO of the Corporation.
Salary
- ------
An annual base salary of $150,000 (One Hundred Fifty Thousand Dollars),
approximately $12,500 (Twelve Thousand Five Hundred Dollars) per month, will be
paid to Employee, subject to applicable withholding, in accordance with the
Corporation's normal payroll procedures (the "Base Salary").
Benefits
- --------
Employee shall have the right, on the same basis as other members of senior
management of the Corporation, to participate in and to receive benefits under
any of the Corporation's employee benefit plans, including the medical, dental,
vision and disability group insurance plans, if any. Employee shall also be
entitled to participate in any retirement plan maintained by the Corporation for
which he is eligible in accordance with its terms. In addition, Employee shall
be
1
<PAGE>
entitled to the benefits afforded to other members of senior management under
the Corporation's vacation, holiday and business expense reimbursement policies
as outlined in the Employee Handbook.
Bonus
- -----
Employee is eligible for an annual bonus of 50% of Employee's annual base
salary: 1/2 is based on corporate performance (making plan) and 1/2 is based on
personal performance as determined by the CFO of the Corporation.
Corporate Vehicle
- -----------------
Employee will be provided a vehicle expense allowance of $455.00 (Four
Hundred Fifty-Five Dollars) per month.
Expense Reimbursement
- ---------------------
Upon receipt of proper documentation establishing the amount of such
expenses, the Corporation shall reimburse Employee for any reasonable business
expenses incurred.
Section 4. Stock Options.
Upon the execution of this Agreement (or upon the Corporation's adoption,
and if required by law, qualification of a stock option plan-- whichever is the
latter), Employee shall be granted a non-statutory stock option to purchase
25,000 shares of the Corporation's Common Stock at the strike price of $4.00 per
share. Provided Employee remains an employee of the Corporation, these shares
shall vest at the rate of 416.67 shares per month following the Commencement
Date. In the event that Employee terminates his employment with the Corporation
for Good Reason (as defined in paragraph 5(c), below) following a Transfer of
Control (as also defined in paragraph 5(c), below), then, in addition to the
benefits set forth in paragraph 5, Employee shall become immediately vested in
all of the shares subject to the Initial Stock Option, effective as of the date
ten days prior to the Transfer of Control.
Except as otherwise provided herein, the Initial Stock Option shall be
subject to the terms and conditions of the Corporation's stock option plan and
the Corporation's standard form of stock option agreement, which Employee shall
be required to sign as a condition of the issuance of the Initial Stock Option.
Section 5. Benefits Upon Termination.
Employee agrees that his employment may be terminated by the Corporation at
any time, with or without cause. In the event of termination of Employee's
employment by the Corporation, based on the reasons set forth below, he shall be
entitled to the following:
a. Termination for Cause: If Employee's employment is terminated by
---------------------
the Corporation for cause, Employee shall be entitled to no
compensation or benefits from the Corporation other than those
already earned under paragraphs 3 and 4 through the date of his
termination. For purposes of this Agreement, a termination "for
cause" occurs if (employee) is terminated for any of the
following reasons:
2
<PAGE>
1. theft, dishonesty, or falsification of any employment or
Corporation records;
2. improper disclosure of the Corporation's confidential or
proprietary information, including a violation of the Non-
Disclosure and Confidentiality Agreement.;
3. any intentional act by Employee which has a material
detrimental effect on the Corporation's reputation or
business as determined by the Corporation; or,
4. any material breach of this Agreement by Employee, which
breach is not cured within thirty (30) days following
written notice of such breach from the Corporation.
b. Termination Other Than For Cause: If Employee's employment is
--------------------------------
terminated by the Corporation for any reason other than for
cause, Employee shall be entitled to the following separation
benefits:
1. Continuation of Employee's Base Salary for a period of one
year, such salary continuation payments to be made in
accordance with the Corporation's ordinary payroll
procedures without regard to whether Employee obtains
alternative employment in the interim; and
2. Payment of an amount equivalent to the annual average of the
amounts of annual Performance Bonuses previously paid to
Employee, less applicable withholding, with such payment to
be made in twelve equal monthly installments.
c. Resignation for Good Reason: For purposes of paragraph 5(b) of
---------------------------
this Agreement, Employee's resignation for Good Reason following
a Transfer of Control shall constitute a Termination Other Than
for Cause.
For purposes of this Agreement, a "Transfer of Control" shall mean an
"Ownership Change Event" (as defined below) or a series of related Ownership
Change Events (collectively, the "Transaction") wherein the stockholders of the
Corporation immediately before the Transaction do not retain immediately after
the transaction direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding voting stock
of the Corporation or the corporation or the corporations to which the assets of
the Corporation were transferred (the "Transferee Corporation(s)"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting stock of one or more corporations which, as a result of the Transaction,
own the Corporation or the Transferee Corporation(s), as the case may be, either
directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock
of the
3
<PAGE>
Corporation or Multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
For purposes of this Agreement, "Good Reason" means any of the following
conditions, which condition(s) remain(s) in effect 30 days after written notice
to the Board from Employee of the following condition(s):
(i) a decrease in Employee's base salary and/or a
material decrease in Employee's standard management
bonus plan or employee benefits;
(ii) a material, adverse change in Employee's title,
authority, responsibilities or duties, as measured
against Employee's title, authority, responsibilities
or duties immediately prior to such change;
(iii) any material breach by the Corporation of any
provision of this Agreement, which breach is not
cured within thirty (30) days following written
notice of such breach from Employee;
(iv) Any failure of the Company to obtain the assumption
of this Agreement by any successor or assign of the
Company; or
(v) Any purported termination of Employee's employment
for "material breach of contract" which is not
effected following a written notice satisfying the
requirements of paragraph 5.
For purposes of this Agreement, an "Ownership Change Event" shall be deemed
to have occurred if any of the following occurs with respect to the Corporation:
(i) The direct or indirect sale or exchange in a single
or series of related transactions by the stockholders
of the Corporation of more than fifty percent (50%)
of the voting stock of the Corporation;
(ii) A merger or consolidation in which the Corporation is
a party;
(iii) The sale, exchange, or transfer of all or
substantially all of the assets of the Corporation;
or
(iv) A liquidation or dissolution of the Company.
Section 6. Benefits Upon Voluntary Termination.
In the event Employee voluntarily resigns from his employment with the
Corporation, or in the event that Employee's employment terminates as a result
of his death or disability, Employee shall be entitled to no compensation or
benefits from the Corporation other than those earned under paragraphs 3 and 4
above.
4
<PAGE>
Section 7. Remedy for Breach.
The Employee acknowledges that a violation of any of the provisions of this
Agreement, including its restrictive covenants, will cause irreparable damage to
the Employer, its successors and assigns. The Employee consents that any
violation shall entitle the Employer or its successors and assigns, in addition
to any other rights or remedies it, or they, may have, to an immediate
injunction restraining any violation.
Section 8. Notices.
All notices, requests, demands, and other communications that are required
or may be given under this Agreement shall be in writing and shall be deemed to
have been duly given if delivered personally or sent by registered or certified
mail, return receipt requested, postage prepaid to the CEO at the Corporate
Headquarters or to the Employee's last known home address, whichever is
applicable.
Section 9. Governing Laws.
This Agreement shall be construed and enforced in accordance with the laws
of the State of California excluding its conflict of law provisions.
Section 10. Entire Agreement.
This Agreement contains the entire agreement among the parties regarding
Employee's pay plan and the "at-will" employment relationship. All prior
negotiations, agreements, and understandings are superseded. This Agreement may
not be amended or revised except by a writing signed by all the parties.
Section 11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the heirs,
legal representatives, and successors of the respective parties; provided
however, that this Agreement and all its rights may not be assigned by any party
except by or with the written consent of the other parties.
Section 12. Confidential Information and Nondisclosure Agreement.
Employee agrees to execute and abide by the terms and conditions of the
Company's standard employee Confidential Information and Nondisclosure
Agreement.
Section 13. Non-Solicitation of Employees.
In the event that Employee's employment with the Company is terminated for
any reason, Employee agrees that for a period of one year after the date of this
Agreement, he shall not, either directly or indirectly, solicit the services, or
attempt to solicit the services of any employee of the Corporation or its
affiliated entities to any other person or entity, without the written consent
of the President of the Corporation.
Section 14. Attorneys' Fees.
The prevailing party shall be entitled to recover from the losing party is
attorneys' fees and costs incurred in any action brought to enforce any right
arising out of this Agreement.
Section 15. Mandatory Binding Arbitration.
Employee and Employer knowingly and voluntarily agree that in the event
there is any dispute
5
<PAGE>
arising out of Employee's employment with, seeking employment with, or
separation from the Employer that would require or allow resort to any court,
regardless of the kind or type of dispute, including, but not limited to, claims
of discrimination and harassment (except for claims before the National Labor
Relations Board or claims for physical injury under the Worker's Compensation
Act or disputes relating to misappropriation of intellectual property), such
dispute shall be submitted exclusively to final and binding arbitration pursuant
to the provisions of the Federal Arbitration Act, in conformity with the
procedures of the California Arbitration Act (Cal. Code Civ. Proc. Sec. 1280 et
seq.). All such arbitration proceedings shall take place in the city of San
Francisco, California, at a mutually agreed upon location. Employee understands
that by voluntarily agreeing to this binding arbitration provision, both the
Corporation and the Employer give up the right to a trial by jury.
IT IS SO UNDERSTOOD AND AGREED:
EMPLOYEE:
Dated: August 12, 1999 Signature: /s/ David J. Moeller
------------ -- --------------------------------
EMPLOYER:
Dated: August 12, 1999 Signature: /s/ Debra Smithart
------------ -- --------------------------------
6
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,295
<SECURITIES> 0
<RECEIVABLES> 50,693
<ALLOWANCES> (620)
<INVENTORY> 147,070
<CURRENT-ASSETS> 223,958
<PP&E> 21,521
<DEPRECIATION> (5,425)
<TOTAL-ASSETS> 370,198
<CURRENT-LIABILITIES> 311,552
<BONDS> 0
3,669
0
<COMMON> 0
<OTHER-SE> 14,880
<TOTAL-LIABILITY-AND-EQUITY> 370,198
<SALES> 296,632
<TOTAL-REVENUES> 296,632
<CGS> 251,065
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,211
<INCOME-PRETAX> 760
<INCOME-TAX> 776
<INCOME-CONTINUING> (16)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16)
<EPS-BASIC> (0.01)
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</TABLE>
