SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
F O R M 8 - K / A
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the
Securities Exchange Act of 1934
Date of Report: March 1, 2000
(Date of earliest event reported)
HOLIDAY RV SUPERSTORES, INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
0-16448 59-1834763
(Commission File No.) (I.R.S. Employer I.D. No.)
Sand Lake West Executive Park
7851 Greenbriar Parkway
Orlando, Florida 32819
Telephone # (407) 363-9211
Fax # (407) 363-2065
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Holiday RV Superstores, Inc. (the "Company") filed with the commission
a Current Report on Form 8-K on March 13, 2000 to report its purchase of 100% of
the outstanding common stock of Little Valley Auto & RV Sales, Inc. ("Little
Valley"). In Item 7 of the Report, the Company indicated that it would file
audited historical financial statements of the business acquired and pro forma
financial information at a later date. Set forth below is Item 7 of such Report
amended to include the audited financial statements of the business acquired and
pro forma financial information
(a) Financial Statements of Business Acquired
Little Valley Auto & RV Sales, Inc.
(1) Independent Certified Public Accountants Report.
(2) Balance Sheet as of December 31, 1999.
(3) Statement of Operations for the twelve months ended December
31, 1999.
(4) Statement of Shareholders' Equity.
(5) Statement of Cash Flows for the twelve months ended December
31, 1999.
(6) Notes to Financial Statements.
(b) Pro Forma Financial Information
(1) Pro Forma Unaudited Combined Balance Sheet.
(2) Notes to Pro Forma Combined Balance Sheet.
(3) Pro Forma Unaudited Combined Statement of Income.
(4) Notes to Pro Forma Combined Statement of Income.
(c) Exhibits Index
10.23 Stock Purchase Agreement by and among Holiday RV
Superstores, Inc. and Little Valley Auto and RV Sales, Inc.
and Ernest Davis, Jr. and Lori A. Davis, dated March 1,
2000.
<PAGE>
DESCRIPTION OF TRANSACTION
Holiday RV Superstores, Inc. acquired 100% of the issued and outstanding stock
of Little Valley Auto & RV Sales, Inc., on March 1, 2000. The total purchased
price paid to the Little Valley RV shareholders was $3.4 million, consisting of
$1.7 million cash and $1.7 million in a note convertible into Holiday RV common
stock. In addition, Little Valley RV shareholders withdrew $321,000 of assets
from Little Valley RV prior to closing.
<PAGE>
LITTLE VALLEY AUTO &
RV SALES, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
CONTENTS
- --------------------------------------------------------------------------------
Page
Report of Independent Certified Public Accountants 1
Financial Statements:
Balance Sheet 2
Statement of Operations 3
Statement of Shareholder's Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder
Little Valley Auto & RV Sales, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholder's equity and of cash flows present fairly, in all
material respects, the financial position of Little Valley Auto & RV Sales, Inc.
at December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
April 6, 2000
1
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 10,898
Accounts receivable, net of allowances of $72,165 348,257
Inventories 4,662,733
Prepaid expenses and other 22,548
-----------
Total current assets 5,044,436
Property and Equipment, net 417,997
Other Assets:
Certificate of deposit 12,643
Restricted cash and cash equivalents 53,351
Restricted securities 582,752
-----------
Total assets $ 6,111,179
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Floor plan notes payable $ 3,072,908
Long-term debt, current portion 82,568
Accounts payable 122,594
Accrued expenses 60,401
Reserve for chargebacks and recourse financings 360,221
Cash overdraft 288,692
Customer deposits 17,903
-----------
Total current liabilities 4,005,287
Long-Term Debt, net of current portion 128,394
-----------
Total liabilities 4,133,681
-----------
Commitments and Contingencies (Note 9)
Shareholder's Equity:
Common stock - $5 par value, 1,000 shares authorized,
1,000 shares issued and outstanding 5,000
Retained earnings 2,130,990
Accumulated other comprehensive income (loss) (3,492)
Less cost of treasury stock, 500 shares (155,000)
-----------
Total shareholder's equity 1,977,498
-----------
Total liabilities and shareholder's equity $ 6,111,179
===========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Revenue:
Vehicles and boats $ 12,055,104
Parts and service 520,502
Other 296,584
------------
12,872,190
------------
Cost of Sales:
Vehicles and boats 10,183,701
Parts and service 283,150
------------
10,466,851
------------
Gross Profit 2,405,339
Selling, General and Administrative Expenses 1,238,286
------------
1,167,053
------------
Other Income (Expenses):
Interest expense (273,158)
Interest income 71,169
Other, net (152,830)
------------
(354,819)
------------
Net Income $ 812,234
============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE TREASURY
STOCK EARNINGS INCOME (LOSS) STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 19999 $ 5,000 $ 1,712,206 $ 34,011 $ (155,000) $ 1,596,217
----------- ----------- ----------- ----------- -----------
Comprehensive income:
Net income - 812,234 - - 812,234
Change in unrealized gain on securities
available for sale - - (37,503) - (37,503)
-----------
Total comprehensive income 774,731
Distributions to shareholder - (393,450) - - (393,450)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 5,000 $ 2,130,990 $ (3,492) $ (155,000) $ 1,977,498
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 812,234
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 50,101
Gain on sale of property and equipment (1,583)
Gain on sale of restricted securities (30,089)
Bad debt expense 83,275
Changes in operating assets and liabilities:
Accounts receivable (209,070)
Inventories (1,193,875)
Prepaid expenses and other (11,610)
Floor plan notes payable 541,093
Accounts payable and accrued expenses (93,513)
Customer deposits 3,463
-----------
Net cash used in operating activities (49,574)
-----------
Cash Flows from Investing Activities:
Purchases of certificate of deposit (12,643)
Proceeds from sale of restricted securities 84,420
Purchases of equipment (267,758)
Proceeds from sale of equipment 57,037
-----------
Net cash used in investing activities (138,944)
-----------
Cash Flows from Financing Activities:
Net decrease in restricted cash 205,454
Proceeds from long-term borrowings 169,753
Payments on long-term borrowings (88,796)
Distributions to shareholders (393,450)
Cash overdraft 288,692
-----------
Net cash provided by financing activities 181,653
-----------
Net Decrease in Cash and Cash Equivalents (6,865)
Cash and Cash Equivalents at Beginning of Year 17,763
-----------
Cash and Cash Equivalents at End of Year $ 10,898
===========
Supplemental Information:
During 1999, the Company transferred $15,820 from Property and Equipment to
Inventory.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS:
Little Valley Auto & RV Sales, Inc. (the "Company") was incorporated in
1984 and operates a dealership in West Virginia. In addition to new and
used RV sales and boat sales, the Company offers complementary products
and services including parts, repair and maintenance services, body shop
services, and financing and insurance contracts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash, contracts in transit, and all highly liquid investments with a
maturity of three months or less when purchased.
SECURITIES AVAILABLE FOR SALE
Under the provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS
IN DEBT AND EQUITY SECURITIES, the Company has classified its restricted
securities as "available-for-sale" and any associated unrealized gains
or losses are recorded as a separate component of shareholder's equity
until realized. The cost of securities sold is based on the specific
identification method.
INVENTORIES
Inventories of new and used vehicles and boats are stated at the lower
of cost or market. Cost is determined using the specific-identification
method. New vehicle and boat costs include the invoice price, delivery,
and the cost of any special features added to the vehicles and boats.
Used vehicle and boat costs include the purchase price plus
reconditioning and make-ready costs. Parts are stated at the lower of
cost or market, cost being determined on the first-in, first-out basis.
PROPERTY AND EQUIPMENT
The cost of property is depreciated over the estimated useful lives of
the related assets. Depreciation is computed using the straight-line
method for financial reporting purposes.
Estimated useful lives of the assets are primarily as follows:
Buildings and improvements 7-35 years
Furniture and fixtures 7-10 years
Machinery, vehicles and equipment 5-10 years
Rental units 5 years
REVENUE RECOGNITION
Revenue is recognized when vehicles are delivered, service is performed,
and parts are sold. Finance, insurance, and warranty revenues are
recognized at the time the contracts are sold.
6
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
REVENUE RECOGNITION - CONTINUED
Other revenue consists primarily of finance fees, insurance commissions,
extended warranty contract and rental fees income.
Insurance income represents commissions earned on credit life, accident
and disability insurance sold in connection with the vehicle on behalf
of third-party insurance companies. Warranty income represents revenue
earned on extended warranty contracts sold on behalf of a third party.
INCOME TAXES
The Company is an S corporation and, as such, no provision for income
taxes has been included in the accompanying financial statements as the
Company's taxable income is reported directly by the shareholder for tax
purposes.
ADVERTISING
The Company expenses the cost of advertising as incurred. Advertising
expenses totaled $40,600 for 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate.
Unless otherwise disclosed, the fair value of financial instruments
approximates their recorded values due to the short-term nature of the
maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. SECURITIES:
Cost and value of marketable debt and equity securities at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
NET NET
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C>
21,284 units in trust for
government cash reserves $ 21,284 $ - $ - $ 21,284
U.S. Treasury Note, 5.75%;
due June 30, 2001 564,960 - 3,492 561,468
--------------- --------------- --------------- ---------------
$ 586,244 $ - $ 3,492 $ 582,752
=============== =============== =============== ===============
</TABLE>
7
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
3. SECURITIES - CONTINUED:
Included in other income is $30,089 of gains related to the sale of
available for sale securities. This gain was computed based on the
specific identification method for determining the cost of securities
sold.
4. INVENTORIES:
Inventories consist of the following at December 31, 1999:
New vehicles $ 2,168,133
Used vehicles 2,188,147
Parts and accessories 306,453
----------------
$ 4,662,733
================
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1999:
Buildings and improvements $ 238,231
Furniture and fixtures 27,483
Machinery, vehicles and equipment 261,361
Rental units 79,085
---------------
606,160
Less accumulated depreciation (188,163)
---------------
$ 417,997
===============
6. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable consist of the following at December 31, 1999:
Floor plan notes payable, collateralized by new and
used vehicle inventories and contracts in transit $3,072,908
============
Interest rates on floor plan notes vary by product line and product age.
Interest rates on the floor plan notes are variable and range from 8.5%
to 13.5%. The average interest rate on floor plan notes was 9% for the
year ended December 31, 1999. The notes are due upon the sale of the
related inventory. The Company currently has $2,677,092 available for
financing of inventory under its floor plan arrangement.
8
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
6. FLOOR PLAN NOTES PAYABLE - CONTINUED:
Interest paid for both the floor plan notes and long-term debt (see Note
7) was $273,158 for the year ended December 31, 1999.
Certain floor plan agreements contain restrictive covenants which, among
other things, require the Company to maintain a tangible net worth of
not less than $1.5 million and a debt to tangible net worth ratio of
more than four to one (4:1).
7. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Promissory note to a former shareholder, payable in
monthly installments of $2,981, including interest at
10%, maturing June 2000 $ 17,376
Termnotes with various banks, payable in installments, including interest
ranging from 8.0% to 8.75% at
December 31, 1999, maturing at varying dates 35,354
Termnote with a financial institution, payable in monthly installments of
$1,494, including interest at 7.25%, maturing June 2004; note is
collateralized
by rental units 68,669
Termnote with a financial institution, payable in monthly installments of
$1,927, including interest at 8%, maturing June 2004; note is collateralized
by land 89,563
---------------
$ 210,962
===============
</TABLE>
Future maturities of long-term debt as of December 31, 1999 are as
follows:
Year Ending December 31,
2000 $ 82,568
2001 32,174
2002 34,818
2003 37,607
2004 23,795
---------------
$ 210,962
===============
9
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
8. COMPREHENSIVE INCOME:
The components of other comprehensive income were a follows:
Unrealized holding losses arising during the period $ (67,592)
------------
Unrealized net loss (67,592)
Reclassification adjustment for net gain:
Realized net gain 30,089
------------
Total other comprehensive income $ (37,503)
============
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time involved in litigation incidental to
the conduct of its business. The Company believes that no such currently
pending litigation to which it is a party will have a material adverse
effect on its financial condition or results of operations.
CUSTOMER INSTALLMENT CONTRACTS
The Company is contingently liable on certain customer installment
contracts to local financing institutions with full recourse. The
Company recognizes the revenue on the sale as described in Note 2 and
records an accrual to match estimated losses, the balance of which was
$276,909 at December 31, 1999. The financing institutions require the
Company to maintain restricted cash and securities which are released to
the Company as the customers make monthly payments. The balance of the
restricted cash and securities accounts at December 31, 1999 was
$636,103. In the event of default, the Company pays the financing
institution the amount in default and repossesses and sells the
collateralized vehicle. Customer installment contracts with full
recourse to the Company at December 31, 1999 totaled approximately
$4,015,000.
GOVERNMENTAL REGULATION
The Company is subject to federal, state, and local provisions
regulating the discharge of materials into the environment. Compliance
with these provisions has not had, nor does management expect such
compliance to have, any material effect upon the capital expenditures,
net income, financial condition, or competitive position of the Company.
Management believes that its current practices and procedures for the
control and disposition of such wastes comply with applicable federal
and state requirements.
10
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES - CONTINUED:
THIRD-PARTY FINANCING
The Company uses third-party banks and/or finance companies to assist
its customers in obtaining financing for vehicle purchases. The Company
refers customers to one or more of these third-party financing sources
and earns a financing fee if the third-party lender consummates a loan
contract with the customer. These contractors represent third-party
financing, and the Company provides no underwriting or credit approval
services for the lender. The Company's financing fees are in fact a
commission and are typically based upon the difference between the
interest rate the customer pays under the contract with the lender and
an interest rate designated by the lender. At no time does the Company
service or guarantee the collection of these loans or receivables. The
Company could be charged back commission by the lender if the loan is
paid off or foreclosed in a specified period of time. The Company
records this commission income based upon the amount earned less
allowances for chargebacks. In determining the allowances for
chargebacks, the Company takes into consideration total customer loans
outstanding and estimates the exposure for potential chargebacks
associated with early payoffs of these loans. Finance chargebacks were
approximately $95,900 for the year ended December 31, 1999 and the
chargeback allowance as of December 31, 1999 was approximately $83,000.
10. RELATED-PARTY TRANSACTIONS:
The Company leases certain facilities from the shareholder for the
location of the dealership under a month-to-month arrangement. Rent
expense paid to the shareholder for the year ended December 31, 1999
amounted to $114,000.
11. RETIREMENT PLAN:
The Company maintains a discretionary contribution retirement plan.
Employees are eligible to participate in the plan if they have earned
more than $5,000 in the previous year and expect to earn more than
$5,000 in the current year. Participants are allowed to make elective
income deferrals to the plan per the plan specifications. The Company
can make discretionary contributions as authorized by management,
matching contributions of eligible employees up to 3% of their salaries,
or fixed contributions up to 2% of their salaries. The Company made
discretionary contributions of $8,571 during 1999.
11
<PAGE>
LITTLE VALLEY AUTO & RV SALES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS:
LEASE OF WYTHE LOCATION
The Company entered into an agreement to lease real property in Wythe
County, Virginia for a second location. This lease was entered into in
January 2000, with lease payments commencing February 1, 2000. The lease
extends through January 31, 2005 with the option to renew the lease for
an additional five-year period. Rental payments are $3,500 per month
until January 1, 2001 and then $5,000 per month through the remainder of
the lease.
SALE OF COMPANY
On February 29, 2000, the Company and its shareholder entered into a
definitive agreement with Holiday RV Superstores, Incorporated
("Holiday") in which Holiday purchased 100% of the outstanding common
stock of the Company.
The total purchase price paid to the Company's shareholder was $3.4
million, consisting of $1.7 million in cash and $1.7 million in notes
convertible into Holiday common stock. In addition, the Company's
shareholder withdrew $321,000 of assets from Little Valley RV prior to
closing.
12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
Holiday RV's historical fiscal year ends on October 31, while Little Valley RV's
historical fiscal year ends on December 31. For purposes of combining Little
Valley RV's historical financial data with Holiday RV's historical financial
data in the pro forma combined balance sheet and pro forma combined statement of
income in this document, the audited financial data of Holiday RV for the twelve
month period ending October 31, 1999 has been combined with Little Valley RV's
audited financial data for the twelve month period ending December 31, 1999.
We have included this unaudited pro forma combined data only for the purpose of
illustration, and it does not necessarily indicate what the operating results or
financial position would have been if the merger of Holiday RV and Little Valley
RV had been completed at the dates indicated. Moreover, this data does not
necessarily indicated what the future operating results or financial position of
the combined company will be. You should read this unaudited pro forma combined
summary financial data in conjunction with the historical financial statements
of Holiday RV and Little Valley RV and related notes thereto, included elsewhere
in this document and also incorporated by reference.
<PAGE>
HOLIDAY RV SUPERSTORES, INC.
PRO-FORMA COMBINED BALANCE SHEET
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
HOLIDAY RV LITTLE VALLEY RV PRO FORMA ACQUISITION
10/31/99 12/31/99 ADJUSTMENTS (SEE NOTES) COMBINED
----------- ---------------- ----------------------------- -----------
CURRENT:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 9,119 $ 11 $ (1,771)(a) $ 1,600(a) $ 8,959
Accounts receivable:
Trade and contracts in transit 2,235 348 2,583
Other 393 --- 393
Inventories 28,756 4,663 33,419
Deferred taxes & other 339 22 361
----------- ----------- -----------
TOTAL CURRENT ASSETS 40,842 5,044 45,715
PROPERTY AND EQUIPMENT
less accumulated depreciation 4,599 418 (409)(d) 4,608
GOODWILL -- -- 1,847(b) 1,847
NONCURRENT DEFERRED TAXES AND OTHER 294 649 943
----------- ----------- -----------
TOTAL ASSETS $ 45,735 $ 6,111 $ 53,113
=========== =========== ===========
CURRENT LIABILITIES:
Floor plan contracts $ 23,673 $ 3,073 $ $ $ 26,746
Accounts payable 411 123 534
Customer deposits 111 18 129
Accrued expenses, and other
current liabilities 1,691 709 2,400
Current portion of capital lease obligations 69 -- 69
Current portion of long-term debt -- 83 (35)(d) 48
Notes payable -- -- 1,600(a) 1,600
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 25,955 4,005 31,525
Long-Term debt, net of current portion -- 129 (53)(d) 76
Other noncurrent liabilities 157 -- 157
----------- ----------- -----------
TOTAL LIABILITIES 26,112 4,134 31,758
----------- ----------- -----------
CONVERTIBLE NOTES -- -- 1,732(c) 1,732
STOCKHOLDERS' EQUITY:
Common stock $.01 par - shares
authorized 10,000,000; issued
7,485,000 75 5 (5)(e) 75
Additional paid-in capital 5,184 -- 5,184
Retained earnings 14,906 2,130 (1,809)(e) (321)(d) 14,906
Other -- (3) 3 (e) --
Treasury stock, at cost (542) (155) 155 (e) (542)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 19,623 1,977 19,623
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,735 $ 6,111 $ 53,113
=========== =========== ===========
</TABLE>
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET.
The pro forma balance sheet has been prepared to reflect the acquisition of
Little Valley Auto & RV Sales, Inc. by Holiday RV Superstores, Inc. for an
aggregate price of $3.4 million. Pro forma adjustments are made to reflect:
(a) Payment of $1.66 million cash to the sellers, $1.60 million proceeds from
acquisition loan, and $115,000 of estimated acquisition expenses. The
acquisition loan has an interest rate of 15.0% per annum, and incentive
warrants to be issued to the lender. Principal and interest are payable 90
days from funding date of the loan.
(b) Excess of acquisition cost over the fair value of net assets acquired
(goodwill).
(c) Issuance of a $1.732 million convertible note payable to the Seller as part
of the acquisition. The note has a three-year term, and was issued at an
interest rate of 7.5% per annum. Payment of interest only are due quarterly
with the full principal balance due on or before three years from issuance.
(d) Seller's removal of selected assets and associated notes payable from
Little Valley RV prior to purchase by Holiday RV.
(e) Elimination of the common shareholders' equity accounts of Little Valley
RV.
<PAGE>
HOLIDAY RV SUPERSTORES, INC.
PRO-FORMA COMBINED STATEMENT OF INCOME
(in thousands, except per share data)
UNAUDITED
<TABLE>
<CAPTION>
HOLIDAY RV LITTLE VALLEY RV PRO FORMA
HISTORICAL HISTORICAL ACQUISITION
12 MONTHS ENDED 12 MONTHS ENDED ADJUSTMENTS
10/31/99 12/31/99 (SEE NOTES) COMBINED
--------------- ---------------- ----------- -----------
SALES AND SERVICE REVENUE:
<S> <C> <C> <C>
Vehicle and marine $72,241 $12,055 $ $84,296
Service, parts and accessories 6,234 521 6,755
Other, net 2,921 296 3,217
----------- ----------- -----------
Total sales and service revenue 81,396 12,872 94,268
COST OF SALES AND SERVICE:
Vehicle and marine 63,884 10,184 74,068
Service, parts and accessories 3,486 283 3,769
----------- ----------- -----------
Total cost of sales and service 67,370 10,467 77,837
Gross Profit 14,026 2,405 16,431
Selling, General and Administrative Expenses 10,291 1,238 (15) (a) 11,514
----------- ----------- -----------
Income from Operations 3,735 1,167 4,917
Amortization of Goodwill 0 0 (92) (b) (92)
Interest Income 555 71 626
Other Income (Expense) 0 (153) (153)
Interest Expense (1,134) (273) (366) (c) (1,773)
Gain on sale of assets 319 0 319
----------- ----------- -----------
Income Before Income Taxes 3,475 812 3,844
Income Taxes 1,321 0 155 (d) 1,476
----------- ----------- -----------
Net Income $2,154 $812 $2,368
=========== =========== ===========
Earnings Per Share:
Basic $0.30 $0.33
=========== ==========
Diluted $0.30 $0.32
=========== ==========
Basic Shares 7,184 7,184
Diluted Shares 7,304 7,304
</TABLE>
<PAGE>
NOTES TO PRO FORMA INCOME STATEMENT.
The above pro forma income statement gives effect to the following pro forma
adjustments necessary to reflect the acquisition:
(a) Reduction in depreciation expense resulting from the removal of $271,000 of
fixed assets by the Seller.
(b) Amortization of goodwill on a straight-line basis over 20 years.
(c) Increase in interest expense on $1.66 million convertible note issued to
the Seller, and interest expense on the $1.60 million acquisition loan.
(d) Increase in income taxes related to Little Valley RV's income previously
not subject to income tax as a sub-chapter S corporation, as well as the
tax impact of adjustments (a), (b) and (c) above.
<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.
Date: May 15, 2000 By: /S/ Gary Rodney
------------------------------
Name: Gary Rodney
Title: Vice President
Chief Financial Officer
STOCK PURCHASE AGREEMENT
By and Among
HOLIDAY RV SUPERSTORES, INC.
(the "Buyer")
and
LITTLE VALLEY AUTO AND RV SALES, INC.
(the "Company")
and
ERNEST DAVIS, JR. and LORI A. DAVIS
(collectively, the "Stockholders")
dated March 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
No.
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<S> <C> <C>
1 THE SALE AND PURCHASE OF SHARES......................................................................1
1.1 Transfer of the Shares..........................................................................1
1.2 Purchase Price..................................................................................1
1.3 Allocation of Purchase Price....................................................................2
1.4 Certain Information With Respect to Capital Stock of Company....................................2
2 PURCHASE PRICE DETERMINMATION........................................................................2
2.1 Closing Estimates...............................................................................2
3 CLOSING..............................................................................................3
3.1 Location and Date...............................................................................3
3.2 Closing Deliveries..............................................................................3
4 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS .................................................3
4.1 Due Organization................................................................................3
4.2 Authorization; Validity.........................................................................4
4.3 No Conflicts....................................................................................4
4.4 Capital Stock of the Company....................................................................4
4.5 Transactions in Capital Stock...................................................................5
4.6 Subsidiaries, Stock and Notes...................................................................5
4.7 Predecessor Status..............................................................................5
4.8 Absence of Claims Against the Company...........................................................5
4.9 The Company's Financial Condition...............................................................6
4.10 Financial Statements............................................................................6
4.11 Liabilities and Obligations....................................................................6
4.12 Accounts and Notes Receivables.................................................................7
4.13 Books and Records..............................................................................7
4.14 Permits........................................................................................7
4.15 Real Property..................................................................................8
4.16 Personal Property..............................................................................9
4.17 Intellectual Property.........................................................................10
4.18 Material Contracts and Commitments............................................................11
4.19 Government Contracts..........................................................................12
4.20 Insurance.....................................................................................13
4.21Labor and Employment Matters....................................................................13
4.22 Employee Benefit Plans........................................................................14
4.23 Conformity with Law; Litigation...............................................................16
4.24 Taxes.........................................................................................16
4.25 Absence of Changes............................................................................18
4.26 Deposit Accounts; Powers of Attorney..........................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.27 Environmental Matters.........................................................................19
4.28 Relations with Governments....................................................................20
4.29 Disclosure....................................................................................21
4.30 Affiliates....................................................................................21
4.31 Location of Chief Executive Offices...........................................................21
4.32 Location of Equipment and Inventory...........................................................21
4.33 Year 2000 Compliance..........................................................................21
5 REPRESENTATIONS OF BUYER...............................................................................22
5.1 Due Organization...............................................................................22
5.2 Authorization; Validity of Obligations.........................................................22
5.3 No Conflicts...................................................................................22
5.4 Buyer's Public Reports.........................................................................23
6 COVENANTS..............................................................................................23
6.1 Tax Matters....................................................................................23
6.2 Accounts Receivable............................................................................25
6.3 Cooperation....................................................................................25
6.4 Conduct of Business Pending Closing............................................................25
6.5 Access to Information..........................................................................26
6.6 Prohibited Activities..........................................................................26
6.7 Notice to Bargaining Agents....................................................................28
6.8 Real Estate Leases.............................................................................28
6.9 Personal Guarantees............................................................................28
6.10 Form S-3 Registration Rights...................................................................28
6.11 Piggyback Registration Rights..................................................................28
7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASE....................................................30
7.1 Representations and Warranties; Performance of Obligations.....................................30
7.2 No Litigation..................................................................................30
7.3 No Material Adverse Change.....................................................................30
7.4 Consents and Approvals.........................................................................30
7.5 Opinion of Counsel.............................................................................30
7.6 Charter Documents; Certificate of Good Standing................................................30
7.7 Board of Directors Approval....................................................................31
7.8 Quarterly Financial Statements.................................................................31
7.9 Due Diligence Review...........................................................................31
7.10 Employment....................................................................................31
7.11 Stockholders' Release.........................................................................31
7.12 Resignation of Directors and Officers.........................................................31
7.13 Real Estate Condition.........................................................................31
7.14 Stock Certificates.............................................................................31
8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS............................31
8.1 Representation and Warranties; Performance of Obligations......................................32
8.2 No Litigation..................................................................................32
8.3 Consents and Approvals.........................................................................32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.4 Employment Agreements..........................................................................32
8.5 Opinion of Counsel.............................................................................32
9 INDEMNIFICATION........................................................................................32
9.1 General Indemnification by the Stockholders....................................................32
9.2 Limitation and Expiration......................................................................33
9.3 Indemnification Procedures.....................................................................34
9.4 Survival of Representations Warranties and Covenants...........................................35
9.5 Remedies Cumulative............................................................................35
9.6 Right to Set Off...............................................................................35
10 NONCOMPETITION........................................................................................36
10.1 Prohibited Activities.........................................................................36
10.2 Damages.......................................................................................36
10.3 Reasonable Restraint..........................................................................37
10.4 Severability; Reformation.....................................................................37
10.5 Independent Covenant..........................................................................37
10.6 Materiality...................................................................................37
11 NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................................................37
11.1 Stockholders..................................................................................37
11.2 Buyer.........................................................................................38
11.3 Damages.......................................................................................38
12 GENERAL...............................................................................................38
12.1 Termination.................................................................................38
12.2 Effect of Termination.......................................................................39
12.3 Successors and Assigns......................................................................39
12.4 Entire Agreement; Amendment; Waiver.........................................................39
12.5 Counterparts................................................................................39
12.6 Brokers and Agents..........................................................................39
12.7 Expenses....................................................................................39
12.8 Specific Performance; Remedies..............................................................40
12.9 Notices.....................................................................................40
12.10 Governing Law................................................................................41
12.11 Severability.................................................................................41
12.12 Absence of Third-Party Beneficiary Rights....................................................41
12.13 Legal Representations........................................................................41
12.14 Public Announcements.........................................................................41
12.15 No Trading in Buyer's Securities.............................................................41
12.16 Accounting Terms.............................................................................41
12.17 Letter of Intent.............................................................................42
</TABLE>
iii
<PAGE>
EXHIBITS
EXHIBIT A......... - PROMISSORY NOTE
EXHIBIT B......... - EMPLOYMENT AGREEMENT
SCHEDULES
SEE "LIST OF SCHEDULES"
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into this 1st day of March, 2000, by and among HOLIDAY RV SUPERSTORES, INC., a
Delaware corporation (the "Buyer"), and LITTLE VALLEY AUTO AND RV SALES, INC. a
West Virginia corporation (the "Company"), and ERNEST DAVIS, JR. and LORI A.
DAVIS (collectively, the "Stockholders").
BACKGROUND
WHEREAS, the Company and the Buyer have entered into a confidential
Letter of Intent dated October 7, 1999, as amended, which has been subsequently
amended to provide for a Stock Purchase Agreement instead of an Asset Purchase
Agreement (the "Letter of Intent"); and
WHEREAS, the Letter of Intent contemplates that the Buyer and the
Company will enter into this definitive agreement regarding the purchase of the
outstanding shares of the Company (the "Shares") from the Stockholders.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. THE SALE AND PURCHASE OF SHARES
1.1 Transfer of the Shares. Pursuant to the terms and subject to the
conditions of this Agreement, in exchange for the consideration set forth in
Section 1.2 below, at the closing of this transaction (as hereinafter defined),
the Stockholders agree to sell, convey, transfer, assign and deliver to the
Buyer, and the Buyer agrees to purchase from the Company, all of the Shares as
defined in Section 1.4 hereof. The Stockholders will only retain those assets
specifically described in Schedule 1.1(a) (including those assets described in
Section 6.8(c)), and, prior to the Closing, the Stockholders will assume all
liabilities of the Company specifically described in Schedule 1.1(b).
1.2 Purchase Price. The Purchase Price for the Shares shall be the sum
of:
(i) The net book value of the assets of the Company as
reflected in the Company's audited balance sheet as of December 31, 1999 (the
"Audited Balance Sheet"), less the specific assets and liabilities retained by
the Stockholders as set forth in Schedules 1.1(a) and 1.1(b); (the "Net Book
Value") and
(ii) The value of the goodwill related thereto which will be
equal to 1.8 times the three (3) year average of the Company's audited pre-tax
income for the fiscal years ended December 31, 1997, December 31, 1998 and
December 31, 1999, which will be based upon the audited financial statements for
the Company's fiscal years ending December 31, 1997, 1998 and 1999 and subject
to adjustments for certain non-recurring items to be mutually agreed upon by the
parties (the "Audited Pre-Tax Earnings").
(collectively, the "Purchase Price").
<PAGE>
The parties have tentatively agreed on the following: (i) Net Book Value of
$1,656,036.74 and (ii) 1.8 times Audited Pre-Tax Earnings equal to$1,731,919.60
(which includes the $131,500 for the Section 338(h)(10) election).
The parties will close this transaction based upon the Company's internal,
unaudited financial statements subject to any proposed audit adjusting entries
determined by the Auditor subsequent to the Closing (as defined below).
1.3 Allocation of Purchase Price. The Purchase Price shall be paid to
the Company in two (2) parts:
(a) Cash at the Closing will be paid to the Stockholders for
the Net Book Value of the Company based on the agreed upon tentative
valuations subject to receipt of the Audited Balance Sheet and
subsequent adjustments; and
(b) 1.8 times the Audited Pre-Tax Earnings, based upon
tentative calculations subject to receipt of the Audited Financial
Statements (including the $131,500 amount described above), shall be
paid to the Stockholders in the form of a Convertible Note from the
Buyer to the Stockholders in the form attached hereto as Exhibit A (the
"Buyer's Note"), bearing an interest rate of 7.5% interest, paid
quarterly, with the balance payable in full three (3) year from the
date of the Buyer's Note. The Stockholders have the option to convert
the Buyer's Note, after twenty-four (24) months, to Common Stock of the
Buyer at a conversion price of SEVEN AND 50/100THS DOLLARS ($7.50) per
share.
1.4 Certain Information with Respect to Capital Stock of Company.
As of the date of this Agreement, the authorized capital stock of Company
consists of One Thousand (1,000) shares of common stock, par value FIVE DOLLARS
($5.00) per share (the "Company Common Stock"), of which Five Hundred (500)
shares are issued and outstanding. The Stockholders hold the respective number
of shares of Company Common Stock set forth in Schedule 1.4. All of the assets
of the Company, of every kind or nature, whether tangible or intangible, and
whether or not on the Balance Sheets of the Company or reflected in the Purchase
Price, are owned by the Company and are acquired by the Buyer pursuant to this
Agreement (except as identified on Schedule 1.1(c)).
2. PURCHASE PRICE DETERMINATION
2.1 Closing Estimates. The parties will meet and, in good faith,
determine the estimates for the Purchase Price as described in Section 1.2
hereof, which amounts will be used for the Closing. The final determination of
the Purchase Price shall be based upon the issuance of the Audited Financial
Statement for the period December 31, 1999 by PricewaterhouseCoopers (the
"Auditors"), and in the case of the periods December 31, 1997 and December 31,
1998, based upon the Audited Financial Statements issued by Ernst & Young. To
the extent that the determination made by the Buyer and the Stockholders at the
Closing are different than that reflected in the financial statements prepared
by the Auditors, there will be an appropriate adjustment to the principal amount
of the Buyer's Note, which will be initialed by the Buyer and the Stockholders,
unless such adjustment exceeds ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000), in
which case the entire adjustment will be allocated to the cash portion of the
Purchase Price to the extent the
2
<PAGE>
adjustments are related to the Net Book Value or to the Buyer's Note to the
extent the adjustments are related to Audited Pre-Tax Earnings. Any cash to be
paid to the Buyer by the Stockholders or to the Stockholders by the Buyer will
be due within ten (10) days of the determination. If the parties are unable to
agree, then the determination will be made by the Auditors. The Auditors'
determinations will be binding upon the Buyer and the Stockholders.
3. CLOSING
3.1 Location and Date. The Stock Purchase and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of the Seller's counsel in Charleston, West Virginia, on March 1, 2000,
providing that all conditions to the Closing shall have been satisfied or
waived, or at such other time and date as the Buyer, the Company may mutually
agree, which date shall be referred to as the "Closing Date." The Closing will
be by exchange of facsimile documents followed by exchange of executed original
documents.
3.2 Closing Deliveries.
(a) At the Closing, the Buyer will deliver to the Stockholders the
following:
(i) the cash portion of the Purchase Price; and
(ii) the Buyer's Note.
(b) The Stockholders shall deliver to the Buyer at the Closing the
certificates representing the Company Common Stock, duly endorsed in blank by
the Stockholders, or accompanied by blank irrevocable stock powers, and with all
necessary transfer tax and other revenue stamps, acquired at the Stockholders'
expense, affixed and canceled and shall take such steps as shall be necessary to
cause Company to enter the Buyer or its nominee(s) upon the books of the Company
as the holder of the Company Common Stock and to issue one or more share
certificates to the Buyer or its nominee(s) representing the Company Common
Stock. The Stockholders agree promptly to cure any deficiencies with respect to
the endorsement of the certificates or other documents of conveyance with
respect to such Company Common Stock or with respect to the stock powers
accompanying any Company Common Stock.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
To induce the Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Stockholders, jointly and severally, each
represent and warrant to the Buyer as follows (for purposes of this Agreement,
the phrases "knowledge of the Company" or the "Company's knowledge," or words of
similar import, mean the knowledge of the Stockholders and the directors and
officers of the Company, including facts of which the directors and officers, in
the reasonably prudent exercise of their duties, should be aware):
4.1 Due Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and are duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted except where the failure to be so authorized,
qualified or licensed would not have a material adverse effect on the business,
operations, properties, assets or condition,
3
<PAGE>
financial or otherwise, of the Company, taken as a whole ("Material Adverse
Effect"). Schedule 4.l hereto contains a list of all jurisdictions in which the
Company is authorized or qualified to do business. The Company is in good
standing in each such jurisdiction. The Company has delivered to the Buyer true,
complete and correct copies of the Articles of Incorporation and Bylaws of the
Company. Such Articles of Incorporation and Bylaws are collectively referred to
as the "Charter Documents." The Company is not in violation of any Charter
Documents. The minute books of the Company has been made available to the Buyer
(and as of the Closing, will have been delivered, along with the Company's
original stock ledger and corporate seal, to the Buyer) and are correct and,
except as set forth in Schedule 4.1, complete in all material respects.
4.2 Authorization; Validity. The Company has all requisite corporate
power and authority to enter into and perform their respective obligations
pursuant to the terms of this Agreement. The Company has the full legal right,
corporate power and authority to enter into this Agreement and the transactions
contemplated hereby. Each Stockholder has the full legal right and authority to
enter into this Agreement and the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the performance by
the Company of the transactions contemplated herein have been duly and validly
authorized by the Board of Directors of the Company and the Stockholders, and
this Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of the Company
and each Stockholder, enforceable in accordance with its terms.
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or an event that would
constitute a default but for any requirement of notice or lapse of time or both)
under, any document, agreement or other instrument to which the Company or any
Stockholder is a party or by which the Company or any Stockholder is bound, or
result in the creation or imposition of any lien, charge or encumbrance on any
of the Company's properties pursuant to (i) any law or regulation to which the
Company or any Stockholder or any of their respective property is subject, or
(ii) any judgment, order or decree to which the Company or any Stockholder is
bound or any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or any Stockholder is subject or by which the
Company or any Stockholder is bound including, without limitation, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), together with
all rules and regulations promulgated thereunder.
4.4 Capital Stock of the Company. The authorized capital stock of the
Company consists of One Thousand (1,000) shares of common stock, FIVE DOLLAR
($5.00) par value, of which Five Hundred (500) shares are issued and
outstanding. All of the issued and outstanding shares of the capital stock of
the Company has been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the Stockholders in
the amounts set
4
<PAGE>
forth in Schedule 4.4 free and clear of all Liens (defined below). All of the
issued and outstanding shares of the capital stock of the Company was offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Further, none of
such shares was issued in violation of any preemptive rights. There are no
voting agreements or voting trusts with respect to any of the outstanding shares
of the capital stock of the Company. For purposes of this Agreement, "Lien"
means any mortgage, security interest, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), charge,
preference, priority or other security agreement, option, warrant, attachment,
right of first refusal, preemptive, conversion, put, call or other claim or
right, restriction on transfer (other than restrictions imposed by federal and
state securities laws), or preferential arrangement of any kind or nature
whatsoever (including any restriction on the transfer of any assets, any
conditional sale or other title retention agreement, any financing lease
involving substantially the same economic effect as any of the foregoing and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
4.5 Transactions in Capital Stock. No option, warrant, call,
subscription right, conversion right or other contract or commitment of any kind
exists of any character, written or oral, which may obligate the Company to
issue, sell or otherwise cause to become outstanding any shares of capital
stock. The Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of their respective equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. As a result of the Stock Purchase, Buyer will be the record and
beneficial owner of all outstanding capital stock of the Company and rights to
acquire capital stock of the Company.
4.6 Subsidiaries, Stock, and Notes.
(a) Except as set forth on Schedule 4.6(a), the Company has no
subsidiaries.
(b) Except as set forth on Schedule 4.6(b), the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
noncorporate entity.
(c) Except as set forth on Schedule 4.6(c), there are no promissory
notes that have been issued to, or are held by, the Company.
4.7 Predecessor Status. Schedule 4.7 sets forth a list of all names of
all predecessors of the Company, including the names of any entities from which
the Company previously acquired significant assets. Except as set forth on
Schedule 4.7, the Company has never been a subsidiary or division of another
corporation, nor have they been a part of an acquisition that was later
rescinded.
4.8 Absence of Claims Against the Company. Except as set forth on
Schedule 4.8, no Stockholder has any claims against the Company, and upon
consummation of the Stock Purchase and the distribution of the Purchase Price,
no Stockholder will have any claims against the Company.
5
<PAGE>
4.9 The Company's Financial Condition.
(a) the Company's Net Worth as of December 31, 1999 was not less than
ONE MILLION NINE HUNDRED SEVENTY SEVEN THOUSAND FOUR HUNDRED NINETY EIGHT AND
34/100THS DOLLARS ($1,977,498.34).
(b) the Company's unaudited Net Pre-tax Earnings for the fiscal year
ended December 31, 1999 was not less than EIGHT HUNDRED TWELVE THOUSAND TWO
HUNDRED THIRTY THREE AND 85/100THS DOLLARS ($812,233.85).
(c) the inventory, both new and used, reflected in the Unaudited
Financial Statements in Section 4.10 below, is attached as Schedule 4.9(c)
hereto, and the Company, on or before December 31, 1999, has made all
adjustments to the unaudited Pre-Tax Earnings as a result of the status of the
inventory as set forth in Schedule 4.9(c) hereto.
4.10 Financial Statements. Schedule 4.10 includes (a) true, complete
and correct copies of each of the Company's unaudited balance sheet and
Statement of Income as of December 31, 1999 (the "Company's Financial
Statements") (the end of its most recently completed fiscal year) (the "Balance
Sheet Date"). Except as noted in the Company Financial Statements, they have
been prepared in accordance with GAAP consistently applied, subject to (i)
normal year-end adjustments, which individually or in the aggregate will not be
material; (ii) the exceptions stated on Schedule 4.10; and (iii) the omission of
footnote information. Each balance sheet included in the Company Financial
Statements presents fairly the financial condition of the Company as of the date
indicated thereon, and each of the income statements included in the Company
Financial Statements presents fairly the results of its operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Company's accounting policies other
than as requested by the Buyer to conform the Company accounting policies to
GAAP.
4.11 Liabilities and Obligations.
(a) The Company is not liable for or subject to any liabilities except
for:
(i) those liabilities reflected on the Interim Balance Sheet
and not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date
in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(b) Set forth on Schedule 4.11(b) is, in the case of those liabilities
which are not fixed or are contested, a reasonable estimate of the maximum
amount which may be payable.
6
<PAGE>
(c) Schedule 4.11(c) also includes a summary description of all current
plans or projects involving the opening of new operations, expansion of any
existing operations or the acquisition of any real property or existing
business, to which management of the Company has made any material expenditure
in the two-year period prior to the date of this Agreement, which if pursued by
the Company would require additional material expenditures of capital.
(d) For purposes of this Section 4.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmatured or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured. Schedule 4.11(d)
contains a complete list of all indebtedness of the Company as of the Closing
Date.
4.12 Accounts and Notes Receivable. The Company has delivered to the
Buyer a complete and accurate list, as of a date not more than two (2) business
days prior to the date hereof, of the accounts and notes receivable of the
Company (including without limitation receivables from and advances to
employees, the Stockholders and affiliates), which includes an aging of all
accounts and notes receivable showing amounts due in 30-day aging categories
(collectively, the "Accounts Receivable"). All Accounts Receivable represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. The Accounts Receivable are
current and collectible net of any respective reserves shown on the Company's
books and records (which reserves are adequate and calculated consistent with
past practice). Subject to such reserves, each of the Accounts Receivable will
be collected in full, without any set-off, within ninety (90) days after the day
on which it first became due and payable. There is no contest, claim, or right
of set-off, other than rebates and returns in the ordinary course of business,
under any contract with any obligor of an Account Receivable relating to the
amount or validity of such Account Receivable.
4.13 Books and Records. The Company has made and kept books and records
and accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company. The Company has not engaged in any transaction,
maintained any bank account, or used any corporate funds except for
transactions, bank accounts, and funds which have been and are reflected in its
normally maintained books and records.
4.14 Permits. The Company owns or holds all licenses, franchises,
permits and other governmental authorizations, including without limitation
permits, titles (including without limitation motor vehicle titles and current
registrations), fuel permits, licenses and franchises necessary for the
continued operation of their respective business as it is currently being
conducted (the "Permits"). The Permits are valid, and the Company has not
received any notice that any governmental authority intends to modify, cancel,
terminate or fail to renew any Permit. No present or former officer, manager,
member or employee of the Company or any affiliate thereof, or any other person,
firm, corporation or other entity, owns or has any proprietary, financial or
other interest (direct or indirect) in any Permits. The Company has conducted
and are conducting their business in compliance with the requirements,
standards, criteria and conditions set forth in the Permits and other applicable
orders, approvals, variances, rules and regulations and is not in violation of
any of the foregoing. The transactions contemplated by this Agreement will not
result in a default under, or a breach or violation of, or adversely affect the
rights and benefits afforded to the Company by, any Permit.
7
<PAGE>
4.15 Real Property.
(a) For purposes of this Agreement, "Real Property" means all interests
in real property including, without limitation, fee estates, leaseholds and
subleaseholds, purchase options, easements, licenses, rights to access, and
rights of way, and all buildings and other improvements thereon, owned or used
by the Company, together with any additions thereto or replacements thereof.
(b) Schedule 4.15(b) contains a complete and accurate description of
all Real Property (including street address, owner and Company's use thereof)
and, to the Company's knowledge, any Liens on such Real Property. Schedule
4.15(b) indicates whether the Real Property is owned or leased. The Real
Property listed on Schedule 4.15(b) includes all interests in real property
necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 4.15(b):
(i) The Company does not own any Real Property.
(ii) The Company has good and valid rights of ingress and egress
to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.
(iii) All water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by any applicable law or by the use
and operation of the Real Property in the conduct of the Company's business are
installed to the property lines of the Real Property, are connected pursuant to
valid permits to municipal or public utility services or proper drainage
facilities, are fully operable and are adequate to service the Real Property in
the operation of the Company's business and to permit full compliance with the
requirements of all laws in the operation of such business. No fact or condition
exists which could result in the termination or material reduction of the
current access from the Real Property to existing roads or to sewer or other
utility services presently serving the Real Property.
(iv) The Real Property and all present uses and operations of the
Real Property comply with all applicable statutes, rules, regulations,
ordinances, orders, writs, injunctions, judgments, decrees, awards or
restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the use, occupation and operation of the Real Property.
(v) There are no pending or, to the Company's knowledge,
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
affect the current use, occupancy or value thereof, nor has the Company or any
of the Stockholders received notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.
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(vi) No portion of the Real Property has suffered any damage by
fire or other casualty which has not heretofore been completely repaired and
restored to its original condition.
(vii) There are no parties other than the Company in possession of
any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
(viii) There are no service contracts or other agreements relating
to the use or operation of the Real Property.
(ix) No portion of the Real Property is located in a wetlands
area, as defined by Laws, or in a designated or recognized flood plain, flood
plain district, flood hazard area or area of similar characterization. No
commercial use of any portion of the Real Property will violate any requirement
of the United States Corps of Engineers or Laws relating to wetlands areas.
(x) All written leases, subleases, licenses, concession agreements
or other use or occupancy agreements pursuant to which the Company leases from
any other party any real property, including all amendments, renewals,
extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided the Buyer with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
options granted to such party under such Lease. The Company does not have any
oral leases. The Leases and the Company's interests thereunder are free of all
Liens, except as set forth on Schedule 4.15(c).
(xi) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
4.16 Personal Property.
(a) Schedule 4.16(a) sets forth a complete and accurate list of all
personal property included on the Interim Balance Sheet and all other personal
property owned or leased by the Company with a current book value in excess of
$5,000 both (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of leases
for material equipment and an indication as to which assets are currently owned,
or were formerly owned, by any Stockholder or business or personal affiliates of
any Stockholder or of the Company.
(b) The Company currently owns or leases all personal property
necessary to conduct the business and operations of the Company as they are
currently being conducted.
(c) All of the trucks and other material machinery and equipment of the
Company, including those listed on Schedule 4.16(a), are in good working order
and condition, ordinary wear and tear excepted. All leases set forth on Schedule
4.16(a) are in full force and effect and constitute valid and binding agreements
of the Company, and the Company is not in breach of any of its
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terms. All fixed assets used by the Company that are material to the operation
of its business are either owned by the Company or leased under an agreement
listed on Schedule 4.16(a).
(d) Attached hereto as Schedule 4.16(d) are all assets personally owned
by the Stockholders and which the Stockholders agree to remove prior to the
Closing. The Stockholders have no other claims to assets of the Company, except
as set forth in Schedule 4.16(d).
4.17 Intellectual Property.
(a) The Company is the true and lawful owner of, or is licensed or
otherwise possess legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 4.17(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks, that the Company now owns or
uses in connection with its businesses. Except with respect to those Marks shown
as licensed on Schedule 4.17(a), the Company owns all of the registered and
unregistered trademarks, service marks, and trade names that they use. The Marks
listed on Schedule 4.17(a) will not cease to be valid rights of the Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby. For purposes of this
Section 4.17, the term "Mark" shall mean all right, title and interest in and to
any United States or foreign trademarks, service marks and trade names now held
by the Company, including any registration or application for registration of
any trademarks and services marks in the PTO or the equivalent thereof in any
state of the United States or in any foreign country, as well as any
unregistered marks used by the Company, and any trade dress (including logos,
designs, company names, business names, fictitious names and other business
identifiers) used by the Company in the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is licensed or
otherwise possesses legally enforceable rights to use, all rights in the Patents
listed on Schedule 4.17(b)(i) and in the Copyright registrations listed on
Schedule 4.17(b)(ii). Such Patents and Copyrights constitute all of the Patents
and Copyrights that the Company now own or are licensed to use. The Company owns
or is licensed to practice under all patents and copyright registrations that
the Company now owns or uses in connection with their businesses. For purposes
of this Section 4.17, the term "Patent" shall mean any United States or foreign
patent to which the Company has title as of the date of this Agreement, as well
as any application for a United States or foreign patent made by the Company;
the term "Copyright" shall mean any United States or foreign copyright owned by
the Company as of the date of this Agreement, including any registration of
copyrights, in the United States Copyright Office or the equivalent thereof in
any foreign country, as well as any application for a United States or foreign
copyright registration made by the Company.
(c) The Company is the true and lawful owner of, or is licensed or
otherwise possess legally enforceable rights to use, all rights in the trade
secrets, franchises, or similar rights (collectively, "Other Rights"). Those
Other Rights constitute all of the Other Rights that the Company now own or are
licensed to use. The Company owns or is licensed to practice under all trade
secrets, franchises or similar rights that they own, use or practice under.
(d) The Marks, Patents and Copyrights listed on Schedules 4.17(a),
4.17(b)(i) and 4.17(b)(ii), and the Other Rights are referred to collectively
herein as the "Intellectual Property." The
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Intellectual Property owned by the Company is referred to herein collectively as
the "Company Intellectual Property." All other Intellectual Property is referred
to herein collectively as the "Third Party Intellectual Property." Except as
indicated on Schedule 4.17(d), the Company has no obligations to compensate any
person for the use of any Intellectual Property nor has the Company granted to
any person any license, option or other rights to use in any manner any
Intellectual Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will they be as a result of the execution
and delivery of this Agreement or the performance of its obligations hereunder,
in violation of any Third Party Intellectual Property license, sublicense or
agreement described in Schedule 4.17(a) or (b). No claims with respect to the
Company Intellectual Property or Third Party Intellectual Property are currently
pending or, to the knowledge of the Company, are threatened by any person, nor,
to the Company's knowledge, do any grounds for any claims exist: (i) to the
effect that the manufacture, sale, licensing or use of any product as now used,
sold or licensed or proposed for use, sale or license by the Company infringe on
any copyright, patent, trademark, service mark or trade secret; (ii) against the
use by the Company of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the Company's businesses as currently conducted by the Company; (iii)
challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property or other trade secret material to the Company; or (iv)
challenging the Company's license or legally enforceable right to use of the
Third Party Intellectual Property. To the Company's knowledge, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any third party. Neither the Company nor any of their
subsidiaries (x) have been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, patents, trademarks, service marks, or copyrights and which has
not been finally terminated or been informed or notified by any third party that
the Company may be engaged in such infringement or (y) have knowledge of any
infringement liability with respect to, or infringement by, the Company or any
of their subsidiaries of any trade secret, patent, trademark, service mark, or
copyright of another.
(f) All Intellectual Property in the form of computer software that is
utilized by the Company in the operation of its business is capable of
processing date data between and within the twentieth and twenty-first
centuries.
4.18 Material Contracts and Commitments.
(a) Schedule 4.18(a) contains a complete and accurate list of all
contracts, commitments, leases, instruments, agreements, licenses or permits,
written or oral, to which the Company is a party or by which they or their
properties are bound (including without limitation, joint venture or partnership
agreements, contracts with any labor organizations, employment agreements,
consulting agreements, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, options to purchase land, liens, pledges or other security
agreements) (i) to which the Company and any affiliate of the Company or any
officer, director or stockholder of the Company is a party ("Related Party
Agreements"); or (ii) that may give rise to obligations or liabilities
exceeding, during the current term thereof, $20,000, or that may generate
revenues or income exceeding, during the current term thereof, $20,000
(collectively with the Related Party Agreements, the "Material Contracts"). The
Company has delivered to the Buyer true, complete and correct copies of the
Material Contracts that are in writing. The Company has complied with all of
their commitments and obligations and are
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not in default under any of the Material Contracts, and no notice of default has
been received with respect to any thereof, and there are no Material Contracts
that were not negotiated at arm's length.
(b) Each Material Contract is valid and binding on the Company and is
in full force and effect and is not subject to any default thereunder by any
party obligated to the Company pursuant thereto. The Company will use its best
efforts to obtain all necessary consents, waivers and approvals of parties to
any Material Contracts that are required in connection with any of the
transactions contemplated hereby, or are required by any governmental agency or
other third party or are advisable in order that any such Material Contract
remain in effect without modification after the Stock Purchase and without
giving rise to any right to termination, cancellation or acceleration or loss of
any right or benefit ("Third Party Consents"). The Company has no reason to
believe that it will be unable to secure the Third Party Consents. All Third
Party Consents are listed on Schedule 4.18(b).
(c) the outstanding balances on all loans or credit agreements either
(i) between the Company and any Person in which any of the Stockholders owns a
material interest, or (ii) guaranteed by the Company for the benefit of any
Person in which any of the Stockholders owns a material interest, are set forth
in Schedule 4.18(c).
(d) the pledge, hypothecation or mortgage of all or substantially all
of the Company's assets (including, without limitation, a pledge of the
Company's contract rights under any Material Contract) will not, except as set
forth on Schedule 4.18(d), (i) result in the breach or violation of, (ii)
constitute a default under, (iii) create a right of termination under, or (iv)
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the assets of the Company (other than a lien created
pursuant to the pledge, hypothecation or mortgage described at the start of this
Section 4.18(d)) pursuant to any of the terms and provisions of, any Material
Contract to which the Company is a party or by which the property of the Company
is bound.
4.19 Government Contracts.
(a) except as set forth on Schedule 4.19, neither of the Company is a
party to any government contracts.
(b) the Company has not been suspended or debarred from bidding on
contracts or subcontracts for any agency or instrumentality of the United States
Government or any state or local government, nor, to the knowledge of the
Company, have any suspension or debarment action been threatened or commenced.
There is no valid basis for the Company's suspension or debarment from bidding
on contracts or subcontracts for any agency of the United States Government or
any state or local government.
(c) except as set forth in Schedule 4.19, neither of the Company has
been, nor is it now being, audited, or investigated by any government agency, or
the inspector general or auditor general or similar functionary of any
government agency or instrumentality, nor, to the knowledge of the Company, has
such audit or investigation been threatened.
(d) the Company does not have any disputes pending before a contracting
office of, nor any current claim (other than the Accounts Receivable) pending
against, any agency or
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instrumentality of the United States Government or any state or local
government, relating to a contract.
(e) the Company does not have, with respect to any government contract,
received a cure notice advising the Company that they are or were in default or
would, if they failed to take remedial action, be in default under such
contract.
(f) the Company has not submitted any inaccurate, untruthful, or
misleading cost or pricing data, certification, bid, proposal, report, claim, or
any other information relating to a contract to any agency or instrumentality of
the United States Government or any state or local government.
(g) no employee, agent, consultant, representative, or affiliate of the
Company is in receipt or possession of any competitor or government proprietary
or procurement sensitive information related to the Company business under
circumstances where there is reason to believe that such receipt or possession
is unlawful or unauthorized.
(h) the Company's government contracts have been issued, awarded or
novated to the Company in the Company's name.
4.20 Insurance. Schedule 4.20 sets forth a complete and accurate list
of all insurance policies carried by the Company and all insurance loss runs or
workmen's compensation claims received for the past two policy years. The
Company has delivered to the Buyer true, complete and correct copies of all
current insurance policies, all of which are in full force and effect. All
premiums payable under all such policies have been paid and the Company is
otherwise in full compliance with the terms of such policies. Such policies of
insurance are of the type and in amounts customarily carried by persons
conducting businesses similar to that of the Company. The insurance carried by
the Company with respect to its properties, assets and business is, to the
Company's knowledge, with financially sound insurers. To the knowledge of the
Company, there have been no threatened terminations of, or material premium
increases with respect to, any of such policies.
4.21 Labor and Employment Matters. With respect to employees of and
service providers to the Company:
(a) the Company is and has been in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination, workers' compensation,
family and medical leave, the Immigration Reform and Control Act, and
occupational safety and health requirements, and have not and are not engaged in
any unfair labor practice;
(b) there is not now, nor within the past three years has there been,
any unfair labor practice complaint against the Company pending or, to the
Company's knowledge, threatened, before the National Labor Relations Board or
any other comparable authority;
(c) there is not now, nor within the past three years has there been,
any labor strike, slowdown or stoppage actually pending or, to the Company's
knowledge, threatened, against or directly affecting the Company;
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(d) to the Company's knowledge, no labor representation organization
effort exists nor has there been any such activity within the past three years;
(e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the Company's knowledge, no
claims therefor exist or have been threatened;
(f) the employees of the Company are not and have never been
represented by any labor union, and no collective bargaining agreement is
binding and in force against the Company or currently being negotiated by the
Company;
(g) all persons classified by the Company as independent contractors do
satisfy and have satisfied the requirements of law to be so classified, and the
Company has fully and accurately reported their compensation on IRS Forms 1099
when required to do so; and
(h) Schedule 4.21(h) describes all of the compensation arrangements
between the Company and its employees.
4.22 Employee Benefit Plans. Attached hereto as Schedule 4.22 are
complete and accurate copies of all employee benefit plans, all employee welfare
benefit plans, all employee pension benefit plans, all multi-employer plans and
all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2),
(37) and (40), respectively, of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), which are currently maintained and/or sponsored by
the Company, or to which the Company currently contribute, or have an obligation
to contribute in the future (including, without limitation, employment
agreements and any other agreements containing "golden parachute" provisions and
deferred compensation agreements), together with copies of any trusts related
thereto and a classification of employees covered thereby (collectively, the
"Plans"). Schedule 4.22 sets forth all of the Plans that have been terminated
within the past three years.
All Plans are in substantial compliance with all applicable provisions
of ERISA and the regulations issued thereunder, as well as with all other
applicable laws, and, in all material respects, have been administered, operated
and managed in substantial accordance with the governing documents. All Plans
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), have been determined by
the Internal Revenue Service to be so qualified, and copies of the current plan
determination letters, most recent actuarial valuation reports, if any, most
recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each
such Qualified Plan or employee welfare benefit plan and most recent trustee or
custodian report, are included as part of Schedule 4.22. To the extent that any
Qualified Plans have not been amended to comply with applicable law, the
remedial amendment period permitting retroactive amendment of such Qualified
Plans has not expired and will not expire within 120 days after the Closing
Date. All reports and other documents required to be filed with any governmental
agency or distributed to plan participants or beneficiaries (including, but not
limited to, annual reports, summary annual reports, actuarial reports, PBGC-1
Forms, audits or tax returns) have been timely filed or distributed. None of:
(i) the Stockholders; (ii) any Plan; or (iii) the Company has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and the
Company does not currently have (nor at the Closing Date will have) any direct
or indirect liability whatsoever (including being subject to any
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statutory lien to secure payment of any such liability), to the Pension Benefit
Guaranty Corporation ("PBGC") with respect to any such Plan under Title IV of
ERISA or to the Internal Revenue Service for any excise tax or penalty; and the
Company nor any member of a "controlled group" (as defined in ERISA Section
4001(a)(14)) currently has (or at the Closing Date will have) any obligation
whatsoever to contribute to any "multi-employer pension plan" (as defined in
ERISA Section 4001(a)(14)), nor has any withdrawal liability whatsoever (whether
or not yet assessed) arising under or capable of assertion under Title IV of
ERISA (including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205
thereof) been incurred by any Plan. Further:
(a) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(b) no Plan which is subject to the provisions of Title IV of ERISA has
been terminated;
(c) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to any Plan which were not properly
reported;
(d) the valuation of assets of any Qualified Plan, as of the Closing
Date, shall exceed the actuarial present value of all accrued pension benefits
under any such Qualified Plan in accordance with the assumptions contained in
the Regulations of the PBGC governing the funding of terminated defined benefit
plans;
(e) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by "COBRA"), the Company
and the Stockholders have complied (and on the Closing Date will have complied),
in all respects with all reporting, disclosure, notice, election and other
benefit continuation requirements imposed thereunder as and when applicable to
such plans, and the Company have no (and will incur no) direct or indirect
liability and are not (and will not be) subject to any loss, assessment, excise
tax penalty, loss of federal income tax deduction or other sanction, arising on
account of or in respect of any direct or indirect failure by the Company or the
Stockholders, at any time prior to the Closing Date, to comply with any such
federal or state benefit continuation requirement, which is capable of being
assessed or asserted before or after the Closing Date directly or indirectly
against the Company or the Stockholders with respect to such group health plans;
(f) the Company is not now nor have they been within the past five
years a member of a "controlled group" as defined in ERISA Section 4001(a)(14);
(g) there is no pending litigation, arbitration, or disputed claim,
settlement or adjudication proceeding, and to the Company's knowledge, there is
no threatened litigation, arbitration or disputed claim, settlement or
adjudication proceeding, or any governmental or other proceeding, or
investigation with respect to any Plan, or with respect to any fiduciary,
administrator, or sponsor thereof (in their capacities as such), or any party in
interest thereof;
(h) the Company Financial Statements as of the Balance Sheet Date
reflect the approximate total pension, medical and other benefit expense for all
Plans, and no material funding changes or irregularities are reflected thereon
which would cause such Company Financial Statements to be not representative of
most prior periods; and
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(i) the Company has not incurred liability under Section 4062 of ERISA.
4.23 Conformity with Law; Litigation.
(a) except as set forth on Schedule 4.23(a), the Company is not in
violation of any law or regulation or under any order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction which would have a Material
Adverse Effect. The Company has conducted and is conducting their business in
substantial compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations and are not in
violation of any of the foregoing which might have a Material Adverse Effect.
(b) no Stockholder has, at any time: (i) committed any criminal act
(except for minor traffic violations); (ii) engaged in acts of fraud, gross
negligence or moral turpitude; (iii) filed for personal bankruptcy; or (iv) been
an officer, director, manager, trustee or controlling shareholder of a company
that filed for bankruptcy or Chapter 11 protection while he held such position
or within two years thereafter.
(c) except as set forth on Schedule 4.23(c), there are no claims,
actions, suits or proceedings, pending or, to the knowledge of the Company,
threatened against or affecting the Company at law or in equity, or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court or administrative agency or
by arbitration) against the Company or against any of their respective
properties or business.
4.24 Taxes.
(a) (i) Since April 1, 1992, the Company has elected to be an "S
corporation" under Subchapter S of the Internal Revenue Code of 1986 ("IRC"),
and has timely filed all Tax Returns due on or before the Closing Date and all
such Tax Returns are true, correct and complete in all respects. The Company has
been a validly electing S corporation within the meaning of IRC Sections 1361
and 1362 at all times since April 1, 1992, and the Company has been an S
corporation up to and including the Closing Date.
(ii) the Company has paid in full on a timely basis all Taxes owed
by them, whether or not shown on any Tax Return.
(iii) there are no ongoing examinations or claims against the
Company for Taxes, and no notice of any audit, examination or claim for Taxes,
whether pending or threatened, has been received.
(iv) the Company has had a taxable year ended on December 31, in
each year commencing March 1, 1984.
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(v) the Company currently utilizes the accrual method of
accounting for income Tax purposes and such method of accounting has not changed
in the past 10 years. The Company has not agreed to, and is not and will not be
required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vi) the Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(vii) copies of (A) any Tax examinations, (B) extensions of
statutory limitations for the collection or assessment of Taxes and (C) the Tax
Returns of the Company for the last five fiscal years have been delivered to the
Buyer.
(viii) there are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating to or attributable
to Taxes.
(ix) to the Company's knowledge, there is no basis for the
assertion of any claim relating to or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company or otherwise
have a Material Adverse Effect.
(x) there are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
could give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(xi) except as set forth on Schedule 4.24, the Company is not, and
has not been at any time, a party to a tax sharing, tax indemnity or tax
allocation agreement, and the Company has not assumed the tax liability of any
other person under contract.
(xii) the Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(b) For purposes of this Agreement:
(i) the term "Tax" shall include any tax or similar governmental
charge, impost or levy (including without limitation income taxes, franchise
taxes, transfer taxes or fees, sales taxes, use taxes, gross receipt taxes,
value added taxes, employment taxes, excise taxes, ad valorem taxes, property
taxes, withholding taxes, payroll taxes, minimum taxes or windfall profit taxes)
together with any related penalties, fines, additions to tax or interest imposed
by the United States or any state, county, local or foreign government or
subdivision or agency thereof; and
(ii) the term "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, estimate or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any tax.
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4.25 Absence of Changes. Since the Balance Sheet Date, the Company has
conducted their businesses in the ordinary course and, except as contemplated
herein or as set forth on Schedule 4.25, there has not been:
(a) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock, or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales commissions or fee
arrangements payable or to become payable by the Company to any of its officers,
directors, Stockholders, employees, consultants or agents, except for ordinary
and customary bonuses and salary increases for employees in accordance with past
practice;
(f) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, which has had a Material Adverse
Effect;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of the Company to any person, including
without limitation the Stockholders and their affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or other
obligation owing to the Company, including without limitation any indebtedness
or obligation of the Stockholders and their affiliates, provided that the
Company may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice;
(i) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of the assets, property or rights of
the Company or requiring consent of any party to the transfer and assignment of
any such assets, property or rights;
(j) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, rights or assets outside of the ordinary
course of business of the Company;
(k) any waiver of any material rights or claims of the Company;
(l) any breach, amendment or termination of any material contract,
agreement, license, permit or other right to which the Company is a party;
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(m) any transaction by the Company outside the ordinary course of
business;
(n) any capital commitment by the Company, either individually or in
the aggregate, exceeding $25,000;
(o) any change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company or the
revaluation by the Company of any of their assets;
(p) any creation or assumption by the Company of any mortgage, pledge,
security interest or lien or other encumbrance on any asset (other than liens
arising under existing lease financing arrangements which are not material and
liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination or non-
renewal by the Company of any contract, lease transaction, commitment or other
right or obligation requiring aggregate payments by the Company in excess of
$25,000;
(r) any loan by the Company to any person or entity, incurred by the
Company, of any indebtedness, guaranteed by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others;
(s) the commencement or notice or, to the knowledge of the Company,
threat of commencement, of any lawsuit or proceeding against, or investigation
of, the Company or any of its affairs; or
(t) any negotiation or agreement by Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with the Buyer and its representatives regarding
the transactions contemplated by this Agreement).
4.26 Deposit Accounts; Powers of Attorney. Schedule 4.26 sets forth a
complete and accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has any
account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
(e) the name of each person, corporation, firm or other entity holding
a general or special power of attorney from the Company and a description of the
terms of such power.
4.27 Environmental Matters.
(a) Hazardous Material. Other than as set forth on Schedule 4.27(a), no
underground storage tanks and no amount of any substance that has been
designated by any Governmental Entity
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or by applicable federal, state, local or other applicable law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
properly and safely maintained (a "Hazardous Material"), are present in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company have at any time owned, operated,
occupied or leased. Schedule 4.24(a) identifies all underground and aboveground
storage tanks, and the capacity, age, and contents of such tanks, located on
Real Property owned or leased by the Company.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of or released, or exposed their employees
or others to, Hazardous Materials in violation of any law in effect on or before
the Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively, "Company
Hazardous Materials Activities") in violation of any rule, regulation, treaty or
statute promulgated by any Governmental Entity in effect prior to or as of the
date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of Company Hazardous Material Activities and other
business of the Company as such activities and business are currently being
conducted. All Environmental Permits are in full force and effect. The Company
(A) are in compliance in all material respects with all terms and conditions of
the Environmental Permits and (B) are in compliance in all material respects
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the laws of all
Governmental Entities relating to pollution or protection of the environment or
contained in any regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder. To the
Company's knowledge, there are no circumstances that may prevent or interfere
with such compliance in the future. Schedule 4.24(d) includes a listing and
description of all Environmental Permits currently held by the Company.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Company Hazardous Materials Activity. There are no
past or present actions, activities, circumstances, conditions, events, or
incidents that could involve the Company (or any person or entity whose
liability the Company have retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company (or any
person or entity whose liability the Company has retained or assumed, either by
contract or operation of law) any environmental liability including, without
limitation, common law tort liability.
4.28 Relations with Governments. The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
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4.29 Disclosure. The Company has delivered to the Buyer true and
complete copies of each agreement, contract, commitment or other document (or
summaries thereof) that is referred to in the Schedules or that has been
requested in writing by the Buyer. Without limiting any exclusion, exception or
other limitation contained in any of the representations and warranties made
herein, this Agreement, the Schedules hereto and all other documents and
information furnished to the Buyer and its representatives pursuant hereto do
not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not misleading.
If any Stockholder becomes aware of any fact or circumstance which would change
a representation or warranty of any Stockholder in this Agreement or any
representation made on behalf of the Company, the Stockholder shall immediately
give notice of such fact or circumstance to the Buyer. However, such
notification shall not relieve the Company or the Stockholder of their
respective obligations under this Agreement, and at the sole option of the
Buyer, the truth and accuracy of any and all warranties and representations of
the Stockholders, at the date of this Agreement and as of the Closing Date,
shall be a precondition to the consummation of this Agreement.
4.30 Affiliates. The Stockholders are the only persons who are, in the
reasonable judgment of Company and each of the Stockholders, affiliates of the
Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the 1933 Act.
4.31 Location of Chief Executive Offices. Schedule 4.31 sets forth the
location of the Company's chief executive offices.
4.32 Location of Equipment and Inventory. All Inventory and
Equipment held on the date hereof by the Company is located at one of the
locations shown on Schedule 4.32. For purposes of this Agreement, (a) the term
"Inventory" shall mean any "inventory" as such term is defined in the Uniform
Commercial Code on the State of West Virginia (the "West Virginia UCC") owned by
the Company as of the date hereof, and, in any event, shall include, but shall
not be limited to, all merchandise, inventory and goods, and all additions,
substitutions and replacements thereof, wherever located, together with all
goods, supplies, incidentals, packaging materials, labels, materials and any
other items used or usable in manufacturing, processing, packaging or shipping
same; in all stages of production, and all proceeds therefrom; and (b) the term
"Equipment" shall mean any "equipment," as such term is defined in the West
Virginia UCC, owned by the Company, and, in any event, shall include, but shall
not be limited to, all machinery, equipment, furnishings, fixtures and vehicles
owned by the Company, wherever located, together with all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.
4.33 Year 2000 Compliance. All software and computer systems
utilized by the Company, including any time-and-date related codes, data entry
features and internal subroutines thereof, is Year 2000 Compliant (as defined
below). "Year 2000 Compliant") shall mean that the software and computer systems
can, individually, and in combination and in conjunction with all other systems,
products or processes with which they are required or designed to interface,
continue to be used normally and to operate successfully (both in functionality
and performance in all material respects) over the transition into the
twenty-first century when used in accordance with the documentation relating to
the products, including being able to, before, on and after January 1, 2000
substantially conform to the following: (i) use logic pertaining to dates which
allows users to identify and/or use the century portion of any date fields
without special processing; and (ii) respond to all date elements and date input
so as to resolve any ambiguity as to century in a disclosed, defined and
pre-determined manner and provide date information in ways which are unambiguous
as to century,
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either by permitting or requiring the century to be specified or where the date
element is represented without a century, the correct century is unambiguous for
all manipulations involving that element.
5. REPRESENTATIONS OF THE BUYER
To induce the Company and the Stockholders to enter into this Agreement
and consummate the transactions contemplated hereby, the Buyer represents and
warrants to the Company and the Stockholders as follows:
5.1 Due Organization. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and is duly authorized, qualified and licensed under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted, except where the failure to be so
authorized, qualified or licensed would not have a material adverse effect on
the Buyer. Copies of the Certificate of Incorporation and the Bylaws, each as
amended, of the Buyer (collectively, the "Buyer Charter Documents") have been
made available to Company. The Buyer is not in violation of any the Buyer
Charter Document.
5.2 Authorization; Validity of Obligations. The representatives of the
Buyer executing this Agreement have all requisite corporate power and authority
to enter into and bind the Buyer to the terms of this Agreement. The Buyer has
the full legal right, power and corporate authority to enter into this Agreement
and the transactions contemplated hereby. The execution and delivery of this
Agreement by the Buyer and the performance by the Buyer of the transactions
contemplated herein have been duly and validly authorized by the Board of
Directors of the Buyer, and this Agreement has been duly and validly authorized
by all necessary corporate action. This Agreement is a legal, valid and binding
obligation of the Buyer enforceable in accordance with its terms.
5.3 No Conflicts. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the Buyer
Charter Documents;
(b) subject, until the time of Closing, to compliance with any
agreements between the Buyer and its lenders, conflict with, or result in a
default (or would constitute a default but for a requirement of notice or lapse
of time or both) under any document, agreement or other instrument to which the
Buyer is a party or by which the Company is bound, or result in the creation or
imposition of any lien, charge or encumbrance on any of the Buyer's properties
pursuant to (i) any law or regulation to which the Buyer or any of its property
is subject, or (ii) any judgment, order or decree to which the Buyer is bound or
any of its property is subject;
(c) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of the Buyer; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Buyer is subject, or by which the Buyer is bound,
(including, without limitation, the HSR Act, together with all rules and
regulations promulgated thereunder).
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(e) The capital stock of the Company will be duly authorized, issued
and outstanding, and fully paid and non-assessable.
5.4 Buyer's Public Reports. Each registration statement, report, proxy
statement or information statement prepared by the Buyer since October 31, 1999,
in the form (including exhibits, annexes and any amendments thereto) filed with
the SEC (collectively, "Buyer's Reports") complied as to form with all
applicable requirements under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations thereunder
and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading. Each of the consolidated balance sheets included in or incorporated
by reference into the Buyer's Reports (including the related notes and
schedules) fairly presents the consolidated financial position of Buyer and its
Subsidiaries as of its date and each of the consolidated statements of income,
shareholders' investment and cash flows included in or incorporated by reference
into the Buyer's Reports (including any related notes and schedules) fairly
presents the consolidated results of operations, statement of shareholders'
investment and cash flows, as the case may be, of the Buyer and its Subsidiaries
for the periods set forth therein (subject, in the case of unaudited statements,
to the absence of notes (to the extent permitted by the rules applicable to Form
10-Q) and to normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein.
Except as disclosed in the Buyer's Reports filed prior to the date of
this Agreement or in any press releases made by the Buyer, since October 31,
1999, there has not been: (i) any material change in the financial condition,
liabilities and assets (taken together), business or results of operations of
the Buyer and its Subsidiaries; (ii) any material damage, destruction or other
casualty loss with respect to any asset or property owned, leased or otherwise
used by the Buyer or any of its Subsidiaries, whether or not covered by
insurance; or (iii) any change by the Buyer in accounting principles, practices
or methods, except as required by GAAP.
6. COVENANTS
6.1 Tax Matters.
(a) the following provisions shall govern the allocation of
responsibility as between the Stockholders, on the one hand, and the Company, on
the other, for certain tax matters following the Closing Date:
(i) The Stockholders, at their expense, shall prepare or cause to
be prepared and file, or cause to be filed, within the time and in the manner
provided by law, all Subchapter S Tax Returns of the Company for all periods
ending on or before the Closing Date. The Stockholders shall pay to the Federal
and State income tax authorities, on or before the due date of such Tax Returns,
the amount of all Taxes shown as due on such Tax Returns. Such Returns shall be
prepared and filed in accordance with applicable law and in a manner consistent
with past practices and shall be subject to the reasonable review and approval
by the Buyer. To the extent reasonably requested by the Stockholders, or
required by law, the Buyer and the Company shall participate in the filing of
any Tax Returns filed pursuant to this paragraph. It is the intention of the
parties that the
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Stockholders shall be responsible for State and Federal income taxes for Income
of the Company prior to the Closing Date, including any stub period.
(ii) the Company shall prepare or cause to be prepared and file or
cause to be filed any Tax Returns for Tax periods which begin after the
Subchapter S Cut-Off Date. For purposes of this Section 6.1, in the case of any
Taxes that are imposed on a periodic basis and are payable for a taxable period
that includes (but does not end on) the Subchapter S Cut-Off Date, the portion
of such Tax which relates to the portion of such taxable period ending on the
Subchapter S Cut-Off Date shall (x) in the case of any Taxes other than Taxes
based upon or related to income or receipts, be deemed to be the amount of such
Tax for the entire taxable period multiplied by a fraction the numerator of
which is the number of days in the taxable period ending on the Subchapter S
Cut-Off Date and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
taxable period ended on the Subchapter S Cut-Off Date. Any credits relating to a
taxable period that begins before and ends after the Subchapter S Cut-Off Date
shall be taken into account as though the relevant taxable period ended on the
Subchapter S Cut-Off Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Company.
(iii) the Buyer and the Company on one hand and the Stockholders
on the other hand shall (A) cooperate fully, as reasonably requested, in
connection with the preparation and filing of Tax Returns pursuant to this
Section 6.1 and any audit, litigation or other proceeding with respect to Taxes;
(B) make available to the other, as reasonably requested, all information,
records or documents with respect to Tax matters pertinent to the Company for
all periods ending prior to or including the Closing Date; and (C) preserve
information, records or documents relating to tax matters pertinent to the
Company that is in their possession or under their control until the expiration
of any applicable statute of limitations or extensions thereof.
(iv) the Stockholders shall timely pay all transfer, documentary,
sales, use, stamp, registration and other Taxes and fees arising from or
relating to the transactions contemplated by this Agreement, and the
Stockholders shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration, and other Taxes and fees. If required by applicable law,
the Buyer and the Company will join in the execution of any such Tax Returns and
other documentation.
(b) At the Buyer's option, the Company and each of the Stockholders
will join with the Buyer in making an election under Section 338(h)(10) of the
Code (and any corresponding election under state and local law) with respect to
the purchase and sale of the stock of the Company hereunder (a "Section
338(h)(10) Election"). Stockholders will include any income, gain, loss,
deduction or other item resulting from the Section 338(h)(10) Election on their
tax returns to the extent required by applicable law.
(c) The Buyer, the Company and the Stockholders agree that the Purchase
Price and liabilities of the Company will be allocated to the assets of the
Company for all purposes as agreed to, and agree to file all tax returns in a
manner consistent with such allocations.
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(d) Prior to the Closing, the Company and the Stockholders will not
revoke the Company's election to be treated as an S corporation within the
meaning of Section 1361 and 1362 and will not take action that will otherwise
terminate the Election.
6.2 Accounts Receivable. The Buyer and the Company will use their
reasonable best efforts to collect the Accounts Receivable. The Stockholders
will not be required to indemnify the Buyer and the Company for any Accounts
Receivable not collected, except with respect to a FORTY THOUSAND DOLLAR
($40,000) receivable owed to the Company by DONNIE MORAN, net of any reserves
for that specific receivable.
6.3 Cooperation.
(a) the Company, the Stockholders and the Buyer shall each deliver or
cause to be delivered to the other on the Closing Date, and at such other times
and places as shall be reasonably agreed to, such instruments as the other may
reasonably request for the purpose of carrying out this Agreement. In connection
therewith, if required, the president or chief financial officer of the Company
shall execute any documentation reasonably required by the Buyer's independent
public accountants (in connection with such accountants' audit of the Company)
or the Nasdaq National Market.
(b) the Stockholders and the Company shall cooperate and use their
reasonable efforts to have the present officers, directors and employees of the
Company cooperate with the Buyer on and after the Closing Date in furnishing
information, evidence, testimony and other assistance in connection with any
filing obligations, actions, proceedings, arrangements or disputes of any nature
with respect to matters pertaining to all periods prior to the Closing Date.
(c) each party hereto shall cooperate in obtaining all consents and
approvals required under this Agreement to effect the transactions contemplated
hereby.
(d) the Company, the Stockholders and the Buyer shall file all
notices and other information and documents required under the HSR Act (as
defined in Section 4.3) as promptly as practicable after the date hereof, unless
the Buyer determines that this transaction is exempt from such a requirement.
6.4 Conduct of Business Pending Closing. Between the date hereof and
the Closing Date, the Company will (except as requested or agreed by the Buyer):
(a) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(b) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present, ordinary
wear and tear excepted;
(c) perform all of its obligations under agreements relating to or
affecting its respective assets, properties or rights;
(d) keep in full force and effect present insurance policies or other
comparable insurance coverage;
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(e) use all commercially reasonable efforts to maintain and preserve
its business organization intact, retain its present officers and key employees
and maintain its relationships with suppliers, vendors, customers, creditors and
others having business relations with it;
(f) maintain compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities;
(g) not disposing of any of its assets, except in the ordinary course
of business;
(h) not materially increase the annual level of compensation for any
employees;
(i) not increase, terminate, amend or otherwise modify any plan for the
benefit of employees.
(j) not borrow any funds under existing credit lines other than in the
ordinary course of business.
6.5 Access to Information. Between the date of this Agreement and the
Closing Date, the Company will afford to the officers and authorized
representatives of the Buyer access to (i) all of the sites, properties, books
and records of the Company and (ii) such additional financial and operating data
and other information as to the business and properties of the Company as the
Buyer may from time to time reasonably request, including without limitation,
access upon reasonable request to the Company's employees, customers, vendors,
suppliers and creditors for due diligence inquiry. No information or knowledge
obtained in any investigation pursuant to this Section 6.5 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Stock
Purchase.
6.6 Prohibited Activities. Between the date hereof and the Closing
Date, the Company will not, without the prior written consent of the Buyer:
(a) make any change in its Articles of Incorporation or Bylaws, or
authorize or propose the same;
(b) issue, deliver or sell, authorize or propose the issuance, delivery
or sale of any securities, options, warrants, calls, conversion rights or
commitments relating to its securities of any kind, or authorize or propose any
change in its equity capitalization, or issue or authorize the issuance of any
debt securities;
(c) declare or pay any dividend, or make any distribution (whether in
cash, stock or property) in respect of its stock whether now or hereafter
outstanding, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase, redeem or
otherwise acquire or retire for value any shares of its stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, or guarantee any indebtedness,
except in the ordinary course of
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business and consistent with past practice, in an amount in excess of TWENTY
THOUSAND DOLLARS ($20,000), including contracts to provide services to
customers;
(e) increase the compensation payable or to become payable to any
officer, director, Stockholder, employee, agent, representative or independent
contractor; make any bonus or management fee payment to any such person; make
any loans or advances; adopt or amend any Company Plan or Company Benefit
Arrangement; or grant any severance or termination pay;
(f) create or assume any mortgage, pledge or other lien or encumbrance
upon any assets or properties whether now owned or hereafter acquired;
(g) sell, assign, lease, pledge or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent with
past practice;
(h) acquire or negotiate for the acquisition of (by stock purchase,
consolidation, purchase of a substantial portion of assets or otherwise) any
business or the start-up of any new business, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company;
(i) merge or consolidate or agree to merge or consolidate with or into
any other corporation;
(j) waive any material rights or claims of the Company, provided that
the Company may negotiate and adjust bills in the course of good faith disputes
with customers in a manner consistent with past practice;
(k) commit a breach of or amend or terminate any material agreement,
permit, license or other right;
(l) enter into any other transaction (i) that is not negotiated at
arm's length with a third party not affiliated with the Company or any officer,
director or Stockholder of the Company or (ii) outside the ordinary course of
business consistent with past practice or (iii) prohibited hereunder;
(m) commence a lawsuit other than for routine collection of bills;
(n) revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past practice;
(o) make any tax election other than in the ordinary course of business
and consistent with past practice, change any tax election, adopt any tax
accounting method other than in the ordinary course of business and consistent
with past practice, change any tax accounting method, file any Tax Return (other
than any estimated tax returns, payroll tax returns, withholding tax returns or
sales tax returns) or any amendment to a Tax Return, enter into any closing
agreement, settle any tax claim or assessment, or consent to any tax claim or
assessment, without the prior written consent of the Buyer; or
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(p) take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 6.6(a) through (o) above, or any action which
would make any of the representations and warranties of the Company and the
Stockholders contained in this Agreement untrue or result in any of the
conditions set forth in Articles 7 and 8 not being satisfied.
6.7 Notice to Bargaining Agents. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, if requested
by the Buyer in writing, and shall provide the Buyer with proof that any
required notice has been sent.
6.8 Real Estate Lease. Within sixty (60) days of the Closing, the
Company and the Stockholders shall have entered into a real estate lease which
is acceptable to the Buyer, and which will include the following terms:
(a) The triple net lease of all existing occupied real estate will
be for five (5) year terms, at its fair market value based upon the Buyer's
third party appraisal, at the market capitalization rate not to exceed Nine
Percent (9%) per year the first term annual rent and for two five (5) year
renewal terms at the option of the Company exercised within one hundred eighty
(180) days of the expiration of the initial term or any renewal term, which will
be subject to adjustment to local CPI at each subsequent renewals.
(b) The Buyer is to assume all taxes, insurance and reasonable
non-structural maintenance during the period of each lease term.
(c) All leasehold improvements expensed by the Company through the
Closing shall remain the expense of the Company and the asset value shall be
allocated to the real estate leased by the Buyer. A list of such improvements is
attached hereto as Schedule 1.1(a). This also shall include shop lifts, signage,
exterior lighting and fencing. The Company agrees to pave the gravel entrance
road and primary display area at the dealership. The Company also agrees to
improve all lighting in the premises product display areas.
(d) The Stockholders will grant to the Company an option to
purchase the property at its fair market value within one hundred eighty (180)
days prior to the end of the initial term or any renewal term of the Lease. The
purchase price will be cash and will be determined by a fair market value
appraisal based upon an appraisal secured by the Buyer from a third party
appraiser. The Closing will occur within sixty (60) days notice by the Company
to the Stockholders of its intention to exercise this purchase option.
6.9 Personal Guarantees. The Buyer will indemnify and hold harmless the
Stockholders from all personal guarantees executed by the Stockholders and
disclosed in Schedule 6.9 hereof. In addition, the Buyer shall cause the
termination and cancellation of the Stockholders' floor plan guarantees
described in Schedule 6.9 hereof, and a release of any mortgages on the leases,
within six (6) months of the Closing Date, but the Stockholders agree to
continue such guarantees and security for that six (6) month period.
6.10 Form S-3 Registration Rights. Upon the conversion of the Buyer's
Note, the Stockholders shall have the right to require a Form S-3 Registration
Statement to be filed for the underlying Shares. Upon receipt of such notice,
the Buyer will file a Form S-3 Registration
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Statement within thirty (30) days after the filing of the Buyer's next Form 10-K
or Form 10-KSB subject to the normal indemnifications and other provisions of
the Buyer's standard Registration Rights Agreement, and will use its best
efforts to cause such Registration Statement to become effective and to remain
effective for a period of twelve (12) months.
The Stockholders agree that they will not sell the Shares until
registered by the Buyer and, thereafter, they will not sell more than Five
Percent (5%) of the total amount of converted Shares in any one calendar month.
6.11 Piggyback Registration Rights. If at any time after the conversion
of the Buyer's Note the Buyer shall propose to register any of its shares for
sale or disposition, for its own account for cash under the 1933 Act in a Public
Offering on Form S-1 or S-2 (the "Qualified Public Offering"), and if the Shares
have not been registered under Section 6.10 above, the Company shall:
(i) Promptly give to the Stockholders at least thirty (30) days'
written notice prior to the filing thereof (which shall include, if then
determined, the proposed date on which the registration statement is to be
filed, the proposed price and registration price per share, the number of shares
proposed to be included in such registration, the identity of any proposed
selling stockholders and a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) Include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, a portion of the Shares which are specified in a written request, or
requests, made by the Buyer within ten (10) days after receipt of such written
notice from the Buyer by the Purchaser.
The rights of the Stockholders to registration pursuant to this section
shall be conditioned upon the Stockholders' participation in any underwriting
relating to the Buyer's registered public offering. The Stockholders shall
(together with the Company) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected by the Buyer. The Buyer will
use its best efforts to include the Stockholders' Shares in the Qualified Public
Offering. Notwithstanding any provision of this section, if the underwriter, in
its sole discretion, determines that marketing factors require a limitation of
the number of securities to be underwritten, or that the Qualified Public
Offering be limited to shares offered by the Stockholders only, the underwriter
may exclude some or all of the Stockholders' shares for which the Stockholders
seek registration from inclusion in the registration and underwriting; which
reduction shall be pro rata among the Stockholders; PROVIDED, HOWEVER, in the
event that there are other stockholders in addition to the Stockholders who have
exercised their piggyback registration rights with respect to a Qualified Public
Offering and the underwriter has exercised its right to limit or "cut-back" the
number of shares of Common Stock to be sold in such Offering, the Shares of
Common Stock held by the Stockholders shall be included in such Offering prior
to the inclusion of shares of any other stockholder who is not a Stockholder.
The rights under this Section 6.11 will terminate at the time of the
effectiveness of the Form S-3 Registration set forth in Section 6.10 above. The
Shares will be subject to the normal indemnification and other provisions of the
Buyer's standard Registration Rights Agreement.
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7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER
The obligation of the Buyer to effect the Stock Purchase is subject to
the satisfaction or waiver, at or before the Closing Date, of the following
conditions and deliveries:
7.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Stockholders and the Company contained
in this Agreement shall be true, correct and complete on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date; all of the terms, covenants, agreements and
conditions of this Agreement to be complied with, performed or satisfied by the
Company and the Stockholders on or before the Closing Date shall have been duly
complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed on behalf of the Company and by each
of the Stockholders shall have been delivered to the Buyer.
7.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
Buyer's proposed acquisition of the Company, or limiting or restricting the
Buyer's conduct or operation of the business of the Company (or their own
businesses) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened against the Buyer or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Company.
7.3 No Material Adverse Change. There shall have been no material
adverse changes in the business, operations, affairs, prospects, properties,
assets, existing and potential liabilities, obligations, profits or condition
(financial or otherwise) of the Company, taken as a whole, since the Balance
Sheet Date; and the Buyer shall have received a certificate signed by each
Stockholder dated the Closing Date to such effect.
7.4 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been obtained and made. Any waiting period
applicable to the consummation of the Stock Purchase under the HSR Act shall
have expired or been terminated, and no action by the Department of Justice or
Federal Trade Commission challenging or seeking to enjoin the consummation of
the transactions contemplated hereby shall be pending.
7.5 Opinion of Counsel. The Buyer shall have received an opinion from
counsel to Company and the Stockholders, dated the Closing Date, in a form
reasonably satisfactory to the Buyer.
7.6 Charter Documents; Certificate of Good Standing. The Buyer shall
have received (a) a copy of the Articles of Incorporation of the Company
certified by an appropriate authority in their respective state of
incorporation, (b) a copy of the Bylaws of the Company certified by the
Secretary of the Company, and such documents shall be in form and substance
reasonably acceptable to the
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Buyer and (c) a Good Standing Certificate from an appropriate authority in the
state of incorporation and any state in which they do business.
7.7 Board of Directors Approval. The Board of Directors of the Buyer
shall have approved the transaction contemplated by this Agreement.
7.8 Quarterly Financial Statements. The Buyer shall have received from
the Company completed quarterly financial statements through December 31, 1999
in a form reasonably satisfactory to the Buyer.
7.9 Due Diligence Review. The Company shall have made such deliveries
as are called for by this Agreement. The Buyer shall be fully satisfied in its
sole discretion with the results of its review of all of the Schedules, whether
delivered before or after the execution hereof, and such deliveries, and its
review of, and other due diligence investigations with respect to, the business,
operations, affairs, prospects, properties, assets, existing and potential
liabilities, obligations, profits and condition (financial or otherwise) of the
Company.
7.10 Employment. ERNEST DAVIS, JR. shall have entered into an
Employment Agreement with the Company or the Buyer in the form attached hereto
as Exhibit B.
7.11 Stockholders' Release. The Stockholders shall each have delivered
to the Buyer an instrument dated the Closing Date releasing the Company and the
Buyer from any and all claims of such Stockholder against the Company.
7.12 Resignation of Directors and Officers. Each Officer and Director
of the Company will have resigned in writing, and shall have appointed nominees
selected by the Buyer in those capacities.
7.13 Real Estate Condition.
(a) The Company is to warrant, at the Closing, to the Buyer that
leasehold improvements include all compressors, air conditioners, heating
systems, lifts, electrical systems and pavement surfaces are in good working
order and condition at the Closing.
(b) The Company is to warrant at date of closing that all real
estate to be leased by the Buyer meets all local, state and federal applicable
codes and standards to conduct the intended business.
7.14 Stock Certificates. The Stockholders will have delivered
certificates for the Shares fully endorsed for transfer to the Buyer.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS
The obligation of the Stockholders and the Company to effect the Stock
Purchase are subject to the satisfaction or waiver, at or before the Closing
Date, of the following conditions and deliveries:
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8.1 Representations and Warranties; Performance of Obligations. All of
the representations and warranties of the Buyer contained in this Agreement
shall be true, correct and complete on and as of the Closing Date with the same
effect as though such representations and warranties had been made as of such
date; all of the terms, covenants, agreements and conditions of this Agreement
to be complied with, performed or satisfied by the Buyer on or before the
Closing Date shall have been duly complied with, performed or satisfied; and a
certificate to the foregoing effects dated the Closing Date and signed by the
President or any Vice President of the Buyer shall have been delivered to
Company and the Stockholders.
8.2 No Litigation. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging the
Buyer's proposed acquisition of the Company, or limiting or restricting the
Buyer's conduct or operation of the business of the Company (or their own
businesses) following the Stock Purchase shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending. There shall be no action, suit, claim or proceeding of
any nature pending or threatened, against the Buyer or the Company, their
respective properties or any of their officers or directors, that could
materially and adversely affect the business, assets, liabilities, financial
condition, results of operations or prospects of the Buyer and its subsidiaries
taken as a whole.
8.3 Consents and Approvals. All necessary consents of, and filings
with, any governmental authority or agency or third party relating to the
consummation by the Buyer of the transactions contemplated herein, shall have
been obtained and made. Any waiting period applicable to the consummation of the
Stock Purchase under the HSR Act shall have expired or been terminated, and no
action by the Department of Justice or Federal Trade Commission challenging or
seeking to enjoin the consummation of the transactions contemplated hereby shall
be pending.
8.4 Employment Agreement. ERNEST DAVIS, JR. shall have entered into an
employment agreement with the Company or the Buyer in the form attached as
Exhibit B.
8.5 Opinion of Counsel. The Company shall have received an opinion of
counsel to the Buyer dated the Closing Date which is reasonably satisfactory to
the Company.
9. INDEMNIFICATION
9.1 General Indemnification by the Stockholders. Each Stockholder,
jointly and severally, covenants and agrees to indemnify, defend, protect and
hold harmless the Buyer and its officers, directors, employees, stockholders,
assigns, successors and affiliates (individually, an "Indemnified Party" and
collectively, "Indemnified Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description)
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(collectively, "Damages") suffered, sustained, incurred or paid by the
Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:
(i) any liability which is not an Assumed Liability;
(ii) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any Schedule or
certificate, delivered by or on behalf of any Stockholder or the Company in
connection herewith; or
(iii) any nonfulfillment of any covenant or agreement by the
Stockholders or, prior to the Closing Date, the Company, under this Agreement;
or
(iv) the business, operations or assets of the Company prior to
the Closing Date or the actions or omissions of Company's directors, officers,
shareholders, employees or agents prior to the Closing Date, other than Damages
arising from matters expressly disclosed in the Company Financial Statements,
this Agreement or the Schedules to this Agreement; or
(v) the matters disclosed on Schedules 4.23 (conformity with law;
litigation), 4.24 (taxes) and 4.27 (environmental matters); and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 9.1.
(c) any judgment, and all legal fees and costs, incurred by the
Company related to the Linkerhoker case.
9.2 Limitation and Expiration. Notwithstanding the above:
(a) there shall be no liability for indemnification under Section
9.1(a) and (b), unless, and solely to the extent that, the aggregate amount of
Damages (such aggregate amount shall not include any Damages resulting from a
breach of representations and warranties in Section 4.9(a)) exceeds TEN THOUSAND
DOLLARS ($10,000) (the "Indemnification Threshold"); PROVIDED, HOWEVER, that the
Indemnification Threshold shall not apply to (i) adjustments to the Purchase
Price as set forth in Sections 1.2 and 2.1; (ii) Damages arising out of any
breaches of the covenants of the Stockholders set forth in this Agreement or
representations and warranties made in Sections 4.4 (capital stock of Company),
4.5 (transactions in capital stock), 4.9 (Company financial conditions), 4.18
(material contracts and commitments), 4.23 (conformity with law; litigation),
4.24 (taxes) and 4.27 (environmental matters); or (iii) Damages described in
Sections 9.1(a)(iv) and 9.1(b).
(b) the aggregate amount of the Stockholders' liability under this
Article 9 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 4.24 (taxes) or 4.27 (environmental matters) or
Damages described in Sections 9.1(a)(ii), 9.1(a)(iv) and 9.1(b) shall not be
subject to such limitation;
(c) the indemnification obligations under this Article 9, or under any
certificate or writing furnished in connection herewith, shall terminate:
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(i) on the second Anniversary Date of the closing Date;
(ii) the final resolution of claims or demands pending as of the
relevant dates described in clause (i) of this Section 9.2(c) (such claims
referred to as "Pending Claims").
9.3 Indemnification Procedures. All claims or demands for
indemnification under this Article 9 ("Claims") shall be asserted and resolved
as follows:
(a) in the event that any Indemnified Party has a Claim against any
party obligated to provide indemnification pursuant to Section 9.1 hereof (the
"Indemnifying Party") which does not involve a Claim being asserted against or
sought to be collected by a third party, the Indemnified Party shall with
reasonable promptness notify the Stockholders' Representative of such Claim,
specifying the nature of such Claim and the amount or the estimated amount
thereof to the extent then feasible (the "Claim Notice"). If the Stockholders'
Representative does not notify the Indemnified Party within thirty days after
the date of delivery of the Claim Notice that the Indemnifying Party disputes
such Claim, with a detailed statement of the basis of such position, the amount
of such Claim shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with this
Section 9.3(a), the Indemnified Party shall respond in a written statement to
the objection within thirty days and, for sixty days thereafter, attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such Claims (and, if the parties should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties).
(b) (i) in the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "Third-Party Claim"), the Indemnified
Party shall deliver a Claim Notice to the Stockholders' Representative. The
Stockholders' Representative shall have thirty days from the date of delivery of
the Claim Notice to notify the Indemnified Party (A) whether the Indemnifying
Party disputes liability to the Indemnified Party hereunder with respect to the
Third-Party Claim, and, if so, the basis for such a dispute, and (B) if such
party does not dispute liability, whether or not the Indemnifying Party desires,
at the sole cost and expense of the Indemnifying Party, to defend against the
Third-Party Claim, provided that the Indemnified Party is hereby authorized (but
not obligated) to file any motion, answer or other pleading and to take any
other action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) in the event that Stockholders' Representative timely
notifies the Indemnified Party that the Indemnifying Party does not dispute the
Indemnifying Party's obligation to indemnify with respect to the Third-Party
Claim, the Indemnifying Party shall defend the Indemnified Party against such
Third-Party Claim by appropriate proceedings, provided that, unless the
Indemnified Party otherwise agrees in writing, the Indemnifying Party may not
settle any Third-Party Claim (in whole or in part) if such settlement does not
include a complete and unconditional release of the Indemnified Party. If the
Indemnified Party desires to participate in, but not control, any such defense
or settlement the Indemnified Party may do so at its sole cost and expense. If
the Indemnifying Party elects not to defend the Indemnified Party against a
Third-Party Claim, whether by failure of such party to give the Indemnified
Party timely notice as provided herein or otherwise, then the Indemnified Party,
without waiving any rights against such party, may settle or defend against such
Third-Party Claim in the Indemnified Party's sole discretion and the Indemnified
Party shall be entitled to recover from the Indemnifying Party the amount of any
settlement or judgment
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and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(iii) if at any time, in the reasonable opinion of the Indemnified
Party, notice of which shall be given in writing to the Stockholders'
Representative, any Third-Party Claim seeks material prospective relief which
could have an adverse effect on any Indemnified Party or the Surviving
Corporation or any subsidiary, the Indemnified Party shall have the right to
control or assume (as the case may be) the defense of any such Third-Party Claim
and the amount of any judgment or settlement and the reasonable costs and
expenses of defense shall be included as part of the indemnification obligations
of the Indemnifying Party hereunder. If the Indemnified Party elects to exercise
such right, the Indemnifying Party shall have the right to participate in, but
not control, the defense of such Third-Party Claim at the sole cost and expense
of the Indemnifying Party.
(c) nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent Damages provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such Claim may be made.
(d) subject to the provisions of Section 9.2, the Indemnified Party's
failure to give reasonably prompt notice as required by this Section 9.3 of any
actual, threatened or possible claim or demand which may give rise to a right of
indemnification hereunder shall not relieve the Indemnifying Party of any
liability which the Indemnifying Party may have to the Indemnified Party unless
the failure to give such notice materially and adversely prejudiced the
Indemnifying Party.
(e) the parties will make appropriate adjustments for any Tax benefits,
Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article 9, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
9.4 Survival of Representations Warranties and Covenants. All
representations, warranties and covenants made by the Company, the Stockholders,
and the Buyer in or pursuant to this Agreement or in any document delivered
pursuant hereto shall be deemed to have been made on the date of this Agreement
(except as otherwise provided herein) and, if a Closing occurs, as of the
Closing Date. The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the indemnification obligations as provided in Section 9.2. The
representations of the Buyer will survive the Closing and will remain in effect
until, and will expire upon the first anniversary of the Closing date.
9.5 Remedies Cumulative. The remedies set forth in this Article 9 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
9.6 Right to Set Off. The Buyer shall have the right, but not the
obligation, to set off, in whole or in part, against the Buyer's Promissory
Note, amounts finally determined under Section 9.3 to be owed to the Buyer by
the Stockholders under this Agreement.
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10. NONCOMPETITION
10.1 Prohibited Activities. The Stockholders agree that for a period of
the greater of: (i) three (3) years following the Closing, or (ii) three (3)
years following Stockholders termination of employment with the Company or the
Buyer they shall not:
(a) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any business
selling any products or services in direct competition with the Company or the
Buyer, including without limitation the importing, brokerage, manufacture,
assembly, packaging, distribution, shipping or marketing of motor vehicles,
recreational vehicles, trailers, boats or water craft sold by the Buyer or the
Company (including, without limitation, hardgoods), or any business engaging in
the consolidation of the industry involving motor vehicles, recreational
vehicles, trailers, boats or water craft industries, within the states of West
Virginia, Virginia, Pennsylvania and Maryland or where the Buyer has letters of
intent to purchase entities (the "Territory");
(b) call upon any person who is, at that time, within the Territory, an
employee of the Buyer or any subsidiary of the Buyer in a managerial capacity
for the purpose or with the intent of enticing such employee away from or out of
the employ of the Buyer or such subsidiary;
(c) call upon any person or entity which is, at that time, or which has
been, within one year prior to that time, a customer of the Buyer or any
subsidiaries of the Buyer, the Company within the Territory for the purpose of
soliciting or selling motor vehicles, recreational vehicles, trailers, boats or
watercraft sold by the Buyer or the Company within the Territory;
(d) call upon any prospective acquisition candidate, on their own
behalf or on behalf of any competitor, which candidate was either called upon by
any of them or for which any of them made an acquisition analysis for themselves
or the Buyer or any subsidiaries of the Buyer, the Company; or
(e) disclose customers, whether in existence or proposed, of the
Company to any person, firm, partnership, corporation or business for any reason
or purpose whatsoever.
(f) undertake any solicitations or transactions through the internet or
world wide web which has the same effect as the foregoing.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Stockholders from (i) acquiring as an investment not more than one
percent of the capital stock of a competing business, whose stock is traded on a
national securities exchange or in the over-the-counter market or (ii) engaging
in any activity to which the Buyer shall have provided its prior written
consent.
10.2 Damages. Because of the difficulty of measuring economic losses to
the Buyer and the Surviving Corporation as a result of the breach of the
foregoing covenant, and because of the immediate and irreparable damage that
would be caused to the Buyer and the Surviving Corporation for which they would
have no other adequate remedy, the Stockholders agree that, in the event of a
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breach by them of the foregoing covenant, the covenant may be enforced by the
Buyer or the Surviving Corporation by, without limitation, injunctions and
restraining orders.
10.3 Reasonable Restraint. It is agreed by the parties that the
foregoing covenants in this Article 10 impose a reasonable restraint on the
Stockholders in light of the activities and business of the Buyer on the date of
the execution of this Agreement and the current and future plans of the Buyer
and the Surviving Corporation (as successors to the businesses of Company).
10.4 Severability; Reformation. The covenants in this Article 10 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
10.5 Independent Covenant. All of the covenants in this Article 10
shall be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of the Stockholders
against the Company, the Surviving Corporation or the Buyer, whether predicated
on this Agreement or otherwise, shall not constitute a defense to the
enforcement of such covenants. It is specifically agreed that the period of two
years stated above, shall be computed by excluding from such computation any
time during which any Stockholder is in violation of any provision of this
Article 10 and any time during which there is pending in any court of competent
jurisdiction any action (including any appeal from any judgment) brought by any
person, whether or not a party to this Agreement, in which action the Buyer or
the Surviving Corporation seeks to enforce the agreements and covenants of the
Stockholders or in which any person contests the validity of such agreements and
covenants or their enforceability or seeks to avoid their performance or
enforcement; provided, however, that if any Stockholder is found not to be in
violation of the agreements or covenants in any such activity the period during
which the action was pending shall not be excluded from such computation.
10.6 Materiality. The Company and each Stockholder hereby agree that
the covenants set forth in this Article 10 are a material and substantial part
of the transactions contemplated by this Agreement, supported by adequate
consideration.
11. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
11.1 Stockholders. The Stockholders recognize and acknowledge that they
have in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company and the Company's business. The Stockholders
agree that they will not disclose any confidential information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Buyer, unless the
Stockholders can show that such information has become known to the public
generally through no fault of the Stockholders. In the event of a breach or
threatened breach by the Stockholders of the provisions of this Article 11, the
Buyer and the Surviving Corporation shall be entitled to an injunction
restraining the Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
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the Buyer and the Surviving Corporation from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
11.2 The Buyer. The Buyer recognizes and acknowledges that it has in
the past, currently has, and prior to the Closing Date will have, access to
certain confidential information of Company, such as lists of customers,
operational policies, pricing and cost policies that are valuable, special and
unique assets of the Company and the Company's business. The Buyer agrees that
it will not disclose any confidential information to any person, firm,
corporation, association, or other entity for any purpose or reason whatsoever,
prior to the Closing Date without prior written consent of the Stockholders. In
the event of a breach or threatened breach by the Buyer of the provisions of
this Article 11, the Stockholders shall be entitled to an injunction restraining
the Buyer from disclosing, in whole or in part, such confidential information.
Nothing contained herein shall be construed as prohibiting the Stockholders from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
11.3 Damages. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants, and because of the immediate
and irreparable damage that would be caused for which they would have no other
adequate remedy, the Buyer, the Surviving Corporation and the Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
12. GENERAL
12.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date solely:
(a) by mutual consent of the boards of directors of the Buyer and the
Company; or
(b) by the Stockholders and the Company as a group, on the one hand, or
by the Buyer, on the other hand, if the Closing shall not have occurred on or
before March 15, 2000, provided that the right to terminate this Agreement under
this Section 12.1(b) shall not be available to either party (with the
Stockholders and the Company deemed to be a single party for this purpose) whose
material misrepresentation, breach of warranty or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; or
(c) by the Stockholders and the Company as a group, on the one hand, or
by the Buyer, on the other hand, if there is or has been a material breach,
failure to fulfill or default on the part of the other party (with the
Stockholders and the Company deemed to be a single party for this purpose) of
any of the representations and warranties contained herein or in the due and
timely performance and satisfaction of any of the covenants, agreements or
conditions contained herein, and the curing of such default shall not have been
made or shall not reasonably be expected to occur before the Closing Date; or
(d) by the Stockholders and the Company as a group, on the one hand, or
by the Buyer, on the other hand, if there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Stock
Purchase; or there shall be any action taken, or any statute,
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rule regulation or order enacted, promulgated or issued or deemed applicable to
the Stock Purchase by any governmental entity which would make the consummation
of the Stock Purchase illegal.
12.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 12.1, this Agreement shall forthwith become
ineffective, and there shall be no liability or obligation on the part of any
party hereto or its officers, directors or shareholders. Notwithstanding the
foregoing sentence, (i) the provisions of this Article 12 shall remain in full
force and effect and survive any termination of this Agreement; (ii) each party
shall remain liable for any breach of this Agreement prior to its termination;
and (iii) in the event of termination of this Agreement pursuant to Section
12.1(c) above, then notwithstanding the provisions of Section 12.7 below, the
breaching party (with the Stockholders and the Company deemed to be a single
party for purposes of this Article 12), shall be liable to the other party to
the extent of the expenses incurred by such other party in connection with this
Agreement and the transactions contemplated hereby, as well as any damages in
accordance with applicable law.
12.3 Successors and Assigns. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of the Buyer, and the heirs and legal representatives of the
Stockholders.
12.4 Entire Agreement; Amendment; Waiver. This Agreement sets forth the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby. Each of the Schedules to this Agreement is incorporated
herein by this reference and expressly made a part hereof. Any and all previous
agreements and understandings between or among the parties regarding the subject
matter hereof, whether written or oral, are superseded by this Agreement. This
Agreement shall not be amended or modified except by a written instrument duly
executed by each of the parties hereto, or in accordance with Section 12.4. Any
extension or waiver by any party of any provision hereto shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
12.5 Counterparts. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all of
which counterparts taken together shall constitute but one and the same
instrument.
12.6 Brokers and Agents. The Buyer, on the one hand, and the
Stockholders and the Company (as a group), on the other hand, represents and
warrants to the other that it has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
other against all losses, damages or expenses relating to or arising out of
claims for fees or commission of any broker or agent employed or alleged to have
been employed by such party.
12.7 Expenses. Each party has and will pay the fees, expenses and
disbursements of the Buyer and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement. The costs of the Auditors'
audit of the Company's 1999 financial
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statements will be shared equally by the Stockholders and the Buyer, as well as
the TWENTY THOUSAND DOLLARS ($20,000) to be paid to Ernst & Young.
12.8 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Article 10 and the confidentiality
obligations set forth in Article 11. It is accordingly agreed that, in addition
to any other remedies which may be available upon the breach of any such
covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
12.9 Notices. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
If to the Buyer or the Surviving Corporation, to:
Holiday RV Superstores, Inc.
7851 Greenbriar Parkway
Orlando, FL 32819
Attn: Ronald G. Huneycutt
Fax No.: (407) 363-2065
with a required copy to:
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Attn: Joseph E. Nida, Esq.
Fax No.: (805) 568-1955
If to the Company or the Stockholders:
Little Valley Auto and RV Sales, Inc.
P.O. Box 340
Prosperity, West Virginia 25909
Attn: Ernest Davis, Jr., President
Fax No.: 304-256-0307
with a required copy to:
Bowles Rice McDavid Graff & Love, PLLC
600 Quarrier Street
Charleston, WV 25301
Attn: Edward D. McDevitt, Esq.
Fax No.: (304)343-3058
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or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
12.10 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Florida,
without giving effect to any of the conflicts of laws provisions thereof that
would require the application of the substantive laws of any other jurisdiction.
12.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 11.4.
12.12 Absence of Third Party Beneficiary Rights. No provision of this
Agreement is intended, nor will any provision be interpreted, to provide or to
create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, employee or partner of any party
hereto or any other person or entity.
12.13 Legal Representation. Each party to this Agreement acknowledges
and represents that it has been represented by its own legal counsel in
connection with the transactions contemplated by this Agreement, with the
opportunity to seek advice as to its legal rights from such counsel. Each party
further represents that it is being independently advised as to the tax
consequences of the transactions contemplated by this Agreement and is not
relying on any representation or statements made by the other party as to such
tax consequences.
12.14 Public Announcement. The Stockholders and the Company agree that
upon the execution of this Agreement, the Buyer will be entitled to issue a
Press Release with respect to this transaction, which will be subject to the
prior reasonable review by the Stockholders. However, the content of the press
release will be subject to the final approval of securities counsel for the
Buyer.
12.15 No Trading in Buyer's Securities. The Stockholders acknowledge
that, since the date of the Letter of Intent, neither they nor any affiliates or
family member has entered into any transaction involving the securities of the
Buyer, and the Stockholders agree for themselves and for any affiliate or family
members that they will not engage in any transaction involving the securities of
the Buyer until the expiration of three (3) trading days from the issuance of
the Press Release described in Section 12.14 hereof.
12.16 Accounting Terms. Except as otherwise expressly provided herein
or in the Schedules, all accounting terms used in this Agreement shall be
interpreted, and all financial statements, Schedules, certificates and reports
as to financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP consistently applied.
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12.17 Letter of Intent. The Letter of Intent is hereby terminated and
is of no force and effect.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER:
HOLIDAY RV SUPERSTORES, INC.
By:______________________________
Ronald G. Huneycutt,
President
COMPANY:
LITTLE VALLEY AUTO AND
RV SALES, INC.
By:_____________________________
Ernest Davis, Jr.,
President
STOCKHOLDERS
By:_______________________________
Name: ERNEST DAVIS, JR.
By:_______________________________
Name: LORI A. DAVIS
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EXHIBITS
EXHIBIT A - BUYER'S NOTE
EXHIBIT B - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT A
TO STOCK PURCHASE AGREEMENT
PROMISSORY NOTE
<PAGE>
EXHIBIT B
TO
STOCK PURCHASE AGREEMENT
EMPLOYMENT AGREEMENT
<PAGE>
LIST OF SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.1(a) - Assets and Leasehold Improvements
Schedule 1.1(b) - Assumed Liabilities
Schedule 1.1(c) - Assets Retained by the Company
Schedule 4.1 - Jurisdictions in which the Company is qualified to do business
Schedule 4.4 - Company Owned or Control of Capital Stock
Schedule 4.6(a) - Subsidiaries
Schedule 4.6(b) - Company owned capital stock or equity interest in any
corporation
Schedule 4.6(c) - Promissory Notes
Schedule 4.5 - Predecessors of Company
Schedule 4.6 - Stockholders' Claims Against Company
Schedule 4.7 - Predecessors
Schedule 4.8 - Claims Against the Company
Schedule 4.10 - Financial Statements
Schedule 4.11(b) - Estimate of Maximum Amount of Liabilities Payable
Schedule 4.11(c) - Company's Current Plans or Projects
Schedule 4.11(d) - Indebtedness of the Company
Schedule 4.15(b) - Real Property of the Company
Schedule 4.15(c) - Liens
Schedule 4.16(a) - Personal Property of Company in Excess of $5,000
Schedule 4.16(d) - Assets Personally Owned by the Stockholders
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule 4.17(a) - Registered and Unregistered Marks
Schedule 4.17(b)(i) - Patents
Schedule 4.17(b)(ii) - Copyrights
Schedule 4.17(d) - Company's Obligations to Compensate Person(s) for Use
of Intellectual Property
Schedule 4.18(a) - Material Contracts and Commitments
Schedule 4.18(b) - Third Party Consents
Schedule 4.18(c) - Balance of Loans or Credit Agreements in which any Stockholder
owns a material interest
Schedule 4.18(d) - Breach
Schedule 4.19 - Government Contracts
Schedule 4.20 - Insurance
Schedule 4.21(h) - Compensation Arrangements between Company and
its Employees
Schedule 4.22 - Employee Benefit Plans
Schedule 4.23(a) - Company Violations of Law or Regulations
Schedule 4.23(c) - Claims or Judgments Against the Company
Schedule 4.24 - Tax Sharing, Tax Indemnity or Tax Allocation Agreements
Schedule 4.25 - Material Changes in Balance Sheet Data
Schedule 4.26 - Deposit Accounts; Powers of Attorney
Schedule 4.27(a) - Hazardous Materials
Schedule 4.27(d) - Environmental Permits
Schedule 4.31 - Location of Company's Chief Executive Offices
Schedule 4.32 - Location of Company's Equipment and Inventory
Schedule 6.9 - Personal Guarantees
</TABLE>
