EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of October 31, 1999,
Among
SONIC AUTOMOTIVE, INC.
FAA ACQUISITION CORP.
FIRSTAMERICA AUTOMOTIVE, INC.
And
CERTAIN OF THE STOCKHOLDERS OF
FIRSTAMERICA AUTOMOTIVE, INC.
TABLE OF CONTENTS
ARTICLE I SECURITIES PURCHASE.............................................................................. 2
Section 1.1 The Securities Purchase................................................................... 2
Section 1.2 Purchase Price............................................................................ 2
Section 1.3 Registration, Offer or Sale of Parent Common Stocks....................................... 4
Section 1.4 The Closing............................................................................... 6
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser................................ 6
Section 1.6 Treatment of Options...................................................................... 6
ARTICLE II THE MERGER...................................................................................... 7
Section 2.1 The Merger................................................................................ 7
Section 2.2 Effective Time............................................................................ 7
Section 2.3 Effects of the Merger..................................................................... 8
Section 2.4 Certificate of Incorporation; By-Laws..................................................... 8
Section 2.5 Directors................................................................................. 8
Section 2.6 Officers.................................................................................. 8
Section 2.7 Effect on Capital Stock................................................................... 8
Section 2.8 Exchange of Certificates.................................................................. 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 11
Section 3.1 Organization, Standing and Corporate Power................................................ 11
Section 3.2 Subsidiaries; Investments................................................................. 12
Section 3.3 Capital Structure......................................................................... 12
Section 3.4 Authority; Noncontravention............................................................... 12
Section 3.5 SEC Documents............................................................................. 14
Section 3.6 [INTENTIONALLY LEFT BLANK]................................................................ 14
Section 3.7 Litigation................................................................................ 14
Section 3.8 Labor Matters............................................................................. 14
Section 3.9 Employee Benefit Plans.................................................................... 15
Section 3.10 Tax Returns and Tax Payments.............................................................. 17
Section 3.11 Brokers................................................................................... 18
Section 3.12 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.13 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.14 [INTENTIONALLY LEFT BLANK]................................................................ 18
Section 3.15 Title to Assets; Related Matters.......................................................... 18
Section 3.16 Accounts Receivable....................................................................... 19
Section 3.17 Inventories............................................................................... 19
Section 3.18 1999 Pro Forma Pre-Tax Earnings........................................................... 19
Section 3.19 Real Property; Machinery and Equipment.................................................... 19
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc............................... 20
Section 3.21 Certain Liabilities....................................................................... 21
Section 3.22 No Undisclosed Liabilities................................................................ 21
Section 3.23 Absence of Changes........................................................................ 21
Section 3.24 Compliance with Laws, Etc................................................................. 22
Section 3.25 Permits, Etc.............................................................................. 22
Section 3.26 Compensation.............................................................................. 23
Section 3.27 Powers of Attorney........................................................................ 23
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Section 3.28 Material Agreements....................................................................... 23
Section 3.29 [INTENTIONALLY LEFT BLANK]................................................................ 23
Section 3.30 Insurance................................................................................. 23
Section 3.31 Warranties................................................................................ 24
Section 3.32 Directors and Officers.................................................................... 24
Section 3.33 Suppliers and Customers................................................................... 24
Section 3.34 Environmental Matters..................................................................... 24
Section 3.35 Year 2000 Matters......................................................................... 26
Section 3.36 Business Generally........................................................................ 26
Section 3.37 Manufacturer Communications............................................................... 27
Section 3.38 Pending Acquisitions...................................................................... 27
Section 3.39 Related Party Transactions................................................................ 27
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................ 28
Section 3A.1 Power and Authority; Validity of Agreement................................................ 28
Section 3A.2 No Conflicts; Consents and Approvals...................................................... 28
Section 3A.3 Ownership of Shares....................................................................... 28
Section 3A.4 No Encumbrances........................................................................... 29
Section 3A.5 Brokers and Intermediaries................................................................ 29
Section 3A.6 Special Representations Regarding the Reorganization Common Stock......................... 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO.......................................... 30
Section 4.1 Organization, Standing and Corporate Power................................................ 30
Section 4.2 Subsidiaries.............................................................................. 31
Section 4.3 Capital Structure......................................................................... 31
Section 4.4 Authority; Noncontravention............................................................... 31
Section 4.5 SEC Documents............................................................................. 32
Section 4.6 [INTENTIONALLY LEFT BLANK.]............................................................... 33
Section 4.7 Litigation................................................................................ 33
Section 4.8 Brokers................................................................................... 33
Section 4.9 Interim Operations of Newco............................................................... 33
Section 4.10 Absence of Certain Changes or Events...................................................... 33
Section 4.11 Compliance with Laws, Etc................................................................. 34
ARTICLE V COVENANTS OF THE COMPANY......................................................................... 34
Section 5.1 Conduct of Business of the Company........................................................ 34
Section 5.2 Cooperation Regarding Notice of Appraisal Rights.......................................... 36
Section 5.3 Access to Information; Confidentiality.................................................... 36
Section 5.4 No Solicitation........................................................................... 37
Section 5.5 Public Announcements...................................................................... 38
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return.............................. 38
Section 5.7 Closing Conditions........................................................................ 38
Section 5.8 HSR Act................................................................................... 38
Section 5.9 Concerning Company Plans.................................................................. 39
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Section 5.10 Bridge Financing......................................................................... 39
Section 5.11 280G Consent............................................................................. 40
Section 5.12 Tax Free Reorganization.................................................................. 40
ARTICLE VA COVENANTS OF THE STOCKHOLDERS.............................................................. 41
Section 5A.1 Agreement to Vote; Proxy................................................................. 41
Section 5A.2 No Solicitation.......................................................................... 42
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference.................................... 42
Section 5A.4 Additional Shares........................................................................ 43
Section 5A.5 Waiver of Appraisal and Dissenter's Rights............................................... 43
Section 5A.6 Actions Regarding Company Expenses....................................................... 43
Section 5A.7 Indemnity; Escrow Agreement.............................................................. 43
Section 5A.8 Further Assurances....................................................................... 46
Section 5A.9 Certain Events........................................................................... 46
Section 5A.10 Stop Transfer............................................................................ 46
Section 5A.11 Termination.............................................................................. 46
ARTICLE VI COVENANTS OF THE PARENT......................................................................... 46
Section 6.1 Conduct of Business of Parent............................................................ 46
Section 6.2 [INTENTIONALLY LEFT BLANK]............................................................... 47
Section 6.3 Access to Information; Confidentiality................................................... 47
Section 6.4 Indemnification.......................................................................... 47
Section 6.5 Public Announcements..................................................................... 49
Section 6.6 Newco Obligations........................................................................ 49
Section 6.7 Application to Manufacturers............................................................. 49
Section 6.8 Closing Conditions....................................................................... 49
Section 6.9 HSR Act.................................................................................. 49
Section 6.10 Tax Free Reorganization.................................................................. 49
Section 6.11 Additional Agreements of Parent.......................................................... 49
Section 6.12 Employee Benefits........................................................................ 50
ARTICLE VII CONDITIONS PRECEDENT........................................................................... 50
Section 7.1 Conditions to Each Party's Obligation To Effect the Reorganization....................... 50
Section 7.2 Conditions to Obligations of the Parent and Newco........................................ 51
Section 7.3 Conditions to Obligation of the Company and the Stockholders............................. 53
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................................................. 55
Section 8.1 Termination.............................................................................. 55
Section 8.2 Effect of Termination.................................................................... 56
Section 8.3 Amendment................................................................................ 56
Section 8.4 Extension; Waiver........................................................................ 56
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver................................ 56
ARTICLE IX GENERAL PROVISIONS.............................................................................. 57
Section 9.1 Best Reasonable Efforts.................................................................. 57
Section 9.2 Survival of Representations and Warranties............................................... 57
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Section 9.3 Fees and Expenses......................................................................... 57
Section 9.4 Notices................................................................................... 58
Section 9.5 Certain Definitions....................................................................... 59
Section 9.6 Interpretation............................................................................ 60
Section 9.7 Counterparts.............................................................................. 60
Section 9.8 Entire Agreement; No Third-Party Beneficiaries............................................ 60
Section 9.9 Governing Law............................................................................. 61
Section 9.10 Assignment................................................................................ 61
Section 9.11 Enforcement............................................................................... 61
Section 9.12 Consent to Jurisdiction................................................................... 61
Section 9.13 Severability.............................................................................. 61
Section 9.14 Construction.............................................................................. 61
Section 9.15 Effectiveness of this Agreement; Merger Agreement and Stockholder Agreement Superseded.... 61
Section 9.16 Concerning the Stockholders' Agent........................................................ 62
EXHIBIT A CALCULATION OF CONVERSION NUMBER
EXHIBIT B CALCULATION OF PRO FORMA PRE-TAX EARNINGS FOR CALENDAR YEAR 1999
EXHIBIT BB WARRANT EXCHANGE FACTORS CALCULATION
EXHIBIT C PRO FORMA PRETAX EARNINGS
EXHIBIT D ESCROW AGREEMENT
EXHIBIT E ONE TIME CHARGES AND ADJUSTMENTS
EXHIBIT F ▇▇▇▇ ▇▇▇▇ OPINION
EXHIBIT G ▇▇▇▇▇▇ ▇▇▇ OPINION
iv
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October 31,
1999 (this "Agreement"), by and among SONIC AUTOMOTIVE, INC., a Delaware
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corporation (the "Parent"), FAA ACQUISITION CORP., a Delaware corporation and a
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wholly-owned subsidiary of the Parent ("Newco"), FIRSTAMERICA AUTOMOTIVE, INC.,
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a Delaware corporation (the "Company"), and the stockholders and warrant holders
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of the Company listed on Exhibit A hereto, and any other holders of securities
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of the Company who shall become a party to this Agreement after the date hereof
(and such stockholders, warrant holders and other security holders being
collectively, the "Stockholders" and each, individually, a "Stockholder").
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WHEREAS, the respective Boards of Directors of the Parent, Newco and the
Company have approved, and deem it fair, advisable and in the best interests of
their respective stockholders to consummate, the business combination
contemplated hereby upon the terms and subject to the conditions set forth
herein;
WHEREAS, it is intended that the business combination contemplated hereby
be accomplished by (i) a purchase (the "Securities Purchase") by Newco from the
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Stockholders of all of the following securities of the Company held by them: (A)
all shares of Class A, Class B and Class C Common Stock, par value $.00001
(collectively, the "Company Common Stock"); (B) all shares of the Company's
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Redeemable Preferred Stock due 2005 and all shares of the Company's 8%
Cumulative Redeemable Preferred Stock due 2005 (collectively, the "Company
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Preferred Stock"); and (C) all of the Warrants to Purchase Class A Common Stock
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of the Company (the "Company Warrants" and, together with the Company Common
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Stock and the Company Preferred Stock, sometimes hereinafter collectively called
the "Company Securities"), to be followed by a merger (the "Merger") of Newco
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with and into the Company, with the Company being the surviving corporation and
a wholly-owned subsidiary of the Parent, all upon the terms and subject to the
conditions set forth herein (the Securities Purchase and the Merger being
sometimes hereinafter collectively called the "Reorganization");
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WHEREAS, the Parent, Newco and the Company are parties to an Agreement and
Plan of Merger dated as of August 25, 1999 (the "Merger Agreement");
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WHEREAS, the Parent and certain of the Stockholders are parties to a
Stockholder Agreement dated as of August 25, 1999 (the "Stockholder Agreement");
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WHEREAS, it is intended that this Agreement shall supersede and replace the
Merger Agreement and the Stockholder Agreement;
WHEREAS, the Parent, Newco, the Company and the Stockholders desire to make
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated hereby and also to prescribe various conditions to
the Reorganization;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties agree as
follows:
ARTICLE I
SECURITIES PURCHASE
Section 1.1 The Securities Purchase. Upon the terms and subject to the
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conditions set forth in this Agreement, at the Closing (as defined in Section
1.4 below), the Stockholders shall sell, transfer, convey and deliver to Newco,
and Newco shall purchase from the Stockholders, all of the Company Securities
held by the Stockholders as of the Closing. At the Closing each Stockholder
shall deliver to Newco a certificate or certificates representing the number of
Company Securities set forth opposite such Stockholder's name on Exhibit A
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hereto and any other Company Securities acquired by such Stockholder after the
date hereof, duly endorsed in blank or with one or more fully executed stock
powers or other appropriate instruments of assignment and conveyance attached,
all in proper form for transfer with all transfer taxes, if any, paid by such
Stockholder. All Company Securities shall be delivered to Newco free and clear
of all liens, pledges, encumbrances, claims, security interests, charges, voting
trusts, voting agreements, other agreements, rights, options, warrants or
restrictions of any kind, nature or description.
Section 1.2 Purchase Price. As the full purchase price to be paid by
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Newco to the respective Stockholders for the respective Company Securities to be
purchased hereunder, at the Closing, Newco shall deliver to the Stockholders
securities of the Parent as follows:
(a) For each share of Company Common Stock held by a Stockholder,
Newco shall deliver to such Stockholder .31246, as such number may be adjusted
as provided in Section 1.2(e) below (as so adjusted, the "Conversion Number"),
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fully paid and non-assessable shares of Class A Common Stock, par value $.01 per
share, of the Parent (the "Parent Common Stock").
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(b) For each share of Company Preferred Stock held by a Stockholder,
Newco shall deliver to such Stockholder that number of fully paid and non-
assessable shares of Parent Common Stock (collectively, the "Preferred Stock
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Consideration Shares") obtained by dividing (i) One Thousand Dollars ($1,000) by
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(ii) the average closing price per share of Parent Common Stock as reported on
the Composite Tape for the New York Stock Exchange (the "NYSE") for the twenty
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(20) consecutive trading days ending on and including the trading day
immediately preceding the Closing Date (as defined in Section 1.4 below). If, as
of the Recalculation Date (as defined below), the Recalculation Market Value (as
defined below) of the Preferred Stock Consideration Shares is less than One
Thousand and Thirty Dollars ($1,030), the Parent shall issue and deliver to each
of the Stockholders who sold shares of Company Preferred Stock, for each share
of Company Preferred Stock sold by such Stockholder hereunder, that number of
additional shares of Parent Common Stock which, together with the Preferred
Stock Consideration Shares, have an aggregate Recalculation Market Value equal
to One Thousand and Thirty Dollars ($1,030). As used in this Subsection (b) the
following terms shall have the following meanings: (A) "Recalculation Date"
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shall mean the date which is ninety (90) days after the Closing Date; and (B)
"Recalculation Market Value" shall mean the average closing price share of
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Parent Common Stock as reported on the NYSE for the twenty (20) consecutive
trading days ending on and including the trading day immediately preceding the
Recalculation Date. No fractional shares of such additional Parent Common Stock
shall be issued; any such
2
portion of a share shall be paid in cash in an amount (rounded to the nearest
whole cent) equal to the product of such fraction multiplied by the
Recalculation Market Value.
(c) For each Company Warrant held by a Stockholder, Newco shall
deliver to such Stockholder that number of fully paid and non-assessable shares
of Parent Common Stock determined as follows:
(i) for each Company Warrant with an exercise price of $0.92 per
share of Company Common Stock, Newco shall deliver .2455 shares of Parent Common
Stock for each share of Company Common Stock issuable upon exercise of such
Company Warrant in full; and
(ii) for each Company Warrant with an exercise price of $2.00 per
share of Company Common Stock, Newco shall deliver .1667 shares of Parent Common
Stock for each share of Company Common Stock issuable upon exercise of such
Company Warrant in full.
The numbers of shares of Parent Common Stock set forth in clauses (i) and
(ii) immediately above (the "Warrant Exchange Factors") are determined in
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accordance with the provisions of Exhibit BB hereto, which reflects a Conversion
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Number of .31246. In the event that the Conversion Number is adjusted as
provided in Section 1.2(e) below, the respective Warrant Exchange Factors shall
be correspondingly adjusted.
(d) Except as set forth in Subsection (b) above, no fractional shares
of Parent Common Stock shall be delivered with respect to the purchase hereunder
of any Company Common Stock or Company Warrants; any such fraction of a share of
Parent Common Stock shall be paid in cash in an amount (rounded to the nearest
whole cent) equal to the product of (i) such fraction multiplied by (ii) the
average closing price per share of Parent Common Stock as reported on the
Composite Tape for the NYSE for the five (5) consecutive trading days ending on
and including the trading day immediately preceding the Closing Date.
(e) The Conversion Number set forth in Section 1.2(a) above has been
determined in accordance with Exhibit B hereto. If between the date of this
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Agreement and the Closing the outstanding shares of Company Common Stock or
Parent Common Stock shall have been changed (subject to compliance with any
other applicable provisions of this Agreement) into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, split-up, combination, or the like, the Conversion Number
shall be correspondingly adjusted. If between the date of this Agreement and the
Closing, the outstanding shares of Company Common Stock shall have been reduced
(subject to compliance with any other applicable provisions of this Agreement)
as a result of any transaction that does not involve an expenditure or
disposition of assets of the Company (other than the disposition of shares of
DSW Associates, Inc., d/b/a "Auto Town" in connection with the divestiture or
liquidation thereof contemplated by Section 7.2(m) below), or an increase in
liabilities of the Company, or which otherwise reduces the net assets of the
Company, the Conversion Number shall be recalculated in accordance with
Exhibit B hereto utilizing such reduced number of outstanding shares of Company
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Common Stock.
3
Section 1.3 Registration, Offer or Sale of Parent Common Stocks.
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(a) Not later than one hundred eighty (180) days after the Closing,
the Parent shall cause the resale by the Stockholders of the shares of Parent
Common Stock issued pursuant to Section 1.2 above (the "Reorganization Common
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Stock") to be registered under the Securities Act of 1933, as amended (the
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"Securities Act"), pursuant to an effective "shelf" registration statement on
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Form S-3 (the "Registration Statement") filed by the Parent with the
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Securities Exchange Commission (the "SEC"). The Parent shall use its best
---
reasonable efforts to cause the Registration Statement to be filed and to become
effective by the ninetieth (90th) day after the Closing. In connection with the
Registration Statement, the Parent shall:
(i) deliver to the Stockholders such number of copies of a
prospectus, and supplements thereto, that is part of the Registration Statement
(the "Resale Prospectus") to enable the Stockholders to offer and sell the
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shares of the Reorganization Common Stock received by them pursuant to this
Agreement;
(ii) maintain the effectiveness of the Registration Statement
and the currency of the Resale Prospectus until such time as all shares of the
Reorganization Common Stock may be sold by the Stockholders without restriction
pursuant to Rule 144 under the Securities Act or any successor rule or
regulation thereto ("Rule 144");
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(iii) cause the Reorganization Common Stock to be listed for
trading on the NYSE not later than the date of the effectiveness of the
Registration Statement;
(iv) pay all expenses, including legal and accounting fees, in
connection with the preparation, filing and maintenance of the Registration
Statement, including any amendments thereto, the Resale Prospectus, including
any supplements thereto, and any other expenses incurred by the Parent in
meeting its obligations under this Section 1.3; and
(v) indemnify the Stockholders for any liabilities arising under
he Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any state securities or blue sky laws resulting from any
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material misstatements in, or omissions of material information from, the Resale
Prospectus or the Registration Statement, including the information incorporated
by reference therein, except for the Stockholders' Liabilities (as defined in
Section 1.3(b)(vi) below).
(b) In connection with the Registration Statement, the Stockholders
agree as follows:
(i) the Stockholders shall effect each resale of the
Reorganization Common Stock only pursuant to the Resale Prospectus and the
methods described therein and subject to the provisions of Section 1.3(d) below;
(ii) any offering of any Reorganization Common Stock by a
Stockholder will be effected in an orderly manner through a securities dealer
acting as broker or dealer, selected by the Stockholder and reasonably
acceptable to the Parent (the "Designated Broker");
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4
(iii) if requested by the Parent, the Stockholders will enter
into one or more custody agreements with one or more banks (the "Custodial
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Banks") with respect to the Reorganization Common Stock so that all such shares
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of Reorganization Common Stock are held in the custody of such Custodial Banks
until offered pursuant to clause (ii) immediately above;
(iv) each of the Stockholders shall pay any and all expenses
directly related to the sale of the Reorganization Common Stock by it,
including, but not limited to, the commissions or fees of the Designated Broker,
but excluding the fees and expenses of the Custodial Banks holding the
Reorganization Common Stock, if applicable, which shall be borne by the Parent;
(v) because the shares of Reorganization Common Stock will be
"restricted securities" within the meaning of Rule 144, the certificates
representing the Reorganization Common Stock will be issued by the Parent to the
Stockholders with such legends as the Parent may reasonably require until such
shares are offered pursuant to the foregoing terms under the Resale Prospectus,
at which time such certificates shall be tendered to the Parent by the
Stockholder and a new certificate or certificates without legends shall be
issued by the Parent to the Designated Broker in order to settle any resales by
the Stockholders;
(vi) the Stockholders shall provide the Parent with all
information concerning the Stockholders and their resale of the Reorganization
Common Stock as may then be required by the Securities Act, and the Stockholders
shall indemnify the Parent for any liabilities (the "Stockholders' Liabilities")
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arising under the Securities Act, the Exchange Act or any state securities or
blue sky laws resulting from any material misstatements in, or omissions of any
material information from, such information provided by the Stockholders to the
Parent pursuant to this Section 1.3(b)(vi).
(c) Lock-Up. During the Lock-Up Period (as defined below), the
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Stockholders agree that they will not, without the prior written consent of the
Parent, directly or indirectly, (i) offer, pledge, sell, sell short, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right to warrant for the sale of, or otherwise
dispose of or transfer any shares of Reorganization Common Stock or any shares
of the Parent Common Stock issuable upon exercise of Parent Options (as defined
in Section 1.6 below) (all of the foregoing shares being, collectively, the
"Lock-Up Shares"), or file any registration statement under the Securities Act,
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with respect to any Lock-Up Shares, or (ii) enter into any swap or any other
agreement or hedging arrangement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of Lock-
Up Shares, whether any such swap or transaction is to be settled by delivery of
Parent Common Stock or other securities, in cash or otherwise provided, however,
that, other than with respect to shares of Parent Common Stock constituting any
part of the Escrow Shares (as defined in Section 5A.7(b) below), a Stockholder
may (i) transfer Lock-Up Shares to such Stockholder's spouse or lineal
descendant (natural or adopted) or an executor, administrator or testamentary
trustee (in their capacity as such) of such Stockholder or to a trust the
beneficiaries of which include only such Stockholder and his or her spouse or
lineal descendants (natural or adopted); provided, however, it shall be a
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condition precedent to such transfer that the transferee agree in a writing
reasonably satisfactory to the Parent to be bound by the terms of this Section
1.3(c), (ii) purchase at its own expense one or several European style put
options, at exercise prices not
5
to exceed 80% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, (iii) sell at their
own expense one or several European style call options at exercise prices no
less than 120% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, and (iv) pledge shares
of Parent Common Stock as security for loans so long as the pledgee agrees in a
writing reasonably satisfactory to the Parent that (A) such shares in the hands
of the pledgee remain subject to the provisions of this Section 1.3(c) and (B)
are restricted securities under applicable federal securities laws. The
"Lock-Up Period" shall be for a period beginning on the Closing Date and (i) for
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15% of each of the Stockholders' Lock-Up Shares, ending on the date that is 180
days following the Closing Date, and (ii) for 85% of each of the Stockholders'
Lock-Up Shares, ending on the date that is one (1) year following the Closing
Date. Nothing contained in this Section 1.3(c) shall prevent the Parent and the
holders of the Preferred Stock Consideration Shares from entering into a
different lock-up agreement with respect to the shares of Parent Common Stock
delivered to such holders pursuant to Section 1.2(b) above, in which case the
provisions of this Section 1.3(c) shall be deemed modified by such different
lock-up agreement with respect to such holders and such shares of Parent Common
Stock only.
(d) Concerning Rule 144 Sales. For a period of four (4) years from
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the Closing Date, any sales by the Stockholders of Reorganization Common Stock
pursuant to Rule 144, shall be effected through the Designated Broker and, if
requested by the Parent, the Custodial Banks. The Parent shall use its best
reasonable efforts to obtain favorable commission rates (similar to large
institutional rates) from the Designated Broker.
Section 1.4 The Closing. Unless this Agreement shall have been terminated
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and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Securities Purchase shall take place at
a closing (the "Closing") to be held at 10:00 a.m., California time no later
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than the second business day after satisfaction (or waiver if permissible) of
the conditions set forth in Article VII (the "Closing Date"), at the offices of
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▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, unless another date, time or place is agreed to in writing by the
parties hereto.
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser.
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As promptly as possible after the Closing, the Company shall cause the
respective Company Securities to be transferred of record into the name of Newco
on the books and records of the Company. Promptly thereafter, Newco shall take
the necessary board of director action to authorize the Merger under Section 253
of the Delaware General Corporation Law (the "DGCL"). Notwithstanding the other
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provisions of this Article I, the Parent may elect to purchase the Company
Securities (in lieu of Newco purchasing the Company Securities) in accordance
with the provisions of this Article I. In such event, the Parent shall promptly
contribute the Company Securities to the capital of Newco, so that they may be
transferred of record into the name of Newco.
Section 1.6 Treatment of Options.
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(a) Effective upon the Closing, each unexpired and unexercised option
to purchase shares of Company Common Stock (each a "Company Option") under the
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Company's
6
1997 Stock Option Plan, as amended through April 7, 1999 (the "Company Stock
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Option Plan") shall be deemed to be automatically converted into an option (a
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"Parent Option") to purchase a number of shares of Parent Common Stock equal to
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the number of shares of Company Common Stock that could have been purchased
under the Company Option multiplied by the Conversion Number (with the resulting
number of shares being rounded to the nearest whole share), at a price per share
of Parent Common Stock equal to the option exercise price of the Company Option,
divided by the Conversion Number provided, that there shall be no accelerated
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exercisability of any Company Option solely as a result of consummation of the
Merger except as provided in employment contracts in effect as of the date
hereof and, provided further, the shares of Parent Common Stock issuable upon
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exercise of the Parent Option thereof shall be subject to a "lock-up" period of
180 days after the Closing, wherein such shares may not be sold or otherwise
disposed, and such "lock up" period shall be provided for under each of the
Company Option holder's stock option agreements. The date of grant of the
applicable Parent Option shall be the date on which the corresponding Company
Option was granted.
(b) Effective upon the Closing, the Parent shall (i) assume all of
the Company's obligations with respect to Company Options as contemplated by
Section 1.6(a) above, (ii) reserve for issuance the number of shares of Parent
Common Stock that will become subject to Parent Options in accordance with the
terms thereof, and (iii) make available for issuance all shares of Parent Common
Stock covered thereby.
(c) Not later than one hundred eighty (180) days after the Closing,
the Parent shall prepare and file with the SEC a registration statement on Form
S-8 (or another appropriate form) registering the number of shares of Parent
Common Stock issuable upon the exercise of all Company Options assumed by Parent
with Parent Options pursuant to Section 1.6(a) above, and shall use its best
efforts to cause the offer and sale of such shares to be registered under the
Securities Act and to maintain such registration in effect until the exercise or
termination of the Company Options and the termination of all of the Company
Stock Option Plan.
ARTICLE II
THE MERGER
Section 2.1 The Merger. As promptly as possible after the Closing and the
----------
completion of the matters described in Section 1.5 above but in no event later
than thirty (30) days after the Closing, upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Section 253 of
the DGCL, Newco shall be merged with and into the Company at the Effective Time
(as defined in Section 2.2 below). At the Effective Time, the separate existence
of Newco shall cease, and the Company shall continue as the surviving
corporation under the name "FIRSTAMERICA AUTOMOTIVE, INC." and as a wholly-owned
Subsidiary (as defined in Section 9.5) of the Parent (the Company and Newco are
sometimes herein referred to as the "Constituent Corporations" and the Company
-------------------------
as the surviving corporation in the Merger is sometimes referred to herein as
the "Surviving Corporation").
----------------------
Section 2.2 Effective Time. As promptly as possible after the Closing and
--------------
the completion of the matters described in Section 1.5 above but in no event
later than thirty (30) days after the Closing, Newco shall file with the
Secretary of State of the State of Delaware a
7
certificate of ownership and merger (the "Certificate of Merger") in accordance
----------------------
with the relevant provisions of the DGCL, and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such other time as is permissible in accordance
with the DGCL and as Newco and ▇▇▇▇▇▇ ▇. Price as agent for the Stockholders
(the "Stockholders' Agent") shall agree, as specified in the Certificate of
--------------------
Merger (the time the Merger becomes effective being herein called the "Effective
---------
Time").
----
Section 2.3 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in the applicable provisions of the DGCL.
Section 2.4 Certificate of Incorporation; By-Laws.
-------------------------------------
(a) At the Effective Time, and without any further action on the part
of the Company or Newco, the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read the same as
the certificate of incorporation of Newco immediately prior to the Merger, until
thereafter amended as provided therein and under the DGCL.
(b) At the Effective Time, and without any further action on the part
of the Company or Newco, the By-laws of Newco as in effect at the Effective Time
shall be the By-laws of the Surviving Corporation following the Merger, until
thereafter amended as provided therein and under the DGCL.
Section 2.5 Directors. The directors of Newco at the Effective Time shall
---------
be the directors of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Section 2.6 Officers. The officers of Newco at the Effective Time shall
--------
be the officers of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
Section 2.7 Effect on Capital Stock. As of the Effective Time, by virtue
-----------------------
of the Merger and without any action on the part of the Company, Newco or any
holder of any shares of capital stock of the Company or any shares of capital
stock of Newco:
(a) Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time shall be converted into one fully paid
and non-assessable share of common stock, par value $1.00, of the Surviving
Corporation.
(b) Each share of Company Common Stock as well as each share of
Company Preferred Stock that is owned by the Company or by any Subsidiary of the
Company, and each share of the Company Common Stock and Company Preferred Stock
that is owned by the Parent, Newco or any other Subsidiary of the Parent, shall
automatically be canceled and retired and shall cease to exist, and no cash or
other consideration shall be delivered or deliverable in exchange therefor.
8
(c) Except as otherwise provided herein, each issued and outstanding
share of the Company Common Stock (other than shares canceled pursuant to
Section 2.7(b) and Dissenting Shares (as defined in Section 2.7(d) below) shall
be converted into the right to receive, without interest, an amount in cash,
without interest, equal to (i) the greater of (A) the average closing price per
share of Parent Common Stock as reported on the Composite Tape for the NYSE for
the twenty (20) consecutive trading days ending on and including the trading day
immediately preceding the day upon which the Effective Time occurs or (B)
$13.72, (ii) in either case multiplied by the Conversion Number (the "Merger
------
Consideration").
-------------
(d) Notwithstanding anything in this Agreement to the contrary,
shares of the Company Common Stock issued and outstanding immediately prior to
the Effective Time and held by a holder (if any) who has the right to demand
payment for and an appraisal of such shares in accordance with Section 262 of
the DGCL, or any successor provision, or Chapter 13 of the California General
Corporation Law (the "CGCL"), or any successor provision ("Dissenting Shares"),
---- -----------------
shall not be converted into a right to receive any Merger Consideration (but
shall have the rights set forth in Section 262 of the DGCL (or any successor
provision) or Chapter 13 of the CGCL (or any successor provision)) unless such
holder fails to perfect or otherwise loses such holder's right to such payment
or appraisal, if any. If, after the Effective Time, such holder fails to perfect
or loses any such right to appraisal, each such share of such holder shall be
treated as a share that had been converted as of the Effective Time into the
right to receive Merger Consideration in accordance with this Section 2.7. The
Company shall give prompt notice to the Parent of any demands received by the
Company for appraisal of shares of the Company Common Stock, and the Parent
shall have the right to participate in and approve all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of the Parent, make any payment with respect to, or settle
or offer to settle, any such demands or appraisal actions related thereto.
Promptly after the Closing, the Parent and Newco shall cause the Company to
comply with the notice requirements of Section 262 of the DGCL and/or Chapter 13
of the CGCL (or, in either case, any successor provision).
(e) As of the Effective Time, all shares of the Company Common Stock
and Company Preferred Stock (other than shares referred to in Section 2.7(d))
issued and outstanding immediately prior to the Effective Time shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of the
Company Common Stock shall, to the extent such certificate represents such
shares, cease to have any rights with respect thereto, except the right to
receive the Merger Consideration to be paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.8.
Section 2.8 Exchange of Certificates.
------------------------
(a) Prior to the Closing, the Company shall appoint First Union
National Bank or another bank or trust company located in the United States
which is reasonably satisfactory to the Company to act as exchange agent (the
"Exchange Agent") for the payment of the Merger Consideration. At the
--------------
Closing, the Stockholders shall cause the Company to deposit with the Exchange
Agent, for the benefit of the holders of shares of the Company Common Stock,
other than the Company or any Subsidiary of the Company or the Parent, Newco or
any other
9
Subsidiary of the Parent, for exchange in accordance with this Section 2.8, cash
in an amount equal to the aggregate Merger Consideration projected to be paid
hereunder (the "Exchange Fund").
-------------
(b) As soon as practicable after the Effective Time, each holder of
an outstanding certificate or certificates which prior thereto represented
shares of the Company Common Stock shall, upon surrender of such certificate or
certificates to the Exchange Agent, be entitled to the amount of cash into which
the shares of Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time, there shall be no further transfer on the records of the Company
or its transfer agent of certificates representing shares of the Company Common
Stock and if such certificates are presented to the Company for transfer, they
shall be canceled against delivery of the applicable Merger Consideration. If
any Merger Consideration is to be remitted to a name other than that in which
the certificate for the Company Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the Person (as defined in Section 9.5)
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the payment of Merger
Consideration to a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Parent or its
transfer agent that such tax has been paid or is not applicable. Until surrender
as contemplated by this Section 2.3(b), each certificate for shares of the
Company Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon surrender the applicable Merger
Consideration as contemplated by Section 2.7. No interest will be paid or will
accrue on any amount payable as Merger Consideration.
(c) Merger Consideration paid upon the surrender for exchange of
certificates representing shares of the Company Common Stock in accordance with
the terms of this Section 2.8 shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of the Company Common Stock
represented by such certificates.
(d) Any portion of the Exchange Fund (including any interest and
other income received by the Exchange Agent in respect of all such funds) which
remains undistributed to the holders of the certificates representing shares of
the Company Common Stock for one year after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any holders of shares
of the Company Common Stock prior to the Merger who have not theretofore
complied with this Section 2.8 shall thereafter look only to the Surviving
Corporation for payment of their claim for Merger Consideration to which such
holders may be entitled.
(e) No party to this Agreement shall be liable to any Person (as
defined in Section 9.5) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law, if any certificates representing shares of the Company
Common Stock shall not have been surrendered in exchange for Merger
Consideration prior to one year after the Effective Time (or immediately prior
to such
10
earlier date on which any Merger Consideration would otherwise escheat to or
become the property of any governmental entity), and any such amount shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(f) The Exchange Agent shall invest the cash, included in the
Exchange Fund as directed by the Parent, and any interest and other income
resulting from such investment shall be the property of, and paid to the Parent.
(g) In the event any certificate or certificates representing shares
of the Company Common Stock or shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such certificate
or certificates to be lost, stolen or destroyed, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Section 2.8, provided that the Person to whom the Merger Consideration is
paid shall, if requested by the Surviving Corporation and as a condition
precedent to the payment thereof, give the Surviving Corporation a bond in such
reasonable amount as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the certificate claimed to
have been lost, stolen or destroyed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company Disclosure Schedule attached hereto and
referring to the representations and warranties in this Agreement (the "Company
-------
Disclosure Schedule"), the Company represents and warrants to the Parent and
--------------------
Newco with respect to itself and its Subsidiaries as of the date of this
Agreement and, with respect to the Pending Acquisitions, to the Company's
knowledge, as follows:
Section 3.1 Organization, Standing and Corporate Power. Each of the
------------------------------------------
Company and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect (as defined in Section 9.5)
with respect to the Company. Prior to the date hereof, the Company has delivered
to the Parent or its representative complete and correct copies of the
respective Certificates of Incorporation and By-laws (or other organizational
documents) of the Company and its Subsidiaries as currently in effect. All of
the outstanding capital stock of, or other ownership interests in, each of the
Subsidiaries is owned of record and beneficially by the Company, free and clear
of all Liens.
11
Section 3.2 Subsidiaries; Investments. The Company does not own, directly
-------------------------
or indirectly, any capital stock or other ownership interest in any other
corporation, partnership, business association, joint venture or other entity.
Section 3.3 Capital Structure. The authorized capital stock of the
-----------------
Company consists of (i) 65,000,000 shares of the Company Common Stock and (ii)
10,000 shares of Company Preferred Stock. Subject to any Permitted Changes (as
defined in Section 5.1(a)(ii)) there are: (i) 15,207,711 shares of Company
Common Stock issued and outstanding (excluding shares held in the treasury of
the Company) and held by the stockholders listed on Attachment BB to the
Disclosure Schedule; (ii) no shares of Company Common Stock held in the treasury
of the Company; (iii) 1,689,867 shares of the Company Common Stock reserved for
issuance upon exercise of authorized but unawarded Company Options pursuant to
the Company Stock Option Plan; (iv) 1,310,133 shares of Company Common Stock
issuable upon exercise of outstanding Company Options, with an exercise price
per each awarded but unexercised Company Option as is set forth in Section 3.3
of the Company Disclosure Schedule hereto; (v) 100,000 shares of Company Common
Stock reserved for issuance upon conversion of outstanding promissory notes;
(vi) 371,700 shares of Company Common Stock reserved for issuance upon exercise
of outstanding warrants; (vii) 4,000 shares of Company Preferred Stock issued
and outstanding; and (viii) no shares of Company Preferred Stock are held in the
treasury of the Company. Except as set forth above, no shares of capital stock
or other equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Company Stock Option Plan will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth above, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
or voting securities of the Company or obligating the Company to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations, commitments, understandings or arrangements of the
Company to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company and, except as set forth
in the Stockholder Agreement and this Agreement, there are no irrevocable
proxies with respect to shares of capital stock of the Company. There are no
agreements or arrangements pursuant to which the Company is or could be required
to register shares of the Company Common Stock or other securities under the
Securities Act, or other agreements or arrangements with or, to the knowledge of
Company, among any security holders of the Company with respect to securities of
the Company. The Company has no rights plan or similar preferred stock purchase
plan or arrangement.
Section 3.4 Authority; Noncontravention.
---------------------------
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and
12
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby, including the Reorganization, have been
duly authorized by the Board of Directors of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or similar
laws, now or hereafter in effect, affecting creditors, rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(c) The execution and delivery of this Agreement does not, and the
consummation by the Company of the transactions contemplated by this Agreement
and compliance by the Company with the provisions hereof will not, conflict
with, or result in any breach or violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien (as defined in Section 9.5)
upon any of the properties or assets of the Company or any of its Subsidiaries
under (i) the Certificate of Incorporation or By-laws (or other organizational
documents) of the Company or any of its Subsidiaries, (ii) any loan or credit
agreement, note, note purchase agreement, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule, regulation or arbitration award applicable to the Company
or any of its Subsidiaries or any of their properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not have a Material Adverse Effect with respect to the Company or could not
prevent, materially hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any federal, state or local government
or any court, administrative agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
-------------------
by or with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, except for (i) the
filing of a pre-merger notification and report form by the Company under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
---
Act"), (ii) the filing with the SEC of such reports under the Exchange Act as
---
may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, would not (x) prevent or materially
delay consummation of the Reorganization or (y) have a Material Adverse Effect
with respect to the Company.
13
Section 3.5 SEC Documents. The Company has filed with the SEC all
-------------
reports, schedules, forms, statements and other documents required pursuant to
the Securities Act and the Exchange Act since January 1, 1998, including,
without limitation, the Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-75907) (such Amendment No. 4 being herein
called the "Form S-1") and the Company's quarterly report on Form 10-Q for the
--------
period ended June 30, 1999 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
the "SEC Documents"). As of their respective dates, the Form S-1 and the other
-------------
SEC Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents (including any and all financial statements
included therein) as of such dates contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in all SEC Documents filed since
January 1, 1998 (the "SEC Financial Statements") and the Company's pro-forma
-------------------------
consolidated financial statements set forth in the Form S-1 comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC), applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present in accordance with
generally accepted accounting principles the consolidated financial position of
the Company (and its Subsidiaries) as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited quarterly statements, to normal year-end audit
adjustments).
Section 3.6 [INTENTIONALLY LEFT BLANK]
Section 3.7 Litigation. There is (i) no suit, action or proceeding
----------
pending, and (ii) to the knowledge of the Company, no suit, action or proceeding
threatened against or investigation pending with respect to the Company or any
of its Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect with respect to the Company or prevent, materially
hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company which, individually or in the aggregate, would have any such
Material Adverse Effect.
Section 3.8 Labor Matters. (i) There are no labor strikes, disputes,
-------------
slowdowns, stoppages or lockouts actually pending, or, to the knowledge of the
Company, threatened against or affecting Company or any of its Subsidiaries and
during the past five years there have been no such actions; (ii) the Company is
not a party to or bound by any collective bargaining or similar agreement with
any labor organization, or by any work rules or practices agreed to with any
labor organization or employee association applicable to employees of the
Company or any of its Subsidiaries; (iii) to the knowledge of the Company, there
are no current union organizing activities among the employees of the Company or
any of its Subsidiaries; (iv) true, correct and complete copies of all written
personnel policies, rules or procedures applicable to employees of
14
the Company and its Subsidiaries have been made available to the Parent; (v)
there are no material complaints, charges, arbitrations, controversies, lawsuits
or other proceedings pending or, to the knowledge of the Company, threatened in
any forum against the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship; (vi) there are
no employment contracts or severance agreements with any employees of the
Company or any of its Subsidiaries; and (vii) since the enactment of the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act"), the Company
--------
has not effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Company or any of its Subsidiaries, or (B)
a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of its Subsidiaries; nor has the Company or any
of its Subsidiaries engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law.
Section 3.9 Employee Benefit Plans.
----------------------
(a) Section 3.9 of the Company Disclosure Schedule hereto contains a
-----------
true and complete list of each written and material unwritten "employee benefit
plan" (within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (including, without limitation,
-----
multiemployer plans within the meaning of ERISA Section 3(37)), stock purchase,
stock option, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation and all other
employee benefit plans, agreements, programs, policies or other arrangements
relating to employment, benefits or entitlements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), under which any employee or former employee of the Company or any of
its Subsidiaries has any present or future right to benefits or under which the
Company or any of its Subsidiaries has any present or future liability. All such
plans, agreements, programs, policies and arrangements shall be collectively
referred to as the "Company Plans."
-------------
(b) With respect to each Company Plan, the Company has made available
to the Parent a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent applicable, (i)
any related trust agreement, annuity contract or other funding instrument; (ii)
the most recent determination letter; (iii) any summary plan description and
other written communications by the Company to its employees concerning the
extent of the benefits provided under a Company Plan; and (iv) for the three
most recent years (I) the Form 5500 and attached schedules; (II) audited
financial statements; and (III) actuarial valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable federal and state laws, rules and
regulations, in each case, in all material respects; (ii) each Company Plan
which is intended to be qualified within the meaning of Code Section 401(a) has
received a favorable determination letter as to its qualification and to the
knowledge of the Company nothing has occurred, whether by action or failure to
act, which
15
would cause the loss of such qualification; (iii) with respect to any Company
Plan, no material actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the knowledge of the
Company, threatened, and, to the knowledge of the Company, no facts or
circumstances exist which could give rise to any such material actions, suits or
claims, and the Company will promptly notify the Parent in writing of any
pending claims or, to the knowledge of the Company, any threatened claims
arising between the date hereof and the Effective Time; (iv) neither the Company
or any of its Subsidiaries nor, to the knowledge of the Company, any other party
has engaged in a prohibited transaction, as such term is defined under Code
Section 4975 or ERISA Section 406, which would subject the Company or the Parent
to any material taxes, penalties or other liabilities under the Code or ERISA;
(v) no event has occurred and no condition exists that would subject the
Company, either directly or by reason of its affiliation with any member of its
"Controlled Group" (defined as any organization which is a member of a
----------------
controlled group of organizations within the meaning of Code Sections 414(b),
(c), or (m)), to any material tax, fine or penalty imposed by ERISA, the Code or
other applicable federal and state laws, rules and regulations; (vi) all
insurance premiums required to be paid and all contributions required to be made
under the terms of any Company Plan, the Code, ERISA or other applicable federal
and state laws, rules and regulations (including the applicable laws, rules and
regulations of any foreign jurisdiction) as of the Effective Time have been or
will be timely paid or made prior thereto and adequate reserves have been
provided for on the Company's balance sheet for any premiums (or portions
thereof) and for all benefits attributable to service on or prior to the
Effective Time; (vii) for each Company Plan with respect to which a Form 5500
has been filed, to the knowledge of the Company, no material change has occurred
with respect to the matters covered by the most recent Form 5500 since the date
thereof; and (viii) no Company Plan provides for a material increase in benefits
on or after the Effective Time.
(d) The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to any pension plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(e) With respect to any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) to which the Company or any member of its
Controlled Group has any liability or contributes (or has at any time
contributed or had an obligation to contribute): (i) the Company and each member
of its Controlled Group has or will have, as of the Effective Time, made all
contributions to each such multiemployer plan required by the terms of such
multiemployer plan or any collective bargaining agreement; (ii) neither the
Company nor any member of its Controlled Group has incurred any material
withdrawal liability under Title IV of ERISA or would be subject to such
liability if, as of the Closing, the Company or any member of its Controlled
Group were to engage in a complete withdrawal (as defined in ERISA Section 4203)
or partial withdrawal (as defined in ERISA Section 4205) from any such
multiemployer plan; (iii) no such multiemployer plan is in reorganization or is
insolvent (as those terms are defined in ERISA Sections 4241 and 4245,
respectively); and (iv) neither the Company nor any member of its Controlled
Group has engaged in a transaction which could subject it to liability under
ERISA Section 4212(c).
(f) (i) Each Company Plan which is intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the
Code meets such
16
requirements; and (ii) the Company has received a favorable determination from
the Internal Revenue Service with respect to any trust intended to be qualified
within the meaning of Code Section 501(c)(9).
(g) Section 3.9 of the Company Disclosure Schedule hereto sets forth,
-----------
on a plan by plan basis, the present value of benefits payable presently or in
the future to present or former employees of the Company under each unfunded
Company Plan that must be accounted for in accordance with SFAS No. 87 or 106.
(h) No Company Plan exists which could result in the payment to any
-----------
Company employee of any money or other property or rights or accelerate or
provide any other rights or benefits to any Company employee as a result of the
transaction contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
Section 3.10 Tax Returns and Tax Payments.
----------------------------
(a) The Company and each of its Subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its Subsidiaries is or has been a member (a "Consolidated Group") has
------------------
timely filed all Tax Returns required to be filed by it, in material compliance
with all applicable laws, and such Tax Returns are complete and correct in all
material respects, has timely paid all Taxes required to be shown thereon to be
due and has provided adequate reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on any Tax Returns.
Additionally, (i) no material claim for unpaid Taxes has become a lien against
the property of the Company or a member of any Consolidated Group or is being
asserted against the Company or a member of any Consolidated Group except for
liens for Taxes not yet due and payable; (ii) no audit of any Tax Return of the
Company or a member of any Consolidated Group is pending, being conducted or, to
the knowledge of the Company, threatened by a Tax authority; (iii) no extension
of the statute of limitations on the assessment of any Taxes has been granted by
the Company or a member of any Consolidated Group and is currently in effect;
(iv) no consent under Section 341(f) of the Code has been filed with respect to
the Company; (v) the Company is not a party to any agreement or arrangement that
would result, separately or in the aggregate, in the actual or deemed payment by
the Company of any "excess parachute payments" within the meaning of Section
280G of the Code; (vi) no acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations under
Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement; (vii) the Company is not and has not been at any
time a member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired; (viii) the Company has not been at any time a member of
an affiliated group of corporations for purposes of Section 1501 of the Code
that have filed consolidated returns except as a member of a Consolidated Group
of which the Company is the common parent; (ix) the Company is not a party to
any tax sharing or allocation agreement, nor has it given any indemnity against
Taxes imposed on any other Person, that has not expired by its terms or
otherwise have been terminated and for which no amount is claimed to be owed;
(x) the Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii)
17
of the Code; (xi) the Company is neither doing business in nor engaged in a
trade or business in any jurisdiction in which it has not filed all required
income or franchise tax returns; (xii) the Company has made all payments of
estimated Taxes required to be made under Section 6655 of the Code and any
comparable state, local or foreign Tax provision; (xiii) all Taxes required to
be withheld, collected or deposited by or with respect to the Company have been
timely withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (xiv) the Company has
not issued or assumed (A) any obligations described in Section 279(a) of the
Code, (B) any applicable high yield discount obligations, as defined in Section
163(i) of the Code, or (C) any registration-required obligations, within the
meaning of Section 163(f)(2) of the Code, that are not in registered form; (xv)
there are no proposed reassessments of any property owned by the Company or
other proposals that could materially increase the amount of any Tax to which
the Company would be subject, except any reassessment of property required as a
result of the Reorganization; and (xvi) there is no power of attorney currently
in force with respect to any matter relating to Taxes that could materially
affect the Tax liability of the Company. As used herein, "Taxes" shall mean all
-----
taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever, or
combination of two or more of the foregoing, together with any interest and any
penalties, additions to tax or additional amounts imposed by any governmental
authority, domestic or foreign. As used herein, "Tax Return" shall mean any
----------
return, report or statement required to be filed with any governmental authority
with respect to Taxes.
Section 3.11 Brokers. No broker, investment banker, financial advisor or
-------
other Person, other ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇ Incorporated and
NCM Associates, Inc., the fees and expenses of which will be paid by the Company
(pursuant to fee agreements, copies of which have been provided to the Parent),
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
Section 3.12 [INTENTIONALLY LEFT BLANK]
Section 3.13 [INTENTIONALLY LEFT BLANK]
Section 3.14 [INTENTIONALLY LEFT BLANK]
Section 3.15 Title to Assets; Related Matters. Each of the Company and
--------------------------------
its Subsidiaries has good and valid title to all assets, rights, interests and
other properties, real, personal and mixed, tangible and intangible, owned by it
(collectively, the "Assets"), free and clear of all Liens, except those Liens
------
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. The Assets include all properties and assets (real,
personal and mixed, tangible and intangible) owned by the Company and its
Subsidiaries and used in the conduct of their respective businesses. The
tangible assets included within the Assets are in the possession or control of
the Company and its Subsidiaries and no other person or entity has a right to
possession or claims possession of all or a material part of such Assets.
18
Section 3.16 Accounts Receivable. All accounts receivable of the Company
-------------------
and its Subsidiaries are collectible at the aggregate recorded amounts thereof,
subject to the reserve for doubtful accounts maintained by the Company and its
Subsidiaries in the ordinary course of business, and are not subject to any
known counterclaims or setoffs. An adequate reserve for doubtful accounts for
the Company and its Subsidiaries has been established and such reserve is
consistent with the operation of the Company in both the ordinary course of
business and past practice.
Section 3.17 Inventories. All inventories of the Company and its
-----------
Subsidiaries consist of items of a quality and quantity usable and saleable in
the ordinary course of business of the Company and its Subsidiaries, and the
levels of inventories are consistent with the levels maintained by the Company
and its Subsidiaries in the ordinary course consistent with past practice and
the Company's obligations under its agreements with the Manufacturers and all
applicable distributors. An adequate reserve has been established by the
Company for damaged, spoiled, obsolete, defective, or slow-moving goods and such
reserve is consistent with both the operation of the Company in the ordinary
course of business and past practice.
Section 3.18 1999 Pro Forma Pre-Tax Earnings. The consolidated pro forma
-------------------------------
pre-tax earnings of the Company and its Subsidiaries for the calendar year 2000,
subject to the adjustments enumerated and described in Exhibit C hereto, shall
---------
be at least Forty-Five Million Dollars ($45,000,000).
Section 3.19 Real Property; Machinery and Equipment.
--------------------------------------
(a) Owned Real Property. None of the Company or its Subsidiaries
-------------------
own, or has owned, any real property.
(b) Leased Premises. Schedule 3.19(b) hereto contains a complete
--------------- ----------------
list and brief description of all real property of which the Company or any of
its Subsidiaries is a tenant (herein collectively referred to as the "Leased
------
Premises" or the "Real Property." True, correct and complete copies of all
-------- -------------
leases of all Leased Premises (the "Leases") have been made available to the
-------
Parent. To the Company's knowledge, the Leased Premises (including, without
limitation, the roof, the walls and all plumbing, wiring, electrical, heating,
air conditioning, fire protection and other systems, as well as all paved areas,
included therein or located thereat) are in good working order, condition and
repair, except for such exceptions as would not be material to the business of
the Company and its Subsidiaries. To the Company's knowledge, with respect to
each Lease, no event or condition currently exists which would give rise to a
material repair or restoration obligation of the Company or any Subsidiary if
such Lease were to terminate. The Company has no knowledge of any event or
condition which currently exists which would create a legal or other material
impediment to the use of the Leased Premises as currently used, or would
increase the additional charges or other sums payable by the tenant under any of
the Leases other than as set forth in such Leases (including, without
limitation, any pending tax reassessment or other special assessment affecting
the Leased Premises).
(c) Claims. There has been no work performed, services rendered or
------
materials furnished in connection with repairs, improvements, construction,
alteration, demolition or similar activities with respect to the Leased Premises
by or on behalf of the
19
Company or its Subsidiaries for at least ninety (90) days before the date
hereof; there are no outstanding claims or persons entitled to any claim or
right to a claim for a mechanics' or materialman's lien against the Leased
Premises with respect to work performed for the Company or its Subsidiaries; and
there is no person or entity other than the Company and its Subsidiaries in, or,
to the Company's knowledge, entitled to, possession of the Leased Premises.
(d) Easements, Etc. The Company and its Subsidiaries have all rights
---------------
under the various Leases concerning utilities, access, ingress and egress,
necessary to conduct the business the Company and its Subsidiaries now conduct.
(e) Condemnation. To the Company's knowledge, neither the whole nor
------------
any portion of any of the Leased Premises has been condemned, expropriated,
ordered to be sold or otherwise taken by any public authority, with or without
payment or compensation therefor, and the Company has not received notice that
any such condemnation, expropriation, sale or taking is threatened or
contemplated.
(f) Zoning, Etc. None of the Leased Premises is in material
------------
violation of any applicable recorded covenant, condition or restriction or other
deed restriction, or any applicable government building, zoning, health, safety,
fire or other law, ordinance, code or regulation that would materially and
adversely affect the ability of the Company or its Subsidiaries to conduct their
respective business as presently conducted, and no notice from any governmental
body has been served upon the Company or any of its Subsidiaries or, to the
Company's knowledge, upon any of the landlords of the Leased Premises claiming
any violation of any such law, ordinance, code or regulation or requiring or
calling to the attention of the Company or any of its Subsidiaries the need for
any work, repair, construction, alterations or installation on or in connection
with said properties which has not been complied with.
(g) Maintenance of Equipment. All material machinery, equipment,
------------------------
motor vehicles, furniture and fixtures, whether owned or leased by the Company
and its Subsidiaries, and used in the conduct of its business, are in reasonably
good operating condition, maintenance and repair in accordance with applicable
industry standards taking into account the age thereof.
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc.
-----------------------------------------------------------
(a) Excluding "off the shelf" or other software available through
regular commercial distribution channels on standard terms and conditions as
modified for the Company's operations, there are no patents, trademarks, trade
names, service marks, service names and copyrights, and there are no
applications therefor or licenses thereof, inventions, trade secrets, computer
software, logos, slogans, proprietary processes and formulae or other
proprietary information, know-how and intellectual property rights, whether
patentable or unpatentable, that are owned or leased by the Company or any of
its Subsidiaries or used in the conduct of the Company's or any of its
Subsidiaries' businesses. Neither the Company nor any of its Subsidiaries is a
party to, and the Company and its Subsidiaries pay no royalty to anyone under,
any license or similar agreement. There is no existing claim, or, to the
knowledge of the Company, any basis for any claim, against the Company or any of
its Subsidiaries that any of its operations, activities or products infringe the
patents, trademarks, trade names, copyrights or
20
other intellectual property rights of others or that the Company or any of its
Subsidiaries is wrongfully or otherwise using the intellectual property rights
of others.
(b) The Company and its Subsidiaries have the right to use their
respective names in the States in which they conduct their businesses, and to
the knowledge of the Company, no person uses, or has the right to use, such name
or any derivation thereof in connection with the manufacture, sale, marketing or
distribution of products or services commonly associated with an automobile
dealership.
Section 3.21 Certain Liabilities.
-------------------
(a) All accounts payable by the Company and its Subsidiaries to third
parties as of the date hereof arose in the ordinary course of business and none
are delinquent or past-due.
(b) Section 3.21 of the Company Disclosure Schedule hereto sets forth
------------
a list and brief description of all indebtedness of the Company and its
Subsidiaries, other than accounts payable, as of June 30, 1999 the close of
business on the day preceding the date hereof, including, without limitation,
money borrowed, indebtedness of the Company or its Subsidiaries owed to
stockholders and former stockholders, the deferred purchase price of assets,
letters of credit and capitalized leases.
Section 3.22 No Undisclosed Liabilities. Neither the Company nor any of
--------------------------
its Subsidiaries has any material liabilities or obligations of any nature,
known or unknown, fixed or contingent, matured or unmatured, other than those
(a) reflected in the SEC Financial Statements, (b) incurred in the ordinary
course of business since June 30, 1999, and of the type and kind reflected in
the SEC Financial Statements, or (c) disclosed specifically on Section 3.22 of
------------
the Company Disclosure Schedule hereto or otherwise specifically disclosed in
this Agreement or the other schedules hereto.
Section 3.23 Absence of Changes. Since June 30, 1999, the business of the
------------------
Company and its Subsidiaries has been operated in the ordinary course,
consistent with past practices and hereto, there has not been incurred, nor has
there occurred: (a) Any damage, destruction or loss to the property of the
Company or its Subsidiaries or the Leased Premises (whether or not covered by
insurance), adversely affecting the business or assets of the Company or its
Subsidiaries in excess of $50,000; (b) Any strikes, work stoppages or other
labor disputes involving the employees of the Company or its Subsidiaries; (c)
Any sale, transfer, pledge or other disposition of any of the assets of the
Company or its Subsidiaries having an aggregate book value of $50,000 or more
(except sales of vehicles and parts inventory in the ordinary course of
business); (d) Any declaration or payment of any dividend or other distribution
in respect of its capital stock or any redemption, repurchase or other
acquisition of its capital stock; (e) Any amendment, termination, waiver or
cancellation of any Material Agreement (as defined in Section 3.28 hereof) or
any termination, amendment, waiver or cancellation of any material right or
claim of the Company or any of its Subsidiaries under any Material Agreement
(except in each case in the ordinary course of business and consistent with past
practice); (f) Any (1) general uniform increase in the compensation of the
employees of the Company or any of its Subsidiaries (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment), (2) increase in any such
21
compensation payable to any individual officer, director, consultant or agent
thereof, or (3) loan or commitment therefor made by the Company or any of its
Subsidiaries to any officer, director, stockholder, employee, consultant or
agent of the Company or any of its Subsidiaries; (g) Any change in the
accounting methods, procedures or practices followed by the Company and its
Subsidiaries or any change in depreciation or amortization policies or rates
theretofore adopted by the Company; (h) Any material change in policies,
operations or practices of the Company and its Subsidiaries with respect to
business operations followed by the Company and its Subsidiaries, including,
without limitation, with respect to selling methods, returns, discounts or other
terms of sale, or with respect to the policies, operations or practices of the
Company and its Subsidiaries concerning the employees of the Company and its
Subsidiaries; (i) Any capital appropriation or expenditure or commitment
therefor on behalf of the Company or any of its Subsidiaries in excess of
$50,000 individually or $100,000 in the aggregate; (j) Any write-down or write-
up of the value of any inventory or equipment of the Company or any of its
Subsidiaries or any increase in inventory levels in excess of historical levels
for comparable periods; (k) Any account receivable in excess of $50,000 or note
receivable in excess of $50,000 owing to the Company or any of its Subsidiaries
which (1) has been written off as uncollectible, in whole or in part, (2) has
had asserted against it any claim, refusal or right of setoff, or (3) the
account or note debtor has refused to, or threatened not to, pay for any reason,
or such account or note debtor has become insolvent or bankrupt; (l) Any other
change in the condition (financial or otherwise), business operations, assets,
earnings, business or prospects of the Company or any of its Subsidiaries which
has, or could reasonably be expected to have, a Material Adverse Effect on the
assets, business or operations of the Company or any of its Subsidiaries; or (m)
Any agreement, whether in writing or otherwise, for the Company or any of its
Subsidiaries to take any of the actions enumerated in this Section 3.23.
Section 3.24 Compliance with Laws, Etc. Each of the Company and its
-------------------------
Subsidiaries has conducted its operations and business in compliance in all
material respects, with, and all of the Assets (including the Leased Premises)
comply with, (i) all laws, rules, regulations and codes (including, without
limitation, any laws, rules, regulations and codes relating to anticompetitive
practices, contracts, discrimination, employee benefits, employment, health,
safety, fire, building and zoning, but excluding Environmental Laws which are
the subject of Section 3.34 hereof) which are material to the Company and its
Subsidiaries and its operations and (ii) all applicable orders, rules, writs,
judgments, injunctions, decrees and ordinances which are material to the Company
and its Subsidiaries and its operations. The Company and its Subsidiaries have
not received any notification of any asserted present or past failure by it to
comply with such laws, rules or regulations, or such orders, writs, judgments,
injunctions, decrees or ordinances. Set forth in Section 3.24 of the Company
------------
Disclosure Schedule hereto are all orders, writs, judgments, injunctions,
decrees and other awards of any court or governmental agency applicable to the
Company and/or its Subsidiaries and/or their respective businesses or
operations. The Company has made available to the Parent copies of all reports,
if any, of the Company required to be submitted under the Federal Occupational
Safety and Health Act of 1970, as amended, and under all other applicable health
and safety laws and regulations. The deficiencies, if any, noted on such
reports have been corrected by the Company and any deficiencies noted by
inspection through the Closing Date will have been corrected by the Company by
the Closing Date.
Section 3.25 Permits, Etc. Each of the Company and its Subsidiaries has
-------------
all material governmental licenses, permits, approvals, certificates of
inspection and other authorizations,
22
filings and registrations (collectively "Permits") that are necessary for the
-------
Company and its Subsidiaries to own and operate their respective businesses as
presently conducted in all material respects. All such Permits have been duly
and lawfully secured or made by the Company and its Subsidiaries and are in full
force and effect. There is no proceeding pending, or, to the Company's
knowledge, threatened or probable of assertion, to revoke or limit any Permit.
Section 3.26 Compensation. Section 3.26 of the Company Disclosure
------------ ------------
Schedule contains a list of employees (1) whose base salary for 1999 is in
excess of $100,000, (2) whose base salary for 1999 is less than $100,000, but
who have earned more than $100,000 in 1999 to date, and (3) whose earnings to
date in 1999, when annualized for the full year, would equal or exceed $100,000.
Section 3.27 Powers of Attorney. There are no persons, firms,
------------------
associations, corporations or business organizations or entities holding general
or special powers of attorney from the Company or any of its Subsidiaries.
Section 3.28 Material Agreements.
-------------------
(a) List of Material Agreements. Set forth in Section 3.28(a) of the
--------------------------- ---------------
Company Disclosure Schedule hereto is a list of all leases and all other
contracts, agreements, documents, instruments, guarantees, plans, understandings
or arrangements, written or oral, which are material to the Company and its
Subsidiaries or their respective businesses or assets (collectively, the
"Material Agreements"). True copies of all written Material Agreements and
-------------------
written summaries of all oral Material Agreements described or required to be
described in Section 3.28(a) of the Company Disclosure Schedule have been made
---------------
available to Parent.
(b) Performance, Defaults, Enforceability. Each of the Company and
-------------------------------------
its Subsidiaries has in all material respects performed all of its obligations
required to be performed by it to the date hereof, and is not in default or
alleged to be in default in any material respect, under any Material Agreement,
and there exists no event, condition or occurrence which, after notice or lapse
of time or both, would constitute such a default. To the knowledge of the
Company, no other party to any Material Agreement is in default in any material
respect of any of its obligations thereunder. Each of the Material Agreements is
valid and in full force and effect and enforceable against the parties thereto
in accordance with their respective terms, and the consummation of the
transactions contemplated by this Agreement will not (i) require the consent of
any party thereto or (ii) constitute an event permitting termination thereof.
(c) Schedule of Acceleration. Section 3.28(c) of the Company
------------------------ ---------------
Disclosure Schedule sets forth all Material Agreements which contain terms
requiring the acceleration of payments upon a change of control of the Company.
All of such amounts other than principal and interest on debt will be included
in the one-time charges referred to in Section 5A.7(d).
Section 3.29 [INTENTIONALLY LEFT BLANK]
Section 3.30 Insurance.
---------
(a) Section 3.30(a) of the Company Disclosure Schedule hereto
---------------
contains a list of all policies of liability, theft, fidelity, life, fire,
product liability, workmen's compensation,
23
health and any other insurance and bonds maintained by, or on behalf of, the
Company and its Subsidiaries on their respective properties, operations,
inventories, assets, business or personnel (specifying the insurer, amount of
coverage, type of insurance, policy number and any pending claims in excess of
$5,000 thereunder). Each such insurance policy identified therein is and shall
remain in full force and effect on and as of the Closing Date and the Company
and its Subsidiaries are not in default in any material respect to any provision
contained in any such insurance policy and has not failed to give any notice or
present any material claim under any such insurance policy in a due and timely
fashion. To the knowledge of the Company, the insurance maintained by, or on
behalf of, the Company and its Subsidiaries is adequate in accordance with the
standards of business of comparable size in the location and industry in which
the Company operates and no notice of cancellation or termination has been
received with respect to any such policy. The Company and its Subsidiaries have
not, since July 1997, been denied or had revoked or rescinded any policy of
insurance.
(b) Set forth in Section 3.30(b) of the Company Disclosure Schedule
---------------
hereto is a summary of information pertaining to material property damage and
personal injury claims in excess of $5,000 against the Company since July 1997,
all of which are fully satisfied or are being defended by the insurance carrier
and, to the knowledge of the Company, involve no exposure to the Company.
Section 3.31 Warranties. Set forth in Section 3.31 of the Company
---------- ------------
Disclosure Schedule hereto are descriptions or copies of the forms of all
express warranties and disclaimers of warranty made by the Company and its
Subsidiaries (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties)
since July 1997 to customers or users of the vehicles, parts, products or
services of the Company and its Subsidiaries. There have been no breach of
warranty or breach of representation claims against the Company and its
Subsidiaries since July 1997 which have resulted in any cost, expenditure or
exposure to the Company and its Subsidiaries of more than $50,000 individually
or $200,000 in the aggregate.
Section 3.32 Directors and Officers. Set forth in Section 3.32 of the
---------------------- ------------
Company Disclosure Schedule hereto is a true and correct list of the names and
titles of each director and officer of the Company.
Section 3.33 Suppliers and Customers. The Company and its Subsidiaries
-----------------------
are not required to provide bonding or any other security arrangements in
connection with any transactions with any of its respective customers and
suppliers. To the knowledge of the Company, no such supplier, customer or
creditor intends or has threatened, or reasonably could be expected, to
terminate or modify any of its relationships with the Company or any of its
Subsidiaries.
Section 3.34 Environmental Matters.
---------------------
(a) For purposes of this Section 3.34, the following terms shall have
the following meaning: (i) "Environmental Law" means all applicable present
-----------------
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all applicable judgments, decrees, orders, agreements, or
permits, issued, promulgated, approved or entered
24
thereunder by any government authority relating to pollution, Hazardous
Materials, worker safety or protection of human health or the environment; (ii)
"Hazardous Materials" means any waste, pollutant, chemical, hazardous material,
-------------------
hazardous substance, toxic substance, hazardous waste, special waste, solid
waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or
petroleum-derived substance or waste (regardless of specific gravity), or any
constituent or decomposition product of any such pollutant, material, substance
or waste, including, but not limited to, any hazardous substance or constituent
contained within any waste and any other pollutant, material, substance or waste
regulated under or as defined by any Environmental Law.
(b) The Company and its Subsidiaries have obtained all permits,
licenses and other authorizations or approvals required under Environmental Laws
for the conduct and operation of the Assets and the business of the Company
("Environmental Permits"). All such Environmental Permits are in good standing,
---------------------
the Company and its Subsidiaries are and, during the period the Company and its
Subsidiaries have held such Environmental Permits, have been, in compliance in
all material respects with the terms and conditions of all such Environmental
Permits, and no appeal or any other action is pending or, to the Company's
knowledge, threatened to revoke any such Environmental Permit.
(c) The Company and its Subsidiaries and their respective businesses,
operations and assets are, and, during the period the Company and its
Subsidiaries have owned, leased, or conducted such business, operations and
assets, have been in compliance in all material respects with all Environmental
Laws.
(d) Neither the Company nor any of its Subsidiaries has received any
written order, notice of liability, complaint, request for information, claim,
or demand from any government authority or private claimant, whether based in
contract, tort, implied or express warranty, strict liability, or any other
common law theory, or any criminal or civil statute, arising from or with
respect to (i) the presence, release or threatened release of any Hazardous
Material or any other environmental condition on, in or under the Real Property
or any other property formerly used or leased by the Company, (ii) any other
circumstances forming the basis of any actual or alleged violation by the
Company or its Subsidiaries of any Environmental Law or any liability of the
Company or its Subsidiaries under any Environmental Law, (iii) any remedial or
removal action required to be taken by the Company or its Subsidiaries under any
Environmental Law, or (iv) any harm, injury or damage to real or personal
property, natural resources, the environment or any person alleged to have
resulted from the foregoing. Neither the Company nor any of its Subsidiaries has
entered into any agreements concerning any removal or remediation of Hazardous
Materials.
(e) No lawsuits, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other governmental actions are
pending or to the Company's knowledge, threatened, under any Environmental Law
with respect to the Company or its Subsidiaries or, to the Company's knowledge,
the Real Property.
(f) The Company has not released, discharged, spilled or disposed of,
and, to the knowledge of the Company, the Real Property does not contain, any
Hazardous Materials and, to the knowledge of the Company, no Hazardous Materials
have migrated onto the Real
25
Property, and, to the knowledge of the Company, no environmental condition
exists (including, without limitation, the presence, release, threatened release
or disposal of Hazardous Materials) related to the Real Property, to any
property previously owned, operated or leased by the Company or any of its
Subsidiaries, or to the Company's or any of its Subsidiaries' past or present
operations, which would constitute a violation of any Environmental Law or
otherwise give rise to costs, liabilities or obligations under any Environmental
Law by the Company and any of its Subsidiaries.
(g) To the Company's knowledge, neither the Company or any of its
Subsidiaries, nor any of their respective predecessors in interest for whom the
Company has assumed environmental liability by contract or by operation of law,
has transported or disposed of, or arranged for the transportation or disposal
of, any Hazardous Materials to any location (i) which is listed on the National
Priorities List, the CERCLIS list under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any similar
federal, state or local list, (ii) which is the subject of any federal, state or
local enforcement action or other investigation, or (iii) about which the
Company or any of its Subsidiaries has received a potentially responsible party
notice under any Environmental Law.
(h) To the Company's knowledge, no environmental lien has attached or
is threatened to be attached to the Real Property.
(i) The Leased Premises do not contain nor, to the knowledge of the
Company, does any other property previously owned, operated or leased by the
Company or any of its Subsidiaries contain, any: (i) septic tanks into which
process wastewater or any Hazardous Materials have been disposed; (ii) asbestos;
(iii) polychlorinated biphenyls (PCBs); (iv) underground injection or monitoring
▇▇▇▇▇; or (v) underground storage tanks.
(j) Except as made available for review by Parent prior to the date
hereof, there have been no environmental assessment studies or reports made
relating to the Leased Premises or any other property or facility previously
operated or leased by the Company or its Subsidiaries and that are in the
Company's possession or control.
(k) The Company and its Subsidiaries have not agreed in writing nor,
to the Company's knowledge, have they agreed orally to assume, defend,
undertake, guarantee, or provide indemnification for, any liability, including,
without limitation, any obligation for corrective or remedial action, of any
other person or entity under any Environmental Law for environmental matters or
conditions.
Section 3.35 Year 2000 Matters. The Company's quarterly report on Form
-----------------
10-Q for the period ended June 30, 1999 truly and completely describes the
Company's process and preparation for addressing the impact of its operations
that could be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer applications used by the Company and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999).
Section 3.36 Business Generally. The Company has no knowledge of the
------------------
existence of any conditions, including, without limitation, any actual or
potential competitive factors in the
26
markets in which the Company and its Subsidiaries participate, which have not
been disclosed in writing to the Parent and which could reasonably be expected
to have a Material Adverse Effect on the Company, other than general business
and economic conditions generally affecting the industry and markets in which
the Company and its Subsidiaries participate.
Section 3.37 Manufacturer Communications. No Manufacturer has (a)
---------------------------
notified the Company or any of its Subsidiaries of any deficiency in dealership
operations, including, but not limited to, the following areas: (i) brand
imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer
satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives
except, in the case of (a)(iii), (iv) and (vi) preceding, for such matters the
failure of which to cure or comply with could not reasonably be expected to
materially adversely affect the Company's relationship with the Manufacturer or
affect the Company's ability to complete the Merger; (b) otherwise advised the
Company or any of its Subsidiaries of a present or future need for facility
improvements or upgrades in connection with the Company's or any of the
Subsidiaries' businesses; or (c) notified the Company or any of its Subsidiaries
of the awarding or possible awarding of its franchise to an entity or entities
other than the Company and its Subsidiaries in the Metropolitan Statistical Area
in which the Company and its Subsidiaries operate.
Section 3.38 Pending Acquisitions. Each of the agreements, as amended to
--------------------
date (collectively, the "Acquisition Agreements"), governing the Pending
Acquisitions (such Pending Acquisitions set forth in Section 3.38 of the Company
------------
Disclosure Schedule) has been duly authorized, executed and delivered by the
Company and, to the Company's knowledge, each of the other parties thereto, and
constitutes a legally valid and binding obligation of the Company and, to the
Company's knowledge is enforceable against each such party thereto in accordance
with its terms; and except as described in the Form S-1, each of the
representations and warranties of the Company and its subsidiaries and each of
the other parties set forth in the Acquisition Agreements as modified by any
disclosure schedule to such Acquisition Agreements was true and correct at the
time such representations and warranties were made and will be true and correct
at and as of the Closing Date. The Company has delivered to Parent true and
complete copies of each Acquisition Agreement and the Company has no reason to
believe that it will not be able to consummate the transactions contemplated by
the Acquisition Agreements which have not been previously consummated.
Section 3.39 Related Party Transactions. There are no business
--------------------------
relationships or related party transactions of the nature described in Item 404
of Regulation S-K involving the Company or any of businesses being acquired
pursuant to the Acquisitions and any person described in such Item that are
required to be disclosed in the Registration Statement and which have not been
so disclosed.
27
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to the Parent and Newco,
severally as to itself only, as follows:
Section 3A.1 Power and Authority; Validity of Agreement. Such
------------------------------------------
Stockholder has the legal capacity, power and authority to enter into and
perform all of its obligations under this Agreement. The execution, delivery
and performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party, including, without limitation,
any voting agreement, shareholders' agreement or voting trust. This Agreement
has been duly and validly executed and delivered by such Stockholder and
constitutes a valid and binding obligation of such Stockholder enforceable
against such Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 3A.2 No Conflicts; Consents and Approvals. The execution and
------------------------------------
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to any third party right of termination, cancellation, material modification or
acceleration of any obligation or to loss of a material benefit under, any
provision of the Certificate of Incorporation, By-laws, partnership agreement,
limited liability company agreement or other constituent documents of such
Stockholder (if such Stockholder is an entity) or any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such Stockholder or any of its
properties or assets, other than such conflicts, violations or defaults or
terminations, cancellations or accelerations which individually or in the
aggregate do not materially impair the ability of such Stockholder to perform
its obligations hereunder. No consent, approval, order or authorization of, or
registration, declaration, or filing with, any governmental entity is required
by or with respect to the execution and delivery of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby.
Section 3A.3 Ownership of Shares. Such Stockholder is the record and/or
-------------------
beneficial owner of that number of Company Securities set forth opposite such
Stockholder's name on Exhibit A hereto (such Company Securities being sometimes
---------
hereafter called the "Existing Shares" and, together with any shares of Company
----------------
Common Stock or Company Preferred Stock acquired of record or beneficially by
such Stockholder in any capacity after the date hereof and prior to the
termination hereof, whether upon the exercise of warrants or options, conversion
of convertible securities, purchase, exchange or otherwise, collectively
referred to as the "Shares"). Also listed on Exhibit A are such other securities
------- ---------
of the Company, including any options or warrants, owned by such Stockholder.
28
(i) On the date hereof, the Existing Shares constitute all of the
outstanding shares of Company Common Stock, Company Preferred Stock and Company
Warrants, as the case may be, owned of record and/or beneficially by the
Stockholders.
(ii) Such Stockholder has sole power of disposition, sole voting
power and sole power to demand dissenter's or appraisal rights, in each case
with respect to the Existing Shares owned by such Stockholder, with no
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(iii) Such Stockholder will have sole power of disposition, sole
voting power and sole power to demand dissenter's or appraisal rights, in each
case with respect to the shares of Company Common Stock or Company Preferred
Stock, other than Existing Shares, if any, which become beneficially owned by
such Stockholder with no restrictions on such rights, subject to applicable
federal securities laws and the terms of this Agreement.
Section 3A.4 No Encumbrances. The Existing Shares and the certificates
---------------
representing the Existing Shares are now, and the Shares and the certificates
representing such shares at all times during the term hereof will be, held by
such Stockholder, free and clear of all claims, liens, charges, security
interests, proxies, voting trusts or agreements, understandings or arrangements
and any other encumbrances of any kind or nature whatsoever, except as otherwise
provided in this Agreement.
Section 3A.5 Brokers and Intermediaries. No broker, investment banker,
--------------------------
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
such Stockholder.
Section 3A.6 Special Representations Regarding the Reorganization Common
-----------------------------------------------------------
Stock. Each of the Stockholders severally and not jointly represents and
-----
warrants to the Parent and Newco as follows with respect to the shares of
Reorganization Common Stock to be issued to the Stockholders pursuant to this
Agreement (the "Reorganization Shares"):
(i) Such Stockholder understands that, except as set forth in this
Agreement, the Reorganization Shares will not be registered under the Securities
Act or applicable state securities laws on the basis that the sale provided for
in this Agreement and the issuance of the Reorganization Shares hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Parent's reliance on such exemption is predicated on the
representations and warranties of such Stockholder.
(ii) The Reorganization Shares are being acquired for the account of
such Stockholder for the purposes of investment and not with a view to the
distribution thereof, as those terms are used in the Securities Act and the
rules and regulations promulgated thereunder.
(iii) Such Stockholder has delivered to the Parent an Investor
Qualification Questionnaire regarding such Stockholder. As indicated in such
Investor Qualification Questionnaire, such Stockholder is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act; and such Stockholder has
29
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of acquiring the Reorganization
Shares.
(iv) Such Stockholder has had made available to it copies of: (i) the
Prospectus of the Parent dated April 29, 1999; (ii) the Form 10-K filing of the
Parent for the year ended December 31, 1998; (iii) the Form 10-Q filing of the
Parent for the quarter ended March 31, 1999; (iv) the Form 10-Q filing of the
Parent for the quarter ended June 30, 1999; (v) all Form 8-K filings of the
Parent filed since the most recent 10-Q filing of the Parent; and has been
furnished such other information, and has had an opportunity to ask such
questions and have them answered by the Parent, as such Stockholder has deemed
necessary in order to make an informed investment decision with respect to the
acquisition of the Reorganization Shares.
(v) Such Stockholder understands, and has the financial capability of
assuming, the economic risk of an investment in the Reorganization Shares for an
indefinite period of time.
(vi) Such Stockholder has been advised that such Stockholder will not
be able to sell, pledge or otherwise dispose of the Reorganization Shares, or
any interest therein, without first complying with the relevant provisions of
the Securities Act and any applicable state securities laws, and that the
provisions of Rule 144, permitting routine sales of securities of certain
issuers subject to the terms and conditions thereof, is not currently available
to such Stockholder with respect to the Reorganization Shares.
(vii) Such Stockholder has, to the extent such Stockholder has deemed
necessary, consulted with such Stockholder's own investment advisors, legal
counsel and tax advisors regarding an investment in the Reorganization Shares.
(viii) Such Stockholder acknowledges that, except as specifically set
forth in this Agreement, the Parent and Newco are not under any obligation (i)
to register the Reorganization Shares, or (ii) to furnish any information or to
take any other action to assist such Stockholder in complying with the terms and
conditions of any exemption which might be available under the Securities Act or
any state securities laws with respect to sales of the Reorganization Shares by
such Stockholder in the future.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO
The Parent and Newco represent and warrant to the Company and the
Stockholders as follows:
Section 4.1 Organization, Standing and Corporate Power. Each of the
------------------------------------------
Parent and Newco is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Parent and Newco is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than
30
in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to it.
Section 4.2 Subsidiaries. Newco has no direct or indirect Subsidiaries.
------------
Section 4.3 Capital Structure.
-----------------
(a) The authorized capital stock of the Parent consists of:
(i) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of the Parent, of which 300,000 shares are designated Class A Convertible
Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the
"Parent Series I Preferred Stock"), 100,000 shares of Series II (the "Parent
------
Series II Preferred Stock") and 100,000 shares of Series III (the "Parent Series
------------------------- -------------
III Preferred Stock"); as of September 21, 1999, there were 9,360 shares of
-------------------
Parent Series I Preferred Stock issued and outstanding with no such shares of
Parent Series I Preferred Stock held in the treasury of the Parent, 7,675 shares
of Parent Series II Preferred Stock issued and outstanding with no such shares
of Parent Series II Preferred Stock held in the treasury of the Parent, and
11,683 shares of Parent Series III Preferred Stock issued and outstanding with
no such shares of Parent Series III Preferred Stock held in the treasury of the
Parent;
(ii) 100,000,000 shares of the Parent Common Stock, par value
$.01 per share, as of September 21, 1999, there were 23,644,696 shares of Parent
Common Stock issued and outstanding with no such shares of Parent Common Stock
held in the treasury of the Parent; and
(iii) 30,000,000 shares of Class B Common Stock, par value $.01
per share, of the Parent (the "Parent Class B Common Stock"); as of September
---------------------------
21, 1999, there were 12,250,000 shares of Parent Class B Common Stock issued and
outstanding with no such shares of Parent Class B Common Stock held in the
treasury of the Parent.
Except as set forth above, no shares of capital stock or other equity
securities of the Parent are issued or outstanding. All outstanding shares of
capital stock of the Parent are duly authorized, validly issued, fully paid and
nonassessable.
(b) The authorized capital stock of Newco consists of 1000 shares of
common stock, par value $.01 per share, all of which have been validly issued,
are fully paid and nonassessable and are owned by the Parent, free and clear of
any Lien.
Section 4.4 Authority; Noncontravention.
---------------------------
(a) Each of the Parent and Newco has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Parent and Newco and the consummation by the Parent and Newco of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Parent and Newco.
(b) This Agreement has been duly executed and delivered by the Parent
and Newco and constitutes a valid and binding obligation of each of the Parent
and Newco,
31
enforceable against each of the Parent and Newco in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or similar laws, now or hereafter in effect, affecting creditors,
rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Except as set forth in Schedule 4.4(c) hereto, the execution and
---------------
delivery of this Agreement do not, and the consummation by the Parent and Newco
of the transactions contemplated by this Agreement and compliance by the Parent
and Newco with the provisions of this Agreement will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of the Parent or Newco under, (i) the Certificate of Incorporation or
By-laws of the Parent or Newco, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Parent or Newco or its properties or
assets, or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Parent or
Newco or their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not have a
Material Adverse Effect with respect to the Parent or Newco or could not
prevent, hinder or materially delay the ability of the Parent or Newco to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with, or notice to, any governmental entity is required by
or with respect to the Parent or Newco in connection with the execution and
delivery of this Agreement by the Parent and Newco or the consummation by the
Parent and Newco of any of the transactions contemplated by this Agreement,
except for (i) the filing of a pre-merger notification and report form under the
HSR Act, (ii) the filing with the SEC of such reports under the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices, the failure of which to make or
obtain, individually or in the aggregate, would not (x) prevent or delay the
consummation of the Reorganization or (y) have a Material Adverse Effect with
respect to the Parent or Newco.
Section 4.5 SEC Documents. The Parent has filed with the SEC all reports,
-------------
schedules, forms, statements and other documents required pursuant to the
Securities Act and the Exchange Act since November 17, 1997 (collectively, and
in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Parent SEC Documents"). As of their
---------------------
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents (including any and
all financial statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material
32
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Parent included in all
Parent SEC Documents filed since November 17, 1997 (the "Parent SEC Financial
--------------------
Statements") comply as to form in all material respects with applicable
----------
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC), applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in accordance with generally accepted accounting principles
the consolidated financial position of the Parent (and its Subsidiaries) as of
the dates thereof and the consolidated results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments). The audited consolidated
balance sheet of the Parent as of December 31, 1998 is referred to herein as the
"Parent Balance Sheet."
Section 4.6 [INTENTIONALLY LEFT BLANK.]
Section 4.7 Litigation. There is (i) no suit, action or proceeding
----------
pending, and (ii) to the knowledge of the Parent, no suit, action or proceeding
threatened against or investigation pending with respect to the Parent or any of
its Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect with respect to the Parent or prevent, materially hinder or
materially delay the ability of the Parent to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Parent which, individually or in the aggregate, would have any such Material
Adverse Effect.
Section 4.8 Brokers. No broker, investment banker, financial advisor or
-------
other Person, other than ▇▇▇▇▇▇▇▇, Inc., the fees and expenses of which will be
paid by the Parent or its Affiliates (as defined in Section 9.5), is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent or its Affiliates.
Section 4.9 Interim Operations of Newco. Newco was formed on August 20,
---------------------------
1999 solely for the purpose of engaging in the transactions contemplated hereby,
has engaged in no other business activities and has conducted its operations
only as contemplated hereby.
Section 4.10 Absence of Certain Changes or Events. Since the date of the
------------------------------------
Parent Balance Sheet, Parent and its Subsidiaries have conducted their
businesses only in the ordinary course in a manner consistent with past
practice, and since such date there has not been: (a) any Material Adverse
Effect on the Parent or any of its Subsidiaries or any fact or circumstance that
would be reasonably likely to result in an Material Adverse Effect on the Parent
or any of its Subsidiaries or (b) any material change by Parent or any of its
Subsidiaries in its accounting methods, principles or practices; (c) any
revaluation by Parent or any of its Subsidiaries of any material asset or any
writedown of the value of inventory, or any write-off of notes or accounts
receivable other than in the ordinary course of business consistent with past
practice; or (d) any other action or event that would have been a violation of
Section 6.1 of this Agreement had such
33
action or event occurred after the date of this Agreement and that could
reasonably be expected to result in a Material Adverse Effect on the Parent or
any of its Subsidiaries.
Section 4.11 Compliance with Laws, Etc. To the knowledge of the Parent,
--------------------------
each of the Parent and its Subsidiaries has conducted its operations and
business in compliance with, (i) all applicable laws, rules, regulations and
codes (including, without limitation, any laws, rules, regulations and codes
relating to anticompetitive practices, contracts, discrimination, employee
benefits, employment, health, safety, fire, building and zoning), and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances,
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect on the Parent or its Subsidiaries. The Parent and its
Subsidiaries have not received any notification of any asserted present or past
failure by it to comply with such laws, rules or regulations, or such orders,
writs, judgments, injunctions, decrees or ordinances.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of Business of the Company.
----------------------------------
(a) During the period from the date of this Agreement until the
Closing (except as otherwise expressly contemplated by the terms of this
Agreement), the Company shall act and carry on its business in the usual,
regular and ordinary course of business consistent with past practice and use
its reasonable best efforts to preserve substantially intact its current
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having significant business
dealings with it. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing, the Company shall not,
nor shall it permit any of its Subsidiaries to, and except as set forth in
Schedule 5.1 hereto, without the prior written consent of the Parent:
------------
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split, combine
or reclassify any capital stock of the Company or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or (C) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(ii) authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or any
other securities or equity equivalents (including without limitation stock
appreciation rights) other than the issuance of the Company Common Stock upon
the exercise of the Company Options awarded but unexercised on the date of this
Agreement and in accordance with their present terms (such issuances being
referred to herein as "Permitted Changes");
-----------------
34
(iii) amend its Certificate of Incorporation, or By-laws;
(iv) except for the Pending Acquisitions (as defined in Section
9.5) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien (as defined in Section 9.5) or otherwise dispose of any of
its properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice;
(vi) (A) except pursuant to credit arrangements in effect as of
the date hereof and disclosed in Schedule 3.21 hereto, incur any indebtedness
-------------
for borrowed money or guarantee any such indebtedness of another Person, issue
or sell any debt securities or warrants or other rights to acquire any debt
securities, guarantee any debt securities of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, or (B) make any loans, advances or capital contributions to,
or investments in, any other Person;
(vii) acquire or agree to acquire any assets, other than in the
ordinary course of business consistent with past practice, that are material,
individually or in the aggregate, or make or agree to make any capital
expenditures except capital expenditures of less than $50,000, individually, or
less than $100,000 in the aggregate;
(viii) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of (x) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, or (y) claims settled or compromised to the extent
permitted by Section 5.1(a)(xii), or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing material license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(ix) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or reorganization;
(x) enter into any collective bargaining agreement;
(xi) change any material accounting principle used by it, except
as required by the SEC or applicable law;
(xii) settle or compromise any litigation or settle a dispute
under any contract or other agreement (whether or not commenced prior to the
date of this Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $100,000, provided that
the aggregate amount paid in connection with the settlement or compromise of all
such matters shall not exceed $250,000;
35
(xiii) engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
Affiliates (as defined in Section 9.5) of the Company;
(xiv) except as contemplated by this Agreement, abandon any
Pending Acquisitions; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) During the period from the date of this Agreement to the Closing,
the Company shall not adopt or amend (except as may be required by law) any
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement (including any Company Plan) for the benefit or welfare of
any employee, director or former director or employee or, other than increases
for individuals (other than officers and directors) in the ordinary course of
business consistent with past practice, increase the compensation or fringe
benefits of any director, employee or former director or employee or pay any
benefit not required by any existing plan, arrangement or agreement.
(c) During the period from the date of this Agreement to the Closing,
the Company shall not grant any new or modified severance or termination
arrangement or increase or accelerate any benefits payable under its severance
or termination pay policies in effect on the date hereof.
(d) During the period from the date of this Agreement to the Closing,
except in the ordinary course of business and consistent with past practice, the
Company shall not make any Tax election, change or request to change its method
of accounting, or settle or compromise any federal, state, local or foreign Tax
liability.
Section 5.2 Cooperation Regarding Notice of Appraisal Rights. The Company
------------------------------------------------
will cooperate with the Parent and Newco in connection with the Parent's and
Newco's performance of their obligations under Section 2.7(d). Without limiting
the generality of the foregoing, at the Closing, the Company will deliver to the
Parent a list of the Company's stockholders of record as of the Closing setting
forth the name and mailing address of, and the number of shares of Company
Common Stock held by, each stockholder.
Section 5.3 Access to Information; Confidentiality.
--------------------------------------
(a) The Company shall, and shall cause its officers, employees,
counsel, financial advisors and other representatives to, afford to the Parent
and its representatives and to potential financing sources reasonable access
during normal business hours to its properties, books, contracts, commitments,
personnel and records, including security position listings and other
information concerning beneficial owners and/or record owners of the Company's
securities which may be relevant to the Reorganization, and, during such period,
the Company shall, and shall cause its officers, employees and representatives
to, furnish promptly to the Parent (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
36
other information concerning its business, properties, financial condition,
operations and personnel as the Parent may from time to time reasonably request.
Each of the Parent and Newco will hold, and will cause its respective directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to hold, any nonpublic information in confidence
to the extent required by, and in accordance with, the provisions of the Letter
Agreement dated August 13, 1999 from the Company to, and accepted by, Parent
regarding confidential treatment of the negotiation of a potential business
combination (the "Confidentiality Agreement").
--------------------------
(b) No investigation pursuant to this Section 5.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 5.4 No Solicitation. The Company shall not (whether directly or
---------------
indirectly through advisors, agents or other intermediaries), nor shall the
Company authorize or permit any of its officers, directors, agents,
representatives, advisors to (a) solicit, initiate or take any action knowingly
to facilitate the submission of inquiries, proposals or offers from any Person
(other than Newco or the Parent) relating to (i) any acquisition or purchase of
any of the consolidated assets of the Company and its Subsidiaries (other than
sales or disposition of assets in the ordinary course of business) any class of
equity securities of the Company, (ii) any tender offer (including a self tender
offer) or exchange offer of any class of equity securities of the Company, (iii)
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company other than the transactions contemplated by this
Agreement, or (iv) any other transaction the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or materially
delay the Reorganization or which would or could reasonably be expected to
materially dilute the benefits to the Parent of the transactions contemplated
hereby (collectively, "Transaction Proposals"), (b) agree to or endorse any
----------------------
Transaction Proposal, or (c) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other Person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person (other than Newco or the Parent) to do or seek any of the foregoing.
(b) Notwithstanding anything in Section 5.2(b) to the contrary, to
the extent the Company's Board of Directors receives an unsolicited bona-fide
written proposal with respect to a Transaction Proposal to acquire all of the
outstanding shares of capital stock of the Company which the Board of Directors
determines, after consultation with its independent financial advisors, may be
reasonably likely to result in a transaction (an "Alternative Transaction") that
-------------------------
is more favorable to the shareholders of the Company than the transactions
contemplated by the Reorganization and this Agreement (taking into account the
nature of the proposed transaction, the nature and amount of the consideration,
the Bridge Financing contemplated by Section 5.10 below, the likelihood of
completion and any other factors deemed appropriate by the Board of Directors),
the Board of Directors, upon the advice from outside legal counsel to the
Company that the Board of Directors of the Company is required in the exercise
of its fiduciary duty under the DGCL to do so, may engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any
37
person relating to an Alternative Transaction or otherwise facilitate such
person presenting an Alternate Transaction to the Company's shareholders;
provided, however, that upon engaging in such negotiations or discussions,
providing such information or otherwise facilitating any effort to present to
the Company's shareholders an Alternative Transaction, the Company shall give
notice to Parent of the Company's engagement in such activities ("Alternative
-----------
Transaction Notice"). Prior to furnishing nonpublic information to, or entering
------------------
into discussions or negotiations with, any other persons or entities, the
Company shall obtain from such person or entity an executed confidentiality
agreement with terms no less favorable, taken as a whole, to the Company than
those contained in the Confidentiality Agreement, but which confidentiality
agreement shall not include any provision calling for an exclusive right to
negotiate with the Company, and the Company shall advise Parent of the nature of
such nonpublic information delivered to such person reasonably promptly
following its delivery to the requesting party. If the Board of Directors
determines that an Alternative Transaction is more favorable to the shareholders
of the Company than the Reorganization and this Agreement as provided above, the
Board of Directors of the Company may then (and only then) recommend that
Alternative Transaction. Nothing herein shall in any way limit the obligations
of the Stockholders contained in this Agreement.
Section 5.5 Public Announcements. Neither the Company nor any of its
--------------------
Subsidiaries will issue any press release or public statement with respect to
the transactions contemplated by this Agreement, including the Reorganization,
without the Parent's prior consent (such consent not to be unreasonably
withheld), except as may be required by applicable law or court process. In
addition to the foregoing, the Company and the Parent will consult with each
other before issuing, and provide the to the other the opportunity to review and
comment upon, any such press release or other public statements with respect to
such transactions.
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return.
------------------------------------------------------------
The Company shall promptly notify the Manufacturers (as defined in Section 9.5)
of the execution and delivery of this Agreement, and thereafter shall use
reasonable best efforts in cooperating with the Parent in the preparation of and
delivery to the Manufacturers, as soon as practicable after the date hereof, of
applications and any other information necessary to obtain the Manufacturers'
consents to or the approval of the transactions contemplated by this Agreement.
At the request of the Parent, the Company shall use its reasonable best efforts
to assist the Parent in effecting any one-time parts return offered by the
Manufacturers.
Section 5.7 Closing Conditions. The Company shall use all reasonable best
------------------
efforts to satisfy promptly the conditions to Closing set forth in Article VII
hereof required herein to be satisfied by the Company prior to Closing.
Section 5.8 HSR Act. The Company shall promptly prepare and file
-------
Notification and Report Forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
----
(the "Antitrust Division"), and respond as promptly as practicable to all
-------------------
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
38
Section 5.9 Concerning Company Plans.
------------------------
(a) If requested by the Parent not less than five (5) days prior to
the Closing, the Company shall terminate its 401(k) Plan not later than the day
prior to the Closing and, in connection therewith, the Company shall amend such
401(k) Plan to fully vest all accounts of all participants in such 401(k) Plan
and to provide for the distribution of all such accounts. At the Closing, the
Company shall deliver to the Parent a duly executed plan amendment and
resolutions of the Company's Board of Directors reflecting the termination of
such 401(k) Plan and such related amendments to such 401(k) Plan, provided that
the Parent shall have timely requested the termination of the Company's 401(k)
Plan. If requested by the Parent not less than five (5) days prior to the
Closing, the Company shall also terminate all other Company Plans as of the
Closing Date and shall provide the Parent at Closing with documentation
satisfactory to the Parent evidencing such terminations.
Section 5.10 Bridge Financing.
----------------
(a) In consideration of the issuance by Sonic Financial Corporation
and/or O. ▇▇▇▇▇▇ ▇▇▇▇▇ (collectively, the "Guarantor") of one or more guaranties
----------
(the "Guaranty") of the Company's indebtedness to Ford Motor Credit or other
---------
financing institutions of approximately $107,000,000 to enable the Company to
complete the Pending Acquisitions which were pending on August 25, 1999, the
Company in the Merger Agreement granted, and does hereby in this Agreement
confirm its grant, to the Parent an option (the "Option") to purchase up to all
-------
of the dealership properties included in such Pending Acquisitions, including,
without limitation, the ▇▇▇▇▇ Group acquisition which closed effective September
30, 1999 (the "Dealership Properties"), on the following terms, in the event
----------------------
that this Agreement is terminated prior to the Closing:
(i) The Option shall be exercisable for a period of sixty (60)
days (the "Option Period") commencing on the ninety-first (91st) day after the
---------------
date of such termination of this Agreement, unless the Company shall, during the
ninety (90) day period after such termination, have caused a complete release
and discharge of the Guarantor from the Guaranty. The Company hereby agrees to
use its best reasonable efforts to obtain such release and discharge.
(ii) (The Option shall be exercisable from time to time during
the Option Period with respect to any or all of the Dealership Properties;
provided, however, with respect to any distinct dealership group (for example,
-------- -------
the ▇▇▇▇▇ Group), the Option, if exercised, must be exercised as to all
Dealership Properties within that group.
(iii) The Option may be assigned by the Parent to any Person.
(iv) The exercise price for the Option will be the price
(including directly related transactions expenses) at which the Dealership
Property was purchased by the Company (the "Exercise Price").
---------------
(v) With respect to any exercise of the Option during the Option
Period, the period during which the Parent will have to close the purchase (the
"Closing Period") will begin on the date of exercise and will end one hundred
----------------
twenty (120) days after the end of the
39
Option Period. The purchase will be made pursuant to purchase documentation
substantially equivalent including as to form, representations and warranties
and indemnification obligations of the agreements pursuant to which such
Dealership Properties were purchased by the Company. The parties will negotiate
in good faith and will reasonably cooperate with each other to finalize the
purchase documentation and close the purchase within the Closing Period.
(vi) The entire proceeds of the Exercise Price with respect to
any particular Dealership Property shall be applied toward the prepayment of the
indebtedness secured by the Guaranty or the reimbursement of the Guarantor to
the extent of any amount paid by the Guarantor pursuant to the Guaranty. In the
event that the Company shall sell any of the Dealership Properties at any time,
the proceeds of the sale shall also be applied to reduce the indebtedness
secured by the Guaranty.
(vii) Notwithstanding the last sentence of Section 5.10(a)(vi)
above, during the Option Period, the Company will not sell or otherwise dispose
of, or attempt in any way to sell or otherwise dispose of, any of the Dealership
Properties.
(viii) Notwithstanding the expiration of Option Period or the
Closing Period with respect to any particular exercise under the Option, in the
event that the Guarantor is required to pay any amount under the Guaranty, the
Option shall be reinstated on the terms of this Section 5.10, except that there
shall be no limitations on the duration of the Option Period or on any Closing
Period. Notwithstanding the foregoing, the Company may terminate such reinstated
Option prior to the exercise thereof by the Parent by (i) reimbursing the
Guarantor in full for all amounts paid by it under the Guaranty, together with
interest thereon at the rate of 12% per annum, and (ii) obtaining a complete
release and discharge of the Guarantor from the Guaranty.
(ix) The Guarantor shall be paid a fee for issuance of the
Guaranty in an amount equal to twenty-five basis points (.0025) of the principal
amount of indebtedness guaranteed. Such fee will be paid at the time of the
first draw down under the bridge facility.
(x) The provisions of this Section 5.10 shall survive the
termination of this Agreement.
(b) The rights of the parties under this Section 5.10 are subordinate
to the rights of the Manufacturers.
Section 5.11 280G Consent. Prior to the Closing, the Company shall take
------------
such steps as may be necessary to prevent any payment or benefit from being
subject to the excise tax payable under Section 4999 of the Code or the loss of
deductibility under Section 280G of the Code in connection with the transactions
contemplated by this Agreement.
Section 5.12 Tax Free Reorganization. The Company shall use its best
-----------------------
reasonable efforts to cause the Securities Purchase to be treated as a tax free
reorganization within the meaning of Section 368(a) of the Code.
40
ARTICLE VA
COVENANTS OF THE STOCKHOLDERS
Section 5A.1 Agreement to Vote; Proxy.
------------------------
(a) Each of the Stockholders hereby agrees that, until the
Termination Date (as defined in Section 5A.11 below), at any meeting of the
stockholders of the Company, however called (including any adjournments or
postponements thereof), or in connection with any written consent of the
stockholders of the Company, such Stockholder shall vote (or cause to be voted)
the Shares held of record or beneficially by such Stockholder (i) in favor of
the Reorganization, the execution and delivery by the Company of this Agreement
and the approval of the terms thereof and each of the actions contemplated by
this Agreement and any actions required in furtherance hereof and thereof; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under this Agreement; and (iii) except as specifically requested in writing by
the Parent in advance, against the following actions or agreements (other than
the Reorganization and the transactions contemplated by this Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its Subsidiaries
(including, without limitation, any Transaction Proposal); (B) a sale, lease or
transfer of any assets of the Company or any of its Subsidiaries (other than in
the ordinary course of business) or reorganization, recapitalization,
dissolution or liquidation of the Company or any of its Subsidiaries, (C) any
change in the management or board of directors of the Company; (D) any change in
the present capitalization or dividend policy of the Company or any of its
Subsidiaries; (E) any amendment to the Company's Certificate of Incorporation or
By-Laws; (F) any other material change in the corporate structure or business of
the Company or any of its Subsidiaries; or (G) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or adversely affect, the Reorganization or the transactions
contemplated by this Agreement or the contemplated economic benefits of any of
the foregoing. No Stockholder shall enter into any agreement or understanding
with any person or entity prior to the Termination Date to vote or give
instructions after the Termination Date in any manner inconsistent with clauses
(i), (ii) or (iii) of the preceding sentence.
(b) PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, THE
-----
PARENT AND O. ▇▇▇▇▇▇ ▇▇▇▇▇, CHIEF EXECUTIVE OFFICER OF THE PARENT, AND ▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER OF THE PARENT, IN
THEIR RESPECTIVE CAPACITIES AS OFFICERS OF THE PARENT, AND ANY INDIVIDUAL WHO
SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF THE PARENT, AND ANY OTHER DESIGNEE
OF THE PARENT, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL
THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF
SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 5A.1(a) ABOVE. EACH
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE)
AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE
41
SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS
PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH
RESPECT TO THE SHARES.
(c) Notwithstanding anything contained in this Agreement to the
contrary, as to any Stockholder who is also a director of the Company, the
obligations of such Stockholder under this Section 5A.1 and Section 5A.2 below
to support the Reorganization in his capacity as stockholder shall in no way
prevent such Stockholder from exercising his fiduciary duties as a director of
the Company, with respect to the Reorganization or an Alternative Transaction,
it being also understood that the exercise of such fiduciary duties shall not
affect such Stockholder's obligations in his capacity as a stockholder under
this Section 5A.1 and Section 5A.2 below to support the Reorganization.
Section 5A.2 No Solicitation. Prior to the Termination Date, no
---------------
Stockholder shall (directly or indirectly through advisors, agents or other
intermediaries), nor shall such Stockholder authorize or permit any of their
officers, directors, agents, representatives or advisors to (i) solicit,
initiate or take any action knowingly to facilitate the submission of inquiries,
proposals or offers from any Person (other than the Parent or any of its
affiliates) relating to any Transaction Proposal, or (ii) enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other Person any information with respect to the business,
properties or assets or any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any effort
or attempt by any other Person (other than the Parent or any of its affiliates)
to do or seek any of the foregoing. If a Stockholder receives any such inquiry
or proposal, then such Stockholder shall promptly inform the Parent of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. Each Stockholder will immediately cease and cause its
advisors, agents and other intermediaries to cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and shall use its reasonable best efforts
to cause any such parties in possession of confidential information about the
Company that was furnished by or on behalf of the Company to return or destroy
all such information in the possession of any such party or in the possession of
any agent or advisor of such party.
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference.
-----------------------------------------------------
Prior to the Termination Date, no Stockholder shall, directly or indirectly: (i)
except to the Parent pursuant to this Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, any or all of the
Shares owned by it, and no Stockholder shall, directly or indirectly, enforce or
permit the execution of the provisions of any redemption agreement with the
Company or enter into any contract, option or other arrangement or understanding
with respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, or exercise any
discretionary powers to distribute, any or all of the Shares owned by it or any
interest therein, (ii) except as contemplated hereby, grant any proxies or
powers of attorney with respect to the Shares, deposit any Shares into a voting
trust or enter into any voting agreement with respect to any Shares, or (iii)
take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling any Stockholder from performing its obligations under
this Agreement. Notwithstanding the foregoing, a Stockholder may transfer
Shares to such
42
Stockholder's spouse or lineal descendant (natural or adopted) or to an
executor, administrator or testamentary trustee (in their capacity as such) of
such Stockholder or to a trust the beneficiaries of which include only such
Stockholder and his or her spouse or lineal descendants; provided, however,
-------- -------
it shall be a condition precedent to such transfer that the transferee agree in
a writing reasonably satisfactory to the Parent and Newco to be bound by the
terms of this Agreement with respect to the shares so transferred, and provided,
--------
further, that such transfer shall not release the transferring Stockholder from
--------
its obligations under this Agreement with respect to the Shares so transferred,
and the Parent and Newco shall be entitled to continue to treat the transferring
Stockholder as the owner of the Shares transferred for all purposes of this
Agreement.
Section 5A.4 Additional Shares. Each of the Stockholders hereby agrees,
-----------------
while this Agreement is in effect, to promptly notify the Parent of the number
of any new shares of Company Common Stock or Company Preferred Stock acquired by
such Stockholder after the date hereof.
Section 5A.5 Waiver of Appraisal and Dissenter's Rights. Each
------------------------------------------
Stockholder hereby waives any rights of appraisal or rights to dissent from the
Reorganization (including the Merger) that such Stockholder may have.
Section 5A.6 Actions Regarding Company Expenses. Each of the
----------------------------------
Stockholders agrees that they shall take no actions and shall not vote their
Shares in favor of any action which shall cause a substantial increase in the
expenses which are the subject of the indemnity contained in Section 5A.7(d)
below.
Section 5A.7 Indemnity; Escrow Agreement.
---------------------------
(a) The Stockholders hereby agree to indemnify and save the Parent
and the Surviving Corporation, their respective shareholders, officers,
directors and employees, and the successors and assigns of each of the foregoing
(each, an "Indemnitee") harmless from and against, for and in respect of, any
-----------
and all damages, losses, obligations, liabilities, demands, judgments, injuries,
penalties, claims, actions or causes of action, encumbrances, costs, and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees), suffered, sustained, incurred or required to be paid by any
Indemnitee (collectively, "Damages") arising out of, based upon, in connection
--------
with, or as a result of (i) the untruth, inaccuracy or breach of any
representation and warranty of the Company contained in or made pursuant to this
Agreement, including in any Schedule or certificate delivered hereunder or in
connection herewith, and (ii) the breach or nonfulfillment of any covenant or
agreement of the Company contained in this Agreement or in any other agreement,
document or instrument delivered hereunder or pursuant hereto. With respect to
the Stockholders' obligations to pay Damages pursuant to this Section 5A.7(a),
the Stockholders shall have no personal liability, and the Parent's and the
Surviving Corporation's sole recourse shall be to make demand for payment out of
the Escrow Amount (as defined in Section 5A.7(b) below).
(b) At the Closing, the Stockholders shall place into escrow with
First Union National Bank or another escrow agent mutually acceptable to the
parties hereto (the "Escrow Agent") 473,571 shares (adjusted for any stock
-------------
dividend, subdivision, reclassification, split-up, combination, or the like,
with respect to the Parent Common Stock) of Reorganization Common
43
Stock (the "Escrow Shares" or "Escrow Amount"), pro rata among the Stockholders
--------------- --------------
according to the number of shares of Parent Common Stock issued to the
Stockholders in exchange for the Company Common Stock and the Company Warrants
(such shares being hereinafter called the "Pro Rata Shares"), in accordance with
----------------
the escrow agreement in the form of Exhibit D hereto, with such other changes
---------
thereto as the Escrow Agent shall reasonably request (the "Escrow Agreement").
-----------------
The term of the Escrow Agreement shall be for the period beginning with the
Closing and ending on March 31, 2001 (the "Escrow Period"). If the Parent shall
--------------
have made no claims for indemnification under Section 5A.7(a) above or otherwise
under this Section 5A.7, during the Escrow Period, the Parent will execute a
joint instruction with the Stockholders' Agent pursuant to the Escrow Agreement
to instruct the Escrow Agent to pay all of the Escrow Shares to the Stockholders
pursuant to the terms of the Escrow Agreement, pro rata according to their
respective Pro Rata Shares. To the extent that the Parent shall be entitled to
Damages, the Stockholders' Agent shall execute a joint instruction with the
Parent pursuant to the Escrow Agreement to instruct the Escrow Agent to disburse
to the Parent from the Escrow Amount that number of Escrow Shares having a
Market Price at the time of disbursement equal to the amount of such Damages.
All such disbursements from the Escrow Shares shall be charged to the
Stockholders pro rata according to their Pro Rata Shares of the Escrow Shares.
As used herein, the term "Market Price" shall mean the average of the daily
-------------
closing prices on the NYSE for one share of Parent Common Stock for the twenty
(20) consecutive trading days ending on and including the trading day
immediately prior to the date of determination. Reference is hereby made to
Section 9.16 with respect to certain matters concerning the Stockholders' Agent.
(c) The parties acknowledge that the purchase agreements for the
Pending Acquisitions (the "Pending Purchase Agreements") provide that the
----------------------------
Company is entitled to indemnification for breaches of representations,
warranties and covenants contained therein in accordance with the terms of such
agreements. The Parent and the Stockholders agree that:
(i) If an Indemnitee is entitled to indemnification under this
Agreement and the breach which gives rise to such right of indemnification under
this Agreement shall also be a matter for which the Company is entitled to
pursue indemnification under any of the Pending Purchase Agreements, the
Indemnitee (or Parent, on their behalf) shall first attempt to recover such
Damages as are indemnifiable under the Pending Purchase Agreements from the
indemnifying persons under such Pending Purchase Agreements. Such claims are
referred to herein as "Dual Indemnity Claims."
---------------------
(ii) Provided a Dual Indemnity Claim shall be made prior to the
Claim, Termination Date as such term is defined in the Escrow Agreement, during
such period as the Parent is pursuing indemnification pursuant to the terms of a
Pending Purchase Agreement, it shall be entitled to retain Escrow Shares
relating to such breaches as a Pending Claim as provided in the Escrow Agreement
to cover the amount of such Dual Indemnity Claims as are also covered by the
indemnification provisions of this Agreement.
(iii) When a Dual Indemnity Claim shall be finally resolved
pursuant to the terms of a Pending Acquisition Agreement, the resolution of such
claim shall be determinative except in the case where the amount of damages for
such Dual Indemnity Claim shall exceed the indemnification obligations of the
indemnifying parties under such Pending Acquisition Agreement. In such case the
Stockholders' Agent (as such term is defined in the
44
Escrow Agreement) shall have opportunity to defend such claim in its entirety
pursuant to the terms of this Agreement. Upon the resolution of a Dual Indemnity
Claim, any Escrow Shares held beyond the Claim Termination Date in respect of
such Pending Claim shall, to the extent not required to cover other pending
Claims, be released.
(d) The parties hereby agree that the Parent shall be entitled to
claim against the Escrow Amount with respect to the actual amount of "one-time"
charges and adjustments (net of tax benefits), the categories of which are
generally summarized (with current estimates thereof which estimates are for
information purposes only) in Exhibit E hereto and consisting of (i) (A)
---------
redemption premiums related to payments to the Trust Company of the West and its
affiliates ("TCW") in connection with the sale of the shares of the Company
---
Preferred Stock hereunder and (B) prepayment penalties in connection with the
prepayment of the Company's indebtedness under the promissory notes issued to
TCW by the Company (the "TCW Loan"); (ii) severance payments (including those
--------
payable when the employee terminates "for good reason" under the relevant
employment contract) and stay-on bonuses to certain employees of the Company;
(iii) the tax charges for stock grants made to certain employees of the Company
and disclosed in the Company Disclosure Schedule (the "FAA Stock Grants"); (iv)
-----------------
out-of-pocket expenses incurred by the Company in connection with its recently
attempted initial public offering; (v) fees or commissions payable to ▇▇▇▇▇▇▇
▇▇▇▇▇ and NCM Associates for their services to the Company in connection with
the Reorganization; (vi) transaction fees and expenses incurred in connection
with the Reorganization, including those for services rendered by its legal
counsel and accountants, but excluding fees and expenses of legal counsel in
connection with the Registration Statement contemplated by the Merger Agreement;
(vii) costs and expenses incurred in connection with the divestiture of DSW
Associates, Inc., d/b/a "Auto Town" by the Company; (viii) payments under
contracts with "change of control" clauses which are triggered by the
Reorganization and not included in clause (ii) above; and (ix) expenses of
establishing the "bridge financing" contemplated by Section 5.10 of this
Agreement; provided, however, that the aggregate total of such actual charges
-----------------
and adjustments enumerated above shall be reduced by (i) the out-of-pocket
expenses of the IPO referred to in clause (iv) above up to $1,500,000 and (ii)
the dollar amount equal to any net income earned by the Company from July 1,
1999 through the Closing Date and, if the Closing Date takes place prior to
December 31, 1999, the sum of $123,288 per day for each day from the Closing
Date to and including December 31, 1999; and provided further that such charges
and adjustments shall exclude (x) any unamortized deferred loan costs incurred
by the Company in the prepayment of the TCW Loan, (y) the increase in the
Company's equity capitalization base in connection with the FAA Stock Grants,
and (z) any non-cash items related to the divestiture or liquidation of DSW
Associates, Inc. d/b/a "Auto Town", including unamortized deferred loan costs.
(e) With respect to any claim against the Escrow Amount by the Parent
for a breach of Section 3.18 of this Agreement regarding the Company's
representation and warranty to the effect that the Company and its subsidiaries
consolidated pro-forma pre-tax earnings will be a minimum of $45,000,000 (the
"Minimum Amount"), Parent shall be entitled to recover from such Escrow Amount
---------------
any discrepancy from the Minimum Amount on a dollar-for-dollar basis.
(f) With respect to any claim against the Escrow Amount by the Parent
for a breach of Section 3.5 of this Agreement regarding the Company's
representation and warranty to
45
the effect, without limitation, that the Company's consolidated financial
statements as of June 30, 1999 have been prepared in accordance with generally
accepted accounting principles and fairly present the consolidated financial
position of the Company, the Parent shall not be entitled to claim that such one
time charges and expenses as are considered in Section 5A.7(d) above have caused
or contributed to a breach of such representation.
(g) The Parent shall be entitled to a claim against the Escrow Amount
for any Damages in excess of $50,000 incurred as a result of the Department of
Labor audit of the Company's 401(k) Plan.
(h) The Parent shall be entitled to a claim against the Escrow Amount
for any Damages in excess of the sum of (i) $100,000 plus (ii) the Company's
accruals therefore in accordance with GAAP, incurred as a result of the
▇▇▇▇▇▇▇/Portin litigation (or related class action) referred to in Section 3.7
of the Company Disclosure Schedule.
Section 5A.8 Further Assurances. From time to time, at the request of
------------------
the Stockholders, on the one hand, or at the request of the Parent, on the other
hand, and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
Section 5A.9 Certain Events. Each Stockholder agrees that this
--------------
Agreement and the obligations hereunder shall attach to all Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise.
Section 5A.10 Stop Transfer. Each Stockholder agrees with, and
-------------
covenants to the Parent that it shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Shares.
Section 5A.11 Termination. The obligations of each Stockholder under
-----------
Sections 5A.1, 5A.2, 5A.3 and 5A.10 of this Agreement shall terminate upon the
first to occur of (a) the Closing, and (b) the date that is one hundred eighty
(180) days after the date this Agreement is terminated in accordance with its
terms (such earlier date being the "Termination Date"). Except as set forth in
-----------------
this Section 5A.11 all other agreements and obligations of the parties hereto
shall survive the Closing and/or the Termination Date, as applicable.
ARTICLE VI
COVENANTS OF THE PARENT
Section 6.1 Conduct of Business of Parent. During the period from the
-----------------------------
date of this Agreement to the Closing (except as otherwise expressly
contemplated by the terms of this Agreement), the Parent shall act and carry on
its business in the usual, regular and ordinary course of business consistent
with past practice and use its reasonable best efforts to preserve substantially
intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
significant business dealings with it and
46
provided that nothing contained in the foregoing shall prevent the Parent from
its business of acquiring automobile dealerships.
Section 6.2 [INTENTIONALLY LEFT BLANK]
Section 6.3 Access to Information; Confidentiality.
--------------------------------------
(a) Parent shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to the Company and its
representatives reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records, including
security position listings and other information concerning beneficial owners
and/or record owners of the Parent's securities which may be relevant to the
Reorganization, and, during such period, the Parent shall, and shall cause its
officers, employees and representatives to, furnish promptly to the Company (i)
a copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as the Company may
from time to time reasonably request. The Company will hold, and will cause its
respective directors, officers, employees, accountants, counsel, financial
advisors and other representatives and Affiliates to hold, any nonpublic
information in confidence to the same extent that nonpublic information
regarding the Company, as contemplated by Section 5.3 above, is required to be
held confidential by the Parent and Newco pursuant to the Confidentiality
Agreement.
(b) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 6.4 Indemnification.
---------------
(a) The certificate of incorporation and the by-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability substantially as set forth in the Company's
certificate of incorporation and by-laws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Closing in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Closing were directors,
officers, employees or agents of the Company, unless such modification is
required by law.
(b) From and after the Effective Time, the Parent agrees to indemnify
and agrees to cause the Surviving Corporation to indemnify each person who is
now, or who becomes after the Closing, an officer or director of the Company or
any of it Subsidiaries (the "Indemnified Parties"), to the fullest extent
-------------------
permitted by applicable law, with respect to all acts and omissions arising out
of the Indemnified Parties' services as officers, directors, employees or agents
of the Company or as trustees or fiduciaries of any plan for the benefit of
employees of the Company, occurring prior to the Closing including, without
limitation, the transactions contemplated by this Agreement. Without limitation
of the foregoing, in the event any such Indemnified Party is or becomes involved
in any capacity in any action, proceeding or investigation in connection with
any matter, including without limitation, the transactions
47
contemplated by this Agreement, occurring prior to, and including, the Closing,
the Parent, from and after the Closing, will pay as incurred such Indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith. Subject to
Section 6.4(c), the Parent shall advance (in reasonable amounts) and pay all
reasonable expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing this Section 6.4 or any action involving an
Indemnified Party resulting from the transactions contemplated by this
Agreement. Notwithstanding anything to the contrary contained herein, the Parent
shall not have any obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by, or
otherwise is not available pursuant to, applicable law.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 6.4, upon learning of any claim, action, suit, proceeding or
investigation which may give rise to a right to indemnification under this
Section 6.4, shall promptly notify the Parent thereof. In the event of any such
claim, action, suit, proceeding or investigation, (i) the Parent or the
Surviving Corporation shall have the right to assume the defense thereof (with
counsel engaged by the Parent or the Surviving Corporation to be reasonably
acceptable to the Indemnified Party) and, provided there is no conflict of
interest, the Parent shall not be liable to such Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, (ii)the Indemnified
Party will cooperate in the defense of any such matter, and (iii)the Parent
shall not be liable for any settlement effected without its prior written
consent.
(d) Parent and the Surviving Corporation, shall, until the sixth
anniversary of the Closing or such earlier date as may be mutually agreed upon
by Parent, the Surviving Corporation and the applicable Indemnified Party, cause
to be maintained in effect, to the extent available, the policies of directors'
and officers' liability insurance maintained by the Company and its Subsidiaries
as of the date hereof (or policies of at least the same coverage and amounts
containing terms that are not less advantageous to the insured parties) with
respect to claims arising from facts or events that occurred on or prior to the
Closing, including without limitation all claims based upon, arising out of,
directly or indirectly resulting from, in consequence of, or in any way
involving the Reorganization and any and all related events. In lieu of
maintaining the Company's current policies, Parent may cause to be obtained and
maintained in effect directors' and officers' liability insurance of at least
the same coverage and amounts and containing terms that are, as a whole,
substantially no less advantageous than policies presently maintained by the
Company with respect to claims arising from facts or events which occurred on or
before the Closing. Notwithstanding the foregoing, in no event shall Parent or
the Surviving Corporation be required pursuant to this Section 6.4(d) to expend,
in order to maintain or procure insurance coverage pursuant to this Section 6.5,
any amount per annum in excess of 150% of the annual rate of premiums currently
being paid for the current Company officers' and directors' liability insurance
policy.
(e) The obligations of the Company, the Surviving Corporation and the
Parent under this Section 6.4 shall not be terminated or modified in such a
manner as to adversely affect any of the Indemnified Parties without the consent
of such Indemnified Party (it being expressly agreed that each such Indemnified
Party shall be a third party beneficiary of this Section 6.4).
48
Section 6.5 Public Announcements. Neither the Parent nor Newco will issue
--------------------
any press release or public statement with respect to the transactions
contemplated by this Agreement, including the Reorganization, without the
Company's prior consent (such consent not to be unreasonably withheld), except
as may be required by applicable law, court process or by obligations pursuant
to any listing agreement with the NYSE. In addition to the foregoing, the
Parent will consult with the Company before issuing, and provide the Company the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions.
Section 6.6 Newco Obligations. Parent shall cause Newco to perform all of
-----------------
its obligations, agreements and covenants under this Agreement.
Section 6.7 Application to Manufacturers. Subject to the reasonable
----------------------------
cooperation of the Company, the Parent shall provide to the Manufacturers as
promptly as practicable after the execution and delivery of this Agreement any
application or other information with respect to such application necessary in
connection with the seeking of the consent of the Manufacturers to the
transactions contemplated by this Agreement.
Section 6.8 Closing Conditions. Parent shall use all reasonable best
------------------
efforts to satisfy promptly the conditions to Closing set forth in Article VII
hereof required herein to be satisfied by the Parent prior to Closing.
Section 6.9 HSR Act. Parent shall promptly prepare and file Notification
-------
and Report Forms under the HSR Act with the FTC and the Antitrust Division, and
respond as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation, and the Parent
shall pay all filing fees in connection therewith, including any such filing fee
required to be paid by ▇▇▇▇▇▇ ▇. Price.
Section 6.10 Tax Free Reorganization. Parent and the Company shall use
-----------------------
its best reasonable efforts to cause the Securities Purchase to be treated as a
tax free reorganization within the meaning of Section 368(a) of the Code.
Section 6.11 Additional Agreements of Parent. At the Closing, the Parent
-------------------------------
shall, or shall cause the Surviving Corporation immediately after the Closing
to:
(a) Repay all outstanding loans (set forth in Schedule 6.11(a)
----------------
hereto) by the officers of the Company to the Company;
(b) Secure the release of all officers of the Company, or any of such
officers' Affiliates from any guaranties (set forth in Schedule 6.11(b) hereto)
----------------
they have given in favor of the Company; and
(c) Repay all outstanding loans under the promissory notes issued to
TCW and its Affiliates.
49
Section 6.12 Employee Benefits.
-----------------
(a) Parent will give, or will cause Surviving Corporation to give, to
each employee of Parent or Surviving Corporation who immediately prior to the
Effective Time was an employee of the Company (each such employee, a "Continuing
----------
Employee") full credit for purposes of eligibility, vesting, vacation, seniority
--------
and sick pay to the extent permissible under applicable law. In the event Parent
causes Surviving Corporation to terminate a welfare plan so that there is a
short plan year, Parent will use its best efforts to, or will cause Surviving
Corporation to provide each Continuing Employee with credit for the remaining
short plan year for any co-payments and deductibles paid under each comparable
employee welfare benefit plan maintained by Company prior to the Effective Time
in satisfying any applicable deductible or co-payment requirements under any of
Parent's employee welfare benefit plans that such Continuing Employees are
eligible to participate in after the Effective Time. From and after the
Effective Time, the Continuing Employees shall be eligible to participate in
Parent's or Surviving Corporation's employee benefit plans and arrangements in
which similarly situated employees of Parent or Surviving Corporation
participate, to the same extent as such similarly situated employees.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Reorganization. The respective obligation of each party to effect the
--------------
Reorganization is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) The waiting period (and any extension thereof) applicable to the
Reorganization under the HSR Act shall have been terminated or shall have
expired.
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Reorganization
shall be in effect; provided, however, that the parties hereto shall use their
best efforts to have any such injunction, order, restraint or prohibition
vacated.
(c) The Parent and the Company shall each have received written
opinions from their respective counsel to the effect that the Securities
Purchase will constitute a reorganization within the meaning of Section 368(a)
of the Code; provided, however, that if the counsel to either the Parent or the
-------- -------
Company does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to such party if counsel to the other party renders
such opinion to such party. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(d) Employment Agreement. The Parent and ▇▇▇▇▇▇ ▇. Price shall have
--------------------
entered into a mutually agreed upon employment agreement.
50
Section 7.2 Conditions to Obligations of the Parent and Newco. The
-------------------------------------------------
obligations of the Parent and Newco to effect the Reorganization are further
subject to the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company and the Stockholders set forth in this Agreement shall
be true and correct, in each case as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date, except (in
the case of the representations and warranties of the Company only) where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect, or (in the case of the representations and
warranties of any particular Stockholder only) where the failure of such
representations and warranties to be so true and correct would prevent the
purchase of the Company Securities from such Stockholder in accordance with the
terms hereof such that the condition set forth in Section 7.2(g) below would not
be satisfied. The Parent shall have received (i) with respect to the
representations and warranties of the Company, a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of
the Company, and (ii) with respect to the representations and warranties of the
Stockholders, a certificate signed by the Stockholders' Agent on behalf of each
of the Stockholders, in each case to the effect set forth in this paragraph.
(b) Performance of Obligations. The Company and the Stockholders
--------------------------
shall have performed the respective obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except, in the case of the
obligations of the Company only, for such failures to perform either
individually or in the aggregate that would not have a Material Adverse Effect
with respect to the Company or materially adversely affect the ability of the
Company to consummate the transactions herein contemplated or perform its
obligations hereunder).
(c) Consents, etc. The Parent shall have received evidence, in form
--------------
and substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, except where the failure to
obtain such licenses, permits, consents, approvals, authorizations,
qualifications and orders individually or in the aggregate would not have a
Material Adverse Effect with respect to the Company, provided, however, that
insofar as the foregoing Material Adverse Effect exception relates to Leases of
Real Property, the parties agree that it would constitute a Material Adverse
Effect if the failure to obtain the consent from a particular landlord under a
Lease could reasonably be expected to result in the inability of a dealership to
continue its operations substantially at that location.
(d) No Litigation. There shall not be pending any suit, action or
-------------
proceeding by any Governmental Entity or by any other Person, which has a
reasonable likelihood of success and which, if successful, would have a Material
Adverse Effect with respect to the Company or the Parent, or materially
adversely affect the ability of the parties hereto to consummate the
transactions contemplated herein.
51
(e) Closing Documentation. The Parent shall have received the
---------------------
following documents, agreements and instruments from the Company:
(i) an opinion of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich LLP, dated the
Closing Date and addressed to the Parent and Newco, in substantially the form of
Exhibit F hereto;
---------
(ii) certificates dated as of a recent date from the Secretary
of State of the States of Delaware and any other applicable states to the effect
that each of the Company and its Subsidiaries is duly incorporated and in good
standing in such state and stating that the Company and its Subsidiaries owes no
franchise taxes in such state and listing all documents of the Company and its
Subsidiaries on file with said Secretary of State;
(iii) a copy of the Certificate of Incorporation of the Company,
including all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware;
(iv) evidence, reasonably satisfactory to the Parent, of the
authority and incumbency of the persons acting on behalf of the Company in
connection with the execution of any document delivered in connection with this
Agreement;
(v) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to the Company and its Subsidiaries from the states and local
jurisdictions where the principal place of business of the Company and its
Subsidiaries and their respective assets are located, the search reports of
which shall confirm compliance with Section 3.15 (and Schedule thereto) of this
Agreement;
(vi) the corporate minute books and stock record books of the
Company and its Subsidiaries;
(vii) estoppel letters of lenders to the Company, in form and
substance reasonably satisfactory to the Parent, with respect to amounts
(including any pre-payment penalties) owing by the Company as of the Closing;
and
(viii) such other instruments and documents as the Parent shall
reasonably request not inconsistent with the provisions hereof.
(f) No Material Adverse Change. There shall have been no Material Adverse
--------------------------
Change in the Company since June 30, 1999.
(g) Company Securities. The Company Securities held by the Stockholders
------------------
as of the Closing Date shall include not less than 96% of the issued and
outstanding shares of Company Common Stock, or such lesser percentage, not less
than 90%, as shall have been specifically agreed to by the Parent pursuant to
Section 9.15.
(h) Manufacturer Approval. The Manufacturers shall have given any
required approval of the Reorganization and shall have given any required
approval of O. ▇▇▇▇▇▇ ▇▇▇▇▇ or his designee as the authorized dealer operator of
the Company's and its Subsidiaries' dealership
52
franchises with the Manufacturers at the present dealership locations in their
existing facilities as currently configured for dealership operations, and the
Manufacturers shall have executed any required dealer agreements and/or
amendments or supplements thereto in connection with the foregoing.
(i) Prepayment of Convertible Debt; Termination of Registration Rights.
------------------------------------------------------------------
All convertible debt shall have been prepaid, and the Parent shall have received
reasonably satisfactory evidence thereof. Additionally, all of the registration
rights underlying the Company Warrants shall have been terminated.
(j) Delivery of Company Securities. The respective Stockholders shall
------------------------------
have delivered the certificate or certificates representing all of the Company
Securities, in accordance with Section 1.1 hereof.
(k) [INTENTIONALLY LEFT BLANK]
(l) [INTENTIONALLY LEFT BLANK]
(m) Auto Town Spin-Off. The divestiture or liquidation of DSW Associates,
------------------
Inc., d/b/a Auto Town, shall have been completed with the prior approval of the
Parent. The Company shall inform the Parent of the manner of divesting,
liquidating or otherwise disposing of DSW Associates, d/b/a "Auto Town", prior
to the Completion thereof, it being understood that the Parent shall not
unreasonably withhold such prior approval. Notwithstanding the foregoing, it
shall be a basis for the Parent to withhold its approval if such divestiture,
liquidation or other disposition is on terms which could result in any
continuing material liability or obligation of the Company to Auto Town or its
stockholders.
(n) Termination of Stockholder Agreement. The Stockholder Agreement dated
------------------------------------
as of July 11, 1997, as amended to date, by and among the Company, ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇,
Embarcadero Automotive, L.L.C., Raintree Capital LLC, BB Investments and certain
affiliates of Trust Company of the West, shall have been terminated.
(o) [INTENTIONALLY LEFT BLANK]
(p) The Parent shall have obtained the consents or approvals of the
parties set forth in Schedule 4.4(c) hereto.
---------------
Notwithstanding the foregoing, the obligations of the Parent and Newco to
effect the Reorganization shall not be relieved by the failure of any of the
foregoing conditions if such failure is the result, direct or indirect, of any
breach by the Parent or Newco of any of their obligations under this Agreement.
Section 7.3 Conditions to Obligation of the Company and the Stockholders.
------------------------------------------------------------
The obligations of the Company and the Stockholders to effect the Reorganization
are further subject to the following conditions:
53
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Parent and Newco set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect with respect to, the Parent and Newco. The
Company shall have received a certificate signed on behalf of the Parent by an
authorized officer of the Parent to the effect set forth in this paragraph.
(b) Performance of Obligations of the Parent and Newco. The Parent
--------------------------------------------------
and Newco shall have performed the obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except for such failures
to perform, either individually or in the aggregate, that would not have a
Material Adverse Effect with respect to the Parent and Newco or materially
adversely affect the ability of the Parent and Newco to consummate the
transactions herein contemplated or perform their respective obligations
hereunder).
(c) Closing Documentation. The Company shall have received the
---------------------
following documents, agreements and instruments from the Parent:
(i) an opinion of Parker, Poe, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ L.L.P., dated
the Closing Date and addressed to the Company and the Stockholders,
substantially in the form of Exhibit G hereto;
---------
(ii) certificates dated as of a recent date from the Secretary
of State of the State of Delaware to the effect that the Parent is duly
incorporated and in good standing in such State;
(iii) a copy of the Parent's Certificate of Incorporation,
including all amendments thereto, certified by the Secretary of State of the
State of Delaware;
(iv) evidence reasonably satisfactory to the Company as to the
authority and incumbency of the persons acting on behalf of the Parent in
connection with the execution of any document delivered in connection with this
Agreement; and
(v) such other instruments and documents as the Company shall
reasonably request not inconsistent with the provisions hereof.
Notwithstanding the foregoing, the obligations of the Company and the
Stockholders to effect the Reorganization shall not be relieved by the failure
of any of the foregoing conditions if such failure is the result, direct or
indirect, of any breach by the Company or any of the Stockholders of any of
their respective obligations under this Agreement.
(d) No Material Adverse Change. There shall have been no Material
--------------------------
Adverse Change in Parent since the Parent Balance Sheet Date.
54
(e) Delivery of Parent Common Stock. Newco shall have delivered to
-------------------------------
the respective Stockholders the certificates representing the Parent Common
Stock, in accordance with Section 1.2 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated and abandoned
-----------
at any time prior to the Closing:
(a) by mutual written consent of the Parent, the Company and the
Stockholders' Agent; or
(b) by either the Parent or the Company, if any governmental entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Reorganization
and such order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by (i) the Parent, if the Reorganization shall not have been
consummated on or before the Closing Date Deadline (as defined in Section 9.5)
(other than due to the failure of the Parent or Newco to perform its obligations
under this Agreement required to be performed at or prior to the Closing), or
(ii) the Company, if the Reorganization shall not have been consummated on or
before the Closing Date Deadline (other than due to the failure of the Company
or any of the Stockholders to perform its obligations under this Agreement
required to be performed at or prior to the Closing); provided, however, that
-------- -------
any such termination by either such party shall be subject to the right of the
other party to extend the Closing Date Deadline, as contemplated by Section 9.5;
or
(d) by the Parent, if the holders of a majority of the outstanding
shares of the Company Common Stock and Company Preferred Stock shall not have
approved the Reorganization, this Agreement and the consummation of the
transactions contemplated hereby; or
(e) by the Parent, if the Company or its Board of Directors shall
have (i) withdrawn, modified or amended in any respect adverse to the Parent its
approval or recommendation of this Agreement or any of the transactions
contemplated herein, (ii) recommended any Transaction Proposal from a Person
other than the Parent or Newco or any of their Affiliates, or (iii) resolved to
do any of the foregoing; or
(f) by the Parent if a breach of any representation, warranty,
covenant or agreement on the part of the Company or any of the Stockholders set
forth in this Agreement shall have occurred which if uncured would cause any
condition set forth in Section 7.2(a) or Section 7.2(b) not to be satisfied, and
such breach is incapable of being cured or, if capable of being cured, shall not
have been cured within twenty (20) business days following receipt by the
Company of written notice of such breach from Parent; or
55
(g) by the Company, if a breach of any representation, warranty,
covenant or agreement on the part of Parent or Newco set forth in this Agreement
shall have occurred which if uncured would cause any condition set forth in
Section 7.3(a) or Section 7.3(b) not to be satisfied, and such breach is
incapable of being cured or, if capable of being cured, shall not have been
cured within twenty (20) business days following receipt by Parent of written
notice of such breach from the Company.
Section 8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either the Company or the Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Parent, Newco or the Company, other than the
provisions of Section 3.11 (Brokers), Section 4.8 (Brokers), the last sentence
------- -------
of Section 5.3(a) (Access to Information; Confidentiality), the last sentence of
--------------------------------------
Section 6.3(a) (Access to Information; Confidentiality), Section 5.10 (Bridge
-------------------------------------- ------
Financing), this Section 8.2, Section 9.3 (Fees and Expenses), Section 9.8
--------- -----------------
(Entire Agreement; No Third Party Beneficiaries) and Section 9.9 (Governing
----------------------------------------------- ---------
Law). Nothing contained in this Section shall relieve any party of any
liability for any breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
Section 8.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties. Notwithstanding
the foregoing, the Stockholders' Agent may execute any such writing on behalf of
all of the Stockholders so long as such writing does not (a) amend any provision
of Articles I, IIIA or VA hereof or (b) amend any other provision of this
Agreement in a way which materially increases any liability or materially
decreases any right of the Stockholders hereunder.
Section 8.4 Extension; Waiver. At any time prior to the Closing, the
-----------------
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. Notwithstanding the
foregoing, the Stockholders' Agent may execute any such agreement on behalf of
all of the Stockholders so long as such agreement does not apply to an extension
or waiver with respect to any provision of Article I, IIIA or VA hereof or to
any other provision of this Agreement where such extension or waiver materially
increases any liability or materially decreases any right of the Stockholders
hereunder. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
---------------------------------------------------------
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of the Parent or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
56
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Best Reasonable Efforts. Upon the terms and subject to the
-----------------------
conditions set forth in this Agreement, each of the parties agrees to use its
best reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, in the most expeditious manner
practicable, the Reorganization and the other transactions contemplated by this
Agreement. The Parent and the Company will use their best reasonable efforts and
cooperate with one another (i) in promptly determining whether any filings are
required to be made or consents, approvals, waivers, licenses, permits or
authorizations are required to be obtained (or, which if not obtained, would
result in an event of default, termination or acceleration of any agreement or
any put right under any agreement) under any applicable law or regulation or
from any governmental entities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by this Agreement, including the Reorganization and (ii) in
promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations.
Section 9.2 Survival of Representations and Warranties. The
-------------------------------------------
representations and warranties of the Stockholders contained in this Agreement
shall survive the Closing. Except as provided in the last sentence of this
Section 9.2, none of the representations and warranties of the Company, the
Parent or Newco contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing and all such
representations and warranties will be extinguished on consummation of the
Reorganization and neither the Company, the Parent or Newco, nor any officer,
director, or employee or stockholder of the Company, the Parent or Newco, shall
be under any liability whatsoever with respect to any such representation or
warranty of the Company, the Parent or Newco contained after such time. This
Section 9.2 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing. Notwithstanding the
foregoing, for purposes of the indemnification obligations of the Stockholders
under Section 5A.7 of this Agreement, the representations and warranties of the
Company contained in this Agreement shall be deemed to survive the Closing.
Section 9.3 Fees and Expenses.
-----------------
(a) If this Agreement is terminated pursuant to Section 8.1(d) or
Section 8.1(e), then the Company shall (provided that the Parent or Newco is not
then in material breach of its obligations under this Agreement), promptly, but
in no event later than four (4) business days after the termination of this
Agreement, reimburse the Parent and Newco for all documented out-of-pocket
expenses and fees (including, without limitation, fees payable to all banks,
investment banking firms and other financial institutions, and their respective
agents and counsel, and all fees of counsel, accountants, financial printers,
experts and consultants to Newco and its Affiliates), whether incurred prior to,
on or after the date hereof, in connection with the Reorganization and the
consummation of all transactions contemplated by this Agreement and the
financing thereof.
57
(b) In the event a fee is or becomes payable pursuant to Section
9.3(a) hereof, the Company agrees promptly, but in no event later than four (4)
business days following written notice thereof, together with related bills or
receipts, to reimburse the Parent and Newco for all reasonable out-of-pocket
costs, fees and expenses, including, without limitation, the reasonable fees and
disbursements of counsel and the expenses of litigation, incurred in connection
with collecting the expenses pursuant to said Section 9.3(a), as a result of any
breach by the Company of its obligations under this Section 9.3.
(c) Except as provided otherwise in Section 9.3(a) above, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses.
Section 9.4 Notices. All notices, requests, claims, demands and other
--------
communications under this Agreement shall be in writing and shall be deemed
given if (i) delivered personally, (ii) sent by overnight courier (providing
proof of delivery) or (iii) upon transmission (with confirmed delivery to the
recipient of such communication) by facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Parent or Newco, to
Sonic Automotive, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to
Parker, Poe, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
(b) if to the Company, to
FirstAmerica Automotive, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. Price
58
with copies to:
▇▇▇▇, ▇▇▇▇, ▇▇▇▇ & Freidenrich, LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq. or
(c) if to the Stockholders or any of them, to the addresses listed
below their respective names on Exhibit A attached hereto.
---------
Section 9.5 Certain Definitions. For purposes of this Agreement:
--------------------
(a) "Affiliate" of any Person means another Person that directly or
----------
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) The terms "beneficially own" or "beneficial ownership" with
----------------- ---------------------
respect to any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the same
holder, securities beneficially owned by a Person shall include securities
beneficially owned by all other Persons with whom such Person would constitute a
"group" as described in Section 13(d)(3) of the Exchange Act.
(c) "Closing Date Deadline" means December 31, 1999; provided,
---------------------- ---------
however, if as of such date the approvals of the Manufacturers contemplated by
--------
Section 7.2(h) shall not have been obtained or the waiting period (and any
extension thereof) applicable to the Reorganization under the HSR Act shall not
have been terminated or shall not have expired, the Parent or the Company may,
by written notice to the other, elect to extend the Closing Date Deadline for an
additional sixty (60) days.
(d) "Knowledge" with respect to the Company means the actual
----------
knowledge of the following persons: ▇▇▇▇▇▇ ▇. Price, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, W. ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, in each
case after reasonable investigation and inquiry; provided, however, the Company
shall be deemed to have knowledge of all material facts disclosed in the
agreements (including related disclosure schedules) with respect to the Pending
Acquisition;
(e) "Lien" means any pledge, claim, lien, charge, encumbrance or
-----
security interest of any kind or nature whatsoever;
(f) "Manufacturers" means Acura Division of American Honda Motor Co.,
--------------
Inc., BMW of North America, Inc., Cadillac Motor Car Division of General Motors
Corp., Chevrolet Motor Division of General Motors Corp., Chrysler-Plymouth-Jeep
(Chrysler Corp.), Dodge Division of Chrysler Corp., Ford Division of Ford Motor
Co., Honda Division of America Honda Motor Co., Inc., American Isuzu Motors,
Inc., Lexus Division of Toyota Motor Sales,
59
U.S.A., Inc., Daimler-Chrysler (Mercedes), Mitsubishi Motor Sales of America,
Inc., Nissan Motor Corporation in U.S.A., Oldsmobile Division of General Motors
Corp., Toyota Motor Sales, U.S.A., Inc., Volkswagen of America, Inc. and Volvo
Cars North-America, Inc.
(g) "Material Adverse Change" or "Material Adverse Effect" means,
------------------------ ------------------------
when used in connection with any Person, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, liabilities, financial condition or
results of operations of such Person but shall exclude any change or effect
resulting from (i) general economic conditions or (ii) general conditions in the
automotive industry;
(h) "Pending Acquisitions" means the pending acquisitions identified
---------------------
as such in Amendment No. 4 to the Company's Registration Statement on Form S-1
(Registration No. 333-75907), as well as the following pending acquisitions:
Capitol Ford, Inc.; and RAB Motors, Inc., d/b/a Lexus of Marin and Land Rover of
Marin. The fact that any Pending Acquisition identified in the foregoing
Registration Statement shall have closed prior to the date hereof or the Closing
shall not affect its status hereunder as a Pending Acquisition.
(i) "Person" means an individual, corporation, partnership, joint
-------
venture, association, trust, unincorporated organization or other entity; and
(j) "Subsidiary" of any Person means another Person, an amount of the
-----------
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
(k) In the event of a stock dividend or distribution, or any change
in the Company Common Stock or Company Preferred Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
-------
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
Section 9.6 Interpretation. When a reference is made in this Agreement to
--------------
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 9.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.8 Entire Agreement; No Third-Party Beneficiaries. This
----------------------------------------------
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the
60
subject matter of this Agreement. This Agreement, other than Section 6.4, is not
intended to confer upon any Person other than the parties hereto any rights or
remedies.
Section 9.9 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under principles of conflicts of laws.
Section 9.10 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.11 Enforcement. The parties agree that irreparable damage would
-----------
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 9.12 Consent to Jurisdiction. Any judicial proceeding brought
-----------------------
with respect to this Agreement must be brought in any court of competent
jurisdiction in the State of California, and, by execution and delivery of this
Agreement, each party (i) accepts, generally and unconditionally, the exclusive
jurisdiction of such courts and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement and (ii) irrevocably waives any objection it may now or hereafter have
as to the venue of any such suit, action or proceeding brought in such a court
or that such court is an inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT.
Section 9.13 Severability. Whenever possible, each provision or portion
------------
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.14 Construction. This Agreement shall be construed equitably in
------------
accordance with its terms, without regard to the degree to which the Company,
the Stockholders or the Parent, or their respective legal counsel, have
participated in the drafting of this Agreement.
Section 9.15 Effectiveness of this Agreement; Merger Agreement and
-----------------------------------------------------
Stockholder Agreement Superseded. This Agreement shall become effective when it
--------------------------------
shall have been executed by the Parent, Newco and Stockholders who hold,
benefiically and of record, at least
61
96% of the issued and outstanding shares of Company Common Stock, or such lesser
percentage, not less than 90%, as shall be specifically agreed to in writing by
the Parent. Upon the effectiveness of this Agreement and provided that this
Agreement shall have been executed by the Stockholders who are party to the
Stockholder Agreement, each of the Merger Agreement and the Stockholder
Agreement shall be superseded hereby and of no further force or effect.
Section 9.16 Concerning the Stockholders' Agent. By their respective
----------------------------------
signatures below, the Stockholders hereby acknowledge the appointment of ▇▇▇▇▇▇
▇. Price as the Stockholders' Agent hereunder and under the Escrow Agreement.
The parties hereto agree that a decision, consent, instruction or other act of
the Stockholders' Agent, including, but not limited to, a termination,
amendment, extension or waiver of this Agreement pursuant to Section 8.1,
Section 8.3 and Section 8.4 hereof, shall constitute a decision, consent,
instruction or other act, as the case may be, of the Stockholders and shall be
final, binding and conclusive upon the Stockholders; and the parties hereto
agree that the Escrow Agent, the Parent, Newco and the Surviving Corporation may
each rely upon any such decision, consent, instruction or other act of the
Stockholders' Agent as being the decision, consent, instruction or other act, as
the case may be, of the Stockholders.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
62
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
IN WITNESS WHEREOF, the Parent, Newco, the Company and the Stockholders
have signed this Agreement or have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.
PARENT: SONIC AUTOMOTIVE, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: CFO, VP Finance,
Treasurer/Secretary
NEWCO: FAA ACQUISITION CORP.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: VP, Secretary/Treasurer
COMPANY: FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ ▇▇▇▇▇▇ ▇. Price
---------------------------------
Name: ▇▇▇▇▇▇ ▇. Price
Title: President
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
STOCKHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. Price /s/ ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇▇▇ ▇. Price, Spouse: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
individually and as trustee individually and as trustee
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Spouse: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
individually and as trustee individually and as trustee
/s/ ▇. ▇▇ ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇. ▇▇ ▇▇▇▇▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------- -------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BB INVESTMENTS
a California General Partnership
/s/ W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------
Name: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
EMBARCADERO AUTOMOTIVE, LLC
/s/ W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------
Name: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ PLAZA IRREVOCABLE TRUST
/s/ W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
----------------------------
Name: W. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW (▇▇▇▇ ▇▇), L.P., as General Partner
By TCW Advisors (Bermuda), Limited,
as General Partner
/s/ ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
Managing Director
By: TCW Investment Management Company
its investment advisor
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
its general partner or managing owner
/s/ ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited,
as General Partner
/s/ ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
Managing Director
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
as investment manager and attorney-in-fact
/s/ ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇
Managing Director
/s/ ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
----------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. Tell, Jr.
Managing Director
ASIAN PACIFIC
By:
-------------------------
RAINTREE CAPITAL
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------- -------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------- -------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------- -------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
WARRANT HOLDERS:
/s/ ▇.▇. ▇▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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Name: ▇.▇. ▇▇▇▇▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Spouse: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇, INC.
By:
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