EXHIBIT 10
Note: Certain material has been omitted from this document pursuant to a
request for confidential treatment and has been filed separately with the
SEC. Notations of [Redacted]* have been used to indicate such an omission.
STOCK PURCHASE AGREEMENT
BY AND AMONG
▇▇▇ ▇▇▇▇▇ ENTERPRISES, INC. AND ITS AFFILIATE CORPORATIONS,
THEIR SHAREHOLDERS,
AND
▇▇▇▇▇▇ AUTOMOTIVE GROUP, INC.
August 28, 2002
ARTICLE I PURCHASE AND SALE OF SHARES......................................................................1
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SECTION 1.1 PURCHASE AND SALE OF SHARES.........................................................1
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SECTION 1.2 PURCHASE PRICE......................................................................1
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SECTION 1.3 STOCK CONSIDERATION.................................................................2
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SECTION 1.4 ALLOCATION OF PURCHASE PRICE........................................................2
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ARTICLE II ADJUSTMENT OF PURCHASE PRICE; SELLERS' REPRESENTATIVE.................................................3
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SECTION 2.1 ADJUSTMENTS RESULTING FROM STOCK SPLITS, RECLASSIFICATION OR OTHER ACTS OF ACQUIRER.3
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SECTION 2.2 ADJUSTMENT OF PURCHASE PRICE BASED ON NET BOOK VALUE AND WORKING CAPITAL............3
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SECTION 2.3 SELLERS' REPRESENTATIVE.............................................................6
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ARTICLE III CLOSING, CLOSING DELIVERIES...........................................................................7
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SECTION 3.1 TIME; PLACE.........................................................................7
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SECTION 3.2 SELLERS' AND COMPANIES' CLOSING DELIVERIES..........................................7
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SECTION 3.3 BUYER'S CLOSING DELIVERIES...........................................................
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................9
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SECTION 4.1 ORGANIZATION AND GOOD STANDING......................................................9
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SECTION 4.2 AUTHORITY..........................................................................10
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SECTION 4.3 NO CONFLICT........................................................................10
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SECTION 4.4 OWNERSHIP OF CAPITAL STOCK...........................................................
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SECTION 4.5 SUBSIDIARIES; DISCONTINUED OPERATIONS..............................................11
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SECTION 4.6 OFFICERS AND DIRECTORS; CORPORATE RECORDS..........................................11
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SECTION 4.7 BANK ACCOUNTS......................................................................11
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SECTION 4.8 FINANCIALS; UNDISCLOSED LIABILITIES................................................11
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SECTION 4.9 ACCOUNTS RECEIVABLE................................................................12
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SECTION 4.10 PERMITS AND LICENSES...............................................................13
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SECTION 4.11 NOTICES FROM THE MANUFACTURERS.....................................................13
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SECTION 4.12 LEGAL MATTERS......................................................................13
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SECTION 4.13 EMPLOYEES..........................................................................14
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SECTION 4.14 EMPLOYEE BENEFIT PLANS.............................................................14
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SECTION 4.15 REAL PROPERTY......................................................................16
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SECTION 4.16 PERSONAL PROPERTY..................................................................18
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SECTION 4.17 ENVIRONMENTAL MATTERS..............................................................19
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SECTION 4.18 INTELLECTUAL PROPERTY..............................................................20
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SECTION 4.19 CONTRACTS..........................................................................20
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SECTION 4.20 TAXES..............................................................................21
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SECTION 4.21 INVENTORIES........................................................................23
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SECTION 4.22 INSURANCE..........................................................................23
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SECTION 4.23 COMPLIANCE WITH LAWS...............................................................23
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SECTION 4.24 LIENS..............................................................................24
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SECTION 4.25 AFFILIATE TRANSACTIONS; ABSENCE OF CERTAIN BUSINESS PRACTICES......................24
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SECTION 4.26 ABSENCE OF CERTAIN CHANGES.........................................................24
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SECTION 4.27 CONSENTS AND APPROVALS.............................................................26
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SECTION 4.28 NO OTHER ASSETS....................................................................26
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SECTION 4.29 NO BROKERS OR FINDERS..............................................................26
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SECTION 4.30 INVESTMENT REPRESENTATIONS REGARDING THE ACQUIRER SHARES...........................26
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SECTION 4.31 NON-ACCREDITED INVESTORS...........................................................27
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SECTION 4.32 PURCHASER REPRESENTATIVE...........................................................27
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SECTION 4.33 DISCLOSURE.........................................................................27
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SECTION 4.34 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS................................
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER................................................................27
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SECTION 5.1 ORGANIZATION AND GOOD STANDING.....................................................27
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SECTION 5.3 ACQUIRER SHARES....................................................................27
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SECTION 5.4 ACQUIRER SEC REPORTS; PRIVATE PLACEMENT MEMORANDUM.................................28
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SECTION 5.5 NOTICES FROM GOVERNMENTAL AUTHORITIES..............................................28
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SECTION 5.6 CONSENTS AND APPROVALS.............................................................29
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SECTION 5.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.........................................29
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SECTION 5.8 DISCLOSURE.........................................................................29
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ARTICLE VI FURTHER COVENANTS.....................................................................................29
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SECTION 6.1 INFORMATION PRIOR TO CLOSING.......................................................29
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SECTION 6.2 OPERATION OF BUSINESS..............................................................30
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SECTION 6.3 FURTHER ACTIONS....................................................................31
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SECTION 6.4 EXCLUSIVITY........................................................................31
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SECTION 6.5 CONFIDENTIALITY....................................................................32
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SECTION 6.6 DISTRIBUTIONS......................................................................33
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SECTION 6.7 DELIVERY OF DISCLOSURE LETTERS.....................................................33
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SECTION 6.8 SUPPLEMENTS TO DISCLOSURE LETTERS..................................................33
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SECTION 6.9 RELEASES...........................................................................34
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SECTION 6.10 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇..................................................................36
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SECTION 6.11 NYSE LISTING APPLICATION...........................................................36
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SECTION 6.12 ADDITIONAL TAX MATTERS.............................................................36
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SECTION 6.13 EMPLOYEES..........................................................................37
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SECTION 6.14 AUDITED FINANCIAL STATEMENTS.......................................................37
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SECTION 6.15 FUNDING OF RETENTION BONUS PLAN......................................................
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SECTION 6.16 THIRD PARTY ENGINEERING REPORTS....................................................37
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SECTION 6.17 EMPLOYMENT ARRANGEMENTS............................................................38
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SECTION 6.18 ENVIRONMENTAL REMEDIATION EFFORTS..................................................38
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SECTION 6.19 338(H)(10) ELECTION................................................................40
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SECTION 6.20 NON-DISTURBANCE AND SUBORDINATION AGREEMENTS.......................................40
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SECTION 6.21 ASSIGNMENT BY ACQUIRER.............................................................40
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ARTICLE VII CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.................................................40
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SECTION 7.1 NO MATERIAL ADVERSE CHANGE.........................................................40
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SECTION 7.2 REPRESENTATIONS AND WARRANTIES.....................................................40
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SECTION 7.3 PERFORMANCE OF AGREEMENTS..........................................................40
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SECTION 7.4 NO ACTIONS, ETC....................................................................40
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SECTION 7.5 DUE DILIGENCE......................................................................41
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SECTION 7.6 SHAREHOLDER AGREEMENT; EMPLOYMENT AGREEMENTS.......................................41
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SECTION 7.7 NONCOMPETITION AGREEMENTS..........................................................41
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SECTION 7.8 ESTOPPEL CERTIFICATES, SUBORDINATION & NON-DISTURBANCE AGREEMENTS..................41
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SECTION 7.9 LEASES.............................................................................41
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SECTION 7.10 TITLE INSURANCE POLICIES...........................................................41
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SECTION 7.11 MANUFACTURERS' APPROVAL............................................................42
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SECTION 7.12 NO LEGAL OBLIGATION..................................................................
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SECTION 7.13 TAX CERTIFICATE....................................................................42
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SECTION 7.14 ENVIRONMENTAL MATTERS..............................................................42
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SECTION 7.15 CONSENTS OF THIRD PARTIES..........................................................42
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SECTION 7.16 RELEASE OF OBLIGATIONS RELATED TO NON-COMPANY INDEBTEDNESS.........................42
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SECTION 7.17 INCREASE IN STOCK PRICE............................................................42
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SECTION 7.18 EXISTING FINANCING.................................................................42
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SECTION 7.19 AUDIT..............................................................................43
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SECTION 7.20 VOTING AGREEMENTS; RELATED PARTY AGREEMENT.........................................43
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SECTION 7.21 OTHER SCHEDULES....................................................................43
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SECTION 7.22 DELIVERIES.........................................................................43
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ARTICLE VIII CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE...............................................43
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SECTION 8.1 REPRESENTATIONS AND WARRANTIES.....................................................43
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SECTION 8.2 PERFORMANCE OF AGREEMENTS..........................................................43
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SECTION 8.3 NO ACTIONS, ETC....................................................................43
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SECTION 8.4 OBLIGATIONS OF SELLERS.............................................................43
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SECTION 8.5 DECREASE IN STOCK PRICE............................................................44
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SECTION 8.6 OTHER SCHEDULES....................................................................44
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SECTION 8.7 DELIVERIES.........................................................................44
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ARTICLE IX INDEMNIFICATION.......................................................................................44
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SECTION 9.1 SELLERS' INDEMNIFICATION...........................................................44
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SECTION 9.2 BUYER'S INDEMNIFICATION............................................................45
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SECTION 9.3 THIRD PARTY CLAIMS; LITIGATION.....................................................45
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SECTION 9.4 PAYMENT OF INDEMNIFIED OBLIGATIONS.................................................47
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SECTION 9.5 BUYER'S RIGHT OF OFFSET............................................................47
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SECTION 9.6 LIMITATION ON INDEMNIFICATION BY SELLERS...........................................47
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SECTION 9.7 LIMITATION ON INDEMNIFICATION OF BUYER INDEMNITEES.................................50
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SECTION 9.8 NET INDEMNITY PAYMENTS.............................................................50
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SECTION 9.9 TAX CONTROVERSIES..................................................................50
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ARTICLE X TERMINATION; EFFECT OF TERMINATION; ALTERNATIVE DISPUTE RESOLUTION.....................................51
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SECTION 10.1 GROUNDS FOR TERMINATION............................................................51
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SECTION 10.2 EFFECT OF TERMINATION..............................................................52
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SECTION 10.3 ALTERNATIVE DISPUTE RESOLUTION.....................................................52
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ARTICLE XI MISCELLANEOUS.........................................................................................53
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SECTION 11.1 SURVIVAL...........................................................................53
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SECTION 11.2 COSTS AND EXPENSES.................................................................53
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SECTION 11.3 ENTIRE AGREEMENT; AMENDMENT........................................................54
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SECTION 11.4 ASSIGNMENT; JOINDER................................................................54
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SECTION 11.5 NOTICES............................................................................54
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SECTION 11.6 INDULGENCES, ETC...................................................................55
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SECTION 11.7 EXECUTION IN COUNTERPARTS..........................................................56
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SECTION 11.8 PROVISIONS SEVERAL.................................................................56
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SECTION 11.9 HEADINGS...........................................................................56
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SECTION 11.10 GENDER, ETC........................................................................56
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SECTION 11.11 GOVERNING LAW......................................................................56
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SECTION 11.12 DEFINITIONS........................................................................56
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into this 28th day of August 2002, by and among ▇▇▇▇▇▇ Automotive Group, Inc., a
Delaware corporation ("Acquirer"), each company (other than Acquirer) listed on
the signature pages to this Agreement (each a "Company" and collectively, the
"Companies"), each of the Persons (other than Acquirer and the Companies)
identified on the signature pages to this Agreement (each individually, a
"Seller" and collectively, "Sellers"), being all of the shareholders of the
Companies, and Sellers' Representative (as defined below). This Agreement is
joined into by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇ ▇.
▇▇▇▇-▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ for the purposes set
forth in Sections 6.9 and 11.4(b) (each a "Seller Trustee," and collectively the
"Seller Trustees").
Background
The Companies are engaged in the automobile dealership businesses and
related operations as set forth opposite their names on Schedule 4.4 of the
Sellers' Disclosure Letter (collectively, and as more particularly defined in
Section 11.12, the "Business"). Sellers own all of the issued and outstanding
shares of capital stock of the Companies (as more particularly identified in
Section 4.4 and the Sellers' Disclosure Letter, the "Shares").
Acquirer desires to purchase from Sellers, and Sellers desire to sell
to Acquirer, all of the Shares upon the terms and conditions set forth in this
Agreement. Capitalized terms not defined in the body of this Agreement have the
meaning set forth in Section 11.12.
The parties agree as follows:
ARTICLE I.........
PURCHASE AND SALE OF SHARES
Section 1.1.......Purchase and Sale of Shares. In reliance on the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, Sellers shall, on the Closing Date, sell, assign,
convey, transfer and deliver to Acquirer or such of its Affiliates that Acquirer
designates ("Buyer"), and Buyer shall purchase and acquire from Sellers, all of
the Shares.
Section 1.2.......Purchase Price. As full consideration for the Shares and the
restrictive covenants provided by Sellers in favor of Buyer pursuant to the
Noncompetition Agreements referenced in Section 7.7, Buyer shall, at the
Closing, deliver to Sellers the amount of $88 million (as further adjusted
pursuant to this Agreement, the "Purchase Price") in cash and shares of
Acquirer's common stock ("Acquirer Shares"), as follows:
(a) Buyer shall pay, by wire transfer of immediately available funds, to an
account ("Sellers' Account") designated by Sellers' Representative (which
account shall be designated by Sellers' Representative in writing to Buyer at
least four (4) business days prior to the Closing Date), an amount equal to
$61.6 million, plus any cash payable by Buyer under Section 1.2(b), less the
adjustments provided for in Section 2.2(a)(i) and (ii) (if any), less the
Escrowed Cash (collectively, the "Closing Payment"). Sellers shall be solely
responsible for distributing among themselves from the Sellers' Account their
respective portion of the Closing Payment.
(b) Buyer shall issue and deliver to each Seller stock certificate(s)
representing such Seller's respective portion, as set forth on Exhibit B, of the
aggregate number of Acquirer Shares (the "Stock Consideration"), less the
portion of the Stock Consideration to be delivered into escrow as the Escrowed
Acquirer Shares pursuant to subsection (c) below. The parties will determine the
Stock Consideration by dividing $26,400,000 by an amount equal to the average
closing price per share of Acquirer's common stock traded on the New York Stock
Exchange and as quoted in the Wall Street Journal for the twenty (20) trading
days immediately preceding execution of this Agreement and the twenty (20)
trading days immediately following the execution of this Agreement (the
"Acquirer Stock Price") which Acquirer Stock Price shall be appropriately
adjusted for all adjustments made pursuant to Section 2.1. In no event will the
Stock Consideration exceed 1,500,000 Acquirer Shares. If the Stock Consideration
calculation results in an amount greater than 1,500,000 Acquirer Shares, Buyer
shall deliver 1,500,000 Acquirer Shares (less the amount delivered to escrow)
and also pay in cash, as an additional Closing Payment pursuant to subsection
(a), the difference between: (A) the Acquirer Stock Price multiplied by
1,500,000 and (B) $26,400,000.
(c) At the Closing, Buyer shall deposit, or cause to be deposited, with an
escrow agent mutually agreeable to Buyer and Sellers' Representative, to be held
pursuant to the Pledge and Escrow Agreement attached as Exhibit A (the "Escrow
Agreement"), the following consideration (collectively, the "Escrow Amount"):
(i) cash of [Redacted] of any cash payable pursuant to Section 1.2(b)
(collectively, the "Escrowed Cash"), and (ii) [Redacted] of the Stock
Consideration (the "Escrowed Acquirer Shares"). The number of Escrowed Acquirer
Shares will not be modified to reflect variations in the market price of the
Acquirer Shares during the term of the Escrow Agreement.
(d) As provided in the Escrow Agreement, the Escrow Amount shall be applied
toward any liability of the Sellers, as determined in accordance with this
Agreement. [Redacted] or any adjustment to the Purchase Price pursuant to
Section 2.2, as the case may be, and less the amount set forth in any pending
unresolved indemnification claim made in accordance with this Agreement and the
Escrow Agreement), with the balance to be released [Redacted] (less the amount
of any pending claims or prior indemnification made in accordance with this
Agreement and the Escrow Agreement). The parties to this Agreement understand
and agree to the terms of the Escrow Agreement which, when duly executed,
shall be incorporated by reference as part of this Agreement.
Section 1.3.......Stock Consideration. The Acquirer Shares to be issued pursuant
to the terms of this Agreement will be registered in the name of the Sellers,
bearing the appropriate legend referring to the fact that the Acquirer Shares
were sold in reliance upon an exemption from registration under the Securities
Act provided by Section 4(2) thereof and Rule 506 thereunder.
Section 1.4.......Allocation of Purchase Price. The Purchase Price shall be
allocated in accordance with Exhibit B which shall contain the allocation of the
Purchase Price among the Companies and an allocation of Stock Consideration and
the cash portion of the Purchase Price among the Sellers. Exhibit B will be
delivered by the Sellers and agreed to by Buyer and Sellers on the date of
execution of this Agreement by execution thereof. Sellers may seek to modify
Exhibit B thereafter subject to the mutual agreement of Buyer and the execution
of such modified Exhibit B by each of the parties hereto.
ARTICLE II........
ADJUSTMENT OF PURCHASE PRICE;
SELLERS' REPRESENTATIVE
Section 2.1.......Adjustments Resulting from Stock Splits, Reclassification or
other Acts of Acquirer. If, between the date of this Agreement and the Closing
Date, the outstanding shares of Acquirer's common stock shall have been changed
into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, stock split, combination, exchange
of shares or similar readjustment involving a transaction in which existing
outstanding Acquirer Shares are converted into a different number or kind of
shares of capital stock, or a stock dividend thereon shall be declared with a
record date prior to the Closing Date, the number of Acquirer Shares to be
issued and delivered as part of the Stock Consideration in exchange for the
Shares shall be appropriately adjusted; provided, however, that no adjustment to
the Stock Consideration will be made with respect to an issuance of Acquirer
Shares to a third party by Acquirer in connection with an acquisition, capital
raising, or other transaction during the period indicated.
Section 2.2.......Adjustment of Purchase Price Based on Net Book Value and
Working Capital.
(a) Prior to the Closing Date, the Sellers' Representative and
the Buyer shall, in good faith, based upon the most recent
financial information available, agree in writing upon an
estimate of the Closing Net Book Value of the Companies on a
consolidated basis, determined in accordance with Section 2.2(c)
(the "Estimated Net Book Value") and an estimate of the Working
Capital of the Companies on a consolidated basis (the "Estimated
Working Capital") as of the close of business on the business day
immediately preceding the Closing Date.
(i) If the Estimated Working Capital is less than Target Working
Capital, then the Closing Payment shall be decreased by one
dollar for every dollar by which the Estimated Working Capital is
less than Target Working Capital. The amount by which the
Estimated Working Capital is less than the Target Working Capital
is the "Estimated Working Capital Shortfall." "Target Working
Capital" [Redacted].
(ii) If the Estimated Net Book Value is less than [Redacted] (the
"Lower Threshold"), then the Closing Payment shall be
decreased by one dollar for every dollar by which the sum of
the Estimated Net Book Value and the Estimated Working Capital
Shortfall is less than the Lower Threshold. The amount by
which the Lower Threshold exceeds the sum of the Estimated Net
Book Value and the Working Capital Shortfall is the "Estimated
Net Book Value Shortfall."
Any adjustments to the Closing Payment as contemplated by (i) and (ii) above
shall also be deemed an adjustment to the Purchase Price.
(b) As promptly as practicable, but no later than ninety (90)
days after the Closing Date, Buyer will cause to be prepared and
delivered to the Sellers' Representative a closing balance sheet
as of the close of business on the business day immediately
preceding the Closing Date (the "Closing Balance Sheet"), and a
schedule which sets forth its calculation of: (i) the excess (or
shortfall) of (1) the total tangible assets of the Companies over
(2) the total liabilities of the Companies as of such date
("Closing Net Book Value"), determined in accordance with Section
2.2(c), and (ii) the Working Capital as of such date ("Closing
Working Capital"). This Closing Balance Sheet and schedule shall
be accompanied by a certificate of Buyer showing the amount of
any Purchase Price adjustment based on the relationship of the
Closing Working Capital to the Target Working Capital, and the
Closing Net Book Value to the Lower Threshold resulting from such
calculations (the "Adjustment Certificate").
(c) The Closing Balance Sheet, and the calculations of the
Estimated Net Book Value, the Closing Net Book Value, the
Estimated Working Capital and the Closing Working Capital
(these calculations are collectively, the "Target
Calculations"), shall be prepared in accordance with GAAP
applied on a basis consistent with the application of such
principles by the Companies in the preparation of the
Financial Statements (as defined in Section 4.8) (provided
that, to the extent, if any, that the Financial Statements
were not prepared in accordance with GAAP, the Closing Balance
Sheet and the Target Calculations shall be prepared in
accordance with GAAP and not on a basis consistent with the
Companies' past practices), except as set forth on the
attached Schedule 2.2(c). When preparing the Closing Balance
Sheet and determining the Target Calculations, the parties
shall use the following methods to determine the value of the
inventories of each Company.
(i) The value of the New Vehicles shall equal the Manufacturer's
invoice price for all New Vehicles in such Company's inventory as
of the Closing Date, reduced by any customer deposits, holdback,
floor plan credits, advertising credits, advertising funds,
rebates or other dealer incentives received or to be received
related to such vehicles and, if the New Vehicles have not been
serviced, the amount allowed by the Manufacturer for dealer
preparation and increased or decreased, as the case may be, by
additions (including, but not limited to, special striping, paint
sealant, or the like added by such Company at actual cost or
deletions of the accessories or equipment at such Company's net
actual cost).
(ii) Parts and Accessories shall be valued at the lower of invoice
price or market value, in either case net of any credits,
allowances or rebates.
(iii)The value of Used Vehicle inventory shall be the lower of cost
or market value determined in accordance with GAAP, with market
value being the wholesale value of such vehicle as established by
the most recent ▇▇▇▇▇▇ Blue Book (KBB) Guide - Western Edition or
the actual selling price of the vehicle if sold subsequent to
Closing but before the determination of Closing Net Book Value.
(iv) All other inventories not otherwise covered by (i) - (iii) above
will be stated on a first-in, first-out ("FIFO") basis.
(v) For purposes of determining the Target Calculations, the parties
shall conduct an inventory of the Companies' assets at 10:00 a.m.
on the day before the Closing Date or another mutually acceptable
time. Representatives of Buyer and Sellers shall meet at the
Dealerships that constitute the Business and conduct an inventory
of the assets that Buyer specifies.
(d) The Adjustment Certificate will be conclusive unless Sellers'
Representative, within thirty (30) days following the receipt of the
Closing Date Balance Sheet and the Adjustment Certificate, provides
Buyer with written notice that it disagrees with Buyer's calculation
of the Closing Net Book Value or a Target Calculation. If Sellers'
Representative timely disagrees with the Adjustment Certificate, the
parties shall first attempt, through negotiation, to resolve the
dispute within thirty (30) days. If the parties are unable to resolve
such dispute, they shall jointly refer the dispute to a certified
public accounting firm of national standing mutually agreeable to
Buyer and Sellers' Representative (the "Independent Accountant"),
which has indicated its ability to issue the report described herein
without first conducting an audit, for a final binding determination
of the final Purchase Price adjustment in accordance with the terms of
this Agreement. If issues in dispute are submitted to the Independent
Accountant for resolution, the Sellers' Representative and the Buyer
shall furnish or cause to be furnished to the Independent Accountant,
such working papers and other documents and information relating to
the disputed issues as the Independent Accountant reasonably may
request and are available to that party or its agents and shall be
afforded the opportunity to present to the Independent Accountant any
material relating to the disputed issues and to discuss the issues
with the Independent Accountant. The Independent Accountant shall
issue a report resolving the dispute within thirty (30) days, after
such dispute is referred, which report will be final and binding upon
the parties in the absence of clear and manifest error. This provision
for dispute resolution shall, notwithstanding any other provision set
forth in this Agreement, be specifically enforceable by Buyer and
Sellers' Representatives. Buyer on the one hand and Sellers'
Representative on the other shall each pay one-half of the Independent
Accountant's fees and expenses.
(e) The following reconciliations to the Closing Payment
concerning the Target Calculations shall be made based on the
Adjustment Certificate, and the payments made by the respective
party:
(i) If the Actual Working Capital Shortfall is greater than the
Estimated Working Capital Shortfall, the Sellers' Representative
shall, within two (2) business days after delivery of the agreed
upon or binding Adjustment Certificate, deliver to Buyer that
amount in cash. If the Actual Working Capital Shortfall is less
than the Estimated Working Capital Shortfall, Buyer shall, within
two (2) business days after delivery of the agreed upon or
binding Adjustment Certificate, deliver to Sellers'
Representative that amount in cash. "Actual Working Capital
Shortfall" means the amount by which the sum of Closing Working
Capital is less than the Target Working Capital.
(ii) If the Actual Net Book Value Shortfall is greater than any
Estimated Net Book Value Shortfall, the Sellers' Representative
shall, within two (2) business days after delivery of the agreed
upon or binding Adjustment Certificate, deliver to Buyer that
amount in cash. If the Actual Net Book Value Shortfall is less
than any Estimated Net Book Value Shortfall, Buyer shall, within
two (2) business days after delivery of the agreed upon or
binding Adjustment Certificate, deliver to Sellers'
Representative that amount in cash. "Actual Net Book Value
Shortfall" ---------------------------------- means the amount by
which the sum of the Closing Net Book Value and the Actual
Working Capital Shortfall is less than the Lower Threshold.
(iii) If Closing Net Book Value is different from the Estimated Net
Book Value, then there shall be a resulting adjustment of the
Purchase Price which shall be payable to the party that
overpaid its portion of the Retention Bonus within 2 business
days after delivery of the agreed upon or binding Adjustment
Certificate.
Section 2.3.......Sellers' Representative. Sellers hereby irrevocably make,
constitute and appoint ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Sellers' Representative") as their
true and lawful attorney-in-fact, and representative with full power and
authority to take any action of any type whatsoever in connection with the
Contemplated Transactions which, in the opinion of the Sellers' Representative,
may be of benefit to, in the best interest of or legally required of Sellers.
Sellers each acknowledge and agree that (a) the documents executed by the
Sellers' Representative may be of benefit to, in the best interest of, or
legally required of, Sellers and (b) the documents executed by the Sellers'
Representative on behalf of each Seller pursuant to the power of attorney
granted hereby shall be in such form and shall contain such terms and conditions
as the Sellers' Representative may approve in his sole discretion. Sellers
hereby irrevocably grant to the Sellers' Representative full power and authority
to do and perform every act and thing whatsoever required, necessary and proper
to be done in the exercise of any of the rights and powers hereby granted, as
fully and for all intents and purposes as Sellers could do if personally
present, with full power of substitution or revocation. Each Seller hereby
ratifies and confirms all acts that the Sellers' Representative, or his
substitute or substitutes, may do or cause to be done in Seller's name by virtue
of this power of attorney and the rights and powers herein granted. Sellers
acknowledge and agree that, as between Sellers and Buyer, all actions taken or
consented to by the Sellers' Representative hereunder shall be final,
irrevocable and binding upon each of the Sellers. In the event of the death or
incapacity of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Sellers hereby appoint ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ as the
Sellers' Representative hereunder.
ARTICLE III.......
CLOSING, CLOSING DELIVERIES
Section 3.1.......Time; Place. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the San Diego, California
office of ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps, LLP, at 10:00 a.m., local time, on
the date ten (10) business days after all conditions in Articles VII and VIII
have been satisfied or waived, or on such other date as may be mutually agreed
to by the Sellers' Representative and Buyer (the "Closing Date"). The transfers
and deliveries described in Article III shall be mutually interdependent and
shall be regarded as occurring simultaneously and, notwithstanding any other
provision of this Agreement, no such transfer or deliveries provided for shall
be deemed to have occurred until all of the other transfers and deliveries
provided for in Article III shall also have occurred. Such transfers and
deliveries shall be deemed to have occurred and the Closing shall be deemed
effective as of 12:01 a.m. Pacific Time on the Closing Date.
Section 3.2.......Sellers' and Companies' Closing Deliveries. At the Closing,
Sellers and the Companies shall deliver to Buyer the following:
(a) Stock certificate(s) representing all of the issued and outstanding Shares,
together with separate stock transfer powers (in form and substance acceptable
to Buyer's counsel) duly executed by each Seller for the transfer of the Shares
to Buyer and all applicable stock transfer stamps affixed thereto or other
appropriate evidence of payment of any applicable stock transfer tax or similar
governmental charges.
(b) A certificate signed by a duly authorized officer of each Company, dated as
of the Closing Date, confirming (i) that all agreements and covenants of such
Company required to have been performed or complied with have been performed or
complied with; and (ii) that all necessary actions, corporate or otherwise, have
been taken by such Company to authorize the consummation of the Contemplated
Transactions.
(c) Certificates signed by each Seller, dated as of the Closing Date,
confirming: (i) the truth and accuracy, giving effect to the exceptions set
forth in the Sellers' Disclosure Letter, of all the representations and
warranties of each Seller set forth in this Agreement and the Purchase Documents
as of the date of this Agreement (giving effect to Sellers' Disclosure Letter,
but without giving effect to any Sellers' Supplemental Disclosure Letters) and
as of the Closing Date (giving effect to Sellers' Disclosure Letter and any
Supplemental Disclosure Letters); (ii) that all agreements and covenants of each
Company and each Seller required to be performed or complied with have been
performed or complied with; and (iii) that all necessary actions have been taken
by each Company and each Seller to authorize the consummation of the
Contemplated Transactions.
(d) A certified copy of each Company's Articles of Incorporation, with all
amendments thereto, and a good standing or similar certificate for each Company,
in each case issued by the Secretary of State of such Company's jurisdiction of
organization.
(e) A copy of each Company's Bylaws, with all amendments thereto, certified as
being true, complete and accurate as of the Closing Date by such Company's
Secretary.
(f) Resolutions or their equivalent evidencing each Company's authority to (i)
execute and deliver this Agreement and the Purchase Documents, and (ii) to
consummate the Contemplated Transactions, certified by such Company's Secretary
as being in full force and effect.
(g) An incumbency certificate signed by each Company's Secretary certifying the
accuracy of the specimen signature of each authorized representative of such
Company executing this Agreement and the Purchase Documents.
(h) The executed written resignation, in form reasonably satisfactory to Buyer,
of each director and officer of each of the Companies set forth in Schedule 4.6
of the Sellers' Disclosure Letter to become effective on the Closing Date.
(i) The Employment Agreements referenced in Section 7.6 signed by each employee
contemplated in that section.
(j) The Noncompetition Agreements referenced in Section 7.7 signed by each
Seller.
(k) The tax certificates set forth in Section 7.13.
(l) The Escrow Agreement signed by each Seller.
(m) The Shareholder Agreement in the form attached as Exhibit C to this
Agreement.
(n) The written legal opinion of Sellers' counsel, addressed to Buyer and its
institutional lender dated as of the Closing Date in substantially the form
attached as Exhibit D.
(o) The new leases with respect to the Leased Real Property to be entered into
between Buyer and Sellers' Affiliates contemplated in Section 7.9 signed by the
respective landlords thereto, and the assignment of leases or subleases signed
by Sellers' Affiliates (along with the consent of the landlords, in form and
substance acceptable to Buyer, to such assignment or sublease) contemplated in
that same section.
(p) Any Sellers' Supplemental Disclosure Letters.
(q) Such other documents or instruments as Buyer or its counsel shall reasonably
request for their effort in the consummation of the Contemplated Transactions.
Section 3.3.......Buyer's Closing Deliveries. At the Closing, Buyer shall
deliver or cause to be delivered to Sellers the following:
(a) The Closing Payment payable in accordance with the terms of Section 1.2.
(b) The Stock Consideration.
(c) A certificate signed by a duly authorized officer of Buyer, dated as of the
Closing Date, confirming: (i) the truth and accuracy, giving effect to the
exceptions set forth in Buyer's Disclosure Letter of all the representations and
warranties of Buyer set forth in this Agreement and the Purchase Documents as of
the date of this Agreement (giving effect to Buyer's Disclosure Letter, but
without giving effect to any Buyer's Supplemental Disclosure Letter) and as of
the Closing Date (giving effect to Buyer's Disclosure Letter and any Buyer's
Supplemental Disclosure Letter); (ii) that all agreements and covenants of Buyer
and Acquirer required to have been performed or complied with have been
performed or complied with; and (iii) that all necessary corporate actions or
other actions have been taken by Buyer, as applicable, to authorize the
consummation of the Contemplated Transactions.
(d) A good standing or similar certificate for Buyer issued by the Buyer's
jurisdiction of organization.
(e) The Employment Agreements referenced in Section 7.6 signed by
Buyer or its Affiliate (as the case may
-----------
be).
(f) The Noncompetition Agreements referenced in Section 7.7 signed by Buyer.
(g) The Escrow Agreement signed by Buyer.
(h) The written legal opinion of Buyer's counsel, addressed to Sellers, dated as
of the Closing Date and of a form and content reasonably acceptable to Sellers'
Representative and Sellers' counsel.
(i) Such other documents or instruments as Sellers' Representative or his
counsel shall reasonably request for their effort in the consummation of the
Contemplated Transactions.
(j) Any Buyer's Supplemental Disclosure Letters.
ARTICLE IV........
REPRESENTATIONS AND WARRANTIES OF SELLERS
As a material inducement to Buyer's execution and delivery of this
Agreement and the consummation of the Contemplated Transactions, Sellers,
jointly and severally, (subject to the provisions of Section 9.6) make the
following representations and warranties to Buyer:
Section 4.1.......Organization and Good Standing. Each Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has full power and authority to own its
properties and to carry on its business as presently conducted. Each Company is
duly qualified to do business and is in good standing in all other jurisdictions
where the conduct of its business so requires, except where the failure to be so
qualified would not have a Material Adverse Effect. Each Company has complied
with all requirements of any statute governing the use and registration of
fictitious names in the jurisdiction in which it operates and has the legal
right to use the name or names under which it operates. Schedule 4.1 of the
Sellers' Disclosure Letter sets forth a complete list of all jurisdictions in
which each Company is qualified to do business as a foreign corporation.
Section 4.2.......Authority. Each Seller that is not a natural person is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has full power and authority to carry out its
obligations under this Agreement and the Purchase Documents. Each Seller that is
a natural person has full capacity to execute and deliver this Agreement and the
Purchase Documents to which such Seller is a party, to perform his or her
obligations hereunder and thereunder and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and the Purchase
Documents by each Company, and each Seller that is not a natural person, and the
consummation of the Contemplated Transactions have been duly authorized and
approved by all necessary corporate or other actions. This Agreement and the
Purchase Documents have been duly executed and delivered by each Seller and each
Company and are a legal, valid and binding obligation of each Seller and each
Company, enforceable against each of them in accordance with their terms, except
as such enforcement may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors, or (b) by general equitable principles.
Section 4.3.......No Conflict. Except as set forth in Schedule 4.3 of the
Sellers' Disclosure Letter, the execution, delivery and performance of this
Agreement by each Company and Sellers and the consummation of the Contemplated
Transactions do not and will not: (a) conflict with, violate or result in the
breach of any of the terms or conditions of, or constitute a default under (i)
any Company's Articles of Incorporation or Bylaws (as each are amended to date)
or any material contract, agreement, commitment, indenture, mortgage, pledge,
note, bond, license, permit or other instrument or obligation to which a Company
or any Seller is a party or by which a Company or any Seller or any of their
respective assets, the Shares, or properties are bound or affected, or (ii) any
Applicable Law to which a Company or any Seller or any of their respective
assets, Shares or properties are bound or subject, (b) result in the creation or
imposition of any lien, security interest, charge, encumbrance, restriction or
right, including rights of termination or cancellation, in or with respect to
any Company, any Seller, or any of their respective assets, Shares or
properties, (c) have a Material Adverse Effect, or (d) constitute an event that,
after notice or lapse of time or both, could result in any of the foregoing.
Section 4.4.......Ownership of Capital Stock.
Schedule 4.4 of the Sellers' Disclosure Letter sets forth the
authorized capital structure of each Company, including the type of shares
authorized, the par value per share, the number of each type of shares that are
issued and outstanding, and the number of such issued and outstanding shares
held by each Seller and any other Person (of record or beneficially). The Shares
constitute all of the outstanding stock, stock rights or other equity or other
ownership interest of the Companies. All of the issued and outstanding shares
were duly issued, fully paid and non-assessable, and all are owned beneficially
and of record by the Sellers as set forth on Schedule 4.4 of the Sellers'
Disclosure Letter. Sellers are, and will be on the Closing Date, the sole owners
(of record or beneficially) of all of the issued and outstanding Shares, free
and clear of all Taxes, Liens, encumbrances, claims or rights of other parties.
There are no options, warrants, purchase rights or other instruments or
agreements giving any Person the right to acquire any shares of the capital
stock of any Company nor are there any commitments to issue or execute any such
options, warrants, purchase rights, instruments or agreements. There are no
agreements, understandings or other arrangements with respect to the capital
stock of any Company that would affect Buyer's dividend, liquidation, voting or
transfer rights with respect to any of the Companies after the Closing Date. No
transfer of record ownership of, or beneficial interest in, any of the Shares
will be made between the date of this Agreement and the Closing Date without the
prior written consent of Buyer and the transferee's agreement to join into and
become bound by this Agreement. None of the Shares were issued in violation of
any applicable federal or state securities laws or any other Applicable Laws.
Except as set forth on Schedule 4.4 of the Sellers' Disclosure Letter, there are
no voting trusts, proxies, or other agreements or understandings with respect to
the voting of any shares of capital stock of any of the Companies.
Section 4.5.......Subsidiaries; Discontinued Operations. Other than shares of
another Company, no Company directly or indirectly owns, nor has it owned, any
shares of capital stock or other securities of, or held any interest in, any
other Person. Schedule 4.5 of the Sellers' Disclosure Letter accurately
describes any businesses (a) that have been dissolved, discontinued, sold,
transferred or otherwise disposed of by any Company in the five (5) years
immediately preceding the date of this Agreement, or (b) were businesses of any
Company or any predecessor thereto, or in respect of which, such Company may
have any continuing liability or obligation that may result in a Material
Adverse Effect.
Section 4.6.......Officers and Directors; Corporate Records.
-----------------------------------------
Schedule 4.6 of the Sellers' Disclosure Letter is a true, correct and
complete list of all directors and executive officers of each Company. The
minute books and stock records of each Company are complete and accurate in all
material respects and all signatures included therein are the signatures of the
persons whose signatures are required. True, correct and complete copies of the
Articles of Incorporation and Bylaws of each Company, including all amendments
thereto, and the minute books and stock books of the Company have been delivered
to Buyer.
Section 4.7.......Bank Accounts.
Schedule 4.7 of the Sellers' Disclosure Letter contains an accurate and
complete list of all bank accounts, other accounts, certificates of deposit,
marketable securities, other investments, safe deposit boxes, lock boxes and
safes of each Company, and the names of all officers, employees or other
individuals who have access thereto or are authorized to make withdrawals
therefrom or dispositions thereof.
Section 4.8.......Financials; Undisclosed Liabilities.
-----------------------------------
(a) Sellers have provided and, with respect to clause (iii), will provide Buyer
copies of (i) audited balance sheets and statements of income, cash flow and
changes in shareholders' equity of each Company for the fiscal years ended 1999
and 2000, accompanied by the audit opinion of ▇▇▇▇ ▇▇▇▇▇ LLP, and the unaudited
balance sheet and statements of income, cash flow and changes in shareholders'
equity of each Company for the calendar year ended 2001 (such balance sheets and
statements of income for the calendar year ended 2001, the "Year-End Balance
Sheets" and the "Year-End Income Statements," respectively), (ii) the unaudited
balance sheet and statement of income of each of the Companies for the
five-month period ended May 31, 2002, and (iii) the unaudited balance sheet and
statement of income of each of the Companies for each of the months ended after
December 31, 2001, up until the month immediately prior to the month in which
the Closing occurs (for those months ending after the date of this Agreement,
Sellers shall deliver to Buyer the financial statements for each of these months
no later than the seventh (7th) day after the end of such month), in the same
form as delivered to the Manufacturers. The Year-End Balance Sheets and the
Year-End Income Statements are attached as Schedule 4.8(a) of the Sellers'
Disclosure Letter.
(b) The financial statements referred to in Section 4.8(a) (collectively, the
"Financial Statements") are and, with respect to financial statements to be
provided pursuant to Section 4.8(a), will be true and complete with respect to
each item therein, and, other than the Financial Statements referred to in
Section 4.8(a)(iii), have been and will be prepared in accordance with GAAP
applied on a consistent basis from period to period, except as indicated in the
notes thereto or as set forth on Schedule 4.8(b) of the Sellers' Disclosure
Letter and except that the unaudited financial statements are subject to normal
year-end audit adjustments and do not contain footnotes. The Financial
Statements fairly present the financial condition of the Company at the
respective dates thereof and the results of operations and cash flows for the
periods then ended. Except as set forth in the Financial Statements, the notes
thereto or as otherwise set forth in the Sellers' Disclosure Letter, there are
no special or nonrecurring items of income or expense during the periods covered
by the Financial Statements, and the balance sheets included in the Financial
Statements do not reflect any write-up or revaluation increasing the book value
of any assets.
(c) No Company has any liabilities or obligations of any nature, whether known,
unknown, absolute, accrued, contingent or otherwise and whether due or to become
due (including, without limitation, liabilities relating to Taxes, proceedings
before any Governmental Authority, Environmental Laws or product liability
claims), except (i) as set forth on Schedule 4.8(c) of the Sellers' Disclosure
Letter, (ii) as and to the extent disclosed on, or reserved against on the face
of the Financial Statements as of May 31, 2002 and (iii) liabilities and
obligations that (1) were incurred after May 31, 2002, in the ordinary course of
business consistent with past practice, and (2) are not prohibited by this
Agreement. Notwithstanding the foregoing, the parties acknowledge that Buyer
will not have a claim for indemnification under this Section 4.8(c) if there is
discovered a liability or obligation that otherwise would be a breach of this
subsection and that liability or obligation relates to a matter set forth in
Section 4.12 (Legal Matters), 4.13 (Employees), 4.15(b), (d), and (f) (Real
Property), 4.17(a) (Environmental Matters) or 4.20(a) and (i) (Tax Matters) for
which such representation or warranty contained in that section is qualified by
Sellers' knowledge and the discovered liability or obligation does not
constitute a breach of that other section's representation or warranty as a
result of that knowledge qualifier.
(d) To Seller's knowledge, (i) the Working Capital as of the date hereof and as
of the Closing Date satisfies manufacturer working capital requirements and is
consistent with the working capital levels that generated the EBITDA for the
Companies for the twelve-month period ended May 31, 2002, and (ii) the Target
Net Book Value is consistent with net tangible book value levels that generated
the EBITDA for the twelve-month period ended May 31, 2002. Further, the Working
Capital is comprised of adequate cash to meet the manufacturer working capital
requirements and to satisfy in full the LIFO Recapture Liabilities.
Section 4.9.......Accounts Receivable. Sellers have delivered or caused to be
delivered to Buyer a complete and accurate aging of all accounts receivable of
each Company as of the end of each monthly period after the date of the Year-End
Balance Sheet for 2001. Except as set forth on Schedule 4.9 of the Sellers'
Disclosure Letter and except for reserves and allowances for doubtful accounts,
no account receivable of the Company reflected on the Year-End Balance Sheet as
of December 31, 2001, and no account receivable arising after December 31, 2001,
and reflected as unpaid on the books of the Company as of the Closing Date is
uncollectable or subject to a counterclaim or offset, except to the extent
reserved against thereon. Except for reserves and allowances for doubtful
accounts, all accounts receivable reflected on the Financial Statements as of
May 31, 2002 delivered to Buyer or on the books of a Company since the date of
such Financial Statements have been generated in the ordinary course of business
and reflect a bona fide obligation for the payment of goods and services
provided by such Company.
Section 4.10......Permits and Licenses. Each Company holds all the franchises,
licenses, permits, consents, approvals, waivers and other authorizations
(collectively, the "Permits") which are necessary for the operation of such
Company's Dealership(s) and Business, including without limitation, all Permits
issued by the respective Manufacturer(s) or any Governmental Authority, except
where the failure to hold such Permits would not have a Material Adverse Effect.
Schedule 4.10 of the Sellers' Disclosure Letter sets forth a complete list of
all Permits held by each Company. The Companies are not in default, nor has any
Company or any Seller received any notice of any claim of default with respect
to any of the Permits, or any notice of any other claim or proceeding, or
threatened proceeding, relating to any of the Permits. All of the Permits are in
full force and effect. Except as set forth on Section 4.10 of the Sellers'
Disclosure Letter, the Contemplated Transactions will not result in the
cancellation or termination of any of the Permits, and no consent from, or
notice to, any Governmental Authority (other than in connection with the HSR
filing) is required to transfer the benefit of any of the Permits to Buyer.
Section 4.11......Notices from the Manufacturers. Except as set forth in
Schedule 4.11 of the Sellers' Disclosure Letter, no Company or any Seller has
received notice (oral or written), nor has any Seller received information, from
a Manufacturer that (a) the Manufacturer wishes to move or close a Dealership or
otherwise change or terminate its relationship with a Company, (b) the
Manufacturer has taken action or intends to take action with respect to the
award of a new franchise in a competing location, (c) the Manufacturer has
protested, or intends to protest, any action by a Company, (d) the Manufacturer
has designated, or intends to designate, a Dealership as having any "delete
point status" or similar status, (e) there are any deficiencies in dealership
operations including (i) brand imaging, (ii) facility conditions, (iii) sales
efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or
(vi) sales incentives, (f) there is a present or future need for facility
improvements, upgrades or other modifications in connection with any Dealership
or the Leased Real Property, or (g) there is a shortfall or deficiency in the
working capital of any Dealership.
Section 4.12......Legal Matters. Except as set forth in Schedule 4.12 of the
Sellers' Disclosure Letter, there is not, and has not been during the last five
(5) years, any litigation or other proceeding or governmental investigation
pending, or to Sellers' knowledge, threatened against or affecting a Company, a
Dealership or the Business. None of the matters listed on Schedule 4.12 would
have, or have had, if resolved adversely to any Company, any Dealership or the
Business, a Material Adverse Effect. Except as set forth on Schedule 4.12 of the
Sellers' Disclosure Letter, there are no lawsuits or claims by a Company
presently pending, or which a Company intends to initiate against any Person.
There are no judgments, orders, decrees or awards before any court, department,
commission, board, instrumentality or arbitrator which affects any Company, any
Dealership or the Business.
Section 4.13......Employees. Schedule 4.13 of the Sellers' Disclosure Letter
contains a list of all of each Company's employees (individually an "Employee",
collectively the "Employees") and their compensation as of the date hereof, and
identifies those Employees who have employment contracts with such Company. No
Employee is a member of or represented by any labor union or other collective
bargaining representative in connection with his or her employment. During the
five (5) years preceding the date of this representation, no Company has
received any petition for, or written notice of any action being taken with
respect to, any collective bargaining representation, solicitation or
organization of any Employee or, except as set forth on Schedule 4.13 of the
Sellers' Disclosure Letter, any unfair labor practice, discrimination, sexual
harassment or occupational and health safety standards charge, grievance,
arbitration, claim, proceeding or jurisdictional dispute before any Governmental
Authority (including, without limitation, the National Labor Relations Board or
an equal employment opportunity council); nor are there any other labor
disputes, strikes, work stoppages or slowdowns, organizing efforts or other
similar labor activities pending or, to the Sellers' knowledge, threatened, with
respect to a Company or any Employee in connection with his or her employment by
a Company. The Companies have complied with all requirements of Applicable Law
relating to their Employees, except where the failure to so comply would not
have a Material Adverse Effect, and have paid all wages, salary and bonuses due
to Employees through the end of the most recent pay period on or before the date
of this Agreement and will have paid all such wages, salary and bonuses through
the Closing Date. No Company has received any notice regarding a current claim
against it for (i) overtime pay, wages, salary or bonus, excluding current
payroll periods or (ii) vacation time, excluding time earned in current payroll
periods. To the Sellers' knowledge, no executive or key Employee or group of
Employees has any plans to terminate his, her or their employment with or by any
Company as a result of the Contemplated Transactions. Except for the Retention
Bonus and other payments described herein, no Employee will be entitled to any
severance or other payment in connection with the execution and delivery of this
Agreement or the consummation of the Contemplated Transactions.
Section 4.14......Employee Benefit Plans.
(a) Except as set forth on Schedule 4.14(a) of the Sellers' Disclosure Letter,
no present or former employee of any Company shall be entitled to any retirement
pay or retirement benefits of any kind. Except as set forth on Schedule 4.14(a)
of the Sellers' Disclosure Letter, no Company maintains, sponsors, contributes
to or has any liability under any agreement, plan, practice or program, whether
written or oral, providing for bonus payments, child or dependent care benefits,
death benefits, accidental death and dismemberment benefits, deferred
compensation benefits, disability or other wage continuation benefits,
educational assistance or tuition benefits, health benefits, paid holiday
benefits, incentive compensation payments, leave of absence rights, medical
expense payment or reimbursement benefits, retiree medical benefits, retiree
life insurance benefits, profit sharing, pension or other retirement benefits,
stock option, stock appreciation rights or stock purchase benefits, severance or
termination pay or benefits (including post-employment consulting arrangements)
or vacation. Items of the nature described in the prior sentence, whether
involving a Company or any entity which would be considered a single employer
with such Company under Paragraph 4001(b)(1) of ERISA, or Paragraph 414(b), (c)
or (m) of the Code (an "ERISA Affiliate"), are individually referred to as an
"Employee Benefit Plan" and collectively referred to as "Employee Benefit
Plans." Schedule 4.14(a) of the Sellers' Disclosure Letter includes, but is not
limited to, each plan involving employees of a Company and maintained or
contributed to by a Company or an ERISA Affiliate which is an "Employee Benefit
Plan" as such term is defined in Paragraph 3(3) of ERISA. Sellers have delivered
to Buyer a true and complete copy of each Employee Benefit Plan (or in the case
of any unwritten Employee Benefit Plans, complete descriptions thereof) covering
employees of each Company or an ERISA Affiliate, including all texts, amendments
and other agreements (whether formal or informal) adopted in connection
therewith. Sellers have provided Buyer true and complete copies of (1) IRS Form
5500 (including all schedules and opinions of independent auditors) for each
Employee Benefit Plan (if any such filing was required by law) filed for each of
the most recent four plan years, (2) the most recent summary plan description
(or similar document) for each Employee Benefit Plan for which a summary plan
description is required by law or was otherwise provided to plan participants or
beneficiaries, (3) each trust agreement, insurance or annuity contract or other
funding agreement relating to any Employee Benefit Plan, and (4) all reports and
compliance testing results submitted within the four year period preceding the
date of this Agreement by third party administrators, actuaries, investment
managers, consultants, or other independent contractors with respect to any
Employee Benefit Plan. Each Employee Benefit Plan which is intended to be
qualified and exempt from federal income taxation under the provisions of
Sections 401(a) and 501(a) of the Code has been determined to be so by the
Internal Revenue Service, and there has been no act or omission, and no
circumstances exist, which would cause any such Employee Benefit Plan to fail to
be qualified or cause such Employee Benefit Plan to lose its exempt status.
Copies of the most current favorable determination letters for each such
Employee Benefit Plan have been delivered to Buyer, and such letters take into
account all changes in qualification requirements made by "GUST" as defined in
Revenue Procedure 2000-27.
(b) No employee or former employee of any Company or an ERISA Affiliate, and no
beneficiary thereof, participates in or has any rights to benefits, with respect
to employment with any Company under any agreement, plan, practice or program
not listed on Schedule 4.14(b) of the Sellers' Disclosure Letter. No person who
is not a current or former employee (or a beneficiary or eligible dependent
thereof) of a Company participates in or is entitled to any benefits under any
plan listed on Schedule 4.14(b) of the Sellers' Disclosure Letter.
(c) No actions, suits, claims or investigations (other than routine claims for
benefits) with respect to the Employee Benefit Plans are pending or threatened
and no facts exist that would give rise to or result in any liability in the
event of any such action, suit, claim or investigation. Each Employee Benefit
Plan has been administered in accordance with its terms. The Companies and their
ERISA Affiliates with respect to the Employee Benefit Plans are, and each of the
Employee Benefit Plans is, in full compliance with all Applicable Laws,
including ERISA and the Code. With respect to each of the Employee Benefit
Plans, (1) there have been no transactions prohibited by Section 406 of ERISA
and no "prohibited transaction" under Section 4975 of the Code; (2) there has
been no breach of fiduciary duties under Section 404 of ERISA; (3) there has
been no "reportable event" as defined in Section 4043 of ERISA and in
regulations issued thereunder; (4) no Company and no ERISA Affiliate has any
liability to the IRS; and (5) all required reports and information (including
Form 5500, summary annual reports and summary plan descriptions) have been
timely filed with the appropriate government agencies, and all notices and
disclosures to participants and beneficiaries required by ERISA or the Code have
been timely provided and were true, complete and correct in all respects. Each
of the Companies has retained the right to unilaterally amend or terminate each
Employee Benefit Plan upon not less than thirty days' notice to the fullest
extent permissible by law, and any such plan, except the plan referred to in
Section 6.3(c), can be terminated within thirty days without payment of any
additional contribution or amount and without vesting or acceleration of any
benefits promised by such Employee Benefit Plan. Subject to Section 6.3(c), no
Company maintains any Employee Benefit Plan under which any benefit would become
accelerated or vested because of the consummation of the Contemplated
Transactions.
(d) No Employee Benefit Plan provides post-employment medical, health or life
insurance benefits for present or future retirees or present or future
terminated employees, or their spouses or dependents except for continuation
coverage, which is paid entirely by the individual electing such coverage and
which is provided pursuant to the requirements of Section 4980B of the Code and
Sections 601-608 of ERISA or a similar state law, or continued coverage under an
insurance policy for a period not to exceed 60 days following termination of
employment.
(e) No Company now maintains or makes contributions to, or has ever been
required to contribute to, or has, at any time in the past, maintained or made
contributions to any multiemployer plan, as defined in Section 3(37) of ERISA or
any defined benefit plan as defined in Section 3(35) of ERISA, nor incurred any
actual or potential liability for any termination of, or complete or partial
withdrawal from such plans. No Employee Benefit Plan is unfunded or funded
through a "welfare benefit fund" as defined in Section 429(e) of the Code.
(f) Schedule 4.14(f) of the Sellers' Disclosure Letter contains a list of all
outstanding workers' compensation claims by each of the Company's employees.
Except as set forth on Schedule 4.14(f) of the Sellers' Disclosure Letter, no
Company's workers' compensation insurance policy imposes retrospective or
retroactive premium adjustments and no Company has received notice of an
increase in workers' compensation premiums.
Section 4.15......Real Property.
(a) Set forth on Schedule 4.15(a) of the Sellers' Disclosure Letter is a list of
all real property leased (the "Leased Real Property") by each Company or a
Seller, for use in connection with the Business. No Company owns any real
property except as set forth on Schedule 4.15(a) (the "Owned Real Property").
Each Company has good and valid title to its Owned Real Property free and clear
of all liens and encumbrances not otherwise identified on Schedule 4.15(a).
(b) All leases relating to Leased Real Property are valid and in full force and
effect, and there does not exist any default by any Company under any such
leases. Except as set forth on Schedule 4.15(g) of Sellers' Disclosure Letter,
no default or right of acceleration will be created by Sellers' transfer of the
Shares to Buyer. Each Company has a good and valid leasehold interest to the
Leased Real Property used in connection with such Company's Business, free and
clear of all Liens, and enjoys peaceful and undisturbed possession of such
premises under such leases. Each respective landlord of a Leased Real Property
that is the subject of an Affiliate Lease is the fee simple owner of that Leased
Real Property, and has full right and authority to lease the Leased Real
Property to the Company that is the party to the underlying lease. To Sellers'
knowledge, each respective landlord of a Leased Real Property that is not the
subject of an Affiliate Lease, is the fee simple owner of that Leased Real
Property, and has full right and authority to lease the Leased Real Property to
the Company that is the party to the underlying lease. Sellers have delivered to
Buyer a true, correct and complete copy of each lease for Leased Real Property
as set forth on Schedule 4.15(b), and such leases constitute all agreements or
commitments of the Companies relating to the lease, use or occupancy of the
Leased Real Property by the Companies.
(c) The Owned Real Property and the Leased Real Property constitute all of the
leasehold interests in real property used or held for use in connection with,
necessary for the conduct of, or otherwise material to the Business, any Company
or any Dealership. There is no defective condition, structural or otherwise,
with respect to the Owned Real Property and the Leased Real Property. All
improvements, buildings and systems on the Owned Real Property and the Leased
Real Property, including without limitation, the heating, ventilating and air
conditioning equipment and systems, plumbing system, sprinkler system,
electrical system, fire suppression and alarm systems, the roof and roof
membrane, and other fixtures, equipment and systems located upon the Owned Real
Property and the Leased Real Property (collectively, the "Systems") are in good
repair, working order and operating condition given their age (ordinary wear and
tear excepted). The Owned Real Property and the Leased Real Property (including
all improvements, buildings, parking lots and Systems located thereon) and the
Companies use of the Owned Real Property and the Leased Real Property are in
compliance with all Applicable Laws, and no Company or Seller has received
notice of non-compliance with respect to such Applicable Laws from any Person.
All water, sewer, gas, electric, telephone, drainage and other utility
equipment, facilities and services required by Applicable Law for the operation
of the Business and located on the Owned Real Property and the Leased Rental
Property are or have been installed and connected in accordance with Applicable
Law and any Governmental Authority approvals, and no Company has received notice
of the termination or impairment of any such services. The Systems are, or have
been, installed and connected in accordance with Applicable Law and are in
compliance with all Applicable Laws. The representations and warranties set
forth in this Section 4.15(c) shall be qualified by, and be subject to, the
reports described in Section 6.16.
(d) To Sellers' knowledge, each Company has all easements, rights-of-way,
permits and similar authorizations for the use of the Owned Real Property and
the Leased Real Property occupied by such Company in the operation of the
Business as heretofore conducted (the "Easements"). To Sellers' knowledge, no
Company nor any other party thereto is in default of any provision of any
Easement or any covenant, restriction or other agreement encumbering any Owned
Real Property or Leased Real Property, and no event that, with the giving of
notice, the passage of time or both would become a default, has occurred under
any Easement or any covenant, restriction or other agreement encumbering such
property, where such a default would have a Material Adverse Effect, including
without limitation, that prompt and timely payment of all Taxes currently
assessed or imposed upon such Owned Real Property or such Leased Real Property.
The Leased Real Property that is subject to the Affiliate Leases is not subject
to any Tax abatements or deferrals. The buildings and improvements on the Leased
Real Property are located within the boundary lines of the described parcels of
land and do not encroach on any Easement which may burden the land. The current
use of the Owned Real Property and the Leased Real Property does not serve any
adjoining property for any purpose inconsistent with a Company's use of the
Owned Real Property and the Leased Real Property.
(e) No zoning or similar ordinance, restrictive covenant or other encumbrance or
restriction (i) prevents any Companies from conducting any portion of the
Business on the Owned Real Property or on the Leased Real Property, (ii)
prevents any Company from its use of the Owned Real Property or the Leased Real
Property for the conducting of the Business, or (iii) otherwise conflicts or is
inconsistent with the terms of Leases with respect to each Owned Real Property
and each Leased Real Property. There are no exclusive use agreements affecting
any Company's use of any Owned Real Property or any Leased Real Property. No
Company has received notice of any condemnation or rezoning hearings or
proceedings pending before any governmental agency or body, or contemplated by
any Governmental Authority or body, with respect to all or any portion of the
Owned Real Property or Leased Real Property, and no Company or Seller has
received written notice that any such hearings or proceedings are threatened or
contemplated.
(f) There are no contracts to which any Company is a party granting to any party
or parties the right of use or occupancy of any portion of the Owned Real
Property or Leased Real Property other than customary rights granted to public
utilities, none of which materially interfere in the use of such property by the
Companies in the conduct of the Business. There are no parties (other than a
Company) in physical possession of any of the Owned Real Property or Leased Real
Property and there is no encroachment of improvements located on any adjoining
property upon the Owned Real Property or the Leased Real Property. The Leased
Real Property abuts on and has vehicular access directly or through recorded
perpetual easements to a public road and there is no pending or to Seller's
knowledge threatened termination of such access.
(g) The Leased Real Property listed on Schedule 4.15(g) is substantially
unimproved real property upon which no material Dealership operations (other
than the storage of vehicles) are conducted.
Section 4.16......Personal Property.
(a) Set forth on Schedule 4.16 of the Sellers' Disclosure Letter is a list of
all personal property (i) owned by each Company or a Seller and having an
historical cost in excess of $600.00 and used in connection with the Business
(the "Owned Personal Property"), or (ii) leased by a Company or a Seller and
having annual lease payments in excess of $1,000 (the "Leased Personal
Property"), for use in connection with the Business. Each Company has good and
valid title to all Owned Personal Property used by such Company in connection
with its Business, free and clear of all Liens.
(b) All leases relating to Leased Personal Property are valid and in full force
and effect, and there does not exist any payment or other default by any Company
under any such leases. No default or right of acceleration will be created by
the Contemplated Transactions. Each Company has good and valid leasehold
interest to the Leased Personal Property free and clear of all Liens, and enjoys
peaceful and undisturbed possession and use of such personal property under such
leases. Sellers have delivered to Buyer a true, correct and complete copy of
each lease for personal property to which any Company is a party.
(c) The Owned Personal Property and Leased Personal Property constitute all of
the fee and leasehold interests in personal property used or held for use in
connection with, necessary for the conduct of, or otherwise material to any
Company, any Dealership or the Business. All Owned Personal Property and Leased
Personal Property are in good repair, working order and operating condition, and
are suitable for the purposes for which they are being used.
Section 4.17......Environmental Matters. Except as set forth on Schedule 4.17 of
the Sellers' Disclosure Letter and the Phase I Environmental Assessments
conducted by Buyer between the date of the Agreement and the Closing:
(a) The Companies and, to the knowledge of each Seller, all predecessors of each
Company, have complied with and are currently in compliance with all
Environmental Laws (including all permits and authorizations required under
Environmental Laws) pertaining to any of the properties and assets of any
Company, including, without limitation, any Leased Real Property, or to any
property presently or previously used in connection with the Business or any
Dealership. No violation of any Environmental Law is being alleged or threatened
or has, to the knowledge of Sellers, at any time been alleged or threatened
relating to any of the properties and assets of any Company, the Leased Real
Property, and to the use or ownership thereof, or to any property presently or
previously used in connection with any Dealership or the Business.
(b) The Companies and Sellers have disclosed and made available to Buyer all
information, including, without limitation, true, correct and complete copies of
all studies, analyses and test results in their possession, custody or control
or otherwise known to any Company or any Seller relating to (i) the
environmental conditions on, under or about any Leased Real Property, and (ii)
any Hazardous Materials used, handled, treated, generated, stored, disposed of
or transported away from any Dealership or Released by any Company or any other
Person (including, without limitation, third parties) on, under, about or from
any of the Leased Real Property or otherwise, in connection with any Dealership
or the Business. A list of all studies, analyses and test results provided to
Buyer hereunder is also set forth on Schedule 4.17 of the Sellers' Disclosure
Letter.
(c) No Company nor any property presently or previously used in connection with
any Dealership or the Business is subject to, and the Companies and Sellers have
not taken any action that will result in, any Lien, liability or obligation
arising out of (i) environmental conditions on, under, or about the properties
and assets of any Company, its assets or any real property owned or leased at
the present time or in the past, including, without limitation, the air, soil
and ground water conditions at such properties, or (ii) the past or present use,
handling, treatment, generation, storage, disposal, Release or threatened
Release of any Hazardous Materials, respectively.
(d) Except as set forth on Schedule 4.17(d) of Sellers' Disclosure Letter, no
Company nor any Leased Real Property is subject to any outstanding order from,
or contractual or other obligation with, any third party in respect of which any
Company, any Seller or Buyer may be required to incur costs arising from the
Release or threatened Release of Hazardous Materials. No Company nor any Seller
has entered into any contractual or indemnification obligation with any third
party pursuant to which they assumed responsibility for, either directly or
indirectly, the remediation of any condition arising from or relating to the
Release or threatened Release of Hazardous Materials.
Section 4.18......Intellectual Property.
(a) Each Company owns or has enforceable, irrevocable, licensing rights to the
Intellectual Property and all other confidential business information or
technical information used in connection with the Business conducted by it, free
and clear of all Liens. Schedule 4.18 of the Sellers' Disclosure Letter lists
all patents, trademarks, service marks, trade names and domain names, together
with all pending applications therefore used by such Company in connection with
the Business. Other than as set forth on Schedule 4.18 of the Sellers'
Disclosure Letter, there are no other patents, trademarks, service marks, trade
names, doing business or domain names necessary to operate any Dealership. No
claim is pending or threatened to the effect that the present use of the
Intellectual Property infringes upon or conflicts with the rights of any other
Person and there is no basis for any such claim (whether or not pending or
threatened).
(b) For purposes of this Section 4.18, "Intellectual Property" means the names,
service marks and slogans of "▇▇▇ ▇▇▇▇▇," "BetterWay," "The ▇▇▇ ▇▇▇▇▇ Auto
Group" and "Where It's So Nice To Be Nice" and all other trade names, corporate
names, fictitious names and doing-business names and logos used or held by the
Company or Sellers in connection with the Business, and all other intangible
property rights or claims, including all patents, patent applications and
foreign counterparts thereof, all trademarks, trade-names, service marks and
service names, and registrations and applications for registration thereof, and
foreign counterparts thereof, all copyrights, copyright applications and
copyright registrations and foreign counterparts thereof, all inventions,
discoveries, trade secrets, improvements, formulae, practices, processes,
methods, technology and know-how and similar proprietary rights and related
licenses and other agreements that are owned by any Company or any Seller for
use in connection with the Business. It also includes all computer software,
firmware, programs, source disks, internet domain names, internet domain name
registrations, world wide web sites or pages, program documentation, tapes,
manuals, forms, guides and other materials with respect thereto used or held for
use by any Company or any Sellers in connection with the Business.
Section 4.19......Contracts. Sellers have delivered to Buyer true and complete
copies of all Contracts in effect as of the date of this Agreement, other than
(a) outstanding orders for vehicle and parts inventory entered into in the
ordinary course of business consistent with past practice, and (b) other
contracts or commitments entered into in the ordinary course of business and
consistent with past practices (i) having a term of less than 12 months and
involving a total expenditure of less than $10,000, or (ii) requiring the
performance of services having a cost of less than $10,000. A list of the
Contracts is set forth on Schedule 4.19 of the Sellers' Disclosure Letter. Each
Company has performed the material obligations required to be performed by it to
date and is not in default or alleged in writing to be in default under any of
the Contracts, and there exists no event, condition or occurrence which, after
notice or lapse of time, or both, would constitute such a default. All of the
Contracts are valid, in full force and effect and are enforceable in accordance
with their respective terms.
Section 4.20......Taxes.
(a) Each of the Companies is a small business corporation as defined in Section
1361 of the Code and has had in effect for each taxable year beginning January
1, 2002, a valid election to be treated as an "S" corporation for federal income
tax purposes under the Code and under the income tax laws of each state in which
each such Company does business under which such election is permitted. No
Governmental Authority has challenged or, to Sellers' knowledge, threatened to
challenge the status of the Company as an "S" corporation.
(b) Schedule 4.20(b) of the Sellers' Disclosure Letter lists (i) all taxing
jurisdictions in which each Company has filed Returns (or otherwise been treated
for income tax purposes) as a corporation other than an S corporation and (ii)
all taxing jurisdictions in which each Company is currently treated as an S
corporation and the date from which such treatment has continuously been in
effect.
(c) All federal, state, local and foreign income and other Returns required to
be filed have been filed for each Company and its Affiliates, and all other
required filings in respect of Taxes have been made for each Company and its
Affiliates, for all periods as required by applicable law. Each such Return and
filing is true and correct, all Taxes shown thereon or otherwise due have been
paid, and no Company or any of its Affiliates have or will have any additional
liability for Taxes with respect to any return or other filing heretofore filed
or which was required by law to be filed, other than as reflected as liabilities
on the Closing Balance Sheet. Except as set forth on Schedule 4.20(c), none of
the Returns or other filings that include the operations of any Company has ever
been audited or investigated by any Governmental Authority, and no facts exist
which would constitute grounds for the assessment of any additional Taxes by any
Governmental Authority with respect to the taxable years covered in such returns
and filings. No Governmental Authority has raised any issue with respect to
Taxes that, by application of similar principles, could result in the issuance
of a Notice of Deficiency or similar notice of intention to assess Taxes by any
Taxing Authority. Except as set forth on Schedule 4.20(c) of the Sellers'
Disclosure Letter, no position has been taken on any Return with respect to the
Business of any Company for a taxable year for which the statute of limitations
for the assessment of any Tax with respect thereto has not expired that is
contrary to any pronouncement of any Governmental Authority. All Taxes that the
Company is required by law to withhold or collect, including without limitation,
sales and use taxes, and amounts required to be withheld for Taxes of employees,
have been duly withheld or collected and, to the extent required, have been paid
over to the proper Governmental Authorities or are held in separate bank
accounts for such purpose. True, correct and complete copies of all income and
sales tax Returns and forms filed by or with respect to each Company for the
past three years have been furnished to Buyer. No claim has ever been made by a
Governmental Authority in any jurisdiction where a Company does not file Returns
that it is or may be subject to Taxes in such jurisdiction.
(d) The amount provided on the Closing Balance Sheet for all Taxes is adequate
to cover all unpaid liabilities and obligations for all Taxes (including any
interest or penalties with respect to such Taxes), whether or not due or
disputed, that have accrued with respect to or are applicable to the period
ending on and including the Closing Date or to any years and periods prior
thereto and for which any Company may be directly or contingently liable in its
own right or as a transferee of the assets of, or successor to, any Persons. No
Company has incurred any Tax liabilities other than in the ordinary course of
business for any taxable year for which the applicable statute of limitations
has not expired.
(e) No Company has ever been a "United States real property holding corporation"
within the meaning of Section 897 of the Code.
(f) No property of any Company is subject to any liens for Taxes, other than
liens for Taxes not yet due and payable.
(g) No Company has made or become obligated to make, and will not as a result of
any event connected with the purchase of the capital stock of the Companies or
any other Contemplated Transaction become obligated to make, any "excess
parachute payment" as defined in Section 280G of the Code (without regard to
subsection (b)(4) thereof) or Section 4999 of the Code, or a payment of any
amount that would not be deductible by reason of Section 404 of the Code.
(h) No agreement or other document waiving or extending, or having the effect of
waiving or extending, the statute of limitations or the period of assessment or
collection of any Taxes with respect to any Company and no power of attorney
with respect to any such Taxes, has been filed or entered into with any
Governmental Authority. The time for filing any Return with respect to any
Company has not been extended to a date later than the date of this Agreement.
Schedule 4.20(h) of the Sellers' Disclosure Letter sets forth in detail all
taxable periods of each Company (i) which have been audited by the relevant
Governmental Authority or (ii) with respect to which the time period for
assessing or collecting Taxes with respect to such taxable period have closed
and are not subject to review by any relevant Governmental Authority.
(i) No audit of any Return of any Company is being conducted or, to the Sellers'
knowledge threatened, by a Governmental Authority.
(j) Except as set forth on Schedule 4.20(j), no Company (i) is a party to or
bound by or has any liability or potential liability under any Tax allocation,
sharing, indemnity or similar agreement or arrangement, or (ii) is or has been a
member of any group filing any Return or paying any Taxes on a consolidated,
combined or unitary basis. Except as set forth on Schedule 4.20(j), no Company
is subject to any joint venture, partnership or other arrangement or contract
which is treated as a partnership for federal income tax purposes.
(k) The basis of all depreciable or amortizable assets, and the methods used in
determining allowable depreciation or amortization (including cost recovery)
deductions of each Company, are correct in all material respects (determined
separately for each Company) and in compliance with the Code and the regulations
thereunder.
(l) None of the assets of any Company constitutes tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of the
Code, and none of the assets reflected on the Closing Balance Sheet is subject
to a lease, safe harbor lease or other arrangement as a result of which no
Company is treated as the owner for federal income tax purposes.
(m) No Company is a party to or otherwise subject to any arrangement having the
effect of or giving rise to the recognition of a deduction or loss in a taxable
period ending on or before the Closing Date, and a corresponding recognition of
taxable income or gain in a taxable period ending after the Closing Date, or any
other arrangement that would have the effect of or give rise to the recognition
of taxable income or gain in a taxable period ending after the Closing Date
without the receipt or entitlement to a corresponding amount of cash.
(n) No Company is required to include in income any adjustment pursuant to
Section 481(a) of the Code for any period after the Closing Date, by reason of
any voluntary or involuntary change in accounting method (nor has any
Governmental Authority proposed any such adjustment or change of accounting
method).
(o) None of the assets of any of the Companies is subject to a consent pursuant
to Section 341(f) of the Code (or any predecessor provision).
Section 4.21......Inventories. The inventories of each Company, whether
reflected in the Financial Statements or subsequently acquired are, and will be
on the Closing Date, of a quality and quantity useable and saleable in the
ordinary course of business, except to the extent expressly reserved against in
the Financial Statements and on the Closing Balance Sheet. Each part and
accessory included in the inventory of each Company is (a) returnable to the
manufacturer of such part or accessory, (b) in returnable condition as
determined by the standards of such manufacturer, and (c) listed in a current
parts and accessory catalogue of such manufacturer, except to the extent
expressly reserved against in the Financial Statements or on the Closing Balance
Sheet. The odometer of each of the vehicles included in the inventories of each
Company on the Closing Date represents the actual mileage that such vehicle has
been driven unless otherwise disclosed on the odometer disclosure statement
accompanying such vehicle. The inventory of the Companies includes, and will
include on the Closing Date, less than twenty (20) Demos.
Section 4.22......Insurance. Sellers have delivered to Buyer complete and
correct copies of all insurance policies maintained (at present or any time
during the past three (3) years) by or on behalf of each Company or relating to
any Dealership, together with all riders and amendments thereto and a
description of all insurance claims in excess of $50,000 made by or for each
Company during the three years preceding the date of this Agreement. Set forth
on Schedule 4.22 of the Sellers' Disclosure Letter is a list of all the
insurance policies in effect as of the date hereof. Such policies are in full
force and effect, and all premiums due therein have been paid. Each Company has
complied in all material respects with the terms and provisions of such policies
applicable to it. Except as set forth on Schedule 4.22 of the Sellers'
Disclosure Letter, no insurance policy of any Company imposes retrospective or
retroactive premium adjustments and no Company has received notice of
termination or an increase in casualty or claim related premiums under any of
the policies.
Section 4.23......Compliance with Laws. Each Company is conducting the Business
in compliance with all Applicable Laws, except where the failure to do so would
not have a Material Adverse Effect. No Company nor any Seller has received any
written notice from any Governmental Authority alleging any failure to comply
with any Applicable Laws.
Section 4.24......Liens. Except as set forth in Schedule 4.24 of the Sellers'
Disclosure Letter, each Company possesses, or will possess as of the Closing
Date, good and marketable title to its assets, free and clear of all Liens.
Section 4.25......Affiliate Transactions; Absence of Certain Business Practices.
(a) Except as disclosed on Schedule 4.25(a) of the Sellers' Disclosure Letter,
no Company has purchased, acquired, leased or licensed any property or services
from, or sold, transferred, leased or licensed any property or services to, any
of its Affiliates, any officer, director, shareholder or employee of a Company
or any such Affiliate, any relative of a Seller or any such officer, director,
shareholder or employee or any entity in which any of the foregoing has a
material direct economic interest.
(b) No Seller, nor any officer, employee or agent of a Seller or a Company, nor
any other Person acting on behalf of a Seller, has, directly or indirectly,
given or agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other Person who is or may be in a position to help or
hinder any Company (or assist any Company or a Seller in connection with any
actual proposed transaction relating to any Dealership) (i) which subjected or
might reasonably be expected to have or subject any Company or a Seller to any
material damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) which if not given in the past, might have had a Material
Adverse Effect, (iii) which if not continued in the future would have a Material
Adverse Effect or might reasonably be expected to subject any Company or a
Seller to suit or penalty in any private or governmental litigation or
proceeding, (iv) for any of the purposes described in Section 162(c) of the
Code, or (v) for the purpose of establishing or maintaining any concealed fund
or concealed bank account.
(c) Set forth on Schedule 4.25(c) of the Sellers' Disclosure Letter is a list
and identification of each contract, instrument or arrangement pursuant to which
any Company is party to, or any of its property is subject, of a cross-default,
cross-collateralization, cross-guarantee, or other obligation relating to
non-Company indebtedness (collectively, "Related Party Agreements").
Section 4.26......Absence of Certain Changes. Except as set forth on Schedule
4.26 of the Sellers' Disclosure Letter, since May 31, 2002, the Business has
been operated only in the ordinary course, consistent with past practice, and
none of the following has occurred since May 31, 2002, except as described on
Schedule 4.26 of the Sellers' Disclosure Letter:
(a) there has not occurred any change in the Business or financial condition of
any Company or Dealership that has resulted or is reasonably likely to result in
a Material Adverse Effect;
(b) there has not been any change in any accounting policies or practices of any
Company or act or omission inconsistent with past practice or outside of the
ordinary course of business, which will have the effect of increasing the cash
or the trade payables of any Company at the Closing, whether through change in
practice with respect to the timing of payment of accounts payable, the timing
of collection of accounts receivable, the rate of purchase of inventory or
otherwise, or discounts offered for the early payment of outstanding accounts
receivable;
(c) except as contemplated under Section 6.6, no Company has declared or paid
any dividend or other distribution in cash or in property on or in respect of
any shares of its capital stock or any options or warrants to purchase such
stock, nor has it repurchased any of the foregoing, except for tax distributions
made in the ordinary course of business prior to the Closing;
(d) no Company has sold, assigned, transferred or subjected to any Lien, or
committed to sell, assign, transfer or subject to any Lien, any tangible or
intangible assets having a current book value in excess of $10,000 individually
or in excess of $50,000 in the aggregate, except for sales of inventory in the
ordinary course of business;
(e) except in the ordinary course of business, no Company has purchased or
leased, or committed to purchase or lease, any asset for more than $10,000
individually or in excess of $50,000 in the aggregate;
(f) except in the ordinary course of business, no Company has purchased, or
committed to purchase, any service for more than $50,000 in the aggregate and no
Company shall pay for, commit to, or otherwise become responsible for, fees or
expenses related to services provided or premiums paid with respect to the
Contemplated Transactions;
(g) no Company has canceled any debt owed to it or released any claims possessed
by it other than in the ordinary course of business, except for any debts or
claims for which adequate reserves have been established in the Year-End
Financial Statements or in the Interim Financial Statements;
(h) no Company has suffered any theft, damage, destruction or loss of or any
tangible asset or assets having a fair market value in excess of $10,000
individually or $50,000 in the aggregate;
(i) no Company has made, granted, accrued or committed to make, grant or accrue
any loan or bonus, or any wage, salary or compensation increase, to Sellers or
any director, officer, non-hourly employee or consultant, or any increase in any
amounts payable under any employee benefit plan or arrangement not already
provided for by its terms, and except for the amendments set forth on Schedule
4.26(i) of the Sellers' Disclosure Letter, no Company has amended or terminated
any existing employee benefit plan or arrangement or adopted any new employee
benefit plan or arrangement;
(j) no Company has made, granted, accrued or committed to make, grant or accrue
any loan or bonus to any employee, nor has any Company made, granted, accrued or
committed to make, grant or accrue any wage, salary or compensation increase to
any employee;
(k) no Company has made or committed to make, or has any obligation (whether
fixed, accrued or contingent) to make, any loan or contribution to the capital
of any Affiliate of any Company or any other Person;
(l) no Company has performed or entered into any transaction with any
Affiliates;
(m) no Company has borrowed any money or become contingently liable for any
obligation or liability of others, nor has any Company incurred any debt,
liability or obligation of any nature to any party except for trade payables
arising in the ordinary course of business and consistent with past practices;
(n) no Company has made any Tax election or settled or compromised any federal,
state, local or foreign Tax liability, or waived or extended the statute of
limitations or period for assessment in respect of any such Taxes; and
(o) no Company has amended or otherwise altered any provisions of its
Certificate of Incorporation, Bylaws or governing documents.
Section 4.27......Consents and Approvals. Except as set forth in Schedule 4.27
of the Sellers' Disclosure Letter, and as may be required by the HSR Act and
from the Manufacturers, no notice, consents, approvals, licenses, permits or
waivers are required from any Person or Government Authority for any Company or
any Sellers to execute and deliver this Agreement, the Purchase Documents and to
consummate the Contemplated Transactions. Except as set forth on Schedule 4.27
of the Sellers' Disclosure Letter, the consummation of the Contemplated
Transactions will not result in an impairment or termination of a Company's
rights under any Contracts and does not require the consent of, or notice to,
any Person.
Section 4.28......No Other Assets. The assets owned or leased by each Company
which after the Closing Date will remain assets of such Company constitute all
of the assets, property, rights and privileges which are used by such Company in
the operation of its Business, or are required for the operation of its Business
as it is presently conducted.
Section 4.29......No Brokers or Finders. No Company nor any Seller has incurred
any liability to any broker, finder, or agent for any fees, commissions or
similar compensation with respect to the Contemplated Transactions.
Section 4.30......Investment Representations Regarding the Acquirer Shares. Each
Seller (i) understands that the offering and sale of the Acquirer Shares by the
Buyer is intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof; (ii) is an "accredited investor" (other than
the Sellers listed on Schedule 4.30), as such term is defined in Rule 501(a) of
Regulation D under the Securities Act; (iii) is acquiring the Acquirer Shares
for its own account (or for accounts over which it exercises investment
authority), for investment and not with a view to the resale or distribution
thereof in violation of any applicable securities law; (iv) understands that the
Acquirer Shares will be issued in transactions exempt from the registration or
qualification requirements of the Securities Act and applicable state securities
laws, and that such securities may not be sold unless the disposition thereof is
registered or qualified under the Securities Act and such other Applicable Laws
or is exempt from such registration or qualification; and (v) has such knowledge
and experience in business and financial matters so as to enable it to
understand and evaluate the risks of and form an investment decision with
respect to its investment in the Acquirer Shares.
Section 4.31......Non-Accredited Investors. Each Seller listed on Schedule 4.30,
either acting alone or with his purchaser representative as defined in Rule
501(h) of Regulation D of the Securities Act, if any (the "Purchaser
Representative") (i) has such knowledge and experience in business and financial
matters so as to enable it to understand and evaluate the risks of and form an
investment decision with respect to its investment in the Acquirer Shares and
(ii) has received from the Acquirer the information described in Rule
502(b)(2)(ii) of Regulation D under the Securities Act.
Section 4.32......Purchaser Representative. Each Purchaser Representative has
satisfied all the conditions described in Rule 501(h) of Regulation D under the
Securities Act.
Section 4.33......Disclosure. Neither this Agreement, the Purchase Documents and
all Exhibits and Schedules thereto, nor any financial statements, documents or
instruments delivered by any Company or any Seller to Buyer in connection with
this Agreement, the Purchase Documents and the Contemplated Transactions,
contains or will contain any untrue statement of any material fact, or omits or
will omit to state any material fact required to be stated in order to make such
statement, document or instrument not misleading.
Section 4.34......Survival of Representations, Warranties and Covenants. The
representations, warranties and agreements of each Company and each Seller set
forth in this Agreement and the Purchase Documents are made as of the date of
this Agreement (giving effect to Sellers' Disclosure Letter, but without giving
effect to any Sellers' Supplemental Disclosure Letters) and shall be true,
correct, complete and accurate on and as of the Closing Date and at all times
between the date of this Agreement and the Closing Date (giving effect to
Sellers' Disclosure Letter and any Sellers' Supplemental Disclosure Letters).
The representations and warranties of each Seller set forth in this Agreement
and the Purchase Documents shall survive the Closing, subject to the limitations
specified in Section 9.6.
ARTICLE V.........
REPRESENTATIONS AND WARRANTIES OF BUYER
Acquirer and Buyer hereby jointly and severally represent and warrant
to Sellers that:
Section 5.1.......Organization and Good Standing. Acquirer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, and has full power and authority to own its
properties and to carry on its business as presently conducted.
Section 5.2.......Due Authorization. The execution and delivery of this
Agreement and the Purchase Documents, and the performance of the Contemplated
Transactions have been duly authorized by all necessary corporate actions. This
Agreement and the Purchase Documents have been duly executed by Acquirer and are
a legal, valid and binding obligation of Acquirer, enforceable against Acquirer
in accordance with their terms, except as such enforcement may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors, or (b) by general
equitable principles.
Section 5.3.......Acquirer Shares. The Acquirer Shares, when issued to Sellers
pursuant to this Agreement, will be duly authorized, validly issued, and fully
paid and non-assessable.
Section 5.4.......Acquirer SEC Reports; Private Placement Memorandum.
--------------------------------------------------
(a) As of the respective dates the SEC Reports were filed or, if any such SEC
Reports were amended, as of the date such amendment was filed, each of the SEC
Reports (i) complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of (1) the audited consolidated
financial statements of Acquirer (including any related notes and schedules)
included (or incorporated by reference) in the SEC Reports and (2) the unaudited
consolidated interim financial statements for Acquirer (including any related
notes and schedules) included (or incorporated by reference) in the SEC Reports,
fairly present, in conformity with GAAP applied on a consistent basis (except as
may be indicated in the notes thereto), the consolidated financial position of
Acquirer and its subsidiaries as of the dates thereof and the consolidated
results of their operations and changes in their financial position for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements). No event has occurred since the most
recently filed SEC Report that could reasonably be expected to have a material
adverse effect on Acquirer and its Affiliates taken as a whole.
(b) Except that the description of the transactions set forth in the private
placement memorandum attached as Exhibit J, as modified (if at all) by the
supplemental information statement to that memorandum that will be provided to
Sellers prior to Closing as Schedule 5.4(b) of Buyer's Supplemental Disclosure
Letter has been provided in summary format for convenience purposes, and is
qualified in its entirety by the terms of this Agreement and the Purchase
Documents, as of the respective date of that private placement memorandum, and
as of the Closing Date for the supplemental information statement to that
memorandum, (i) that memorandum and the supplemental information statement (if
any) has been prepared in compliance in all material aspects with the applicable
requirements of the Securities Act and the Exchange Act, and the rules and
regulations promulgated thereunder, and (ii) the information provided in the
private placement memorandum and the supplemental information statement (if any)
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 5.5.......Notices From Governmental Authorities. Since March 13, 2002,
Acquirer has not received written notice from the SEC or any other Governmental
Authority that any of its accounting policies or practices are or may be the
subject of any review, inquiry, investigation or challenge by the SEC or other
Governmental Authority other than comments received from the staff of the SEC in
connection with the initial public offering of Acquirer's Common Stock.
Acquirer's independent public accounting firm has not informed Acquirer that it
has any material questions, challenges or disagreements regarding or pertaining
to Acquirer's or any of its subsidiaries' accounting policies or practices. Set
forth on Schedule 5.5 of Buyer's Disclosure Letter is a list of all off-balance
sheet special purpose entities and financing arrangements of Acquirer and its
subsidiaries.
Section 5.6.......Consents and Approvals. Schedule 5.6 of Buyer's Disclosure
Letter sets forth a complete and accurate list of all third party notices,
consents or approvals required from any Person or Governmental Authority prior
to the Closing for Buyer to consummate the transactions contemplated by this
Agreement, including, but not limited to, manufacturers, Buyer's lenders and
Governmental Authorities.
Section 5.7.......Survival of Representations and Warranties. The
representations, warranties and agreements of Buyer set forth in this Agreement
and the Purchase Documents are made as of the date of this Agreement (giving
effect to Buyer's Disclosure Letter, but without giving effect to any Buyer's
Supplemental Disclosure Letters), and shall be true, correct, complete and
accurate on and as of the Closing Date and at all times between the date of this
Agreement and the Closing Date (giving effect to Buyer's Disclosure Letter and
any Buyer's Supplemental Disclosure Letters). The representations and warranties
of Buyer set forth in this Agreement and the Purchase Documents shall survive
the Closing, subject to the limitations specified in Section 9.7.
Section 5.8.......Disclosure. Neither this Agreement, the Purchase Documents and
all Exhibits and Schedules thereto, nor any financial statements, documents or
instruments delivered by Acquirer or any Affiliate to any Seller in connection
with this Agreement, the Purchase Documents and the Contemplated Transactions,
contains or will contain, any untrue statement of any material fact, or omits or
will omit to state any material fact required to be stated in order to make such
statement, document or instrument not misleading.
ARTICLE VI........
FURTHER COVENANTS
Buyer, each Company and each Seller mutually covenants and agrees as
follows:
Section 6.1.......Information Prior to Closing. Subject to the provisions of
Section 6.5, from the date of this Agreement to the Closing Date, the Companies
will provide Buyer and its accountants, employees, partners, attorneys,
prospective lenders, investors and other authorized representatives
(collectively, the "Representatives") access to, and permit such Persons to
review, their properties, books, contracts, accounts and records (including
Returns), and shall provide such other information to Buyer and its
Representatives as shall have been reasonably requested by them, in order that
Buyer may have the opportunity to make such investigation as it shall desire to
make of the affairs of each Company and each Dealership. The Companies shall
also make their management available to Buyer and its Representatives for
discussions. The Companies shall provide Buyer with copies of all monthly
financial statements and other periodic reports provided to the Manufacturers at
the same time that such statements and reports are provided to such
Manufacturer. At all times prior to the Closing Date, the Companies and Sellers
shall promptly notify Buyer in writing of any fact, condition, event or
occurrence that (a) could reasonably be expected to result in the failure of any
of the conditions contained in Article VII to be satisfied or (b) causes or
constitutes a breach of any representation or warranty as of the date of this
Agreement or that would cause or constitute a breach of any representation or
warranty had the representation or warranty been made as of the time of
occurrence or discovery of the fact, condition, event or occurrence. Should any
such fact, condition, event or occurrence require any change in the Sellers'
Disclosure Letter furnished pursuant to this Agreement if the Sellers'
Disclosure Letter were dated the date of the occurrence or discovery of the fact
or condition, Sellers shall promptly deliver to Buyer Sellers' Supplemental
Disclosure Letter specifying the change as required by Section 6.8.
Section 6.2.......Operation of Business. Each Company and each Seller agrees
that between the date of this Agreement and up to and including the Closing Date
they shall:
(a) not take or permit any action or omit to take any action which would cause
any of the representations and warranties of a Seller contained in this
Agreement or the Purchase Documents to become untrue;
(b) conduct each Company's business in a good and diligent manner in the
ordinary and usual course of its business;
(c) not enter into any contract, agreement, commitment or other arrangement with
any party, other than contracts in the ordinary course of a Company's business,
and not amend, modify or terminate any of the Contracts, without the prior
written consent of Buyer;
(d) use commercially reasonable efforts to preserve each Company's business
organization intact, to keep available the service of its employees, and to
preserve each Company's relationships with customers, suppliers and others with
whom it deals;
(e) not reveal to any party, other than Buyer or its Representatives, any of the
business procedures and practices used or followed by any Company in the
operation of any Dealership;
(f) maintain in full force and effect all insurance currently maintained by each
Company;
(g) keep the assets of each Company, including, without limitation, the Leased
Real Property, Owned Personal Property and Leased Personal Property, in good
operating repair and perform all necessary repairs and maintenance thereto;
(h) comply with all provisions contained in the Contracts and all Applicable
Laws where failure to so comply could reasonably be expected to have a Material
Adverse Effect;
(i) not dispose of any assets of a Company except in the ordinary course of
business;
(j) not engage, other than acquisitions of inventory in the ordinary course of
business, in any transaction which involves the expenditure or commitment of
more than $25,000 without the prior written consent of Buyer;
(k) promptly inform Buyer of any material adverse change in the business,
assets, results of operations or financial condition with respect to the
Business, any Company, or any Dealership;
(l) not issue any additional shares of capital stock of any Company or any other
security convertible into shares of capital stock of any Company, otherwise
change or modify its capital structure, or engage in any reorganization or
similar transaction;
(m) not take, nor shall they permit any action to be taken, or agree to take or
cause to occur any of the actions or events set forth in Section 4.26; and
(n) not make any Tax election or settle or compromise any federal, state, local
or foreign income Tax liability, or waive or extend the statute of limitations
or period for assessment with respect to any such Taxes.
Section 6.3.......Further Actions.
(a) Each party agrees to (i) use all reasonable good faith efforts to take all
actions and do all things necessary, proper or advisable to consummate the
Contemplated Transactions and (ii) cooperate fully with the other parties hereto
and their respective authorized representatives and to execute and deliver or
cause to be executed and delivered at all reasonable times and places such
additional instruments and documents as the other party or parties may
reasonably request for the purposes of carrying out the purposes and intent of
this Agreement. The parties agree that they shall coordinate their contact with
the Manufacturers in connection with requesting that the Manufacturers approve
the Contemplated Transactions.
(b) From time to time after the Closing Date, Sellers will, at their cost and
expense, execute and deliver such instruments and documents as Buyer may request
in order to better sell, convey, transfer, assign to Buyer, or to better perfect
or record Buyer's interest in or title to, or to enable Buyer to better use, any
of the Shares or otherwise carry out the purposes and intent of this Agreement.
(c) The Boards of Directors of the Companies shall adopt resolutions, effective
not later than the day before the Closing Date, terminating the Companies'
401(k) plans all of which are listed in Schedule 6.3(c) of Seller's Disclosure
Letter in accordance with the plan documents and Applicable Laws. Such
resolutions shall satisfy the requirements for a distribution event described in
Section 401(k)(10)(A)(i) of the Code, and shall be subject to Buyer's approval
(which approval shall not be unreasonably withheld or delayed). Effective as of
the Closing Date, participants in the plans set forth in Schedule 6.3(c) of
Seller's Disclosure Letter shall immediately become eligible to participate in
Acquirer's 401(k) plan(s), subject to the applicable one-year employment
eligibility requirement under Acquirer's Plans, but giving credit for a
participant's time of employment with a Company.
Section 6.4.......Exclusivity. Until (i) the Closing, or (ii) the termination of
this Agreement in accordance with Section 10.1, Sellers and the Companies agree
not to directly or indirectly solicit or encourage any inquiries or proposals
from (nor enter into any agreements with) any Person other than Buyer for the
purchase or acquisition (whether by merger or otherwise) of any Company, its
assets, the Shares or any Dealership or any portion of any Company, its assets,
the Shares or any Dealership, or to enter into discussions with, or furnish any
non-public information concerning any Company, its assets, the Shares or any
Dealership to any such Person in connection with any such proposal. Sellers and
the Companies shall promptly notify Buyer of any proposal or inquiry to purchase
any Company, its assets, the Shares or any Dealership or any portion of any
Company, its assets, the Shares or any Dealership which is received by either a
Seller or a Company or its representatives.
Section 6.5.......Confidentiality.
(a) Except as contemplated in (c) below, between the date of this Agreement and
the Closing, each Company, each Seller and Buyer will maintain in confidence and
will cause their directors, officers, employees, agents and advisors to maintain
in confidence (i) any written information obtained in confidence from any other
party in connection with this Agreement or the Contemplated Transactions
contemplated herein, (ii) the existence of the letter of interest, dated June
28, 2002, between Buyer, the Companies and Sellers' Representative, (iii) the
terms of the Contemplated Transactions, (iv) the existence or status of the
negotiations, or (v) any information concerning the Contemplated Transactions;
provided, however, the parties may communicate or disclose the foregoing (x)
within their corporate structure and to their respective directors, officers,
employees, agents and advisors as such may be necessary to effectuate the
Contemplated Transactions, (y) in such a manner as may be reasonably necessary
or appropriate to effect any filing or obtaining of any consent necessary to
consummate the Contemplated Transactions, or (z) as is necessary for Buyer to
secure financing for the Contemplated Transactions from any financing source
deemed appropriate by Buyer in its sole discretion; provided, further, that the
obligations of confidentiality set forth in this Section 6.5(a) shall not apply
to (k) information which at the time of the disclosure is in the public domain,
(l) information which after disclosure becomes generally available to the public
by publication or otherwise through no fault of Buyer, (m) information which was
available to Buyer on a non-confidential basis prior to its disclosure, (n)
information independently developed by Buyer without the use of such
information, (o) information which is or was made available by a Seller or a
Company to a third party without similar restrictions, or (p) subject to Section
6.5(b) below, information which is required by a court order, injunction, writ,
law, rule or regulation to be disclosed.
(b) Either party may furnish such information as is requested in connection with
a subpoena, deposition, request for documents, civil investigation demand or
similar process only after (i) promptly notifying the other party of the
request, (ii) consulting with the other party on the advisability of taking
steps to resist or narrow such request, and (iii) assisting the other party (at
the other party's expense) in seeking a protective order or a then appropriate
remedy. In the event that a protective order or other remedy is not obtained, or
the other party waives compliance, the party may disclose only that portion of
the information which such party's legal counsel advises that it is legally
bound to disclose.
(c) Except as otherwise required law or the rules of any securities exchange,
any public announcement or any similar publicity with respect to this Agreement
or the Contemplated Transactions will be issued, if at all, at such time and in
such manner as the parties shall jointly agree. Notwithstanding the foregoing,
the parties acknowledge that Buyer and Sellers' Representative intend on making
a joint public announcement shortly after the execution of this Agreement;
provided, that such announcement will be in accordance with all Applicable Laws
and jointly agreed to by Buyer and Sellers' Representative.
Section 6.6.......Distributions. The Companies may distribute cash to Sellers
before the Closing Date, but only if following the distribution the Companies
continue to comply with the representations set forth in Section 4.8(d). Before
the Companies make a distribution pursuant to this section, Sellers'
Representative shall notify Buyer of the proposed distribution, and include in
the notice his certificate confirming that after the distribution the Companies
will continue to satisfy the representation in Section 4.8(d) as well as
computations that confirm this compliance and any other supporting financial
information that Buyer reasonably requests. The Companies shall not make a
distribution until the parties resolve any disagreement with respect to the
proposed distribution's compliance with this covenant. Notwithstanding the
foregoing, the Companies agree that they will cause a distribution of all of the
partnership interests of Rekab Properties, Ltd. and Miramar Road Auto Center
Properties owned by any Company to Sellers at least five (5) business days prior
to the Closing.
Section 6.7.......Delivery of Disclosure Letters. Sellers' Representative shall
deliver the Sellers' Disclosure Letter, which shall be deemed a modification of
Sellers' representations and warranties in Article IV within thirty (30) days
from the date of this Agreement. Buyer shall deliver the Buyer's Disclosure
Letter, which shall be deemed a modification of Buyer's representations and
warranties in Article V within thirty (30) days from the date of this Agreement.
The party receiving the Disclosure Letter may, in its sole discretion, within
ten (10) business days from its receipt of the Disclosure Letter, terminate this
Agreement by notice to the party delivering such Disclosure Letter; provided,
however, that the receiving party shall have an additional reasonable period of
time to evaluate the offered Disclosure Letter to the extent that the receiving
party has timely requested and is awaiting further information from the
disclosing party with respect to an item set forth on the offered Disclosure
Letter. During the thirty (30) day period following delivery of Sellers'
Disclosure Letter, Buyer and Sellers' Representative will endeavor in good
faith, and consistent with the intent set forth in Section 6.8, to agree upon
which matter(s) disclosed in Sellers' Disclosure Letter shall be included on
Schedule 9.1(d). If the parties are unable to agree, either Buyer or Sellers'
Representative may terminate this Agreement in accordance with Section 10.1(f)
for a period of ten (10) days after the expiration of this thirty (30) day
period. All other Schedules not expressly part of any party's Disclosure Letter
shall be mutually agreed to by Buyer and Sellers' Representative at least five
(5) business days prior to Closing.
Section 6.8.......Supplements to Disclosure Letters. Sellers shall update the
Sellers' Disclosure Letter and all schedules and exhibits thereto to include all
information relevant to the disclosures therein which relates to events which
have occurred after the date hereof and until the close of business on the day
prior to the Closing Date and to amend or modify the disclosures made therein.
Buyer shall likewise update the Buyer's Disclosure Letter and all schedules and
exhibits thereto. Each of Sellers' Supplemental Disclosure Letters and Buyer's
Supplemental Disclosure Letters shall contain accurate, true, correct and
complete information and data. During the thirty (30) day period following
delivery of Sellers' Supplemental Disclosure Letter, Buyer and Sellers'
Representative will endeavor in good faith, consistent with the intent set forth
below, to agree upon which matter(s) disclosed in Sellers' Supplemental
Disclosure Letter shall be included on Schedule 9.1(d). If the parties are
unable to agree, either Buyer or Sellers' Representative may terminate this
Agreement in accordance with Section 10.1(f) for a period of ten (10) days after
the expiration of this thirty (30) day period; provided, however, that the
receiving party shall have an additional reasonable period of time (not to
exceed five (5) business days after receipt of the additionally requested
information) to evaluate the offered Supplemental Disclosure Letter to the
extent that the receiving party has timely requested and is awaiting further
information from the disclosing party with respect to an item set forth on the
offered Supplemental Disclosure Letter. It is the intent of the parties that
Schedule 9.1(d) will list those matters (whether representing absolute or
contingent liabilities) involving or otherwise related to the Business, any
Company or any Dealership that have been identified on Seller's Disclosure
Letters for which Buyer determines it will not assume responsibility as part of
the Contemplated Transactions. It is further contemplated that the matters
listed on Schedule 9.1(d) will not include the following: (a) trade or other
liabilities of the Business incurred in the ordinary course of business
(including obligations under real and personal property leases or the Contracts)
for which an accrual on the Financial Statements in accordance with GAAP has
been made (but liabilities and obligations in excess of such accrual will be
part of that Schedule); provided, however, accruals shall only be required to
the extent that such liability relates to the period prior to the Closing Date,
(b) liabilities or obligations related to a Known Environmental Condition or
Known Engineering Condition, and (c) liabilities or obligations with respect to
litigation matters or other claims for which there is full and adequate
insurance coverage (liabilities or obligations eventually not covered by such
insurance or in excess of such insurance and deductible amounts for any such
claims will be part of that Schedule).
Section 6.9.......Releases.
(a) Effective as of the Closing, except as to any accrued (for which there is an
accrual on the financial statements consistent with GAAP) but unpaid employee
benefits, wages or other compensation, rights to indemnification as a corporate
officer, director or agent as provided under the charter documents of the
Companies and California law and except as to their rights under this Agreement
and any document or agreement delivered at the Closing and the duties and
obligations of Buyer hereunder or thereunder, each Seller and each Seller
Trustee, on behalf of himself, herself, itself, and his, her or its heirs,
executors, administrators and assigns, hereby releases and forever discharges
each of the Companies and its officers, directors, employees and shareholders
(and each of their respective heirs, executors, administrators and assigns
acting in such capacities) (collectively, the "Released Parties"), of and from
any and all manner of action or actions, cause or causes of action, in law or in
equity, suits, debts, Liens, contracts, agreements, promises, liabilities,
claims, accounts, sums of money (except tax qualified retirement plan
distributions), bonds, bills, demands, damages, losses, costs or expenses,
whether direct or derivative, of any nature whatsoever, known or unknown, fixed
or contingent, including, without limitation, any claim for indemnification or
contribution, which each Seller and each Seller Trustee either now has or may
hereafter have against any of the Companies or its officers, directors,
employees and shareholders (and each of their respective successors, heirs,
executors, administrators and assigns acting in such capacities), based on any
actions, omissions, facts or circumstances as existed or exists on or prior to
the date of this Agreement, from the beginning of time to the Closing Date
(collectively, the "Released Claims").
(b) Each Seller and each Seller Trustee covenants that there has been no
assignment or other transfer of any interest in any Released Claim which such
Seller or Seller Trustee may have against any of the Companies. Each Seller and
each Seller Trustee covenants and agrees that such Seller or Seller Trustee
shall not commence, join in, or in any manner seek relief through any suit
arising out of, based upon, or relating to any Released Claim released
hereunder, or in any manner assert or cause or assist another to assert against
any of the Companies, any Released Claim released hereunder.
(c) Each Seller and each Seller Trustee acknowledges, represents, warrants and
covenants that such Seller or Seller Trustee has had an adequate opportunity to
determine all facts necessary to make a knowing release of all Released Claims
released hereby and further represents, warrants and covenants that such Seller
or Seller Trustee has executed this Agreement and release knowingly and without
duress. Each Seller and each Seller Trustee further acknowledges, represents,
warrants, and covenants that such Seller or Seller Trustee has retained such
separate and independent legal counsel as such Seller or Seller Trustee deems
appropriate to advise him in connection with the execution and delivery of this
Agreement, and that such Seller or Seller Trustee understands the terms and
conditions hereof which have been reviewed with such Seller or Seller Trustee
and explained by such legal counsel as such Seller or Seller Trustee deems
appropriate.
(d) In the event that any provision of this Section 6.9 is held invalid,
unenforceable or void to any extent by a court of competent jurisdiction, such
provision shall be modified, if possible, by reducing its duration and scope to
allow enforcement of the maximum permissible duration and scope. In any event,
such declaration shall not affect the remaining provisions of this Section 6.9,
and this Section 6.9 shall be enforced as modified, or if no modification is
enforceable, as if such invalid clause had not been included.
(e) Each Seller and each Seller Trustee acknowledges and agrees that the
releases made herein constitute final and complete releases of the Released
Parties with respect to all Released Claims. Each Seller and each Seller Trustee
expressly acknowledges and agrees that this general release is intended to
include in its effect, without limitation, all Released Claims which such Seller
or Seller Trustee does not know or suspect to exist in his or her favor at the
time hereof, and this general release contemplates the extinguishment of any and
all such Released Claims. In this regard, each Seller and each Seller Trustee
expressly waives the provisions of Section 1542 of the California Civil Code,
which state:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST
HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Furthermore, except as herein provided, each Seller and each Seller Trustee
hereby expressly waives and relinquishes any rights and benefits he or she may
have under other statutes or common law principles of similar effect. Each
Seller and each Seller Trustee understands that the facts under which he or she
gives this full and complete release and discharge of the Released Parties may
hereafter prove to be different than now known or believed by him or her and
each Seller and each Seller Trustee hereby accepts and assumes the risk thereof
and agrees that his or her full and complete release and discharge of the
Released Parties shall remain effective in all respects and not be subject to
termination, rescission or modification by reason of any such difference in
facts.
Section 6.10......▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Buyer and Sellers shall prepare and file
the appropriate Notification and Report Forms under the HSR Act with the FTC and
the Antitrust Division, and respond to its respective filing as promptly as
practicable (subject to Buyer's termination rights) to all inquires from the FTC
or the Antitrust Division for additional information or documentation.
Section 6.11......NYSE Listing Application. Acquirer shall have filed an
application prior to or on the Closing Date to list the Acquirer Shares that
constitute the Stock Consideration on the New York Stock Exchange.
Section 6.12......Additional Tax Matters.
(a) Buyer shall prepare or cause to be prepared the federal and any required
state, local or foreign Returns for the Companies with respect to each Company's
"S Short Year" (as defined in Section 1362(e)(1)(A) of the Code) and shall file
or cause to be filed such Returns on behalf of the Companies; provided, however,
that at least sixty (60) days prior to the filing of any Returns for the S Short
Year, Sellers' Representative shall be provided with a draft of each such
Return, whereupon Sellers' Representative shall be given an opportunity to
review and comment on any such Return. No such Returns shall be filed without
written approval by Sellers' Representative, which approval shall not be
unreasonably withheld or delayed. Each such Return shall be prepared using
accounting methods and other practices that are consistent with those used by
each such Company in its prior Returns, and the tax liability related to such
Return shall be Sellers' responsibility.
(b) Buyer and Sellers agree that, so long as any books, records, and files
retained by any Seller relating to the Business of any Company, or any books,
records and files delivered to the control of Buyer relating to the operations
of the Companies prior to the Closing Date, remain in existence and available,
each party (at its expense) shall have the right upon reasonable prior notice to
inspect and to make copies of the same at any time during business hours for any
proper purpose. No claim for refund or amended Return shall be filed by any
Company for a period ending on or prior to the Closing Date without the prior
written approval of Buyer and Sellers' Representative which approvals shall not
be unreasonably withheld or delayed. Sellers shall be responsible for any
penalties, interest or increase in Taxes of the Companies attributable to
periods prior to the Closing Date and for any penalties, interest or Taxes with
respect to their personal income tax returns for all periods, and the Companies
shall be responsible for any penalties, interest or increase in Taxes
attributable to any periods beginning on or after the Closing Date. Each party
agrees it will cooperate with the others and the Companies and their respective
representatives, in a prompt and timely manner, in connection with the
preparation and filing of, and any administrative or judicial proceedings
involving, any Tax or Return filed or required to be filed by or for a Company
for periods prior to the Closing Date.
(c) Sellers and the Companies shall terminate, effective immediately prior to
the Closing Date, any tax allocation, sharing, indemnity or similar agreement or
arrangement in effect to which any Company is a party and such termination shall
provide that there shall be no further liability of any Company or Buyer under
any such agreement or arrangement.
Section 6.13......Employees. Sellers and the Companies shall use commercially
reasonable efforts to encourage such personnel of each Company as Buyer may
designate to remain employees of such Company after the Closing Date. Sellers
and the Companies further agree not to take any action, or permit any action to
be taken, to encourage any of the personnel of such Company to leave their
positions with such Company except as expressly contemplated in this Agreement.
Sellers shall promptly notify Buyer of the departure of any key employee listed
on Schedule 6.13.
Section 6.14......Audited Financial Statements. Sellers acknowledge that the
Exchange Act and the regulations promulgated under the Exchange Act, as well as
the SEC's other regulations and requirements governing Buyer as a reporting
company, require preparation of audited financial statements of the Companies,
on a consolidated basis, as part of the Contemplated Transactions. Sellers shall
immediately, following the execution of this Agreement, engage ▇▇▇▇ ▇▇▇▇▇ LLP or
another public accounting firm acceptable to Buyer (the "Sellers' Auditor"), on
terms and conditions satisfactory to Buyer, to conduct (at Buyer's expense) a
full audit of the Companies' financial statements, on a consolidated basis, as
of and for the year ended December 31, 2001, in accordance with GAAP. Sellers
will use their best efforts to cause this audit to be completed on or before the
Closing Date, and in no event later than sixty (60) days after the Closing Date,
and an unqualified audit opinion shall be issued by Sellers' Auditor to each
Company upon completion. Sellers shall fully cooperate with Buyer and Sellers'
Auditor to ensure that this audit is timely completed, including without
limitation, executing such engagement letters and representation letters as
requested by Sellers' Auditor. Sellers' Auditor, in its engagement, shall
consent to the use of the audit reports for any filings required of Buyer by the
SEC, any other Governmental Authority, or Buyer's lenders.
Section 6.15......Funding of Retention Bonus Plan. Prior to the Closing, Buyer
and Sellers' Representative will agree upon the form and content of a retention
bonus plan pursuant to which the Companies will make payment to their employees
retention bonuses aggregating no more than [Redacted] ("Retention Bonus"). The
Companies shall adopt this Retention Bonus plan prior to the Closing. If the
Estimated Net Book Value is less than or equal to [Redacted], Sellers' Retention
Bonus obligation shall equal [Redacted]. If Estimated Net Book Value is greater
than [Redacted], Sellers' portion of the Retention Bonus obligation shall equal
[Redacted] less that amount by which the Estimated Net Book Value exceeds
[Redacted]. At Closing, Sellers shall cause the Companies to set up a cash
reserve equal to Sellers' portion of the Retention Bonus and such cash will be
in addition to the Working Capital required under this Agreement. Buyer shall
cause the Companies to pay the Retention Bonus pursuant to the retention plan
described in this Section 6.15.
Section 6.16......Third Party Engineering Reports. As soon as practicable
following the date of this Agreement, Sellers and the Companies shall allow an
engineering firm or firms selected by Buyer to have prompt access to the Owned
Real Property and the Leased Real Property in order to conduct, an engineering
assessment on the Owned Real Property and the Leased Real Property (the
"Engineering Audit"). Sellers and the Companies shall provide to Buyer and the
engineering firm reasonable access to all of the Companies (and their
Affiliates') existing records concerning matters that are subject to the
Engineering Audit, and reasonable access to employees of the Companies (and
their Affiliates) and the last known addresses of former employees of the
Companies (and their Affiliates) who are most familiar with the matters subject
to the Engineering Audit.
(a) Subject to this subsection and the other subsections of this Section 6.16
below, Buyer shall bear 100% of the costs, fees and expenses incurred in
conducting the Engineering Audit. However, if the Engineering Audit discloses a
Known Engineering Condition (as defined below), then Sellers shall formulate a
plan of Engineering Repair (as defined below), in accordance with Applicable
Laws and such plan shall be approved by Buyer. Subject to Seller's termination
rights in Section 10.1(d), the costs and expenses of the Engineering Repair of
the Known Engineering Condition shall be borne solely by Sellers. A "Known
Engineering Condition" is an item of repair or maintenance identified by the
Engineering Audit that is: (i) deferred maintenance, (ii) necessary or
appropriate to cure issues related to non-compliance of Applicable Laws, or
(iii) necessary or appropriate to cure a condition of ordinary wear and tear
that is reasonably likely to cause a risk to public safety or the ability to
operate in the foreseeable future. "Engineering Repair" means, with respect to a
Known Engineering Condition, the completion of the repair, maintenance or other
required action identified in the Engineering Audit to Buyer's reasonable
satisfaction and the taking of all other actions necessary to be in compliance
in all respects with Applicable Laws.
(b) Unless this Agreement is terminated, Sellers will cause the Engineering
Repair of the Known Engineering Condition to be undertaken as promptly as
possible by an engineering firm or firms and/or construction firm or firms
reasonably satisfactory to Buyer in accordance with the plan of Engineering
Repair so approved; provided, however, in the event it is reasonably anticipated
that a Known Engineering Condition will be repaired or corrected by virtue of a
currently planned refurbishment or remodeling of a portion of the Owned Real
Property or Leased Real Property, then Sellers, with the reasonable approval of
Buyer, may elect to defer the Engineering Repair associated with such Known
Engineering Condition until the time of such refurbishment or remodeling,
provided further, that such Engineering Repair shall remain at the sole cost of
Sellers. If the Engineering Repair is to continue pursuant to the plan after the
Closing Date, Sellers shall cause the Engineering Repair to be completed in
accordance with the time frames set forth in the plan of Engineering Repair and
in a manner that minimizes, to the maximum extent possible, the interference or
disruption of the Business.
(c) If the Agreement is terminated under Section 10.1(d) for the failure of the
conditions set forth in Section 8.4, Sellers shall reimburse Buyer for the all
fees, costs and expenses of the Engineering Audit, including the engagement of
the engineering firm or firms.
Section 6.17......Employment Arrangements. The Companies shall, prior to the
Closing Date, terminate any employment and bonus arrangements with those Persons
identified on Schedule 7.6, and (b) pay all accrued but unpaid compensation,
wages, benefits or bonuses to such Persons; provided, however, that such Persons
shall be entitled under his respective Employment Agreement to those numbers of
vacation days set forth on Schedule 6.17 that have not been used prior to the
Closing Date which represent planned vacation for the calendar year 2002.
Section 6.18......Environmental Remediation Efforts. Immediately following the
execution of this Agreement, Sellers and the Companies shall allow an
environmental consulting firm or firms selected by Buyer to have prompt access
to the Owned Real Property and the Leased Real Property in order to conduct an
environmental investigation of the Owned Real Property and the Leased Real
Property in accordance with the standards and procedures selected by Buyer and
the environmental consulting firm or firms and otherwise satisfactory to Buyer
in scope, with such scope being sufficient to result in a Phase I environmental
audit report and a Phase II environmental audit report, if desired by Buyer (the
environmental investigation is collectively, the "Environmental Audit"). The
Environmental Audit may include, without limitation, drilling and soil borings
at locations specified by the environmental consulting firm, collecting and
analyzing samples of soil, groundwater, surface water, sediment or other media
at, on, under or around the Owned Real Property and the Leased Real Property,
and sampling for the presence of Hazardous Materials. Sellers and the Companies
shall provide to Buyer and the environmental consulting firm reasonable access
to all of the Companies' (and their Affiliates') existing records concerning
matters that are subject to the Environmental Audit, and reasonable access to
employees of the Companies (and their Affiliates) and the last known addresses
of former employees of the Companies who are most familiar with the matters
which are subject to the Environmental Audit.
(a) Subject to this subsection and the other subsections of this Section 6.18
below, Buyer shall bear 100% of the costs, fees and expenses incurred in
conducting the Environmental Audit. However, if the Environmental Audit
discloses: (i) any contamination, pollution, degradation or impairment to the
Owned Real Property and the Leased Real Property (including all improvements,
buildings and Systems on such property) or other assets of the Companies, or the
existence of any Hazardous Material on-site or off-site that could materially
affect any Leased Real Property (including any improvements, buildings and
Systems on such property) or the other assets of the Companies, or (ii) a
condition that violates (or is reasonably likely to violate), or otherwise
imposes liability under, any Environmental Law (items (i) and (ii) are
collectively, a "Known Environmental Condition"), then Sellers shall formulate a
plan of Remediation (as defined below), in accordance with applicable
Environmental Laws and such plan shall be approved by Buyer. Subject to Seller's
termination rights in Section 10.1(d), the costs and expenses of the Remediation
of the Known Environmental Condition shall be borne solely by Sellers.
"Remediation" means, with respect to a given Known Environmental Condition, (1)
the removal and elimination of such Known Environmental Condition to Buyer's
reasonable satisfaction, (2) the taking of all acts reasonably necessary to be
in compliance in all material respects with all Environmental Laws, and (3) the
obtaining of a final, nonappealable order of the appropriate Governmental
Authority having jurisdiction that no further removal, remediation or other
action with respect to such Known Environmental Condition is required.
(b) Unless this Agreement is terminated, Sellers will cause the Remediation of
the Known Environmental Condition to be undertaken as promptly as possible by an
environmental firm reasonably satisfactory to Buyer in accordance with the plan
of Remediation so approved. If the Remediation is to continue pursuant to the
plan after the Closing Date, Sellers shall cause the Remediation to be completed
in accordance with the time frames set forth in the plan of Remediation and in a
manner that minimizes, to the maximum extent possible, the interference or
disruption of the Business.
(c) If the Agreement is terminated under Section 10.1(d) for the failure of the
conditions set forth in Section 8.4, Sellers shall reimburse Buyer for the all
fees, costs and expenses of the Environmental Audit, including the engagement of
the environmental consulting firm.
Section 6.19......338(h)(10) Election. Buyer shall not make an election under
Section 338(h)(10) of the Code with respect to the Contemplated Transactions.
Section 6.20......Non-Disturbance and Subordination Agreements. Sellers shall
use reasonable commercial efforts to obtain non-disturbance and subordination
agreements from landlords and mortgagees of the unimproved Leased Real Property
listed on Schedule 4.15(g), which recognize Buyer as lessee in the event of a
foreclosure on any such Leased Real Property in a form substantially similar to
that of Exhibit H.
Section 6.21......Assignment by Acquirer. If Acquirer assigns this Agreement
under Section 11.4, Acquirer covenants and agrees that it will continue to be
obligated under this Agreement; provided, however, that Acquirer after such
assignment will have no obligations under the Purchase Documents to which it is
not a party.
ARTICLE VII.......
CONDITIONS PRECEDENT TO
BUYER'S OBLIGATION TO CLOSE
The obligation of Buyer to consummate the transactions contemplated by
this Agreement is subject to the satisfaction, on or prior to the Closing Date,
of each of the following conditions, any or all of which Buyer may waive in
writing.
Section 7.1.......No Material Adverse Change. During the period from the date of
this Agreement to the Closing Date, there shall not have been any adverse change
in the results of operations or financial condition of any Company or the
Business that could reasonably be expected to have a Material Adverse Effect on
the Business as a whole.
Section 7.2.......Representations and Warranties. The representations and
warranties of the Company and each Seller set forth in this Agreement and the
Purchase Documents shall be true and correct on the date of this Agreement
(giving effect to Sellers' Disclosure Letter, but without giving effect to any
Sellers' Supplemental Disclosure Letters) and also as of the Closing Date as if
made on and as of the Closing Date (giving effect to Seller's Disclosure Letter
and any Sellers' Supplemental Disclosure Letters).
Section 7.3.......Performance of Agreements. Each Company and Seller shall have
performed and complied in all material respects with all of their covenants and
agreements set forth in this Agreement and the Purchase Documents which are
required to be performed or complied with on or prior to the Closing Date.
Section 7.4.......No Actions, Etc. No action, suit, proceeding or investigation
by or before any Governmental Authority shall have been instituted or
threatened, the effect of which would restrain, prohibit or invalidate the
Contemplated Transactions or affect the rights of Buyer to (a) own or control
the Shares following the Closing, (b) to operate the Business consistent with
past practices, or (c) have a Material Adverse Effect.
Section 7.5.......Due Diligence. Buyer shall have completed its due diligence
review of the Companies, the Dealerships and the Business, and the results of
this review shall not have resulted in the discovery of a Material Due Diligence
Adjustment. For purposes of this Section 7.5, "Material Due Diligence
Adjustment" means a discovery during Buyer's due diligence that alone or in the
aggregate with other discoveries or known facts, in Buyer's reasonable
discretion: (i) would cause the consolidated EBITDA for the Companies for any
historical or prospective fiscal year to be reduced to less than [Redacted], or
(ii) would if realized affect (or could potentially affect), the tangible net
book value of the Companies as of May 31, 2001 or the Closing Date by an amount
that exceeds [Redacted] of the Target Net Book Value.
Section 7.6.......Shareholder Agreement; Employment Agreements. Each Seller
shall have executed the Shareholder Agreement in the form attached as Exhibit C.
Each Person listed on Schedule 7.6 shall have executed an Employment Agreement
in the form attached as Exhibit E.
Section 7.7.......Noncompetition Agreements. Each Seller and each Seller Trustee
shall have executed a Noncompetition Agreement in the form attached as Exhibit
F, in which each Seller and each Seller Trustee agrees not to compete with
Buyer.
Section 7.8.......Estoppel Certificates, Subordination & Non-Disturbance
Agreements. Buyer shall have received a landlord estoppel certificate from each
owner-landlord and sub-landlord on the Leased Real Property confirming the
material terms of the applicable lease or sublease that the applicable lease or
sublease is in full force and effect, which landlord estoppel certificate shall
be in substantially the form of Exhibit G. Buyer shall also have received
non-disturbance and subordination agreements from any mortgagees or owners of
unimproved Leased Real Property listed on Schedule 4.15(g) of Sellers'
Disclosure Letter agreeing to recognize Buyer as lessee in the event of a
foreclosure on any Leased Real Property and to make available insurance proceeds
to Buyer, as lessee, for the restoration of premises subject to any lease
agreements related to the Leased Real Property, which non-disturbance and
subordination agreement shall be in substantially the form of Exhibit H.
Consistent with Section 6.20, Sellers shall use reasonable commercial efforts to
obtain such non-disturbance and subordination agreements from landlords and
mortgagees of the unimproved Leased Real Property listed on Schedule 4.15(g).
Section 7.9.......Leases. Buyer shall have received executed copies of those
real estate leases attached to this Agreement as Exhibit I with respect to the
Leased Real Property to be leased by Acquirer directly from the owner-affiliate
of a Seller ("Affiliate Leases"). In addition, Buyer shall have received an
assignment of real estate lease or a sublease in the form to be agreed upon as
Schedule 7.9, accompanied by the owner-landlord's consent, with respect to the
Leased Real Property set forth on Schedule 7.9.
Section 7.10......Title Insurance Policies. Buyer shall have received, at
Buyer's sole cost and expense, from a nationally recognized title insurance
company satisfactory to the Buyer (the "Title Company"), a leasehold title
insurance policy, issued as of the Closing Date to Buyer, with respect to each
parcel of Leased Real Property, in form and substance satisfactory to Buyer,
together with endorsements reasonably requested by Buyer, in an amount
determined by Buyer, and showing Buyer, through ownership of the respective
Company tenant, to have a valid leasehold estate in such Leased Real Property,
free and clear of all Liens. Sellers shall have also delivered to the Title
Company any affidavits or indemnities required by the Title Company in
connection with the delivery of such policies.
Section 7.11......Manufacturers' Approval. Buyer shall have obtained the
approval of the Manufacturers to the transfer of the franchises to Buyer without
additional terms or conditions, including, without limitation, any Manufacturer
term or condition requiring Buyer to make capital expenditures or facility
improvements that are not otherwise consistent with those working capital
requirements in place at each Dealership as of the date of this Agreement; and
approval of the Manufacturers of a restructuring of the Company's floor plan
financing arrangements for Buyer's benefit.
Section 7.12......No Legal Obligation. The waiting period under the HSR Act, if
applicable, shall have expired or been terminated. Buyer shall have obtained all
required approvals of any Governmental Authority in connection with the
consummation of the Contemplated Transactions. No action, suit, proceeding,
litigation or investigation shall have been commenced by any Governmental
Authority that questions the validity of this Agreement or the Purchase
Documents or any action taken or to be taken in connection herewith or the
consummation of the Contemplated Transactions. No injunction or other order
issued by a court of competent jurisdiction restraining or prohibiting the
consummation of the Contemplated Transactions shall be in effect.
Section 7.13......Tax Certificate. Each Seller shall have delivered to Buyer a
duly executed certificate in the form specified by Treasury Regulation Section
1.1445-2(b)(2).
Section 7.14......Environmental Matters. An engineering firm selected or
approved by Buyer shall have completed such environmental studies of all real
property occupied by the Companies as Buyer shall, in its sole discretion, deem
necessary or appropriate, and, Buyer shall, in its reasonable discretion, be
satisfied with the results of the studies.
Section 7.15......Consents of Third Parties. Buyer shall have received, in form
and substance reasonably satisfactory to Buyer, all consents of third parties
required to consummate the Contemplated Transactions.
Section 7.16......Release of Obligations Related to Non-Company Indebtedness.
Buyer shall have received evidence reasonably satisfactory to Buyer that each
Company has been released from any cross-default, cross-collateralization,
cross-guarantee, or other obligation relating to non-Company indebtedness, and
such release has not resulted in the imposition of any term, condition,
obligation or arrangement which may have an adverse effect on any Company, any
Dealership or the Business.
Section 7.17......Increase in Stock Price. The Closing Stock Price shall not be
greater than the Ceiling Stock Price.
Section 7.18......Existing Financing. Buyer shall be satisfied, in its
reasonable discretion, that the existing floor plan financing and other credit
facilities of each Company may at Buyer's election survive the Closing, or as
part of the consummation of the Contemplated Transactions, be refinanced, in
each case without having a Material Adverse Effect.
Section 7.19......Audit. Buyer shall be satisfied, in its sole discretion, that
the audit contemplated in Section 6.14 is on schedule to be completed in the
time frame provided and that following completion of the audit, the auditors
will issue an unqualified audit opinion.
Section 7.20......Voting Agreements; Related Party Agreement. Each voting trust,
proxy or other agreement or understanding listed on Schedule 4.4 of Sellers'
Disclosure Letter and each Related Party Agreement that Buyer requests be
terminated has been terminated on or before the Closing Date, and that this
termination will not result in the imposition of any term, condition, obligation
or arrangement that will adversely affect a Company, a Dealership, or the
Business.
Section 7.21......Other Schedules. Buyer shall be satisfied with all other
Schedules to this Agreement not otherwise part of its or Sellers' Disclosure
Letter or any of its or Sellers' Supplemental Disclosure Letters.
Section 7.22......Deliveries. All documents required to be delivered by Sellers
or the Companies at or prior to the Closing, including, without limitation,
those required by Section 3.2 and not otherwise referenced above, and any other
documents that Buyer reasonably requests, shall have been delivered to Buyer at
the Closing.
ARTICLE VIII......
CONDITIONS PRECEDENT TO
SELLERS' OBLIGATION TO CLOSE
The obligation of each Seller to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions, any or all of which the
Sellers' Representative may waive in writing.
Section 8.1.......Representations and Warranties. The representations and
warranties of the Buyer set forth in this Agreement and the Purchase Documents
shall be true and correct on the date of this Agreement (giving effect to
Buyer's Disclosure Letter, but without giving effect to any Buyer's Supplemental
Disclosure Letter) and as of the Closing Date as if made on and as of the
Closing Date (giving effect to any Buyer's Disclosure Letter and Buyer's
Supplemental Disclosure Letters).
Section 8.2.......Performance of Agreements. Buyer shall have performed and
complied with all of its covenants and agreements set forth in this Agreement
and the Purchase Documents which are required to be performed or complied with
on or prior to the Closing Date.
Section 8.3.......No Actions, Etc. No action, suit, proceeding or investigation
by or before any Governmental Authority shall have been instituted or
threatened, the effect of which would restrain, prohibit or invalidate the
Contemplated Transactions or affect the rights of Buyer to (a) own or control
the Shares following the Closing, (b) to operate the Business, or (c) have an
adverse effect on the Contemplated Transactions.
Section 8.4.......Obligations of Sellers. If the obligations of Sellers with
respect to those matters under Sections 6.16 and 6.18 and those matters set
forth on Schedule 9.1(d) could reasonably be expected to cost in the aggregate
more than [Redacted], Buyer (in the exercise of its sole discretion) must have
agreed to assume responsibility for such excess amounts.
Section 8.5.......Decrease in Stock Price. The Closing Stock Price shall not be
less than the Floor Stock Price.
Section 8.6.......Other Schedules. Seller shall be satisfied with all other
Schedules to this Agreement not otherwise part of its or Buyer's Disclosure
Letter, any Buyer's Supplemental Disclosure Letters, Sellers' Disclosure Letter,
and any Sellers' Supplemental Disclosure Letters.
Section 8.7.......Deliveries. All documents required to be delivered by Buyer at
or prior to the Closing, including, without limitation, those required by
Section 3.3, shall have been delivered to Sellers at the Closing.
ARTICLE IX........
INDEMNIFICATION
Section 9.1.......Sellers' Indemnification. Sellers jointly and severally agree
(subject to the limitations in Section 9.6) to defend, indemnify, and hold
Buyer, each Company, their Affiliates and their respective officers, directors,
employees, agents, and their respective successors and assigns ("Seller
Indemnitees") harmless against any and all Damages incurred or sustained by any
Seller Indemnitees arising out of, or in connection with, any of the following:
(a) the breach or inaccuracy of any representation or warranty of Sellers
contained in Article IV or the Purchase Documents, as if the representations or
warranties were made on the date of this Agreement;
(b) the breach or inaccuracy of any representation or warranty of Sellers
contained in Article IV or the Purchase Documents, or any certificate or
document delivered by any Seller or Company at the Closing as if such
representation or warranty were made on and as of the Closing Date;
(c) the breach of any covenant, agreement or obligation of any Company or any
Seller contained in this Agreement or the Purchase Documents that has not been
waived in writing prior to Closing that is not cured within ten (10) days after
notice of such breach;
(d) the matter(s) set forth and identified on Schedule 9.1(d);
(e) any failure of any Seller to convey to Buyer good and marketable title to
the Shares, free and clear of all Liens or any other arrangements that limit the
Buyer's dividend, liquidating, voting or transfer rights with respect to the
Shares; or
(f) all Taxes (including without limitation any Taxes imposed by Section 1374 of
the Code) that have become due and payable during, or which have accrued with
respect to any Company attributable to any period included in the Tax
Indemnification Period that have not been paid prior to the Closing Date or
reserved for on the Closing Date Balance Sheet. Any Taxes attributable to any
Company payable as a result of an audit or adjustment of any Return shall be
deemed to have accrued in the period to which such Taxes are attributable.
For purposes of determining Sellers' liability with respect to a
covenant of indemnification in Sections 9.1(a) and (b), the representations and
warranties will read as if any qualifier, modification or limitation within such
representation or warranty related to "material", "materiality" or "Material
Adverse Effect" is deleted and such qualifier, modification or limitation will
have no force or effect in determining whether there is a breach of such
representation or warranty. Further, Sellers liability with respect to Section
9.1(a) shall be determined without consideration of, or giving effect to, any of
Sellers' Supplemental Disclosure Letters. Sellers also acknowledge and agree
that the covenants of indemnification in Sections 9.1(c)-(f) above shall not be
limited or qualified by any Seller's representations and warranties in this
Agreement or by any disclosures made by Sellers in any Schedule attached to this
Agreement. The indemnification contemplated by this Section 9.1 shall in the
first instance be satisfied in the manner provided in the Escrow Agreement and,
the Seller Indemnitees shall first proceed against the amounts held in escrow up
to the full amount thereof, provided that notice provided under the Escrow
Agreement shall also constitute notice hereunder. Further, any amounts subject
to a Purchase Price adjustment pursuant to Section 2.2 for which Buyer has
received the benefit of such adjustment shall not be subject to a claim for
indemnification under this Section 9.1.
Section 9.2.......Buyer's Indemnification. Subject to the limitation in Section
9.7, Buyer shall defend, indemnify, and hold Sellers and their respective
agents, successors, representatives and assigns ("Buyer Indemnitees") harmless
against any and all Damages incurred or sustained by any Buyer Indemnitees
relating to, arising out of, or in connection with, (a) any breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement or the Purchase Documents, as if the representations or warranties
were made on the date of this Agreement (subject to the exceptions set forth in
Buyer's Disclosure Letter, but without giving effect to any Buyer's Supplemental
Disclosure Letter); (b) any breach or inaccuracy of any representation or
warranty of Buyer contained in this Agreement or the Purchase Documents, or any
certificate or document delivered by Buyer at the Closing (giving effect to
Buyer's Disclosure Letter and/or any Supplemental Disclosure Letters); and (c)
any Damages relating to those certain guarantees of the Leased Real Property as
set forth on Schedule 9.2.
Section 9.3.......Third Party Claims; Litigation.
(a) A Person seeking indemnification pursuant to Article IX
("Indemnified Party") shall, promptly after receipt of notice of the
commencement or threat of any action or proceeding against such Person
in respect of which indemnification may be sought hereunder (a
"Claim"), notify the party from whom such indemnification is sought
("Indemnifying Party") in writing of the commencement or threat of such
Claim. Notwithstanding the foregoing, the right to indemnification
under this Agreement will not be affected by the failure of the
Indemnified Party to give any notice (or the delay by the Indemnified
Party to give any notice) unless, and then only to the extent that, the
rights and remedies of the Indemnifying Party have been materially
prejudiced because of the failure to give, or the delay in giving, the
notice.
(b) In the event of the commencement of any such action or
proceeding as to which the Indemnified Party notifies the Indemnifying
Party, the Indemnifying Party will be entitled to participate therein
and to assume the defense thereof at Indemnifying Party's expense (with
counsel reasonably satisfactory to the Indemnified Party, so long as it
promptly notifies the Indemnified Party of its election and
acknowledges the Indemnifying Party's obligations under Article IX;
provided, however, that the Indemnified Party may elect to retain
control of the defense, at the Indemnifying Party's expense (with
counsel reasonably satisfactory to the Indemnifying Party) if: (i) the
Indemnifying Party's interest conflicts with the interests of the
Indemnified Party, (ii) the relief sought exceeds the limitation on
liability under Section 9.6(g), or (ii) the Indemnified Party has
determined in good faith that there is not a reasonable probability
that the Claim may adversely affect the Indemnified Party or any of its
Affiliates other than as a result of monetary damages (e.g., goodwill
or reputation with a manufacturer or other important relationship) for
which indemnification is provided under this Agreement. The Indemnified
Party may also defend a Claim at the Indemnifying Party's expense (with
counsel reasonably satisfactory to the Indemnifying Party) if the
Indemnifying Party fails to assume the Claim's defense within twenty
(20) days after being notified of the Claim. Nothing herein shall be
construed to give any insurance carrier a right of subrogation for
claims paid except as such right would otherwise exist in the absence
of this Section 9.3. Further, nothing herein shall be construed to
create any rights enforceable by any person not a party to this
Agreement (other than a Seller Indemnitee or Buyer Indemnitee).
(c) If the Indemnifying Party is assuming the control of the
defense pursuant to (b) above, the Indemnified Party shall have the
right to employ separate counsel (which counsel is reasonably
satisfactory to the Indemnifying Party) in such action or proceeding
and to participate in the defense or conduct thereof, but the fees and
expenses of such counsel shall not be at the expense of the
Indemnifying Party.
(d) As to cases in which the Indemnifying Party has assumed
and is providing the defense for the Indemnified Party, the control of
such defense and the right to reach settlement in such action or
proceeding shall be vested in the Indemnifying Party, subject to the
following:
(i) If the Indemnified Party objects to a settlement which has
otherwise been fully agreed to by the Indemnifying Party, the
Indemnified Party may nevertheless prohibit the Indemnifying Party from
making such settlement, in which case the Indemnifying Party shall pay
to the Indemnified Party the proposed cost to the Indemnifying Party of
such settlement (plus any other sum to satisfy the Indemnifying Party's
indemnification obligations to the Indemnified Party as provided by and
contemplated in this section (together, the "Settlement Cost"), in
cash, and the Indemnified Party shall thereafter be responsible for
such matter and the Indemnifying Party shall have no further
indemnification obligations with respect to such matter and shall be
indemnified by the Indemnified Party for any loss or liability in
excess of the Settlement Cost imposed on the Indemnifying Party by any
later settlement or adjudication.
(ii) If the Indemnified Party objects to the continuation of
any proceeding or action by the Indemnifying Party, the Indemnified
Party may direct the Indemnifying Party to settle such case, the cost
of which shall be paid by the Indemnified Party, and the
indemnification obligations of the Indemnifying Party with respect to
Settlement Costs will be subject to resolution under Section 10.3
(including whether the amount of the agreed settlement was reasonable
in light of the Claim).
(iii) In no event may the Indemnifying Party settle a Claim or
consent to an entry of judgment without the Indemnified Party's consent
that does not include as an unconditional term the giving by the
claimant of a release of the Indemnified Party from all liability for
Damages in respect of the Claim.
(e) If the Indemnifying Party has not assumed the defense (for
any reason) of any such Claim by a third party or litigation resulting
therefrom, the Indemnified Party may defend against such Claim in such
manner as it may deem appropriate and may settle such Claim on such
terms as it may deem appropriate; provided, however, that if the
Seller's Representative objects to a settlement which has otherwise
been fully agreed to by the Indemnified Party, the Indemnifying Party
may nevertheless prohibit the Indemnified Party from making such
settlement, so long as: (i) the Indemnifying Party irrevocably
acknowledges its obligations under this Article IX with respect to such
Claim, and (ii) the Indemnifying Party furnishes evidence satisfactory
to the Indemnified Party of the financial ability to so indemnify.
(f) The party controlling the defense of any claim shall
update the other party on a regular basis regarding the status of the proceeding
or litigation, costs incurred to date, the status of settlement or other
negotiations and other matters reasonably requested by the party not in control
of the defense.
Section 9.4.......Payment of Indemnified Obligations. In the event that any
party becomes liable to any other party hereunder for an indemnified obligation,
the indemnified obligation shall be paid in full not later than the earlier of:
(a) thirty (30) days after receipt of written demand of payment, or (b) if the
Escrow Agreement is still in effect, thirty (30) days after the conclusion of
the Notice of Resolution or an Award is provided under the Escrow Agreement. If
not paid within said thirty (30) day period, the amount due shall thereafter
bear interest at the "prime rate" of interest (base rate on corporate loans at
the nation's thirty (30) largest banks), quoted in the "Money Rates" column of
the Money & Investing Section of The Wall Street Journal as of the expiration of
such thirty (30) day period, plus two percent (2%).
Section 9.5.......Buyer's Right of Offset. In the event that a Seller fails to
pay or otherwise discharge an indemnified obligation within the thirty (30) day
time limit set forth in Article IX, and for any matter challenged pursuant to
Section 10.3 after the final resolution of that dispute, Buyer shall have the
right, subject to the Escrow Agreement, to offset the amount of any such
indemnified obligation against the Escrow Amount (prorated between the Escrowed
Acquirer Shares and the Escrowed Cash) or any other amounts which may be due to
such Seller from Buyer; provided, however, Buyer shall not set-off any such
amounts against any Sellers' salary, draw, bonus or other compensation. If the
Escrow Amount is insufficient to discharge the indemnified obligations, Buyer
may take any action or exercise any remedy available pursuant to applicable law
or this Agreement to collect the indemnified obligations. The value of any
Escrowed Acquirer Shares used to satisfy an indemnified obligation shall be
determined by the greater of the Acquirer Stock Price or the closing price of
the shares on the date of offset.
Section 9.6.......Limitation on Indemnification by Sellers. The indemnification
of the Seller Indemnitees provided for under Section 9.6 shall be limited in
certain respects as follows:
(a) Sellers shall not be liable to Seller Indemnitees for
indemnification claims under paragraphs (a) or (b) of Section
9.1 and under paragraph (c) of Section 9.1 (but only to the
extent of a breach of covenants contained in Section 6.2)
until the aggregate amount of such indemnification claims
exceeds (and only with respect to such excess) [Redacted] in
the aggregate in the excess of any insurance proceeds actually
received (the "Indemnification Threshold"); provided, however,
that the following claims for indemnification with respect to
a breach of a representation or warranty shall not be subject
to the Indemnification Threshold: (i) of any Seller in
Sections 4.1 (Organization and Good Standing), 4.2
(Authority), 4.3 (No Conflict), 4.4 (Ownership of Capital
Stock), 4.8(d) (Working Capital Levels) and Section 4.17
(Environmental Matters) (except claims related to Section 4.17
will be subject to the Environmental Indemnification Threshold
set forth below), (ii) with respect to a Tax Warranty, or
(iii) as a result of fraud of any Company or Seller.
(b) Sellers shall not be liable to Seller Indemnitees for
indemnification claims under paragraphs (a) or (b) of Section
9.1 for a breach of a representation or warranty under Section
4.17 (Environmental Matters) until the aggregate amount of
such indemnification claims exceeds (and only with respect to
such excess) One Hundred Thousand Dollars [Redacted] in the
aggregate in excess of any insurance proceeds actually
received (the "Environmental Indemnification Threshold"). Any
amount applicable to the Environmental Indemnification
Threshold shall also be deemed amounts applicable to the
Indemnification Threshold and operate to reduce amounts
available under the Indemnification Threshold on a dollar for
dollar basis.
(c) Seller shall not be liable to Seller Indemnitees for
indemnification claims under Section 9.1(f) for federal or
state income taxes assessed by the applicable Governmental
Authority against the Company resulting from the matter listed
on Schedule 9.6(c) until the aggregate amount of such
indemnification claims exceeds (and only with respect to such
excess) [Redacted] (the "Tax Indemnification Threshold").
(i) The Tax Indemnification Threshold will be increased by one dollar
for each dollar (if any) that the Closing Net Book Value is in
excess of [Redacted].
(ii) Further, the Tax Indemnification Threshold shall be increased by
an amount equal to [Redacted] of the amount paid by Acquirer or
its Affiliate for goodwill in any Tuck-In Acquisition. A "Tuck-In
-------- Acquisition" is the consummation of an acquisition by
Acquirer or its Affiliate of a business ----------- similar to
any Dealership or the Business within the State of Nevada, the
State of Arizona, San Diego County, California, or a fifty (50)
mile radius from the borders of San Diego County for which the
Majority Shareholder was the procuring cause, if the definitive
agreement underlying that Tuck-In Acquisition is executed by all
parties to such agreement on or before the date which is three
(3) years after the Closing Date.
(d) Except for the Majority Shareholder, each Seller's liability
for indemnification obligations under Section 9.1(a), (b), (c)
and (f) not arising from fraud is limited to the Seller's
Applicable Percentage of the Escrowed Amount. Sellers shall be
jointly and severally liable for the indemnification obligations
under Section 9.1(c) and for matters related to fraud, subject
only to any of the applicable limitations in this Section 9.6.
(e) Any claim for indemnification by the Seller Indemnitees under
paragraphs (a), (b) or (c) of Section 9.1 or with respect to a
covenant to be performed by a Seller on or before the Closing
Date must be made within four (4) years of the Closing Date,
except that (i) there will be no limits on the time for making
a claim for indemnification relating to the representations
and warranties contained in Section 4.1 (Organization and Good
Standing), Section 4.2 (Authority), Section 4.3 (No Conflict),
and Section 4.4 (Ownership of Capital Stock); (ii) a claim for
indemnification relating to the representations and warranties
in Section 4.17 (Environmental Matters) with respect to
matters pertaining to premises or property that is not a part
of the Owned Real Property or the Leased Real Property
(including without limitation matters relating to the storage,
release or disposal of any Hazardous Materials on property
other than the Leased Real Property), or representations and
warranties contained in Section 4.14 (Employee Benefit Plans),
and Section 4.20 (Taxes) may be made until sixty (60) days
after the expiration of any applicable statute of limitations
(including extensions) governing claims by the applicable
Governmental Authority or Person with respect to the subject
matter of such claim, and if there is no applicable statute of
limitations, indefinitely; (iii) a claim for indemnification
for fraud of any Company or any Seller shall be made prior to
the expiration of the applicable statute of limitations for
fraud claims; and (iv) a claim for indemnification under
Section 4.8(d) must be made within six (6) months of the
Closing Date.
(f) Notwithstanding the foregoing provision of this Article IX,
Sellers will have no obligations under paragraphs (a) or (b)
of Section 9.1 with respect to an indemnification claim if the
Damages represented by that claim are less than $2,500. When
the aggregate amount of Damages for claims so excluded by
virtue of this paragraph (f) exceed in the aggregate $50,000,
any amounts which otherwise would be excluded under this
paragraph shall not be counted towards and shall reduce the
Indemnification Threshold or the Environmental Indemnification
Threshold.
(g) Notwithstanding anything in this Agreement to the contrary, no
Seller shall be required to indemnify a Seller Indemnitee for
any Damages incurred or paid by such Seller Indemnitee in
connection with the condition of the improvements, buildings
or the Systems located upon the Owned Real Property or the
Leased Real Property; provided, however, that Sellers shall
continue to be obligated (subject to the terms of Article IX)
for indemnification claims for Damages in connection with (i)
such condition that relates to a claim by a Person other than
a Seller Indemnitee or a Governmental Authority, and (ii) the
obligations set forth in Section 6.16.
(h) Notwithstanding anything in this Agreement to the contrary, no
Seller shall be required to indemnify a Seller Indemnitee for
any Damages with respect to the Owned Real Property or the
Leased Real Property incurred or paid by such Seller
Indemnitee in connection with a Known Environmental Condition;
provided, however, that Sellers shall continue to be obligated
(subject to the terms of Article IX) for indemnification
claims for Damages in connection with (i) a Known
Environmental Condition that relates to a claim by a Person
other than a Seller Indemnitee or a Governmental Authority,
and (ii) the obligations set forth in Section 6.18.
(i) Except for any claim for indemnification related to Sections
6.16, 6.18 or 9.1(f), any Tax Warranty, or fraud to which the
provisions of this paragraph (g) shall not apply or limit in
any way, the aggregate amount payable by the Majority
Shareholder pursuant to Section 9.1 shall not exceed
[Redacted].
Section 9.7.......Limitation on Indemnification of Buyer Indemnitees. Buyer
shall not be liable to Buyer Indemnitees for indemnification claims under
Section 9.2 until the aggregate amount of such indemnification claims exceeds
(and only with respect to such excess) the Indemnification Threshold. Any claim
for indemnification by the Buyer Indemnitees under Section 9.2 or with respect
to a covenant to be performed by Buyer on or before the Closing Date must be
made within three (3) years of the Closing Date, except that (i) there will be
no limits on the time for making a claim for indemnification relating to the
representations and warranties contained in Section 5.1 (Organization and Good
Standing) and Section 5.2 (Due Authorization), and (ii) any claim for
indemnification relating to Section 5.4 (Acquirer SEC Reports) or fraud shall be
made prior to the expiration of the then applicable statute of limitations.
Section 9.8.......Net Indemnity Payments. Any amounts payable under Sections
9.1, 9.2 or 9.8 shall be net of any insurance proceeds actually received by the
Indemnified Party (less the costs, expenses and fees incurred in obtaining such
proceeds). Each of the Indemnified Party and the Indemnifying Party shall,
promptly after receiving notice of a Claim, concurrently with and as a condition
to seeking indemnification under this Agreement, also make a claim under any
insurance policy maintained by the party or its Affiliate that might provide
coverage for the Claim. To the extent that insurance coverage is available to
the Indemnified Party to cover any Claim, the Indemnified Party shall use
commercially reasonable efforts (which efforts do not require the Indemnified
Party to institute litigation, except as specifically provided below) and
proceed on a good faith and timely basis to seek to recover such amounts as may
be available for a period of 90 days and shall only be entitled to seek
indemnification against the Indemnifying Party if the insurance recovery is not
paid within 90 days after the insurance claim is first made or coverage is
denied or is insufficient to satisfy the Claim. To the extent that an
Indemnifying Party indemnifies Indemnified Party for any Claim, the Indemnified
Party shall to the extent applicable, (i) pay to the Indemnifying Party the
amount received from the insurance company or any other third party (less the
costs, expenses and fees incurred in obtaining such proceeds), up to the amount
paid to the Indemnified Party by the Indemnifying Party; and assign to the
Indemnifying Party, to the extent possible, its claims against the insurance
company or other third party. If any such insurance or third party claim is not
assignable to the Indemnifying Party, the Indemnified Party shall commence
litigation on behalf of the Indemnifying Party, provided that (i) the
Indemnifying Party advances all costs, expenses and fees associated with the
litigation of the claim and (ii) the Indemnified Party is satisfied that there
is a reasonable basis for the claim to be successful, as reasonably determined
by the Indemnified Party's legal counsel. Any amounts payable under Sections 9.1
or 9.2 shall be treated by Buyer and Sellers as an adjustment to the Purchase
Price.
Section 9.9.......Tax Controversies. Notwithstanding anything to the contrary
contained in Section 9.3 of this Agreement, Buyer shall have full responsibility
for and discretion in handling any Tax controversy concerning the Companies,
including, without limitation, an audit, a protest to the Appeals Division of
the IRS, and litigation in Tax Court or any other court of competent
jurisdiction involving the Companies. Buyer shall use reasonable efforts to keep
the Sellers' Representative advised as to the status of Tax audits and
litigation involving any Taxes which could give rise to a liability of the
Sellers to Buyer under this Agreement (a "Tax Liability Issue"), and Sellers'
Representative shall have the right to participate, at his expense, in any such
audits and litigation that could give rise to a liability of any Seller.
However, with respect to Tax Liability Issues involving that matter set
forth on Schedule 9.6(c), Buyer and Sellers' Representative will undertake a
joint response to the proceeding, audit or litigation (if any), and each party
shall cooperate in any defense or prosecution of the same, and no party will
agree to any settlement or compromise of such proceeding, audit or litigation
(if any) without the written approval of the other (which shall not be
unreasonably withheld or delayed). To the extent a party desires to engage third
party professionals to assist in any such defense or prosecution, the costs
incurred in that engagement will be borne by the engaging party. Neither party
will work to disadvantage the other party in any proceeding, audit or litigation
related to a Tax Liability Issue involving the matter set forth on Schedule
9.6(c).
In addition, and notwithstanding the foregoing provisions of this
Section 9.9, to the extent that a Tax Liability Issue (as determined by Buyer in
its reasonable discretion): (i) relates solely to a pre-closing period, and (ii)
is a matter that has no potential, precedential policy or other adverse effect
on any post-Closing Tax matter, Sellers shall have full responsibility for and
discretion in handling any Tax controversy concerning such Tax Liability Issue;
provided, however, Sellers shall use reasonable efforts to keep Buyer advised as
to the status of such issue, and Buyer shall have the right to participate, at
its expense, in the resolution of such Tax Liability Issue.
ARTICLE X.........
TERMINATION; EFFECT OF TERMINATION;
ALTERNATIVE DISPUTE RESOLUTION
Section 10.1......Grounds for Termination. This Agreement may not be terminated
at any time prior to the Closing Date, except termination may occur:
(a) by written notice if the consent of any Manufacturer required by Section
7.11 is not received within one hundred fifty (150) days after the date of this
Agreement, provided, that the terminating party has in good faith used
reasonable efforts to obtain the consent,
(b) by either Buyer or Sellers' Representative, if the Closing shall not have
occurred prior to February 28, 2003 for any reason, provided that the
terminating party is not in breach of any representation, warranty or covenant
of this Agreement (and that there is no event that with the lapse of time or
notice would constitute such a breach),
(c) by the non-breaching party upon the material breach of a representation or
warranty set forth in this Agreement, the Purchase Documents or both, which
breach is not cured within thirty (30) days after receipt of notice of such
breach by the breaching party,
(d) by Sellers' Representative, if any condition precedent in Article VIII is
not waived or satisfied as of the Closing Date or at any time if satisfaction of
a condition precedent is precluded, in each case without fault of a Seller or a
Company,
(e) by Buyer if any condition precedent in Article VII is not waived or
satisfied as of the Closing Date or at any time if satisfaction of a condition
precedent is precluded, in each case without fault of Buyer,
(f) by Buyer or Seller's Representative pursuant to Sections 1.4, 6.7, 6.8 or
6.18,
(g) by written notice prior to September 30, 2002, if Acquirer does not receive,
within fifteen (15) days after the execution of this Agreement, the approval of
both Acquirer's board of directors (or applicable committee) and the investment
banking firms that managed Acquirer's initial public offering of the
Contemplated Transactions (unless the board or applicable committee has given
its approval and Acquirer has waived the approval of the investment banking
firms), or
(h) at any time by an agreement in writing signed by Buyer and the Sellers'
Representative.
Section 10.2......Effect of Termination. Each party's rights to terminate this
Agreement under Section 10.1 supplement its other rights under this Agreement
and under applicable law; exercise of the termination right does not constitute
the party's election of a remedy. If this Agreement is terminated pursuant to
Section 10.1, such termination shall be without liability of any party, or any
shareholder, partner, member, director, officer, employee, agent, consultant or
representative of such party, to any other parties to this Agreement and other
than Sections 6.5, 6.18 and 11.2 which shall survive termination, all further
obligations of the parties will terminate; provided, however, that any such
termination will not affect the liability of a party for Damages as a result of
that party's breach of this Agreement.
Section 10.3......Alternative Dispute Resolution. In the event of any
controversy arising out of or relating to this Agreement or any breach thereof,
the parties shall first use their diligent and good faith efforts to resolve the
dispute by exchanging relevant information and negotiating in good faith. If
such dispute resolution efforts are unsuccessful, the parties to this Agreement
agree to participate in non-binding mediation. The Sellers' Representative or
Buyer may, by written notice to the other parties, require that the parties
participate in non-binding mediation to attempt to resolve such dispute. Such
mediation shall be conducted in San Diego, California and administered by a
mediator mutually acceptable to Buyer and Sellers' Representative, but absent
their mutual agreement, by a mediator selected by the San Diego, California
office of the American Arbitration Association under its Commercial Mediation
Rules. Each party shall bear its own costs of mediation and shall share equally
the costs of the mediator. If the mediation is unsuccessful after (30) days, the
dispute shall be submitted to binding arbitration in San Diego, California in
accordance with the rules of the Uniform Arbitration Act. Such arbitration shall
be initiated by any party by notifying the other parties in writing and
requesting a panel of three (3) arbitrators from the American Arbitration
Association. The party requesting the arbitration shall promptly notify the
arbitrators in writing of their selection, who shall then hold a hearings(s)
within sixty (60) days of the arbitrators receipt of the notice. Reasonable
discovery, including depositions, shall be permitted. Discovery issues shall be
decided by the arbitrators. Post-hearing briefs shall be permitted. The
arbitrators shall render a decision within twenty (20) days after the conclusion
of the hearing(s). Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. All arbitration fees for such
arbitrators will be divided equally between the parties. During any dispute
under this Agreement, the parties shall continue to fulfill their respective
obligations under this Agreement, unless the subject matter of the dispute is of
such a nature that this is by no means possible until the dispute has been fully
settled. Notwithstanding the foregoing, the parties acknowledge and agree that
neither party shall be bound by the terms of this Section 10.3 if such party
seeks any relief against any other party pursuant to Sections 2.2(d) or 6.5.
ARTICLE XI........
MISCELLANEOUS
Section 11.1......Survival. Buyer, each Company, and each Seller acknowledges
and agrees that those sections of this Agreement which by their terms must
survive the Closing and the completion of the Contemplated Transactions shall
survive the Closing and consummation of the Contemplated Transactions. All
representations, warranties, covenants and obligations in this Agreement, the
Schedules and any other certificate or document delivered pursuant to this
Agreement shall survive the consummation of the Contemplated Transactions,
subject to the limitations set forth in Article IX. The right to
indemnification, reimbursement or other remedy based upon such representations,
warranties, covenants and obligations shall not be affected by any investigation
including any environmental investigation or assessment conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing Date, with respect to the accuracy or inaccuracy of or compliance with
any such representation, warranty, covenant or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of Damages, or the remedy based on those
representations, warranties, covenants, and obligations.
Section 11.2......Costs and Expenses. Subject to Section 6.18 and the provisions
provided below, Buyer, each Company and Sellers shall each bear its own costs
and expenses, including attorneys' fees, incurred or to be incurred in
connection with the negotiation and preparation of this Agreement and the
Purchase Documents, and in carrying out the Contemplated Transactions. Buyer
shall be responsible for the filing fees incurred in connection with any filings
required by the HSR Act. In addition, upon consummation of the Contemplated
Transactions (and only if these transactions are consummated) Buyer shall (a)
pay all sales, use, stamp, transfer, service, recording, real estate and like
Taxes, and fees imposed by a Governmental Authority, which may be payable in
connection with the Contemplated Transactions, and (b) pay one-half of the
reasonable attorneys' fees of the law firm ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps
LLP, incurred by the Majority Shareholder in connection such firm's
representation of Sellers in the review, negotiation, execution and consummation
of this Agreement and responses to Buyer's due diligence requests; provided,
however, that in no event will Buyer be required to pay for attorneys' fees
related to representation that would (or reasonably should) have been taken by
Sellers or the Companies regardless of whether the Contemplated Transactions
were being pursued, and provided, further, that Buyer's obligation to pay such
attorneys' fees shall be contingent on Sellers' Representative providing to
Buyer reasonably detailed invoices for such representation and evidence
reasonably satisfactory to Buyer that Sellers have made payment of their
respective portion of such fees.
Section 11.3......Entire Agreement; Amendment. This Agreement and the Purchase
Documents contain the entire agreement of the parties hereto with respect to the
Contemplated Transactions and supersede any and all prior agreements,
arrangements and understandings among the parties relating to the subject matter
hereof, including the letter of interest dated June 28, 2002, from ▇▇▇▇▇▇
Automotive Group, Inc. to ▇▇▇ ▇▇▇▇▇ Enterprises, Inc. No representation,
warranty, inducement, agreement, promise or understanding which alters,
modifies, limits or adds to the terms or conditions of this Agreement or the
Purchase Documents shall have any force or effect unless the same is in writing
and executed by Buyer, the Companies and Sellers' Representative. This Agreement
may only be amended by a writing signed by Buyer and the Companies and Sellers'
Representative.
Section 11.4......Assignment; Joinder.
(a) This Agreement shall inure to the benefit of, and be binding upon and
enforceable by, the parties hereto and their respective successors and permitted
assigns. Sellers shall not assign their rights or obligations under this
Agreement in whole or in part without the prior written consent of Buyer, which
consent shall be in the Buyer's sole discretion. Buyer may, without the consent
of Sellers, assign their respective rights and obligations under this Agreement
in whole or in part to any one or more of their respective Affiliates or any
entity that acquires a substantial part of either of their assets or any
successor by merger, consolidation or corporate restructuring; provided,
however, that if Buyer is some Person other than Acquirer, Acquirer shall
continue to be obligated under this Agreement as set forth in Section 6.21.
(b) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (with respect to The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Trust), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇-▇▇▇▇▇▇ (with respect to
the Kornik Family Trust), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (with
respect to the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Family Trust) join
into and agree to become bound by this Agreement for purposes of personally
guaranteeing, in each of their individual capacities, the obligations and
performance of his or her respective trust under this Agreement and the Purchase
Documents, and providing the release contemplated in Section 6.9. For purposes
of this Agreement, "Trust Liability" means all liabilities, obligations,
covenants and indebtedness under this Agreement and the Purchase Documents of a
Seller that is a trust, now or later owing to a party to this Agreement or the
Purchase Documents, however and whenever incurred or evidenced, whether due or
to become due. Each Seller Trustee hereby unconditionally and irrevocably
guarantees full, complete, and punctual payment and performance of all current
and future Trust Liability of his or her respective trust when and as such Trust
Liability becomes due and payable. The obligation of each Seller Trustee: (i) is
a present, absolute, continuing, and unconditional guaranty of payment and
performance (and not of collection) and is not conditioned or contingent on any
attempt by any other party to collect from any other Person; (ii) is not subject
to any setoff, defense, deduction, or counterclaim based on any claim that
Seller Trustee may have against another party; and (iii) will not be affected,
released, diminished, or discharged in any manner by any change or indulgence
(including a gratuitous indulgence not effected by legal modification) made or
granted by any other party with respect to such Trust Liability.
Section 11.5......Notices. All notices, requests, demands, waivers, consents,
approvals, payments or other communications which are required or permitted
hereunder shall be in writing and be deemed delivered (a) upon receipt, if by
hand delivery, (b) upon transmission, if sent by facsimile during normal
business hours in the time zone in which the transmission is received, with
confirmation of receipt, (c) the next day, if sent by a reputable overnight mail
courier service such as FedEx, or (d) on the fifth (5th) day following deposit
in the United States mail, certified, postage prepaid, return receipt requested,
addressed as follows:
If to Buyer: ▇▇▇▇▇▇ Automotive Group, Inc.
Three ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-
With copies to: ▇▇▇▇▇▇ Automotive Group, Inc.
Three ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Corporate Counsel and Director of Corporate
Development
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
And: ▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A.
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: R. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Jr., Esquire
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Sellers'
Representative: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With copies: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With copies to: ▇▇▇▇, Forward, ▇▇▇▇▇▇▇▇ & Scripps LLP
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address for receiving notice by giving notice of such
new address in the manner provided herein.
Section 11.6 Indulgences, etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege under this
Agreement or any of the Purchase Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence.
Section 11.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts (whether facsimile or original), each of which shall be
deemed to be an original as against any party whose signature appears thereon,
and all of which shall together constitute one and the same instrument.
Section 11.8 Provisions Several. The provisions of this Agreement are
independent of and several from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
Section 11.9 Headings. The paragraph headings in this Agreement are for
convenience only, they form no part of this Agreement and shall not affect its
interpretation.
Section 11.10 Gender, etc. Words used herein regardless of the number and gender
specifically used shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
Section 11.11 Governing Law. All questions relating to the validity,
construction and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to the choice-of-law rules of this or any other jurisdiction and without the aid
of any rule or custom requiring construction against the draftsman.
Section 11.12 Definitions. Capitalized terms used but not otherwise defined in
this Agreement shall have the meaning set forth below:
"Acquirer" has the meaning set forth in the first paragraph. "Acquirer
Shares" has the meaning set forth in Section 1.2. "Acquirer Stock Price" has the
meaning set forth in Section 1.2(b). "Actual Net Book Value Shortfall" has the
meaning set forth in Section 2.2(e). "Actual Working Capital Shortfall" has the
meaning set forth in Section 2.2(e). "Adjustment Certificate" has the meaning
set forth in Section 2.2(b). "Affiliate" of a Person or entity means a Person or
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under control with the first Person or entity.
For a Seller that is a trust, "Affiliate" shall also mean the respective Seller
Trustees of that trust. "Control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of a
Person or entity, whether through the ownership of voting securities, by
contract, as trustee or executor, or otherwise. "Affiliate Leases" has the
meaning set forth in Section 7.9. "Agreement" has the meaning set forth in the
first paragraph. "Applicable Laws" means all federal, state, local or foreign
statutes, codes, laws, rules, regulations, ordinances or orders of any
Governmental Authority (including, without limitation, all applicable laws,
building codes, common law, zoning codes, Environmental Laws, employee safety
laws and other statutes, judgments, injunctions, orders, decisions, decrees or
consents of or agreements with any Governmental Authority) applicable to the
Sellers, the Company or the Business. "Applicable Percentage" means (a) each
Seller's percentage share of the Escrow Amount, and (b) each Seller's percentage
share of the indemnification obligations of Sellers payable by offset against
the Escrow Amount, all as set forth on Schedule 11.12. "Business" means
collectively all of the franchise automobile or truck dealerships, including
without limitation, the Dealerships, used automobile or truck dealerships,
vehicle maintenance and repair services, replacement part and accessory sales,
extended warranty sales, vehicle financing, receivables management, collections,
insurance, automobile dealer management and services (including, without
limitation, advisory, training, recruiting, payroll, computer systems
maintenance and management services) and such other business and activities
(collectively, "Operations") as are conducted by the Companies now or at any
time through the Closing Date. With respect to any one Company, "Business" means
the Operations conducted by such Company now or at anytime through the Closing
Date. "Buyer" has the meaning set forth in Section 1.1. "Buyer's Disclosure
Letter" means the disclosure letter delivered by Buyer within the time period
contemplated in Section 6.7 that accompanies this Agreement and provides the
Schedules contemplated in Article V. "Buyer Indemnitees" has the meaning set
forth in Section 9.2. "Buyer's Supplemental Disclosure Letter" is any update or
supplement to Buyer's Disclosure Letter that is provided pursuant to Section
6.8. "Ceiling Stock Price" means the Acquirer Stock Price, multiplied by
[Redacted] ------------------- "Claim" has the meaning set forth in Section 9.3.
"Closing" has the meaning set forth in Section 3.1. "Closing Balance Sheet" has
the meaning set forth in Section 2.2(b). "Closing Date" has the meaning set
forth in Section 3.1. "Closing Net Book Value" has the meaning set forth in
Section 2.2(b). "Closing Payment" has the meaning set forth in Section 1.2(a).
"Closing Stock Price" means the closing per share price of Acquirer's common
stock as of the business day immediately preceding the Closing Date. "Closing
Working Capital" has the meaning set forth in Section 2.2(b). "Code" means the
United States Internal Revenue Code of 1986, as amended. "Company" or
"Companies" shall have the meaning set forth in the first paragraph. "Contracts"
means all floor plan and other financing agreements, franchise agreements, sales
and service and other agreements with the Manufacturers and other contracts,
documents, instruments, licenses, leases, commitments and agreements to which
any Company is a party or by which any Company or any Dealership is bound.
"Contemplated Transactions" means all of the transactions contemplated by this
Agreement, including without limitation the sale of the Shares, the performance
by each party of its respective covenants and obligations under this Agreement,
the execution, delivery and performance of the Purchase Documents, and the
consummation of the transactions contemplated by those documents. "Damages"
means any claim, liability, deficiency, obligation, loss, damage, assessment,
judgment, cost or expense of any kind or character, including incidental and
consequential damages, costs of investigation and defense, and reasonable
attorneys' fees, whenever incurred. "Dealerships" means collectively, all of the
franchise automobile or truck dealerships listed on Schedule 4.4 operated by the
Companies, and a "Dealership" is any one of these dealerships. "Demo" means an
undamaged demonstrator vehicle that has not been previously titled, is either a
2002 or 2003 model year vehicle, and has been utilized for more than 500 miles
but less than 5,000 miles as of the Closing Date. "Easements" has the meaning
set forth in Section 4.15(d). "EBITDA" means earnings before non-floor plan
interest expense and income, income taxes and depreciation and amortization
expense, net of the addbacks (set forth on Schedule 11.12 of the Sellers'
Disclosure Letter) of the Company or the Companies for the period which such
earnings are being calculated. "Employee Benefit Plan" or "Employee Benefit
Plans" have the meanings set forth in Section 4.14(a). "Employees" has the
meaning set forth in Section 4.13. "Engineering Audit" has the meaning set forth
in Section 6.16. "Environmental Audit" has the meaning set forth in Section
6.18. "Environmental Laws" means all present Applicable Laws that relate to the
protection of the environment, natural resources, or to any emission, discharge,
generation, processing, storage, holding, abatement, existence, Release,
threatened Release, or transportation of Hazardous Materials, including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
investigation or remediation of emissions, discharges, Release or threatened
Release of Hazardous Materials into the air, surface water, ground water, or
land, or relating to the manufacture, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport or handling of Hazardous
Materials. "Environmental Laws" shall include, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, 42
U.S.C. Section 9601, et seq.; the Superfund Amendments and Reauthorization Act
of 1986, Title III, 42 U.S.C. Section 11001, et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300(f), et seq.; the Solid Waste Disposal Act, 42 U.S.C. Section 6901, et seq.;
the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801,
et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901, et seq; the Federal Water Pollution Control Act, as amended, 33
U.S.C. Section 1251, et seq.; the Toxic Substances Control Act of 1976, 15
U.S.C. Section 2601, et seq. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended. "ERISA Affiliate" has the meaning set forth in
Section 4.14(a). "Escrow Agreement" has the meaning set forth in Section 1.2(c).
"Escrow Amount" has the meaning set forth in Section 1.2(c). "Escrowed Acquirer
Shares" has the meaning set forth in Section 1.2(c). "Escrowed Cash" has the
meaning set forth in Section 1.2(c). "Estimated Cash Deficiency" has the meaning
set forth in Section 2.2(a)(i). "Estimated Net Book Value" has the meaning set
forth in Section 2.2(a). "Estimated Net Book Value Shortfall" has the meaning
set forth in Section 2.2(a)(iii). "Estimated Working Capital" has the meaning
set forth in Section 2.2(a). "Estimated Working Capital Shortfall" has the
meaning set forth in Section 2.2(a)(ii). "Exchange Act" means the Securities and
Exchange Act of 1934, as amended. "FIFO" has the meaning set forth in Section
2.2(c)(ii). "Floor Stock Price" means the Acquirer Stock Price multiplied by
[Redacted]. "FTC" means the Federal Trade Commission. "Financial Statements" has
the meaning set forth in Section 4.8(b). "GAAP" means U.S. Generally Accepted
Accounting Principles. ---- "Governmental Authority" means any federal, state,
local or foreign entity exercising executive, legislative, judicial, regulatory
or administrative functions, including, without limitation, any governmental
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States, or any political subdivision
thereof, any tribunal or arbitration body of competent jurisdiction, and any
self-regulatory organization.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti-Trust Improvements Act of 1976,
as amended.
"Hazardous Materials" means any substance that (a) is or contains asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyl ("PCB's"), petroleum
or petroleum-derived substances or wastes, radon gas or related materials, (b)
requires investigation, removal or remediation under any Environmental Laws, or
is defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any
Environmental Laws, including, without limitation, petroleum products and
materials, or (c) is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is regulated by
Environmental Laws.
"Indemnified Party" has the meaning set forth in Section 9.3.
"Indemnifying Party" has the meaning set forth in Section 9.3.
"Independent Accountant" has the meaning set forth in Section 2.2(d).
"IRS" means the Internal Revenue Service.
"Intellectual Property" has the meaning set forth in Section 6.18.
"Known Environmental Condition" has the meaning set forth in Section
6.18.
"Leased Personal Property" has the meaning set forth in Section 4.16(a).
"Leased Real Property" has the meaning set forth in Section 4.15(a).
"Liens" means debts, claims, security interests, pledges, rights of
others, liens, encumbrances, pledges, assessments, restrictions and charges of
every nature.
"LIFO Recapture Liabilities" means the LIFO recapture Tax liability or
obligation of the Companies determined under Section 1363(d) of the Code and any
comparable provision under state, local or foreign Tax law in the aggregate
amount of $3,188,848, payable in four (4) annual installments, plus any
applicable penalties and interest, that the Companies are required to pay as a
result of including the LIFO recapture amount (as defined in Section 1363(d)(3)
of the Code) in gross income for the taxable year in which each Company elected
to be treated as an "S" corporation for federal income tax purposes and under
the income Tax laws of each state in which each Company does business.
"Lower Threshold" has the meaning set forth in Section 2.2(a)(ii).
"Majority Shareholder" means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, as
co-trustees of The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust.
"Manufacturers" means General Motors Corporation (Chevrolet Division), Ford
Motor Company, ------------- DaimlerChrysler Corporation, Subaru of America,
Inc., Volkswagen of America, Inc., Mitsubishi Motors Sales of America, Inc.,
Toyota Motor Sales, U.S.A., Inc. and Toyota Motor Sales, U.S.A., Inc. (Lexus
Division).
"Material Adverse Effect" means (i) any change or effect that is materially
adverse to any of the Shares, or to the business, assets, operations or
financial condition of any Company or the Business, respectively, other than any
effect relating to (A) the United States or global economy or securities markets
in general, (B) the announcement or market rumors surrounding the announcement
of this Agreement or the transactions contemplated hereby, (C) changes in
applicable law or regulations or in GAAP or regulatory accounting principles,
(D) general changes in the automotive business, or (E) any act of war or
terrorist attack, provided, that with respect to each of clauses (A), (C), (D)
and (E) that such effect is not more adverse with respect to any of the Shares,
any Company, or the Business than the effect on comparable businesses generally,
and (ii) any effect beyond the control of the parties that materially impairs,
materially delays or prevents consummation of the transactions contemplated in
this Agreement.
"Material Due Diligence Adjustment" has the meaning set forth in Section
7.5. "New Vehicle" means the following: (A) a vehicle owned by a Company on the
Closing Date that has not been previously titled, and is either a 2002 or 2003
model year vehicle, or (B) a Demo. "New Vehicle" shall not include any damaged
vehicle described in clause (A) or (B) of the preceding sentence. "Non-OEM
Parts" has the meaning set forth in the definition of "Parts and Accessories"
below. "Operations" has the meaning set forth in the definition of "Business"
above. "Owned Real Property" has the meaning set forth in Section 4.15(a).
"Owned Personal Property" shall have the meaning set forth in Section 4.16(a).
"Parts and Accessories" means all parts and accessories owned by a Company at
the Closing that are undamaged parts which are either (A) listed in the current
price book for parts used in the vehicles sold by such Company, and eligible to
be returned to the factory or distributor from which they were originally
purchased or (B) other parts, supplies or accessories used or sold in the
ordinary course of business of such (the "Non-OEM Parts"). "Permits" has the
meaning set forth in Section 4.10. "Person" means any natural person, firm,
partnership, association, corporation, company, limited liability company,
trust, business trust, Governmental Authority or other entity (whether foreign
or domestic). "Purchase Documents" means all agreements, documents or
instruments to be executed or delivered in connection with the Contemplated
Transactions contemplated by this Agreement, other than this Agreement.
"Purchase Price" has the meaning set forth in Section 1.2. "Related Party
Agreements" has the meaning set forth in Section 4.25(c). "Release" means any
releasing, disposing, discharging, injecting, spilling, leaking, leaching,
pumping, dumping, emitting, escaping, emptying, seeping, dispersal, leeching,
migration, transporting, placing and the like, including, without limitation,
the moving of any materials through, into or upon, any land, soil, surface
water, ground water or air, or otherwise entering into the environment.
"Released Claims" has the meaning set forth in Section 6.9(a). "Released
Parties" has the meaning set forth in Section 6.9(a). "Remediation" has the
meaning set forth in Section 6.18. "Representatives" has the meaning set forth
in Section 6.1. "Retention Bonus" has the meaning set forth in Section 6.15.
"Retention Threshold" has the meaning set forth in Section 6.15. "Returns" means
any return, report, declaration, form, claim for refund, information return,
statement, or other documentation (including in all instances any additional or
supporting material and any amendments or supplements) filed or maintained, or
required to be filed or maintained, with respect to or in connection with the
calculation, determination, assessment, or collection of any Taxes. "SEC
Reports" means those filings of reports, schedules, forms, statements and other
documents made by Buyer with the SEC since March 13, 2002. "Securities Act"
means the Securities Act of 1933, as amended. "Seller" or "Sellers" has the
meaning set forth in the first paragraph. "Sellers' Auditor" has the meaning set
forth in Section 6.14. "Sellers' Disclosure Letter" means the disclosure letter
delivered by Sellers' Representative within the time period contemplated in
Section 6.7 that accompanies this Agreement and provides the Exhibits and the
Schedules contemplated in Section 1.2(b), Section 11.12 and Article IV. "Seller
Indemnitees" has the meaning set forth in Section 9.1. "Sellers' Representative"
means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and any successor appointed in accordance with Section
2.3. "Sellers' Supplemental Disclosure Letter" is any update or supplement to
the Sellers' Disclosure Letter that is provided pursuant to Section 6.1 or 6.8.
"Seller Trustees" has the meaning set forth in the first paragraph. "Settlement
Costs" has the meaning set forth in Section 9.3. "Shares" has the meaning set
forth in the Background section of this Agreement. "Stock Consideration" has the
meaning set forth in Section 1.2(b). "Systems" has the meaning set forth in
Section 4.15(c). "Target Calculations" has the meaning set forth in Section
2.2(c). "Target Net Book Value" means [Redacted]. "Target Working Capital" has
the meaning set forth in Section 2.2(a)(ii). "Tax" or "Taxes" means (i) any and
all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind
(whether or not imposed on any Company), imposed by any Governmental Authority
or taxing authority, including without limitation, taxes or other charges on,
measured by, or with respect to income, franchise, windfall or other profits,
gross receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value-added or gains taxes; license, registration and documentation
fees; and custom's duties, tariffs and similar charges; (ii) any liability for
the payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, combined, consolidated or unitary group for any taxable
period; (iii) any liability for the payment of any amounts of the type described
in (i) as a result of being a person required by law to withhold or collect
taxes imposed on another person; (iv) any liability for the payment of amounts
of the type described in (i), (ii) or (iii) as a result of being a transferee
of, or a successor in interest to, any Person or as a result of an express or
implied obligation to indemnify any Person; and (v) any and all interest,
penalties, additions to tax and additional amounts imposed in connection with or
with respect to any amounts described in (i), (ii), (iii) or (iv). "Tax
Indemnification Period" means the period (including all prior taxable years)
ending on the day before the Closing Date. For any taxable year of any Company
that does not end on, and would otherwise extend beyond, the day before the
Closing Date, there shall be a deemed short taxable year ending on and including
the day before the Closing Date and a second deemed short taxable year beginning
on and including the Closing Date. The allocation of income and deductions
between the deemed short taxable years shall be based on a closing of the books
as of the end of the day before the Closing Date. "Tax Warranty" means a
representation or warranty in Section 4.14, 4.20 or 4.26(o). "Title Company" has
the meaning set forth in Section 7.10. "Trust Liability" has the meaning set
forth in Section 11.4. "Tuck-In Acquisition" has the meaning set forth in
Section 9.6(c). "Used Vehicles" means all vehicles owned by any Company which
are not New Vehicles. "Working Capital" means for the Companies, on a
consolidated basis, current assets minus current liabilities determined on a
GAAP basis (and those practices set forth on Schedule 2.2(c)). For purposes of
determining Working Capital any assets relating to a Related Party Agreement
shall be excluded. "Year-End Balance Sheets" has the meaning set forth in
Section 4.8(a). "Year-End Income Statements" has the meaning set forth in
Section 4.8(a).
[SIGNATURES APPEAR ON THE NEXT PAGE]
The parties have executed and delivered this Agreement on the date first above
written.
ACQUIRER:
▇▇▇▇▇▇ AUTOMOTIVE GROUP, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
COMPANIES:
▇▇▇ ▇▇▇▇▇ ENTERPRISES, INC. UNIVERSITY FORD, INC.
By: By:
-------------------------------------------------- --------------------------------------------------
Name: Name:
------------------------------------------------ ------------------------------------------------
Title: Title:
----------------------------------------------- -----------------------------------------------
ALL AMERICAN CHEVROLET, INC. EL CAJON LUXURY CARS, INC.
By: By:
-------------------------------------------------- --------------------------------------------------
Name: Name:
------------------------------------------------ ------------------------------------------------
Title: Title:
----------------------------------------------- -----------------------------------------------
▇▇▇ ▇▇▇▇▇ AUTOMOTIVE, INC. ▇▇▇ ▇▇▇▇▇ IMPORTS, INC.
By: By:
-------------------------------------------------- --------------------------------------------------
Name: Name:
------------------------------------------------ ------------------------------------------------
Title: Title:
----------------------------------------------- -----------------------------------------------
▇▇▇ ▇▇▇▇▇ VOLKSWAGEN, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
SELLERS:
---------------------------------- ----------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, as Trustees of
The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust
dated September 27, 1991 (as amended)
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
----------------------------------
▇▇▇ ▇. ▇▇▇▇-▇▇▇▇▇▇, as Trustees of
------------------------------------ the Kornik Family Trust dated
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ December 6, 1996 (as amended)
---------------------------------- ----------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and
----------------------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, as Trustees of
the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ Family Trust
---------------------------------- dated March 30, 1998 (as amended)
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SELLERS' REPRESENTATIVE:
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JOINDER
The Agreement is joined into by the following Seller Trustees, in their
individual capacity, for the purposes set forth in the Agreement as it relates
to each of their respective trust.
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