EXHIBIT 4.1.1
FIRSTAMERICA AUTOMOTIVE, INC.
12_% Senior Notes due June 30, 2005
8% Cumulative Redeemable Preferred Stock due 2005
Redeemable Preferred Stock due 2005
and
Class B Common Stock
SECURITIES PURCHASE AGREEMENT
Dated as of July 11, 1997
TABLE OF CONTENTS
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SECTION 1. PURCHASE AND SALE OF SECURITIES................................................ 1
1.1 Issue of Securities............................................................ 1
1.2 Purchase and Sale of Securities................................................ 2
1.3 Registration of Securities..................................................... 4
1.4 Delivery Expenses.............................................................. 5
1.5 Issue Taxes.................................................................... 5
1.6 Direct Payment................................................................. 5
1.7 Lost, Etc. Securities.......................................................... 6
1.8 Indemnification................................................................ 6
1.9 Further Actions................................................................ 8
1.10 Other Covenants................................................................ 9
SECTION 2. CLOSING CONDITIONS............................................................. 9
2.1 Delivery of Documents.......................................................... 9
2.2 Legal Investment; Purchase Permitted by Applicable Laws........................ 12
2.3 Payment of Fees................................................................ 12
2.4 Compliance with Agreements..................................................... 12
2.5 Completion of Other Transactions............................................... 12
2.6 Representations and Warranties................................................. 13
2.7 No Event of Default............................................................ 13
2.8 Proceedings Satisfactory....................................................... 13
2.9 Consents and Permits........................................................... 13
2.10 No Material Adverse Effect..................................................... 14
2.11 No Material Judgment or Order.................................................. 14
2.12 Financial Ratios............................................................... 14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 15
3.1 Authorization; Capitalization.................................................. 15
3.2 No Violation or Conflict; No Default........................................... 16
3.3 Use of Proceeds................................................................ 17
3.4 No Material Adverse Change; Financial Statements............................... 17
3.5 Full Disclosure................................................................ 18
3.6 Third Party Consents........................................................... 18
3.7 No Violation of Regulations of Board of Governors of Federal Reserve System.... 19
3.8 Private Offering............................................................... 19
3.9 Governmental Regulations....................................................... 19
3.10 Brokers........................................................................ 19
3.11 Solvency....................................................................... 20
3.12 Representations and Warranties................................................. 20
3.13 Litigation..................................................................... 20
3.14 Labor Relations................................................................ 21
3.15 Taxes.......................................................................... 21
3.16 Environmental Matters.......................................................... 22
3.17 ERISA.......................................................................... 24
3.18 Intellectual Property.......................................................... 24
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3.19 Compliance with Laws........................................................... 25
3.20 Consummation of Pending Acquisitions........................................... 25
3.21 Leases......................................................................... 25
3.22 Franchise Agreements........................................................... 26
3.23 Survival of Representations and Warranties..................................... 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER............................... 26
4.1 Purchase for Own Account....................................................... 26
4.2 Accredited Investor............................................................ 26
4.3 Authorization.................................................................. 27
4.4 Securities Restricted.......................................................... 27
4.5 ERISA.......................................................................... 27
SECTION 5. COVENANTS...................................................................... 28
5.1 Payment of Notes; Satisfaction of Obligations.................................. 28
5.2 Financial Statements and Reports............................................... 28
5.3 Compliance Certificate......................................................... 30
5.4 Limitation on Restricted Payments.............................................. 31
5.5 Limitation on Additional Indebtedness and Issuance of Disqualified Stock....... 32
5.6 Limitation on Transactions With Affiliates..................................... 34
5.7 Restrictions on Liens.......................................................... 34
5.8 Limitation on Sale of Assets................................................... 35
5.9 Limitation on Capital Expenditures............................................. 37
5.10 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries... 38
5.11 Change of Control.............................................................. 38
5.12 Minimum Consolidated Interest Expense Coverage Ratio........................... 40
5.13 Fiscal Years................................................................... 41
5.14 Stay, Extension and Usury Laws................................................. 41
5.15 Corporate Existence; Merger; Successor Corporation............................. 41
5.16 Same Business.................................................................. 42
5.17 Taxes.......................................................................... 42
5.18 Investment Company Act......................................................... 43
5.19 Ownership of Subsidiaries...................................................... 43
5.20 Insurance...................................................................... 43
5.21 Employee Plans................................................................. 43
5.22 ERISA Notices.................................................................. 44
5.23 Inconsistent Agreements........................................................ 45
5.24 Compliance with Laws; Maintenance of Licenses.................................. 45
5.25 Inspection of Properties and Records........................................... 45
5.26 Board of Director Observation Rights........................................... 45
5.27 Maintenance of Agent........................................................... 46
5.28 Information to Prospective Purchasers.......................................... 46
5.29 Private Placement Number....................................................... 46
5.30 Dividends on Preferred Stock................................................... 46
5.31 Limitation on Acquisitions..................................................... 47
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5.32 Employment, Non-Competition and Acquisition Agreements......................... 47
SECTION 6. REDEMPTION..................................................................... 48
6.1 The Company's Right to Redeem.................................................. 48
6.2 Selection of Notes to Be Redeemed.............................................. 48
6.3 Notice of Redemption........................................................... 48
6.4 Effect of Notice of Redemption................................................. 49
6.5 Payment of Redemption Price.................................................... 49
SECTION 7. DEFAULTS AND REMEDIES.......................................................... 49
7.1 Events of Default.............................................................. 49
7.2 Acceleration of Notes; Remedies................................................ 51
7.3 Premium on Acceleration........................................................ 52
7.4 Other Remedies................................................................. 52
7.5 Waiver of Past Defaults........................................................ 52
7.6 Rights of Holders to Receive Payment........................................... 53
7.7 Undertaking for Costs.......................................................... 53
SECTION 8. AMENDMENTS AND WAIVERS......................................................... 53
8.1 With Consent of Holders........................................................ 53
8.2 Revocation and Effect of Consents.............................................. 54
8.3 Notation on or Exchange of Notes............................................... 55
8.4 Payment of Expenses............................................................ 55
SECTION 9. DEFINITIONS.................................................................... 55
9.1 Definitions.................................................................... 55
9.2 Rules of Construction.......................................................... 71
SECTION 10. GUARANTY....................................................................... 72
10.1 Guaranty....................................................................... 72
10.2 Execution and Delivery of Subsidiary Guaranty.................................. 73
10.3 Future Subsidiary Guarantors................................................... 73
10.4 Certain Bankruptcy Events...................................................... 74
10.5 Releases of Subsidiary Guaranties.............................................. 74
SECTION 11. MISCELLANEOUS.................................................................. 74
11.1 Notices........................................................................ 74
11.2 Successors and Assigns......................................................... 74
11.3 Counterparts................................................................... 75
11.4 Headings....................................................................... 75
11.5 Governing Law; Submission to Jurisdiction...................................... 75
11.6 Entire Agreement............................................................... 75
11.7 Severability................................................................... 76
11.8 Further Assurances............................................................. 76
11.9 Disclosure of Financial Information............................................ 76
11.10 Reproduction of Documents...................................................... 76
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Annexes:
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Annex A-1 Form of Note
Annex A-2 Form of Guaranty
Annex B-1 CRPS Certificate of Designation
Annex B-2 RPS Certificate of Designation
Annex C Stockholders' Agreement
Annex D Form of Draw Down Notice
Annex E Opinion of Counsel to the Company
Schedules:
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1.1
1.2
2.10
3.1(b)
3.1(c)
3.3
3.4(b)
3.4(d)
3.8
3.14
3.17
3.21
5.6
9.1(a) (Pro Forma)
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement dated as of July 11, 1997 (this
"Agreement") is entered into by and among FirstAmerica Automotive, Inc., a
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Delaware corporation (the "Company"), the Guarantors and the purchasers listed
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on the signature pages hereto (each a "Purchaser" and collectively, the
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"Purchasers").
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Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 9.1.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Guarantors
agree, and each of the Purchasers agrees, severally but not jointly, as follows:
SECTION 1. PURCHASE AND SALE OF SECURITIES.
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1.1 Issue of Securities.
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(a) On or before the Closing, the Company will have authorized the
issue and sale to the Purchasers, in the respective amounts set forth in
Schedule 1.1, of (i) up to $36,000,000 aggregate principal amount of its
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12% Senior Notes due June 30, 2005 (the "Notes"), to be substantially in
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the form attached hereto as Annex A-1, (ii) 3500 shares (the "CRPS Shares")
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of its 8% Cumulative Redeemable Preferred Stock due 2005 (the "CRPS"), with
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the terms of the CRPS being set forth in the certificate of designation
relating thereto (the "CRPS Certificate of Designation") in the form
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attached hereto as Annex B-1 and 500 shares (the "RPS Shares" and together
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with the CRPS Shares, the "Preferred Shares") of its Redeemable Preferred
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Stock due 2005 (the "RPS" and together with the CRPS, the "Preferred
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Stock"), with the terms of the RPS being set forth in the certificate of
designation relating thereto (the "RPS Certificate of Designation" and
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together with the CRPS Certificate of Designation, the Certificates of
Designation) in the form attached hereto as Annex B-2, and (iii) up to
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5,000,000 shares (the "Common Shares") of its Class B Common Stock, par
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value $0.00001 per share. The Notes, the Preferred Shares and the Common
Shares shall individually be referred to herein as a "Security" and
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collectively referred to herein as the "Securities."
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(b) The Securities shall include such notations, legends or
endorsements set forth herein or required by law. The Notes will be in the
principal amount of $1,000 (except in the case of any redemption following
which the aggregate principal amount remaining is less than $1,000) or
integral multiples of $1,000 in excess thereof. Each Note shall be dated
the date of its issuance. Subject to Section 1.7, the aggregate principal
amount of the Notes outstanding at any one time may not exceed $36,000,000.
The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Holders, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be
bound thereby.
(c) Each Holder of Common Shares will have certain rights and
obligations with respect to the Common Shares, as provided in the
Stockholders' Agreement in the form attached hereto as Annex C (the
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"Stockholders' Agreement"). The terms and provisions pertaining to the
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Common Shares and contained in the Stockholders' Agreement shall
constitute, and are hereby expressly made, a part of this Agreement and, to
the extent applicable, the Company and the Holders, by their execution and
delivery of this Agreement, expressly agree to such terms and provisions
and to be bound thereby.
1.2 Purchase and Sale of Securities.
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(a) Purchase and Sale. At the Closing, the Company agrees to sell
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and, subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of the Company contained or
incorporated herein, each of the Purchasers agrees, severally but not
jointly, to purchase the Securities set forth below such Purchaser's name
on the signature pages hereto at a purchase price of $910.43 per $1,000
principal amount of Notes, $840.09 per Preferred Share and $0.92 per Common
Share, which amounts are based on each Security's relative fair market
value at the time of issuance, for an aggregate purchase price of
$28,000,000 for the Notes, Preferred Shares and the Common Shares that
shall be purchased and sold at the Closing. The Company and the Purchasers
hereby agree that all Tax Returns filed by the Company and the Purchasers
shall be consistent in all material respects with such allocation
(including for purposes of Section 1271 et seq. of the Code). The
Securities that shall be purchased and sold pursuant to this Section 1.2(a)
are referred to collectively herein as the "Original Securities."
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(b) Closing. The purchase and sale of the Original Securities shall
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take place at a closing (the "Closing") at the offices of Skadden, Arps,
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Slate, Meagher & Flom LLP, Four Embarcadero Center, San Francisco,
California at 9:00 a.m. on July 8, 1997, or such other Business Day as may
be agreed upon by the Purchasers and the Company (the "Closing Date"). At
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the Closing, the Company will deliver to each of the Purchasers the
Original Securities to be purchased by such Purchaser (in such permitted
denomination or denominations and registered in such Purchaser's name or
the name of such nominee or nominees as such Purchaser may request), dated
the Closing Date, against payment of the purchase price therefor by intra-
bank or Federal funds bank wire transfer of same day funds to such bank
account which is identified on Schedule 1.2 or such other account as the
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Company shall designate at least two Business Days prior to the Closing.
(c) Additional Securities. At any time and from time to time on or
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before November 30, 1998, the Company may deliver to the Purchasers a
notice substantially in the form attached hereto as Annex D (a "Draw Down
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Notice") of a request by Company to sell additional Notes ("Additional
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Notes") and additional Common Shares ("Additional Common Shares" and
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together with the Additional Notes, the "Additional Securities") to the
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Purchasers; provided, however, that the aggregate principal amount of
Additional Notes that may be sold pursuant to this Section 1.2(c)
(including all prior sales pursuant to this Section 1.2(c) shall not exceed
$12,000,000, and the minimum aggregate principal amount of Additional Notes
that the Company may sell pursuant to each Draw Down Notice shall be
$3,000,000; provided, further, that the aggregate principal amount of
Additional Notes that may be sold at any one time pursuant to this Section
1.2(c) shall be an integral multiple of $100,000. The Company agrees to
sell and, subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of the Company contained or
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incorporated herein, each of the Purchasers agrees, severally but not
jointly, to purchase the percentage of the aggregate principal amount of
such Additional Notes specified in such Draw Down Notice equal to the
percentage of the aggregate principal amount of Notes purchased by such
Purchaser on the Closing Date; provided, however, that the Purchasers may
agree to any different allocation of the respective principal amounts of
Additional Notes to be purchased by each of them, as long as the aggregate
principal amount of Additional Notes to be so purchased by all the
Purchasers pursuant to each Draw Down Notice remains constant despite such
reallocation. In addition, the Company agrees to sell simultaneously with
each such sale of Additional Notes and, subject to the terms and conditions
set forth herein and in reliance on the representations and warranties of
the Company contained or incorporated herein, each of the Purchasers
agrees, severally but not jointly, to purchase simultaneously with each
such purchase by such Purchasers of Additional Notes, the number of
Additional Common Shares equal to the product of (a) the number of
Additional Common Shares that, after the issuance thereof, shall comprise
the percentage of fully diluted (giving effect to any Equity Interests to
be issued in connection with the New Acquisition to be funded with the
proceeds from such sale of Additional Securities and after giving effect to
the future exercise of all outstanding warrants, options any other rights
to acquire shares of Common Stock or securities convertible or exchangeable
for Common Stock, regardless of whether such exercise has occurred or the
right to exercise has vested) shares of Common Stock set forth in the table
below opposite the Enterprise Value of the Company at the time of such
purchase and sale (excluding any effect that the New Acquisition to be
funded with the proceeds from such sale of Additional Securities may have
on the Enterprise Value of the Company) times (b) the quotient of the
aggregate principal amount of Additional Notes to be purchased by such
Purchaser pursuant to such Draw Down Notice divided by $1,000,000. The
aggregate purchase price for all such Additional Notes and Additional
Common Shares shall be equal to the aggregate principal amount of such
Additional Notes. The amount of such purchase price allocable to the
Additional Common Shares shall be $0.92 per share.
Enterprise Value Additional Common Shares
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up to $100,000,000 0.67%
$100,000,000 to $130,000,000 0.56%
Over $130,000,000 0.40%
(d) Additional Securities Closing. Each purchase and sale of the
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Additional Securities, if any, shall take place at a closing (each, an
"Additional Securities Closing") at the offices of Skadden, Arps, Slate, Meagher
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& Flom, 300 South Grand Avenue, Los Angeles, California 90071 on such Business
Day (each, an "Additional Securities Closing Date") and at such time as shall be
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agreed upon by the Purchasers and the Company; provided, however, that each
Additional Securities Closing Date shall occur on a day that is no earlier than
the 20th, and no later than the 40th, Business Day after the day on which the
Purchasers receive the relevant Draw Down Notice. At each Additional Securities
Closing, the Company shall deliver to each of the Purchasers the Additional
Securities to be purchased by it (in such permitted denomination or
denominations and registered in the name of such Purchaser or the name of such
nominee or nominees as such Purchaser may request), dated the Additional
Securities Closing Date, against payment of the purchase price therefor by
intra-bank or federal funds bank wire transfer of same day funds to the
Company's bank account identified on Schedule 1.2 hereto or such other account
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as the Company shall designate at least two
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Business Days prior to such Additional Securities Closing.
(e) Fees and Expenses. Regardless of whether the Securities are sold,
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the Company agrees to pay or reimburse all reasonable expenses relating to this
Agreement, including but not limited to:
(i) each Purchaser's reasonable out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement, the
Stockholders' Agreement and the other Documents including, without
limitation, travel and lodging expenses and all costs incurred in
connection with such Purchaser's review of each of the business and
operations of each of the Companies and the Founding Companies;
(ii) the reasonable fees and other charges and expenses of the
Purchasers' counsel, Skadden, Arps, Slate, Meagher & Flom LLP, in
connection herewith and with the other Documents;
(iii) the cost of printing, reproducing and delivering to each
Purchaser's home office or the office of such Purchaser's designee, insured
to such Purchaser's satisfaction, this Agreement, the Stockholders'
Agreement, the Securities and the other Documents;
(iv) any reasonable fees and expenses (including the reasonable fees
and expenses of counsel) in connection with any registration or
qualification of the Securities required in connection with the offer and
sale of the Securities pursuant to this Agreement under the securities or
"blue sky" laws of any jurisdiction requiring such registration or
qualification or in connection with obtaining any exemptions from such
requirements;
(v) each Purchaser's expenses (including the fees and expenses of
counsel) relating to any amendment to, or modification of, or any waiver or
consent or preservation of rights under, this Agreement or any of the other
Documents; and
(vi) all other expenses, including without limitation counsel's
fees, accountants' fees and any rating agency fees incurred by the Company
in connection with the transactions contemplated by this Agreement and the
other Documents.
The Company shall deliver to each of the Purchasers or to such other
Persons as such Purchaser shall direct, concurrently with the Closing, by intra-
bank or Federal funds bank wire transfer of same day funds, the fee set forth on
such Purchaser's signature page and payment for any out-of-pocket expenses for
which such Purchaser is entitled to reimbursement pursuant to this Section
1.2(e), including, without limitation, the fees and expenses of such Purchaser's
counsel.
(f) Other Purchasers. Each Purchaser's obligations hereunder are
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subject to the execution and delivery of this Agreement by the other Purchasers
listed on the signature pages hereof. The obligations of each Purchaser shall
be several and not joint, and no Purchaser shall be liable or responsible for
the acts of any other Purchaser under this Agreement.
1.3 Registration of Securities.
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The Company shall cause to be kept at its principal office or at the
office of its duly authorized transfer agent a register for the registration and
transfer of the Notes (the "Note Register"), the CRPS (the "CRPS Register"), the
RPS (the "RPS Register") and the Common Stock (the "Common Stock Register"). The
names and addresses of the Holders of Notes, the transfer of Notes, and the
names and addresses of the transferees of the Notes shall be registered in the
Note Register. The names and addresses of the Holders of CRPS, RPS and Common
Stock, the transfer of CRPS, RPS and Common Stock and the names and addresses of
the transferees of CRPS, RPS and Common Stock shall be registered in the CRPS
Register, the RPS Register and the Common Stock Register, respectively.
The Person in whose name any registered Security shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes of
this Agreement, and the Company shall not be affected by any notice to the
contrary, until due presentment of such Security for registration of transfer as
provided in this Section 1.3. Payment of or on account of the principal,
premium, if any, and interest on any registered Securities shall be made to or
upon the written order of such registered Holder.
When Securities are presented to the Company, with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount (or number of shares, as applicable) of Securities of
other authorized denominations, the Company shall register the transfer or make
the exchange as requested if its reasonable requirements for such transaction
are met.
1.4 Delivery Expenses.
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If a Holder surrenders any Security to the Company for any reason, the
Company agrees to pay the cost of delivering to such Holder's home office, or to
the office of such Holder's designee, from the Company insured to such Holder's
satisfaction, the surrendered Security and each Security issued in substitution,
replacement or exchange for, or upon conversion of, the surrendered Security.
1.5 Issue Taxes.
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The Company agrees to pay all Taxes (other than Taxes in the nature of
income, franchise or gift taxes) and governmental fees arising in connection
with the issuance, sale, delivery or transfer by the Company to each Holder of
the Securities and the execution and delivery of the other Documents and any
modification of any of such Securities and Documents and will save such Holder
harmless against any and all liabilities with respect to all such Taxes and
fees. The obligations of the Company under this Section 1.5 shall survive the
payment or prepayment of the Notes, at maturity, upon redemption or otherwise,
the redemption of the Preferred Shares and the termination of this Agreement and
the other Documents.
1.6 Direct Payment.
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(a) The Company will pay or cause to be paid all amounts payable with
respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 12:00
Noon, New York time), by Federal funds bank wire transfer in same day funds
to each Holder's account in any bank in the United States of America as may
be designated and specified in writing by such Holder, which designation
and specification shall be made at least two Business Days prior thereto.
Each Purchaser's initial bank account for this purpose is on the signature
pages hereto.
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(b) Notwithstanding anything to the contrary contained in the Notes,
if any principal amount payable with respect to a Note is payable, at
maturity, upon redemption or otherwise, on a Legal Holiday, then the
Company shall pay such amount on the next succeeding Business Day, and
interest shall accrue on such amount until the date on which such amount is
paid and payment of such accrued interest shall be made concurrently with
the payment of such amount, provided that the Company may elect to pay in
full (but not in part) any such amount on the last Business Day prior to
the date such payment otherwise would be due, and no such additional
interest shall accrue on such amount. Notwithstanding anything to the
contrary contained in the Notes, if any interest payable with respect to a
Note is payable on a Legal Holiday, then the Company shall pay such
interest on the next succeeding Business Day, and such extension of time
shall be included in the computation of the interest payment, provided that
the Company may elect to pay in full (but not in part) any such interest on
the last Business Day prior to the date such payment otherwise would be
due, and such diminution in time shall be included in the computation of
the interest payment.
1.7 Lost, Etc. Securities.
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If a mutilated Security is surrendered to the Company or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Company to the effect that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement Security if the
customary requirements relating to replacement securities are reasonably
satisfied. If required by the Company, such Holder must provide an indemnity
bond, or other form of indemnity, sufficient in the judgment of the Company, to
protect the Company from any loss which it may suffer if a Security is replaced.
If any Purchaser or any other institutional Holder (or nominee thereof) is the
owner of any such lost, stolen or destroyed Security, then the affidavit of an
authorized officer of such owner, setting forth the fact of loss, theft or
destruction and of its ownership of the Security at the time of such loss, theft
or destruction shall be accepted as satisfactory evidence thereof, and no
further indemnity shall be required as a condition to the execution and delivery
of a new Security, other than the unsecured written agreement of such owner
reasonably satisfactory to the Company to indemnify the Company, or at the
option of the Purchaser or other institutional Holder, an indemnity bond in the
amount of the Security remaining outstanding. Every replacement Security is an
obligation of the Company.
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1.8 Indemnification.
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In addition to all other sums due hereunder or provided for in this
Agreement or any of the other Documents and any and all obligations of the
Company to indemnify any Purchaser hereunder or under any of the other
Documents, the Company hereby agrees, without limitation as to time, to
indemnify each Purchaser, each Affiliate of a Purchaser and each director,
officer, employee, counsel, agent or representative of such Purchaser and its
Affiliates (collectively, the "Indemnified Parties") against, and hold it and
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them harmless from, to the fullest extent lawful, all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees and disbursements) and expenses, including expenses of
investigation (collectively, "Losses"), incurred by it or them and arising out
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of or in connection with this Agreement, the other Documents or the transactions
contemplated hereby or thereby (or any other document or instrument executed
herewith or pursuant hereto or thereto), regardless of whether the transactions
contemplated by this Agreement are consummated and regardless of whether any
Indemnified Party is a formal party to any proceeding; provided, however, that
the Company shall not be liable to any Indemnified Party for any Losses to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or review) that such Losses arose
from the gross negligence or willful misconduct of such Indemnified Party, which
(i) is independent of any wrongful act by the Company, its Affiliates or any of
their respective representatives and (ii) was not taken by such Indemnified
Party in reliance upon any of the representations, warranties, covenants or
promises of the Company herein (including, without limitation, those
incorporated by reference herein) or in the other Documents, including (without
limitation) the certificates delivered by the Company pursuant hereto or
thereto. The Company agrees to reimburse any Indemnified Party promptly for all
such Losses as they are incurred by such Indemnified Party (regardless of
whether it is or may be ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder). The obligations of the Company to each
Indemnified Party hereunder shall be separate obligations, and the Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 1.8 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
redemption or otherwise, the redemption or repurchase of the Common Shares
purchased by any Purchaser, the redemption of the Preferred Shares purchased by
any Purchaser, any transfer of the Securities by any Purchaser and the
termination of this Agreement, the Acquisition Documents, the Securities, the
Loan Agreement, the Stockholders' Agreement and any of the other Documents.
In addition, the Company shall, without limitation as to time,
indemnify, reimburse, defend, and hold harmless the Indemnified Parties for,
from, and against all Losses asserted against, resulting to, imposed on, or
incurred by any of the Indemnified Parties, directly or indirectly, in
connection with any of the following: (i) any pollution or threat to human
health or the environment that is related in any way to the management, use,
control, ownership or operation of the business or property in connection with
the business of the Company or any of its Subsidiaries, by the Company or any of
its Subsidiaries, or any Person for whom any of them is or may be responsible by
law or contract, including, without limitation, all on-site and off-site
activities involving Materials of Environmental Concern, and that occurred,
existed, arose out of conditions or circumstances that occurred or existed, or
was caused, in whole or in part, on or before the Closing Date; (ii) any
Environmental Claim against any Person whose liability for such Environmental
Claim the Company or any of its Subsidiaries has assumed or retained either
contractually or by operation of law, including without limitation, any
pollution or threat to human health or the
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environment, or any Federal, state, local or foreign approvals; or (iii) the
breach of any environmental representation or warranty set forth or incorporated
by reference herein.
In case any action, claim or proceeding shall be brought against any
Indemnified Party with respect to which indemnity may be sought against the
Company hereunder, such Indemnified Party shall promptly notify the Company in
writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party and
payment of all fees and expenses incurred in connection with the defense
thereof. The failure to so notify the Company shall not affect any obligation
it may have to any Indemnified Party under this Agreement or otherwise except to
the extent that (as finally determined by a court of competent jurisdiction
(which determination is not subject to review or appeal)) such failure
materially and adversely prejudiced the Company. Each Indemnified Party shall
have the right to employ separate counsel in such action, claim or proceeding
and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of each Indemnified Party unless: (i) the
Company has agreed to pay such expenses; or (ii) the Company has failed promptly
to assume the defense and employ counsel reasonably satisfactory to such
Indemnified Party; or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include any Indemnified Party and
the Company or an Affiliate of the Company, and such Indemnified Party shall
have been advised by counsel that either (x) there may be one or more legal
defenses available to it which are different from or in addition to those
available to the Company or such Affiliate or (y) a conflict of interest may
exist if such counsel represents such Indemnified Party and the Company or its
Affiliate; provided that, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel in the circumstances described
in clause (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Company; provided, however, that the Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the fees and expenses
of more than one such firm of separate counsel (in addition to any local
counsel), which counsel shall be designated by such Indemnified Party. The
Company shall not be liable for any settlement of any such action effected
without its written consent (which shall not be unreasonably withheld). The
Company agrees that it will not, without the Indemnified Party's prior written
consent, consent to entry of any judgment or settle or compromise any pending or
threatened claim, action or proceeding in respect of which indemnification or
contribution may be sought hereunder unless the foregoing contains an
unconditional release, in form and substance reasonably satisfactory to such
Indemnified Party, of such Indemnified Party from all liability and obligation
arising therefrom.
If the indemnification provided for in this Section 1.8 is unavailable
to, or insufficient to hold harmless, any Indemnified Party in respect of any
Losses referred to herein, then the Company shall have an obligation to
contribute to the amount paid or payable by such Persons as a result of such
Losses in such proportion as is appropriate to reflect the relative fault of the
Company, its subsidiaries and Affiliates, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions which resulted in such
Losses as well as any other relevant equitable considerations. The amount paid
or payable by any such Person as a result of the Losses referred to above shall
be deemed to include, subject to the limitations set forth in this Section 1.8,
any legal or other fees or expenses reasonably incurred by such Person in
connection with any investigation, lawsuit or legal or administrative action or
proceeding, other than legal expenses incurred after the Company assumes the
defense in accordance with the immediately preceding paragraph if the proviso in
such paragraph with respect to engagement of separate counsel for the
8
Indemnified Party is not applicable.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 1.8 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who is not guilty of such fraudulent misrepresentation.
1.9 Further Actions.
---------------
During the period from the date hereof to the Closing Date, the
Company shall (i) take all actions necessary or appropriate to cause its
representations and warranties contained in Section 3 to be true and correct as
of the Closing Date (unless stated to refer to another date), both before and
after giving effect to the transactions contemplated by this Agreement and the
other Documents, as if made on and as of such date, and (ii) take, or cause to
be taken, all action, and do, or cause to be done, all things necessary, proper
or advisable under applicable law and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, obtaining all consents and approvals of all Persons and removing all
injunctive or other impediments or delays, legal or otherwise, which are
necessary to the consummation of the transactions contemplated by this Agreement
and the other Documents.
1.10 Other Covenants.
---------------
The Company further covenants and agrees not to, and will ensure that
no affiliate (as defined in Rule 501(b) of the Securities Act) of the Company
will, sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) that would be
integrated with the sale of the Securities in a manner that would require the
registration under the Securities Act of the sale to the Purchasers of the
Securities.
SECTION 2. CLOSING CONDITIONS.
------------------
The obligations of each Purchaser to purchase and pay for the
Original Securities to be delivered to such Purchaser at the Closing shall be
subject to the satisfaction of each of the following conditions on or before the
Closing Date, and the obligations of each of the Purchasers to purchase and pay
for any Additional Securities to be delivered to such Purchaser at each
Additional Securities Closing, if any, shall be subject to the satisfaction of
the following conditions on or before the corresponding Additional Securities
Closing Date :
2.1 Delivery of Documents.
---------------------
The Company shall have delivered to each Purchaser, in form and
substance satisfactory to such Purchaser, the following:
(a) The Note or Notes being purchased by such Purchaser, duly executed
by the Company, in the aggregate principal amount set forth below such
Purchaser's name on the signature pages hereto (or the aggregate principal
amount of Additional Notes to be purchased by such Purchaser in response to
a Draw Down Notice), certificates representing the number of Common
9
Shares being purchased by such Purchaser, as set forth below such
Purchaser's name on the signature pages hereto (or the aggregate number of
Additional Common Shares to be purchased by such Purchaser in response to a
Draw Down Notice) and certificates representing the number of Preferred
Shares being purchased by such Purchaser, as set forth below such
Purchaser's name on the signature pages hereto.
(b) (1) An Opinion of Counsel, dated the Closing Date or the
Additional Securities Closing Date, as the case may be, and addressed to
such Purchaser, from Gray, Cary, Ware & Freidenrich, counsel for the
Company, in form and substance satisfactory to the Purchasers, and with
respect to the Opinion of Counsel to be delivered on the Closing Date, in
substantially the form set forth on Annex E.
-------
(2) An opinion, dated the Closing Date or the Additional
Securities Closing Date, as the case may be, and addressed to such
Purchaser, from Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Purchasers, in form and substance satisfactory to the Purchasers.
(3) Such other opinions of counsel covering matters incidental
to the transactions contemplated by this Agreement and the other Documents
as any Purchaser may reasonably request.
In rendering such opinions, each counsel may rely as to factual
matters upon certificates or other documents furnished by officers and
directors of the Company and its Subsidiaries (copies of which shall be
delivered to such Purchaser) and by government officials, and upon such
other documents as such counsel deem appropriate as a basis for their
opinion. Such counsel shall opine, as applicable, as to the Federal laws of
the United States of America, the General Corporation Law of the State of
Delaware and the laws of the State of California.
(c) Resolutions of the Boards of Directors of the Companies,
certified by the Secretaries or Assistant Secretaries of the Companies, to
be duly adopted and in full force and effect on such date, authorizing (i)
the execution, delivery and performance of this Agreement, the Notes, the
Loan Agreement, the Stockholders' Agreement, the Acquisition Documents and
the other Documents to which the Companies are party and the consummation
of the transactions contemplated hereby and thereby, (ii) the issuance of
the Notes, the Common Shares and the Preferred Shares and (iii) specific
officers of the Companies to execute and deliver this Agreement, the Notes,
the Acquisition Documents, the Loan Agreement and any other Documents to
which the Companies are party.
(d) Certificates of the Chief Executive Officer or President and
Chief Financial Officer or Vice President of the Company, dated the Closing
Date or the Additional Securities Closing Date, as the case may be,
certifying that (i) all of the conditions set forth in Sections 2.3, 2.4,
2.5, 2.6, 2.7, 2.9, 2.10, 2.11 and 2.12 are satisfied on and as of such
date in all material respects and specifying as to each such condition the
satisfaction thereof, (ii) all of the representations and warranties of the
Company contained or incorporated by reference herein are true and correct
on and as of such date in all material respects as though made on and as of
such date (unless stated to relate to another date), after giving effect to
the transactions contemplated by this Agreement and the other Documents,
and no event has occurred and is continuing, or would result from the
10
issuance of the Securities being sold on such date, which constitutes or
would constitute a Default or an Event of Default, (iii) concurrently with
the purchase of the Original Securities, the Companies (other than the
Company) shall have borrowed at least $35,000,000 aggregate principal
amount of indebtedness under the Loan Agreement, and the Companies are in
compliance with all terms and provisions of the Loan Agreement (iv) the
Companies have performed their obligations that are required to be
performed on or before the closing under the Acquisition Documents and the
Loan Agreement in accordance therewith and with all applicable law and (v)
as to such other matters as such Purchaser may reasonably request.
(e) On or before the Closing Date, (i) audited financial statements of
the Company (as described in the first sentence of Section 3.4 (b)) for the
fiscal years ended March 31, 1996, 1995 and 1994, (ii) audited financial
statements of each of the Founding Companies (other than the Non-Price
Founding Companies) (as described in the first sentence of Section 3.4 (b))
for the fiscal year ended December 31, 1996 and (iii) unaudited financial
statements of each of the Founding Companies (as described in the first
sentence of Section 3.4 (b)) for the 5-month period ended May 31, 1997;
provided that each of the financial statements referred to in clauses (i),
(ii) and (iii) above shall be accompanied by a certificate of the Chief
Financial Officer of the Company to the effect that such financial
statements fairly present the financial position, shareholders' equity and
income of the relevant entities as of the dates indicated. On or before
each Additional Securities Closing, unaudited combined financial statements
of the Company and all of its Subsidiaries (as described in the first
sentence of Section 3.4 (b)) from the beginning of the fiscal year in which
such Additional Securities Closing occurs to the end of the then most
recently ended fiscal quarter, together with a Certificate of the Chief
Financial Officer of the Company to the effect that such financial
statements fairly present the combined financial position, stockholders'
equity and income of the Company and its Subsidiaries as of such date and
for such interim period. The audited financials referred to above shall be
delivered together with a report thereon by the applicable independent
accountants, which report shall be unqualified, shall express no doubts
about the ability of the Companies or any of the relevant entities to
continue as a going concern, and shall state that such financial statements
fairly present the financial position of each such Person as of the dates
indicated, and the results of their operations and their cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years (except as otherwise disclosed in such financial
statements) and that the examination by such accountants in connection with
such financial statements has been made in accordance with United States
generally accepted auditing standards. The Company shall also provide such
accounting firm with instructions that it may communicate directly with
each such Purchaser.
(f) Governmental certificates, dated the most recent practicable date
prior to the Closing Date or Additional Securities Closing Date, as the
case may be, showing that the Company and each of its Subsidiaries is
organized and in good standing in the jurisdiction of its incorporation and
is qualified as a foreign corporation and in good standing in all other
jurisdictions in which it has executive offices or transacts business,
except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
(g) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Companies of
this Agreement, the Securities, the Certificates of Designation and the
other Documents and the consummation of the transactions
11
contemplated hereby and thereby, (except that on the Closing Date, such
consents, licenses and approvals relating to the acquisition of California
Carriage Limited, a California corporation need not be provided).
(h) Copies of the Charter Documents of the Company and each of its
Subsidiaries, certified as of a recent date by the Secretary of State of
the State of Delaware (or such other state in which any of such Persons is
formed), and certified by the Secretary or Assistant Secretary of each of
such Person, as true and correct as of the Closing Date or Additional
Securities Closing Date, as the case may be.
(i) Certificates of the Secretary or an Assistant Secretary of the
Company and of each of its Subsidiaries as to the incumbency and signatures
of the officers or representatives of such entity executing this Agreement,
the Securities, the Certificates of Designation, the other Documents and
any other certificate or other document to be delivered pursuant hereto or
thereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.
(j) A permit issued pursuant to the California Corporate Securities
Law of 1968 (the "CSL") that is sufficient to exempt, pursuant to Section
---
25116 of the CSL, the Notes and the Purchasers from the usury provisions of
the California Constitution.
(k) Such additional information and materials as any Purchaser may
reasonably request, including, without limitation, copies of any debt
agreements, security agreements and other contracts to which the Company or
any of its Subsidiaries is a party.
2.2 Legal Investment; Purchase Permitted by Applicable Laws.
-------------------------------------------------------
Each Purchaser's acquisition of the Securities (a) shall not be
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion (including, without limitation, Regulations G, T, U
and X of the Board of Governors of the Federal Reserve System), (b) shall
constitute a legal investment as of the Closing Date or Additional Securities
Closing Date, as the case may be, under the laws and regulations and orders of
each jurisdiction to which such Purchaser may be subject (without resort to any
"basket" or "leeway" provision), and (c) shall not subject such Purchaser to any
penalty or, in its reasonable judgment, other onerous condition in or pursuant
to any such law, regulation or order; and such Purchaser shall have received
such certificates or other evidence as such Purchaser may reasonably request to
establish compliance with this condition.
2.3 Payment of Fees.
---------------
The Company shall have delivered to each of the Purchasers or to such
other Persons as such Purchaser shall direct on the signature pages hereto, at
the Closing, by intra-bank or Federal funds bank wire transfer of same day
funds, payment for such Purchaser's fee as is set forth on such Purchaser's
signature page hereto.
2.4 Compliance with Agreements.
--------------------------
The Company and each of its Subsidiaries shall have performed and
complied in all
12
material respects with all agreements, covenants and conditions contained
herein, in each of the other Documents and in any other document contemplated
hereby or thereby which are required to be performed or complied with by the
Company or any of its Subsidiaries on or before the Closing Date or Additional
Securities Closing Date, as the case may be. The Purchasers shall have received
evidence, in form and substance satisfactory to them, that all transactions
contemplated by the Acquisition Documents to have occurred prior to or on the
Closing Date have been consummated and that all certificates, financial
statements, opinions and other documents delivered thereunder were delivered in
a form satisfactory to the Purchasers.
2.5 Completion of Other Transactions.
--------------------------------
(a) Simultaneously with or prior to the sale to each Purchaser of the
Securities to be purchased by such Purchaser on the Closing Date:
(i) The Company shall have executed and delivered the
Acquisition Documents and the Stockholders' Agreement and shall have
consummated the transactions contemplated thereby to be consummated on
or prior to the Closing Date (including, without limitation, the
Pending Acquisitions (except for consummation of the acquisition of
California Carriage Limited, a California corporation)), without
amendment, modification or waiver of any material condition.
(ii) All of the other Purchasers listed in the signature pages
hereof shall have consummated their purchase of Securities pursuant to
this Agreement.
(iii) The Company shall own directly, 100% of the outstanding
Equity Interests of each of its Subsidiaries. (iv) Each of the parties
to the Loan Agreement shall have executed and delivered the Loan
Agreement, which shall include an inventory financing facility of at
least $115,000,000 and none of the parties to the Loan Agreement shall
be in breach of any of their respective material obligations
thereunder, and all of the conditions precedent to the transactions
contemplated thereby shall have been duly satisfied without amendment,
modification or waiver of any material condition.
(v) The Company shall have purchased the directors and
officers liability insurance policy referred to in Section 5.20.
(b) Simultaneously with or prior to the sale to each Purchaser of the
Additional Securities to be purchased by such Purchaser on each Additional
Securities Closing Date, all of the net proceeds from the sale by the
Company of such Additional Securities shall be used to consummate a New
Acquisition or New Acquisitions (and pay related expenses and fees)
permitted pursuant to the provisions of Section 5.31.
13
2.6 Representations and Warranties.
------------------------------
Unless stated to relate to another date, all of the representations
and warranties of each of the Companies contained or incorporated by reference
herein or in any of the other Documents shall be true and correct in all
material respects on and as of the Closing Date and each Additional Securities
Closing Date both before and after giving effect to the transactions
contemplated hereby and by the other Documents.
2.7 No Event of Default.
-------------------
No event shall have occurred and be continuing, or would result from
the consummation of the transactions contemplated to be consummated on or prior
to the Closing Date or Additional Securities Closing Date, as the case may be,
by this Agreement, the Acquisition Documents, the Loan Agreement or any of the
other Documents (including, without limitation, the purchase of the Securities
or the incurrence of indebtedness pursuant to the Loan Agreement), which
constitutes or would constitute a Default or an Event of Default.
2.8 Proceedings Satisfactory.
------------------------
All proceedings taken in connection with the sale of the Securities,
the transactions contemplated hereby (including, without limitation, the Pending
Acquisitions), and all documents and papers relating thereto, shall be
reasonably satisfactory to such Purchaser. Such Purchaser and its counsel shall
have received copies of such documents and papers as they may reasonably request
in connection therewith, or as a basis for the Closing opinions, all in form and
substance satisfactory to such Purchaser.
2.9 Consents and Permits.
--------------------
The Company and each of its Subsidiaries and each of the Founding
Companies shall have received all consents, permits, approvals and
authorizations and sent or made all notices, filings, registrations and
qualifications as may be required pursuant to any law, statute, regulation or
rule (Federal, state, local or foreign) or pursuant to any other agreement
(including without limitation all Franchise Agreements to which the Company, any
of its Subsidiaries or any of the Founding Companies is a party), order or
decree to which any of them is a party or to which any of them is subject, in
connection with the transactions to be consummated on or prior to the Closing
Date or Additional Securities Closing Date, as the case may be, as contemplated
by this Agreement or any of the other Documents. The Company and its
Subsidiaries shall have the unrestricted right and ability to continue the
conduct of the businesses conducted by the Founding Companies, as well as any
other businesses acquired in connection with a New Acquisition, in a manner
consistent with the manner in which such businesses were conducted prior to
their acquisition by the Company or any of its Subsidiaries.
14
2.10 No Material Adverse Effect.
--------------------------
Subsequent to December 31, 1996: (A) none of the Company or any of its
Subsidiaries shall have suffered any adverse change in their properties,
business, operations, assets, condition (financial or otherwise) or prospects
which could reasonably be expected to result in a Material Adverse Effect (other
than those items set forth on Schedule 2.10 hereto); and (B) except as disclosed
-------------
in Schedule 2.10 hereto (i) there shall not have been any material change in the
-------------
capital stock or long-term debt, or material increase in short-term debt, of the
Company and its Subsidiaries and (ii) the Company and its Subsidiaries shall
not have incurred any liability or obligation, direct or contingent, that is
material to them, is required to be disclosed on a balance sheet in accordance
with GAAP and is not disclosed in the Financial Statements.
2.11 No Material Judgment or Order.
-----------------------------
There shall not be on the Closing Date or on any Additional Securities
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any agency of the Federal, state or local government that, in the
reasonable judgment of any Purchaser or its counsel, would prohibit the sale or
issuance of the Securities hereunder or subject the Company or any of its
Subsidiaries to any material penalty if the Securities were to be issued and
sold hereunder.
2.12 Financial Ratios.
----------------
With respect to the purchase and sale of Additional Securities on each
Additional Securities Closing Date, (a) the Consolidated Interest Expense
Coverage Ratio of the Company (after giving pro forma effect to the issuance and
sale of such Additional Securities and the consummation of the New Acquisition
to be funded with the proceeds of the issuance and sale of such Additional
Securities as if such issuance and sale and such consummation occurred at the
beginning of the applicable period referenced in the definition of the term
"Consolidated Interest Expense Coverage Ratio") on such Additional Securities
Closing Date exceeds the minimum ratio set forth in Section 5.12 opposite the
last day of the fiscal quarter in which such Additional Securities Closing Date
occurs and (b) the Total Debt Coverage Ratio of the Company (after giving pro
forma effect to the issuance and sale of such Additional Securities and the
consummation of the New Acquisition to be funded with the proceeds of the
issuance and sale of such Additional Securities as if such issuance and sale and
such consummation occurred at the beginning of the applicable period referenced
in the definition of the term "Total Debt Coverage Ratio") on such Additional
Securities Closing Date does not exceed 2.5.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants on the date hereof, as of the
Closing and as of each Additional Securities Closing, the following; provided,
however, that any information set forth in any Schedule referenced in this
Section 3 shall be deemed to be disclosure for purposes of each and all
representations made in this Section 3.
15
3.1 Authorization; Capitalization.
-----------------------------
The Companies have taken all actions necessary to authorize them (i)
to execute, deliver and perform all of their obligations under this Agreement,
the Acquisition Documents, the Loan Agreement and the other Documents to which
each is a party, (ii) to issue and perform all of their obligations under the
Notes, the Preferred Shares and the Common Stock and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the
Notes, the Preferred Shares, the Acquisition Documents, the Loan Agreement and
the other Documents to which the Companies and the Founding Companies are a
party is a legally valid and binding obligation of the Companies and the
Founding Companies, as the case may be, enforceable against each, respective,
party in accordance with its respective terms, except for (a) the effect thereon
of bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (b) limitations
imposed by equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
The total authorized Equity Interests of the Company consist of (a)
30,000,000 shares of Class A Common Stock, par value $0.00001 per share, of
which 4,055,152 shares were issued and outstanding immediately prior to the
consummation of the transactions contemplated by this Agreement and 14,017,519
shares will be issued and outstanding upon consummation of the transactions
contemplated hereby, including the additional issuances by the Company in
connection herewith, (b) 5,000,000 shares of Class B Common Stock, par value
$0.00001 per share, of which no shares were issued and outstanding on the date
hereof and 3,032,000 shares will be issued and outstanding upon consummation of
the transactions contemplated hereby, including the additional issuances by the
Company in connection herewith, (c) 30,000,000 shares of Class C Common Stock,
par value $0.00001 per share, of which no shares were issued and outstanding on
the date hereof and no shares will be issued and outstanding upon consummation
of the transactions contemplated hereby, including the additional issuances by
the Company in connection herewith and (d) 10,000 shares of preferred stock, par
value $0.00001 per share, of which no shares were issued and outstanding on the
date hereof and 3500 shares of CRPS and 500 shares of RPS will be issued and
outstanding upon consummation of the transactions contemplated hereby. The
total authorized Equity Interests of each of the Companies (other than the
Company) consist of 100,000 shares of common stock, in each case 10,000 shares
of which are issued, outstanding and owned by the Company, in each case free and
clear of any security interest, mortgage, pledge, transfer restriction, defect,
claim, lien, limitation on voting rights, encumbrance, equity or adverse
interest of any nature (each, a "Lien"). All of the outstanding Equity
----
Interests of the Companies and the Founding Companies have been duly authorized
and validly issued, are fully paid and nonassessable and were not issued in
violation of, and are not subject to, any preemptive or similar rights. Except
for the shares of capital stock of the other Companies, the Company does not own
any capital stock or any other securities of any corporation, nor does it have
any Equity Interest in any firm, partnership, association or other entity.
On the Closing Date or the Additional Securities Closing Dates, as the
case may be, the Securities will be duly authorized and validly issued, will be
fully paid and nonassessable and will not have been issued in violation of, nor
will they be subject to, any preemptive or similar rights, other than those in
favor of the Purchasers. Except as set forth on Schedule 3.1(b), there are no
---------------
outstanding (i) securities convertible into or exchangeable for any Equity
Interests of any of the Company or any of its Subsidiaries, (ii) options,
warrants or other rights to purchase or subscribe to Equity Interests of any of
the Companies or
16
securities convertible into or exchangeable for Equity Interests of any of the
Companies or the Founding Companies, (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any Equity Interests of any of the Companies or the Founding
Companies, any such convertible or exchangeable securities or any such options,
warrants or rights or (iv) voting trusts, agreements, contracts, commitments,
understandings or arrangements with respect to the voting of any of the Equity
Interests of the Company or any of its Subsidiaries.
Except for the Stockholders' Agreement, none of the Companies or the
Founding Companies has entered into an agreement to register its securities
under the Securities Act. Except for this Agreement and as set forth on
Schedule 3.1(c), none of the Companies or the Founding Companies has entered
- ---------------
into any agreement to issue, purchase or sell any of its securities.
There are no securities any of the Companies registered under the
Exchange Act or listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a United States automated inter-
dealer quotation system.
3.2 No Violation or Conflict; No Default.
------------------------------------
(a) Neither the execution, delivery or performance of this Agreement,
the Securities, the Acquisition Documents, the Loan Agreement, the
Stockholders' Agreement, or any of the other Documents by the Company or
any of its Subsidiaries or any of the Founding Companies, nor the
compliance with their respective obligations hereunder or thereunder, nor
the consummation of the transactions contemplated hereby and thereby, nor
the issuance, sale or delivery of the Securities will:
(i) violate any provision of the Charter Documents of the
Company, any of its Subsidiaries or any of the Founding Companies;
(ii) violate any statute, law, rule or regulation or any
judgment, decree, order, regulation or rule of any court or
governmental authority or body to which any of the Company, any of its
Subsidiaries or the Founding Companies or any of their, respective,
properties may be subject, other than such violations that could not
reasonably be expected to result in a Material Adverse Effect;
(iii) permit or cause the acceleration of the maturity of any
debt or obligation of the Company, any of its Subsidiaries or the
Founding Companies; or
(iv) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any
Person under, or result in the creation or imposition of any Lien
(other than Permitted Liens) upon any property of the Company, any of
its Subsidiaries or the Founding Companies under, any mortgage,
indenture, loan agreement, note, debenture, agreement for borrowed
money or any other agreement to which any of them is a party or by
which any of them (or their respective properties) may be bound, other
than such violations, conflicts, defaults, terminations and Liens, or
such failures to obtain consents, which could not reasonably be
expected to result in a Material Adverse Effect.
17
(b) None of the Company, any of its Subsidiaries or the Founding
Companies is in default (without giving effect to any grace or cure period
or notice requirement) under any agreement for borrowed money, any
Franchise Agreement or under any agreement pursuant to which any of its
securities were sold.
3.3 Use of Proceeds.
---------------
The net proceeds from the sale by the Company of the Original
Securities hereunder will be used solely as set forth in Schedule 3.3. The net
------------
proceeds from the sale by the Company of Additional Securities shall be used
solely and promptly to consummate New Acquisitions (and pay related expenses and
fees) permitted pursuant to the provisions of Section 5.31.
3.4 No Material Adverse Change; Financial Statements.
------------------------------------------------
(a) No Material Adverse Change. Since December 31, 1996, none of the
--------------------------
Company, any of its Subsidiaries or any of the Founding Companies has
suffered any material adverse change in their properties, business,
operations, assets, condition (financial or otherwise) or prospects which
could reasonably be expected to result in a Material Adverse Effect.
(b) Financial Statements. Attached hereto as Schedule 3.4(b) are (i)
-------------------- ---------------
the audited balance sheets of the Company as of March 31, 1996, 1995, and
1994 and the related statements of income, changes in shareholders' equity
and cash flows of the Company for the fiscal years ended March 31, 1996,
1995 and 1994 (ii) the audited balance sheets of each of the Founding
Companies (other than the Non-Price Founding Companies) as of December 31,
1996 and the related combined statements of income, changes in
shareholders' equity and cash flows of the Founding Companies (other than
the Non-Price Founding Companies)for the fiscal year ended December 31,
1996 and (iii) an unaudited balance sheets of each of the Founding
Companies as of May 31, 1997 and related statements of income, changes in
shareholders' equity and cash flows of the Company and each of the Founding
Companies for the 5-month period ended May 31, 1997. Such financial
statements (the "Financial Statements") present fairly the consolidated
--------------------
financial position, results of operations, shareholders' equity and cash
flows of the Companies and the Founding Companies (other than the Non-Price
Founding Companies) at the respective dates or for the respective periods
to which they apply. All financial statements concerning the Company and
its Subsidiaries that will hereafter be furnished by the Company and its
Subsidiaries to the Purchasers or any Holder pursuant to this Agreement
will be prepared in accordance with GAAP consistently applied (except as
disclosed therein) and will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of
their operations for the periods then ended.
(c) Pro Forma. The Pro Forma have been prepared by the Company on a
---------
basis consistent with the Financial Statements, except for the pro forma
adjustments specified thereon and are based on good faith reasonable
estimates and assumptions of the Company.
(d) Projections. Attached hereto as Schedule 3.4(d) are true and
----------- ---------------
complete copies of (i) projections of the consolidated revenues, earnings
before depreciation, interest and taxes, operating margins, net income and
capital expenditures of the Company and its Subsidiaries for
18
each of the fiscal years ending December 31, 1997, 1998, 1999, 2000 and
2001, prepared by senior management of the Company assuming the
consummation of the transactions contemplated hereby and by the other
Documents (the "Projections") and (ii) the assumptions and supplemental
-----------
data used in preparing the Projections (collectively, the "Supplemental
------------
Data"). The Projections were prepared on the basis of the Supplemental Data
----
which represent a reasonable basis for such preparation. The Projections
and the Supplemental Data reflect the best reasonable estimates and
judgments of the Company's senior management as to the expected future
financial performance of the Company and its Subsidiaries.
3.5 Full Disclosure.
---------------
This Agreement (including, without limitation, the representations and
warranties incorporated herein by reference), the financial statements referred
to in Section 3.4, any Document, any other document, certificate or written
statement furnished by or on behalf of the Companies and Founding Companies to
any Purchaser in connection with the negotiation and sale of the Securities and
oral statements made by the Company to any TCW Group Member as a representative
of the Purchasers, when taken as a whole, do not contain any untrue statement of
a material fact or omit and will not omit to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made. There is no material fact known to
the Company or any of its Subsidiaries or any of the Founding Companies that has
had or could reasonably be expected to have a Material Adverse Effect and that
has not been disclosed herein or in such other documents, certificates and
written statements furnished to the Purchasers for use in connection with the
transactions contemplated hereby.
3.6 Third Party Consents.
--------------------
Neither the nature of the Company or any of its Subsidiaries or any of
the Founding Companies nor of any of their businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Securities at the Closing nor the performance by the Company or
any of its Subsidiaries or any of the Founding Companies of their other
obligations hereunder or under, or the consummation of the transactions
contemplated by, the Securities, the Acquisition Documents, the Loan Agreement,
the Stockholders' Agreement, or any other Document, as the case may be, is such
as to require a consent, approval or authorization of, or notice to, or filing,
registration or qualification with, any governmental authority or other Person
on the part of the Company, any of its Subsidiaries or any of the Founding
Companies as a condition to the execution and delivery of this Agreement, the
Acquisition Documents, the Loan Agreement, the Stockholders' Agreement or any of
the other Documents or the offer, issuance, sale or delivery of the Securities
at the Closing or at each Additional Securities Closing other than (a) such
consents, approvals, authorizations, notices, filings, registrations or
qualifications that shall have been made or obtained on or prior to the Closing
Date (and copies of which will be delivered to the Purchasers) or the failure of
which to obtain could not reasonably be expected to result in a Material Adverse
Effect, and (b) such filings under Federal and state securities laws which are
permitted to be made after the Closing Date and which the Company hereby agrees
to file within the time period prescribed by applicable law. The Company and
its Subsidiaries have the unrestricted right and ability to continue the conduct
of the businesses conducted by the Founding Companies, as well as any other
businesses acquired in connection with a New Acquisition, in a manner consistent
with the manner in which such businesses were conducted
19
prior to their acquisition by the Company or any of its Subsidiaries.
3.7 No Violation of Regulations of Board of Governors of Federal Reserve
--------------------------------------------------------------------
System.
- ------
None of the transactions contemplated by this Agreement (including,
without limitation, the use of the proceeds from the sale of the Securities)
will violate or result in a violation of Section 7 of the Exchange Act or any
regulation issued pursuant thereto, including, without limitation, Regulations
G, T, U and X of the Board of Governors of the Federal Reserve System.
3.8 Private Offering.
----------------
Assuming the truth and correctness of the representations and
warranties set forth in Section 4, the sale of the Securities hereunder is
exempt from the registration and prospectus delivery requirements of the
Securities Act. In the case of each offer or sale of the Securities, no form of
general solicitation or general advertising was used by any of the Company or
any of its Subsidiaries or their respective representatives, including, but not
limited to, advertisements, articles, notices or other communications published
in any newspaper, magazine or similar medium or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
The Purchasers are the sole purchasers of the Securities. Except as
set forth on Schedule 3.8, no securities have been issued and sold by the
------------
Company within the six-month period immediately prior to the date hereof. None
of the securities issued within such six-month period could be integrated with
the issuance of the Securities as a single offering for purposes of the
Securities Act, and the Company agrees that neither it, nor anyone acting on its
behalf, will offer or sell the Securities, or any portion of them, if such offer
or sale might bring the issuance and sale of the Securities to any Purchaser
hereunder within the provisions of Section 5 of the Securities Act nor offer any
similar securities for issuance or sale to, or solicit any offer to acquire any
of the same from, or otherwise approach or negotiate with respect thereto with,
anyone if the sale of the Securities and any such securities could be integrated
as a single offering for the purposes of the Securities Act, including without
limitation Regulation D thereunder. It is not necessary, in connection with the
transactions contemplated hereby, to qualify an indenture under the Trust
Indenture Act of 1939, as amended.
3.9 Governmental Regulations.
------------------------
None of the Company or any of its Subsidiaries is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act, the Commodity Exchange Act or to any Federal or state
statute or regulation limiting its ability to incur indebtedness for borrowed
money or consummate the transactions contemplated hereby and by the other
Documents.
20
3.10 Brokers.
-------
None of the Company or any of its Subsidiaries or any of the Founding
Companies has dealt with any broker, finder, commission agent or other such
intermediary other than Brown Gibbon & Lang in connection with the sale of the
Securities and the transactions contemplated by this Agreement and the other
Documents, and none of the Company or any of its Subsidiaries or any of the
Founding Companies is under any obligation to pay any broker's or finder's fee
or commission or similar payment in connection with such transactions other than
fees payable to Brown Gibbon & Lang in an amount not greater than $2,345,000.
The Company agrees to indemnify and hold the Holders harmless from and
against any and all actions, suits, claims, costs, expenses, losses, liabilities
and/or obligations in connection with or relating to any broker's or finder's
fees or commission or similar payment in connection with such transactions,
except with respect to such fees or commissions incurred by any Purchaser for
its account, so long as the Company receives notice of any such action, suit,
claim, etc., reasonably promptly after the Holders become aware thereof;
provided that the failure to give such notice as provided in this sentence shall
not relieve the Company of its obligations under this sentence except to the
extent, and only to the extent, that the Company is materially prejudiced by
such failure to give notice (as determined by a court of competent jurisdiction
in a final nonappealable judgment). Notwithstanding the foregoing, the Company
shall not be liable for any broker fees resulting from the activities of
representatives of the Purchasers.
3.11 Solvency.
--------
Immediately prior to and after giving effect to the consummation of
the Pending Acquisitions and any New Acquisition, the issuance of the Securities
and the execution, delivery and performance of this Agreement, the Acquisition
Documents, the Loan Agreement, the other Documents and any instrument governing
Indebtedness of the Company, the Company and each of its Subsidiaries is
Solvent.
3.12 Representations and Warranties.
------------------------------
All representations and warranties (and the related schedules) of any
of the Companies contained in the Stockholders' Agreement, the Loan Agreement,
the Acquisition Documents and the other Documents, and each of the
representations and warranties (and the related schedules) of each of the other
parties to the Acquisition Documents, each in the form as in effect on the date
hereof without amendment or waiver, shall be deemed to constitute
representations and warranties of the Company under this Agreement with the same
force and effect as the representations and warranties expressly set forth
herein. Such representations and warranties are true and correct on the date
hereof and will be true and correct as of the Closing Date as if made at and as
of such date, and are hereby incorporated by reference herein as if made hereby
by the Company to the Purchasers. Unless otherwise defined herein, for purposes
of this Section 3.12, the definitions contained in the Loan Agreement, the
Stockholders' Agreement, the Acquisition Documents and any other Documents
(insofar as they relate to the representations and warranties incorporated
herein) are hereby incorporated by reference herein and made a part hereof.
21
3.13 Litigation.
----------
(a) There is no action, claim, suit, citation or proceeding
(including, without limitation, an investigation or partial proceeding,
such as a deposition), whether commenced, or to the knowledge of the
Company or any of its Subsidiaries or any of the Founding Companies,
threatened ("Proceedings") against or affecting the Company or any of its
-----------
Subsidiaries or any of the Founding Companies or any of their properties or
assets, except for such Proceedings that, if finally determined adversely
to any of such Persons, could not reasonably be expected to have a Material
Adverse Effect, and there is no Proceeding seeking to restrain, enjoin,
prevent the consummation of or otherwise challenge the Pending
Acquisitions, this Agreement or any of the other Documents or the
transactions contemplated hereby or thereby.
(b) None of the Company or any of its Subsidiaries or any of the
Founding Companies is subject to any judgment, order, decree, rule or
regulation of any court, governmental authority or arbitration board or
tribunal that has had a Material Adverse Effect or that could reasonably be
expected to have a Material Adverse Effect.
3.14 Labor Relations.
---------------
None of the Company or any of its Subsidiaries or any of the Founding
Companies, nor any Person for whom any of them is or may be responsible by law
or contract, is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. Other than as set forth on Schedule
--------
3.14, there is (a) no unfair labor practice charge or complaint pending or
- ----
threatened against the Company, any of its Subsidiaries or any of the Founding
Companies, or any Person for whom any of them is or may be responsible by law or
contract, before the National Labor Relations Board or any corresponding state,
local or foreign agency, and no grievance or arbitration proceeding arising out
of or under any collective bargaining agreement is so pending or threatened, (b)
no strike, labor dispute, slowdown or stoppage pending or threatened against the
Company, any of its Subsidiaries or any of the Founding Companies, or any Person
for whom any of them is or may be responsible by law or contract, and (c) no
union representation claim or question existing with respect to the employees of
the Company, any of its Subsidiaries or any of the Founding Companies, or any
Person for whom any of them is or may be responsible by law or contract, and no
union organizing activities taking place. Except as disclosed on Schedule 3.14,
-------------
none of the Company, any of its Subsidiaries or any of the Founding Companies,
or any Person for whom any of them is or may be responsible by law or contract,
is a party to any collective bargaining agreement.
Except such as could not, singly or in the aggregate, reasonably be
expected to result in a Material Adverse Effect, none of the Company, any of its
Subsidiaries or any of the Founding Companies, or any Person for whom any of
them is or may be responsible by law or contract has violated any applicable
Federal, state, provincial or foreign law relating to employment or employment
practices or the terms and conditions of employment, including, without
limitation, discrimination in the hiring, promotion or pay of employees, wages,
hours of work, plant closings and layoffs, collective bargaining, and
occupational safety and health, or any provisions of ERISA or the rules and
regulations promulgated thereunder or any other applicable law (whether foreign
or domestic) relating to or governing the operation or maintenance of any plan
or arrangement falling within the definition of an "employee benefit plan" (as
such term is defined in
22
Section 3 of ERISA) or any other employee benefit plan or arrangement.
3.15 Taxes.
-----
(a) The Company and each of its Subsidiaries and each of the Founding
Companies has timely filed (or have had timely filed on their behalf) or
will timely file or cause to be timely filed, all Tax Returns required by
applicable law to be filed by any of them prior to or as of the Closing
Date. All such Tax Returns and amendments thereto are or will be true,
complete and correct in all material respects.
(b) The Company and each of its Subsidiaries and each of the
Founding Companies has paid (or have had paid on their behalf), or where
payment is not yet due, have established (or have had established on their
behalf and for their sole benefit and recourse), or will establish or cause
to be established on or before the Closing Date, an adequate accrual for
the payment of all Taxes due with respect to any period ending prior to or
as of the Closing Date.
(c) No Audit by a Tax Authority is pending or threatened with respect
to any Tax Returns filed by, or Taxes due from, the Company or any of its
Subsidiaries or any of the Founding Companies. No issue has been raised by
any Tax Authority in any Audit of the Company or any of its Subsidiaries or
any of the Founding Companies that if raised with respect to any other
period not so audited could be expected to result in a material proposed
deficiency for any period not so audited. No deficiency or adjustment for
any Taxes has been threatened, proposed, asserted or assessed against the
Company or any of its Subsidiaries or any of the Founding Companies. There
are no liens for Taxes upon the assets of the Company or any of its
Subsidiaries or any of the Founding Companies, except liens for current
Taxes not yet due.
(d) None of the Company or any of its Subsidiaries or any of the
Founding Companies has given or been requested to give any waiver of
statutes of limitations relating to the payment of Taxes or has executed
powers of attorney with respect to Tax matters, which will be outstanding
as of the Closing Date.
(e) None of the Company or any of its Subsidiaries or any of the
Founding Companies is party to or bound by any tax sharing, cost sharing,
or similar agreement or policy relating to Taxes.
(f) None of the Company or any of its Subsidiaries or any of the
Founding Companies has entered into agreements that would result in the
disallowance of any tax deductions pursuant to Section 280G of the Code.
No "consent" within the meaning of Section 341(f) of the Code has been
filed with respect to the Company or any of its Subsidiaries or any of the
Founding Companies.
23
3.16 Environmental Matters.
---------------------
Except as could not reasonably be expected to have a Material Adverse
Effect:
(a) the Company and each of its Subsidiaries and each of the Founding
Companies, and any Person for whom any of them is or may be responsible by
law or contract (each such Subsidiary, each of the Founding Companies and
each such Person being included in the definition of "Company" for purposes
of this Section 3.16), is in full compliance with all Environmental Laws,
which compliance includes, but is not limited to, (1) compliance with all
standards, schedules and timetables therein, (2) the possession of all
permits, licenses, approvals and other authorizations required under the
Environmental Laws or with respect to the operation of the Company's
business, property and assets, and compliance with the terms and conditions
thereof and (3) any Federal, state, local or foreign approvals required
pursuant to any Environmental Laws that pertain or relate to the
transactions contemplated by this Agreement;
(b) the Company has not received any communication (written or oral),
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company is not in full compliance with any
Environmental Law, the Company has no liability under any Environmental
Law, and there are no past or present actions, activities, circumstances,
conditions, events or incidents that may be expected to prevent or
interfere with full compliance with applicable Environmental Laws in the
future;
(c) there is no Environmental Claim pending or threatened against the
Company;
(d) there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that could be expected to form the basis of any
Environmental Claim against the Company;
(e) no real property or facility owned, used, operated, leased,
managed or controlled by the Company, or any predecessor in interest, is
listed or proposed for listing on the National Priorities List or the
Comprehensive Environmental Response, Compensation, and Liability
Information System pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, or on any other similar state
or local list established pursuant to any Environmental Law;
(f) there have been no releases (including, without limitation, any
past or present releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing or dumping,
on-site or off-site) of Materials of Environmental Concern by the Company,
or any predecessor in interest, at, on, under, from or into any facility or
real property owned, operated, leased, managed or controlled by the
Company, and the Company has not incurred or reasonably expects to incur
liability for contamination at, on, under, from or into any on-site or off-
site locations where the Company has stored, disposed or arranged for the
disposal of Materials of Environmental Concern;
24
(g) no underground storage tank or other underground storage
receptacle, or related piping, is located on a facility or property
currently owned, operated, leased, managed or controlled by the Company;
(h) there is no asbestos contained in or forming part of any building,
building component, structure or office space, and no polychlorinated
biphenyls (PCBs) or PCB-containing items are used or stored at any
property, owned, operated, leased, managed or controlled, whether currently
or in the past (for which such matters the Companies could be liable), by
the Company.
"Environmental Claim" means any claim, action, cause of action,
-------------------
investigation of which the Company, including any of its employees, is aware, or
notice (written or oral) by any Person alleging potential liability (including,
without limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (a)
the presence, or release into the environment, of any Material of Environmental
Concern at any location, regardless of whether owned or operated by the Company,
or (b) circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.
"Environmental Laws" means all Federal, state, local and foreign laws
------------------
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
"Materials of Environmental Concern" means chemicals, pollutants,
----------------------------------
contaminants, industrial, toxic or hazardous wastes, substances or constituents,
petroleum and petroleum products (or any by-product or constituent thereof),
asbestos or asbestos-containing materials, or PCBs.
3.17 ERISA.
-----
Based upon the Purchasers' representation in Section 4.5, the
execution and delivery of this Agreement, the other Documents and the sale of
the Securities to be purchased by the Purchasers will not involve any non-exempt
"prohibited transaction." Except as set forth on Schedule 3.17, none of the
-------------
Company, any of its Subsidiaries or any of the Founding Companies, or any of
their ERISA Affiliates is a "party in interest" or a "disqualified person" with
respect to any "employee benefit plan." No condition exists or event or
transaction has occurred in connection with any "employee benefit plan"
maintained or contributed to by any of the Company, any of its Subsidiaries or
any of the Founding Companies, or any of their ERISA Affiliates (any such plan
being herein referred to as a "Company Plan") that has resulted or is reasonably
------------
likely to result in any of the Company, any of its Subsidiaries, any of the
Founding Companies, any such ERISA Affiliate incurring any liability, fine or
penalty except as could not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 3.17, no Company Plan is subject to
-------------
Title IV of ERISA. There is no liability under Title IV of ERISA, whether actual
or contingent. No amounts payable pursuant to any plan, policy, scheme or
arrangement identified in any contract, arrangement or agreement will, in
connection with the transactions contemplated under this Agreement, the
Acquisition Documents or the other Documents, fail to be deductible for Federal
income tax purposes by virtue of Section 280G of the Code. The terms "employee
benefit plan" and "party in interest" shall have
25
the meanings assigned to such terms in Section 3 of ERISA, the term
"disqualified person" shall have the meaning assigned to such term in Section
4975 of the Code, the term "prohibited transaction" shall have the meaning
assigned to such term in Section 406 of ERISA and Section 4975 of the Code, and
the term "ERISA Affiliate" shall have the meaning assigned to such term in
Section 407 of ERISA.
3.18 Intellectual Property.
---------------------
Except as could not, individually or in the aggregate, reasonably be
expected to result in any Material Adverse Effect, the Company and its
Subsidiaries own the entire and unencumbered right, title and interest in and
to, or possess adequate licenses or other rights to use, all intellectual
property, including but not limited to, trademarks, service marks, trade names,
copyrights, computer software and know-how used in the business previously
conducted by the Company or any of its Subsidiaries or any of the Founding
Companies. To the best knowledge of the Company or any of its Subsidiaries or
any of the Founding Companies, all intellectual property material to the
business now conducted by the Company or any of its Subsidiaries or any of the
Founding Companies is valid and enforceable and the Company and each of its
Subsidiaries and each of the Founding Companies have performed all acts and has
paid all required fees and taxes to maintain all registrations and applications
of such intellectual property in full force and effect. None of the Company or
any of its Subsidiaries or any of the Founding Companies has received any notice
of infringement of or conflict with (or knows or has known of such infringement
of or conflict with) asserted rights of others with respect to the use of
intellectual property, including but not limited to trademarks, service marks,
trade names, copyrights, computer software or know-how which, individually or in
the aggregate, could reasonably be expected to result in any Material Adverse
Effect. The Company and its Subsidiaries and the Founding Companies do not in
the conduct of their business as now conducted infringe or conflict with any
right of any third party, known to the Company or any of its Subsidiaries or any
of the Founding Companies, where such infringement or conflict could reasonably
be expected to result in any Material Adverse Effect. To the best knowledge of
the Company and each of its Subsidiaries and each of the Founding Companies,
none of the Company or any of its Subsidiaries or any of the Founding Companies
is, nor will any of them be as a result of the execution and delivery of this
Agreement or the performance of any obligations hereunder, in breach of any
license or other agreement relating to any intellectual property.
3.19 Compliance with Laws.
--------------------
The Company and each of its Subsidiaries and each of the Founding
Companies have obtained and have maintained in good standing any licenses,
permits, consents and authorizations required to be obtained by it under all
laws or regulations relating to the retail sale of new and used automobiles and
conducting maintenance on automobiles (collectively, the "Laws"), the absence of
which (individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect, and any such licenses, permits, consents and
authorizations remain in full force and effect, except as to any of the
foregoing the absence of which (individually or in the aggregate) could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries and each of the Founding Companies are in compliance with
the Laws in all material respects, and there is no pending or, to the knowledge
of any of them, threatened, action or proceeding against the Company or any of
its Subsidiaries or any of the Founding Companies under any of the Laws, other
than any such actions or proceedings which, individually or in the aggregate, if
adversely determined, could not reasonably be expected to have a Material
Adverse Effect.
26
3.20 Consummation of Pending Acquisitions.
------------------------------------
The Pending Acquisitions (other than, on the Closing Date, the
acquisition of California Carriage Limited, a California corporation) have been
duly consummated in accordance with the terms of the Acquisition Documents
without amendment or waiver of any material term or provision thereof. True and
correct copies of the Acquisition Documents have been delivered to a TCW Group
Member, acting on behalf of each Purchaser. The Companies, the Founding
Companies and their Affiliates are not in default under the Acquisition
Documents or under any instrument or document to be delivered in connection
therewith. All of the transactions engaged in by the Companies, the Founding
Companies and their Affiliates as part of the Pending Acquisitions were legal
and valid and in compliance with all applicable law.
3.21 Leases.
------
Attached hereto as Schedule 3.21 is a list of (i) all leases relating
-------------
to the properties used by the Company and its Subsidiaries (the "Leases"), (ii)
------
the commencement and expiration dates of the Leases, and (iii) the rents payable
under the Leases. Neither the Founding Companies, the Company nor any of their
respective Subsidiaries has breached materially any of the Leases. The Leases
have been provided to the Purchasers.
3.22 Franchise Agreements.
--------------------
The Company or any Subsidiary of the Company is an authorized dealer
franchisee for all the new vehicles sold by the Company or such Subsidiary,
pursuant to a valid and enforceable Franchise Agreement. All parties to each of
the Franchise Agreements to which the Company or any of its Subsidiaries is a
party are in compliance with such Franchise Agreement and no such party has
received any notice of default or termination relating to such Franchise
Agreement.
3.23 Survival of Representations and Warranties.
------------------------------------------
All of the Company's representations and warranties hereunder and
under the Loan Agreement, the Stockholders' Agreement, and the other Documents
shall survive the execution and delivery of the same, any investigation by any
Purchaser and the issuance of the Securities.
27
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.
------------------------------------------------
Each Purchaser (as to itself only) and each Account Manager (as to
the managed accounts of Purchasers) represents and warrants to the Company that:
4.1 Purchase for Own Account.
------------------------
Such Purchaser or such Account Manager is purchasing the Securities
to be purchased by it solely for its own account (or in the case of Account
Managers, on behalf of managed accounts) and not as nominee or agent for any
other Person (other than for such managed accounts, if applicable) and not with
a view to, or for offer or sale in connection with, any distribution thereof
(within the meaning of the Securities Act) that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Securities pursuant to a registration statement under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act, and subject, nevertheless, to the
disposition of its property being at all times within its control.
4.2 Accredited Investor.
-------------------
Such Purchaser or such Account Manager is knowledgeable,
sophisticated and experienced in business and financial matters; it has
previously invested in securities similar to the Securities and it acknowledges
that the Securities have not been registered under the Securities Act and
understands that the Securities must be held indefinitely unless they are
subsequently registered under the Securities Act or such sale is permitted
pursuant to an available exemption from such registration requirement; it (or,
in the case of an Account Manager, the managed account on behalf of which the
Account Manager is acting) is able to bear the economic risk of its investment
in the Securities and is presently able to afford the complete loss of such
investment; it (or, in the case of an Account Manager, the managed account on
behalf of which the Account Manager is acting) is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act; and it has been
afforded access to information about each of the Companies and their financial
condition and business sufficient to enable it to evaluate its investment in the
Securities.
4.3 Authorization.
-------------
Such Purchaser has taken all actions necessary to authorize it (or,
in the case of an Account Manager, such Account Manager is duly authorized by
the managed account for which it is acting) (i) to execute, deliver and perform
all of its obligations under this Agreement, (ii) to perform all of its
obligations under the Securities and (iii) to consummate the transactions
contemplated hereby and thereby. This Agreement is a legally valid and binding
obligation of such Purchaser enforceable against it in accordance with its
terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by Federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
28
4.4 Securities Restricted.
---------------------
No transfer or sale (including, without limitation, by pledge or
hypothecation) of Securities by any Holder which is otherwise permitted
hereunder, other than a transfer or sale to the Company, shall be effective
unless such transfer or sale is made (A) pursuant to an effective registration
statement under the Securities Act and a valid qualification under applicable
state securities or "blue sky" laws or (B) without such registration or
qualification as a result of the availability of an exemption therefrom, and, if
reasonably requested by the Company, counsel for such Holder shall have
furnished the Company with an opinion, reasonably satisfactory in form and
substance to the Company, to the effect that no such registration is required
because of the availability of an exemption from the registration requirements
of the Securities Act; provided, however, that with respect to transfers by
Holders to their Affiliates, no such opinion shall be required. A transfer made
by a Holder which is a state-sponsored employee benefit plan to a successor
trust or fiduciary pursuant to a statutory reconstitution shall be expressly
permitted and no opinions of counsel shall be required in connection therewith.
4.5 ERISA.
-----
Such Purchaser represents that:
(a) it is not acquiring the Securities for or on behalf of any
employee pension benefit plan or employee welfare benefit plan (as defined
in Section 3 of ERISA) or any "plan" (as defined in Section 4975 of the
Code) (each hereafter a "Plan");
----
(b) the assets used to acquire the Securities are assets of an
insurance company general account and the purchase of the Notes and
Preferred Shares would be exempt under the provisions of the Prohibited
Transaction Class Exemption 95-60; or
(c) if it is acquiring the Securities on behalf of an employee pension
benefit plan, an employee welfare benefit plan or a "Plan," either directly
or through an investment fund (such as a bank collective investment fund or
insurance company pooled separate account), then, assuming that the plans
listed in Schedule 3.17 are the only employee benefit plans (as defined in
-------------
Section 3 of ERISA) or Plans with respect to which the Company is a "party
in interest" or "disqualified person" (as such terms are defined in Section
3 of ERISA and Section 4975 of the Code, respectively), either
(i) no part of the funds to be used to purchase the
Securities constitutes assets allocable to any trust that contains
assets of the employee benefit plans listed in Schedule 3.17, or
-------------
(ii) an exemption from the prohibited transaction rules applies
such that the use of such funds does not constitute a non-exempt
prohibited transaction in violation of Section 406 of ERISA or Section
4975 of the Code, which could be subject to a civil penalty assessed
pursuant to Section 502 of ERISA or a tax imposed under Section 4975
of the Code.
29
The representations contained in this Section 4.5 are made in express
reliance on the list of employee benefit plans contained in Schedule 3.17.
-------------
SECTION 5. COVENANTS.
---------
So long as any of the Notes remain unpaid and outstanding, the
Company covenants to the Holders of outstanding Securities as follows:
5.1 Payment of Notes; Satisfaction of Obligations.
---------------------------------------------
The Company shall pay the principal of, premium, if any, and
interest on the Notes on the dates and in the manner provided in the Notes. To
the extent lawful, the Company shall pay interest (including interest accruing
after the commencement of any proceeding under any Bankruptcy Law) on all past
due and unpaid amounts outstanding under the Notes (including overdue
installments of principal or interest) at a rate equal to 14_% per annum,
compounded quarterly.
5.2 Financial Statements and Reports.
--------------------------------
(a) The Company will maintain, and will cause each of its
Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP. The Company
will deliver to each Holder the financial statements and other reports
described below:
(i) Monthly Financials. As soon as available and in any event
------------------
within thirty (30) days after the end of each month ending after the
Closing Date: (A) copies of the internal financial reports, with
respect to the results of operations for such month and balance sheet
balances at the end of such month, delivered to members of the
Company's management, setting forth in comparative form the
corresponding figures for the corresponding periods of the previous
fiscal year (to the extent available) and the corresponding figures
from the consolidated plan and financial forecast for the current
fiscal year delivered pursuant to subsections 5.2(a)(v), 5.2(a)(viii)
and 5.2(b), to the extent prepared on a monthly basis, (B)
consolidating financial statements for each of the automotive
dealerships owned by the Company and its Subsidiaries, that include
the operating data for each automotive dealership including the total
number of new and used automobiles sold during such month and for the
year to date, and (C) a schedule of the outstanding Indebtedness for
borrowed money of the Company and its Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the
principal amount (excluding original issue discount) and amount of
accrued and unpaid interest with respect to each such debt issue or
loan;
(ii) Quarterly Financials. As soon as available and in any
--------------------
event within forty-five (45) days after the end of each fiscal quarter
(other than the last quarter of any fiscal year), the information
required by the Exchange Act to be contained in a Quarterly Report on
Form 10-Q (including all exhibits thereto);
(iii) Year-End Financials. As soon as available and in any
-------------------
event within ninety
30
(90) days after the end of each fiscal year: (A) the consolidated
balance sheet of the Company and its Subsidiaries as of the end of
such year and the related consolidated statements of income,
shareholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the corresponding figures for the previous fiscal
year and the corresponding figures from the consolidated plan and
financial forecast delivered pursuant to subsection 5.2(a)(v) and
5.2(b) for the fiscal year covered by such financial statements, all
in reasonable detail and certified by the chief financial officer of
the Company that they fairly present the financial condition of the
Company and its Subsidiaries as at the dates indicated and the results
of their operations and their cash flows for the periods indicated,
(B) a narrative report describing the operations of the Company and
its Subsidiaries in the form prepared for presentation to senior
management for such fiscal year, (C) a schedule of the outstanding
Indebtedness for borrowed money of the Company and its Subsidiaries
describing in reasonable detail each such debt issue or loan
outstanding and the principal amount (excluding original issue
discount) of accrued and unpaid interest with respect to each such
debt issue or loan, and (D) in the case of such consolidated financial
statements, a report thereon of KPMG Peat Marwick or other independent
certified public accountants of recognized national standing selected
by the Company, which report shall be unqualified, shall express no
doubts about the ability of the Company and its Subsidiaries to
continue as a going concern, and shall state that such consolidated
financial statements fairly present the consolidated financial
position of the Company and its Subsidiaries as of the dates indicated
and the results of their operations, shareholders' equity and their
cash flows for the periods indicated in conformity with GAAP applied
on a basis consistent with prior years (except as otherwise disclosed
in such financial statements) and that the examination by such
accountants in connection with such consolidated financial statements
has been made in accordance with United States generally accepted
auditing standards;
(iv) Promptly upon receipt thereof, copies of all management
letters submitted to the management of the Company by independent
public accountants in connection with their annual audit and any
similar reports submitted to the management of the Company by
independent public accountants, whether in connection with any interim
or special audit of the consolidated financial statements of the
Company or otherwise;
(v) Copies of any financial or other report or material notice
delivered to, or received from, any creditor pursuant to the Loan
Agreement not otherwise delivered to the Holders pursuant to this
Section 5.2;
(vi) Copies of all reports, letters and other correspondence
from local, state or Federal regulatory or other agencies relating to
business, licenses or operating contracts of the Company or any of its
Subsidiaries of a material nature;
(vii) Notice to each Holder of (i) any violation of or
noncompliance with any Environmental Laws that could reasonably be
expected to have a Material Adverse Effect, (ii) any communication
(written or oral) or Environmental Claim, whether from a governmental
authority, citizens group, employee or otherwise, alleging that the
Company or any of its Subsidiaries is not in compliance with any
Environmental law or asserting
31
liability of the Company or any of its Subsidiaries for contamination
from or as a result (directly or indirectly) of any Materials of
Environmental Concern, which noncompliance or liability could
reasonably be expected to have a Material Adverse Effect, or (iii) any
releases or threatened releases (including, without limitation, any
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, disposing or dumping, on-
site or off-site) of any Materials of Environmental Concern for which
the Company or any of its Subsidiaries could be held liable, either in
fact or by law, which releases could reasonably be expected to have a
Material Adverse Effect; and
(viii) Copies of such other information and data with respect to
the Company or any of its Subsidiaries as from time to time may be
reasonably requested by any Holder.
(b) Each financial statement delivered pursuant to subsections
(a)(i), (ii) and (iii) of this Section 5.2 shall be in a form reasonably
acceptable to each Purchaser and, in the case of financial statements
delivered pursuant to subsections (a)(ii) and (iii), shall be accompanied
by a brief narrative description of business and financial trends and
developments material to the Company and its Subsidiaries and significant
transactions that have occurred in the appropriate period or periods
covered thereby.
5.3 Compliance Certificate.
----------------------
(a) The Company shall each deliver each of to the Holders, within 30
days after the end of each month, 45 days after the end of each fiscal
quarter and within 90 days after each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company and its Subsidiaries
during the preceding month, fiscal quarter or fiscal year, as the case may
be, has been made under the supervision of the signing Officers with a view
to determining whether the Company and its Subsidiaries have kept,
observed, performed and fulfilled their respective obligations under this
Agreement and the Certificates of Designation, and further stating, as to
each such Officer signing such certificate, that to his or her knowledge,
the Company and its Subsidiaries each has kept, observed, performed and
fulfilled each and every covenant contained in this Agreement (or, if a
Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge) and
the Certificates of Designation and that to his or her knowledge no event
has occurred and remains in existence by reason of which payments on
account of the principal of or premium or interest, if any, on the Notes or
payments of dividends on the Preferred Shares are prohibited or if such
event has occurred, a description of the event. The Officers' Certificate
shall set forth all financial calculations for such fiscal quarter or
fiscal year necessary to demonstrate compliance with the covenants
contained in this Section 5.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the financial
statements delivered pursuant to Sections 5.2(a)(iii) shall be accompanied
by a written statement of KPMG Peat Marwick or other independent certified
public accountants of recognized national standing selected by the Company
that in making the examination necessary for certification of such
financial statements nothing has come to their attention which would lead
them to believe that the Company or any of its Subsidiaries has violated
any provisions of this Agreement or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood
that such accountants
32
shall not be liable directly or indirectly to any Person for any failure to
obtain knowledge of any such violation.
(c) The Company will deliver to each of the Holders, forthwith upon
becoming aware of (i) any Default or Event of Default or (ii) any default
or event of default under the Loan Agreement or any other loan agreement,
mortgage, indenture or instrument referred to in Section 7.1(f), an
Officers' Certificate specifying in reasonable detail such Default, Event
of Default or default or event of default and the nature of any remedial or
corrective action the Company proposes to take with respect thereto.
5.4 Limitation on Restricted Payments.
---------------------------------
(a) The Company shall not, and shall not cause or permit any of its
Subsidiaries to:
(i) declare or pay any dividends, either in cash or property,
on, or make any distribution to the holders (as such) in respect of,
any class of Equity Interest in the Company or any of its respective
Subsidiaries (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or its
Subsidiaries or dividends or distributions payable to the Company or
dividends or distributions payable to Holders of Preferred Shares);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any of its respective
Subsidiaries or any other Affiliate of the Company (other than the
Preferred Shares); provided that, as long as no Default or Event of
Default has occurred and is continuing, the Company may purchase
Equity Interests in the Company beneficially owned by directors,
officers and employees of the Company or any of its Subsidiaries, as
long as such purchases do not exceed $250,000 in any fiscal year;
(iii) purchase, redeem, defease or otherwise acquire or retire
for value any Indebtedness (other than the Notes and other than Seller
Indebtedness incurred pursuant to Section 5.5 (b)(viii)) that is pari
passu with or subordinated to the Notes; or
(iv) make any Investment other than a Permitted Investment (all
such payments and other actions set forth in clauses (i) through (iv)
of this Section 5.4(a) being collectively referred to as "Restricted
----------
Payments"), unless, at the time of such Restricted Payment:
--------
(1) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the
applicable four-fiscal quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Interest Expense Coverage Ratio test set forth in
Section 5.5(a)(ii); and
33
(3) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its
Subsidiaries (excluding Restricted Payments permitted by clause
(b) of this Section 5.4) is less than 50% of the Consolidated Net
Income (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit) of the Company for the period
(taken as one accounting period) from the beginning of the first
fiscal quarter immediately after the occurrence of a Company IPO
to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time
of such Restricted Payment.
(b) So long as no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence of such Restricted Payment,
the foregoing provision will not prohibit the defeasance, redemption or
repurchase of pari passu or subordinated Indebtedness with the net proceeds
from an incurrence within 60 days of such defeasance, redemption or
repurchase of unsecured Permitted Refinancing Indebtedness.
5.5 Limitation on Additional Indebtedness and Issuance of Disqualified Stock.
------------------------------------------------------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
(including without limitation, upon the creation or acquisition of such
Subsidiary) to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to
(collectively, "incur") any Indebtedness or issue any Disqualified Stock,
-----
provided that the Company may incur Indebtedness and may issue
Disqualified Stock if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time or would occur as a consequence of the
incurrence of such Indebtedness or the issuance of such Disqualified
Stock;
(ii) the Consolidated Interest Expense Coverage Ratio of the
Company for the four fiscal quarters immediately preceding the date on
which such Indebtedness is incurred or Disqualified Stock is issued
would have been at least 2.5 to 1 (determined on a pro forma basis as
if such additional Indebtedness had been incurred (or Disqualified
Stock had been issued) at the beginning of such four-fiscal quarter
period);
(iii) such Indebtedness shall be Subordinated Indebtedness and
the maturity and the Weighted Average Life to Maturity of such
Subordinated Indebtedness are both greater than the maturity and the
Weighted Average Life to Maturity of the Notes; and
(iv) the Company shall have successfully completed a Company
IPO.
(b) The foregoing limitations will not apply to:
(i) the incurrence by the Company or any of its Subsidiaries of
Indebtedness under the Loan Agreement; provided that such Indebtedness
is incurred for the purpose of acquiring new car inventory in the
ordinary course of business and is secured by a purchase money
security interest in such inventory; provided, further that the
aggregate principal
34
amount of such Indebtedness at any one time outstanding (including
loans, the nominal amount of outstanding letters of credit and all
unused commitments) shall not exceed the difference between (1) the
lesser of the New Vehicle Advance Rate and $135,000,000 and (2) any
permanent reductions in the credit available to the Company and its
Subsidiaries under the Loan Agreement in accordance with the
provisions of Section 5.8 hereof.
(ii) the incurrence by the Company or any of its Subsidiaries
of Acquisition Indebtedness under the Loan Agreement; provided,that
the aggregate principal amount at any one time outstanding (including
loans, the nominal amount of outstanding letters of credit and all
unused commitments) of such Indebtedness shall not exceed the
difference between (1) the lesser of the Revolver Advance Rate and
$35,000,000 and (2) any permanent reductions in the credit available
to the Company and its Subsidiaries under the Loan Agreement in
accordance with the provisions of Section 5.8 hereof;
(iii) the incurrence by the Company or any of its Subsidiaries
of Indebtedness under the Loan Agreement; provided, that such
Indebtedness is incurred for the purpose of acquiring Program Vehicles
(as defined in the Loan Agreement as in effect on the Closing Date)
inventory in the ordinary course of business and is secured by a
purchase money security interest in such inventory; provided, further,
that the aggregate principal amount of such Indebtedness at any one
time outstanding (including loans, the nominal amount of outstanding
letters of credit and all unused commitments) shall not exceed the
difference between (1) the lesser of the Program Vehicle Advance Rate
and $15,000,000 and (2) any permanent reductions in the credit
available to the Company and its Subsidiaries under the Loan Agreement
in accordance with the provisions of Section 5.8 hereof;
(iv) The incurrence by the Company of the Indebtedness
represented by the Notes;
(v) the incurrence by the Company of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company incurred pursuant to clause (a) above;
(vi) Indebtedness of the Company or its Subsidiaries in an
amount not to exceed $2,000,000 at any time outstanding representing a
Capitalized Lease Obligation or Purchase Money Indebtedness;
(vii) Subordinated Indebtedness of the Company to any
Wholly Owned Subsidiary of the Company or Indebtedness of any Wholly
Owned Subsidiary of the Company solely to the Company or to any Wholly
Owned Subsidiary of the Company provided that neither the Company nor
any Subsidiary of the Company shall become liable pursuant to such
Indebtedness, to any Person other than the Company or another Wholly
Owned Subsidiary of the Company; and
(viii) Seller Indebtedness in an aggregate amount not to exceed
$3,000,000 at any time outstanding.
35
5.6 Limitation on Transactions With Affiliates.
------------------------------------------
The Company shall not and shall not permit any of its Subsidiaries to
sell, lease, transfer or otherwise dispose of any of its properties or assets to
or purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, an
Affiliate (an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
---------------------
on terms that are no less favorable to the Company or such Subsidiary than those
that could have been obtained in a comparable transaction by the Company or such
Subsidiary from an unrelated person and (ii) with respect to any Affiliate
Transaction (or series of related Affiliate Transactions) involving or having a
potential value of more than $500,000, in addition to compliance with clause
(i), such Affiliate Transaction shall also be approved by a majority of the
disinterested members of the Board of Directors of the Company after
determining, in their reasonable good faith judgment, that (A) such transaction
is in the best interest of the Company or such Subsidiary based on full
disclosure of all relevant facts and circumstances and (B) such transaction is
on fair and reasonable terms competitive with those that could be obtained from
an unrelated third party (such approval and determination to be evidenced by a
resolution of such disinterested directors of the Board of Directors of the
Company), and (iii) with respect to any Affiliate Transaction (or series of
related Affiliate Transactions) involving or having a potential value of more
than $5,000,000, in addition to compliance with clauses (i) and (ii), the Board
of Directors of the Company shall have obtained an opinion of a nationally
recognized investment banking firm or appraiser to the effect that such
transaction is fair, from a financial point of view, to the Company or such
Subsidiary. The foregoing notwithstanding, the Company and its Subsidiaries may
make payments with respect to the Affiliate Transactions contained in the
agreements listed on Schedule 5.6, provided that such agreements may not be
------------
amended after the date hereof (other than amendments which do not affect
adversely the rights of the Company or any of its Subsidiaries), and the Company
and its Subsidiaries shall enforce to the fullest extent available by law all of
their respective rights and remedies with respect to such agreements.
5.7 Restrictions on Liens.
---------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, create or suffer to exist any Liens upon any assets of the Company or any
such Subsidiaries or any shares of capital stock of such Subsidiaries, in each
case now owned or hereafter acquired; provided, however, that this Section 5.7
shall not prohibit the creation or continuing existence of any Permitted Lien.
5.8 Limitation on Sale of Assets.
----------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, make any Asset Sale unless: (i) no Default or Event of
Default exists and is continuing or is created by such disposition and (ii)
in the case of any Asset Sale (and with respect to clause (B) below, all
such Asset Sales taken as a whole) involving (A) assets for Net Proceeds
(whether in cash or property) in excess of $500,000 or with a fair market
value in excess of $500,000 or (B) assets for Net Proceeds (whether in cash
or property) or with a fair market value (when aggregated with the Net
Proceeds or fair market value of all other assets subject to any Asset
Sales during the same fiscal year) in excess of $2,000,000:
36
(1) the Company or such Subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair market value of
such assets (as determined in good faith by the Board of Directors of
the Company or such Subsidiary and evidenced by a resolution set forth
in an Officers' Certificate, including as to the value of all noncash
consideration);
(2) at least 85% of the consideration therefor received by the
Company or such Subsidiary, as the case may be, shall be in the form
of cash; provided, however, that for the purposes of this clause (2),
the following are deemed to be cash: (x) any liabilities (as shown on
the Company's or such Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or such Subsidiary that are assumed by
the transferee in connection with the Asset Sale (other than
liabilities that are incurred in connection with or in anticipation of
such Asset Sale); and (y) securities received by the Company or such
Subsidiary from such transferee that are immediately converted into
cash at the face amount or fair market value thereof by the Company or
such Subsidiary; and
(3) upon the consummation of an Asset Sale, the Company or such
Subsidiary shall apply the Net Proceeds (it being understood that the
entire Net Proceeds and not just the portion in excess of the amounts
set forth in subclauses (A) and (B) of clause (ii) above shall be
subject to this subsection (3)) of such Asset Sale within 270 days of
the consummation of an Asset Sale to reinvest in Productive Assets or
to prepay, purchase, defease or otherwise retire Indebtedness of the
Company or any of its Subsidiaries under the Loan Agreement, with a
permanent reduction in the amount of Indebtedness that may be incurred
thereunder not less than the amount of the Net Proceeds so applied.
Any Net Proceeds from an Asset Sale that are not applied or reinvested
as provided in this clause (3) of Section 5.8 constitute excess
proceeds ("Excess Net Proceeds") and shall be held in Cash or Cash
-------------------
Equivalents.
(b) When the aggregate amount of Excess Net Proceeds exceeds
$1,000,000, the Company shall promptly make an offer (the "Asset Sale
----------
Offer") to all Holders of the Notes to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Net Proceeds, at an
offer price in cash in an amount (the "Asset Sale Offer Price") equal to
----------------------
the percentages of principal set forth below (if the Asset Sale Date occurs
during the twelve-month period commencing on July 1 of the year set forth
below), plus accrued and unpaid interest thereon to the Asset Sale Date:
% of Principal Amount
----------------------
1997................. 110.000%
1998................. 108.750
1999................. 107.500
2000................. 106.250
37
2001................. 105.000
2002................. 103.750
2003................. 102.500
2004................. 101.250
2005................. 100.000
If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Net Proceeds, the Company shall select
the Notes to be purchased on a pro rata basis. Upon completion of such
Asset Sale Offer, the amount of Excess Net Proceeds shall be reset at zero.
Simultaneously with the making of such Asset Sale Offer, the
Company shall provide the Holders with an Officers' Certificate setting
forth the Asset Sale Offer Price, the Asset Sale Date and the calculations
used in determining the amount of Excess Net Proceeds to be applied to the
repurchase of the Notes.
If the date on which the Asset Sale Offer closes (the "Asset Sale
----------
Date") is on or after an interest payment record date and on or before the
----
related interest payment date, any accrued interest will be paid to the
Person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to Holders who
tender Notes pursuant to the Asset Sale Offer.
(c) Notice of any Asset Sale Offer shall be mailed by the Company to
each Holder at its last registered address. The Asset Sale Offer shall
remain open from the time of mailing until 20 Business Days thereafter, and
no longer, unless a longer period is required by law. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Asset Sale Offer. The notice, which shall
govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 5.8 and that Notes will be accepted for payment either (A) in
whole or (B) in part in integral multiples of $1,000;
(ii) the Asset Sale Offer Price and the Asset Sale Date;
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that any Note accepted for payment pursuant to the Asset
Sale Offer shall cease to accrue interest from and after the Asset
Sale Date (so long as the Company does not default in its obligation
to promptly pay the Asset Sale Offer Price);
(v) that Holders electing to have a Note purchased pursuant to
the Asset Sale Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, at the address specified in the notice
38
prior to the close of business on the Asset Sale Date;
(vi) that Holders will be entitled to withdraw their election on
the terms and subject to the conditions set forth in the notice;
(vii) that Holders whose Notes are purchased only in part will
be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; provided, however, that any portion
of a Note repurchased by the Company and any new Note issued to the
Holder in respect of the unpurchased portion thereof shall be in the
principal amount of $1,000 or an integral multiple thereof.
(d) On the Asset Sale Date, the Company shall (i) accept for payment
all Notes or portions thereof validly tendered pursuant to the Asset Sale
Offer and (ii) promptly thereafter mail or deliver to Holders of Notes
accepted for purchase payment in the amount equal to the aggregate Asset
Sale Offer Price for such Notes, and the Company shall execute and mail or
deliver to such Holders a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered. The Company will notify the
Holders of the results of the Asset Sale Offer on the Asset Sale Date.
5.9 Limitation on Capital Expenditures.
----------------------------------
Except for Capital Expenditures in an aggregate amount not greater
than $1,500,000 to be made in connection with an automobile service center
located at 501 Brannon Street, San Francisco, California, the Company shall not,
and shall not permit any of its Subsidiaries to, make or incur Capital
Expenditures in any fiscal year in an aggregate amount for the Company and its
Subsidiaries in excess of the amount set forth below alongside the applicable
fiscal year:
Maximum Aggregate Amount
Fiscal Year of Permitted Capital Expenditures
----------- ---------------------------------
1997 $2,000,000
1998 $3,000,000
1999 and thereafter $4,000,000
39
5.10 Limitation on Dividend and Other Payment Restrictions Affecting
---------------------------------------------------------------
Subsidiaries.
- ------------
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on its Capital Stock or any other interest or participation in, or measured by,
its profits owned by, or pay any Indebtedness owed to, the Company, (b) make
loans or advances to the Company, (c) transfer any of its properties or assets
to the Company, except for such encumbrances or restrictions existing under or
by reason of (i) any restrictions existing under or contemplated by this
Agreement and the Loan Agreement; (ii) any restrictions, with respect to a
Subsidiary of the Company that is not a Subsidiary of the Company on the date
hereof, in existence at the time such Person becomes a Subsidiary of the Company
(so long as such restrictions are not created in anticipation of such Person
becoming a Subsidiary of the Company); (iii) with respect to clause (c) above
only, any restrictions existing under Capital Lease Obligations, Purchase Money
Indebtedness or Indebtedness secured by Permitted Liens (provided that, in each
case, such prohibition shall only relate to the assets which are subject to such
Capital Lease Obligations or which secure such Indebtedness and the proceeds
therefrom); or (iv) any restrictions existing under any agreement that
refinances or replaces the agreements containing the restrictions in the
foregoing clauses (i), (ii) and (iii); provided, that the terms and conditions
of any such restrictions are no more restrictive than those under or pursuant to
the agreement evidencing the Indebtedness refinanced.
5.11 Change of Control.
-----------------
(a) Change of Control. Upon the occurrence of a Change of Control,
-----------------
the Company shall give each Holder prompt, and in any event within ten (10)
Business Days of the occurrence of the Change of Control, notice describing
in reasonable detail the nature of the Change of Control, offering to each
Holder the right to require the Company to repurchase all or any part of
such Holder's Notes (the "Change of Control Offer") at a purchase price
-----------------------
equal to 101% of the aggregate principal amount thereof, together with
unpaid interest to the date of repurchase (the "Change of Control Offer
-----------------------
Price").
-----
(b) Procedure. The notice of a Change of Control Offer shall state a
---------
date not less than thirty (30) days nor more than sixty (60) days after the
date of mailing of such notice by the Company for repurchase of the Notes
pursuant to the Change of Control Offer (the "Change of Control Payment
-------------------------
Date"). The notice, which shall govern the terms of the Change of Control
----
Offer, shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 5.11;
(ii) the Change of Control Offer Price and the Change of Control
Payment Date;
(iii) that, unless the Company defaults in the payment of the
Change of Control Offer Price, all Notes accepted for payment shall
cease to accrue interest on and after the Change of Control Payment
Date;
40
(iv) that Holders electing to require the Company to repurchase
any Notes will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse side of
the Note completed and otherwise in proper form for transfer, to the
address specified in the notice prior to the close of business on the
Business Day preceding the Change of Control Payment Date;
(v) that the Holders will be entitled to withdraw their election
to require the Company to repurchase any Notes on the terms and
conditions set forth in such notice; and
(vi) that the Holders electing to require the Company to
repurchase any Notes in part will be issued a new Note in a principal
amount equal to the unpurchased portion of the Notes surrendered;
provided, however, that any portion of a Note repurchased by the
Company and any new Note issued to the Holder in respect of the
unpurchased portion thereof shall be in the principal amount of $1,000
or an integral multiple thereof.
(c) Acceptance of Notes. On a Change of Control Payment Date, the
-------------------
Company shall (i) accept for payment all Notes or portions thereof validly
tendered pursuant to the Change of Control Offer and (ii) promptly
thereafter mail or deliver to each Holder of Notes accepted for repurchase
payment in the amount equal to the aggregate Change of Control Offer Price
for such Notes, and the Company shall execute and mail or deliver to such
Holders a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered. As soon as practicable, the Company will notify the
Holders of the results of the Change of Control Offer on the Change of
Control Payment Date.
(d) "Change of Control" means (i) the sale, lease or transfer of all
-----------------
or substantially all of the Company's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Company, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Company representing a majority (more than 50%) of
the aggregate Voting Power of the outstanding Voting Securities of the
Company, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Company IPO, as the result of which (A)
Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Company, (B) any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with respect to),
directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the Company
than Permitted Holders or (C) Permitted Holders do not own Equity Interests
of the Company representing at least eighty-five percent (85%) of the
Equity Interests of the Company that are owned by the Permitted Holders on
the Closing Date (including any Equity Interests of the Company issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (v) any transaction occurring
after a Company IPO, as the result of which (A) any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act) owns, directly
or indirectly, Voting Securities representing more of the aggregate Voting
Power of the outstanding Voting Securities of the Company than Permitted
41
Holders, or (B) Permitted Holders do not own (and have the exclusive power
to vote with respect to), directly or indirectly, Voting Securities
representing at least twenty percent (20%) of the aggregate Voting Power of
the outstanding Voting Securities of the Company and Equity Interests of
the Company representing at least fifty percent (50%) of the Equity
Interests of the Company that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Company issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Company owns (or has the exclusive power to vote with
respect to), directly or indirectly, less than 100% of the Capital Stock of
its Subsidiaries or (vii) the replacement of a majority of the Board of
Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at
least a majority of the Board of Directors of the Company then still in
office who either were members of such Board of Directors at the beginning
of such period or whose election as a member of such Board of Directors was
previously so approved.
5.12 Minimum Consolidated Interest Expense Coverage Ratio.
----------------------------------------------------
The Company shall not permit the Consolidated Interest Expense
Coverage Ratio for the four fiscal quarters ending on or about the date listed
below, to be less than the correlative levels for such dates shown below;
provided, that for the September 30, 1997, December 31, 1997 and March 31, 1998
Measurement Dates, the Consolidated Interest Expense Coverage Ratio shall be
calculated for the one, two, and three fiscal quarters, respectively, ending on
such dates.
Measurement Date Minimum Ratio
---------------- -------------
September 30, 1997.................... 2.0
December 31, 1997..................... 2.0
March 31, 1998........................ 2.1
June 30, 1998......................... 2.1
September 30, 1998.................... 2.2
December 31, 1998..................... 2.2
March 31, 1999........................ 2.3
June 30, 1999......................... 2.3
September 30, 1999.................... 2.4
December 31, 1999..................... 2.4
March 31, 2000........................ 2.5
June 30, 2000 and thereafter.......... 2.6
42
5.13 Fiscal Years.
------------
The Company shall not change its fiscal year from a fiscal year ending
on December 31st.
5.14 Stay, Extension and Usury Laws
------------------------------
The Company covenants and agrees (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, and will use all
reasonable efforts to resist any attempts to claim or take the benefit of, any
stay, extension or usury law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of its obligations
under this Agreement, the Notes or the Preferred Shares, and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Holders, but will suffer and permit the execution of every such power as though
no such law has been enacted.
5.15 Corporate Existence; Merger; Successor Corporation.
--------------------------------------------------
(a) The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its and its Subsidiaries'
corporate existence in accordance with its organizational documents and the
corporate rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company
shall not be required to preserve any such right, license or franchise, or
corporate existence, if the Board of Directors of the Company shall
determine in good faith that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not adverse in any material respect to any Holder.
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, in a single transaction or through a series of related
transactions, (i) consolidate with or merge with or into any other person,
or transfer (by lease, assignment, sale or otherwise (other than a transfer
in accordance with Section 5.8)) all or substantially all of its properties
and assets as an entirety or substantially as an entirety to another person
or group of affiliated persons or (ii) adopt a Plan of Liquidation, unless,
in either case:
(i) the Company or such Subsidiary, as the case may be, shall be
the continuing Person, or the Person (if other than the Company)
formed by such consolidation or into which the Company or such
Subsidiary, as the case may be, is merged or to which all or
substantially all of the properties and assets of the Company as an
entirety or substantially as an entirety are transferred (or, in the
case of a Plan of Liquidation, any Person to which assets are
transferred) (the Company or such Subsidiary, as the case may be, or
such other Person being hereinafter referred to as the "Surviving
---------
Person") shall be a corporation organized and validly existing under
------
the laws of the United States, any State thereof or the District of
Columbia, and shall expressly assume, by an amendment to this
Agreement, all the Obligations of the Company under the Notes and this
Agreement, and the Stockholders' Agreement, as the case may be;
43
(ii) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (i) the Surviving Person shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Company or such Subsidiary, as the case may be,
immediately preceding the transaction and (ii) the Company (or the
Surviving Person in the case of a transaction relating to the
Company), shall be able to incur at least $1.00 of Indebtedness
pursuant to clause (ii) of Section 5.5(a);
(iii) immediately before and immediately after giving effect to
such transaction and the assumption of the Obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or
Event of Default shall have occurred and be continuing; and
(iv) the Company, shall have delivered to each Holder an
Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, transfer or adoption and such amendment to
this Agreement comply with this Section 5.15, that the Surviving
Person agrees to be bound hereby, and that all conditions precedent
herein provided relating to such transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this
Section 5.15, the successor person formed by such consolidation or into
which the Company or such Subsidiary is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company or such Subsidiary under this Agreement with the
same effect as if such successor Person had been named herein as the
Company or such Subsidiary; provided, however, that the Company or such
Subsidiary shall be released from the Obligations and covenants under this
Agreement or under the Notes.
5.16 Same Business.
-------------
The Company and its Subsidiaries shall engage in the Retail Automobile
Dealership Business.
5.17 Taxes.
-----
The Company shall, and shall cause its respective Subsidiaries to, pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all Taxes levied or imposed upon the Company or such Subsidiary,
as the case may be, or upon the income, profits or property of the Company or
such Subsidiary, as the case may be, and (ii) all lawful claims, whether for
labor, materials, supplies, services or anything else, which, if unpaid, would
or may by law become a Lien, upon the property of the Company or such
Subsidiary, as the case may be; provided, however, that neither the Company, nor
any of its Subsidiaries shall be required to pay or discharge or cause to be
paid or discharged any such Tax, the applicability or validity of which is being
contested in good faith by appropriate proceedings which will prevent the
forfeiture or sale of any property of the Company or such Subsidiary, as the
case may be, and
44
for which disputed amounts reserves have been established in accordance with
GAAP, in an amount which the Company or such Subsidiary, as the case may be,
believes in good faith is adequate.
5.18 Investment Company Act.
----------------------
Neither the Company nor any of its respective Subsidiaries shall
become an investment company subject to registration under the Investment
Company Act of 1940, as amended.
5.19 Ownership of Subsidiaries.
-------------------------
(a) The Company shall not create or cause to exist any Subsidiary;
provided, however, that the Company may create or acquire Subsidiaries if
(i) the Company shall at all times own 100% of the Equity Interests of such
Subsidiary and (ii) the Company shall cause such Subsidiary to guaranty the
Notes on a senior basis in accordance with Section 10.
(b) Except as permitted by Section 5.7, 5.8 or 5.15, the Company
shall maintain (along with one or more Subsidiaries in the case of an
indirect Subsidiary) good and valid title to the Equity Interests of each
of its Subsidiaries free and clear of any Lien other than Permitted Liens.
5.20 Insurance.
---------
The Company and its Subsidiaries shall maintain liability, casualty
and other insurance with a reputable insurer or insurers in such amounts and
against such risks as is carried by responsible companies engaged in similar
businesses and owning similar assets.
At all times after the 30th day after the Closing Date, the Company
shall maintain in effect a key man insurance policy in form and substance
acceptable to each of the Purchasers, purchased by the Company from an insurance
company acceptable to each of the Purchasers, which insurance policy shall be in
an amount not less than $15,000,000 and shall be payable to the Company upon the
death or disability of Thomas A. Price.
The Company shall maintain a directors and officers liability
insurance policy that is (a) in a coverage amount of at least $10,000,000, (b)
in form and substance acceptable to each of the Purchasers and (c) issued by an
insurance company acceptable to each of the Purchasers.
5.21 Employee Plans.
--------------
The Company shall not, directly or indirectly, (i) terminate any
employee pension benefit plan subject to Title IV of ERISA if as a result of
such termination the Company and its Subsidiaries, collectively, would incur a
liability with respect to such plan in excess of $1,000,000 in the aggregate, or
(ii) make a complete or partial withdrawal (within the meaning of Section 4201
of ERISA) from any multiemployer plan if as a result of such withdrawal (within
the meaning of Section 4201 of ERISA), the Company and its respective
Subsidiaries, collectively, would incur a liability with respect to such plan in
excess of $1,000,000 in the aggregate.
As used in this Section 5.21, the terms "employee pension benefit
plan" and
45
"multiemployer plan" shall have the meanings assigned to such terms in Section 3
of ERISA.
5.22 ERISA Notices.
-------------
Promptly, but in any event within 15 days, the Company shall deliver
to the Purchasers (or, if no Purchaser continues to be a Holder, such Person as
the Majority Holders shall designate), if and when the Company or any of its
Subsidiaries (i) gives or is required to give notice to the Pension Benefit
Guaranty Corporation (the "PBGC") of any "reportable event" (as defined in
----
Section 4043 of ERISA) with respect to any employee pension benefit plan
maintained by the Company or, to the best knowledge of the officers or directors
of the Company, any entity which is a member of the same controlled group as the
Company, which "reportable event" might reasonably constitute grounds for a
termination of such plan under Title IV of ERISA or the imposition of a tax
under Section 4971 of the Code, or knows that the plan administrator of any such
plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC, (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any multiemployer plan to which the Company or,
to the best knowledge of the officers or directors of the Company, any entity
which is a member of the same controlled group as the Company contributes or is
obligated to contribute is in reorganization or has been terminated, a copy of
such notice, (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate or appoint a trustee to administer any employee pension
benefit plan maintained by the Company or, to the best knowledge of the officers
or directors of the Company, any entity which is a member of the same controlled
group as the Company, a copy of such notice, (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Code, a copy of such
application, (v) gives notice of intent to terminate any employee pension
benefit plan maintained by the Company or, to the best knowledge of the officers
or directors of the Company, any entity which is a member of the same controlled
group as the Company under Title IV of ERISA, a copy of such notice and other
information filed with the PBGC, (vi) fails to make any payment or contribution
to any employee pension benefit plan (or multiemployer plan or in respect of any
benefit arrangement) or makes any amendment to any employee benefit plan or
benefit arrangement which could reasonably result in the imposition of a lien or
the posting of a bond or other security, a certificate of the Chief Executive
Officer of the Company setting forth details as to such occurrence and action,
if any, which the Company or any of its Subsidiaries is required or proposes to
take, (vii) newly enters into any obligation to make contributions that are
material with respect to the Company to any employee benefit plan or
multiemployer plan, a certificate of the Chief Executive Officer of the Company
setting forth details as to such obligation, (viii) modifies any existing
employee benefit plan maintained by the Company or, to the best knowledge of the
officers or directors of the Company, any entity which is a member of the same
controlled group as the Company (other than any modification to medical, dental
or other employee welfare benefit plans in the ordinary course of business) so
as to materially increase its obligations thereunder, a certificate of the Chief
Executive Officer of the Company setting forth details as to such modification
or (ix) materially increases a contribution obligation to any multiemployer plan
maintained by the Company or, to the best knowledge of the officers or directors
of the Company, any entity which is a member of the same controlled group as the
Company, a certificate of the Chief Executive Officer of the Company setting
forth details as to such increase.
As used in this Section 5.22, the terms "employee pension benefit
plan," "multiemployer plan" and "employee benefit plan" shall have the meanings
assigned to such terms in Section 3 of ERISA and the term "controlled group"
shall have the meaning assigned to such term in Section 414 of the Code.
46
5.23 Inconsistent Agreements.
-----------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into any agreement or arrangement which is inconsistent with, or
would impair the ability of the Company or any of its Subsidiaries to fulfill
the obligations of the Company or any of its Subsidiaries under this Agreement,
or (ii) supplement, amend or otherwise modify the terms of their respective
Charter Documents if the effect thereof would be materially adverse to the
Holders.
5.24 Compliance with Laws; Maintenance of Licenses.
---------------------------------------------
The Company shall, and shall cause each of its Subsidiaries to, comply
with all statutes, ordinances, governmental rules and regulations, judgments,
orders and decrees (including all Environmental Laws) to which any of them is
subject, and maintain, obtain and keep in effect all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their respective properties or the conduct of their respective
businesses, except to the extent that the failure to so comply or maintain,
obtain and keep in effect could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
5.25 Inspection of Properties and Records.
------------------------------------
The Company agrees to allow, and to cause its Subsidiaries to allow,
each Purchaser and each Holder of at least $4,000,000 in aggregate principal
amount of the Notes and Liquidation Preference of Preferred Shares or, in the
event there is no Holder of at least $4,000,000 in aggregate principal amount of
the Notes and Liquidation Preference of the Preferred Shares, each Purchaser and
the Holder who holds the greatest aggregate principal amount of the Notes and
the greatest aggregate Liquidation Preference of the Preferred Shares (and so
long as a Default or an Event of Default has occurred and is continuing, each
Purchaser and Holder) (or, in each case, such Persons as any of them may
designate) (individually and collectively, "Inspectors"), subject to appropriate
----------
agreements as to confidentiality, (i) to visit and inspect any of the properties
of the Company or any of its Subsidiaries, (ii) to examine all their books of
account, records, reports and other papers (including without limitation any
files, records or any similar items relating to Taxes of the Company or any of
its Subsidiaries) and to make copies and extracts therefrom, (iii) to discuss
their respective affairs, finances and accounts with their respective officers
and employees, and (iv) to discuss the financial condition of the Company and
its Subsidiaries with their independent accountants upon reasonable notice to
the Company of its intention to do so and so long as the Company shall be given
the reasonable opportunity to participate in such discussions (and by this
provision the Company authorizes said accountants to have such discussions with
the Inspectors). All such visits, examinations and discussions set forth in the
preceding sentence shall be at such reasonable times and as often as may be
reasonably requested; provided that unless a Default or an Event of Default
shall have occurred and be continuing such visits shall be limited to one visit
per fiscal quarter. If a Default or an Event of Default shall have occurred and
be continuing, the Company shall pay or reimburse all Inspectors for expenses
which such Inspectors may reasonably incur in connection with any such
visitations or inspections.
47
5.26 Board of Director Observation Rights.
------------------------------------
Each of the Purchasers shall have the right to have one
representative, who shall be reasonably acceptable to the Company, present
(whether in person or by telephone) at all meetings of the Board of Directors of
the Company; provided that such representative shall not be entitled to vote at
such meetings. The Company shall send to each such representative all of the
notices, information and other materials that are distributed to the directors
of the Company, as the case may be, and shall provide the Purchasers with a
notice and agenda of each meeting of the Board of Directors of the Company at
least two weeks prior to such meeting; provided, however, that upon the request
of any such representative, the Company shall refrain from sending such notices,
information and other materials for so long as such representative shall
request. Such Purchasers shall provide notice to the Company of the identity and
address of, or any change with respect to the identity or address of, such
representative. The Company shall reimburse each such representative for the
reasonable out-of-pocket expenses of such representative incurred in connection
with the attendance at such meetings. The Company shall not take any action by
committee of the Board of Directors that is materially adverse to any of the
Holders, unless the Purchasers shall have been provided with the same notice and
opportunity to attend such committee meeting as are required with respect to
meetings of the Board of Directors. The Company will act in good faith with
respect to the allocation of responsibilities of the Board of Directors thereof
to one or more committees of the Board so as not to circumvent the intent of
this Section 5.26.
5.27 Maintenance of Agent.
--------------------
The Company shall retain and maintain an agent of the Holders (the
"Agent") for the purpose of receiving notices under the Intercreditor Agreement
- ------
on behalf of the Holders and for the purpose of forwarding such notices to the
Holders at their registered addresses, and the Company shall give written notice
to each of the Holders and the Lender (as defined in the Loan Agreement) of the
name and address of such Agent.
5.28 Information to Prospective Purchasers.
-------------------------------------
The Company shall, upon the request of any Purchaser or subsequent
Holder, deliver to such Purchaser or such Holder and any prospective purchaser
designated by such Purchaser or such Holder promptly following the request of
such Purchaser or such Holder or such prospective purchaser such information
which such Purchaser or such Holder or such prospective purchaser may reasonably
request in order to comply with the information requirements of Rule 144A.
5.29 Private Placement Number.
------------------------
The Company consents to (and shall pay the cost of) the filing of
copies of this Agreement with Standard & Poor's Corporation to obtain a private
placement number and with the National Association of Insurance Commissioners.
5.30 Dividends on Preferred Stock.
----------------------------
Any certificate of designation of the Company with respect to
Disqualified Stock (other
48
than the Preferred Stock) shall provide that no dividends shall be paid or
accrued unless such dividends are otherwise permitted to be paid or accrued
pursuant to this Agreement.
5.31 Limitation on Acquisitions.
--------------------------
The Company shall not and shall not permit its Subsidiaries to make a
New Acquisition, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro
forma basis, to, the consummation of such New Acquisition;
(b) the proposed New Acquisition (i) is effected by way of (A) merger
or consolidation of a Subsidiary of the Company in accordance with Section
5.15 with or into another Person, (B) acquisition by a Subsidiary of the
Company of assets or property (including related equipment) which
constitute all or substantially all of the assets of another Person (or
substantially all assets with respect to one or more automobile
dealerships), or (C) acquisition by the Company of all of the Equity
Interests in such other Person and (ii) relates only to acquisitions of
franchise automotive dealerships and is approved by the Board of Directors
of the acquired entity (if applicable); and
(c) the aggregate Purchase Price for such New Acquisition does not
exceed 5.5 times the amount of EBITDA for the most recently ended four
fiscal quarters that is attributable to the assets and Persons to be
acquired by the Company or any of its Subsidiaries pursuant to such New
Acquisition;
(d) the aggregate Purchase Price for such New Acquisition does not
exceed $6,000,000;
(e) the sum of the aggregate Purchase Prices paid for all such New
Acquisitions since the Closing Date does not exceed $50,000,000; and
(f) such New Acquisition has been approved, in writing, by all
franchisors of any acquired automotive dealership.
5.32 Employment, Non-Competition and Acquisition Agreements.
------------------------------------------------------
To the fullest extent possible under applicable law, the Company shall
and shall cause each of its Subsidiaries to enforce strictly all of the rights
of the Company or such Subsidiary under each of the Acquisition Agreements and
each employment agreement or non-competition agreement to which the Company or
such Subsidiary is a party and to pursue all remedies available to the Company
or such Subsidiary with respect to each such agreement. The Company shall not
and shall cause each of its Subsidiaries not to permit or effect any
modification to any such agreement, which modification could be disadvantageous
or detrimental to the Company or any of its Subsidiaries.
49
SECTION 6. REDEMPTION.
----------
6.1 The Company's Right to Redeem.
-----------------------------
The Company may redeem the Notes or a portion thereof, in accordance
with the terms and conditions provided in Section 4 of the Notes. The Company
shall redeem the Notes as provided in Section 4(a) and Section 4(c) of the
Notes.
6.2 Selection of Notes to Be Redeemed.
---------------------------------
If fewer than all of the Notes are to be redeemed, the Company shall
redeem the Notes, pro rata, in such manner as complies with applicable legal
requirements, if any, provided that the Company shall be required to redeem all
of the Notes pursuant to Section 4(a) of the Notes if, at any time, the
aggregate principal amount of the outstanding Notes is less than $2,000,000.
Notes in denominations of $1,000 may be redeemed only in whole. The Company may
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Notes that have denominations larger than $1,000.
Provisions of this Agreement that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
6.3 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption ("Notice of Redemption") by first-
--------------------
class mail (followed by fax copy) to each Holder whose Notes are to be redeemed
at such Holder's registered address. With respect to any redemption of Notes
being made at the option of the Company pursuant to the provisions of Section
4(a) or 4(b) of the Notes, the Redemption Date specified in any Notice of
Redemption and the obligation of the Company to redeem any Notes on such
Redemption Date may be subject to the satisfaction or waiver of conditions
determined by the Company in its sole discretion. Each notice for redemption
shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) the name and address of the Company;
(d) that Notes called for redemption must be surrendered to the
Company to collect the Redemption Price;
(e) that, unless the Company defaults in making the Redemption Price,
interest on Notes called for redemption ceases to accrue on and after the
Redemption Date, and the only remaining right of the Holders of such Notes
is to receive payment of the Redemption Price upon surrender to the Company
of the Notes redeemed;
(f) if any Note is being redeemed in part, the portion of the
principal amount or stated
50
value of such Note to be redeemed and that, after the Redemption Date, and
upon surrender of such Note, a new Note or Notes in aggregate principal
amount or stated value equal to the unredeemed portion thereof will be
issued;
(g) if fewer than all the Notes are to be redeemed, the
identification of the particular Notes (or portion(s) thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be redeemed
and the aggregate principal amount of Note(s) to be outstanding after such
partial redemption; and
(h) the paragraph of the Notes pursuant to which the Notes are to be
redeemed.
6.4 Effect of Notice of Redemption.
------------------------------
Once Notice of Redemption is mailed in accordance with Section 6.3
above, Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Company, such Notes called
for redemption shall be paid at the Redemption Price.
6.5 Payment of Redemption Price.
---------------------------
On presentation and surrender of any Notes with respect to which a
notice of redemption has been given, at a place of payment specified in such
notice, such Notes or specified portions thereof shall be paid and redeemed by
the Company at the applicable Redemption Price.
If, on or prior to the Redemption Date, the Company deposits in a
segregated account or otherwise sets aside funds sufficient to pay the
Redemption Price of the Notes called for redemption, then, unless the Company
defaults in the payment of such Redemption Price, interest on the Notes to be
redeemed will cease to accrue on and after the applicable Redemption Date,
regardless of whether such Notes are presented for payment.
SECTION 7. DEFAULTS AND REMEDIES.
---------------------
7.1 Events of Default.
-----------------
An "Event of Default" occurs if:
----------------
(a) the Company defaults in the payment of the principal of or
premium, if any, on any Note when the same becomes due and payable at
maturity, upon redemption or otherwise (including, without limitation, the
failure to make a payment to purchase Notes tendered pursuant to a Change
of Control Offer or an Asset Sale Offer);
(b) the Company defaults in the payment of interest on any Note or
any other amount payable hereunder when the same becomes due and payable
and the Default continues for a period of five (5) Business Days;
(c) the Company or any Guarantor fails to comply with any of the
agreements, covenants, or provisions of this Agreement, the Notes or any
Subsidiary Guaranty and the Default
51
continues for the period and after the notice specified below;
(d) if any of the representations or warranties of the Company made
in this Agreement (including those representations and warranties
incorporated by reference herein) are untrue in any respect, the result of
which could reasonably be expected to have a Material Adverse Effect;
(e) if a default which extends beyond any stated period of grace
applicable thereto occurs under any loan agreement, note, mortgage,
indenture or instrument under which there is outstanding any Indebtedness
of the Company or any of its Subsidiaries aggregating in excess of
$5,000,000 or a failure to pay such indebtedness at its stated maturity;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company
or any Subsidiary of the Company and such remains undischarged for a period
(during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such judgments not covered by insurance
exceeds $500,000;
(g) the filing by the Company or any of its Significant Subsidiaries
(any such Person, a "Debtor") of a petition commencing a voluntary case
------
under section 301 of title 11 of the United States Code, or the
commencement by a Debtor of a case or proceeding under any other Bankruptcy
Law seeking the adjustment, restructuring, or discharge of the debts of
such Debtor, or the liquidation of such Debtor, including without
limitation the making by a Debtor of an assignment for the benefit of
creditors; or the taking of any corporate action by a Debtor in furtherance
of or to facilitate, conditionally or otherwise, any of the foregoing;
(h) the filing against a Debtor of a petition commencing an
involuntary case under section 303 of title 11 of the United States Code,
with respect to which case (a) such Debtor consents or fails to timely
object to the entry of, or fails to seek the stay and dismissal of, an
order of relief, (b) an order for relief is entered and is pending and
unstayed on the 60th day after the filing of the petition commencing such
case, or if stayed, such stay is subsequently lifted so that such order for
relief is given full force and effect, or (c) no order for relief is
entered, but the court in which such petition was filed has not entered an
order dismissing such petition by the 60th day after the filing thereof; or
the commencement under any other Bankruptcy Law of a case or proceeding
against a Debtor seeking the adjustment, restructuring, or discharge of the
debts of such Debtor, or the liquidation of such Debtor, which case or
proceeding is pending without having been dismissed on the 60th day after
the commencement thereof;
(i) the entry by a court of competent jurisdiction of a judgment,
decree or order appointing a receiver, liquidator, trustee, custodian or
assignee of a Debtor or of the property of a Debtor, or directing the
winding up or liquidation of the affairs or property of a Debtor, and (a)
such Debtor consents or fails to timely object to the entry of, or fails to
seek the stay and dismissal of, such judgment, decree, or order, or (b)
such judgment, decree or order is in full force and effect and is not
stayed on the 60th day after the entry thereof, or, if stayed, such stay is
thereafter lifted so that such judgment, decree or order is given full
force and effect;
(j) any member of the controlled group of which the Company is a
member shall,
52
directly or indirectly, (i) terminate any employee pension benefit plan
subject to Title IV of ERISA and such termination could reasonably be
expected to have a Material Adverse Effect or (ii) make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
multiemployer plan and such withdrawal (within the meaning of Section 4201
of ERISA) could reasonably be expected to have a Material Adverse Effect;
(k) the Company or any of its Subsidiaries shall breach any Franchise
Agreement to which it is now a party, or to which it becomes a party in the
future and such breach could reasonably be expected to have a Material
Adverse Effect;
(l) any Subsidiary Guaranty shall for any reason cease to be, or be
asserted in writing by any responsible officer of any Subsidiary of the
Company or the Company not to be, in full force and effect or enforceable
in accordance with its terms;
(m) the occurrence of any act or event that entitles a franchisor
under a Franchise Agreement to which the Company or any of its Subsidiaries
is a party to terminate such Franchise Agreement;
(n) the loss, termination, cancellation, revocation, forfeiture,
suspension, impairment of or failure to renew any Franchise Agreement to
which the Company or any of its Subsidiaries is a party, or any
governmental license, certificate any/or permit held by the Company or any
of its Subsidiaries that is necessary for the continued operations of the
Company or any of its Subsidiaries;
(o) the failure by the Company to make any payment on the Preferred
Stock within five (5) Business Days of when due pursuant to either of the
Certificates of Incorporation, including without limitation payment of
dividends, redemption price or purchase price on a Dividend Payment Date
(as defined in the CRPS Certificate of Designation), a Redemption Date (as
defined in each of the Certificates of Designation) or a Change of Control
Payment Date (as defined in each of the Certificates of Designation),
respectively.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
--------------
Federal or state law for the relief of debtors.
A Default under clause (c) of Section 7.1 (other than a Default under
Sections 5.4, 5.5, 5.6, 5.8, 5.9, 5.10, 5.11, 5.14, 5.16, 5.19, 5.20, 5.21 or
5.31 of this Agreement, which Default shall be an Event of Default without the
notice or passage of time specified in this paragraph) or under clause (f),
clause (k), clause (m) or clause (n) of Section 7.1 is not an Event of Default
until the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes notify the Company of the Default and the Company does not
cure the Default or the Default is not waived within 30 days after receipt of
the notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
53
7.2 Acceleration of Notes; Remedies.
-------------------------------
Subject to the following paragraph, if an Event of Default (other than
an Event of Default specified in clause (g), (h) or (i) of Section 7.1) occurs
and is continuing, the Majority Holders, by notice to the Company, may declare
the unpaid principal of and any accrued interest on all the Notes to be due and
payable, and immediately upon such declaration, the principal, premium, if any,
and interest shall be due and payable. If an Event of Default specified in
clause (g), (h) or (i) of Section 7.1 occurs, such an amount shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of any Holder.
The Majority Holders, by notice to the Company, may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration.
7.3 Premium on Acceleration.
-----------------------
In the event of an acceleration of the Notes upon an Event of Default
occurring by reason of any willful action (or deliberate inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment of
the premium that the Company would have had to pay if the Company had elected to
redeem the Notes and such acceleration is not rescinded or annulled, the Holders
shall be entitled to receive, in addition to any other payments to which they
may be entitled, a premium equal to the percentages of principal set forth below
if the declaration date of the acceleration occurs during the twelve-month
period commencing on July 1 of the year set forth below:
Year % of Principal Amount
- ---- ---------------------
1997................................................ 110.000%
1998................................................ 108.750
1999................................................ 107.500
2000................................................ 106.250
2001................................................ 105.000
2002................................................ 103.750
2003................................................ 102.500
2004................................................ 101.250
2005................................................ 100.000
54
7.4 Other Remedies.
--------------
If an Event of Default occurs and is continuing, Holders of the Notes
may pursue any available remedy to collect the payment of principal or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Agreement.
A delay or omission by any Holder of any Notes in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
7.5 Waiver of Past Defaults.
-----------------------
The Majority Holders by notice to the Company may waive an existing
Default or Event of Default and its consequences except a continuing Event of
Default in the payment of the principal of or interest on any Notes.
7.6 Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Agreement, the right of
any Holder of a Note to receive payment of principal and interest on the Note,
on or after the respective due dates expressed in the Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder.
7.7 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
SECTION 8. AMENDMENTS AND WAIVERS.
----------------------
8.1 With Consent of Holders.
-----------------------
The Company, when authorized by a resolution of the Board of Directors
of the Company, with the written consent of the Majority Holders, may amend this
Agreement or the Notes provided that each Holder shall have received prior
notice of such proposed amendment. The Majority Holders may waive compliance by
the Company with any provision of this Agreement or the Notes, provided that
each Holder shall have received prior notice of such proposed amendment.
Notwithstanding the foregoing, no amendment or waiver that affects the rights of
any of the Holders of Preferred Shares may be affected, without the consent of
the Holders of a majority of the outstanding shares of Preferred Stock. Without
the consent of each Holder affected, however, no amendment or waiver may (with
respect to any Notes held by a nonconsenting Holder of Notes):
55
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment or waiver of any provision of this Agreement or the Notes;
(b) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of Notes, reduce the
purchase price payable in connection with repurchases of the Notes pursuant
to Section 5.8 or Section 5.11 or reduce the premium payable pursuant to
Section 7.3;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or an Event of Default in the payment of
principal of or premium, if any, or interest on the Notes or that resulted
from a failure to comply with Section 5.8 or Section 5.11 (except a
rescission of acceleration of the Notes by the Majority Holders and a
waiver of the payment default that resulted from such acceleration);
(e) make the principal of, premium, if any, or the interest on, any
Note payable in any manner other than that stated in this Agreement and the
Notes;
(f) make any change in the provisions of this Agreement relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, premium (if any) or interest on the Notes;
(g) waive the payment of the Redemption Price with respect to any
Note; or
(h) make any change in the foregoing amendment and waiver provisions.
It shall not be necessary for the consent of the Holders under this
Section 8 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section 8 becomes effective,
the Company shall mail to all the Holders a notice briefly describing the
amendment or waiver and a copy of the fully executed amendment or waiver. Any
failure of the Company to mail such notice and copy, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment or waiver.
The Company agrees it will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement, the Certificates of Designation or any Note unless each Holder
(irrespective of the amount of Notes or Preferred Shares then owed by it) shall
substantially concurrently be informed thereof by the Company, and shall be
afforded the opportunity of considering the same and shall be supplied by the
Company with sufficient information (including any offer of remuneration) to
enable it to make an informed decision with respect thereto, which information
shall be the same as that supplied to each other Holder. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any Holder as
consideration for or as an inducement to the entering into by any Holder of any
waiver or amendment of any of the terms and provisions of this Agreement, the
Certificates of Designation or any Note unless such remuneration is concurrently
paid, on the same terms, ratably to each Holder regardless of
56
whether such Holder signs such waiver or consent; provided that the foregoing is
not intended to preclude the adoption of any amendment or the giving of any
waiver by the Holders of a majority in aggregate principal amount of the Notes
or shares of Preferred Stock to the extent permitted by the other provisions of
this Section 8.1.
8.2 Revocation and Effect of Consents.
---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder may revoke the consent as to Note
or portion of Note by notice to the Company received before the date on which
the Majority Holders have consented (and not theretofore revoked such consent)
to the amendment or waiver. Unless the proposed amendment or waiver has become
effective, no such consent shall be valid or effective for more than 90 days
after the date such consent is given.
After an amendment or waiver becomes effective, it shall bind every
Holder, unless it makes a change described in any of clauses (a) through (h) of
Section 8.1, in which case, the amendment or waiver shall bind only each Holder
of a Note who has consented to it and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note;
provided that any such waiver shall not impair or affect the right of any Holder
to receive payment of principal of, premium (if any) and interest on a Note, on
or after the respective due dates expressed in such Note, or to bring suit for
the enforcement of any such payment on or after such respective dates without
the consent of such Holder.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or amendment, Notes owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding.
8.3 Notation on or Exchange of Notes.
--------------------------------
If an amendment or waiver changes the terms of a Note, the Company may
require the Holder of the Note to deliver it to the Company so that it may place
an appropriate notation on the Note about the changed terms and return it to the
Holder.
8.4 Payment of Expenses.
-------------------
The Company agrees to pay or reimburse each Holder's out-of-pocket
expenses (including the fees and expenses of counsel) relating to any amendment
or modification of, or any waiver or consent under, this Agreement, the
Securities, the Stockholders' Agreement, the Certificates of Designation and any
other Documents.
57
SECTION 9. DEFINITIONS.
-----------
9.1 Definitions.
-----------
As used in this Agreement, the following terms shall have the
following meanings:
"Account Manager" means each Purchaser, if any, duly authorized to act
---------------
as attorney in-fact on behalf of any Person in purchasing, in the name of and
using funds provided by such Person, Securities hereunder.
"Acquisition Documents" mean, collectively, (x) the agreements and
---------------------
plans of merger, asset sale agreements, stock purchase agreements, certificates
of merger, consents and any other agreements relating to the Pending
Acquisitions, and (y) all exhibits, schedules and any other documents,
instruments and agreements delivered in connection with, or pursuant to, the
Pending Acquisitions or the transactions contemplated thereby.
"Acquisition Indebtedness" means Indebtedness incurred solely for and
------------------------
in connection with, or in contemplation of, and in an amount utilized for a New
Acquisition.
"Additional Common Shares" has the meaning given to such term in
------------------------
Section 1.2(c).
"Additional Notes" has the meaning given to such term in Section
----------------
1.2(c).
"Additional Securities" has the meaning given to such term in Section
---------------------
1.2(c).
"Additional Securities Closing" has the meaning given to such term in
-----------------------------
Section 1.2(d).
"Additional Securities Closing Date" has the meaning given to such
----------------------------------
term in Section 1.2(d).
"Affiliate" means, with respect to any referenced Person, a Person (i)
---------
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
For purposes of this definition, "control" when used with respect to any person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, whether through the
ownership of Voting Securities, by agreement or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliate Transaction" has the meaning given to such term in Section
---------------------
5.6.
"Agent" has the meaning given to such term in Section 5.27.
-----
58
"Agreement" means this Securities Purchase Agreement dated as of July
---------
8, 1997, by and among the Company, the Guarantors and the Purchasers.
"Asset Sale" means (i) the sale, lease, conveyance or other
----------
disposition of assets (including by way of a sale and leaseback) of the Company
or any of its Subsidiaries, other than sales and leases of inventory in the
ordinary course of business consistent with industry practice or (ii) the
issuance or sale of Equity Interests of any of the Subsidiaries of the Company
to any Person other than the Company, in the case of either clause (i) or (ii)
above, whether in a single transaction or a series of related transactions.
"Asset Sale Offer" has the meaning given to such term in Section 5.8.
----------------
"Asset Sale Date" has the meaning given to such term in Section 5.8.
---------------
"Asset Sale Offer Price" has the meaning given to such term in Section
----------------------
5.8.
"Audit" means any audit, assessment of Taxes, other examination by any
-----
Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"Bankruptcy Law" has the meaning given to such term in Section 7.1.
--------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Expenditures" means, without duplication, for any Person for
--------------------
any period, the aggregate of all expenditures on a consolidated basis including
deposits (whether paid in cash or property or accrued as liabilities and
including the aggregate amount of all principal payments due for the entire term
of all Capital Leases that are required to be capitalized on the balance sheet)
made by such Person and its Subsidiaries that, in conformity with GAAP, are
required to be included in the property, plant, equipment, or similar fixed
asset account, minus the aggregate amount of Capital Expenditures representing
the Purchase Price of New Acquisitions permitted by Section 5.31; provided,
however, there shall be excluded from the calculation of Capital Expenditures
permitted under Section 5.9 that portion of all such expenditures the Company is
permitted to reinvest or use for replacement or restoration of assets through
the use of insurance proceeds, awards of compensation arising from condemnation
or eminent domain proceedings or from Net Proceeds of Asset Sales.
"Capital Lease" means any lease of any property (whether real,
-------------
personal or mixed) that, in conformity with GAAP, should be accounted for as a
capital lease.
"Capital Stock" means any and all shares, interests, participations or
-------------
other equivalents (however designated) of corporate stock, including, without
limitation, all common stock and preferred stock.
"Capitalized Lease Obligation" means, with respect to any Person for
----------------------------
any period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.
59
"Cash" means U.S. Legal Tender or U.S. Government Obligations having a
----
maturity of one year or less from the date of issuance thereof.
"Cash Equivalents" means (i) U.S. Government Obligations maturing
----------------
within one year of the date of acquisition thereof; (ii) commercial paper
maturing within one year from the date issued and at the time of acquisition,
having a rating of at least A-1 from Standard & Poor's Corporation or at least
P1 from Moody's Investors Service, Inc.; (iii) certificates of deposit or
bankers' acceptances maturing within one year from the date of issuance thereof
issued by any commercial bank organized under the laws of the United States of
America or any state thereof or the District of Columbia having combined capital
and surplus of not less than $500,000,000 and not subject to setoff rights in
favor of such bank; (iv) time deposits maturing no more than thirty (30) days
from the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount
of the Company's deposits at such institution; (v) repurchase obligations with a
term of not more than seven (7) days for underlying securities of the types
described in clauses (i), (ii) and (iii) above entered into with any commercial
bank meeting the qualifications specified in clause (iii) above; (vi) securities
with maturities of one year or less from the date of acquisition issued or fully
guaranteed by any state of the United States or the District of Columbia, or by
any political subdivision or taxing authority of any such state or the District
of Columbia, the securities of which state, the District of Columbia, political
subdivision or taxing authority (as the case may be) are rated at least AAA by
Standard and Poor's Corporation or AAA by Moody's Investors Services, Inc.; and
(vii) shares of money market mutual or similar funds having assets in excess of
$100,000,000 and that invest exclusively in assets satisfying the requirements
of clauses (i) through (vi) above.
"Certificates of Designation" has the meaning given to such term in
---------------------------
Section 1.1(a).
"Change of Control" has the meaning given to such term in Section
-----------------
5.11(d).
"Change of Control Offer" has the meaning given to such term in
-----------------------
Section 5.11.
"Change of Control Offer Price" has the meaning given to such term in
-----------------------------
Section 5.11.
"Change of Control Payment Date" has the meaning in Section 5.11.
------------------------------
"Charter Documents" means the Articles of Organization, Articles of
-----------------
Incorporation or Certificate of Incorporation and Bylaws, as amended or restated
(or both) to date, of any of the Companies, or any of their respective
Subsidiaries, as applicable.
"Closing" has the meaning given to such term in Section 1.2(b).
-------
"Closing Date" has the meaning given to such term in Section 1.2(b).
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and any successor statute or law thereto.
"Common Shares" has the meaning given to such term in Section 1.1(a).
-------------
60
"Common Stock" means all classes of common stock of the Company.
------------
"Common Stock Register" has the meaning given to such term in Section
---------------------
1.3.
"Companies" means, collectively, the Company, FAA San Bruno, Inc., a
---------
California corporation, FAA Stevens Creek, Inc., a California corporation, Smart
Nissan, Inc., a California corporation, FAA Dealer Services, Inc., a California
corporation, Transcar Leasing, Inc., a California corporation, FAA Concord H,
Inc., a California corporation, FAA Concord N, Inc., a California corporation,
FAA Poway D, Inc., a California corporation, FAA Poway T, Inc., a California
corporation, FAA Poway H, Inc., a California corporation, FAA Dublin VWD, Inc.,
a California corporation, FAA Dublin N, Inc., a California corporation, FAA
Serramonte L, Inc., a California corporation, and FAA Serramonte, Inc., a
California corporation.
"Company IPO" means the first sale to the public of Capital Stock of
-----------
the Company pursuant to a registration statement under the Securities Act with a
public offering price of at least $50,000,000 pursuant to a registration
statement under the Securities Act, which shall result in the listing of such
Capital Stock on the New York Stock Exchange or the American Stock Exchange or
the quotation of such Capital Stock on the Nasdaq National Market.
"Consolidated" or "consolidated," when used with reference to any
------------ ------------
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated Interest Expense" means, when used with reference to any
-----------------------------
Person for any period, without duplication, (i) the aggregate of all interest
paid or accrued by such Person and its Subsidiaries in respect of Indebtedness
of any such Person and its Subsidiaries, including all interest, fees and costs
payable with respect to the obligations related to such Indebtedness (other than
fees and costs which may be capitalized as transaction costs in accordance with
GAAP and, without duplication, other than the amortization of any original issue
discount attributable to the issuance of Notes under this Agreement) and the
interest component of Capitalized Lease Obligations, all as determined in
accordance with GAAP, and (ii) an amount equal to the product of (A) the amount
of all dividend payments on any Priority Stock of such Person (including
dividends for such period which are accrued and unpaid) times (B) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current effective consolidated Federal, state and local tax rate of such Person,
expressed as a decimal minus (iii) the aggregate amount of payments received
from vehicle manufacturers pursuant to agreements with such manufacturers that
provide for reimbursement of interest expense associated with the financing of
new vehicle inventories.
61
"Consolidated Interest Expense Coverage Ratio" means, when used with
--------------------------------------------
reference to any Person, the ratio of:
(a) the aggregate amount of EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
four full fiscal quarters for which financial information in respect
thereof is available immediately prior to the date of the event (the
"Event") giving rise to the need to calculate the Consolidated Interest
-----
Expense Coverage Ratio (the "Event Date") minus Capital Expenditures for
----------
such Person for such period; and
(b) the sum of the aggregate Consolidated Interest Expense of such
Person during such period (exclusive of amounts attributable to operations
and businesses permanently discontinued or disposed of, but only to the
extent that the obligations giving rise to such Consolidated Interest
Expense would no longer be obligations contributing to such Person's
Consolidated Interest Expense subsequent to the Event Date); provided,
however, that for the periods ending September 30, 1997, December 31, 1997
and March 31, 1998 Consolidated EBITDA and Consolidated Interest Expense of
the Company and its Subsidiaries shall be calculated for the one- two- and
three-quarter periods (respectively) then ending, rather than for the four-
quarter periods then ending; provided, further, that if any such
calculation includes any period prior to the Closing Date, such calculation
for such period shall be made on a pro forma basis giving effect to the
transactions contemplated by the Acquisition Documents and the related
financings (including the Notes and the Indebtedness incurred under the
Loan Agreement) and the use of the proceeds, as if the same had occurred at
the beginning of such period.
In addition to and without limitation of the foregoing, for purposes
of this definition, "EBITDA" and "Consolidated Interest Expense" for the one,
two, three or four full fiscal quarters, as applicable, for which financial
information in respect thereof is available immediately prior to the Event Date
shall be calculated (without duplication) after giving effect on a pro forma
basis for the period of such calculation (as if each of the following, if
applicable, occurred at the beginning of the first of such one, two, three or
four fiscal quarters, as applicable) to:
(i) the incurrence of any Indebtedness (including, without
limitation, if applicable, any Indebtedness incurred, or Disqualified Stock
issued, with respect to the Event) during the period commencing at the
beginning of such one, two, three or four fiscal quarters, as applicable,
and ending on the Event Date (the "Reference Period");
----------------
(ii) the permanent repayment of any Indebtedness of such Person or
Subsidiary of such Person during the Reference Period with the proceeds of
any Indebtedness referred to in the immediately preceding clause (i) or
with the proceeds from the Asset Sale referred to in clause (iv) below (so
long as the Asset Sale is also given pro forma effect);
(iii) the acquisition by such Person or any Subsidiary of such Person
during the Reference Period of (a) the Equity Interests of any other Person
which, as a result of such acquisition, becomes a Subsidiary of such Person
(provided that such pro forma calculation shall include the aggregate
amount of EBITDA of such acquired Subsidiary for the one, two, three or
62
four (as the case may be) full fiscal quarters of such acquired Subsidiary
for which financial information is available immediately preceding the
Event Date; provided, that, to the extent the Net Income of such acquired
Subsidiary is subject to restrictions, direct or indirect, on the payment
of dividends or the making of distributions, the Net Income of such
acquired Subsidiary shall be excluded from EBITDA to the extent of such
restrictions) or (b) assets from any Person which constitutes substantially
all of the operating unit or business of such Person (provided that such
pro forma calculation shall include the EBITDA attributable to the assets
acquired in such transaction for the one, two, three or four (as the case
may be) full fiscal quarters for which financial information is available
immediately preceding the Event Date); and
(iv) any Asset Sales occurring during the Reference Period (including
the effect, if any, on the Company's earnings for the Reference Period
resulting from the disposition of assets in such Asset Sale).
Furthermore, in calculating "Consolidated Interest Expense" (A)
interest on Indebtedness determined on a fluctuating basis as of the Event Date
and which will continue to be so determined thereafter shall be deemed to have
accrued during the Reference Period at a fixed rate per annum equal to the
average rate in effect from the beginning of the Reference Period to the Event
Date and (B) if interest on any Indebtedness incurred on the Event Date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a Eurocurrency interbank offered rate, or other rates, then the
interest rate shall be deemed to be the lowest of such interest rates on the
Event Date which are actually available as options to the borrower of such
Indebtedness and (C) the principal amount of Indebtedness under a revolving
credit or similar arrangement that was in effect prior to the Event Date and
that will continue to be in effect following the Event shall be equal to the
average principal amount of Indebtedness outstanding during the Reference
Period.
"Consolidated Net Income" means, when used with reference to any
-----------------------
Person for any period, the aggregate of the Net Income of such Person and its
consolidated Subsidiaries for such period, on a consolidated basis, determined
in accordance with GAAP; provided that (i) the Net Income of any Person which is
not a Subsidiary or is accounted for by the Company by the equity method of
accounting shall be included in Consolidated Net Income only to the extent of
the amount of dividends or distributions actually paid by such Person to the
referent Person or a Subsidiary of the referent Person, (ii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded from Consolidated Net Income,
(iii) the Net Income of any Subsidiary of the referent Person that is subject to
restrictions, direct or indirect, on the payment of dividends or the making of
distributions to the referent Person shall be excluded from Consolidated Net
Income to the extent of such restrictions. "Net Income" of any Person shall
----------
mean the net income (loss) of such Person, determined in accordance with GAAP,
excluding, however, any gain (but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to sale and
leaseback transactions) of any real property or equipment of such Person which
is not sold or otherwise disposed of in the ordinary course of business and any
gain (but not loss) realized upon the sale or other disposition of any capital
stock of such Person or a subsidiary of such Person and any other extraordinary
gain (but not extraordinary loss) realized over the relevant period.
"Consolidated Net Worth" means, with respect to any Person as of any
----------------------
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of
63
such date plus (ii) the respective amounts reported on such Person's balance
sheet as of such date with respect to any series of preferred stock (other than
Disqualified Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of any cash received by such Person upon issuance of such preferred
stock, less (to the extent otherwise included in (i) and (ii) above) (w) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Closing Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (x) all amounts attributable to interests in Subsidiaries of such
Person held by Persons other than such Person or its Subsidiaries, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries, and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"CRPS" has the meaning given to such term in Section 1.1(a).
----
"CRPS Certificate of Designation" has the meaning given to such term
-------------------------------
in Section 1.1(a).
"CRPS Register" has the meaning given to such term in Section 1.3.
-------------
"Default" means any event which is, or after notice or passage of time
-------
would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or
------------------
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the Maturity Date.
"Documents" means this Agreement, the Securities, the Stockholders'
---------
Agreement, the Intercreditor Agreement and, the Acquisition Documents
collectively, or each of such documents singularly, and any agreements
(including without limitation any employment agreements and any non-competition
agreements), documents or instruments contemplated by or executed in connection
with any of them or any of the transactions contemplated hereby or thereby.
"Draw Down Notice" has the meaning given to such term in Section
----------------
1.2(c).
"EBITDA" means, without duplication and with respect to any Person for
------
any period, the following, each calculated for such period: (a) Consolidated
Net Income of such Person for such period; plus (b) any provision for (or less
any benefit from) income or franchise taxes to the extent included in the
determination of Consolidated Net Income for such period; plus (c) Consolidated
Interest Expense (whether paid or accrued and including without limitation
amortization of original issue discount) to the extent deducted in the
determination of Consolidated Net Income for such period; plus (d) amortization,
depreciation and depletion to the extent deducted in the determination of
Consolidated Net Income; provided, however, that for purposes of this
definition, Consolidated Net Income shall be calculated without regard to the
provisions of Financial Accounting Standards Board Technical Bulletin
No. 90-1, issued on December 17, 1990, regarding accounting for separately
priced extended warranty and product maintenance contracts.
64
"Enterprise Value" means, for any date, the product derived by
----------------
multiplying (a) the Company's EBITDA (less net interest and other costs
associated with New Vehicle Advances and Program Vehicle Advances) for the four
fiscal quarters immediately preceding such date (on a pro forma basis giving
effect to all New Acquisitions made during such period and all incurrences of
Indebtedness as if they occurred at the beginning of such period), by (b) 7.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"ERISA" means The Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and any successor statute or law thereto.
"Event" has the meaning given to such term in the definition of
-----
"Consolidated Interest Expense Coverage Ratio" in this Section 9.1.
"Event Date" has the meaning given to such term in the definition of
----------
"Consolidated Interest Expense Coverage Ratio" in this Section 9.1.
"Event of Default" has the meaning given to such term in Section 7.1.
----------------
"Excess Net Proceeds" has the meaning given to such term in Section
-------------------
5.8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Fair Market Value" of any property (other than cash) means the fair
-----------------
market value thereof, as determined by the Board of Directors of the Company in
its reasonable good faith judgment.
"Financial Statements" has the meaning given to such term in Section
--------------------
3.4(b).
"Founding Companies" means Price Auto Holdings, Inc., a California
------------------
corporation, Cziska Price, Inc., a California corporation, Smart Nissan, Inc., a
California corporation, Serramonte Motor Cars, Inc., a California corporation,
Transcar Leasing, Inc., a California corporation, and California Carriage
Limited, a California corporation.
"Franchise Agreement" means any franchise agreement between an
-------------------
automobile dealer and a vehicle manufacturer or its Affiliate pursuant to which
such vehicle dealer is granted the right to sell vehicles manufactured by such
manufacturer.
"GAAP" means those generally accepted accounting principles and
----
practices which are recognized as such on the Closing Date by the American
Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
65
appropriate boards or committees thereof and which are consistently applied for
all periods after the date hereof so as to properly reflect the financial
conditions, and the results of operations, shareholders' equity and cash flows,
of the Company, and its consolidated subsidiaries.
"Government Body" means any Federal, state, local or foreign
---------------
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof or any quasi-governmental or private body exercising any
governmental regulatory authority thereunder and any Person directly or
indirectly owned by and subject to the control of any of the foregoing, or any
court, arbitrator or other judicial or quasi-judicial tribunal.
"Guarantors" means those Persons that execute a Subsidiary Guaranty in
----------
accordance with Section 10 hereof.
"guaranty" means, with respect to any Person, any contract, agreement
--------
or understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase or
payment of such Indebtedness, or (ii) to maintain working capital, equity
capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of the ability
of the primary obligor to make payment of the Indebtedness;
(d) letters or agreements commonly known as "comfort" or "keepwell"
letters or agreements; or
(e) any other agreements to assure the holder of the Indebtedness of
the primary obligor against loss in respect thereof;
except that "guaranty" shall not include (i) the endorsement by a Person in the
ordinary course of business of negotiable instruments or documents for deposit
or collection, or (ii) indemnities given by the Company or its respective
Subsidiaries in brokerage, management and other agreements in the ordinary
course of business substantially consistent with past practices.
"Holder" or "Holders" means each Purchaser (so long as it holds any
------ -------
Securities) and any other holder of any of the Securities.
"Indebtedness" means, with respect to any Person, the aggregate amount
------------
of, without duplication, the following:
(a) all obligations for borrowed money;
66
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services (except Trade Payables, accrued commissions and other similar
accrued current liabilities in respect of such obligations, in any case,
not overdue, arising in the ordinary course of business);
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons regardless of whether such obligation
or liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(h) all guaranties.
"Inspectors" has the meaning given to such term in Section 5.25.
----------
"Intercreditor Agreement" means the Intercreditor and Subordination
-----------------------
Agreement dated as of July 2, 1997 by and between General Electric Capital
Corporation and the Purchasers.
"Investment" means, with respect to any Person, any direct, indirect
----------
or beneficial investment by such Person, whether by means of share purchase,
loan, advance, extension of credit (other than accounts receivable and trade
credits arising in the ordinary course of business), capital contribution or
otherwise, in or to any other Person, the guaranty by such Person of any
Indebtedness of any other Person or the subordination of any claim against any
other Person to other Indebtedness of such other Person.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Company or in
California are not required to be open.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or
----
adverse claim affecting title or resulting in a charge against real or personal
property, or security interest of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Liquidation Preference" with respect to the CRPS, has the meaning
----------------------
given to such term in the CRPS Certificate of Designation, and with respect to
the RPS, has the meaning given to such term in the RPS Certificate of
Designation
"Loan Agreement" means that certain Loan and Security Agreement dated
--------------
as of July 2, 1997, by and among the Companies (other than the Company) and
General Electric Capital Corporation, a New York corporation ("GECC"), together
----
with that certain guaranty and that certain security agreement executed by the
Company and GECC in connection therewith, all of the same as may be amended,
modified or supplemented from time to time and pursuant to which Permitted
Refinancing Indebtedness is incurred
67
with respect thereto.
"Majority Holders" means, at any time, the Holder or Holders of at
----------------
least a majority in aggregate principal amount of the then outstanding Notes.
"Material Adverse Effect" means (a) a material adverse effect upon the
-----------------------
business, operations, properties, assets, condition (financial or otherwise) or
prospects of any of the Companies taken as a whole or (b) a material adverse
effect on the ability of the Company to perform its obligations under this
Agreement or of any Purchaser or Holder to enforce or collect any of the
obligations hereunder. In determining whether any individual event could
reasonably be expected to result in a Material Adverse Effect, notwithstanding
that such event does not of itself have such effect, a Material Adverse Effect
shall be deemed to have occurred if the cumulative effect of such event and all
other then existing events could reasonably be expected to result in a Material
Adverse Effect.
"Maturity Date" means June 30, 2005.
-------------
"Net Proceeds" means, with respect to any sale or other disposition of
------------
any assets, (i) cash received by the Company or any of its Subsidiaries from
such sale or other disposition and (ii) promissory notes received by the Company
or any of its Subsidiaries from such sale or other disposition upon the
liquidation or conversion of such notes into cash, in each case after (a)
provision for all Taxes resulting from such sale or other disposition, (b)
payment of all brokerage commissions and other fees and expenses related to such
sale or other disposition, and (c) amounts applied to repayment of Indebtedness
secured by a Lien on the asset sold or disposed.
"New Acquisition" means the acquisition (including by way of merger or
---------------
consolidation or in a series of related transactions) of all or substantially
all of the assets or property of, or any Equity Interests in, another Person by
purchase in cash, exchange of property or securities, or by any other method.
"New Vehicle Advance Rate" means the amount permitted to be advanced
------------------------
to the Subsidiaries of the Company for the purpose of financing New Vehicles (as
defined in the Loan Agreement as in effect on the date hereof) pursuant to
Section II.B.(4) of the Loan Agreement (as in effect on the date hereof).
"New Vehicle Advances" means advances under Section II.B or II.E of
--------------------
the Loan Agreement (as in effect on the date hereof) for the purpose of
financing the acquisition of New Vehicles (as defined in such Loan Agreement).
"Non-Price Founding Companies" means Smart Nissan, Inc., a California
----------------------------
corporation, and California Carriage Limited, a California corporation.
"Note Register" has the meaning given to such term in Section 1.3.
-------------
"Notes" has the meaning given to such term in Section 1.1(a).
-----
"Notice of Redemption" has the meaning given to such term in Section
--------------------
6.3.
68
"Obligations" means, with reference to any Indebtedness, any principal
-----------
of, premium, interest, penalties, fees and other liabilities payable from time
to time and obligations performable under the documentation governing such
Indebtedness.
"Officer" of a Person mean its Chairman of the Board, Chief Executive
-------
Officer, President, Treasurer, any Vice President, Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by any two
---------------------
Officers, one of whom must be the Chairman of the Board, the Chief Executive
Officer, the President, the Treasurer or a Vice President of the Company.
"Operating Lease" means any lease other than a Capital Lease.
---------------
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to each of the Purchasers. Unless otherwise required by
any of the Purchasers, the legal counsel may be an employee of or counsel to the
Company. For purposes of Section 4.4, "Opinion of Counsel" means a written
opinion from legal counsel who is reasonably acceptable to the Company and who
may be an employee of or counsel to any Purchaser or Holder.
"Original Securities" has the meaning given to such term in Section
-------------------
1.2(a).
"Pending Acquisitions" means the acquisition of all of the Equity
--------------------
Interests of, or substantially all of the assets of, each of the Founding
Companies and of Asian Pacific Industries, Inc., a Washington corporation,
through merger or purchase by Wholly Owned Subsidiaries of the Company in
accordance with the Acquisition Documents.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which any
of the spouse, siblings, lineal descendants or parents of either of Mr. Price or
Mr. Strough is the beneficiary; provided that Mr. Price or Mr. Strough retains
sole Voting Power with respect to the securities held by such trustee in such
trust, unless such trust was established pursuant to and in conformity with
Section 4.4(c) of the Stockholders' Agreement.
"Permitted Investment" means (a) an Investment in Cash Equivalents,
--------------------
(b) trade credit extended to persons in the ordinary course of business, (c) an
Investment by the Company or a Wholly Owned Subsidiary of the Company in a
Wholly Owned Subsidiary of the Company that is engaged in the Retail Automobile
Dealership Business, (d) loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business not to exceed $250,000 in the aggregate at any time outstanding, (e) an
Investment in the form of a limited partnership interest in Premiere Auto
Finance, a limited partnership, in an aggregate amount not to exceed $500,000
and (e) a Subsidiary Guaranty
"Permitted Liens" means with respect to any Person: (i) Liens for
---------------
Taxes either not yet due and payable or to the extent that nonpayment thereof is
permitted by the terms of Section 5.17; (ii) pledges or deposits securing
obligations under workers compensation, unemployment insurance, social security
or public liability laws or similar legislation; (iii) pledges or deposits
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which the Company is a party as lessee made in the
69
ordinary course of business; (iv) deposits securing public or statutory
obligations of the Company; (v) inchoate and unperfected workers', mechanics',
suppliers' or similar Liens arising in the ordinary course of business; (vi)
carriers', warehousemen's, or other similar possessory Liens arising in the
ordinary course of business and securing Indebtedness either not yet due and
payable or being contested in good faith and by appropriate proceedings and for
which adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP; (vii) Liens existing on the date hereof in an
amount not exceeding $500,000; (viii) deposits securing, or in lieu of, surety,
appeal or customs bonds in proceedings to which such Person is a party; (ix) an
attachment or judgment Lien, but only for a period of thirty (30) days following
attachment of such Lien and such attachment or judgment lien shall cease to be a
Permitted Lien if the obligation that it secures has not been satisfied or
bonded during such thirty (30) day period; (x) zoning restrictions, easements,
licenses, or other restrictions on the use of real property or other minor
irregularities in title (including leasehold title) thereto, so long as the same
do not materially impair the use, value, or marketability of such real property,
leases or leasehold estates and (xi) Liens granted under the Loan Agreement
(xii) Liens on fixed or capital assets acquired after the Closing Date, provided
that (a) such Lien is created solely for the purpose of securing Purchase Money
Indebtedness to finance the cost of such assets and such lien is created prior
to, at the time of, or within six months after the acquisition of such assets,
(b) the principal amount of the Purchase Money Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any assets other than such acquired asset.
"Permitted Refinancing Indebtedness" means, with respect to any
----------------------------------
Person, any Indebtedness of such Person issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of such Person; provided that: (1) the principal
amount of such Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
or, in the case of Indebtedness being refinanced that was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such refinancing, renewal, replacement, defeasance or
refunding (plus the amount of reasonable expenses incurred in connection
therewith); (2) such Indebtedness has a Maturity and a Weighted Average Life to
Maturity equal to or greater than the Maturity and a Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (3) such Indebtedness is subordinated in right of payment
to the Notes on terms at least as favorable to the holders of Notes as those, if
any, contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded if such Indebtedness was
subordinated to the Indebtedness evidenced by the Notes; (4) the annual interest
rate with respect to such Indebtedness is less than or equal to, and is payable
no more frequently than, that of the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (5) such Indebtedness is incurred
by such Person who is an obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited
------
liability company, trust or unincorporated organization or a government agency
or political subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
-------------------
provides for, contemplates or the effectuation of which is preceded or
accompanied by (regardless of whether substantially contemporaneously, in phases
or otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or
70
other disposition and all or substantially all of the remaining assets of such
Person to holders of Capital Stock of such Person.
"Preferred Shares" has the meaning given to such term in Section
----------------
1.1(a).
"Preferred Stock" has the meaning given to such term in Section
---------------
1.1(a).
"Principal" of any Note includes premium, if any.
---------
"Priority Stock" means, with respect to any corporation, any class or
--------------
classes (however designated) of Capital Stock of such Person which is preferred,
as to the payment of dividends or as to the distribution of assets upon any
voluntary or involuntary liquidation or distribution of such corporation, over
shares of such corporation or over any other class of shares of Capital Stock of
such corporation
"Productive Assets" means assets used in the same type of business
-----------------
engaged in by the Founding Companies immediately prior to the date hereof.
"Program Vehicle Advances" means advances under Section II.D of the
------------------------
Loan Agreement (as in effect on the date hereof) for the purpose of financing
the acquisition of Program Vehicles (as defined in such Loan Agreement).
"Pro Forma" means the unaudited combined balance sheets of the Company
---------
and its Subsidiaries as of the date hereof (or a date reasonable prior hereto)
after giving effect to this Agreement, the Loan Agreement, the Acquisition
Documents, the Stockholders' Agreement, the other Documents and the transactions
contemplated hereby and thereby, in the form attached hereto as Schedule 9.1(a).
---------------
Notwithstanding any other term contained in this Agreement, should the
application of purchase or other accounting principles permit the Company, in
accordance with GAAP, to characterize certain expenditures as capital items
rather than expense, then such expenditures shall be treated as expense in the
period such expenditures were incurred or paid for all purposes under this
Agreement unless such expenditure was identified and capitalized in the Pro
Forma.
"Program Vehicle Advances" has the meaning given to such term in
------------------------
Section III.D of the Loan Agreement as in effect on the date hereof.
"Program Vehicle Advance Rate" means the amount permitted to be
----------------------------
advanced to the Subsidiaries of the Company pursuant to Section II.D.(3) of the
Loan Agreement as in effect on the date hereof.
"Property" or "property" means any assets or property of any kind or
-------- --------
nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, provided that the terms "Property" or "property," when
used with respect to any Person, shall not include securities issued by such
Person.
"Purchase Money Indebtedness" means Indebtedness incurred solely for
---------------------------
the purchase or financing of fixed or capital assets (other than assets owned by
the Company or any of its Subsidiaries on the Closing Date) directly related to
the business of the Company permitted hereunder provided that (1) (A)
71
such Indebtedness is secured by purchase money Liens on such assets and (B) such
Liens do not extend to or cover any other asset of the Company or any of its
Subsidiaries, (2) such Liens secure the obligation to pay the purchase price and
acquisition costs of such asset and interest thereon only, (3) such Indebtedness
is incurred within nine months after the acquisition of such assets, and (4) the
fair market value of the assets so secured is at least equal to the amount of
the Indebtedness secured thereby.
"Purchase Price" means, with respect to any New Acquisition, the
--------------
aggregate consideration (including (without duplication) Cash, Cash Equivalents,
securities and other property (computed at the Fair Market Value thereof), and
any Indebtedness (including, without limitation, Acquired Debt, Acquisition Debt
and deferred consideration)) paid, to be paid or assumed by the Company and/or
its Subsidiaries in connection with such New Acquisition and all other expenses
and Capital Expenditures associated with such New Acquisition less the aggregate
amount of such consideration attributable to the cost of new vehicle inventory
included in such New Acquisition.
"Redemption Date" means, when used with respect to any Note to be
---------------
redeemed, the date fixed for such redemption pursuant to this Agreement and the
Notes.
"Redemption Price" means, when used with respect to any Note to be
----------------
redeemed, the price fixed for such redemption pursuant to this Agreement and the
Notes.
"Reference Period" has the meaning given to such term in the
----------------
definition of "Consolidated Interest Expense Coverage Ratio" in this Section
9.1.
"Related Transactions" means the Pending Acquisitions, the execution
--------------------
and delivery of the Documents, the funding of the loans under the Loan Agreement
on the Closing Date, the funding of the Notes on the Closing Date and the
payment of all fees, costs and expenses associated with all of the foregoing.
"Restricted Payments" has the meaning given to such term in Section
-------------------
5.4.
"Retail Automobile Dealership Business" means the business of retail
-------------------------------------
selling and servicing of automobiles and light trucks.
"Revolver Advance Rate" means the amount permitted to be advanced to
---------------------
the Subsidiaries of the Company pursuant to Section II.C.(1) of the Loan
Agreement as in effect on the date hereof.
"RPS" has the meaning given to such term in Section 1.1(a).
---
"RPS Certificate of Designation" has the meaning given to such term in
------------------------------
Section 1.1(a).
"RPS Register" has the meaning given to such term in Section 1.3.
------------
"Rule 144" means Rule 144 as promulgated by the SEC under the
--------
Securities Act, as amended from time to time, and any successor rule or
regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the SEC under the
---------
Securities Act, as
72
amended from time to time, and any successor rule or regulation thereto.
"SEC" means the Securities and Exchange Commission and any successor
---
thereto.
"Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, and any successor statute or law thereto.
"Security" or "Securities" have the meanings given to such terms in
-------- ----------
Section 1.1(a).
"Seller Indebtedness" means, with respect to any Person, Indebtedness
-------------------
incurred in connection with the acquisition by such Person or a Subsidiary of
such Person of another Person or of assets from such other Person which
Indebtedness is owing to such other Person.
"Significant Subsidiary" has the meaning given to such term in
----------------------
Regulation S-X of the Rules and Regulations promulgated by the SEC.
"Solvent" means, with respect to any Person on a particular date, that
-------
on such date, (a) the fair saleable value of the assets of such Person exceeds
its probable liability on its debts as they become absolute and mature; (b) all
of such Person's assets, at a fair valuation, exceed the sum of such Person's
debts; (c) such Person is able to pay its debts or liabilities as such debts and
liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which
such Person's assets would constitute an unreasonably small capital.
"Stockholders' Agreement" has the meaning given to such term in
-----------------------
Section 1.1(c).
"Subordinated Indebtedness" means Indebtedness of the Company that is
-------------------------
expressly by its terms subordinate and junior in right of payment to the Notes
and all the Obligations of the Company under this Agreement, at least to the
extent that the Obligations of the Company and its Subsidiaries under the Notes
are subordinate and junior in right of payment to Obligations of the Company and
its Subsidiaries under the Loan Agreement, pursuant to the provisions of the
Intercreditor Agreement.
"Subsidiary" means, with respect to any Person, (i) a corporation a
----------
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but, in the
case of a limited partner, only if such Person or its Subsidiary is entitled to
receive more than 50% of the assets of such partnership upon its dissolution, or
(iii) any limited liability company or any other Person (other than a
corporation or a partnership) in which such Person, a Subsidiary of such Person
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination, has (a) at least a majority ownership
interest or (b) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Subsidiary Guaranty" has the meaning given to such term in Section
-------------------
10.1(a).
"Surviving Person" has the meaning given to such term in Section
----------------
5.15(b)(i).
73
"Taxes" means all Federal, state, local and foreign taxes, and other
-----
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"Tax Authority" means the Internal Revenue Service and any other
-------------
domestic or foreign governmental authority responsible for the administration of
any Taxes.
"Tax Returns" shall mean all Federal, state, local and foreign tax
-----------
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax Return relating to Taxes.
"TCW Group Member" means any Affiliate of Trust Company of the West or
----------------
any Holder for whom Trust Company of the West or any Affiliate of Trust Company
of the West acts as an Account Manager.
"Total Debt Coverage Ratio" means as of any date, the ratio of (a) the
-------------------------
sum of the consolidated Indebtedness of the Company and its Subsidiaries (other
than New Vehicle Advances and Program Vehicle Advances) plus the liquidation
preference of all shares of capital stock of the Company or any of its
Subsidiaries (other than Common Stock and Capital Stock of Subsidiaries of the
Company owned by the Company or any Wholly Owned Subsidiary of the Company) to
(b) EBITDA of the Company for the four fiscal quarters immediately preceding
such date.
"Trade Payables" means, with respect to any Person, accounts payable
--------------
and other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"U.S. Government Obligations" means direct obligations of, or
---------------------------
obligations guaranteed as to timely payment by, the United States of America for
the payment (with respect to interest as well as principal) of which obligation
or guarantee the full faith and credit of the United States of America is
pledged.
"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination, the
general voting power ("Voting Power") under ordinary circumstances to vote for
------------
the election of directors, managers, trustees or general partners of such Person
(regardless of whether at such time any other class or classes will have or
might have voting power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to
74
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means, with respect to any Person, at any
-----------------------
time, a Subsidiary of such Person, all of the Equity Interests of which (except
director's qualifying shares) are at the time owned directly or indirectly by
such Person.
9.2 Rules of Construction.
---------------------
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the plural
include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof," "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular
Section or other subdivision; and.
(f) any reference to a "Section," "Annex" or "Schedule" refers to a
Section of, an Annex to, or a Schedule to this Agreement,
respectively.
SECTION 10. GUARANTY.
--------
10.1 Guaranty.
--------
(a) In consideration of good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, each of the Guarantors
hereby irrevocably and unconditionally guarantees (each a "Subsidiary
----------
Guaranty") to each Holder of a Note, irrespective of the validity and
--------
enforceability of this Agreement, the Notes or the obligations of the
Company under this Agreement or the Notes, that: (w) the principal and
premium (if any) of and interest on the Notes will be paid in full when
due, whether at the maturity or interest payment date, by acceleration,
call for redemption, upon a Change of Control, Asset Sale Offer, or
otherwise; (x) all other obligations of the Company to the Holders under
this Agreement or the Notes will be promptly paid in full or performed, all
in accordance with the terms of this Agreement and the Notes; and (y) in
case of any extension of time of payment or renewal of any Notes or any of
such other obligations, they will be paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity,
by acceleration, call for redemption, upon an Asset Sale Offer, Change of
Control or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, each Guarantor shall be obligated to pay the same
before failure so to pay becomes an Event of Default.
75
(b) Each Guarantor hereby agrees that its obligations with regard to
this Subsidiary Guaranty shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Agreement, the
absence of any action to enforce the same, any delays in obtaining or
realizing upon or failures to obtain or realize upon collateral, the
recovery of any judgment against the Company, any action to enforce the
same or any other circumstances that might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company or right to require the
prior disposition of the assets of the Company to meet its obligations,
protest, notice and all demands whatsoever and covenants that this
Subsidiary Guaranty will not be discharged except by complete performance
of the obligations contained in the Notes and this Agreement.
(c) If any Holder is required by any court or otherwise to return to
either the Company or any Guarantor, or any custodian, trustee, or similar
official acting in relation to either the Company or such Guarantor, any
amount paid by either the Company or such Guarantor to or such Holder, this
Subsidiary Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor agrees that it will
not be entitled to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby. Each Guarantor further agrees that, as
between such Guarantor, on the one hand, and the Holders, on the other
hand, (i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 7.2 for the purposes of this Subsidiary
Guaranty, notwithstanding any stay, injunction or other prohibition
preventing such acceleration as to the Company of the obligations
guaranteed hereby, and (ii) in the event of any declaration of acceleration
of those obligations as provided in Section 7.2, those obligations
(regardless of whether due and payable) will forthwith become due and
payable by each of the Guarantors for the purpose of this Subsidiary
Guaranty.
(d) It is the intention of each Guarantor and the Company that the
obligations of each Guarantor hereunder shall be in, but not in excess of,
the maximum amount permitted by applicable law. Accordingly, if the
obligations in respect of this Subsidiary Guaranty would be annulled,
avoided or subordinated to the creditors of any Guarantor by a court of
competent jurisdiction in a proceeding actually pending before such court
as a result of a determination both that such Subsidiary Guaranty was made
without fair consideration and that, at the time thereof, immediately after
giving effect thereto, or at the time that any demand is made thereupon
such Guarantor was insolvent or unable to pay its debts as they mature or
left with an unreasonably small capital, then the obligations of such
Guarantor under such Subsidiary Guaranty shall be reduced by such an
amount, if any, that would result in the avoidance of such annulment,
avoidance or subordination; provided, however, that any reduction pursuant
to this paragraph shall be made in the smallest amount as is necessary to
reach such result. For purposes of this paragraph, "fair consideration,"
"insolvency," "unable to pay its debts as they mature," "unreasonably small
capital" and the effective times of reductions, if any, required by this
paragraph shall be determined in accordance with applicable law.
10.2 Execution and Delivery of Subsidiary Guaranty.
---------------------------------------------
To evidence its Subsidiary Guaranty set forth in Section 10.1, each
Guarantor agrees that a
76
notation of such Subsidiary Guaranty substantially in the form annexed hereto as
Annex A-2 shall be endorsed on each Note and that this Agreement shall be
- ---------
executed on behalf of such Guarantor by two Officers or by one Officer with an
attestation by another Officer, by manual or facsimile signature.
Each Guarantor agrees that its Subsidiary Guaranty set forth in
Section 10.1 shall remain in full force and effect and apply to all the Notes
notwithstanding any failure to endorse on each Note a notation of such Guaranty.
If an Officer whose signature is on a Note no longer holds that office
at the time the Note on which a Subsidiary Guaranty is endorsed and issued, the
Subsidiary Guaranty shall be valid nevertheless.
The delivery of any Note by the Company shall constitute due delivery
of the Subsidiary Guaranty set forth in this Agreement on behalf of each
Guarantor.
10.3 Future Subsidiary Guarantors.
----------------------------
The Company shall cause each Person that is or becomes a Subsidiary of
the Company after the Closing Date to execute a Subsidiary Guaranty in the form
of Annex A-2 hereto and cause such Subsidiary to execute an amendment to this
---------
Agreement for the purpose of adding such Subsidiary as a Guarantor hereunder.
10.4 Certain Bankruptcy Events.
-------------------------
Each Guarantor hereby covenants and agrees that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Guarantor shall not file (or join in any filing of), or otherwise
seek to participate in the filing of, any motion or request seeking to stay or
to prohibit (even temporarily) execution on the Subsidiary Guaranty and hereby
waives and agrees not to take the benefit of any such stay of execution, whether
under Section 362 or 105 of the United States Bankruptcy Code or otherwise.
10.5 Releases of Subsidiary Guaranties.
---------------------------------
If the Company or any Subsidiary of the Company shall sell or
otherwise transfer all of the Equity Interests of any Guarantor to a Person that
is not an Affiliate of the Company or any of its Subsidiaries, then the
Subsidiary Guaranty of such Guarantor shall be discharged, cancelled and
terminated, and such Subsidiary Guarantor shall be released from all liability
thereunder.
77
SECTION 11. MISCELLANEOUS.
-------------
11.1 Notices.
-------
All notices and other communications provided for or permitted
hereunder shall be made by hand delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at the address or telecopy number set forth on
the signature pages hereto, with a copy to Skadden, Arps, Slate, Meagher &
Flom, LLP 300 S. Grand Avenue, Suite 3400, Los Angeles, California 90071,
Telecopy No. (213) 687-5600, Attention: Rod A. Guerra, Jr., Esq.; and
(b) if to the Company or any Guarantor, c/o Kay & Merkle, Penthouse,
100 The Embarcadero, San Francisco, California 94105, Telecopy No. (415)
512-9277 Attention: W. Bruce Bercovich.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed (so long as a
fax copy is sent and receipt acknowledged within two Business Days after
mailing); when answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery. The parties may
change the addresses to which notices are to be given by giving five days' prior
notice of such change in accordance herewith.
11.2 Successors and Assigns.
----------------------
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
11.3 Counterparts.
------------
This Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
11.4 Headings.
--------
The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.
11.5 Governing Law; Submission to Jurisdiction.
-----------------------------------------
THIS AGREEMENT, THE NOTES AND ALL ISSUES HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA (WITHOUT REFERENCE TO PRINCIPLES OF
78
CONFLICTS OF LAW). TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMIT
TO THE JURISDICTION OF ANY CALIFORNIA STATE COURT SITTING IN THE CITY OF LOS
ANGELES OR ANY FEDERAL COURT SITTING IN THE CITY OF LOS ANGELES IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND
THE NOTES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY
GENERALLY AND UNCONDITIONALLY JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
AND EACH GUARANTOR IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEEDING
AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION.
11.6 Entire Agreement.
----------------
This Agreement, together with the Securities, the Stockholders'
Agreement and Certificates of Designation (and any agreement between the Company
and any Holder relating to transfers), is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, together with
the Stockholders' Agreement and the Certificates of Designation, supersedes all
prior agreements and understandings between the parties hereto with respect to
the subject matter.
11.7 Severability.
------------
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that each Purchaser's rights and privileges shall be enforceable to the
fullest extent permitted by law.
11.8 Further Assurances.
------------------
The Company shall, and shall cause each of its Subsidiaries to, at its
cost and expense, upon request of any Purchaser or Holder, duly execute and
deliver, or cause to be duly executed and delivered, to such Purchaser or Holder
such further instruments and do or cause to be done such further acts as may be
necessary or proper in the reasonable opinion of such Purchaser or Holder to
carry out more effectually the provisions and purposes of this Agreement and the
other Documents.
11.9 Disclosure of Financial Information.
-----------------------------------
79
Each Holder is hereby authorized to deliver a copy of any financial
statement or any other information relating to the business, operations or
financial condition of the Company and each of its Subsidiaries which may be
furnished to it hereunder or otherwise, to any other Holder, any court,
Governmental Body claiming to have jurisdiction over such Holder, to the
National Association of Insurance Commissioners or similar organizations, as may
be required or appropriate in response to any summons or subpoena in connection
with any litigation, to the extent necessary to comply with any law, order,
regulation or ruling applicable to such Holder, to any rating agency, in order
to protect its investment hereunder, or to any Person which shall, or shall have
any right or obligation to, succeed to all or any part of such Holder's interest
in any of the Securities and this Agreement or to any actual or prospective
purchaser or assignee thereof.
11.10 Reproduction of Documents.
-------------------------
Subject to Section 11.6, this Agreement and all documents relating
hereto, including without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by the Holders at any
time, including, without limitation, in connection with the Closing (except the
Notes themselves), and (c) financial statements, certificates and other
information previously or hereafter furnished to the Holders, may be reproduced
by the Holders by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and the Holders may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(regardless of whether the original is in existence and regardless of whether
such reproduction was made by the Holders in the regular course of business) and
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
80
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
Company:
-------
FIRSTAMERICA AUTOMOTIVE, INC.
By:______________________________
Name:____________________________
Title:___________________________
Guarantors:
- ----------
FAA SAN BRUNO, INC. FAA STEVENS CREEK, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
_________________________________
SMART NISSAN, INC. FAA DEALER SERVICES, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
TRANSCAR LEASING, INC. FAA CONCORD H, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA CONCORD N, INC. FAA POWAY D, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA POWAY T, INC. FAA POWAY H, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA DUBLIN VWD, INC. FAA DUBLIN N, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
FAA SERRAMONTE L, INC. FAA SERRAMONTE, INC.
By:______________________________ By:______________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
82
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner or managing owner
By: /s/ Jean-Marc Chapus
_________________________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_________________________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased:
- -----------------------------------------
$14,417,554 by TCW/Crescent Mezzanine Partners, L.P.
$4,388,476 by TCW/Crescent Mezzanine Trust
$393,970 by TCW/Crescent Mezzanine Investment Partners, L.P.
Number of Common Shares and Preferred Shares to be purchased:
- ------------------------------------------------------------
1,821,418 Common Shares and 2,403 CRPS Shares by TCW/Crescent Mezzanine
Partners, L.P.
554,411 Common Shares and 731 CRPS Shares by TCW/Crescent Mezzanine Trust
49,771 Common Shares and 66 CRPS Shares by TCW/Crescent Mezzanine Investment
Partners, L.P.
Aggregate purchase price of Notes, Common Shares and CRPS Shares to be
purchased: $22,400,000
Fee: $400,000, payable to TCW/Crescent Mezzanine, LLC by wire transfer to Bank
of America, 525 South Flower Street, Los Angeles, California 90071, ABA No.:
121-000-358, Account Name: TCW/Crescent Mezzanine, LLC, Account No.: 1459-1-
05940
Initial Bank Account and Wire Instructions: Address for Notices:
- ------------------------------------------- -------------------
State Street Bank and Trust (Boston) TCW/Crescent Mezzanine, LLC
Corporate Trust Department 11100 Santa Monica Boulevard
Two International Place Suite 2000
Boston, MA 02110 Los Angeles, CA 90025
ABA: 011000028 Attn: Jean-Marc Chapus
DDA: 9903-942-2 Telecopy No.: (310) 235-5967
Account No. Ref.:
with a copy to:
EW0620 TCW/Crescent Mezzanine Partners, L.P.
EW0621 TCW/Crescent Mezzanine Trust State Street Bank and Trust Company
EW0622 TCW/Crescent Mezzanine Investment Securities Processing Department
Partners, L.P. P.O. Box 2136
Attn: Ray Welliver Boston, MA 02106
(617) 664-5482 Telecopy No.: (617) 664-5366
84
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By:________________________________
Name:______________________________
Title:_____________________________
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By:________________________________
Name:______________________________
Title:_____________________________
Principal amount of Notes to be purchased: $3,000,000
Number of RPS Shares to be purchased: 500
Number of Common Shares to be purchased: 379,000
Aggregate purchase price of Notes, RPS Shares and Common Shares to be purchased:
$3,500,000
Fee: $62,500, payable to TCW Leveraged Income Trust, L.P. by wire transfer to
the bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
State Street Bank and Trust (Boston)
Corporate Trust Department
Two International Place
Boston, MA 02110
ABA: 011000028
DDA: 99039422
Account No.: EW0877
Ref:TCW Leveraged Income Trust, L.P.
Attn: Ray Welliver
Telecopy No.: (617) 664-5482
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
as investment manager and attorney
-in-fact
By: /s/ Jean-Marc Chapus
___________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
___________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased: $1,500,000
Number of CRPS Shares to be purchased: 250
Number of Common Shares to be purchased: 189,500
Aggregate purchase price of Notes, CRPS Shares and Common Shares to be
purchased: $1,750,000
Fee: $31,250, payable to Crescent/Mach I Partners, L.P. by wire transfer to the
bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
State Street Bank and Trust (Boston)
Corporate Trust Department
Two International Place
Boston, MA 02110
ABA: 011000028
Account No Ref.: 99001265
Ref: Crescent/MACH I
Attn: Jackie Sweeney
Telecopy No.: (617) 664-5477
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
with a copy to:
Trust Company of the West
200 Park Avenue, Suite 200
New York, NY 10166
Attn: Mark Gold
Telecopy No.: (212) 297-4159
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
_____________________________
Jean-Marc Chapus
Managing Director
By: /s/ John C. Rocchio
_____________________________
John C. Rocchio
Senior Vice President
Principal amount of Notes to be purchased: $300,000
Number of CRPS Shares to be purchased: 50
Number of Common Shares to be purchased: 37,900
Aggregate purchase price of Notes, CRPS Shares and Common Shares to be
purchased: $350,000
Fee: $6,250, payable to TCW Shared Opportunity Fund II, L.P. by wire transfer to
the bank account described below.
Initial Bank Account and Wire Instructions:
- ------------------------------------------
Citibank/NYC/Bear Stearns
111 Wall Street
New York, NY
ABA: 021000089
A/C: Bear Stearns/0925-3186
Account No. Ref.: 102-02730
FBO: TCW Shared Opportunity Fund II, L.P.
Address for Notices:
- -------------------
Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
Annex A-1
---------
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
--------------
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM UNDER THE
SECURITIES ACT, THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
THE TRANSFER OF THIS NOTE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 8, 1997, BY AND AMONG
FIRSTAMERICA AUTOMOTIVE, INC., THE GUARANTORS PARTY THERETO AND THE PURCHASERS
PARTY THERETO.
THIS NOTE WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") WITHIN THE MEANING
---
OF SECTION 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE
DATE OF THIS NOTE IS JULY 8, 1997. INFORMATION REGARDING THE ISSUE PRICE, THE
TOTAL AMOUNT OF OID, AND THE YIELD TO MATURITY MAY BE OBTAINED BY WRITTEN
REQUEST OF THE HOLDER OF THIS NOTE FROM FIRSTAMERICA AUTOMOTIVE, INC.,
ATTENTION: W. BRUCE BERCOVICH, TELEPHONE NO. (415) 357-1200.
PAYMENT ON THIS NOTE IS SUBORDINATED TO THE CLAIMS OF GENERAL ELECTRIC CAPITAL
CORPORATION ("GECC") PURSUANT TO THE TERMS OF THE INTERCREDITOR AND
----
SUBORDINATION AGREEMENT DATED AS OF JULY 2, 1997 AMONG THE PURCHASERS AND GECC.
12_% Senior Note due June 30, 2005
No.____ $_________
FIRSTAMERICA AUTOMOTIVE, INC.
promises to pay to __________________________ or registered assigns, the
principal sum of __________ Dollars ($_________) on June 30, 2005 (the "Maturity
--------
Date") plus accrued and unpaid interest as provided below.
- ----
Interest Payment Dates: January 31, April 30, July 31 and October 31 of each
year; provided, that the first Interest Payment Date shall be October 31, 1997.
Record Dates: 15th day of each calendar month during which each Interest Payment
Date occurs.
Capitalized terms used herein shall have the meanings ascribed to them in
the Agreement (as defined below) unless otherwise indicated.
A-1-1
1. INTEREST. FirstAmerica Automotive, Inc. (the "Company") promises to
-------
pay interest on the principal amount of this Note at 12_% per annum from July 8,
1997 until maturity. The Company will pay interest quarterly on January 31,
April 30, July 31 and October 31 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
----------------
Date"). Interest on the Notes will accrue from the most recent date on which
- ----
interest has been paid or, if no interest has been paid, from the date of
issuance; provided, that the first Interest Payment Date shall be October 31,
1997. The Company shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on all due and unpaid amounts outstanding under
the Notes (including overdue installments of principal, premium, if any, or
interest), from time to time on demand at a rate equal to 14_% per annum,
compounded quarterly, to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes to the
Persons who are registered Holders of Notes at the close of business on the
January 15, April 15, July 15 or October 15 next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Notes will be payable both as to principal and
interest by Federal funds wire transfer of U.S. Legal Tender to each Holder's
account in any bank in the United States as may be designated and specified in
writing by such Holder at least two Business Days prior thereto.
3. SECURITIES PURCHASE AGREEMENT. The Company issued the Notes under the
Securities Purchase Agreement dated as of July 8, 1997 (the "Agreement") by and
---------
among the Company, the Guarantors, and the purchasers party thereto (the
"Purchasers"). The Notes are subject to, and qualified by, all such terms,
- -----------
certain of which are summarized herein, and Holders of Notes are referred to the
Agreement for a statement of such terms. The Notes are general obligations of
the Company. The Notes are limited to $36,000,000 in aggregate principal
amount.
4. REDEMPTION.
(a) The Company may redeem all or any of the Notes, in whole or in part,
at any time, at a redemption price equal to the percentages of the principal
amount thereof set forth below, plus accrued and unpaid interest to the
redemption date, if redeemed during the 12-month period beginning July 1 of the
years indicated below, provided that the Company shall be required to redeem all
outstanding Notes pursuant to this clause (a) if the aggregate principal amount
of the outstanding Notes is less than $2,000,000.
Year Redemption Prices
--- ------------------
1997 110.000%
1998 108.750
1999 107.500
2000 106.250
2001 105.000
2002 103.750
2003 102.500
2004 101.250
(b) If there is a Company IPO, the Company may, within 45 days of the
consummation of such
A-1-2
Company IPO, redeem up to 100% of the then outstanding Notes at a redemption
price equal to the percentages of the principal amount thereof set forth below,
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning July 1 of the years indicated below:
Year Redemption Price
---- -----------------
1997 105.000%
1998 104.375
1999 103.750
2000 103.125
2001 102.500
2002 101.875
2003 101.250
2004 100.625
(c) On July 1, 2003 and on July 1, 2004, the Company shall redeem Notes in
an aggregate principal amount equal to the lesser of (a) 30% of the aggregate
principal amount of Notes issued and (b) the aggregate amount of issued and
outstanding Notes on such date, at a redemption price equal to the aggregate
principal amount thereof plus accrued and unpaid interest on such Notes to the
redemption date. On June 30, 2005 the Company shall redeem all issued and
outstanding Notes, at a redemption price equal to the aggregate principal amount
thereof plus accrued and unpaid interest on such Notes to the redemption date.
5. OFFERS TO REPURCHASE. Following the occurrence of any Change of
Control, the Company will be required to offer to purchase all outstanding Notes
upon the terms set forth in the Agreement. Following the occurrence of an Asset
Sale, the Company will be required to apply the Excess Net Proceeds therefrom to
an offer to purchase outstanding Notes upon the terms set forth in the
Agreement.
6. NOTICE OF REDEMPTION. Notice of redemption pursuant to Section 4(a)
and 4(c) hereof shall be mailed at least 30 days but not more than 60 days
before a Redemption Date by first class mail to each Holder whose Notes are to
be redeemed at such Holder's registered address. Notice of redemption pursuant
to Section 4(b) hereof shall be mailed within 10 days of such Company IPO by
first class mail to each Holder whose Notes are to be redeemed at such Holder's
registered address. Notes in denominations larger than $1,000 may be redeemed
in part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder are to be redeemed. If, on or prior to the Redemption Date, the Company
deposits in a segregated account or otherwise sets aside funds sufficient to pay
the Redemption Price of the Notes called for redemption, then, on and after the
Redemption Date, interest ceases to accrue on Notes or portions thereof called
for redemption, unless the Company defaults in paying the redemption price.
7. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are without coupons in
the principal amount of $1,000 or integral multiples of $1,000 in excess
thereof. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Agreement. The Company may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Agreement. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period
A-1-3
between a record date and the corresponding Interest Payment Date.
8. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
9. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Agreement
and the Notes may be amended or supplemented and any existing Default or Event
of Default under, or compliance with any provision of, the Agreement may be
waived with the written consent of the Holders of at least a majority in
aggregate principal amount of the outstanding Notes.
10. DEFAULTS AND REMEDIES. An Event of Default is, in general: default
in the payment of the principal or premium, if any, of any Note; default in the
payment of interest on any Note for a period of five Business Days; failure by
the Company for 30 days after notice to it to comply with provisions of the
Agreement or the Notes or, in the case of the failure to comply with certain
specified covenants, without such notice; if any of the representations or
warranties of the Company made in or in connection with the Agreement (including
those representations and warranties incorporated by reference therein) are
untrue in any respect, the result of which could reasonably be expected to have
a Material Adverse Effect; certain defaults under and/or acceleration prior to
maturity of certain other indebtedness of the Company; certain final judgments
which remain undischarged after notice; certain events of bankruptcy or
insolvency; certain occurrences with respect to Franchise Agreements or
governmental licenses, certificates or permits; if any Subsidiary Guaranty shall
for any reason cease to be, or be asserted in writing by any responsible officer
of any Subsidiary of the Company or the Company not to be, in full force and
effect or enforceable in accordance with its terms; or the failure by the
Company to make any payment on the Preferred Stock within 5 Business Days of
when due. If an Event of Default occurs and is continuing, the Holders of at
least a majority in aggregate principal amount (or, in certain circumstances, a
lesser amount) of the then outstanding Notes may declare all the Notes to be due
and payable immediately. The Company is obligated to furnish a quarterly
compliance certificate to the Holders.
11. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder of the Company, as such, shall not have any liability for any
obligations of the Company under the Notes or the Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
12. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
13. GOVERNING LAW; SUBMISSION TO JURISDICTION.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, EACH OF THE COMPANY AND EACH GUARANTOR HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA STATE COURT SITTING IN THE CITY OF
LOS ANGELES OR ANY FEDERAL COURT SITTING IN THE CITY OF LOS ANGELES IN RESPECT
A-1-4
OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY AND EACH
GUARANTOR IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY HOLDER OF THIS NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEEDING
AGAINST THE COMPANY OR ANY GUARANTOR IN ANY OTHER JURISDICTION.
The Company will furnish to any Holder upon written request and without
charge a copy of the Agreement. Requests may be made to FirstAmerica
Automotive, Inc., c/o Kay & Merkle, Penthouse, 100 The Embarcadero, San
Francisco, California 94105, Attention: W. Bruce Bercovich, Telecopy No. (415)
412-9277.
FIRSTAMERICA AUTOMOTIVE, INC.
By:____________________________
Name:__________________________
Title:_________________________
Date: ______________
A-1-5
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
____________________________________________
________________________________________________________________________________
(Insert assignee's Soc. Sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint
_______________________________________________________________
to transfer this Note on the books of the Issuer. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: _______________________________
Your Signature:___________________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee
A-1-6
OPTION OF HOLDER TO ELECT PURCHASE
Check the applicable box:
[_] If you want to elect to have this Note purchased by the Company pursuant to
Section 5.8 of the Agreement (Asset Sale Offer), state the amount you elect
to have purchased: $__________.
[_] If you want to elect to have this Note purchased by the Company pursuant to
Section 5.11 of the Agreement (Change of Control Offer), state the amount
you elect to have purchased: $_________.
Date:______________________
Your Signature:_______________________________________
(Sign exactly as your name appears on the
Note)
Tax Identification No.:______________
Signature Guarantee
By:_____________________________________________
(Bank or trust company having an office or
correspondent in the United States of
America or a broker or dealer which is a
member of a registered securities exchange
or the National Association of Securities
Dealers, Inc.)
A-1-7
Annex A-2
---------
FORM OF GUARANTY
----------------
For value received, _________________, [a _________________
corporation], hereby unconditionally guarantees to the Holder of the Note upon
which this Guaranty is endorsed (a) the due and punctual payment, on the basis
set forth in the Agreement pursuant to which such Note and this Guaranty were
issued, of the principal of, premium (if any) and interest on such Note when and
as the same shall become due and payable for any reason according to the terms
of such Note and Section 10 of the Agreement, and (b) that all other obligations
of the Company under the Agreement or the Notes will be promptly paid in full or
performed in accordance with the terms of the Agreement and the Notes.
[NAME OF GUARANTOR]
By:_____________________________
Name:___________________________
Title:__________________________
Attest:____________________
A-2-1
Annex B-1
---------
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
8% Cumulative Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
-----------
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated 8% Cumulative Redeemable Preferred
Stock due 2005 (the "CRPS"), to consist of 3,500 shares, par value $0.00001 per
----
share, which may be issued only as whole shares, of which the preferences and
relative and other rights, and the qualifications, limitations or restrictions
thereof, shall be (in addition to those set forth in the Corporation's
Certificate of Incorporation, as amended) as set forth below.
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph l shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
------------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations or
--------------
other equivalents (however designated) of corporate stock, including
without limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
-----------------
substantially all of the Corporation's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Corporation, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Corporation representing a majority (more than
50%) of the aggregate Voting Power of the outstanding Voting Securities of
the Corporation, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Corporation IPO, as the result of which
(A) Permitted Holders do not own (and have the exclusive power to vote with
B-1-1
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation, (B) any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with respect to),
directly or indirectly, Voting Securities representing more of the
aggregate Voting Power of the outstanding Voting Securities of the
Corporation than Permitted Holders or (C) Permitted Holders do not own
Equity Interests of the Corporation representing at least eighty-five
percent (85%) of the Equity Interests of the Corporation that are owned by
the Permitted Holders on the Closing Date (including any Equity Interests
of the Corporation issued in respect thereof after the Closing Date
pursuant to a stock dividend, a stock split, recapitalization or
otherwise), (v) any transaction occurring after a Corporation IPO, as the
result of which (A) any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) owns, directly or indirectly, Voting
Securities representing more of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation than Permitted Holders, or
(B) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least twenty percent (20%) of the aggregate Voting Power of the outstanding
Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity
Interests of the Corporation that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Corporation issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Corporation owns (or has the exclusive power to vote
with respect to), directly or indirectly, less than 100% of the Capital
Stock of its Subsidiaries or (vii) the replacement of a majority of the
Board of Directors over a two-year period from the directors who
constituted the Board of Directors at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any
-------------
class of common stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
that has the right (subject always to prior rights of any class or series
of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
------------
"Corporation IPO" means the first sale to the public of Capital Stock
---------------
of the Corporation pursuant to a registration statement under the
Securities Act with a public offering price of at least $50,000,000
pursuant to a registration statement under the Securities Act, which shall
result in the listing of such Capital Stock on the New York Stock Exchange
or the American Stock Exchange or the quotation of such Capital Stock on
the Nasdaq National Market.
"Dividend Payment Date" has the meaning given to such term in
---------------------
subparagraph 2(b) below.
"Dividend Period" has the meaning given to such term in subparagraph
---------------
2(c) below.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock
(but excluding any debt security which is convertible into, or exchangeable
or exercisable for, Capital Stock) and (ii) with respect to a partnership,
limited liability company or similar Person, any and all units, interests,
rights to
B-1-2
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Initial Issue Date" means the date on which shares of CRPS are first
------------------
issued.
"Junior Stock" means Common Equity and any class or series of stock of
------------
the Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable certificate of designation
does not expressly provide that such class or series is entitled to receive
(a) any dividends on a parity with or senior to the CRPS and (b) any assets
upon liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with or senior to the CRPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Corporation or in
New York are not required to be open.
"Liquidation Preference" means with respect to each share of CRPS,
----------------------
$l,000.
"Parity Stock" means the RPS and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable Certificate of Designation
expressly provides that such class or series is entitled to receive (a)
payment of dividends on a parity with the CRPS or (b) assets upon
liquidation, dissolution or winding up of the affairs of the Corporation on
a parity with the CRPS; provided that any such securities (other than the
RPS) that were not approved by the holders of the CRPS in accordance with
this Certificate of Designation shall be deemed to be Junior Stock and not
Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which
any of the spouse, siblings, lineal descendants or parents of either of Mr.
Price or Mr. Strough is the beneficiary; provided that Mr. Price or Mr.
Strough retains sole Voting Power with respect to the securities held by
such trustee in such trust, unless such trust was established pursuant to
and in conformity with Section 4.4(c) of the Stockholders' Agreement dated
as of July 8, 1997 among the Company and its stockholders.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means the CRPS and the RPS.
---------------
"Purchase Agreement" means that certain Securities Purchase Agreement,
------------------
dated as of July 8, 1997, by and among the Corporation, certain
Subsidiaries of the Corporation and the purchasers identified on the
signature pages thereto, relating to the issuance and sale by the
Corporation of its 12_% Senior Notes due June 30, 2005, shares of CRPS,
shares of RPS and shares of Common Stock, as such agreement may be amended
from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
-----------
below.
B-1-3
"RPS" means the Redeemable Preferred Stock due 2005 of the
---
Corporation.
"SEC" means the Securities and Exchange Commission and any government
---
agency succeeding to its functions.
"Securities Act" means the Securities Act of 1933, as amended, and all
--------------
rules and regulations promulgated by the SEC thereunder.
"Semiannual Dividend Period" has the meaning given to such term in
--------------------------
subparagraph 2(c) below.
"Senior Stock" means any class or series of stock of the Corporation
------------
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides
that such class or series ranks senior to the CRPS in respect of the right
to receive dividends or senior to the CRPS in respect of the right to
participate in any distribution upon liquidation, dissolution or winding up
of the affairs of the Corporation; provided that any such securities that
were not approved by the holders of CRPS in accordance with this
Certificate of Designation shall be deemed to be Junior Stock and not
Senior Stock.
"share" means a whole share of CRPS.
-----
"Subsidiary" means, with respect to any Person, (i) a corporation, a
----------
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is, at the date of determination,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person or (ii) a partnership in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but, in the case of a limited partner, only if such
Person or its Subsidiary is entitled to receive more than 50% of the assets
of such partnership upon its dissolution, or (iii) any limited liability
company or any other Person (other than a corporation or a partnership) in
which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination, has (a) at least a majority ownership interest or (b) the
power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination,
the general voting power ("Voting Power") under ordinary circumstances to
------------
vote for the election of directors, managers, trustees or general partners
of such Person (regardless of whether at such time any other class or
classes will have or might have voting power by reason of the happening of
any contingency).
2. Dividends.
---------
(a) The record holders of CRPS shall be entitled to receive, when and
as declared by the Board of Directors, out of funds of the Corporation
legally available therefor, cash dividends on
B-1-4
the CRPS, at an annual rate equal to 8% of the Liquidation Preference
(equivalent to $80.00 per annum per share of CRPS); provided, however, that
if any such dividends are not paid in full on any Dividend Payment Date,
regardless of whether they have been declared by the Board of Directors, or
any such dividends or the redemption price is not paid in full on the
Mandatory Redemption Date, then cash dividends on the CRPS shall accrue and
be cumulative at an annual rate of 14% of the Liquidation Preference
(equivalent to $140.00 per annum per share of CRPS), from the beginning of
the Semiannual Dividend Period with respect to which such dividends would
have been payable had they been declared by the Board of Directors through
and including the date on which all such dividends or redemption price, as
the case may be, have been paid in full.
(b) Dividends shall accrue and be cumulative as to any share of CRPS
from the date on which such share is first issued. Dividends on the CRPS
shall be payable in arrears, regardless of whether declared by the Board of
Directors, on May 31 and November 30 of each year (a "Dividend Payment
----------------
Date"), commencing on November 30, 1997. Dividends shall be paid to the
holders of record of the CRPS as their names shall appear on the share
register of the Corporation on the Record Date for such dividend.
Dividends on the CRPS payable in any Dividend Period that is less than a
full Semiannual Dividend Period in length will be computed on the basis of
a 360-day year comprised of twelve 30-day months. Dividends on the CRPS on
account of arrears for any past Dividend Periods may be declared and paid
at any time to holders of record on the Record Date for such dividend on
account of arrears.
(c) As used herein, the following terms shall have the respective
meanings set forth below:
(i) "Dividend Period" means as to any share of CRPS the initial
---------------
period from its date on which such share is first issued through and
including the next Dividend Payment Date or any Semiannual Dividend
Period thereafter, as the case may be;
(ii) "Semiannual Dividend Period" means each of the periods
--------------------------
commencing on June 1 and December 1 in each year and ending on (and
including) the day next preceding the first day of the next Semiannual
Dividend Period; and
(iii) "Record Date" means with respect to the dividend payable
-----------
on May 31 or November 30 of each year, the preceding May 15 or
November 15, respectively, or such other date as may be designated by
the Board of Directors with respect to the dividend payable on such
respective Dividend Payment Date.
(d) So long as any shares of CRPS shall be outstanding, the
Corporation shall not declare or pay or set apart for payment any dividends
or make any other distributions on, or make payment on account of the
purchase, redemption or other retirement of, any Junior Stock, whether in
cash, property or otherwise (other than dividends or distributions payable
in shares of the class or series upon which such dividends or distributions
are declared or paid, or payable in shares of Common Stock with respect to
Junior Stock other than Common Stock, together with cash in lieu of
fractional shares), nor shall the Corporation make any distribution on any
Junior Stock, nor shall any Junior Stock be purchased or redeemed or
otherwise acquired by the Corporation or any of its Subsidiaries, nor shall
any monies be paid or made available for a sinking fund for the purchase or
B-1-5
redemption of any Junior Stock, unless with respect to all of the foregoing
all dividends to which the holders of CRPS shall have been entitled for all
previous Dividend Periods, regardless of whether declared by the Board of
Directors, shall have been paid or declared and a sum of money sufficient
for payment thereof have been set apart.
(e) In the event that full dividends are not paid or made available
to the holders of all outstanding shares of CRPS and of any Parity Stock
and funds available for payment of dividends shall be insufficient to
permit payment in full to holders of all such stock of the full
preferential amounts to which they are then entitled, then the entire
amount available for payment of dividends shall be distributed ratably
among all such holders of CRPS and of any Parity Stock in proportion to the
full amount to which they would otherwise be respectively entitled.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) If the Corporation or any Subsidiary of the Corporation shall
commence a voluntary case under the United States bankruptcy laws or any
applicable bankruptcy, insolvency or similar law of any other country, or
consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or such Subsidiary or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Corporation or such Subsidiary shall
be entered by a court having jurisdiction in the premises in an involuntary
case under the United States bankruptcy laws or any applicable bankruptcy,
insolvency or similar law of any other country, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or such Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs,
and on account of any such event the Corporation or such Subsidiary shall
liquidate, dissolve or wind up, or if the Corporation or such Subsidiary
shall otherwise liquidate, dissolve or wind up, then no distribution shall
be made to the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of CRPS shall have received the Liquidation Preference
per share of CRPS plus all dividends accumulated and unpaid thereon
(regardless of whether earned or declared) to the date of such liquidation
or dissolution or such other winding up.
(b) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation the assets of the Corporation shall be
insufficient to permit the payment in full of the amount payable pursuant
to clause (a) of this Section 3 and the full liquidating payments on all
Parity Stock, then the assets of the Corporation shall be ratably
distributed among the holders of CRPS and of any Parity Stock in proportion
to the full amounts to which they would otherwise be respectively entitled
if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage pre-paid, not less
than 30 nor more than 60 days' prior to the payment date stated therein, to
each record holder of the shares of CRPS at the respective addresses of
such holders as the same shall appear on the stock transfer records of the
Corporation.
B-1-6
(d) Neither the consolidation or merger of the Corporation into or
with another corporation or corporations, nor the sale of all or
substantially all of the assets of the Corporation to another corporation
or any other entity shall be deemed a liquidation, dissolution or winding
up of the affairs of the Corporation within the meaning of this paragraph
3.
4. Optional Redemption.
-------------------
(a) All the CRPS, or any part thereof, at any time outstanding, may
be redeemed by the Corporation, at any time or from time to time at its
election expressed by resolution of the Board of Directors upon not less
than 30 nor more than 60 days' previous notice to the holders of record of
the CRPS to be redeemed, given by registered or certified mail, postage
prepaid, at the redemption prices per share (expressed in percentages of
the Liquidation Preference) set forth below during the 12-month periods
beginning on June 30 of the years shown below, in each case plus
accumulated and unpaid dividends to the date fixed for redemption,
regardless of whether declared by the Board of Directors.
Year Percentage
---- ----------
1997........................ 110.000%
1998........................ 108.750
1999........................ 107.500
2000........................ 106.250
2001........................ 105.000
2002........................ 103.750
2003........................ 102.500
2004........................ 101.250
2005........................ 100.000
(b) Any notice of redemption mailed to a holder of CRPS at his address
as the same appears on the books of the Corporation shall be conclusively
presumed to have been given regardless of whether the holder receives the
notice. Each such notice shall state the redemption date; the number of
shares of CRPS to be redeemed, and, if less than all shares of the CRPS
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder and the fact that a new certificate or
certificates representing any unredeemed shares shall be issued without
cost to such holder; and that the redemption price applicable to the shares
to be redeemed shall cease to accrue and accumulate on the redemption date.
No defect in any such notice as to any shares of CRPS shall affect the
validity of the proceedings for the redemption of any other shares of CRPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of CRPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect to the shares of CRPS and any
Parity Stock which shall not be so redeemed or purchased have either been
paid or set aside for payment.
(d) If less than all of the outstanding shares of CRPS are to be
redeemed, the shares to
B-1-7
be redeemed will be determined pro rata, except that the Corporation may
redeem such shares held by any holders of fewer than 10 shares (or shares
held by holders who would hold less than 10 shares as a result of such
redemption), as may be determined by the Corporation.
(e) Any shares of CRPS called for redemption pursuant to this
paragraph 4 shall not be deemed to be outstanding for the purposes of
voting, determining the total number of shares entitled to vote, or payment
of dividends thereon on or after the redemption date set forth in the
notice of redemption mailed to the holders thereof, unless the Corporation
fails to pay the redemption price to the holders of such shares on such
date.
5. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem for cash all of the shares of the
CRPS then outstanding on June 30, 2005 (the "Mandatory Redemption Date"),
-------------------------
at a redemption price equal to the Liquidation Preference per share plus
accumulated and unpaid dividends to such date, regardless of whether
declared by the Board of Directors. The Corporation shall send a written
notice of redemption by first class mail to each holder of record of a
share of CRPS, not fewer than 30 days nor more than 60 days prior to the
Mandatory Redemption Date. Notice shall be given pursuant to paragraph
4(b) hereof.
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of CRPS under this paragraph 5), dividends on the
shares of CRPS shall cease to accrue, and said shares shall no longer be
deemed to be outstanding.
6. Voting Rights.
-------------
(a) The holders of the issued and outstanding shares of CRPS shall
have no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of
at least two-thirds of the votes entitled to be cast by the
outstanding shares of CRPS, voting as a single class, the Corporation
may not amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the CRPS or of the
holders of the shares of CRPS; and
(ii) Without the affirmative vote or consent of the holders of
at least a majority of the votes entitled to be cast by the
outstanding shares of Preferred Stock, voting together as a single
class:
(A) the Corporation may not create any class of Parity
Stock or Senior Stock or issue any additional shares of Preferred
Stock; and
B-1-8
(B) the Corporation may not enter into any transaction
which violates, or otherwise violate, any of the covenants of the
Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31, and
5.32 of the Purchase Agreement.
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
--------------
capital account for the CRPS an amount equal to the Liquidation Preference of
the CRPS and shall not allow any reduction in the amount of stated capital for
such CRPS except to the extent shares of CRPS are redeemed in accordance with
the terms hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
-------------------------
the shares of CRPS shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation of the Corporation, as amended. The shares of CRPS
shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
--------------------------
the CRPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of CRPS which have been issued and
---------------------------
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesignated and issued or reissued as the case may be, as part of
any series of preferred stock of the Corporation; except that such shares may
not be reissued or sold as shares of CRPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
--------------------------------
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
-----------------
(a) In the event that there is a Change of Control (the date of such
Change of Control being the "Trigger Date"), the Corporation shall promptly
------------
notify the holders of the CRPS in writing
B-1-9
of such occurrence and shall make an offer to redeem (the "Change of
---------
Control Offer") all the shares of CRPS then outstanding at a purchase price
-------------
per share equal to 101% of the Liquidation Preference for each outstanding
share of CRPS, plus accumulated and unpaid dividends thereon to and
including the Change of Control Payment Date (as defined below).
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the CRPS at their addresses as they appear on the
books of the Corporation. The Change of Control Offer shall remain open
from the time of mailing until the Change of Control Payment Date. The
notice shall contain all instructions and materials necessary to enable
such holders to tender shares of CRPS pursuant to the Change of Control
Offer. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to
this paragraph 13, and that all shares of CRPS will be accepted for
payment;
(iii) the purchase price for the CRPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
------------------------------
(iv) that any shares of CRPS not tendered will continue to
accumulate dividends;
(v) that, unless the Corporation defaults in the payment of
the Change of Control Payment, any shares of CRPS accepted for
redemption pursuant to the Change of Control Offer shall cease to
accumulate dividends on and after the Change of Control Payment Date;
(vi) that holders of CRPS electing to have a share of CRPS
redeemed pursuant to a Change of Control Offer will be required to
surrender the share of CRPS to the paying agent at the address
specified in the notice (the "Paying Agent") prior to close of
------------
business on the third Business Day preceding the Change of Control
Payment Date;
(vii) that holders of CRPS will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder of CRPS, the number of shares of
CRPS delivered for redemption and a statement that such holder is
withdrawing his or her election to have such shares of CRPS redeemed;
and
(viii) that a holder of CRPS who does not accept in writing the
Corporation's offer to redeem the shares of CRPS
held by such holder by submitting the shares of CRPS
B-1-10
shall be deemed to have declined to have its shares of CRPS so
redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to
the extent lawful, (i) accept for payment shares of CRPS tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent money
sufficient to pay the redemption price of all shares of CRPS so tendered.
The Corporation will notify the remaining holders of CRPS of the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
14. Board of Directors.
------------------
(a) In the event that (i) dividends on the CRPS are in arrears and
unpaid for two or more consecutive Semiannual Dividend Periods, regardless
of whether declared by the Board of Directors, or (ii) the Corporation
shall have failed to discharge its obligations to mandatorily redeem all of
the outstanding Preferred Stock at the price and time required by paragraph
5 (the occurrence of either such event, a "Trigger Event"), then, and in
-------------
any such event, the holders of the Preferred Stock, voting separately as a
class, shall be entitled, at the next annual meeting of the stockholders or
at any special meeting, to elect one member of the Board of Directors.
Upon election, such director shall become a member of the Board of
Directors and the authorized number of members of the Board of Director
shall thereupon be automatically increased by one. Such right of the
holders of Preferred Stock to elect such director may be exercised until,
as applicable, (i) all dividends to which the holders of CRPS shall have
been entitled for all previous Dividend Periods, regardless of whether
declared by the Board of Directors, shall have been paid in full, and
dividends for the current Dividend Period declared and a sum of money
sufficient for the payment thereof have been set apart for payment or (ii)
the Corporation fulfills its obligation to redeem all the remaining
outstanding shares of Preferred Stock under paragraph 5 hereof, and when
such events occur, the right of the holders of Preferred Stock to elect
such director shall cease, the term of such director previously elected
shall thereupon terminate, and the authorized number of members of the
Board of Directors shall thereupon return to the number of authorized
directors otherwise in effect, but subject always to the same provisions
for the renewal and divestment of such special voting rights in the case of
any such future default or defaults specified herein. The fact that
dividends have been paid and set apart as required by the preceding
sentence shall be evidenced by a certificate executed by the President and
the Chief Financial Officer of the Corporation and delivered to the Board
of Directors. In the event a member of the Board of Directors is elected
due to a nonpayment of dividends as set forth herein, the director so
elected by holders of the Preferred Stock shall serve until the certificate
described in the preceding sentence shall have been delivered to the Board
of Directors or until their respective successors shall be elected or
appointed.
(b) At any time when such special voting rights have been so vested in
the holders of the Preferred Stock, the Secretary of the Corporation may,
and upon the written request of the holders of record of a majority of the
number of shares of the Preferred Stock then outstanding addressed to such
Secretary at the principal office of the Corporation shall, call a special
meeting of the holders of the Preferred Stock for the election of the
directors to be elected by them as hereinabove provided, to be held in the
case of such written request within 40 days after delivery of such request,
and in either case to be held at the place and upon the notice provided by
law and in the Corporation's Bylaws for the holding of meetings of
stockholders; provided, however, that the
B-1-11
Secretary shall not be required to call such a special meeting if any such
request is received less than 90 days before the date fixed for the next
ensuing annual or special meeting of stockholders.
(c) The Board of Directors may not, except to satisfy the provisions
of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors elected
pursuant to this paragraph 14 for all reasonable expenses incurred by such
directors in connection with their attendance at meetings of the Board of
Directors and any committees thereof.
15. Rank. The CRPS shall, with respect to dividend distributions and
----
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preference and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on July 7, 1997.
FIRSTAMERICA AUTOMOTIVE, INC.
By:__________________________
Thomas A. Price
President
Attest:
___________________________
W. Bruce Bercovich
Secretary
B-1-12
Annex B-2
---------
FirstAmerica Automotive, Inc.
Certificate of Designation of Preferences
of
Redeemable Preferred Stock due 2005
The undersigned does hereby certify that the following resolution was
duly adopted by the board of directors of FirstAmerica Automotive, Inc., a
Delaware corporation (the "Corporation"), pursuant to a unanimous written
-----------
consent dated as of July 7, 1997.
RESOLVED, that pursuant to the authority vested in the board of
directors of the Corporation by the Corporation's Certificate of Incorporation,
as amended, a series of preferred stock of the Corporation be, and it hereby is,
created out of the authorized but unissued shares of the capital stock of the
Corporation, such series to be designated Redeemable Preferred Stock due 2005
(the "RPS"), to consist of 500 shares, par value $0.00001 per share, which may
---
be issued only as whole shares, of which the preferences and relative and other
rights, and the qualifications, limitations or restrictions thereof, shall be
(in addition to those set forth in the Corporation's Certificate of
Incorporation, as amended) as set forth below.
1. Certain Definitions.
-------------------
Unless the context otherwise requires, the terms defined in this
paragraph l shall have, for all purposes of this resolution, the meanings herein
specified.
"Board of Directors" means the board of directors of the Corporation.
------------------
"Business Day" means any day which is not a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests, participations or
--------------
other equivalents (however designated) of corporate stock, including
without limitation all common stock and preferred stock.
"Change of Control" means (i) the sale, lease or transfer of all or
-----------------
substantially all of the Corporation's assets to any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), (ii) the
liquidation or dissolution of the Corporation, (iii) the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than a Permitted Holder) of a direct or indirect interest in
Voting Securities of the Corporation representing a majority (more than
50%) of the aggregate Voting Power of the outstanding Voting Securities of
the Corporation, by way of merger or consolidation or otherwise, (iv) any
transaction occurring prior to a Corporation IPO, as the result of which
(A) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least thirty-five percent (35%) of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation, (B) any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act) (other than
Permitted Holders) owns (or has the power to vote with
B-2-1
respect to), directly or indirectly, Voting Securities representing more of
the aggregate Voting Power of the outstanding Voting Securities of the
Corporation than Permitted Holders or (C) Permitted Holders do not own
Equity Interests of the Corporation representing at least eighty-five
percent (85%) of the Equity Interests of the Corporation that are owned by
the Permitted Holders on the Closing Date (including any Equity Interests
of the Corporation issued in respect thereof after the Closing Date
pursuant to a stock dividend, a stock split, recapitalization or
otherwise), (v) any transaction occurring after a Corporation IPO, as the
result of which (A) any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) owns, directly or indirectly, Voting
Securities representing more of the aggregate Voting Power of the
outstanding Voting Securities of the Corporation than Permitted Holders, or
(B) Permitted Holders do not own (and have the exclusive power to vote with
respect to), directly or indirectly, Voting Securities representing at
least twenty percent (20%) of the aggregate Voting Power of the outstanding
Voting Securities of the Corporation and Equity Interests of the
Corporation representing at least fifty percent (50%) of the Equity
Interests of the Corporation that are owned by the Permitted Holders on the
Closing Date (including any Equity Interests of the Corporation issued in
respect thereof after the Closing Date pursuant to a stock dividend, a
stock split, recapitalization or otherwise), (vi) any transaction, as the
result of which the Corporation owns (or has the exclusive power to vote
with respect to), directly or indirectly, less than 100% of the Capital
Stock of its Subsidiaries or (vii) the replacement of a majority of the
Board of Directors over a two-year period from the directors who
constituted the Board of Directors at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors then still in office who either were
members of such Board of Directors at the beginning of such period or whose
election as a member of such Board of Directors was previously so approved.
"Common Equity" means all shares now or hereafter authorized of any
-------------
class of common stock of the Corporation and any other stock of the
Corporation, howsoever designated, authorized after the Initial Issue Date,
that has the right (subject always to prior rights of any class or series
of preferred stock) to participate in the distribution of the assets and
earnings of the Corporation without limit as to per share amount.
"Common Stock" means all classes of common stock of the Corporation.
------------
"Corporation IPO" means the first sale to the public of Capital Stock
---------------
of the Corporation pursuant to a registration statement under the
Securities Act with a public offering price of at least $50,000,000
pursuant to a registration statement under the Securities Act, which shall
result in the listing of such Capital Stock on the New York Stock Exchange
or the American Stock Exchange or the quotation of such Capital Stock on
the Nasdaq National Market.
"CRPS" means the 8% Cumulative Redeemable Preferred Stock due 2005 of
----
the Corporation.
"Equity Interest" means (i) with respect to a corporation, any and all
---------------
Capital Stock or warrants, options or other rights to acquire Capital Stock
(but excluding any debt security which is convertible into, or exchangeable
or exercisable for, Capital Stock) and (ii) with respect to a partnership,
limited liability company or similar Person, any and all units, interests,
rights to purchase, warrants, options or other equivalents of, or other
ownership interests in any such Person.
B-2-2
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
from time to time, and any successor statute or law thereto.
"Initial Issue Date" means the date on which shares of RPS are first
------------------
issued.
"Junior Stock" means Common Equity and any class or series of stock of
-------------
the Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable certificate of designation
does not expressly provide that such class or series is entitled to receive
any assets upon liquidation, dissolution or winding up of the affairs of
the Corporation on a parity with or senior to the RPS.
"Legal Holiday" means a Saturday, Sunday or day on which banks and
-------------
trust companies in the principal place of business of the Corporation or in
New York are not required to be open.
"Liquidation Preference" means with respect to each share of RPS, on
-----------------------
any date after the Initial Issue Date as of which the Liquidation
Preference of the RPS is being calculated (the "Calculation Date"), the
----------------
amount shown in the table below corresponding to the 12-month period
beginning on June 30 of a year shown below in which the Calculation Date
occurs.
Year Liquidation Preference
---- ----------------------
1997 $1080
1998 1160
1999 1240
2000 1320
2001 1400
2002 1480
2003 1560
2004 1640
2005 1720
"Parity Stock" means the CRPS and any class or series of stock of the
------------
Corporation authorized after the Initial Issue Date for which the
Certificate of Incorporation or the applicable Certificate of Designation
expressly provides that such class or series is entitled to receive assets
upon liquidation, dissolution or winding up of the affairs of the
Corporation on a parity with the RPS; provided that any such securities
(other than the CRPS) that were not approved by the holders of the RPS in
accordance with this Certificate of Designation shall be deemed to be
Junior Stock and not Parity Stock.
"Permitted Holders" means Thomas A. Price and Donald V. Strough,
-----------------
collectively or any trustee in its capacity as trustee of a trust of which
any of the spouse, siblings, lineal descendants or
B-2-3
parents of either of Mr. Price or Mr. Strough is the beneficiary; provided
that Mr. Price or Mr. Strough retains sole Voting Power with respect to the
securities held by such trustee in such trust, unless such trust was
established pursuant to and in conformity with Section 4.4(c) of the
Stockholders' Agreement dated as of July 8, 1997 among the Company and its
stockholders.
"Person" means any individual, corporation, partnership, limited
------
liability company, joint venture, association, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means the CRPS and the RPS.
---------------
"Purchase Agreement" means that certain Securities Purchase Agreement,
------------------
dated as of July 8, 1997, by and among the Corporation, certain
Subsidiaries of the Corporation and the purchasers identified on the
signature pages thereto, relating to the issuance and sale by the
Corporation of its 12_% Senior Notes due June 30, 2005, shares of CRPS,
shares of RPS and shares of Common Stock, as such agreement may be amended
from time to time.
"Record Date" has the meaning given to such term in subparagraph 2(c)
-----------
below.
"SEC" means the Securities and Exchange Commission and any government
---
agency succeeding to its functions.
"Securities Act" means the Securities Act of 1933, as amended, and all
--------------
rules and regulations promulgated by the SEC thereunder.
"Senior Stock" means any class or series of stock of the Corporation
------------
authorized after the Initial Issue Date for which the Certificate of
Incorporation or applicable Certificate of Designation expressly provides
that such class or series ranks senior to the RPS in respect of the right
to participate in any distribution upon liquidation, dissolution or winding
up of the affairs of the Corporation; provided that any such securities
that were not approved by the holders of RPS in accordance with this
Certificate of Designation shall be deemed to be Junior Stock and not
Senior Stock.
"share" means a whole share of RPS.
-----
"Subsidiary" means, with respect to any Person, (i) a corporation, a
----------
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is, at the date of determination,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person or (ii) a partnership in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but, in the case of a limited partner, only if such
Person or its Subsidiary is entitled to receive more than 50% of the assets
of such partnership upon its dissolution, or (iii) any limited liability
company or any other Person (other than a corporation or a partnership) in
which such Person, a Subsidiary of such Person or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination, has (a) at least a majority ownership interest or (b) the
power to elect or direct the election of a majority of the
B-2-4
directors or other governing body of such Person.
"Voting Securities" means any class of Equity Interests of a Person
-----------------
pursuant to which the holders thereof have, at the time of determination,
the general voting power ("Voting Power") under ordinary circumstances to
------------
vote for the election of directors, managers, trustees or general partners
of such Person (regardless of whether at such time any other class or
classes will have or might have voting power by reason of the happening of
any contingency).
2. Dividends.
---------
The holders of RPS shall not be entitled to receive any dividends on
the RPS.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
---------------------------------------------------------
(a) If the Corporation or any Subsidiary of the Corporation shall
commence a voluntary case under the United States bankruptcy laws or any
applicable bankruptcy, insolvency or similar law of any other country, or
consent to the entry of an order for relief in an involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the
Corporation or such Subsidiary or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Corporation or such Subsidiary shall
be entered by a court having jurisdiction in the premises in an involuntary
case under the United States bankruptcy laws or any applicable bankruptcy,
insolvency or similar law of any other country, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or such Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its affairs,
and on account of any such event the Corporation or such Subsidiary shall
liquidate, dissolve or wind up, or if the Corporation or such Subsidiary
shall otherwise liquidate, dissolve or wind up, then no distribution shall
be made to the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of RPS shall have received the Liquidation Preference per
share of RPS.
(b) If, upon any such liquidation, dissolution or other winding up of
the affairs of the Corporation the assets of the Corporation shall be
insufficient to permit the payment in full of the amount payable pursuant
to clause (a) of this Section 3 and the full liquidating payments on all
Parity Stock, then the assets of the Corporation shall be ratably
distributed among the holders of RPS and of any Parity Stock in proportion
to the full amounts to which they would otherwise be respectively entitled
if all amounts thereon were paid in full.
(c) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place
or places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage pre-paid, not less
than 30 nor more than 60 days' prior to the payment date stated therein, to
each record holder of the shares of RPS at the respective addresses of such
holders as the same shall appear on the stock transfer records of the
Corporation.
(d) Neither the consolidation or merger of the Corporation into or
with another
B-2-5
corporation or corporations, nor the sale of all or substantially all of
the assets of the Corporation to another corporation or any other entity
shall be deemed a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this paragraph 3.
4. Optional Redemption.
-------------------
(a) All the RPS, or any part thereof, at any time outstanding, may be
redeemed by the Corporation, at any time or from time to time at its
election expressed by resolution of the Board of Directors upon not less
than 30 nor more than 60 days' previous notice to the holders of record of
the RPS to be redeemed, given by registered or certified mail, postage
prepaid, at the redemption prices per share (expressed in percentages of
the Liquidation Preference) set forth below during the 12-month periods
beginning on June 30 of the years shown below.
Year Percentage
---- -----------
1997.............................. 110.000%
1998.............................. 108.750
1999.............................. 107.500
2000.............................. 106.250
2001.............................. 105.000
2002.............................. 103.750
2003.............................. 102.500
2004.............................. 101.250
2005.............................. 100.000
(b) Any notice of redemption mailed to a holder of RPS at his address
as the same appears on the books of the Corporation shall be conclusively
presumed to have been given regardless of whether the holder receives the
notice. Each such notice shall state the redemption date; the number of
shares of RPS to be redeemed, and, if less than all shares of the RPS held
by such holder are to be redeemed, the number of such shares to be redeemed
from such holder and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost to such
holder; and that the redemption price applicable to the shares to be
redeemed shall cease to accrue and accumulate on the redemption date. No
defect in any such notice as to any shares of RPS shall affect the validity
of the proceedings for the redemption of any other shares of RPS.
(c) The Corporation may not purchase or redeem less than all of the
outstanding shares of RPS and any other series of Parity Stock, unless all
cumulating or accrued dividends with respect any Parity Stock which shall
not be so redeemed or purchased have either been paid or set aside for
payment.
(d) If less than all of the outstanding shares of RPS are to be
redeemed, the shares to be redeemed will be determined pro rata, except
that the Corporation may redeem such shares held by any holders of fewer
than 10 shares (or shares held by holders who would hold less than 10
shares as a result of such redemption), as may be determined by the
Corporation.
B-2-6
(e) Any shares of RPS called for redemption pursuant to this paragraph
4 shall not be deemed to be outstanding for the purposes of voting,
determining the total number of shares entitled to vote, or payment of
dividends thereon on or after the redemption date set forth in the notice
of redemption mailed to the holders thereof, unless the Corporation fails
to pay the redemption price to the holders of such shares on such date.
5. Mandatory Redemption.
--------------------
(a) The Corporation shall redeem for cash all of the shares of the RPS
then outstanding on June 30, 2005 (the "Mandatory Redemption Date"), at a
-------------------------
redemption price equal to the Liquidation Preference per share. The
Corporation shall send a written notice of redemption by first class mail
to each holder of record of a share of RPS, not fewer than 30 days nor more
than 60 days prior to the Mandatory Redemption Date. Notice shall be given
pursuant to paragraph 4(b) hereof.
(b) From and after June 30, 2005 (unless a default shall be made by
the Corporation in paying the redemption price on the Mandatory Redemption
Date for the shares of RPS under this paragraph 5), said shares shall no
longer be deemed to be outstanding.
6. Voting Rights.
-------------
(a) The holders of the issued and outstanding shares of RPS shall have
no voting rights except as set forth below, in paragraph 14, and as
required by law.
(b)
(i) Without the affirmative vote or consent of the holders of at
least two-thirds of the votes entitled to be cast by the outstanding
shares of RPS, voting as a single class, the Corporation may not
amend, alter or repeal any provision of the Certificate of
Incorporation or this Certificate of Designation or the bylaws of the
Corporation or of any certificate amendatory thereof or supplemental
thereto so as to affect adversely any of the voting powers or other
rights, preferences, powers or privileges of the RPS or of the holders
of the shares of RPS; and
(ii) Without the affirmative vote or consent of the holders of at
least a majority of the votes entitled to be cast by the outstanding
shares of Preferred Stock, voting together as a single class:
(A) the Corporation may not create any class of Parity Stock
or Senior Stock or issue any additional shares of Preferred
Stock; and
(B) the Corporation may not enter into any transaction which
violates, or otherwise violate, any of the covenants of the
Corporation set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21, 5.22, 5.23, 5.24, 5.25, 5.28, 5.29, 5.30, 5.31 and
5.32 of the Purchase Agreement.
B-2-7
(c) For purposes of this paragraph 6, each share of Preferred Stock
shall have one vote per share.
7. Stated Capital. The Board of Directors shall allocate to the stated
--------------
capital account for the RPS an amount equal to the Liquidation Preference of the
RPS and shall not allow any reduction in the amount of stated capital for such
RPS except to the extent shares of RPS are redeemed in accordance with the terms
hereof.
8. Exclusion of Other Rights. Except as may otherwise be required by law,
-------------------------
the shares of RPS shall not have any preferences or relative, participating,
optional or other special rights, other than those specifically set forth in
this resolution (as such resolution may be amended from time to time) and in the
Certificate of Incorporation of the Corporation, as amended. The shares of RPS
shall have no preemptive or subscription rights.
9. Headings of Subdivisions. The headings of the various subdivisions
------------------------
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
10. Severability of Provisions. If any right, preference or limitation of
--------------------------
the RPS set forth in this Certificate of Designation (as such Certificate of
Designation may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule of law or public policy, all other
rights, preferences and limitations set forth in this resolution (as so amended)
which can be given effect without the invalid, unlawful or unenforceable right,
preference or limitation shall, nevertheless, remain in full force and effect,
and no right, preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation unless so
expressed herein.
11. Status of Reacquired Shares. Shares of RPS which have been issued and
---------------------------
reacquired shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued shares of
preferred stock of the Corporation issuable in series undesignated as to series
and may be redesignated and issued or reissued as the case may be, as part of
any series of preferred stock of the Corporation; except that such shares may
not be reissued or sold as shares of RPS, Parity Stock or Senior Stock.
12. Purchase Agreement and Indenture. The Corporation shall at all times
--------------------------------
keep a copy of the Purchase Agreement available at its corporate headquarters
for inspection by its stockholders and other Persons.
13. Change of Control.
-----------------
(a) In the event that there is a Change of Control (the date of such
Change of Control being the "Trigger Date"), the Corporation shall promptly
------------
notify the holders of the RPS in writing of such occurrence and shall make
an offer to redeem (the "Change of Control Offer") all the shares of RPS
-----------------------
then outstanding at a purchase price per share equal to 101% of the
Liquidation Preference for each outstanding share of RPS.
(b) Notice of a Change of Control Offer shall be mailed by the
Corporation by overnight courier not more than 30 days after the Trigger
Date to the holders of the RPS at their
B-2-8
addresses as they appear on the books of the Corporation. The Change of
Control Offer shall remain open from the time of mailing until the Change
of Control Payment Date. The notice shall contain all instructions and
materials necessary to enable such holders to tender shares of RPS pursuant
to the Change of Control Offer. The notice, which shall govern the terms of
the Change of Control Offer, shall state:
(i) that a Change of Control has occurred, including a
description in reasonable detail of such Change of Control;
(ii) that the Change of Control Offer is being made pursuant to
this paragraph 13, and that all shares of RPS will be accepted for
payment;
(iii) the purchase price for the RPS and the Change of Control
Payment Date, which shall be no earlier than 30 days nor later than 40
days from the date notice of the Change of Control Offer is mailed by
the Corporation (the "Change of Control Payment Date");
------------------------------
(iv) that holders of RPS electing to have a share of RPS
redeemed pursuant to a Change of Control Offer will be required to
surrender the share of RPS to the paying agent at the address
specified in the notice (the "Paying Agent") prior to close of
------------
business on the third Business Day preceding the Change of Control
Payment Date;
(v) that holders of RPS will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder of RPS, the number of shares of
RPS delivered for redemption and a statement that such holder is
withdrawing his or her election to have such shares of RPS redeemed;
and
(vi) that a holder of RPS who does not accept in writing the
Corporation's offer to redeem the shares of RPS held by such holder by
submitting the shares of RPS shall be deemed to have declined to have
its shares of RPS so redeemed.
(c) On the Change of Control Payment Date, the Corporation shall, to
the extent lawful, (i) accept for payment shares of RPS tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent money
sufficient to pay the redemption price of all shares of RPS so tendered.
The Corporation will notify the remaining holders of RPS of the results of
the Change of Control Offer on or as soon as practicable after the Change
of Control Payment Date.
14. Board of Directors.
------------------
(a) In the event that (i) dividends on the CRPS are in arrears and
unpaid for two or more consecutive Semiannual Dividend Periods (as defined
in the certificate of designation relating to the CRPS), regardless of
whether declared by the Board of Directors, or (ii) the Corporation shall
have failed to discharge its obligations to mandatorily redeem all of the
outstanding Preferred Stock at the price and time required by paragraph 5
(the occurrence of either such event, a "Trigger
-------
B-2-9
Event"), then, and in any such event, the holders of the Preferred Stock,
-----
voting separately as a class, shall be entitled, at the next annual meeting
of the stockholders or at any special meeting, to elect one member of the
Board of Directors. Upon election, such director shall become a member of
the Board of Directors and the authorized number of members of the Board of
Director shall thereupon be automatically increased by one. Such right of
the holders of Preferred Stock to elect such director may be exercised
until, as applicable, (i) all dividends to which the holders of CRPS shall
have been entitled for all previous Dividend Periods (as defined in the
certificate of designation relating to the CRPS), regardless of whether
declared by the Board of Directors, shall have been paid in full, and
dividends for the current Dividend Period declared and a sum of money
sufficient for the payment thereof have
been set apart for payment or (ii) the Corporation fulfills its obligation
to redeem all the remaining outstanding shares of Preferred Stock under
paragraph 5 hereof, and when such events occur, the right of the holders of
Preferred Stock to elect such director shall cease, the term of such
director previously elected shall thereupon terminate, and the authorized
number of members of the Board of Directors shall thereupon return to the
number of authorized directors otherwise in effect, but subject always to
the same provisions for the renewal and divestment of such special voting
rights in the case of any such future default or defaults specified herein.
The fact that dividends have been paid and set apart as required by the
preceding sentence shall be evidenced by a certificate executed by the
President and the Chief Financial Officer of the Corporation and delivered
to the Board of Directors. In the event a member of the Board of Directors
is elected due to a nonpayment of dividends as set forth herein, the
director so elected by holders of the Preferred Stock shall serve until the
certificate described in the preceding sentence shall have been delivered
to the Board of Directors or until their respective successors shall be
elected or appointed.
(b) At any time when such special voting rights have been so vested in
the holders of the Preferred Stock, the Secretary of the Corporation may,
and upon the written request of the holders of record of a majority of the
number of shares of the Preferred Stock then outstanding addressed to such
Secretary at the principal office of the Corporation shall, call a special
meeting of the holders of the Preferred Stock for the election of the
directors to be elected by them as hereinabove provided, to be held in the
case of such written request within 40 days after delivery of such request,
and in either case to be held at the place and upon the notice provided by
law and in the Corporation's Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not be required
to call such a special meeting if any such request is received less than 90
days before the date fixed for the next ensuing annual or special meeting
of stockholders.
(c) The Board of Directors may not, except to satisfy the provisions
of this paragraph 14, be increased to more than 6 members.
(d) The Corporation shall reimburse promptly all directors elected
pursuant to this paragraph 14 for all reasonable expenses incurred by such
directors in connection with their attendance at meetings of the Board of
Directors and any committees thereof.
15. Rank. The RPS shall, with respect to dividend distributions and
----
distributions upon liquidation, dissolution or winding up of the Corporation,
rank senior to all classes of Common Stock of the Corporation and, subject to
the preference and other rights of the Senior Stock and the Parity Stock, to
each other class of Capital Stock of the Corporation now or hereafter created.
B-2-10
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its President and attested by its Secretary on July 7, 1997.
FIRSTAMERICA AUTOMOTIVE, INC.
By:_____________________________
Thomas A. Price
President
Attest:
__________________________________
W. Bruce Bercovich
Secretary
B-2-11
Annex C
-------
Stockholders' Agreement
C-1
Annex D
-------
Form of Draw Down Notice
TCW/Crescent Mezzanine Partners, L.P.
TCW/Crescent Mezzanine Trust
TCW/Crescent Mezzanine Investment Partners, L.P.
TCW Leveraged Income Trust, L.P.
Crescent Mach I Partners, L.P.
TCW Shared Opportunity Fund II, L.P.
[DATE]
__ Trust Company of the West
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: Jean-Marc Chapus
Telecopy No.: (310) 235-5967
Re: Securities Purchase Agreement dated as of July 8, 1997 among
First America Automotive, Inc., the guarantors named therein and
the purchasers named on the signature pages thereof.
Gentlemen:
Reference is made hereby to the Securities Purchase Agreement dated as
of July 8, 1997 (the "Securities Purchase Agreement") among First America
-----------------------------
Automotive, Inc., a Delaware corporation (the "Company"), the guarantors named
therein and the purchasers named on the signature pages thereof. Capitalized
terms used but not defined herein have the respective meanings given to such
terms in the Securities Purchase Agreement.
Pursuant to the provisions of Section 1.2(c) of the Securities
Purchase Agreement, the Company hereby provides notice to the Purchasers of the
request by the Company to sell to the Purchasers Additional Notes in an
aggregate principal amount equal to $______________ and ________ Additional
Common Shares. Such securities are referenced herein as the "Additional
----------
Securities."
- ----------
In accordance with the provisions of the Securities Purchase
Agreement, all of the net proceeds from the sale by the Company of the
Additional Securities will be used to consummate the New
D-1
Acquisition(s) described below, which are permitted pursuant to Section 5.31 of
the Securities Purchase Agreement.
A. Combined Description of New Acquisition(s).
------------------------------------------
Set forth below is a combined description of the New Acquisitions for
which funding is requested hereby.
1. Combined sources and uses of cash with respect to all New Acquisitions
for which funding is hereby requested:
(a) Sources:
Cash: $______________________
Revolver advances under
Section II.C of Loan Agreement: $______________________
New Vehicle advances under
Section II.B of the Loan Agreement: $______________________
Program Vehicle advances under
Section II.D of the Loan Agreement: $______________________
Net Proceeds from sale
of Additional Securities: $______________________
Assumption of Liabilities: $______________________
Seller Indebtedness: $______________________
Stock issued to seller: $______________________
(b) Uses:
Cash consideration to Seller(s): $______________________
Refinancing of liabilities: $______________________
2. Consideration, Net Assets and Goodwill:
(a) Aggregate consideration to seller(s): $______________________
(b) Net assets acquired: $______________________
(c) Goodwill: $______________________
B. Individual Description of Each New Acquisition
----------------------------------------------
Set forth below is an individual description of each of the New
Acquisitions for which funding is requested hereby.
[Provide the following information with respect to each New Acquisition.]
1. Name of business or Person being acquired: _______________________
D-2
2. Name of seller:
3. Sources and uses of cash:
(a) Sources:
Cash: $_________________
Revolver advances under
Section II.C of Loan Agreement: $_________________
New Vehicle advances under
Section II.B of the Loan Agreement: $_________________
Program Vehicle advances under
Section II.D of the Loan Agreement: $_________________
Net Proceeds from sale
of Additional Securities: $_________________
Assumption of Liabilities: $_________________
Seller Indebtedness: $_________________
Stock issued to seller: $_________________
(b) Uses:
Cash consideration to Seller(s): $_________________
Refinancing of liabilities: $_________________
4. Consideration, Net Assets and Goodwill:
(a) Aggregate consideration to seller(s):$_________________
(b) Net assets acquired: $_________________
(c) Goodwill: $_________________
5. Dealership description:
(a) Franchises acquired: __________________
(b) Location: __________________
(c) Three Year Operating History:
[Year] [Year] [Year]
------ ------ ------
Sales: ______ ______ ______
Gross Margin: ______ ______ ______
SG&A Expense: ______ ______ ______
EBITDA: ______ ______ ______
Addbacks: ______ ______ ______
D-3
C. Pro Forma Calculations.
----------------------
1. Attached hereto is a consolidated balance sheet of the Company as
of [date], giving pro forma effect to the New Acquisitions(s) for
which funding is requested hereby and to the issuance and sale of
the Additional Securities.
2. Attached hereto is a consolidated income statement for the 12-
month period ending on [date], giving pro forma effect to the New
Acquisitions(s) for which funding is requested hereby and to the
issuance and sale of the Additional Securities, as if such New
Acquisition(s) were consummated and such Additional Securities
were issued and sold at the beginning of such period.
D. Enterprise Value Calculation.
----------------------------
1. The Enterprise Value of the Company at the time of the New
Acquisitions(s) for which funding is requested hereby (excluding
any effect that such New Acquisition(s) may have on the
Enterprise Value of the Company) is $ .
2. Such Enterprise Value was calculated as follows:
Enterprise Value = [Amount of EBITDA (less interest and other
costs associated with New Vehicle Advances
and Program Vehicle Advances) for the four
fiscal quarters immediately preceding the
purchase and sale of the Additional
Securities (on a pro forma basis giving
effect to all New Acquisitions made during
such period and all incurrences of
Indebtedness as if they occurred at the
beginning of such period; but excluding any
effect that the New Acquisition to be funded
with the proceeds from the sale of the
Additional Securities)] times 7.
D. Additional Common Shares Calculation.
------------------------------------
1. The number of fully diluted shares of Common Stock prior to the
New Acquisition to be funded with the proceeds of the sale of
Additional Securities is ____________________.
2. The effect of any Equity Interests to be issued in connection
with such New Acquisition is as follow:
(a) To sellers:_______________
(b) To others: _______________
D-4
3. The number of fully diluted shares of Common Stock giving effect
to such New Acquisition and to the issuance of the Additional
Securities is _______________.
4. The number of Additional Common Shares is _________________.
Please contact the undersigned at your earliest convenience to provide
the Company with the allocation of Additional Securities to be purchased by the
several Purchasers and to schedule an Additional Securities Closing on an
Additional Securities Closing Date to be agreed upon by the Company and the
Purchasers in accordance with 1.2(d) of the Securities Closing Date.
Very truly yours,
FIRSTAMERICA AUTOMOTIVE, INC.
By:______________________________
Name:_______________________
Title:___________________________
D-5
Annex E
-------
Opinion of Counsel to the Company
[Letterhead of Counsel to the Company]
July 8, 1997
To: The Purchasers named on the signature pages of the Securities Purchase
Agreement (as defined below) relating to the Notes (as defined below), the
Preferred Shares (as defined below) and the Common Shares (as defined
below) of the FirstAmerica Automotive, Inc.
Ladies and Gentlemen:
We have acted as counsel for FirstAmerica Automotive, Inc., a Delaware
corporation (the "Company"), in connection with the sale today by the Company to
you of an aggregate of (a) $28,000,000 principal amount of 12_% Senior Notes due
June 30, 2005 (the "Notes") of the Company, (b) 3500 shares (the "CRPS Shares")
----- -----------
of 8% Cumulative Redeemable Preferred Stock due 2005, par value $0.00001 per
share, of the Company, (c) 500 shares (the "RPS Shares" and together with the
----------
CRPS Shares, the "Preferred Shares") of Redeemable Preferred Stock due 2005, par
----------------
value $0.00001 per share, of the Company and (d) 3,032,000 shares (the "Common
------
Shares" and together with the Notes and the Preferred Shares, the "Securities")
- ------
of Class B Common Stock, par value $0.00001 per share, of the Company, pursuant
to the Securities Purchase Agreement dated as of July 8, 1997 (the "Securities
----------
Purchase Agreement") among the Company, the guarantors named therein and the
- ------------------
purchasers named on the signature pages thereof.
This opinion is being furnished pursuant to Section 2.1(b)(1) of the
Securities Purchase Agreement. Capitalized terms used and not otherwise defined
herein shall have the respective meanings given to such terms in the Securities
Purchase Agreement.
In so acting, we have examined such certificates of public officials
and certificates of officers of the Company and its Subsidiaries, and the
originals (or copies thereof, certified to our satisfaction) of such corporate
documents and records of the Company and its Subsidiaries, and such other
documents, records and papers as we have deemed relevant in order to give the
opinions hereinafter set forth. In this connection, we have assumed the
genuineness of signatures, the authenticity of all documents submitted to us as
originals and the conformity to authentic original documents of all documents
submitted to us as certified, conformed, facsimile or photostatic copies. In
addition, we have relied, to the extent that we deem such reliance proper, upon
such certificates of public officials and of officers of the Company and its
Subsidiaries with respect to the accuracy of material factual matters contained
therein which were not independently established.
Based upon the foregoing, it is our opinion that:
1. Each of the Company and each of its Subsidiaries (a) is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, (b) has
E-1
all requisite corporate power and authority to own or operate its
properties and to transact the business in which it is engaged and (c) has
been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other jurisdiction
in which it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any such
jurisdiction.
2. The Company has the corporate power and authority and has taken
all actions necessary to authorize it to (a) execute, deliver, perform all
of its obligations under, and consummate each of the transactions
contemplated by the Securities Purchase Agreement, the Notes, the
Stockholders' Agreement and the other Documents to which it is a party and
(b) issue and perform all of its obligations under the Securities.
3. Each of the Securities Purchase Agreement, the Notes, the
Stockholders' Agreement and the other Documents to which the Company is a
party has been duly authorized, executed and delivered by the Company and
is a valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
4. Each of the Subsidiaries of the Company has the corporate power
and authority and has taken all actions necessary to authorize it to
execute, deliver and perform all of its obligations under, and consummate
each of the transactions contemplated by each of the Documents to which it
is a party. Each of the Documents to which each such Subsidiary is a party
has been duly authorized, executed and delivered by such Subsidiary and is
a valid and binding obligation of such Subsidiary, enforceable against it
in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
5. Neither the execution, delivery or performance of the Securities
Purchase Agreement, the Notes, the Acquisition Documents, the Stockholders'
Agreement, or any of the other Documents to which the Company or any of its
Subsidiaries is a party, nor the compliance with their respective
obligations thereunder, nor the consummation of the transactions
contemplated thereby, nor the issuance, sale or delivery of the Securities
will (a) violate any provision of the Charter Documents of the Company or
of any of its Subsidiaries, (b) violate any statute, law, rule or
regulation or any judgment, decree, order, regulation or rule of any court
or governmental authority, agency or body having jurisdiction over the
Company or any of its Subsidiaries or any of their properties, (c) permit
or cause the acceleration of the maturity of any debt or obligation of the
Company or any of its Subsidiaries, or (d) violate, or be in conflict with,
or constitute a breach or default under, or permit the termination of, or
require the consent of, notice to, or filing, registration or qualification
with any Person under, or result in the creation or imposition of any Lien
upon any property of the Company or any of its Subsidiaries under, any
mortgage, deed of trust, indenture, loan agreement, note, debenture,
agreement for borrowed money or any other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject.
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6. Neither the Company nor any of its Subsidiaries is in violation
of its Charter Documents or in default in the performance or observance of
any material obligation, covenant or condition contained in any mortgage,
deed of trust, indenture, loan agreement, note, debenture, agreement for
borrowed money or any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Subsidiaries is subject.
7. No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Securities or the consummation by
the Company or any of its Subsidiaries of the Pending Acquisitions or any
of the other transactions contemplated by the Securities Purchase Agreement
or the other Documents.
8. Immediately prior to and after giving effect to the Pending
Acquisitions, the Companies other than the Company are the only direct or
indirect Subsidiaries of the Company. The total authorized Capital Stock
of the Company consists of (a) [_________] shares of Class A Common Stock,
par value $0.00001 per share, of which [_________] shares will be issued
and outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement, (b) [_________] shares of Class B Common
Stock, par value $0.00001 per share, of which [_________] shares will be
issued and outstanding upon consummation of the transactions contemplated
by the Securities Purchase Agreement, (c) [_________] shares of Class C
Common Stock, par value $0.00001 per share, of which [_________] shares
will be issued and outstanding upon consummation of the transactions
contemplated by the Securities Purchase Agreement and (d) [_________]
shares of preferred stock, par value $0.00001 per share, of which
[_________] shares of CRPS and [________] shares of RPS will be issued and
outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement. The total authorized Capital Stock of each
Subsidiary of the Company consists of [_________] shares of common stock,
par value $[__] per share, of which [_________] shares will be issued and
outstanding upon consummation of the transactions contemplated by the
Securities Purchase Agreement. All of the outstanding Equity Interests of
the Company and of each of its Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in
violation of, and are not subject to, any preemptive or similar rights
(other than those of the Purchasers or as contemplated in the Stockholders'
Agreement). All of the outstanding Equity Interests of each of the
Subsidiaries of the Company are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims.
Except for the shares of capital stock of the Companies other than the
Company, the Company does not directly own any capital stock or any other
securities of any corporation, nor, does it have any Equity Interest in any
firm, partnership, association or other entity.
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9. There are no outstanding (i) securities convertible into or
exchangeable for any Equity Interests of the Company or any of its
Subsidiaries, (ii) options, warrants or other rights to purchase or
subscribe to Equity Interests of the Company or any of its Subsidiaries or
securities convertible into or exchangeable for Equity Interests of the
Company or any of its Subsidiaries, (iii) contracts, commitments,
agreements, understandings, arrangements, calls or claims of any kind
relating to the issuance of any Equity Interests of the Company or any of
its Subsidiaries, any such convertible or exchangeable securities or any
such options, warrants or rights or (iv) voting trusts, agreements,
contracts, commitments, understandings or arrangements with respect to the
voting of any of the Equity Interests of the Company or any of its
Subsidiaries.
10. Except for the Stockholders' Agreement, neither the Company nor
any of its Subsidiaries has entered into an agreement to register any of
its capital stock under the Securities Act. Except for the Securities
Purchase Agreement, neither the Company nor any of its Subsidiaries has
entered into any agreement to issue, purchase or sell any of its
securities.
11. To the best of our knowledge (after due inquiry), there are no
legal or governmental proceedings pending to which the Company or any of
its Subsidiaries is a party or of which any property of the Company or any
of its Subsidiaries is the subject that (a) seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the Pending
Acquisitions, the Securities Purchase Agreement or any of the other
Documents or the transactions contemplated by any of the Documents or (b)
if determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its Subsidiaries. To the best of
our knowledge (after due inquiry), no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
12. There are no securities of the Company or any of its Subsidiaries
registered under the Exchange Act or listed on a national securities
exchange registered under Section 6 of the Exchange Act or quoted in a
United States automated inter-dealer quotation system.
13. None of the transactions contemplated by the Securities Purchase
Agreement (including, without limitation, the use of the proceeds from the
sale of the Securities) will violate or result in a violation of
Regulations G, T, U and X of the Board of Governors of the Federal Reserve
System. The Company is not subject to any regulation limiting its ability
to incur the indebtedness evidenced by the Notes.
14. Assuming the representations and warranties of the Purchasers
contained in Section 4 of the Securities Purchase Agreement are true and
correct, (a) it is not necessary to register the initial sale to the
Purchasers by the Issuer of the Securities or the issuance of the
Subsidiary Guaranties by the Guarantors under the Securities Act or, in
connection therewith, to qualify the Securities Purchase Agreement under
the Trust Indenture Act of 1939, as amended and (b) except for such actions
and filings as have been taken or made on or prior to the date hereof, no
action of, or filing with any governmental authority is required to be
obtained or made by the Company to authorize, or is otherwise required to
be obtained or made by the Company in connection with the execution and
delivery of the Securities Purchase Agreement or the other
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Documents to which it is a party or in connection with the consummation of
the transactions contemplated by any of the Documents.
15. Neither the Company nor any of its Subsidiaries is an "investment
company" or a company controlled by an "investment company," within the
meaning given to such terms in the Investment Company Act of 1940, as
amended.
16. The Pending Acquisitions have been consummated in accordance with
the California General Corporation Law.
17. The Notes and the certificates representing the Preferred Shares
and the Common Shares are in due and proper form and comply with all
applicable statutory requirements.
The opinions expressed herein are limited to questions arising under
the Federal laws of the United States of America, the laws of the State of
California and the General Corporation Law of the State of Delaware.
We express no opinion as to the enforceability of any indemnification
or contribution provision contemplated by the Securities Purchase Agreement or
by any document referred to therein to the extent the rights to indemnification
or contribution provided for therein are violative of any law, rule or
regulation (including any securities law, rule or regulation) or public policy
relating thereto.
This opinion may not be used or relied upon by or published or
communicated to any person or entity other than the addressees hereof for any
purpose whatsoever without our prior written consent in each instance.
Very truly yours,
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