Exhibit 10.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
BABF CITY CORP.
CITY TRUCK AND TRAILER PARTS, INC.
AND ITS AFFILIATES AND MERGER SUBSIDIARIES NAMED HEREIN
AND
THE SHAREHOLDERS AND MEMBERS OF
CITY TRUCK AND TRAILER PARTS, INC.
AND ITS AFFILIATES AND MERGER SUBSIDIARIES
May 29, 1998
TABLE OF CONTENTS
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ARTICLE I. ACTIONS PRIOR TO AND IMMEDIATELY FOLLOWING THE CLOSING....................... 1
1.1. The Mergers and Contributions................................................. 1
1.2. Redemption and Payment of Debt................................................ 2
1.3. The Closing................................................................... 2
1.4. Reclassification.............................................................. 3
ARTICLE II. PURCHASE.................................................................... 3
2.1. Purchase Price................................................................ 3
2.2. Post-Closing Redemption Price Adjustment...................................... 3
2.3. Section 338(h)(10) Election................................................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE EXISTING
SHAREHOLDERS................................................................ 5
3.1. Corporate Organization and Standing........................................... 5
3.2. Affiliates and Merger Subsidiaries............................................ 6
3.3. Capitalization of City........................................................ 6
3.4. Authorization................................................................. 6
3.5. Title to Shares............................................................... 7
3.6. No Conflict or Violation...................................................... 7
3.7. Facilities.................................................................... 8
3.8. Financial Statements.......................................................... 9
3.9. Books and Records............................................................. 10
3.10. Litigation................................................................... 10
3.11. Licenses and Permits; Compliance with Laws................................... 10
3.12. Tax Matters.................................................................. 11
3.13. Brokers, Finders............................................................. 13
3.14. Absence of Certain Changes................................................... 13
3.15. Material Contracts........................................................... 16
3.16. Proprietary Rights........................................................... 17
3.17. Labor Matters................................................................ 18
3.18. Consents..................................................................... 18
3.19. Employee Benefit Plans; Employment Agreements................................ 18
3.20. Compliance with Environmental Laws........................................... 21
3.21. Certain Business Relationships with the Companies............................ 23
3.22. Undisclosed Liabilities...................................................... 23
3.23. Insurance.................................................................... 23
3.24. Accounts Receivable.......................................................... 24
3.25. Inventory.................................................................... 24
3.26. Payments..................................................................... 24
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3.27. Customers, Distributors and Suppliers........................................ 25
3.28. Banking Relationships........................................................ 25
3.29. Material Misstatements Or Omissions.......................................... 25
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BABF...................................... 25
4.1. Organization and Standing..................................................... 25
4.2. Authorization................................................................. 25
4.3. No Conflict................................................................... 26
4.4. Litigation.................................................................... 26
4.5. Brokers, Finders.............................................................. 26
4.6. Approvals, Etc................................................................ 26
4.7. Material Misstatements or Omissions........................................... 26
ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING COVENANTS............... 27
5.1. Further Assurances............................................................ 27
5.2. No Solicitation and Confidentiality........................................... 27
5.3. Disclosures................................................................... 28
5.4. Notification of Certain Matters............................................... 28
5.5. Investigation by BABF and Its Representatives................................. 28
5.6. Conduct of Business........................................................... 29
5.7. Tax Matters................................................................... 29
5.8 Non-Compliance With and Termination of This Agreement.......................... 30
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY BABF..................... 35
6.1. No Injunctive Proceedings..................................................... 35
6.2. Representations and Warranties................................................ 35
6.3. Performance of Agreements..................................................... 36
6.4. Compliance Certificate........................................................ 36
6.5. Material Changes.............................................................. 36
6.6. Opinion of Counsel............................................................ 36
6.7. Consents, Etc................................................................. 36
6.8. Ancillary Agreements.......................................................... 36
6.9. Resignations.................................................................. 37
6.10. Escrow Agreement............................................................. 37
6.11. Loans and Advances........................................................... 37
6.12. Pre-Closing Events........................................................... 37
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ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE COMPANIES AND
THE EXISTING SHAREHOLDERS...................................................37
7.1. No Injunctive Proceedings..................................................... 37
7.2. Representations and Warranties................................................ 37
7.3. Performance of Agreements; Instruments of Transfer............................ 38
7.4. Compliance Certificates....................................................... 38
7.5. Ancillary Agreements.......................................................... 38
7.6. Opinion of Counsel............................................................ 38
ARTICLE VIII. INDEMNIFICATION........................................................... 38
8.1. Indemnification by the Existing Shareholders.................................. 38
8.2. Indemnification by BABF....................................................... 39
8.3. Indemnification by City for Tax-Related Issues................................ 39
8.4. Survival of Representations, Warranties and Covenants......................... 39
8.5. Threshold; Deductible......................................................... 40
8.6. Notice and Opportunity to Defend.............................................. 40
8.7. Indemnification Payments through Surrender of City Stock...................... 41
8.8. Insurance..................................................................... 41
ARTICLE IX. MISCELLANEOUS............................................................... 41
9.1. Expenses...................................................................... 41
9.2. Notices....................................................................... 42
9.3. Counterparts.................................................................. 43
9.4. Entire Agreement.............................................................. 43
9.5. Headings...................................................................... 43
9.6. Assignment; Amendment of Agreement............................................ 43
9.7. Governing Law................................................................. 43
9.8. Further Assurances............................................................ 43
9.9. No Third-Party Rights......................................................... 44
9.10. Non-Waiver................................................................... 44
9.11. Severability................................................................. 44
9.12. Incorporation of Exhibits and Schedules...................................... 44
9.13. Knowledge.................................................................... 44
9.14. Disclosure................................................................... 45
9.15. Arbitration.................................................................. 45
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of May 29,
1998, is entered into by and among BABF City Corp., a Delaware corporation
("BABF"), City Truck and Trailer Parts, Inc., an Alabama corporation ("City"),
City Truck and Trailer Parts of Alabama, Inc., an Alabama corporation
("Alabama"), City Truck and Trailer Parts of Tennessee, Inc., a Tennessee
corporation ("Tennessee"), City Truck and Trailer Parts of Alabama, L.L.C., an
Alabama limited liability company ("Alabama LLC"), City Friction, Inc., an
Alabama corporation ("Friction," and together with Alabama, Tennessee and
Alabama LLC, each an "Affiliate" and collectively, the "Affiliates"), CTTP
Alabama Merger Sub, Inc., an Alabama corporation ("Alabama Merger Sub"), CTTP
Tennessee Merger Sub, Inc., a Tennessee corporation ("Tennessee Merger Sub"),
CTTP Friction Merger Sub, Inc., an Alabama corporation ("Friction Merger Sub"
and together with Alabama Merger Sub and Tennessee Merger Sub, each a "Merger
Sub" and collectively, the "Merger Subs," and the Merger Subs, and the
"Affiliates," each a "Company" and collectively, the "Companies"), and each of
the shareholders and members of City and its Affiliates and Merger Subsidiaries
identified on Annex A attached hereto (individually, an "Existing Shareholder"
and collectively, the "Existing Shareholders"). BABF, City, the Affiliates, the
Merger Subs and the Existing Shareholders are referred to herein as each a
"Party" and collectively, the "Parties."
RECITALS
WHEREAS, one or more of the Existing Shareholders own all of the
capital stock of City and the Affiliates;
WHEREAS, BABF desires to acquire 80% of the capital stock of City.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the Parties hereby agree as follows:
ARTICLE I.
ACTIONS PRIOR TO AND IMMEDIATELY FOLLOWING THE CLOSING
1.1. The Mergers and Contributions. Subject to the terms of this
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Agreement, including, without limitation, Section 3.8(c) hereof, prior to the
Closing, Tennessee Merger Sub, Friction Merger Sub and Alabama Merger Sub will
merge into Tennessee, Friction and Alabama, respectively, through forward
triangular mergers in which the outstanding capital stock of each of Tennessee,
Friction and Alabama will be converted into common stock of City, and Tennessee
Merger Sub, Friction Merger Sub and Alabama Merger Sub will become wholly-owned
subsidiaries of City, and the members of Alabama LLC shall contribute all of
their equity interests to City in exchange for common stock of City, as a result
of which Alabama LLC will become a wholly-owned subsidiary of City. Immediately
following such mergers, the redemption referred to in Section 1.2 will occur.
1.2. Redemption and Payment of Debt.
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(a) In order to fund the redemption and the payment of debt described
below, City intends to obtain financing, and City hereby engages BABF to arrange
and negotiate the terms of such financing. Such financing may include debt
and/or redeemable nonconvertible nonvoting nonparticipating preferred stock
which by its terms ranks pari passu with respect to liquidation preference with
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all other preferred stock of City then or thereafter outstanding issued to BABF.
Immediately prior to Closing, BABF shall cause such financing to be available to
City or its subsidiaries (which in no event shall include any personal guaranty
or other personal liability with respect to such indebtedness by any Existing
Shareholder), which will enable City or its subsidiaries to borrow an amount up
to that set forth in Section 1.2(b). As used herein, "Redemption Price" means
Sixty One Million Dollars ($61,000,000), plus the sum of (i) 50% of any
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incremental tax liability of the Existing Shareholders generated from "LIFO
recapture" triggered as a result of the Closing, (ii) an amount equal to the HD
America ("HDA") payment received by City in March of 1998, and (iii)
consolidated combined net income of the Companies from January 1, 1998 through
the Closing Date ("Year to Date Income") determined pursuant to Section 2.2
hereof, less the sum of (i) all indebtedness of City as of December 31, 1997
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(other than trade debt and other obligations (excluding obligations for borrowed
money) incurred in the ordinary course of business), including, without
limitation, the debts owed to (x) Regions Bank (other than the $150,000 owed by
Friction to Regions Bank) and (y) the Existing Shareholders, (ii) the aggregate
amounts, in the form of distributions or bonuses (excluding (w) normal salary
payments, rental payments and other amounts paid in the ordinary course, (x) the
$75,000 of Friction income payable pursuant to Section 5.6(g)(i), (y) the
distribution of the City Transportation, L.L.C. membership interests and the
distribution of any other assets contributed to City Transportation, L.L.C.
pursuant to Section 3.8(c)), received by the Existing Shareholders in 1998 in
excess of $872,484.62, and (iii) $25,000,000, and (z) the actual amount of the
bonuses referred to in Section 5.6(e)(i).
(b) Provided BABF arranges the necessary financing as set forth in
Section 1.2(a) above, City shall borrow or cause its subsidiaries to borrow an
amount (the "Borrowed Amount") sufficient to fund the redemption described
herein, and City shall use the Borrowed Amount to, among other things, (x)
redeem a portion of the outstanding capital stock of City for an amount equal to
the Redemption Price and (y) repay all indebtedness of City as of the Closing
Date (other than (x) trade debt and other obligations (excluding obligations for
borrowed money) incurred in the ordinary course of business and (y) the Borrowed
Amount), including, without limitation, the debts owed to (x) Regions Bank and
(y) the Existing Shareholders.
1.3. The Closing. The closing of the transactions contemplated by
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this Agreement (the "Closing"), shall take place commencing at 9:00 a.m. local
time on May 29, 1998, or, if all of the conditions to the obligations of the
Parties to consummate the transactions contemplated hereby have not be satisfied
or waived by such date, on such mutually agreeable later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations
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of the Parties to consummate the transactions contemplated hereby, but in no
event later than June 15, 1998 (the "Closing Date").
1.4. Reclassification. Immediately after the Closing, if BABF so
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requests, City's equity capital structure will be reclassified to consist of two
classes of stock, Common Stock at $1.00 per share ("Common Stock") and 6.00%
Cumulative Non-Convertible Voting Preferred Stock at $100 per share ("Preferred
Stock"). There will be no more than 100,000 shares of Common Stock issued, and
all remaining equity of City will be in the form of Preferred Stock. The
shareholders of City shall then exchange their Common Stock for a pro rata
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interest in each such class of stock.
ARTICLE II.
PURCHASE
2.1. Purchase Price.
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(a) Following the transactions described in Sections 1.1 and 1.2
hereof, upon the terms and subject to the conditions set forth herein, BABF will
purchase from the Existing Shareholders 80% of the outstanding capital stock of
City for Twenty Million Dollars ($20,000,000) (the "Purchase Price"). The
Purchase Price will be paid by wire transfer of immediately available funds.
(b) The Redemption Price is subject to post-Closing adjustment
pursuant to Section 2.2 below. The Redemption Price will be estimated at
Closing (the "Estimated Redemption Price") by City and BABF based on
certificates provided by the Chief Financial Officer of City regarding Year to
Date Income.
2.2. Post-Closing Redemption Price Adjustment.
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(a) Determination of Earnings. City will prepare a combined and
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consolidated income statement of City and the Companies for the period from
January 1, 1998 through the Closing (the "Closing Income Statement") and will
deliver such Closing Income Statement to BABF as soon as possible after the
Closing. The Closing Income Statement shall be audited by Ernst & Young. The
Closing Income Statement shall be prepared using the same practices, procedures
and methods used in the preparation of the audited combined, consolidated income
statement of the Companies (excluding Friction) dated December 31, 1997 ("1997
Income Statement"), except that the Companies' accounting shall reflect (i)
current accrual of HDA rebates for 1998 purchases through the date of the
Closing, (ii) no accrual of HDA rebates for pre-1998 purchases, (iii) accruals
for bad debt reserves in accordance with United States generally accepted
accounting principles ("GAAP") applied on a basis consistent with past practices
to the extent such practices are GAAP, (iv) inventory on a most recent purchase
price method basis, (v) exclusion of all the revenues and expenses of City
Transportation, L.L.C, and (vi) the inclusion of Friction's earnings up to
$350,000 calculated consistent with past practices
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and principles used in the preparation of its financial statements; provided,
however, inter-company transactions between Friction and the other Companies
will not be eliminated.
The following items shall not reduce the earnings as calculated
pursuant to Section 2.2(a): (i) dividends not in excess of $328,884.62 to the
shareholders of Tennessee and (ii) any expenses incurred by either party
(including, without limitation, any legal, accounting and investment bankers'
fees, H-S-R filing fees and any other filing fees and any other miscellaneous
fees or expenses) in connection with the negotiation and consummation of the
transactions contemplated herein.
(b) Closing Income Statement Notice.
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(i) Within 30 days of the receipt of such Closing Income
Statement, BABF will deliver to Larry Clayton a written notice certifying
that either (x) it agrees with such Closing Income Statement, or (y) its
disagrees with such Closing Income Statement, in which case it will also
provide therewith a reasonably detailed written report stating the basis
for disagreement with the Closing Income Statement (the "Closing Income
Statement Notice"). The Companies shall provide reasonable access to their
respective accountants' work papers, personnel and to such historical
financial information as BABF shall reasonably request in order to review
such Closing Income Statement.
(ii) If the Closing Income Statement Notice is not timely given
as described in Section 2.2(b)(i) hereof, the Closing Income Statement
shall be final, binding and conclusive upon the Parties. If BABF disagrees
with the Closing Income Statement Notice as described in Section
2.2(b)(i)(y) hereof, and if the disagreement is not resolved by mutual
agreement among the Parties within 30 days following delivery of the
Closing Income Statement Notice, such dispute will be resolved by a "Big 5"
accounting firm ("BFAF"), other than Ernst & Young, selected by BABF and
Larry Clayton.
(iii) Upon appointment of a BFAF, such BFAF in consultation with
the Parties shall establish a schedule for resolution of the dispute which
is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Income
Statement only to the extent necessary to make it conform to the practices,
procedures and methods described in Section 2.2(a) above.
(c) Post-Closing Adjustment. After a final resolution by the BFAF of
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such disagreements as may arise out of the review of the Closing Income
Statement in accordance with Section 2.2(b) above, and an appropriate adjustment
to the Closing Income Statement to reflect such resolution, or if Section
2.2(b)(i)(x) hereof or the first sentence of Section 2.2(b)(ii) hereof applies,
the actual Year to Date Income will be determined, and the actual Redemption
Price will be calculated based on such, and to the extent that the Estimated
Redemption Price
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was less than the actual Redemption Price, the difference due to the Existing
Shareholders will be paid to them by BABF within ten (10) business days after a
final resolution. Similarly, to the extent the Estimated Redemption Price was
more than the actual Redemption Price, the excess will be returned by the
Existing Shareholders to BABF within ten (10) business days after a final
resolution.
2.3. Section 338(h)(10) Election. At the Closing, the Companies shall
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deliver to the BABF such duly executed documents, forms and consents as BABF
shall deem to be reasonable necessary to effect an election pursuant to Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"). BABF
and the Companies further agree that the Purchase Price shall be allocated by
mutual agreement of BABF and the Existing Shareholders pursuant to Schedule 2.3
and consistent with the Treasury Regulations adopted pursuant to Section 338 of
the Code.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE
EXISTING SHAREHOLDERS
The Companies and the Existing Shareholders represent and warrant to
BABF as follows, except as set forth in a disclosure schedule ("Schedule")
attached hereto, incorporated by reference herein and made a part hereof, the
number of each Schedule corresponding to the Section number to which it refers:
3.1. Corporate Organization and Standing. Schedule 3.1 hereto is a
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complete and correct list setting forth for each of the Companies (i) the name
of each entity, the jurisdiction of its incorporation or other organization, and
each jurisdiction in which it is qualified to do business as a foreign
corporation. Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as presently conducted. Each
of the Companies has delivered to BABF or its representatives complete and
correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Each of the Companies is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now being conducted by it or
the property owned or leased by it makes such qualification necessary.
3.2. Affiliates and Merger Subsidiaries. Schedule 3.2(a) hereto is a
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complete and correct list setting forth for each Affiliate (both on a pre-
Closing and post-Closing basis) (i) the number of shares of authorized capital
stock of each class of its capital stock, and (ii) the number of issued and
outstanding shares of each class of its capital stock, (iii) the names of the
holders thereof, and (iv) the number of shares held by each such holder. All of
the issued and outstanding shares of capital stock of each Affiliate have been
duly authorized and are validly issued, fully paid and non-assessable. City
and/or the Existing Shareholders own (and at the
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Closing City will own) of record and beneficially all of the outstanding shares
of capital stock of each Affiliate, free and clear of liens, encumbrances,
restrictions, claims and interests of others of any kind. There are no
preemptive or similar rights on the part of any holder of any class of
securities of any Affiliate, any options, warrants, conversion or other rights,
agreements, commitments of any kind obligating any Affiliate, contingently or
otherwise to issue, sell, or otherwise cause to become outstanding any shares of
its capital stock of any class or any securities convertible into or
exchangeable for any such shares. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting, dividend rights or
disposition of any capital stock of any Affiliate or Merger Sub, except as set
forth on Schedule 3.2. City does not control directly or indirectly nor has any
direct or indirect equity participation in any corporation, partnership, trust
or other entity which is not an Affiliate or Merger Sub, except as set forth on
Schedule 3.2. As used herein, the term "capital stock" includes equity
interests in limited liability companies and the term "corporation" shall
include limited liability companies when referring to Alabama LLC.
3.3. Capitalization of City. The authorized capital stock of City
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consists of 2,000 shares of Common Stock, $1.00 par value per share ("City
Common Stock"). As of the date of this Agreement and at the Closing, 410 shares
and ____ shares of City Common Stock, respectively, are or will be, as
applicable, outstanding, all of which shares have been duly authorized, validly
issued and are fully paid and non-assessable and are owned in the aggregate by
the Existing Shareholders (the "Shares"). Except as contemplated by this
Agreement, there are (i) no preemptive or similar rights on the part of any
holder of any class of securities of City, and (ii) no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
City, contingently or otherwise, to issue, sell or otherwise cause to be
outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
3.4. Authorization. This Agreement, the Ancillary Agreements (as
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defined below), and the transactions contemplated hereby and thereby have been
duly authorized, executed and delivered by each of the Companies and the
Existing Shareholders, and are the legal, valid and binding obligations of each
of the Companies and the Existing Shareholders, enforceable against it, him or
her in accordance with their terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
3.5. Title to Shares. Except as set forth on Schedule 3.5, each
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Existing Shareholder has, and at Closing will have, good and valid title to the
Shares owned by him, free and clear of any claims, liens, security interests,
options, charges, restrictions and interests of others whatsoever. Upon delivery
to BABF at the Closing of certificates representing the Shares owned by each
Existing Shareholder, duly endorsed by such Existing Shareholder for transfer to
BABF, BABF will obtain good and valid title to such Shares, free and clear of
any claims, liens, security interests, options, charges, restrictions and
interests of others whatsoever. Except as set
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forth on Schedule 3.5, there are no voting trusts, proxies, or other agreements
or understandings with respect to the voting, dividend right or disposition of
any of the Shares. Except as contemplated by this Agreement and Schedule 3.5, no
Company nor any Existing Shareholder has any obligation, absolute or contingent,
to any other person or entity to issue, sell or otherwise dispose of any capital
stock of City or to effect any merger, consolidation, reorganization or other
business combination of any Company or to enter into any agreement with respect
thereto.
3.6. No Conflict or Violation. Except as set forth on Schedule 3.6,
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neither the execution and delivery of this Agreement, the Ancillary Agreements
nor the consummation of the transactions contemplated hereby or thereby will (i)
violate, conflict with or result in or constitute a default under or result in
the termination or the acceleration of, or the creation in any party of any
right (whether or not with notice or lapse of time or both) to declare a
default, accelerate, terminate or cancel any indenture, contract, lease,
sublease, loan agreement, note or other obligation or liability ("Contractual
Obligation") to which any Company is a party or by which any of them is bound or
to which any of their assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, (ii) violate, conflict with or result in a
breach of or constitute a default under any provision of the Articles of
Incorporation or Bylaws (or other organizational documents) of any Company,
(iii) violate, conflict with or result in a breach of or constitute a default
under any judgment, order, decree, rule or regulation of any court or
governmental agency to which any Company is subject or, in the case of clause
(i), relates to a Material Contract (as defined below) or (iv) violate, conflict
with or result in a breach of any applicable federal or state rule or
regulation, which violation, conflict or breach would have a Material Adverse
Effect.
3.7. Facilities. Schedule 3.7 contains a complete and accurate list
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of all real property used in connection with the businesses of the Companies
("Real Property"), all of which are leased ("Leased Real Property"). The
Companies do not own any Real Property except for leasehold improvements.
(a) Actions. There are no pending or, to the best knowledge of any
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Company, threatened, condemnation proceedings or other actions, claims, suits,
litigation, proceedings, notices of violation, inquiry or investigations
(collectively, "Actions") relating to any Real Property used by any Company in
connection with the business of any Company ("Facility"), except as set forth on
Schedule 3.7.
(b) Leases or Other Agreements. There are no leases, subleases,
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licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person (other than the
Companies) the right to purchase, use or occupy any Facility or any Real
Property or any portion thereof, or interest in any such Facility or Real
Property.
(c) Facility Leases and Leased Real Property. With respect to each
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Facility lease, the respective Company has an unencumbered interest in its
applicable leasehold estate.
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The respective Company enjoys peaceful and undisturbed possession of its
applicable Leased Real Property.
(d) Certificate of Occupancy. To the best knowledge of the
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Companies, all Facilities have received all required approvals of governmental
authorities (including, without limitation, permits and a certificate of
occupancy or similar certificate permitting lawful occupancy of the Facilities)
required in connection with the operation thereof and are and have been operated
and maintained in accordance with applicable regulations.
(e) Utilities. All Facilities are supplied with all utilities
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necessary to the operation of such Facilities (including, without limitation,
water, sewage, disposal, electricity, gas and telephone) as currently operated,
and, to the best knowledge of the Companies, there is no condition which would
reasonably be expected to result in the termination of the present access from
any Facility to such utility services.
(f) Improvements, Fixtures and Equipment. The improvements
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constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by any Company at the Facilities are (i) insured to the extent
reflected in Schedule 3.7, (ii) sufficient for the operation of such Company as
presently conducted and (iii) in conformity with all applicable regulations.
(g) No Special Assessment. No Company has received notice of any
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special assessment relating to any Facility or any portion thereof, and, to the
best knowledge of the Companies, there is no pending or threatened special
assessment.
(h) Rent Schedule. Schedule 3.7(h) sets forth a schedule of the
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annual base rent for each of the properties which is the subject of a New Lease
(as defined below), which will also be the initial annual base rent under the
applicable New Lease, except as noted otherwise on Schedule 3.7(h).
3.8. Financial Statements.
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(a) The (i) audited consolidated and combined balance sheets of the
Companies (excluding Friction) dated December 31, 1997, 1996 and 1995,
respectively, and (ii) unaudited balance sheets of Friction dated December 31,
1997, 1996 and 1995, respectively (the balance sheets described under Section
3.8(a)(i) and (ii) hereof, dated 1997, 1996 and 1995, the "Balance Sheets," the
"1996 Balance Sheets" and the "1995 Balance Sheets," respectively) were, in the
case of the consolidated and combined balance sheet of the Companies, prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied except as set forth on Schedule 3.8 and were, in the case
of the balance sheets of Friction, prepared in accordance with sound accounting
principles consistently applied in accordance with past practices, and both
fairly present the financial condition of the Companies in all material respects
as of their respective dates, except as set forth on Schedule 3.8(a). The
Companies had no
8
liabilities of any nature as of such respective dates, whether absolute,
accrued, asserted or unasserted or contingent or whether due or to become due
which should have been recorded or reserved for on the Balance Sheets and were
not so recorded or reserved, except as set forth on Schedule 3.8(a).
(b) The (i) audited consolidated and combined statements of earnings
and retained earnings and statements of cash flows of the Companies (excluding
Friction) for the fiscal years ended December 31, 1997, 1996 and 1995,
respectively, (ii) the unaudited consolidated and combined income statements of
the Companies for the three-month period ended March 31, 1998, and (iii)
statements of earnings and retained earnings of Friction for the fiscal years
ended December 31, 1997, 1996 and 1995, respectively, were, in the case of the
consolidated and combined statements of earnings and retained earnings and
statements of cash flows of the Companies, prepared in accordance with GAAP
consistently applied (except as set forth on Schedule 3.8 and except for the
absence of footnotes, and subject to customary year-end adjustments, in the
unaudited statement), and were, in the case of the statements of earnings and
retained earnings for Friction, prepared in accordance with sound accounting
principles applied consistently with past practices, and both fairly present the
results of operations, changes in shareholder's equity and, where applicable,
the cash flows of the Companies in all material respects for each such period,
except as set forth on Schedule 3.8(a).
(c) Prior to the Closing, the Existing Shareholders shall remove the
airplane and the related debt in connection with City Transportation L.L.C. (or
in the Existing Shareholders' discretion, distribute the membership interests of
City Transportation, L.L.C.) from the financial statements of the Companies at
no impact to the Companies (other than the removal of the assets of City
Transportation, L.L.C. from the Companies' financial statements) and with any
tax effects being in periods prior to the Closing. Prior to the Closing, the
Existing Shareholders shall cause the Companies to contribute the life insurance
on Lane Clayton and the truck utilized by Lane Clayton to City Transportation,
L.L.C. and remove such items from the financial statements of the Companies at
no impact to the Companies (other than the removal of such assets from the
Companies' financial statements). In addition, prior to Closing, the Existing
Shareholders shall cause the Companies to remove the assets set forth on
Schedule 3.7.
(d) Copies of the financial statements described in Sections 3.8(a)
and (b) hereof have been provided to BABF or its representatives.
(e) The personal items set forth on Schedule 3.8(e) are personally
owned by the Existing Shareholders regardless of whether such items are removed
prior to the Closing.
3.9. Books and Records. Each of the Companies has made and kept (and
-----------------
given BABF and its representatives access to books and records and accounts,
which, in reasonable detail, accurately and fairly reflect all material
activities of each of the Companies. The minute books of each of the Companies
accurately and adequately reflect all material action taken by the shareholders,
board of directors (or
9
members) and committees of the board of directors (or members) of each of the
Companies. The copies of the stock/membership book records of each of the
Companies are true, correct and complete, and accurately reflect all
transactions effected in each Company's stock or membership interests through
and including the date hereof. None of the Companies have engaged in any
material transaction, maintained any bank account or used any material amount of
corporate funds except for the transactions, bank accounts and funds which have
been and are reflected in the normally maintained books and records of each of
the Companies.
3.10. Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of the Companies, after a search
of the information contained in their files relating to pending litigation,
threatened against any of the Companies or the directors, officers, agents or
employees of any of the Companies (in their capacity as such), or any properties
or rights of any of the Companies, except as set forth on Schedule 3.10. There
are no orders, writs, injunctions or decrees currently in force against any of
the Companies or the directors, officers, agents or employees of any of the
Companies (in their capacity as such) with respect to the conduct of any
Company's business.
3.11. Licenses and Permits; Compliance with Laws. Each of the
------------------------------------------
Companies owns, holds or possesses all licenses and permits necessary to entitle
it to use its corporate name, to own or lease, operate and use its assets and
properties and to carry on and conduct its business and operations as presently
conducted (the "Licenses and Permits"). No Company is in violation of or default
under any Licenses or Permits or any judgment, order, writ, injunction or decree
of any court or administrative agency issued against it or any law, ordinance,
rule or regulation applicable to it, except for such violations or defaults
which would not singly or in the aggregate have a Material Adverse Effect. Each
Company's conduct of its business has been and is in compliance with all
applicable laws, statutes, ordinances and regulations, the violation of which
would not singly or in the aggregate have a Material Adverse Effect. No Company
has received any notice asserting a failure to comply with any law, statute,
ordinance, regulation, rule or order of any foreign, federal, state or local
government or any other governmental department or agency.
3.12. Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, capital stock,
franchise, profits, withholding, social security, unemployment, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, (ii) "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof, (iii) "Income Tax" means any
federal, state, local or foreign tax calculated or assessed with respect to
income, including any interest, penalty or addition thereto, whether disputed or
not, and (iv)
10
"Income Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Income Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
(b) Each Company has timely filed, or caused to be timely filed, all
Tax Returns that it was required to file, taking into account any applicable
extensions of time with which to file any such Tax Returns. All such Tax
Returns were correct and complete in all material respects. All Taxes owed by
each Company (whether or not shown on any Tax Return) have been paid. No
Company currently is the beneficiary of any extension of time within which to
file any Tax Return except as set forth on Schedule 3.12. No claim has ever
been made by an authority in a jurisdiction where any Company does not file Tax
Returns that such Company is or may be subject to taxation by that jurisdiction.
There are no liens on any of the assets of any Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) Each Company has withheld and paid all material Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(d) There is no dispute or claim concerning any Tax Liability of any
Company either (i) claimed or raised by any authority in writing or (ii) of
which any Existing Shareholder or any Company has knowledge. To the knowledge
of each Company and each Existing Shareholder, no audit or examination of any
Tax Return is currently in progress, and no Company has received notice of any
proposed audit or examination. Each Company has furnished to BABF or its
representatives correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by any Company with respect to years ended on December 31, 1993 to December
31, 1997. No Company has waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) No Company has filed a consent under Section 341(f) of the Code
concerning collapsible corporations (or any comparable state income tax
provision). No Corporation has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. No Company is a party to any Tax allocation, sharing or indemnity
agreement. No Company (i) has been a member of an affiliated group of
corporations filing a consolidated federal income Tax Return or (ii) has any
liability for the Taxes of any person under Reg. Sec. 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise. Schedule 3.12 hereto sets forth all material elections
(e.g., accelerated depreciation, Sec. 263(a) regarding the allocation of
overhead to inventory, and LIFO election for inventory accounting) in effect as
of the date hereof with respect to Taxes affecting any Company.
11
(f) The unpaid Taxes of each Company did not exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
most recent Balance Sheets, except as set forth on Schedule 3.12. Each Company
has made provision, in conformity with GAAP consistently applied, on the Balance
Sheets and the interim financial statements for the payment of all Taxes which
may subsequently become due with respect to all periods up to and including the
respective dates of such statements, except as set forth on Schedule 3.12.
(g) City, Tennessee, Alabama and Friction (each an "S Corp," and
collectively, the "S Corps") have each been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code (and, except in the
case of Tennessee, any analogous provisions of state and local law) at all times
since the respective dates reflected on Schedule 3.12, and each S Corp will be
an S corporation up to and including the Closing Date except as set forth on
Schedule 3.12 (assuming the forward triangular merger does not destroy,
invalidate or cancel the S election). No Income Taxes will be payable by the S
Corps with respect to the taxable year beginning on January 1, 1998 and ending
on the day immediately preceding the Closing Date other than such Taxes
attributable to the consummation of the transactions contemplated by this
Agreement, except as set forth on Schedule 3.12 (assuming the forward triangular
merger does not destroy, invalidate or cancel the S election).
(h) No Company will be liable for any Tax under Section 1374 of the
Code in connection with the deemed sale of assets caused by an election under
Section 338(h)(10) of the Code other than Friction. No Company has, in the past
ten (10) years, (i) acquired assets from another corporation in a transaction in
which the Company's Tax basis for the acquired assets was determined, in whole
or in part, by reference to the Tax basis of the acquired assets (or any other
property) in the hands of the transferor or (ii) acquired the stock of any
corporation which is a qualified subchapter S subsidiary, except as set forth on
Schedule 3.12.
3.13. Brokers, Finders. Except as set forth on Schedule 3.13, no
----------------
Company nor any Existing Shareholder has retained any broker or finder in
connection with the transactions contemplated herein, and is not obligated and
has not agreed to pay any brokerage or finder's commission, fee or similar
compensation.
3.14. Absence of Certain Changes.
--------------------------
(a) Except as otherwise contemplated by this Agreement, since
December 31, 1997, each Company has conducted its business in the ordinary
course, has not done or permitted to be done anything described in Sections
5.6(a) through (r) hereof, and there has not occurred with respect to any
Company:
(i) any material adverse effect on the business, operations,
assets, results of operations or financial condition of the Companies,
taken as a whole (excluding
12
effects or changes resulting from consequential general industry wide
changes in the national or international economy) ("Material Adverse
Effect");
(ii) any revaluation of assets, including, without limitation,
writing down the value of inventory or writing off notes or accounts
receivable, other than in the ordinary course of business consistent with
past practices;
(iii) any payment, discharge or satisfaction of any liabilities
or obligations, other than in the ordinary course of business;
(iv) any incurrence of liabilities, except liabilities incurred
in the ordinary course of business, or increase or change in any
assumptions underlying or methods of calculating, any doubtful account
contingency or other reserves;
(v) any capital expenditure (other than in the ordinary course
of business consistent with past practice), the execution of any lease or
the incurring of any obligation to make any capital expenditure (other than
in the ordinary course of business consistent with past practice) or
execute any lease;
(vi) the failure to pay or satisfy when due any liability,
except where the failure would not have a Material Adverse Effect, or (ii)
except where there is a bona fide dispute as to the nature or amount of
such liability and adequate reserves in accordance with GAAP are reflected
in the applicable financial statements;
(vii) any assets (whether real, personal or mixed, tangible or
intangible) becoming subject to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind, except in the
ordinary course of business;
(viii) the disposition or lapsing of any Proprietary Rights (as
defined below) or any disposition or disclosure to any third party of any
Proprietary Rights not theretofore a matter of public knowledge;
(ix) any cancellation or waiver of any material claims or
rights of value, or any sale, lease, transfer, assignment, distribution or
other disposition of any assets, except for sales of finished goods
inventory in the ordinary course of business, or any disposal of any
material assets for any amount to a Company, other than (i) in the ordinary
course of business consistent with past practices, (ii) pursuant to Section
3.8(c) hereof, or (iii) the cancellation of certain real property leases
between the Companies on one hand and Larry Clayton, C&J Properties or D&D
Properties, Inc. on the other hand, which will be replaced by new real
property leases between such parties to be executed at Closing,
substantially in the forms of Exhibits A1 and A2 attached hereto (the "New
Leases");
13
(x) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or Permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or Permit which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(xi) any bonus paid or promised, an increase in the base
compensation, or other payment or loan to any director, officer or
employee, whether now or hereafter payable or granted (other than bonuses
and increases in base compensation to non-executive employees in the
ordinary course consistent in timing and amount or method with past
practices), or entry into or variation of the terms of any employment or
incentive agreement with any such person;
(xii) a material adverse change in employee relations which has
or is reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business or the relationships
between the employees of a Company and the management of such Company;
(xiii) any change in any method of accounting or keeping books
of account or accounting practices;
(xiv) any damage, destruction or loss of any asset, whether or
not covered by insurance, which has had or would have a Material Adverse
Effect.
(xv) the issuance, delivery or sale of any equity securities,
or alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money (other than borrowings
under its revolving credit facility in the ordinary course of business);
(xvi) the declaration, payment or setting aside for payment any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
City Stock, or the creation of any securities convertible into or
exchangeable for any shares of City Stock or any options, warrants or other
rights to purchase or subscribe to any of the foregoing, other than for (i)
distributions in an amount not to exceed Seventy-Five Thousand Dollars
($75,000) made to the shareholders of Friction representing the
undistributed balance of 1997 taxable income, (ii) distributions made to
the Existing Shareholders of 1998 earnings, (iii) in March of 1998,
contributions in the amount of $127,400.00 to the capital of City
Transportation L.L.C. in accordance with prior practices, (iv) as of
December 31, 1997, advances of $120,330.27 to Delton Clayton and
$137,804.35 to Deidra O'Neal, (v) in January, 1998, for purposes of paying
1997 taxes, a distribution to Larry Clayton of $416,200.00 and advances of
$34,070.00 and $36,680.00 to Delton Clayton and Deidra O'Neal,
respectively, and (vi) as otherwise specifically contemplated herein;
14
(xvii) the adoption of any plan of liquidation or resolutions
providing for the liquidation, dissolution, merger, consolidation or other
reorganization;
(xviii) the existence of any other event or condition which, in
any one case or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect; or
(xix) an agreement to do any of the things described in the
preceding clauses (i) - (xviii) other than as expressly provided for
herein, except as set forth on Schedule 3.14.
3.15. Material Contracts. Schedule 3.15 sets forth a complete and
------------------
correct list of all the Material Contracts to which any Company, or in the case
of Section 3.15(g) hereof, any Existing Shareholder, is a party. As used in this
Agreement, "Material Contracts" means:
(a) all contracts not made in the ordinary course of business;
(b) all leases or other agreements under which any Company is a
lessor or lessee of any real property or any machinery, equipment, vehicle or
other tangible personal property owned by a third party and used in the business
of any Company, which entails annual payments, in the case of any such lease or
agreement, in excess of $5,000, other than the New Leases;
(c) all options with respect to any property, real or personal,
whether the Company shall be the grantor or grantee thereunder;
(d) all distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to assets
or the business and which are not cancelable on thirty (30) calendar days
notice;
(e) all mortgages, indentures, security agreements, pledges, notes,
loan agreements or guaranties relating to any Company in a principal amount (or
with maximum availability) in excess of $15,000;
(f) all contracts and agreements to which any Company is a party and
which are (i) outstanding contracts with its officers, employees, agents,
consultants, advisors, salesmen, sales representatives, distributors, sales
agents or dealers of such Company other than purchase orders made by any
customer of the Companies in the ordinary course of business and contracts which
by their terms are cancelable by such Company with notice of not more than 30
days and without cancellation penalties or severance payments, in the case of
any such contract, in excess of $5,000, (ii) collective bargaining agreements of
any Company which relate to the business of such Company, and (iii) pension,
profit-sharing, bonus, retirement, stock option or employee benefit plans or
other similar plans or arrangements of any Company;
15
(g) any covenant not to compete or similar restriction on any Company
or any Existing Shareholder;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $5,000; or
(i) any contract or agreement (other than purchase orders for the
sale or purchase of inventory and equipment in the ordinary course of business)
providing for the receipt or payment (whether the obligations are fixed or
contingent) of $5,000 or more after the date of this Agreement, including,
without limitation, agreements calling for penalties or payments upon voluntary
termination or withdrawal by any Company.
The Companies have furnished or will furnish to BABF or its representatives true
and correct copies of all Material Contracts prior to the Closing, including all
amendments and supplements thereto.
3.16. Proprietary Rights.
------------------
(a) Schedule 3.16 lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for each of
the Companies. Schedule 3.16 also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.16 are
all those used by the Companies in connection with their respective businesses.
None of the Companies own, control or otherwise have any interest in any patents
or pending patent applications.
(b) No Company has entered into an agreement to compensate any person
for the use of any such Proprietary Rights nor has any Company granted to any
person any license, option or other rights to use in any manner any of its
Proprietary Rights, whether requiring the payment of royalties or not.
(c) To the best knowledge of the Companies, the Companies
individually or collectively own or have a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of any Company by reason of the execution, delivery and performance of this
Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. No Company has received any notice of
invalidity or infringement of any rights of others with respect to such
trademarks. No other person (i) to the best knowledge of any Company after a
search of its files relating to intellectual property (excluding any search of
records generally available to the public), has the right to use
16
any trademarks of any of the Companies on the goods on which they are now being
used either in identical form or in such near resemblance thereto as to be
likely, when applied to the goods of any such person, to cause confusion with
such trademarks or to cause a mistake or to deceive, (ii) has notified any
Company that it is claiming any ownership of or right to use such Proprietary
Rights, or (iii) to the best knowledge of any Company, is infringing upon any
such Proprietary Rights in any way. To the best knowledge of any Company after a
search its files relating to intellectual property (excluding any search of
records generally available to the public), no Company's use of any Proprietary
Rights does not and will not conflict with, infringe upon or otherwise violate
the valid rights of any third party in or to such Proprietary Rights, and no
Action has been instituted against or notices received by any Company that are
presently outstanding, alleging that a Company's use of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party in or to such
Proprietary Rights.
3.17. Labor Matters. No Company is a party to any labor agreement
-------------
with respect to its employees with any labor organization, union, group or
association, and there are no employee unions (nor any other similar labor or
employee organizations) under local statutes, custom or practice. No Company has
experienced any attempt by organized labor or its representatives to make it
conform to demands of organized labor relating to its employees or to enter into
a binding agreement with organized labor that would cover the employees of such
Company. There is no labor strike or labor disturbance pending or, to the best
knowledge of any Company, threatened against a Company, nor is any grievance
currently being asserted, and no Company has experienced a work stoppage or
other labor difficulty, and is not and has not engaged in any unfair labor
practice. Without limiting the foregoing, to the best knowledge of the
Companies, the Companies are in compliance with the Immigration Reform and
Control Act of 1986. The Companies maintain a current Form I-9, as required by
such Act, in the personnel file of each employee hired after November 9, 1986.
3.18. Consents. Except as set forth on Schedule 3.18 and except for
--------
the filing required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "H-S-R Act"), no consent, approval, authorization, order,
filing, registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by any
Company in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation by the Companies and the Existing
Shareholders of the transactions contemplated herein and therein, which
Consent(s), if not obtained, would have a Material Adverse Effect.
3.19. Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Schedule 3.19 hereto sets forth a complete and correct list of
all (i) employment contracts, employment arrangements and other arrangements
that provide benefits to employees or former employees of any Company and that
are not Plans (as defined below) (collectively, the "Employment Contracts"),
(ii) all "employee welfare benefit plans" or "employee pension benefit plans,"
as such terms are defined in Sections 3(1) and 3(2),
17
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which are maintained, administered or contributed to by the Companies
and cover employees or former employees of the Companies or under which any
Company could incur any liability (collectively, the "Plans"). The Companies
have furnished to BABF or its representatives, true and correct copies of
instruments evidencing all such Employment Contracts and the Plans, all as
amended to date.
(b) None of the Plans is a "multiemployer plan" as such term is
defined in Section 3(37) or Section 4001(1)(a)(3) of ERISA. In the past six
years, no Company has maintained, sponsored, or been required to contribute to,
has withdrawn from (either completely or partially), or has incurred any unpaid
withdrawal liability (as defined in Section 4201, 4063 or 4064 of ERISA) with
respect to, any "multiemployer plan," as such term is defined in Section 3(37)
or Section 4001(1)(a)(3) of ERISA.
(c) The Plans have been administered in compliance with their terms
and with all filings, reporting, disclosure, and other requirements of ERISA,
the Code and any other applicable law. Each Plan (together with its related
funding instrument) which is an "employee pension benefit plan," as such term is
defined in Section 3(2) of ERISA (such Plans, the "Pension Plans"), and which is
intended to be qualified under the Code, is qualified under Section 401 of the
Code and the regulations issued thereunder, and each such Plan and its related
funding instrument have been the subject of a favorable determination letter
issued by the Internal Revenue Service holding that such Plan and funding
instrument are currently and at all times have been so qualified except as
otherwise reflected on Schedule 3.19.
(d) None of the Companies nor any of their respective employees or
directors, nor, to the knowledge of each Company, any plan fiduciary of any of
the Plans, have engaged in any transaction in violation of Section 406(a) or (b)
of ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which no exemption exists under Section 4975(d) of the Code, and,
to the knowledge of any Company, no "reportable event" (as defined in Section
4043 of ERISA and the regulations promulgated thereunder), other than such as
may arise out of the consummation of the transactions contemplated by this
Agreement, has occurred in connection with any Plan.
(e) Other than routine claims for benefits made in the ordinary
course of business, there are no pending claims, investigations or causes of
action ("Claims") and to the best knowledge of any Company, no such Claims are
threatened against any Plan or fiduciary of any such Plan by any participant,
beneficiary or governmental agency with respect to the qualification or
administration of any such Plan.
(f) The Companies have provided to BABF or its representatives a copy
of the Plans, related trust agreements, all amendments thereto together with the
annual reports required to be filed during the last three years (Form 5500,
including Schedule B thereto). The
18
Companies have provided BABF or its representatives with true and complete age,
service and related data for employees covered under each Pension Plan as of
December 31, 1997.
(g) None of the Plans is subject to minimum funding requirements of
ERISA or Section 412 of the Code. No Company has, in the past six years,
maintained, sponsored, contributed to or been obligated to contribute to any
"employee pension benefit plan," as such term is defined in Section 3(2) of
ERISA which is, or at any time in the past six years was, subject to the minimum
funding requirements of ERISA or Section 412 of the Code.
(h) The Companies and the entities required to be aggregated with it
under Sections 414(b), (c), (m) and (o) of the Code (the "Company ERISA
Affiliates") have not incurred any liability to the PBGC or any Pension Plan
under Title IV of ERISA that could become a liability of BABF or any Company
ERISA Affiliate. Neither BABF nor any Company ERISA Affiliate will incur any
liability under Section 411(d)(3) of the Code for vested accrued benefits
arising from a partial termination of any Pension Plan prior to the Closing
Date.
(i) All amounts required to be contributed to any Pension Plan by any
Company will, as of the Closing Date, have been paid or properly accrued on the
books of each of the Companies. Any amounts required to be accrued as expenses
in accordance with applicable pension accounting requirements through the
Closing Date have been or will be properly recorded on the books of each of the
Companies as of the Closing Date. The Companies shall either contribute or
accrue on their respective books the amount of any employer matching
contributions or discretionary contributions (in an amount determined in
accordance with each Company's past practices) to any Pension Plan which in the
ordinary course of business would be contributed for or attributable to the
period for the calendar quarter prior to the Closing Date.
(j) To the best knowledge of any Company, no condition exists and no
event has occurred which has caused or would give rise to a partial termination
of any Pension Plan.
(k) None of the assets of the Pension Plans are invested in property
constituting employer real property or employer security (within the meaning of
Section 407(d) of ERISA).
(l) Neither the execution and delivery of this Agreement, the
Ancillary Agreements nor any of the transactions contemplated herein and
therein, will terminate or modify, or give a third person a right to terminate
or modify, the provisions or terms of any Employment Contract or Plan (including
employment agreements) and will not constitute a stated triggered event under
any Employment Contract or Plan or any other agreement with any person or entity
that will result in any payment or the acceleration of the right to receive any
payment (including parachute payments, severance payments or any similar
payments) that would not be deductible becoming due to any employees of any
Company.
19
(m) Except as set forth on Schedule 3.19, no Company or any Plan
which is a "welfare benefit plan," as such term is defined in Section 3(1) of
ERISA has any present or future obligation to provide medical or other welfare
benefits to, or to make any payment to or with respect to medical or other
welfare benefits of, any present or former employee of any Company or any ERISA
Subsidiary.
(n) No Company ERISA Affiliate has incurred any liability with
respect to which any Company has incurred or could incur any liability.
3.20. Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section
-----------
3.20, shall have the following meanings. Any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference.
(i) "Company" for the purposes of this Section, shall mean (i)
the Companies, (ii) all partnerships, joint ventures and other entities or
organizations in which any Company was at any time or is a partner, joint
venturer, member or participant and (iii) all predecessor or former
corporations, partnerships, joint ventures, organizations, businesses or
other entities, whether in existence as of the date hereof or at any time
prior to the date hereof, the assets or obligations of which have been
acquired or assumed by any Company or to which any Company has succeeded.
(ii) "Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing into the environment or the workplace of any
hazardous substance, and otherwise as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant, chemical, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound
or hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all Regulations which
regulate or relate to the protection or clean-up of the environment, the
use, treatment, storage, transportation, generation, manufacture,
processing, distribution, handling or disposal of, or emission, discharge
or other release or threatened release of, Hazardous Substances (whether,
gas, liquid or solid), the preservation or protection of waterways,
groundwater,
20
drinking water, air, wildlife, plants or other natural resources, or the
health and safety of persons or property, including without limitation
protection of the health and safety of employees. Environmental Laws shall
include, without limitation, the Federal Insecticide, Fungicide,
Rodenticide Act, Resource Conservation & Recovery Act, Clean Water Act,
Safe Drinking Water Act, Atomic Energy Act, Occupational Safety and Health
Act, Toxic Substances Control Act, Clean Air Act, Comprehensive
Environmental Response, Compensation and Liability Act, Emergency Planning
and Community Right-to-Know Act, Hazardous Materials Transportation Act and
all analogous or related federal, state or local law, each as amended.
(v) "Environmental Conditions" means the Release of a
Hazardous Substance (whether or not upon any Facility or former Facility or
other property and whether or not the Release constituted at the time
thereof a violation of any Environmental Law as a result of which any
Company has or may become liable to any person or by reason of which any
Facility or any of the assets of any Company may suffer or be subjected to
any lien.
(b) Notice of Violation. No Company has received a notice of
-------------------
alleged, actual or potential responsibility for, or any inquiry or investigation
regarding, (i) any Release or threatened Release of any Hazardous Substance at
any location, whether at the Facilities, the former Facilities or otherwise or
(ii) an alleged violation of or non-compliance with the conditions of any Permit
required under any Environmental Law or the provisions of any Environmental Law.
No Company has received notice of any other claim, demand or Action by any
individual or entity alleging any actual or threatened injury or damage to any
person, property, natural resource or the environment arising from or relating
to any Release or threatened Release of any Hazardous Substances at, on, under,
in, to or from any Facilities or former Facilities, or in connection with any
operations or activities of any Company.
(c) Environmental Conditions. To the knowledge of each Company,
------------------------
there are no present or past Environmental Conditions at any Facility or former
Facility, except as disclosed in any report described on Schedule 3.20.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of any Company, of
all environmental audits or assessments which have been conducted at any
Facility or former Facility within the past five years, either by a Company or
any attorney, environmental consultant or engineer engaged for such purpose,
have been delivered to BABF or its representatives and a list of all such
reports, audits and assessments and any other similar report, audit or
assessment of which any Company has knowledge is included in Schedule 3.20
hereto.
21
(e) Indemnification Agreements. To the knowledge of each Company
--------------------------
after a review of its lease and acquisition files, no Company is a party,
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any lease or other contract (excluding
insurance policies disclosed on the Schedule) under which any Company is
obligated by or entitled to the benefits of, directly or indirectly, any
representation, warranty, indemnification, covenant, restriction or other
undertaking concerning Environmental Conditions, except as set forth on Schedule
3.20.
(f) Releases or Waivers. To the knowledge of each Company after a
-------------------
review of its lease and acquisition files, no Company has released any other
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. To the knowledge of each Company,
-----------------------------
each of the Companies has given all notices and warnings, made all reports, and
has kept and maintained all records required by and in compliance with all
Environmental Laws.
3.21. Certain Business Relationships with the Companies. Except as
-------------------------------------------------
set forth on Schedule 3.21, none of the Existing Shareholders owning more than
5% of its outstanding voting securities have been involved in any business
arrangement or relationship with any Company within the past 12 months, and none
of such Existing Shareholders own any assets, tangible or intangible, which are
used in the business of any Company.
3.22. Undisclosed Liabilities. To the best knowledge of any Company
-----------------------
after a search of its files relating to pending litigation and outstanding debt
for borrowed money, no Company has any liabilities or obligations, whether
accrued, absolute, contingent or otherwise except (i) to the extent reflected or
reserved for on the Balance Sheets, (ii) liabilities or obligations incurred in
the normal and ordinary course of business of each of the Companies since
December 31, 1997, (iii) liabilities or obligations disclosed in Schedule 3.22
and in the other Schedules attached hereto, or (iv) liabilities or obligations
disclosed elsewhere in this Agreement.
3.23. Insurance. Schedule 3.23 contains a complete and accurate list
---------
of all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance (showing as to each policy or
binder the carrier, policy number, coverage limits, expiration dates, annual
premiums, a general description of the type of coverage maintained by each of
the Companies on its respective (i) businesses, (ii) assets or (iii) employees
as presently maintained and a list prepared by the Company's insurance broker of
all such policies or binders for all times since December 31, 1987. All
insurance coverage applicable to each of the Companies or its respective
businesses or assets is in full force and effect provides coverage as may be
required by applicable law and by any and all contracts to which any Company is
a party. There is no default under any such coverage nor has there been any
failure to give notice or present any claim under any such coverage in a due and
timely fashion. There are no outstanding unpaid premiums except in the ordinary
course of business
22
and no notice of cancellation or nonrenewal of any such coverage has been
received. There are no outstanding performance bonds covering or issued for the
benefit of any Company. No insurer has advised any Company that it intends to
reduce coverage, increase premiums or fail to renew existing policy or binder.
3.24. Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheets, and all accounts receivable arising since the date of the
Balance Sheets, represent bona fide claims of the Companies against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. To the Companies' knowledge, said accounts
receivable are subject to no defenses, counterclaims or rights of setoff other
than those that have arisen in the ordinary course of business consistent with
past experiences which in the aggregate would not have a Material Adverse
Effect. The reserves for bad debts on accounts receivable as set forth on the
Balance Sheets have been established by estimates of the Company made in the
exercise of its business judgment consistent with past practices and in
accordance with GAAP.
3.25. Inventory. Schedule 3.25 contains a complete and accurate list
---------
of all inventory set forth on the Balance Sheets and the addresses at which such
inventory is located. The Companies have good title to, and unrestricted
possession of, all inventory set forth on the Balance Sheets, free and clear of
all liens, mortgage, pledges, encumbrances, and security interests except as set
forth on Schedule 3.25. The inventory as set forth on the Balance Sheets or
arising since the date of the Balance Sheets was acquired and has been
maintained in the ordinary course of business of the Companies consistent with
past practices, and is valued at amounts based on the normal valuation policy of
the Companies.
3.26. Payments. No Company has, directly or indirectly, paid or
--------
delivered any fee, commission or other sum of money or item or property, however
characterized, to any finder, agent, client, customer, supplier, government
official or other party, in the United States or any other country, which is in
any manner related to the business, assets or operations of any Company, which
is, or may be with the passage of time or discovery, illegal under any federal,
state or local laws of the United States (including, without limitation, the
U.S. Foreign Corrupt Practices' Act) or any other country having jurisdiction.
No Company has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers.
3.27. Customers, Distributors and Suppliers. Schedule 3.27 sets forth
-------------------------------------
a complete and accurate list of the names and addresses of each Company's (i)
ten largest (in terms of dollar volume) customers, distributors and other agents
and representatives during each Company's last fiscal year, showing the
approximate total sales in dollars by such Company to such customer during such
fiscal year; and (ii) suppliers during each Company's last fiscal year, showing
the approximate total purchases in dollars by each Company from such supplier
during such fiscal year. Since the date of the Balance Sheets, no Company has
received any written
23
communication regarding any adverse change in the business relationship of such
Company with any customer, distributor or supplier named on Schedule 3.27. No
Company has received any written communication from any customer, distributor or
supplier named on Schedule 3.27 regarding any intention, and no Company has any
reason to anticipate that any customer, distributor or supplier intends, to
terminate or materially reduce purchases from or supplies to such Company.
3.28. Banking Relationships. Schedule 3.28 sets forth a complete and
---------------------
accurate description of all arrangements that each Company has with any banks,
savings and loan associations or other financial institutions providing for
checking accounts, safe deposit boxes, borrowing arrangements, and certificates
of deposit or otherwise, indicating in each case account numbers, if applicable,
and the person or persons authorized to act or sign on behalf of each Company in
respect of any of the foregoing.
3.29. Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by the Companies or the Existing Shareholders in this Agreement,
including, without limitation, the Exhibits and Schedules, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact necessary to make the statements or facts contained herein not
misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BABF
BABF represents and warrants to the Companies and the Existing Shareholders
as follows:
4.1. Organization and Standing. BABF City Corp. is a corporation duly
-------------------------
incorporated, organized, and validly existing under the laws of the State of
Delaware and has all requisite corporate power and authority to execute and
deliver this Agreement, the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby.
4.2. Authorization. This Agreement has been duly authorized, executed
-------------
and delivered by BABF, and is its valid and binding obligation, enforceable
against it in accordance with its terms, except as enforcement may be limited by
equitable principles limiting the right to obtain specific performance or other
equitable remedies, or by applicable bankruptcy or insolvency laws and related
decisions affecting creditors' rights generally.
4.3. No Conflict. Neither the execution and delivery of this
-----------
Agreement, the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby or thereby, will (i) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which BABF is a party or by which it is bound or to
which any of its assets is subject, (ii) conflict with or result in a breach of
or constitute a default under
24
any provision of its Certificate of Incorporation or Bylaws (or other charter
documents), or a default under or violation of any material restriction, lien,
encumbrance or any contract to BABF is a party or by which it is bound or to
which any of its assets is subject or result in the creation of any lien or
encumbrance upon any of said assets, (iii) violate or result in a breach of or
constitute a default under any judgment, order, decree, rule or regulation of
any court or governmental agency to which BABF is subject, or (iv) violate,
conflict with or result in a breach of any applicable federal or state rule or
regulation.
4.4. Litigation. There are no actions, suits, proceedings or
----------
investigations pending, or to BABF's best knowledge after a review of its files
related to litigation, threatened which question the validity of this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated herein.
4.5. Brokers, Finders. BABF has not retained any broker or finder,
----------------
nor is obligated or has agreed to pay any brokerage or finder's commission, fee
or similar compensation, in connection with the transactions contemplated
herein, other than pursuant to the Corporate Development and Administrative
Services Agreement to be entered into at Closing between City and Brentwood
Private Equity LLC.
4.6. Approvals, Etc. All consents, approvals, authorizations and
--------------
orders (corporate, governmental or otherwise) necessary for the due
authorization, execution and delivery by BABF of this Agreement, the Ancillary
Agreements and the consummation of the transactions contemplated hereby and
thereby have been obtained.
4.7. Material Misstatements or Omissions. No representations or
-----------------------------------
warranties by BABF in this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements of facts contained herein not misleading.
ARTICLE V.
CONDUCT OF BUSINESS PENDING CLOSING
AND POST-CLOSING COVENANTS
The Companies, the Existing Shareholders and BABF each covenant with
the others as follows:
5.1. Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, the Parties agree, both before and after the Closing, (i) to
use all reasonable good faith efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement or
the Ancillary Agreements, (ii) to execute any documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to carry
out any of the transactions contemplated hereunder, and (iii) to cooperate with
each other in
25
connection with the foregoing. Without limiting the foregoing, the parties
agree to use their respective good faith reasonable efforts (A) to obtain all
necessary waivers, consents and approvals from other parties (including, without
limitation, governmental entities) to the consummation of the transactions
contemplated by this Agreement, except that no Parties shall be required to
engage in litigation or to incur any material costs with respect thereto (other
than payment of the H-S-R filing fee by BABF; (B) to obtain all necessary
Permits as are required to be obtained under any regulations; (C) to defend all
Actions challenging this Agreement or the consummation of the transactions
contemplated hereby; (D) to lift or rescind any injunction or restraining order
or other court order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; (E) to give all notices to, and
make all registrations and filings with third parties, including, without
limitation, submissions of information requested by governmental authorities;
and (F) to fulfill all conditions to this Agreement. If not previously done,
within five (5) calendar days after the execution and delivery of this
Agreement, the Parties shall make all filings required under the H-S-R Act.
5.2. No Solicitation and Confidentiality.
-----------------------------------
(a) The Confidentiality Agreement, dated February 26, 1998, by and
between Brentwood Private Equity LLC and City, shall continue in effect until
the Closing. From the date hereof through the Closing or the earlier
termination of this Agreement, none of the Parties nor their representatives
(including, without limitation, investment bankers, attorneys and accountants)
shall, directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquiries or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any corporation,
partnership, person or other entity or group, concerning any sale of all or a
portion of the Companies, or of any shares of capital stock of any Company, or
any merger, consolidation, liquidation, dissolution or similar transaction
involving any Company (each such transaction being referred to herein as a
"Proposed Acquisition Transaction") other than with (i) another Party hereto and
their representatives or (ii) employees of the Companies regarding such
employees' possible investments in City. No Company shall, directly or
indirectly, through any officer, director, employee, representative, agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) or entity
relating to any Proposed Acquisition Transaction. Each of the Companies
represents that it is not now engaged in discussions or negotiations with any
party other than BABF with respect to any of the foregoing.
(b) Notification. Each of the Companies will immediately notify BABF
------------
if any discussions or negotiations are sought to be initiated, any inquiry or
proposal is made, or any information is requested with respect to any Proposed
Acquisition Transaction and notify BABF of the terms of any proposal which it
may receive in respect of any such Proposed Acquisition Transaction, including,
without limitation, the identity of the prospective purchaser or soliciting
party.
26
5.3. Disclosures.
-----------
(a) Prior to the Closing, none of the Parties shall disclose the
details nor the status of the transactions contemplated by this Agreement except
(i) as required by law, (ii) to Jim Stone and his representatives or (iii)
certain vendors of the Companies.
(b) Prior to the Closing, the Parties shall agree on the terms of any
press releases or other public announcements related to this Agreement and shall
consult with each other before issuing any press releases or other public
announcements related to this Agreement; provided, however, that any party may
make a public disclosure if in the opinion of such party's counsel it is
required by law to make such disclosure. The parties agree, to the extent
practicable, to consult with each other regarding any such required public
announcement in advance thereof.
5.4. Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, each of the Companies shall give prompt notice to BABF of (a) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement or
in any exhibit or Schedule hereto to be untrue or inaccurate in any material
respect and (b) any material failure of any Company, or of any of their
respective shareholders or representatives, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or any exhibit or Schedule hereto; provided, however, that such
-------- -------
disclosure shall not be deemed to cure any breach of a representation, warranty,
covenant or agreement or to satisfy any condition. Each of the Companies shall
promptly notify BABF of any default, the threat or commencement of any Action,
or any development that occurs before the Closing that could in any way
materially affect any Company, its assets or its business.
5.5. Investigation by BABF and Its Representatives.
---------------------------------------------
(a) The Companies shall, and shall cause its officers, directors,
employees and agents, to afford BABF and its representatives complete access at
all reasonable times and upon reasonable notice to each Company's Facilities,
officers, employees, agents, attorneys, accountants, properties, books and
records, and contracts, and shall furnish BABF and its representatives, all
financial, operating and other data and information as BABF through its
respective representatives, may reasonably request, including an unaudited
consolidated balance sheets and the related statements of earnings and retained
earnings and cash flow for each month from the date hereof through the Closing
Date within 15 calendar days after the end of each month, which financial
statements shall be in accordance with the books and records of each of the
Companies and be prepared in accordance with accounting principles and
procedures historically used in preparing interim statements, all of which will
be unaudited without footnotes and subject to normal year-end adjustments.
(b) BABF shall have the right to conduct due diligence of the Leased
Real Property, to confirm that all such Leased Real Property are in compliance
with environmental
27
and zoning laws and the Americans with Disabilities Act of 1990. BABF agrees to
order Phase I site assessment reports and, if necessary, Phase II site
assessment reports for the Leased Real Property. BABF shall initially bear the
costs of the due diligence which it incurs, but if the Closing occurs, City
shall bear (and reimburse BABF for) all such costs of the due diligence;
provided, however, that the Existing Shareholders shall be liable up to $50,000
- -------- -------
for any environmental remediation recommended in the site assessment reports of
any Leased Real Property. If remediation costs exceed $50,000, the Parties will
negotiate in good faith regarding such excess, but no Party will have any
liability for failure to reach an agreement on this point.
5.6. Conduct of Business. From the date hereof through the Closing,
-------------------
the Companies shall, except as contemplated by this Agreement, or as consented
to by BABF in writing, operate their respective businesses in the ordinary
course of business and in accordance with past practice and will not take any
action inconsistent with this Agreement or with the consummation of the Closing.
Without limiting the generality of the foregoing, no Company shall, except as
specifically contemplated by this Agreement or as consented to by BABF in
writing:
(a) change or amend its Articles of Incorporation or Bylaws;
(b) enter into, extend, materially modify, terminate or renew any
contract or lease, except in the ordinary course of business;
(c) sell, assign, transfer, convey, lease, mortgage, pledge or
otherwise dispose of or encumber any assets, or any interests therein, except in
the ordinary course of business and, without limiting the generality of the
foregoing, each Company will produce, maintain and sell inventory consistent
with its past practices;
(d) incur any liability for long-term interest bearing indebtedness,
guarantee the obligations of others, indemnify others or, except in the ordinary
course of business, incur any other liability;
(e) (i) take any action with respect to the grant of any bonus,
severance or termination pay (otherwise than pursuant to policies or
agreements of each of the Companies in effect on the date hereof that are
described on the Schedules) or with respect to any increase of benefits
payable under its severance or termination pay policies or agreements in
effect on the date hereof or increase in any manner the compensation or
fringe benefits of any employee or pay any benefit not required by any
existing Employee Plan or policy, except that the Companies may pay
aggregate bonuses of up to $400,000 to four employees identified by Larry
Clayton prior to the date hereof;
(ii) make any change in the key management structure,
including, without limitation, the hiring of additional officers or the
termination of existing officers ;
28
(iii) adopt, enter into or amend any Employee Plan, agreement
(including, without limitation, any collective bargaining or employment
agreement), trust, fund or other arrangement for the benefit or welfare of
any employee, except for any such amendment as may be required to comply
with applicable Regulations; or
(iv) fail to maintain all Employee Plans in accordance with
applicable Regulations;
(f) acquire by merger or consolidation with, or merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire any
material assets or business of any corporation, partnership, association or
other business organization or division thereof;
(g) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock except for (i) distributions in an
amount not to exceed $75,000 made to the shareholders of Friction representing
the undistributed balance of 1997 taxable income, (ii) distributions to Existing
Shareholders immediately prior to Closing as set forth in Section 1.2 hereof,
and (iii) distributions or advances made to Existing Shareholders not in excess
of Year to Date Income plus $10,000,000 pursuant to Section 5.6(e)(i) hereof;
----
(h) fail to expend funds for budgeted capital expenditures or
commitments;
(i) willingly allow or permit to be done, any act by which any of the
Insurance Policies may be suspended, impaired or canceled;
(j) (i) fail to pay its accounts payable and any debts owed or
obligations due to it, or pay or discharge when due any liabilities, in the
ordinary course of business; or
(ii) fail to collect its accounts receivable in the ordinary
course of business;
(k) fail to maintain its assets in substantially their current state
of repair, excepting normal wear and tear or fail to replace consistent with
past practice inoperable, worn-out or obsolete or destroyed assets;
(l) make any loans or advances to any partnership, firm or
corporation, or, except for expenses incurred in the ordinary course of
business, any individual;
(m) make any income tax election or settlement or compromise with tax
authorities without providing BABF with written notice of such election,
settlement or compromise;
(n) fail to comply with all regulations applicable to it, its assets
and its business, the violation of which would singly or in the aggregate have a
Material Adverse Effect;
29
(o) intentionally do any other act which would cause any
representation or warranty of any Company in this Agreement to be or become
untrue in any material respect;
(p) issue, repurchase or redeem or commit to issue, repurchase or
redeem, any shares of its capital stock, any options or other rights to acquire
such stock or any securities convertible into or exchangeable for such stock;
(q) fail to use its good faith reasonable efforts consistent with
past practices to (i) retain its employees and (ii) maintain the its business so
that such employees will remain available to it on and after the Closing Date,
(iii) maintain existing relationships with suppliers, customers and others
having business dealings with it and (iv) otherwise preserve the goodwill of its
business so that such relationships and goodwill will be preserved on and after
the Closing Date;
(r) enter into any agreement, or otherwise become obligated, to do
any action prohibited hereunder.
5.7. Tax Matters.
-----------
(a) Each S Corp shall timely prepare and file, or cause to be
prepared and filed, Internal Revenue Service Form 1120S (and any analogous state
or local Tax Returns) in accordance with Section 1362(e) of the Code and each
limited liability company shall prepare and file, or cause to be prepared and
filed Internal Revenue Service Form 1065 (and any analogous state or local
Income Tax Returns), for the period January 1, 1997 through the day immediately
preceding the Closing Date (the "S Short Year") and Internal Revenue Service
Schedules K-1 for the S Short Year. As used herein, all reference to Income Tax
Returns shall include the Internal Revenue Service Form 1065 and any analogous
state or local Income Tax Returns applicable to limited liability companies.
Each S Corp shall deliver such Income Tax Returns to BABF or its representatives
and allow BABF the opportunity to comment upon such returns prior to the filing
thereof. The Existing Shareholders shall timely pay, or cause to be paid, when
due (i) all Income Taxes relating to the periods covered by such Income Tax
Returns and (ii) any other Income Taxes relating to periods ending on or before
the Closing Date and not accrued on the Balance Sheets. Nothing herein shall be
construed to limit the rights of City or BABF under the provisions of Section
8.1 with respect to any breach of the representations and warranties contained
in Section 3.12.
(b) Except as provided in Section 5.7(a) and subject to Section
5.7(c) hereof, City shall prepare or complete, or cause to be prepared or
completed, and timely file, or cause to be timely filed, all Tax Returns of each
Company required to be filed that relate to a taxable period that ends on or
prior to or includes the Closing Date to the extent such Tax Returns have not
been filed prior to the Closing Date, and shall timely pay, or cause to be
timely paid, when due, all Taxes relating to such Tax Returns in accordance with
all applicable laws and regulations. Nothing herein shall be construed to limit
the rights of City and BABF under Section 8.1 hereof with respect to any breach
of the representations and warranties contained in
30
Section 3.12 hereof. Except as provided in Section 5.7(a) hereof, with respect
to Tax Returns of any Company not filed prior to the Closing Date that relate to
a taxable period that ends on or prior to or includes the Closing Date, such Tax
Returns shall be prepared or completed by each Company in a manner consistent
with the prior practice of each Company (including elections and accounting
methods and conventions, the conversion of the S Corps from subchapter "S" to
subchapter "C" corporations and as otherwise required by applicable law or
regulation or otherwise agreed to by each S Corp prior to the filing thereof),
and in a manner that does not distort taxable income (e.g., by accelerating
----
income to a period or periods prior to the Closing Date or deferring deductions
to a period or periods after the Closing Date).
(c) Although the Companies, as the taxpayers or in connection with
filing the Tax Returns specified in Section 5.7(b) above, may be required to pay
Income Taxes relating to time periods ending on or before the Closing Date
("Pre-Closing Income Taxes"), it is the intention of the Parties that, to the
extent such Pre-Closing Income Taxes (including any penalties, interest or
additions to Tax) were not fully accrued on the Closing Balance Sheet, the
Existing Shareholders will be responsible for such Pre-Closing Income Taxes
either by payment of such Pre-Closing Income Taxes themselves or pursuant to
Section 8.1 hereof.
(d) City shall promptly notify the Existing Shareholders in writing
upon receipt by City or any affiliate of City of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding ("Tax Proceeding"). The Existing Shareholders
shall have the sole right to control, conduct, and otherwise represent the
interests of each Company in any such Tax Proceeding; provided, however, that
-------- -------
without the prior written approval of City, which approval shall not be
unreasonably withheld or delayed, the Existing Shareholders shall not agree or
consent to compromise or settle any issue or claim arising in any such Tax
Proceeding to the extent that any such compromise, settlement, consent or
agreement would have an adverse effect on City for any period ending after the
Closing Date.
(e) None of City nor any affiliate of City shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to any Company relating to Taxes for
which the Existing Shareholders may be liable hereunder. Promptly after the
reasonable request of the Existing Shareholders, at the sole expense of the
Existing Shareholders (provided that the Existing Shareholders shall not be
--------
responsible for reimbursing City for the cost of City's employees' time expended
in connection therewith), City shall, or cause the appropriate Company, to file
any amended Tax Return or claim for Tax refund relating to Taxes for which the
Existing Shareholders may be liable hereunder, provided that such amended Tax
--------
Returns or claims shall be prepared in a manner consistent with the principles
set forth in Section 5.7(b) hereof and, in the reasonable determination of City,
shall conform to applicable laws and regulations. If City or any affiliate of
City shall receive a Tax refund relating to a period or transaction for which
the Existing Shareholders are liable hereunder, City shall, within 30 days after
receipt of such Tax refund, remit such Tax refund (including any
31
interest received on such Tax refund and net of (i) any Tax cost relating to the
receipt of such Tax refund and (ii) any unreimbursed cost or expense incurred in
obtaining such Tax refund), to the Existing Shareholders. For purposes of this
Section 5.7 hereof, the term "Tax refund" shall include a reduction in Tax or
the use of an overpayment as a credit or other Tax offset, and the receipt of a
refund shall be deemed to be realized upon the earliest to occur of (i) the date
on which City has actual knowledge that a payment due to the relevant taxing
authority (for which City would be responsible under this Agreement) has been
offset by such a refund and (ii) the receipt of cash.
(f) After the date hereof, City and the Companies shall provide each
other and the Existing Shareholders, with such cooperation and information
relating to each Company as either party reasonably may request in (i) filing
any Tax Return, amended Tax Return or claim for Tax refund, (ii) determining any
Tax liability or a right to a Tax refund, (iii) conducting or defending any
proceeding in respect of Taxes or (iv) effectuating the terms of this Agreement.
The Parties and each Company shall retain all Tax Returns, schedules and work
papers, and all material records and other documents relating thereto, until the
expiration of the statute of limitations (and, to the extent notified by any
party, any extensions thereof) of the taxable years to which such Tax Returns
and other documents relate and until the final determination of any Tax in
respect of such years. Any information obtained under this Section 5.7 shall be
kept confidential, except as may be otherwise necessary in connection with
filing any Tax Return, amended Tax Return, or claim for Tax refund, determining
any Tax liability or right to a Tax refund, or in conducting or defending any
proceedings in respect of Taxes.
(g) The Parties agree that for purposes of preparing the Tax Returns,
the books will be closed effective as of the Closing.
5.8 Non-Compliance With and Termination of This Agreement. This
-----------------------------------------------------
Agreement may be terminated at any time prior to the Closing as follows:
(a) by the mutual agreement of the Companies and BABF, provided such
--------
termination is set forth in writing executed by each Party;
(b) by BABF, if any of the conditions specified in Section 6.1 hereof
(other than the expiration or other termination of all applicable H-S-R
waiting periods) shall not have been met by June 15, 1998 and shall not
have been waived in writing by BABF;
(c) by the Companies and the Existing Shareholders, if any of the
conditions set forth in Section 7.1 hereof (other than the expiration or
other termination of all applicable H-S-R waiting periods) shall not have
been met by June 15, 1998 and shall not have been waived in writing by the
Companies and the Existing Shareholders;
(d) if the Parties are unable to reach an agreement regarding the
allocation of and responsibility for the remediation costs in excess of
$50,000 as set forth in Section 5.5(b); or
32
(e) if the Closing does not occur by June 15, 1998 for any reason.
If this Agreement is validly terminated pursuant to this Section, this Agreement
will forthwith become null and void, except that the provisions of Section 5.3
and Section 9.1 hereof will continue to apply following any such termination;
provided, however, no Party will be relieved of any liability that such Party
may have to any other Party by reason of such Party's breach of this Agreement.
5.9 Covenant of Larry Clayton Regarding City Friction Property.
----------------------------------------------------------
Notwithstanding any other provisions of this Agreement, Larry Clayton agrees to
undertake the following actions immediately at his sole cost and responsibility
at the City Friction facility:
(a) reimburse BABF up to $25,000 for environmental enhancements
implemented by BABF within ninety days from the Closing, such as prevention and
proper handling of stormwater, runoff, releases, leaks or discharges and repair
and improvement of the sand interceptor or other such feature; and
(b) remediate soil contamination from petroleum hydrocarbons adjacent
to the uncovered concrete pad to a level of no more than 100 parts per million
of total petroleum hydrocarbons or other mandated regulatory levels, including
taking confirmatory soil samples at locations and depths reasonably satisfactory
to BABF; Larry Clayton will be solely responsible for the petroleum hydrocarbon
soil contamination cleanup, in compliance with all Environmental Laws associated
with such petroleum hydrocarbon contamination cleanup, including reporting
obligations.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY BABF
The obligations of BABF under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by BABF
6.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
for federal court or other governmental agency which prevents the consummation
of the transactions which are the subject of this Agreement shall have been
issued and remain in effect (provided that BABF has acted in accordance with the
--------
requirements of Section 5.1 hereof).
6.2. Representations and Warranties. The representations and
------------------------------
warranties of the Companies and the Existing Shareholders contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date, as if made on such date, except as otherwise contemplated by this
Agreement.
33
6.3. Performance of Agreements. The Companies and the Existing
-------------------------
Shareholders shall have fully performed in all material respects all
obligations, agreements, conditions and commitments required to be fulfilled by
them pursuant to the terms hereof on or prior to the Closing Date.
6.4. Compliance Certificate. The Companies and the Existing
----------------------
Shareholders shall have delivered to BABF or its representatives, their
respective certificates, dated the Closing Date, executed on their behalf by
their respective duly authorized representatives, as to the fulfillment of the
conditions set forth in Sections 6.2 and 6.3 hereof.
6.5. Material Changes. There shall not have been any Material Adverse
----------------
Effect from the date hereof to the Closing Date.
6.6. Opinion of Counsel. BABF shall have received the opinion of
------------------
Berkowitz, Lefkovits, Isom & Kushner, counsel for the Companies and the Existing
Shareholders, in the form set forth in Schedule 6.6 hereto.
6.7. Consents, Etc. The authorizations, consents or approvals of
-------------
third parties and governmental regulatory authorities necessary in connection
with the consummation of the Closing shall have been obtained and be in full
force and effect.
6.8. Ancillary Agreements. The following agreements (the "Ancillary
--------------------
Agreements") shall have been executed and delivered by all parties thereto other
than BABF: (i) the New Leases substantially in the forms attached hereto as
Exhibit A1 and A2, (ii) a Management Services Agreement (including noncompete
clauses) with an entity owned by Larry Clayton and Delton Clayton substantially
in the form attached hereto as Exhibit B, (iii) a Stockholders' Agreement for
City substantially in the form attached hereto as Exhibit C, (iv) a Corporate
Development and Administrative Services Agreement by and between Brentwood
Private Equity LLC and City substantially in the form attached hereto as Exhibit
D, and (v) a Noncompetition Agreement substantially in the form attached hereto
as Exhibit E.
6.9. Resignations. Subject to the Stockholder's Agreement attached
------------
hereto as Exhibit A, BABF shall have received the resignations of those
directors of any Company as it may request.
6.10. Escrow Agreement. An escrow agreement ("Escrow Agreement") by
----------------
and among Larry Clayton, as representative of the Existing Shareholders, and
BABF, substantially in the form attached hereto as Exhibit F, in connection with
the holdback escrow arrangement described in Section 8.7 hereof, shall have been
executed and delivered.
6.11. Loans and Advances. All loans or advances to an Existing
------------------
Shareholder by a Company or to a Company by an Existing Shareholder shall have
been repaid in full.
34
6.12. Pre-Closing Events. The Pre-Closing Events described in Sections
------------------
1.1 and 1.2 hereof (assuming BABF has performed its obligations under Section
1.2(a) hereof) shall have occurred.
6.13 Consultant's Letter. Larry Clayton shall cause his consultant to
-------------------
provide a letter reasonably satisfactory to BABF (i) documenting the
consultant's conclusion that the total petroleum hydrocarbons and arsenic
detected in the vicinity of the sand interceptor is not reportable to any
government regulator under any Environmental Law and (ii) permitting BABF to
rely on the consultant's conclusions.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE
COMPANIES AND THE EXISTING SHAREHOLDERS
The obligations of the Companies and Existing Shareholders under this
Agreement are subject to the fulfillment prior to the Closing of each of the
following conditions, any one or more of which may be waived by the Companies
and the Existing Shareholders:
7.1. No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement shall have been issued
and remain in effect.
7.2. Representations and Warranties. Except as otherwise contemplated
------------------------------
by this Agreement, representations and warranties of BABF contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as if made on such date.
7.3. Performance of Agreements; Instruments of Transfer. BABF shall
--------------------------------------------------
have fully performed in all material respects all obligations, agreements,
conditions and commitments required to be fulfilled by BABF on or prior to the
Closing Date and shall have tendered to the Companies and the Existing
Shareholders, the documents, instruments and certificates required by Article 7
hereof.
7.4. Compliance Certificates. BABF shall have delivered to the
-----------------------
Companies and the Existing Shareholders its respective certificate, dated the
Closing Date, executed on its behalf by its President or a Vice President, as to
the fulfillment of the conditions set forth in Sections 7.2 and 7.3 hereof.
7.5. Ancillary Agreements. The condition set forth in Section 6.8
--------------------
hereof shall be satisfied, except that such documents shall be signed by all
parties other than the Existing Shareholders and/or entities controlled by them.
35
7.6. Opinion of Counsel. The Companies and the Existing Shareholders
------------------
shall have received the opinion of Latham & Watkins, counsel for BABF, in the
form set forth in Schedule 7.6 hereto.
ARTICLE VIII.
INDEMNIFICATION
8.1. Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article 8, Larry Clayton will indemnify, defend and hold
City, BABF and each of their respective stockholders, subsidiaries, officers,
directors, employees, agents, successors and assigns, in each case in their
capacity as such and not in any capacity as an Existing Shareholder (BABF, City
and such indemnified persons are collectively hereinafter referred to as "BABF's
Indemnified Persons"), harmless from and against any and all loss, liability,
damage (excluding consequential, indirect and punitive damages) or deficiency
(including interest, penalties, judgments, costs of preparation and
investigation, and reasonable attorneys' fees) (collectively, "Losses") that
BABF's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) any inaccuracy of any representation of the
Companies and the Existing Shareholders in this Agreement or in any Schedule
hereto; (b) the breach of any warranty of the Companies and the Existing
Shareholders in this Agreement or any Schedule hereto, (c) environmental
liabilities caused by any of the Companies which were not disclosed in the Phase
I or Phase II Site Assessment Reports described in Section 5.5(b) hereof,
provided that there will be no liability solely for conditions or actions which
- --------
were not in violation of law as it exists or was interpreted by relevant
judicial or administrative authorities as of the Closing but later become
violations of law as a result of changes in law after the Closing, or (d) the
nonfulfillment of any covenant, undertaking, agreement or other obligation of
the Companies and the Existing Shareholders under this Agreement or any Schedule
hereto, not otherwise waived by BABF "Losses" as used herein is not limited to
matters asserted by third parties, but includes Losses incurred or sustained in
the absence of third party claims. Payment is not a condition precedent to
recovery of indemnification for Losses.
8.2. Indemnification by BABF Subject to this Article 8, BABF agrees
-----------------------
to indemnify, defend and hold the Existing Shareholders and their respective
heirs, successors and assigns (the Existing Shareholders and such persons are
hereinafter collectively referred to as "Existing Shareholders' Indemnified
Persons"), harmless from and against any and all Losses that the Existing
Shareholders' Indemnified Persons may suffer, sustain, incur or become subject
to arising out of or due to: (a) any inaccuracy of any representation of BABF in
this Agreement or in any Schedule hereto; (b) the breach of any warranty of BABF
in this Agreement or any Schedule hereto; and (c) the nonfulfillment of any
covenant, undertaking, agreement or other obligation of BABF under this
Agreement or any Schedule hereto, not otherwise waived by an Existing
Shareholder.
36
8.3. Indemnification by City for Tax-Related Issues. Subject to this
----------------------------------------------
Article 8, City agrees to indemnify the Existing Shareholders' Indemnified
Persons for the amount of any incremental tax owed by the Existing Shareholders
as a result of the structure of the transactions contemplated by this Agreement
which is greater than that which the Existing Shareholders would have paid if
the Companies prior to any restructuring contemplated herein had sold their
assets to a new entity owned by BABF. After calculating the amount of such
indemnity, such amount will be increased to compensate for taxes payable on such
indemnity payment (but not for taxes on such increase); provided, however, the
-------- -------
Existing Shareholders will reimburse City for the amount of any tax savings
enjoyed by them over the taxes they would have paid in an asset sale if the
Section 338(h)(10) election to be made by City and BABF in connection with these
transactions is disregarded by the Internal Revenue Service, and the
transactions are treated as a combination of redemption and sale of stock.
Notwithstanding any contrary provision contained herein, the indemnities
provided for in his Section 8.3 hereof shall not be subject to the $500,000
deductible amount or the $5,000,000 ceiling amount provided in Section 8.5
hereof.
8.4. Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article 8 shall survive the Closing Date and
shall remain in full force and effect thereafter for a period (the "Effective
Period") ending the earlier of (i) the 60th day following the delivery of the
audited financial statements for the first full fiscal year of City ending after
the Closing, or (ii) June 30, 1999, and shall be effective with respect to any
inaccuracy therein or breach thereof, notice of which shall have been duly given
within the Effective Period in accordance with Section 8.6 hereof, after which
Effective Period they shall terminate and be of no further force or effect;
provided, however, that the representations and warranties contained in Section
- -------- -------
3.12 hereof, relating to tax matters, and the matters contained in Section 8.3
shall survive for the length of the applicable statute of limitations.
8.5. Threshold; Deductible. Except as provided in the last sentence
---------------------
of Section 8.3 hereof or in this Section 8.5, no BABF Indemnified Person or
Existing Shareholders' Indemnified Person shall be entitled to any recovery in
accordance with this Article 8 unless and until the amount of such Losses
suffered, sustained or incurred by such party, or to which such party becomes
subject, by reason of such inaccuracy or breach, exceeds $500,000 and then only
to the extent of such excess. Except for willful and intentional fraud,
liability for breach of representations and warranties under this Agreement
shall not exceed $5,000,000, except that liability of Larry Clayton for breach
of tax representations and warranties shall not be subject to either the
$500,000 deductible nor $5,000,000 ceiling. In addition, the $500,000 deductible
and the $5,000,000 ceiling do not apply to the obligations of the Companies and
the Existing Shareholders under Section 5.7 hereof. Indemnification pursuant to
this Agreement shall constitute the sole and exclusive monetary remedy of the
Parties with respect to any breach of the representation, warranties, covenants
or agreements contained in this Agreement; provided, however, that if
indemnification is not available, any Party may pursue any other remedy to the
extent that any awards under such remedy does not, in the aggregate with all
other
37
indemnification recoveries hereunder, exceed the $5,000,000 cap set forth in
this Section 8.5, except in the cases referred to in Sections 8.3 and 8.5 hereof
where the cap is not applicable.
8.6. Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a party seeking indemnification hereunder, such party
seeking indemnification (the "Indemnitee") shall notify the party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Section 8.5 hereof. If the Indemnitor fails to assume the defense
of such matter within said 30-day period, the Indemnitee against which such
matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee, which
consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.7. Indemnification Payments through Surrender of City Stock. At the
--------------------------------------------------------
Closing, BABF and Larry Clayton will deposit into a holdback escrow arrangement
either $2,000,000 in cash or shares of Common and Preferred Stock of City ("Pro
Rata Strip") pursuant to the Escrow Agreement to serve as partial security for
the indemnification obligations of Larry Clayton under this Agreement.
Indemnification obligations shall initially be satisfied pursuant to the terms
and conditions set forth in the Escrow Agreement attached hereto as Exhibit F
until the escrow is exhausted.
8.8. Insurance. For the duration of the Effective Period, BABF shall
---------
cause City and the other Companies to maintain general liability insurance on
the Companies and its assets in amounts comparable to that in effect prior to
the Closing and to include Larry Clayton as an additional insured thereon. The
amount of any claims otherwise subject to indemnification to this Agreement
shall be reduced by the amount of any insurance proceeds actually received by
such Party in respect of such claims.
38
ARTICLE IX.
MISCELLANEOUS
9.1. Expenses. Except as otherwise set forth in this Agreement, if
--------
and only if the Closing occurs, City shall, as soon as reasonably practicable,
pay the expenses and costs incurred by it and by each of the Parties hereto in
preparing, negotiating and closing this Agreement, including, without
limitation, any expenses set forth in Section 2.2(a)(iv) hereof. Otherwise, each
party hereto shall bear its own expenses.
9.2. Notices. All notices, requests, demands and other communications
-------
given hereunder (collectively, "Notices") shall be in writing and delivered
personally or by overnight courier to the parties at the following addresses or
sent by telecopier or telex, with confirmation received, to the telecopy
specified below:
If to City or any Company, at
City Truck and Trailer Parts, Inc.
2901 Third Avenue North
Birmingham, Alabama 35202
Attn: Larry Clayton
With a Copy to:
Berkowitz, Lefkovits, Isom & Kushner
South Trust Tower
420 North 20th Street, Suite 1600
Birmingham, Alabama 35203-5202
Attn: Harold B. Kushner, Esq.
If to BABF:
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, CA 90025
Attention: Christopher A. Laurence
With a Copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Elizabeth A. Blendell, Esq.
39
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the Parties with respect to the subject matter hereof and
supersedes all prior negotiations, agreements and understandings, whether
written or oral, of the Parties.
9.5. Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6. Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. Except
as specifically provided herein, this Agreement may not be assigned by any Party
hereto without the prior written consent of all other Parties hereto. This
Agreement may be amended only by written agreement of the Parties hereto, duly
executed and delivered by an authorized representative of each of the Parties
hereto.
9.7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Delaware
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof. Each of the Parties to this Agreement
hereby irrevocably and unconditionally (i) agrees to be subject to, and hereby
consents and submits to, the jurisdiction of the courts of the State of Delaware
and of the federal courts sitting in the State of Delaware, (ii) to the extent
such party is not otherwise subject to service of process in the State of
Delaware, hereby appoints The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801, as such party's agent in the State of Delaware for
acceptance of legal process and (iii) agrees that service made on such agent
shall have the same legal force and effect as if served upon such party
personally within the State of Delaware.
9.8. Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
40
9.9. No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than the Companies,
BABF and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10. Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12. Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13. Knowledge. As used herein, to the "knowledge" or "best
---------
knowledge" or similar phrase means actual knowledge of any Existing Shareholder,
any officer of any of the Companies or Affiliates and any employee of any of the
Companies or Affiliates whose job duties include the subject matter in question
9.14. Disclosure. Any item disclosed in one Section or Schedule shall
----------
be deemed to be disclosed in any other Section or Schedule where such disclosure
is relevant, even if there is no express cross-reference. Disclosure of items
that may or may not be required to be disclosed by this Agreement does not mean
that such items are material or create a standard of materiality and shall not
be deemed an admission that any such disclosed matter is or may give rise to a
breach of any contract or violation of any law.
9.15. Arbitration. To the extent that that Parties are unable to
-----------
resolve their disputes or controversies arising out of or relating to this
Agreement, or the performance, breach, validity, interpretation or enforcement
of this Agreement, through discussion and negotiation, all
41
disputes and controversies will be resolved by binding arbitration in accordance
with rules of the JAMS/Endispute, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. A Party may
initiate arbitration by sending written notice of its intention to arbitrate to
the other Parties and to the JAMS/Endispute, office located in Atlanta, Georgia.
Such written notice will contain a description of the dispute and the remedy
sought. The arbitration will be conducted at the offices of the JAMS/Endispute
office located in Atlanta, Georgia before an independent and impartial
arbitrator (who shall be a retired judge) acceptable to all Parties. The
arbitrator shall agree to apply the internal laws of the State of Delaware
(without regard to conflicts of laws) in interpreting this Agreement. The
arbitrator will have the power to award any party all or any portion of its
costs and expenses of arbitration. The decision of the arbitrator will be final
and binding on the Parties and their successors and assignees. The Parties
intend that this agreement to arbitrate be irrevocable.
(Signature Page Follows)
42
IN WITNESS WHEREOF, the Parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
BABF CITY CORP.,
a Delaware corporation
BY: /s/ Christopher A. Laurence
----------------------------------------
Christopher A. Laurence
President
CITY TRUCK AND TRAILER PARTS, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC., an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CITY TRUCK AND TRAILER PARTS OF TENNESSEE, INC., a
Tennessee corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
43
CITY TRUCK AND TRAILER PARTS OF ALABAMA, L.L.C., an
Alabama limited liability company
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
Member
CITY FRICTION, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CTTP ALABAMA MERGER SUB, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
CTTP TENNESSEE MERGER SUB, INC.,
a Tennessee corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
44
CTTP FRICTION MERGER SUB, INC.,
an Alabama corporation
BY: /s/ William L. Clayton
----------------------------------------
William L. Clayton
President
THE DELTON LANE CLAYTON TRUST
dated November 1, 1990
BY: /s/ Neil Bailey
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Neil Bailey as Trustee
THE DIEDRA ELAINE CLAYTON TRUST
Dated November 1, 1990
BY: /s/ Neil Bailey
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Neil Bailey as Trustee
THE WILLIAM LARRY CLAYTON GRANDCHILDREN'S TRUST
Dated April 30, 1997
BY: /s/ Neil Bailey
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Neil Bailey as Trustee
45
/s/ William L. Clayton
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William L. Clayton
/s/ Charles Roy Johnson
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Charles Roy Johnson
46
ANNEX A
William L. Clayton
The Delton Lane Clayton Trust dated November 1, 1990, Neil Bailey as Trustee
The Diedra Elaine Clayton Trust dated November 1, 1990, Neil Bailey as Trustee
The William Larry Clayton Grandchildren's Trust dated April 30, 1997, Neil
Bailey as Trustee
Charles Roy Johnson
LIST OF ANNEXES, EXHIBITS AND SCHEDULES TO
STOCK PURCHASE AGREEMENT
Annex A The Existing Shareholders
Exhibit A1 New Leases
Exhibit A2 New Leases
Exhibit B Stockholders' Agreement
Exhibit C Management Services Agreement
Exhibit D Corporate Development and Administrative Services Agreement
Exhibit E Noncompetition Agreement
Exhibit F Escrow Agreement
Schedule 2.3 Allocation of Purchase Price
Schedule 3.1 Corporate Organization and Standing
Schedule 3.2 Affiliates and Merger Subs
Schedule 3.5 Title to Shares
Schedule 3.6 No Conflict or Violation
Schedule 3.7 Facilities
Schedule 3.7(h) Rents for New Leases
Schedule 3.8 Financial Statements
Schedule 3.10 Litigation
Schedule 3.12 Tax Matters
Schedule 3.13 Brokers, Finders
Schedule 3.14 Absence of Certain Changes
Schedule 3.15 Material Contracts
Schedule 3.16 Proprietary Rights
Schedule 3.18 Consents
Schedule 3.19 Employee Benefit Plans; Employment Agreements
Schedule 3.20 Compliance with Environmental Laws
Schedule 3.21 Certain Business Relationships with Companies
Schedule 3.22 Undisclosed Liabilities
Schedule 3.23 Insurance
Schedule 3.25 Inventory
Schedule 3.27 Customers, Distributors and Suppliers
Schedule 3.28 Banking Relationships
Schedule 6.6 Form of Opinion of Berkowitz, Lefkovits, Isom & Kushner
Schedule 7.6 Form of Opinion of Latham & Watkins